Jim Geraghty of NRO sent me this:
Tax increases the fiscal cliff deal allowed:
1. Payroll Tax: increase in the Social Security portion of the payroll tax from 4.2 percent to 6.2 percent for workers. This hits all Americans earning a paycheck—not just the “wealthy.” For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”
2. Top marginal tax rate: increase from 35 percent to 39.6 percent for taxable incomes over $450,000 ($400,000 for single filers).
3. Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers).
4. Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers).
5. Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers).
6. Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent.
7. Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses.
Obamacare tax increases that took effect:
8. Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles).
9. Another payroll tax hike: 0.9 percent increase in the Hospital Insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers).
10. Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales.
11. Reducing the income tax deduction for individuals’ medical expenses.
12. Elimination of the corporate income tax deduction for expenses related to theMedicare Part D subsidy.
13. Limitation of the corporate income tax deduction for compensation that health insurance companies pay to their executives.
Some Republicans feel you should go, I don’t know, at least a couple of months between tax increases.
Here’s the conventional wisdom from the WaPo, back in January:
The good news: Many Americans saw their paychecks get fatter in 2012, as average weekly earnings rose 2.4 percent over the course of the year.
The bad news: The expiration of the payroll tax cut this January will basically wipe away all of last year’s gains.
Cardiff Garcia brings us the above chart from Credit Suisse, which notes:
We look at average weekly earnings of all employees on private non-farm payrolls: $818.69 in December. The 2% payroll tax increase clips $16.37 a week from take-home pay. … That’s the equivalent of losing all the 2012 gain in weekly earnings in one month.
And if you include inflation on top of that, then average weekly earnings actually went down1.4 percent compared to this time last year.
So how will Americans respond now that their paychecks are shrinking? A new study (pdf) from the Federal Reserve Bank of New York suggests one answer: They’ll spend a lot less this year. And that, in turn, could bruise the larger U.S. economy.
The New York Fed’s survey data found that the payroll tax cut has been a particularly efficient form of stimulus over the past two years — Americans reported spending between 28 and 43 percent of the savings, far more than they have for previous tax cuts. (Much of the rest was used to pay down debt.)
And most workers expect to cut back on spending significantly now that the payroll tax cut is vanishing.
And this article indicated that most workers were shocked by the tax increase, as President Obama told them he was only going to raise taxes on “the rich.”
It would be nice to obsess on today’s big jobs number (236,000) and say “I told you so.” But jobs numbers are erratic, and are often revised. I’d focus instead on two other variables:
1. What have the markets been telling us about the economy?
2. What sort of jobs numbers have the consensus been forecasting in recent months? Has the consensus forecast called for a slowdown in the economy this year?
We don’t have a NGDP futures market, but my sense is that the markets are fairly bullish about the economy, expecting growth to keep plugging along, at least as fast as in recent years. And pundits seem to talk the same way, expecting steady growth, with jobs numbers in the 150,000 to 180,000 range, which is where we’ve been for years. People talk Keynesian but forecast market monetarist.
I actually do believe all those tax increases slowed growth a tiny bit, if only for supply-side reasons. But if they didn’t have a big impact on jobs, how can we explain why both John Maynard Keynes and Authur Laffer were wrong? Laffer may overestimate the impact of supply-side factors on the business cycle. And Keynes forgot about monetary offset. Indeed from a certain perspective the entire General Theory of Employment, Interest and Money is little more than an exercise in forgetting about monetary offset. I.e. fiscal stimulus, the paradox of thrift, the ineffectiveness of wage cuts, the revived arguments for mercantilism, all suffer from that fatal weakness. The Fed suggested that QE3 and the improved communication strategy were at least partly aimed at preventing the expected 2013 fiscal drag from pushing us back into recession. It’s too soon to know whether it will work, but I suspect it will.
Let’s hope this FT article is correct. If so, British market monetarists like Britmouse will soon be able to say: ”Zero fiscal multiplier: It’s not just a good idea, it’s the law.”
Instead Mr Osborne will use his Budget on March 20 to reinforce his message of “fiscal conservatism and monetary activism” by clarifying how the government intends to use monetary policy to get the economy growing again.
Treasury officials are discussing proposals to change the remit of the bank to coincide with the arrival of Mr Carney as the governor in July, reflecting frustration at what was seen as previous BoE intransigence.
The government expects the BoE to think afresh about monetary policy under the leadership of the Canadian central banker at a time when Mr Osborne’s fiscal room for manoeuvre is highly constrained.
In the Budget, the chancellor renews the inflation-targeting remit of the BoE and this gives Mr Osborne an opportunity – already sanctioned by Sir Mervyn King, the outgoing governor of the BoE – to review the 2 per cent inflation target and the bank’s operations.
Options include giving the monetary policy committee greater time to bring inflation back to the 2 per cent target, giving the BoE a Federal Reserve-style dual mandate to target both employment and inflation, and even targeting cash spending in the economy rather than inflation.