Last Updated : 27 December 2012 at 13:10 IST
The tax angle of fiscal cliff issue has largely been ignored in the din of fiscal cliff debate. The political crisis that may emanate from going off the cliff has not been widely discussed. And both are intricately intertwined with the test of the century for Capitalism as whole! See this in detail:
--A typical American household earns $50,000 a year. If the automated tax hikes (along with spending cuts) are initiated, 2% pay roll tax cuts would be terminated overnight. Some 125 million households earning $50,000 a year would see pay being cut at least by $1000.
--Unemployment benefits would be curtailed for some 2 million people who are receiving $290 a week.
--Improvement in tax credits enjoyed by “low-income working families, as well as a credit for low- and middle-income families with college costs” which was enacted in 2009 would meet its end, the New York Times has said. This means some 25 million US citizens are bound to lose an average of $1,000 a year in benefits in 2013 and around 8 million children would fall prey to poverty.
--Child tax credit for a single mother working for an entire day under minimum wages would see benefits plummet to $165 from $1,725: a national shame.
--Some 28 million US people earning between $100,000 and $500,000 a year will have to pay the alternative minimum tax in 2013 for the period of 2012. (The tax was actually targeted at multimillionaires who in turn outmaneuvered the system and maanaged to stay away from the ambit of tax). The 28 million have pegged their hopes on Congress exempting “them from the tax that they were never intended to pay.”; New York Times pitied.
Now, let's see what a worst-case scenario of going off the cliff would mean:
--It means millions of Americans would take to streets to demand what they have always enjoyed and taken for granted.
--The Wall Street would dive, so would commodities.
--As US debt ceiling will not be raised, two months into the crisis would see US doing the unimaginable, defaulting on debt. (Timothy Geithner would be able to raise only $200 bn and that would not last beyond February at best.)
--The theory states that bond markets generally thrive in this worst-case scenario. But when you have no option, but to default on your debt, chances are miniscule that US would find buyers for its bonds. So, what can follow this? Armageddon?
Let us not go overboard, at least for now and sincee it is not demanded.
The US politicians know these facts better than anyone else. When an American takes to panic, he does that for real. That is why Obama has called on the Congress to extend the tax cuts of Bush-era on American households earning below the threshold of $250,000 and suspend the spending cuts: many believe that the spending cuts can make US much more vulnerable to security threats.
Alternative Minimum Tax issue should also be addressed as per Obama, “so that the tax filing season can proceed without the administrative nightmare of retroactive adjustment.” NYT said.
In a broad sense it is always the economy that keeps a government in its place; it is the economy that also keeps the opposition in its place. They swap their positions when the economy commands it.
But the twist of fate has been such that, out here, both the government and the opposition are going to be held accountable for what they do or what they do not! This may not be unprecedented, but rare.
The capitalist system which hinges on matured economies, especially its Mecca that is the United States of America is going through the test of century.
Either they make it or they mar it!
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