Cliff Thirteen

Nothing changes on New Year's Day
--U2

Mainstream media is hailing last night's fourteenth hour passage of a 'fiscal cliff deal' by the Senate. However, just a tiny bit of scrutiny suggests the celebration as premature. There is no guarantee that the bill (which passed the Senate by a vote of 89-8) will get thru the House. Moreover, the 'deal' focuses on the tax side of the ledger, and postpones resolution of the spending side for another 60 days. (Care to wager what will be happening 59 days and 11 hours from now?)

As I see it, there are two primary changes to tax policy worth noting:

Families earning more than $450K ($400K for individuals) will see their marginal tax rates increase to 39.6%.

All earners will see a 2% increase in payroll taxes.

The Obama administration can now take official credit for presiding over the first broad tax increase in two decades. And, per the Supreme Court, more tax increases are pending in the form of funding Obamacare.

Estimates are that the payroll tax increase takes $125 billion/yr out of taxpayer's pockets. And the marginal tax increase on the rich means less capital for investment. Hard to drink this pretty w.r.t. economic strength going forward.

An ominous start for a new year ending in 13.