If you've been paying attention to the news cycle lately, odds are you've heard of the Fiscal cliff:
You know, that gaping maw of economic oblivion that lies before us at the end of the year. The one that threatens to throw us into a new recession starting January 1st.
You know, Or not.
Truth is the Fiscal cliff is little more than a proxy for the Republicans to use to gut Medicare and Social Security.
Often touted as "entitlement reform", the Republican plan is to use this contrived crisis as a way to cut your benefits in order to lower corporate taxes. President Obama even introduced corporate "tax reform" last month.
It's important to note that because of loopholes and deductions many corporations don't even pay taxes. Many of these companies are in the energy business as well as Defense contractors.
The worst is GE, which pays an astounding -18.9% Effective tax rate.
Yes that's right, they got money back.
They greased politicians from both sides by donating to Mitt Romney, Barack Obama, and Senator Scott Browns' reelection campaigns.
Republicans say they can eliminate loopholes in the tax code while lowering tax rates and still add revenue. Except that math doesn't actually work.
You see many of the loopholes in the tax code benefit middle class families, such as the Mortgage interest deduction, the earned income tax credit, the exclusion of employer-sponsored health insurance, and the exclusion of employer pension benefits are all loopholes that are helpful to the vast majority of America.
Excluding Medicare benefits from taxation is another huge loophole that benefits seniors.
So what's left are charitable deductions, capital gains and the exclusion of gains at death and the gift exclusion. Basically a way to get your inheritance tax free.All of these loopholes benefit the wealthy, and when combined still do not come close to an amount of revenue that averts the fiscal cliff. Since they mainly benefit the wealthy anyway it's very unlikely that those loopholes will be eliminated.
So while their so called "tax reform" will not bring us close to solving the fiscal cliff, the Republicans want to lower rates, and instead get a deal by cutting entitlements.
They'll start by raising the Medicare eligibility age to 67, which was outlined in the Simpson-Bowles commission. And they'll also reduce the cost of living adjustment (COLA) for people on Social Security.
That takes money you paid for your retirement right out of your pocket and gives it to rich in the form of tax cuts.
Lloyd Blankfein, CEO of Goldman Sachs, who makes $16.1 million a year, wants you to work more and get less, so he can get a tax cut.
So why do I think the Republicans are going to push themselves off the fiscal cliff?
Simply put, it's because of who makes up the Republican party.
Old. White. Males.
Not all of course, but they make up a sizable portion.
The senior voting block is a major constituency for the Republican party, and they don't want anyone touching their Medicare or Social Security.
And then you have Wall Street, that gives a lot of campaign contributions to the Republican party, coming out and demanding entitlement cuts to solve the deficit. Most notably people like Lloyd Blankfein, and David Cote, who are members of a CEO Fiscal Leadership Council.
These two sides are directly opposed, and it's leading to a split between the Republican voting base, and the donor base.
Add to that the pledge to Grover Norquist that many Republicans have signed, even though some have backed away from it, they still insist that rates not be raised.
And then you have president Obama being uncharacteristically tough in these negotiations by presenting his plan that that will raise rates on the top 2% of income earners and saying that there will be no deal without tax increases.
Tax increases that the American people support.
If Obama continues to stand fast the Republicans may have no choice left but to fall off the cliff in order to not alienate either of their main constituencies.
Jan 1st is going to be very interesting.
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