Harry Reid, the Senate majority leader, already has predicted the cliff plunge will come, but who knows? After all, Reid, Speaker John Boehner, President Obama and the other Democrats and Republicans in Washington are the same cast that brought us sequestration — that long word meaning “cut everything across the board” and simultaneously “raise taxes to confiscatory levels.”
You can’t have much confidence this problem will be fixed right when you consider that the two sides were willing to play Russian roulette with the deficit, taxes and spending rather than confront the issues head-on like our elected representatives and president are supposed to do way back last summer and fall.
It may be that the cliff is avoided by some last-minute maneuver that will leave the real problems unresolved but the country will muddle along. Worst case is that the failure to fix the underlying problems will push this sluggish economy back into a recession. But the folks in Washington don’t have to worry about that. Their checks will be paid, and their gold-plated health insurance plans will be intact.
All manner of other taxes will go up if Washington veers off the cliff: The 10 percent bracket would disappear and the lowest bracket would be 15 percent, the highest would go back up to 39.6 percent. The capital gains rate would jump from 15 to 20 percent, and the dreaded alternative minimum tax would be back for 31 million taxpayers.
Toss in all the new Obamacare taxes, and it’s hard to see how the economy can dodge another recession even if a deal is made to hike taxes on upper income earners.
The Republicans, specifically Speaker Boehner, will be portrayed as the villains, according to Reid and assorted other talk-show Democrats. The idea is to paint Republicans as willing to jump off the cliff rather than sock wealthy taxpayers with “their fair share,” meaning any amount that the Democrats choose. Never mind that confiscating all the income of the wealthiest taxpayers would hardly foot the government’s bill for a day.
It really doesn’t matter what the Republicans do — cave, stand up or do nothing. They will be blamed for whatever goes wrong. And plenty will go wrong if the Democrats get what they want, which is to raise taxes on higher income earners, basically small business people.
But therein lies a huge problem. A survey by the National Federation of Independent Businesses shows that 75 percent of small businesses — the engine of economic growth in this country — are set up as “pass-through” entities, paying tax on business income at the individual rate. In addition, more than 50 percent of the private sector workforce is employed by such entities, meaning that any hike in the individual tax rate on “the wealthiest” individuals is going to wreak havoc with our top job creators.
If there’s a guaranteed way to mess things up, this is it.