fiscal cliff

What to Make of the Fiscal Cliff Deal?

By Sharon Ward, Third and State

Tell us what you think about the Fiscal Cliff deal. Take our two-question survey.

The agreement reached by President Obama and Congress on January 1 was both historic and disappointing — and it leaves much unsettled. The urgency of the Fiscal Cliff has dissipated, but significant threats remain to federal funding for state and local services as well as refundable tax credits for low-income working families, Medicaid, Medicare and Social Security.

There is much to dislike in this agreement. It makes permanent most of the Bush era tax cuts, ensuring that income from dividends and capital gains will be taxed at a lower rate than income from work. It makes permanent the estate tax but locks in a tax rate that creates a huge windfall for the top 0.3% of households. Sequestration cuts — the automatic spending cuts that members of both parties hated and the President said would not occur — have been postponed for two months, with three-quarters of FFY 2013 cuts ($85.6 billion) and $109 billion in annual cuts after that still in law through 2022. The President’s line in the sand on raising tax rates for the top 2% of earners got pushed way back, with top rates kicking in at $400,000 for an individual and $450,000 for a couple. A low-wage earner might need 20 years to make that much.

Few in PA Would Be Affected by Ending High-income Tax Cuts

By Sharon Ward, Third and State

The Pennsylvania Budget and Policy Center is out today with a new analysis finding that President Obama’s plan to end federal tax cuts for high-income earners would have very little impact on taxpayers in most Pennsylvania counties.

In over half of the state's 67 counties, fewer than 1 in 100 residents (that's 1%) would pay the higher marginal tax rate on income above $200,000 for individuals and $250,000 for married couples.

In most counties, only a small number of individuals are affected. In 24 counties, fewer than 200 high-income earners would pay the higher rate. Almost two-thirds of the top earners who would be impacted reside in just six Pennsylvania counties.

Map 1. Percentage of Taxpayers in Each PA County with Incomes Over $250,000

Map 2. Number of Taxpayers in Each PA County with Incomes Over $250,000

Under President Obama’s plan, families earning over $250,000 would keep other tax breaks on the first $250,000 of income, including a lower bottom tax rate and preferential tax rates on capital gains and dividends — a savings of $12,112 per taxpayer. The top tax rates would be restored to those in effect in the 1990s when the nation added 23 million jobs.

There's no Fiscal Cliff; It's An Income Cliff

While the national focus is on a make-believe deficit “crisis”, Philadelphia is facing an all too real income crisis. Too many families, including many with at least one full time worker, simply can’t meet their basic needs.

Of course our entire State includes huge numbers of struggling families, 840,000 families to be exact, including 2.3 million individuals, according to a recent study by Pathways PA. But Philly is tops in “income inadequacy” with 42% of our entire population not able to meet basic needs such as housing, child care, food, health care and taxes. Yes, the poor and the marginally poor do pay taxes.

During the Presidential campaign, the problems of these folks, and the cities like Philadelphia that are home to so many of them, fell off the cliff. Instead another cliff engendered all the conversation, and continues to, the so-called “fiscal cliff.”

The fiscal cliff is what we’re all supposed to fall off of if Congress doesn’t act on tax and budget policies by midnight on December 31. At that point all the Bush tax cuts will expire and massive budget cuts will take place. All of this because both parties have been laser-focused for two years on the need to cut deficits, and to that end have created their very own emergency to force themselves to act.

But as Paul Krugman repeatedly points out, there is no deficit crisis. We need no spending cuts (except in the bloated Defense Department budget.) We are told that deficits are threatening to create uncontrollable inflation and sky high interest rates. But the reality is that as deficits have grown, interest rates and inflation have fallen. The only real deficit is the income deficit.

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