Montana and the Fiscal Cliff

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This month, decisions on expiring taxes and scheduled spending cuts (known as the fiscal cliff) will set over $7 trillion of the federal budget over the next ten years. Depending on the compromise, the budget could be put on a path to being balanced and the tax code could be more progressive. A poor compromise would gut important federal programs while the national debt continues to grow. Doing nothing would likely throw the country back into recession.

Senator Baucus will be one of the deal’s main negotiators, as the chairman of the Finance Committee, overseeing the U.S. tax code and most entitlement spending. I thought I’d spend a post on the main elements of the fiscal cliff, and how they affect Montana.

Here’s are the scheduled changes for January:

  • Bush Tax Cuts for the Wealthy: Unless the Bush tax cuts are extended again, the top income tax rate will go up to 39.6% from 35%. Republicans label this as a job-killing tax increase, but a recent Congressional Budget Office study disproved that myth. According to the IRS, less than 9,000 Montanans benefit from these cuts, which are worth about $1 trillion over the next 10 years.
  • Rest of the Bush Tax Cuts: Three-quarters of the Bush tax cuts are actually for the lower and middle classes. The 2001 & 2003 tax cuts also doubled the child tax credit, reduced the penalty for married couples, and lowered the tax rate paid by the poorest from 15 percent to 10 percent. These provisions are worth about $3 trillion over the next ten years. If they expire, nearly everyone will face a tax increase.
  • Sequester. Unless Congress finds alternative cuts, both defense and non-defense spending will be cut by eight percent. Since Montana is so reliant on federal spending, these cuts will impact the state more than any other part of the fiscal cliff. The cuts are clumsily applied across the board, and every federal program is affected equally. This means fewer highway dollars, fewer staff in the Montana Social Security offices, and less federal money flowing to the cities and State agencies.
  • Payroll Tax Cut Expiration – The payroll tax, which was temporarily lowered by 2 percent in 2009 to stimulate the economy, returns to normal in January. Thus, the average Montanan making $29,400 will pay an extra $11.30 in Social Security taxes every pay period.  (The federal government has covered one-third of everyone’s Social Security payments for the last three years).
  • “Normal” Expiring Taxes. Although they’re not technically part of the fiscal cliff, hundreds of other tax provisions that expire at the end of the year. Many of them would normally be extended, but their fate is caught up in the negotiations  This includes the Wind Production Tax Credit, which helps finance the wind turbines being built across Montana. Other common one year extensions are the Medicare “doc fix” and the Alternative Minimum Tax, a tax on the wealthy which was never indexed for inflation and would hit middle-class households

Things Not Impacted:

  • Social Security and Most of Medicare – Although these are the largest federal programs, they do not face the automatic budget cuts, nor do most low-income programs.
  • War Spending – Even though the Pentagon is facing the same 8 percent cuts, all spending designated as “overseas contingency operations,” (mostly in Afghanistan, Pakistan, and Iraq) is protected at the current level.
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About the author

Tyler Evilsizer

Raised in Helena, Tyler's particularly passionate about the environment, transparency, and wonky budget policy. The views expressed are his own.

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Mark Tokarski
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It is difficult to hang a picture without a frame, and the expression “fiscal cliff,” likely emanating from the bowels of some PR agency, is such a frame. If you operate inside that frame, as you do here, then you equate various aspects of federal spending and taxation as having equal value. So Pentagon spending is not “war,” now a separate untouchable budget?, and the deficit is the most important problem we face, and all must face the firing squad. My how perceptions are managed! The deficit in a depression is not a problem. It did not not even become… Read more »

The Polish Wolf
Guest

Mark, Tyler actually did not express a single opinion in the piece whatsoever. He is merely laying out exactly what is in the law. For example, it is extremely helpful, especially for you values, if you have any, that Tyler points out that entitlement programs are not going to be cut automatically – if they do get cut, it will be part of a conscious decision at the negotiating table, not the automatic effects of the law as written. That’s some rather important framing. You, on the other hand are repeating the same things you always say. Parr for the… Read more »

Mark Tokarski
Guest

It is interesting how the framing always … always works on you. You always take them at face, never suspecting an agenda. That is so typical of a Democrat when Democrats are in power – completely credulous. Have I ever mentioned to you that I think Democrats are the problem? Probably. Unemployment, as we measure it, is at 8%, but as traditionally measured is at near-depression levels. Perceptions are managed via new measurement standards. Those Eurozone countries in crisis are being forced into austerity to cover banking crimes. There, like here, bankers sank the economies, and government austerity is the… Read more »

Mark Tokarski
Guest

Current unemployment, the “U6” rate, is 14.4%, is a one-to-one comparison that is valid for now and the Great Depression – during the ten years prior to WWII, unemployment averaged 18.3%. So it is safe to say that our unemployment is at near-depression levels. The U6 rate, invented in 1994, removes from the unemployed labor force people who have given up finding work, and also people who are working part time because that is all that is available.

larry kurtz
Guest

Control the federal bench, Dems.

larry kurtz
Guest

Baucus, the estate tax and the bench:

http://www.greatfallstribune.com/article/20121209/NEWS01/312050004

Fuck off, Toke.

larry kurtz
Guest

Tokarski would put earth haters on the federal bench, you really trust him/them?

http://thehill.com/blogs/congress-blog/judicial/268967-83-judicial-vacancies-awaiting-senate-action

Mark Tokarski
Guest

I gotcha. OK? It’s all D v R, that’s all that matters. OK? I gotcha. I’ve seen the depth and breadth of your soul. D v R is all that matters. Now go away.

The Polish Wolf
Member

Mark – you are literate. Read! I agree that unemployment is a problem. However, your comparison to the 1930’s is shaky. First of all, unemployment was not scientifically calculated before 1940. Secondly, as very few women were working outside the home, a higher unemployment rate at that time meant a great many more families were without income even if the rates were equivalent. But we want to find the solution to that problem! And maybe we want to find the cause to find the solution! I mean those of who want to do something besides moan and complain about how… Read more »

Mark Tokarski
Guest

As you might note in my comments about the so-called Drug War above, my intent is to avoid the groupthinking that dominates these discussions. The “Fiscal Cliff” is a PR device, a framing tactic. You step in that frame, you lose. The public “negotiations” are by definition for show, as if they were real the outcome would not be known, and that is not allowed. The answer then is to get out of the spiral, and join the anti-austerity movement. Note that the AA movement opposes the efforts of both parties working in unison to impose austerity on every country… Read more »

The Polish Wolf
Member

Mark, all the meaningless words you’re throwing out there aside, I’m really curious: how do you want Democrats to behave this month? What is the progressive course of action here? Take a bargain that raises upper income taxes in exchange for cutting entitlements? Bite the bullet, accept the budget cuts and higher taxes on the middle class as the price to pay for military cuts and taxes on the rich? How do you want to see this ending? Because my theory is that you don’t want to state an opinion because you want to retain your right to feel betrayed,… Read more »

Mark Tokarski
Guest

The line from the Godfather … “You can act like a man!” comes to mind. I know you imagine yourself and your party in negotiations, but you are not. You are in denial amidst betrayal – you may be a man of integrity, but you are also oblivious to the power of money in politics, and so do not recognize deceit and false intentions even as it plays out all about you. What would I have Democrats do? Stop trying to “help” us. Leave your party, do some actual work for progressive causes, and stop prattling on about how you… Read more »

The Polish Wolf
Member

Yes Mark ,lets shut down the two party system. Then we’ll be okay. Look at Italy – multiple parties, and no economic turmoil, unemployment, or corruption whatsoever!

Mark Tokarski
Guest

You’re dissipating. and anyway, what about Sweden?

In an oligarchy, only two parties are possible. No others can assemble the necessary money to overcome the artificial barriers and media exclusion. It is not a “system” so much as the naturaly byproduct of corruption.

They are different only in degree of deceit, the Democrats being th greater of two evils.

larry kurtz
Guest

herp derp and then derp

Mark t
Guest
Mark t

14.4% = 14.4%.

It does not equal 8%. Are we clear?

The Polish Wolf
Member

Using equivalent measures of unemployment calculation, Sweden and the US have identical unemployment rates. How then can our two-party system be exclusively to blame for our unemployment rate?

Mark Tokarski
Guest

You said that our unemplyment rate is 8%. It is not. It is 14.4%. Again, I don’t care about Sweden but do note that they have unemployment benefits, health care, higher education as part of the commons.

And you know this, artful dodger, that your Democrats and those mean old Republicans are the same party. I come to this website for a tour of fantasy land – you all write as if money did not rule politics. It is quite a spectacle.

The Polish Wolf
Member

Mark – Like most poor American analysts, you ‘don’t care’ about Sweden, or any other country outside your own. You believe firmly that the two party system is the source of our ills, but you ignore the fact that there are numerous multi-party systems that have the same problems. Say you’ve got a hundred Hummers, some black and some grey, and you want to know why the gray ones get such bad gas mileage. Obviously all hundred have terrible mileage, but you’re only looking at a gray one, so you decide that it has bad mileage because it is gray.… Read more »

The Polish Wolf
Member

“The crisis brought about by the american housing collapse spread all over. ”

The crisis is far deeper than that, Mark. Otherwise, the US would have been hardest hit. Instead, Southern Europe was.

As to everything else you say, you’ve yet to provide any evidence that the power we give to private financiers has contributed to our deficit or our unemployment rate, and I’ve provided a great deal of evidence to the contrary. If public financing or multiple parties lead to better governance, shouldn’t we see less corruption, lower unemployment, or reduced deficits in other countries?

Mark Tokarski
Guest

You’re dissembling again. Two things I notice about you: you don’t seem to think that money represents power, and that fianciers merely throw it at politicians and hope,for the best. You also don’t seem to grasp how power works. You really take the outer layers of our system as real, and consider yourself a good analyst to boot. No country is perfect, but democracy does not have a fighting chance here. It’s in crisis in southern Europe as well, the bankers closing in on Greece and Spain. but i have hope for them in that they appear to have social… Read more »

Mark Tokarski
Guest

Worst … analogy … ever. The crisis brought about by the american housing collapse spread all over.

Now, let’s be frank: Because our system, as opposed to others, is privately financed, 1) only two parties are possible, and they are not really different other than their surface appeal to differing personality types, and 2) real power rests with the financiers. It cannot be otherwise. We operate under the illusion that politicians have power. They do not. That is only how it looks on TV.

The Polish Wolf
Member

Mark –

Southern Europe will fight austerity more violently than the US will, but that won’t save them from it. If the Communists and leftists get their way, they will default on their debts, and the ensuing lack of credit will bring about the same budget cuts that they were trying to avoid. The ability to destroy your economy in the process of succumbing to the inevitable is not the mark of a better political society.

Mark Tokarski
Guest

Weak sauce. You’re saying resistance in futile, and please note here that you are indistinguishable from the financiers who run the parties, Stockholm Syndrome I suppose. There is no difference between you and the “other” party, case closed..

Worst outcome, capitulation, best, end if the euro, restoration of self-government.

Checkout Iceland some time. They told,the IMF to fuck off and are doing fine.

The Polish Wolf
Member

Iceland has yet to recover the GDP they had before the crisis. Also, they didn’t exactly tell the IMF to fuck off – they said “thank you for a bailout of equal to 10% of our GDP but we’re not going to follow your advice”, and it worked out…but like I said, they still haven’t achieved their GDP they had before the crisis, whereas the US did so very quickly. “Worst outcome, capitulation, best, end if the euro, restoration of self-government.” End of the Euro? All right, Mark, riddle me this – who is going to lend the Greek government… Read more »

Mark Tokarski
Guest

Well, maybe I understand my own country better than you then, but understand that Greece is in a straightjacket due to the euro, that without it they cold devalue their way out of the crisis and wipe put the debt. Also, just not paying it back makes sense, as it was not social spending that caused it, but rather bankers. You are so bought into this trap! I think you need a vacation from party politics and conventional gotcha! thinking. Instead think that possibly this might maybe be a trap and we shoud not walk into it. As i said,… Read more »

The Polish Wolf
Member

“but understand that Greece is in a straightjacket due to the euro, that without it they cold devalue their way out of the crisis and wipe put the debt.” Their debt is not in Drachma, so devaluing the Drachma will have no direct effect on the size of Greece’s sovereign debt. Devaluation will need to be coupled with a debt default, or ‘just not paying it back’, which makes sense in your mind. Again, a comparison is useful. Argentina was in a very similar situation in 2001 – their currency was tied to the dollar much like Greece’s with the… Read more »

Mark Tokarski
Guest

No one rationally thinks you can sleepwalk out of a crisis, but reversion to the drachma and repudiation of debt, which should not be placed on Greek citizens in any moral sense, since they did not benefit from it, seems logical. To be sitting there with the economic fascistas of the EU holdng an axe is repugnant, but their election system, even though more viable than ours, has been set aside. Argentina did what they had to do. People got hurt, but their long-term viability was better served by exorcism of the foreign debt masters. Often such behavior invites military… Read more »

Mark Tokarski
Guest

Awaiting moderation. Have a nice day.

The Polish Wolf
Member

See, you are just throwing out bits and pieces of what you’ve heard about the world, and so its not really coherent. You oppose austerity in Greece because you’ve heard that’s the socialist thing to do; you support repudiation of debts because you hate banks that much. But I want you to actually think about this, not respond with vaguely leftist non sequitors. Presumably, austerity is bad because it hurts people, and it hurts people because spending is cut. IMF goals for Greece call for spending to be cut something to the tune of 2% of GDP, leaving the deficit… Read more »

Mark t
Guest
Mark t

No one who ” cares ” about the Greek people wants to impose austerity on them during a time of contraction, utter nonsense but in tune with the righty wing tenor of the times. Further you don’t address the immorality of forcing austerity on them when they had nothing to do with the crisis. Also, I would not mind seeing the euro fold, have no doubt Greece woul have trading partners without it and am not so uninformed as to think that rising and falling tides can be attributed to the boats in the harbor, as you have done. Argentina… Read more »

The Polish Wolf
Member

I don’t support imposing austerity on the Greek people, either, but that’s not the choice of the Greek people. Right now they have to choose whether they will accept austerity or default. The morality of forcing them to accept austerity has nothing to do with the choices they ultimately have to make. They can choose to slowly contract their government spending, or they can choose to slash it immediately. Those are their choices, and one is clearly better than the other. Out of spite, you are supporting the one that will cause more suffering to the Greek people. As to… Read more »

Mark t
Guest
Mark t

Ha ha. Fried a note = Friedmanite.

steve kelly
Guest

Nothing progressive in this “deal.” Bowles is an investment banker, Baucus was the key vote needed to pass “The Bush Tax Cuts,” and what needs to be said about the pride of Cody, Wyoming, Alan Simpson. That dude can dance to any tune in the juke box. Austerity was decided upon years ago, probably right around the time when Obama appointed members of the debt committee. Austerity is global. The New Deal was the last big deal for workers and the poor in Washington, D.C. This could be the final nail in the New Deal’s coffin — more deregulated robbery… Read more »

steve kelly
Guest

An actual government fiscal crisis will begin when investors no longer roll over U.S. Treasury Bonds at maturity. That’s clearly not happening now. Not even close. Yield is far below inflation. Not that debt isn’t a problem, it is. It’s just way down the list of immediate priorities in my opinion.

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