Constructive Obstructionism

Just days ago, the House of Representatives approved a Fiscal Cliff deal which had been approved by the White House and the Senate. As predicted, a “compromise” was reached which resulted in tax increases for a majority of households (Bloomberg reports that 77.1% of households will see a tax increase in one form or another, according to the Tax Policy Center). However, also as predicted, many Republicans caved on their stance and voted for this deal, which reportedly has $1 in spending cuts for every $41 tax increases.

For months we have been hearing about how Republicans were keeping this deal from happening and how every House Republican hated middle-class America; that was the narrative that the public was fed and many ate it up. Let’s look at what exactly was passed in this deal.

The Tax Policy Center states that 90% of tax increases would hit $1 million + earners, and The Wall Street Journal reports (via the Kogod Tax Center) that a home earning $1 million with one child would pay roughly $37,000 more in taxes in 2013. The top rate on income would go from 35% to 39.6%, while the top rate on estates would increase 5% to 40%. Deductions are also being reigned in for high earners.

However, The Wall Street Journal reports that the Social Security Payroll tax will increase across the board 2%. On top of that, the top rates on capital gains and dividends are set to increase from 15% to 23.8% (20% + the 3.8% Obamacare Medicare Tax).  The NY Daily News also reports that individuals making $50,000 a year will likely pay $1,000 more a year in taxes thanks to the payroll tax increase. These taxes alone are major hits on middle-class Americans who were promised that they would not pay any more during these turbulent economic times.

Somehow these tax increases on the majority of households will still be spun as being the Republicans’ fault, without a doubt. The staunch opposition that House Republicans showed back in the fall does not seem so unreasonable now. This is exactly what they were fighting against; the majority (77.1% to be precise) financing out of control government spending. It does not come as a shock that the cuts to federal spending were minute compared to the tax increases, and any cuts were actually delayed by several months according to the Washington Post.

On top of all of the heated negotiations, the rhetoric and the mud-slinging, our Commander in Chief (by Executive Order) passed a pay increase for federal workers before the New Year, including $900 a year for members of Congress and a $6,400 raise for Vice President Biden. Luckily, despite House Democratic opposition, Georgia blue-dog Democrat John Barrow pushed forward an effort to block this pay increase, siding with House Republicans and 55 other Democrats.

At the end of the day, the anger and frustration directed at the Republican Party during these negotiations was misguided. Boehner and Ryan saw this coming, but caved under pressure and went against their principles by voting for the deal.  Just remember, come 2013 tax season, or when you get your weekly paycheck and it is a little light; those “hate-mongering, poor people hating” Republicans saw it coming and tried to stop it. This is the bed that we have made for ourselves, and now we shall lie in it.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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