Another new year, and I fear it may be quite taxing.
Our nation started the year by temporarily avoiding the fiscal cliff, but we can expect a year of constant arguments over the fisc. We will become a nation of cliff dwellers. Those who hope for something else don’t understand how politics works.
The big change this year is higher taxes on “the rich”. It is almost always true that when “the rich” are taxed more, everyone else suffers. Economists can explain why. Think of it as trickle down austerity. Even the designation of “the rich” is misleading: our new higher taxes reach much farther down the income scale than is apparent. To see why, search for “PEP” and “Pease”. These back door tax increases will probably snag the unwary. Numerous other changes, often overlooked in the popular press, will ensure that most everyone feels some pain.
No one likes taxes, but lots of economists are especially concerned these days. Why? Because they know that if too much is taken by government, society suffers a decline in relative standard of living. They don’t know exactly where that threshold is, but there is troubling evidence that the US has reached or even breached that level. While much of the federal tax increase has been avoided, we still have relentless tax increases at the state level, the world’s highest corporate tax (which is built into most everything you buy), and the national debt which, to economists, is simply deferred taxes and interest. Taxes are a very big factor in determining everyone’s standard of living and the news isn’t good.
Of course, the impact of taxes could be totally eclipsed by stronger forces in the economy. No one really knows the direction our economy will take. But higher taxes have historically been bad news and too many of us are deluded in believing that “someone else” pays. For better or worse, we’re all going to take the hit. We’ll also see some benefits from government spending – the question is, as always, are the benefits worth the cost?