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What you need to know about the 'fiscal cliff'

President Barack Obama holds up a signature pen
REUTERS/Kevin Lamarque
President Barack Obama holds up a signature pen while delivering a statement on the "fiscal cliff" last Friday.
  • Fixing the Alternative Minimum Tax issue and extending the Bush tax cuts would add or save about 1.8 million new jobs, or about 1.6 million new jobs if only rates on incomes above $250,000 lapse;
  • Extending only unemployment benefits and the payroll tax holiday would create about 800,000 jobs;
  • And avoiding the cliff altogether (extending the low tax rates and unemployment benefits, preventing the spending cuts, etc.) would allow the economy to save or create 3.4 million jobs — but add $500 billion to the deficit per year.

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Comments (5)

Notice the emphasis on tax rates

A lot of emphasis on tax rates from Republicans. At the risk of being too optimistic, that may be the charade that leads to a solution since the nominal marginal corporate tax rate is 35% but the average corporate tax rate paid is about 13%. There is a similar disparity between high income marginal tax rates and actual tax rates (once capital gain rates are factored in).

Everyone knew these things were coming. So why the freakout?

I don't understand the freakout over items *that everyone knew were coming.*

Congress originally passed the Bush tax cuts in 2002 with an expiration date of 2010 because that accounting fiction allowed the cuts to be left out of 10-year revenue projections. OK, fine -- so you passed an 8-year tax cut. Then why pretend that the end of it is going to crash the economy? You've known all along that it was coming. The original bill, a tax cut for 8 years, was just a ridiculous idea in the first place. Who passes an 8-year tax cut? It's a gimmick that is just laughable on its face.

Same with the sequester. It just shows that the legislators in Washington aren't really serious about reducing the deficit, though they love to pretend that they are. They say they want to cut spending -- they pass a sequester bill that forces painful spending cuts -- and then when the time for the cuts arrive, they all act like the world is coming to an end.

Then why did they pass that sequester bill in the first place? If you don't mean it, then don't write it into law.

I have a theory about what

I have a theory about what happens next. Obama is now a one-term president who will never run for public office again. He gets to choose whether he becomes a footnote, or a chapter in history. He may well abandon his supporters on the left to strike a deal with Republicans over the fiscal cliff and entitlements reform. If he pulls that off, stock markets will rocket, and he will go down in history as the president who saved the United States. This is a much more likely scenario than you think and has plenty of precedent. Remember, only Nixon could go to China.

Strike a deal?

They have no choice but to strike a deal. The question is whether or not it will be a good deal that will end the crises so we can focus on the economy. Since the Republicans have a long and documented tendency to create, promote, and prolong that crises it's difficult to see how flip flop by Obama would secure his legacy as a the guy who saved America. The only way Obama saves American is by ending the fiscal crises and focusing on the economy. The Republicans simply have no plan to do that, they've worked hard to create this situation and they'd like it to become the status quo.

Capping deductions would be

Capping deductions would be the right place for Obama to begin from.

A $50,000 cap would raise some $750 billion over ten years. The cap would barely touch the bottom 60% of taxpayers while only slightly hurting the upper-middle class. Most of the money would come from the top 1%.

According to Bloomberg, a $25,000 cap would generate $1.3 trillion in higher revenues, and still be highly progressive.