Fiscal Cliff: Middle Class Free Fall, Corporations’ Golden Parachute
It seems like everyone who is paying attention to the fiscal cliff debate has an opinion one way or another about the benefits and disadvantages of the Tuesday night passage of the Senate Bill. The compromise that was agreed upon can be described as a barrel filled with pork for both Democrats and Republicans and their corporate sponsors, being that earmarks and tax breaks for corporations are included amongst the illusion of fiscal relief for the middle and lower classes.
For the left, the tax increases on the super-rich, who make up approximately 0.9 percent of the American population (those individuals earning more than $400,000 or $450,000 per household), was a victory but still managed to fall short of the Obama campaign promise of raising taxes on the top two percent (individuals earning more than $200,000 or $250,000 per household). For the right, the numbers must have added up, seeing as quite a few house Republicans voted in line with the Democrats. This tax increase on rich folks from 35 percent to 39.6 percent will create about $600 billion in revenue over the course of ten years, but with congress’ track record being as shoddy as it is, who knows what programs or misuse it will go to, you know: like the TARP (Troubled Assets Relief Program), where taxpayer money went directly to the banks and CEOs but not to the millions of underwater homeowners that it was designed to assist to avoid foreclosure. But don’t worry, this money will surely not go towards paying down our world-record national debt of $16.4 trillions that was not even addressed by the bill. Economists have predicted that all the expenditure this bill allows will raise the national debt to $20 trillion during the next ten years.
Let us take a look at what else this bill will do to the economy and the American people. For starters, the bill extends for another year Goldman Sachs and Bank of America’s tax break by moving their headquarters to the “Liberty Zone”, a post 9/11 area where the World Trade centers once stood. This tax provision was created to help revitalize Lower Manhattan’s small businesses but instead helped out these two mega-bailed-out banks and helped to subsidize the construction of luxury apartments. Goldman Sachs alone was reported to have received $1.6 billion in tax free financing of its new building.
The Extension of the Active Financing Exception of Sub-part F is a very fancily-worded trade tax loophole; it extends a bill created in 1997 that allows American companies to avoid paying taxes on income from certain transactions called “active financing.” This loophole, a credit of up to $9 billion, basically encourages American companies to move overseas and thus outsource employment from Americans. One of the biggest corporations to abuse this loophole is General Electric (GE).
Hollywood catches a break with a subsidy called “Extension of special expending rules for certain film and television productions,” meaning that corporations such as Disney will continue to receive tax breaks for filming three-quarters of their films in the United States and get more tax breaks if they film in an underprivileged area, costing taxpayers about $150 million dollars.
NASCAR gets a tax break of $43 million over the next two years to encourage new tracks and racing facilities to be constructed so they can compete with other theme parks. The clean-energies provision will not only provide subsidies to “green energy” production such as wind power, but also help to keep the coal-mining industry afloat by calling Indian Land coal clean, at $1.2 billion a year for ten years.
Credit for Expenditures for Maintaining Railroad Tracks provides a tax credit of $331 million dollars for short-line railroads to help offset the cost of maintaining railroad tracks they own or lease. The ongoing fear is that these rails would discontinue due to maintenance issues, thus interrupting the shipping process.
Some of the seemingly better points of the new bill are that Unemployment Benefits and its tiers have been extended, at least for another year, but expect a raging debate about it again upon its expiration. Taxes will stay as is for the middle class for now; but counter-productively, the lowered payroll tax that was implemented in 2011 expired on Monday and will go back to 6.2 percent, up from 4.2 percent. This two percent increase will leave about 160 million American workers with smaller paychecks and, in turn, will surely cause a decrease in economic stimulus (which was why the payroll tax was decreased in the first place), seeing as the average household will be out of about $35 to $180 a week, depending on its income.
For lower-income families, Earned-Income Credit, Child-Tax Credit and other college-tuition credits will still hold true for at least another five years, and the Child-Dependent Care Tax Credit will become permanent, relieving parents in need of childcare by up to 35%. But still, the payroll-tax increase will stun this fragile class, along with almost every working family in the United States. So what do we have to thank congress and our president for? If corporations didn’t have loopholes like the Active Financing tax dodge, billions of dollars could have been generated back into America’s economy and could have possibly avoided layoffs and thus halted the rise in Unemployment-Benefit requests by keeping our factories open and not shipping our jobs over to third-world countries. If real living wages were paid out by corporations to the lower-income workforce, then maybe there would be no need for any Earned-Income Credit and other tax credits. If congress and the presidents (past and present) had any ethics at all, these looming fiscal collapses could have canceled each other out or never have existed in the first place.