America gets smaller

Word has it that during the final days of the “fiscal cliff” fiasco, Republican House Speaker John Boehner bumped into Democrat Senate Majority Leader Harry Reid in the White House lobby, and told Reid to “go f**k yourself.”  But why would Reid do such a thing, Mr. Speaker?  There are plenty of Americans for him to screw instead.  The New Years’ Day fiscal cliff deal is all about some people screwing other people, while the problem they ostensibly set out to “solve” just gets worse.

There isn’t much “deficit reduction” in the fiscal cliff deal.  The only thing that got substantially reduced is the size of the American private sector.  President Obama immediately began calling for even higher taxes and more spending.  America is not yet small enough for his tastes.

The Wall Street Journal published a chart of the taxes that are going up:



Note the hefty increase to capital gains and dividends, plus the increased estate tax.  That all combines into a whopping incentive not to accumulate savings or make investments, especially for the substantial group of investors who would also run afoul of the higher personal income tax bracket.  Instead of simplifying taxes, Congress and the President just made them more complicated, introducing yet another step to the progressive tax ladder… which accountants will now scramble to keep their half-millionaire clients from taking.

The Journal summarized Washington’s new level of control over the private sector:

After paying a lifetime of taxes on wages and salaries, business and farm profits and capital gains, Americans who save their money rather than spend it get the reward of giving 40% to Uncle Sam. As a political matter, the GOP also gave a big break to Democratic Senators running in 2014 who would have had to defend the 55% rate.

As for small business, the overall tax increase this year is substantial. The new listed top rate of 39.6% doesn’t include the phaseout of deductions that will take the actual rate to 41% or so for many taxpayers. Add the ObamaCare surtaxes on investment income (3.8%) and Medicare (0.9%), as well as the current Medicare tax of 1.45% (employee share), and the real top marginal tax rate on a dollar of investment income from a bank savings or money-market account will be about 46%. Throw in state taxes, and the marginal rates in many places will be in the mid-50%-or-higher-range.

Meanwhile, even as Democrats claim these tax rates won’t matter to investment, Senators stuffed their bill full of tax subsidies for special business interests. The wind tax credit survived (cost: $12.1 billion), and so did the tax breaks for cellulosic ethanol ($59 million) and the impoverished producers of Hollywood ($248 million).

Goody!  More tax breaks for Hollywood millionaires!  More subsidies for Obama’s “green energy” cronies!  Just what a struggling economy with a collapsing workforce really needed.  In the Obama era, the single most important economic resource for any private-sector company is… political connections.

Supposedly “divisive” politics are the very worst kind of politics, but no one in Washington seems terribly upset about the most blatantly divisive political maneuvers since the civil-rights era.  The point of the fiscal cliff drama was to terrorize the middle class into dropping its objections to everything except the new taxes they would have paid, with the end of the Bush tax rates.  The ultimate resolution enshrines the notion of a sugar daddy government that “other people” pay for.  If those “other people” object, they become hated enemies.  Now they’ll be hated for failing to create more jobs with the diminished resources left to them, following the Democrats’ new punitive tax rates on savings, investment, and achievement.

The middle class has become completely isolated from the cost of explosive government growth… for the time being.  Author Brad Thor noted sadly on Twitter this morning, “When the Democrats come for more blood, and they will, taxpayers will look back on this day as the one upon which they should have started a revolution.”  All of the debt-building machinery that led to this crisis is still in place; if anything, it has been strengthened.  Democrats are emboldened by their success at using the Bush tax cuts – which they hated and vigorously opposed at the time – plus the “fiscal restraint” measures from the Budget Control Act of 2011 as weapons to make the government larger.  When the new tax increases fail to produce the promised $600 billion or so in revenue, much of which they’ve already spent, they’ll be eager to play the same game again.  The middle class will barely notice how much smaller and poorer it is becoming… unless the Republicans find some real leaders who can explain it to them.

So here’s a New Year salute to the dwindling number of Americans who actually pay for the massive government perched on the back of a diminished private sector.  Strangely enough, none of the people who just raised their income, capital gains, savings, and estate taxes seems inclined to thank them for their mandatory sacrifices.  That might make the middle class feel a bit guilty, and queasy, as they start thinking about the inevitable end game of a class war whose only “winner” seems to be Washington.

Update: Here’s another way to look at the aftermath of Taxmageddon, courtesy of the Associated Press:

The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of American households will face higher federal taxes in 2013 under the agreement negotiated between President Barack Obama and Senate Republicans. High-income families will feel the biggest tax increases, but many middle- and low-income families will pay higher taxes too.

Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center’s analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.

America gets smaller.  The only thing “rescued” in the fiscal cliff deal were the ambitions of Big Government.