Forget about budgetary baselines for a second. What will Americans pay in taxes this year vs. last year in light of the fiscal cliff deal? Well, let’s run the numbers (with some help from JPMorgan):
– Payroll tax hike: $125 billion
– Income tax hike and the phaseout of exemptions: $35-50 billion
– Investment tax hike: $5 billion
– PPACA health care taxes: $38 billion
So that works out to roughly $220 billion, or 1.2% of GDP. It’s a deal that, as The Washington Post puts it, “takes money out of the hands of many Americans, sucking it out of the economy and slowing economic activity.”
The deal also worsens incentives to work, save, and invest. But at least it removes some uncertainty from the economic picture, right? Maybe not, says economist Mike Feroli of JPMorgan;
The sequestration associated with the Budget Control Act was deferred for two months. The fate of these across-the-board budget cuts come March remains uncertain. This uncertainty, combined with the unresolved fate of the debt ceiling, probably curtails any “certainty bounce” in confidence that would be expected with the resolution of the fiscal cliff.
So no “Certainty Dividend,” either.
Happy New Year!