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Fiscal Cliff

The Economy Will Go in a Deep Recession if Congress Does Not Address Expiring Tax Cuts

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The Next Big Challenge Is The Debt Ceiling!

  • Jan 3, 2013
Rating:
+4
Congress and President Obama passed a tax package on New Year's Day.
The package will be felt by most Americans according to the Tax Policy Center.
The impact is hardest with an increment in the payroll tax which amounts
to about $1,000. per worker for those earning in the vicinity of $50,000 per
year. The workers' payroll tax rate has been 4.2% in recent years. Now, the rate
has been lifted to 6.2%, on the first $113,700 of worker pay.

The Tax Policy Center estimates that households making between $40,000 and
$50,000 will face an average tax increase of $580 in 2013. Those making between
$50,000 and $75,000 will face an average tax bite increment of over $800.
High-income households should expect higher tax rates on ordinary income,
capital gains, dividends and the new health reform taxes. The new tax rates
apply to families earning $450,000 a year income or more and individuals making
$400,000. or more.

The biggest gains for the Treasury aren't in tax increases alone. It's in job growth and
the revenue from adding taxes from newly hired workers. 2013 will be a better year for
college graduates with demand growing for degrees earned in engineering,
computer applications, accounting and finance.  The most dramatic pick-up
in construction is expected in 2014, with 300,000 more jobs according to an
economic analysis at Moody's. Even State governments are expected to hire again
with new hires projected to increase slightly.

Lawmakers and President Obama have yet to tackle the details of projected cuts
in spending; such as, defense spending. There are cost savings to be achieved
from the historic draw-downs of troop levels in Iraq and Afghanistan. In addition,
there are other areas for savings like military base closings and procurement in things
like drone manufacture.

Various ideas have been discussed concerning the migration of Medicaid funding
to the States who may be able to administer the program more cheaply. The States
have the databases of information for local residents and therefore some duplicate
record-keeping could be avoided or lessened.

One of the biggest areas for potential revenue is in excess consumption taxes for
junk food, sugary sodas, cigarettes and even marijuana as an outgrowth of
legalization in Washington State. Taxing these items would provide a boom for
social programs like Medicaid which have come under financial stress.

For now, the first fiscal cliff has been avoided. The stock market is rising on
the news of a deal and Americans may look forward to a better year for the
economy and employment. The next hurdle will be the federal debt limit.

Article first published as <a href='http://blogcritics.org/politics/article/cong...sident-obama-avert-the/'>Congress and President Obama Avert The Fiscal Cliff &mdash; For Now</a> on Blogcritics.
The Next Big Challenge Is The Debt Ceiling!

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January 04, 2013
Great information. Would like to hear your personal views on this. You rated it a 4 so I guess you were happy with it. Several opponents said that it doesn't address spending cuts needed and introduces a lot of new spending.
January 04, 2013
The deal is not perfect. Cost savings should come from the troop draw-downs in Iraq and Afghanistan as long as no new wars are planned. The economy is picking up slowly. More college grads will be hired this year. That means more tax revenues (which is how the revenue streams are supposed to work). The most serious cost savings could come from migrating Medicaid to the States for administration. Additional revenues are to be gotten from taxing things like junk food. As you are aware, pot has been legalized in Washington State and huge revenue dividends are expected from the State. I expect that the federal government will follow suit with pot taxes of its own in due course. Some adjustments are going to happen in the itemized deductions area hitting the higher incomes with less generous allowable deductions for things like mortgage interest and charitable deductions. We need to spend money on infrastructure. Much of what is out there is '70s infrastructure when the USA population was 200 million. The population is now 315MM and growing so we'll need better infrastructure for sure. An upgraded infrastructure should help us with economic growth.
January 04, 2013
Good points. I think a mistake was made on raising Capital gains tax. The lower tax on Capital gains encourages businesses to buy and build Capital items such as buildings and the like. This type of investment always boosts the economy. Mortgage interest is a good thing that encourages home ownership. Usually when one buys a house they rip out the kitchen and make other types of improvements (maybe solar panels) also new homes get built. This also stimulates the economy. I hope they show more sense when they try to eliminate tax incentives that actually help the economy.
January 05, 2013
With regard to capital gains, we'll have to see how the changes are implemented in the various income categories. I think that the average middle class may be minimally impacted except of course for the increases in the payroll tax. I do favor excess consumption taxes on things like junk food.
 
January 03, 2013
Just to let you know, Doctor, I moved your review to a more politics-oriented community so exposure can be maximized.
January 04, 2013
Looks good here!
 
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About the reviewer
Dr Joseph S Maresca ()
Ranked #25
Dr. Joseph S. Maresca CPA, CISA      25 Amazon / KDP Books including:      http://www.amazon.com/Dr.Joseph-S.-Maresca/e...11866699&sr=1-2-ent      … more
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