I have seen Fiscal Cliff analysis written from two perspectives
1. Republicans Caved In 2. Democrats Caved In
Theory number 1 (Mine and others) says Congress punted the ball and Republicans waived the white flag. Given that virtually nothing has been done about the deficit, I fail to see how there can possibly be any debate on this. Yet there is.
Theory number 2 (primarily liberals) still blames Bush for the "Bush Era" tax cuts, while moaning about spending cuts that did not happen, and bitching that not enough tax hikes occurred on the wealthy. Curiously, the "Bush Era" tax cuts are now the "Obama Era" tax cuts and even the AMT problem was allegedly fixed.
A subset of the proponents of perspective number 2, people are bitching the "temporary 2-percent reduction in Social Security taxes" just expired. Payroll taxes will jump from 4.2% to 6.2% of income for everyone.
In the glass half missing theory, this will cause a 1% hit to GDP so it should not have been done. This set of folks wanted "temporary" to become permanent, while simultaneously complaining about the "Bush Era" tax cuts.
Lost in the entire debate is how the country can possibly afford any of this.
What About Healthcare Premiums?
Let's assume for the moment that the expiring payroll tax cut will amount to a hit on GDP of about 1 percent. Reader Greg writes ...
One thing I have not heard a lot of chatter on is the size of the increase in healthcare premiums most small to medium-sized companies are experiencing. I have involvement with 3 companies and all three have seen quotes from current providers with an average increase over 30%.
It's hard to extrapolate this, as in small companies it only takes 1 or 2 serious illnesses to jack the costs. However, I've yet to talk to anyone that has seen anything less than a 10% jump. And if employers pass along 30-40% of the costs to employees that could add another 1-2% out of each employees paycheck, which doubles the whole FICA thing. Greg
I am not quite sure how to total this either, but Obamacare is having some peculiar effects to say the least.
Many businesses are shifting even more to part-time employment, and given there are no incentives anywhere to reduce healthcare costs, those costs will continue to rise, taking a bite of the checks of workers, and giving employers additional reasons to not hire in the first place.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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