Fascinating little table from the number crunchers at the Tax Policy Center–who generously gave up their New Years holiday so we could compare results of the Senate cliff compromise under different baselines.
Compared to current law (column 1)–full sunset of the Bush tax cuts for everyone, no AMT patch, no payroll tax cut, and a lot of other unrealistic assumptions, of course everyone’s taxes go down. According to the CBO score of the Senate bill–now being debated in the House–against that baseline, which as of today is actually the fiscal law of the land (though likely to be so for just a few more hours), the bill loses $4 trillion over 10 years.
A more realistic comparison is to current policies (col 2) were most of 2012′s policies extended into 2013. Most importantly, this baseline assumes the Bush tax cuts are all extended but the payroll tax break goes away, so it doesn’t show any impacts until you get to the high income peeps who face higher rates under the new Senate bill.
But in terms of what people will actually experience
next this year, it’s the last column you want to look at (‘modified current policy’). In that one, the baseline assumes that the payroll tax is extended, so you see what it’s loss means to households at different income levels–middle income folks lost around $1-2K from the expiration of the payroll tax break. The higher liabilities for high income people come largely from the new ACA taxes they now face (3.8% on investment income).
It’s figures like those in that third column that I and others have been talking about when we point out the fiscal drag from policies both coming and going this year. As I write, the House hasn’t passed the bill yet, but if they do, as expected–with mostly D’s, btw–then we’re looking at some serious negative fiscal impulse coming…I’d guess around 1% of GDP (maybe less with no sequester). That’s considerably less drag than a protracted cliff dive, but with the average tax liability going up this year relative to last by about $1,300, it ain’t nothin’ either.
In a rational political economy, it wouldn’t be only the central bank pushing back against these fiscal headwinds. The Congress would worry more about jobs right now and deficits later. Our Congress, however, is stumbling to the fiscal cliff finish line just in time to gear up for the debt ceiling debate.
Happy New Year!