On January 1, 2013 three things happen:
First, the 2001 and 2003 tax cuts lapse along with a number of temporary tax reductions that have been extended so many times they are collectively known as "the extenders." (Note to self: possible name for female rock band.) This collection of tax hikes total $500 billion in 2013. The $1,000 per child tax credit drops to $500. The Obama Social Security tax holiday ends again. The bottom tax rate jumps from 10 percent to 15 percent and the top personal income tax rate jumps from 35 to 39.6 percent -- plus Obamacare's new 3.8 percent surtax: total for top rate 43.4%. (Do be sure to add 10.3 percent for the state income tax if you live in California, 5.75 percent in Maryland or 8.82 percent in New York.)
And unless changed, the AMT will hit 30 million families, up from 4 million last year. The AMT was originally created as the quintessential "tax on the rich" targeting all of 155 people.
Second, the "sequestration" or automatic spending reductions of about $100 billion a year for ten years. This will save taxpayers $1.2 trillion over the decade and was part of the Budget Control Act (BCA) that Obama and Boehner agreed to in 2011 to "pay for" the debt ceiling increase.
Third, the surtax on income of 2.9 percent rises to 3.8 percent and starting January 1, 2013 it hits capital gains making the total top rate not today's 15 percent, not Bill Clinton's 20 percent, but 23.8 percent. The top rate on dividends increases from today's 15 percent to not just 35 or 39.6 percent, but 43.4 percent total. (And then add state and local income taxes.)
Obama would like to have a "grand bargain" -- as in 1982 or 1990 -- where Republicans were promised they would get three or two dollars of spending reduction for every dollar of tax increase. (The tax hikes were real and permanent and spending was not cut but actually rose from baseline.) Reagan said 1982 was his greatest mistake. His second biggest mistake learned nothing and agreed in 1990 to "two imaginary dollars" of spending cuts for each dollar of tax hike.
How can Americans protect themselves against being TARPed again? This new verb is a favorite of congressmen and senators who feel they were rushed to vote for the Troubled Assets Relief Program the way a sleazy salesman urges you to buy the aluminum siding NOW without bothering your pretty little head with reading the contract.
There are two protections available to the American people:
First, we can and should demand that the negotiations between Congress and the White House on continuing the various "Bush" tax cuts be done in front of C-SPAN cameras. No more secret negotiations. Open covenants, openly arrived at. Every American -- not just PHARMA and the insurance companies -- should be in the room when something as large as Obamacare or today's $500 billion tax hike is under discussion.
Republicans should promise not to be snarky and must resist the temptation to remind Americans that C-SPAN coverage of such talks was one of Obama's key promises in 2008. Oh, well. Better late than never.
C-SPAN cameras will allow Americans to know who is being reasonable and who is not. Who presents real solutions and who repeats talking points. If Republicans demand the negotiations be covered by C-SPAN and Obama refuses -- then we would know, as King Solomon did -- who is acting in good faith and who is not. Perhaps Obama is dealing from the top of the deck and he will demand C-SPAN start-to-finish coverage.
Second, once a "deal" is agreed to, it should be written down in legislative language and put online for every American to read for seven full days: 168 hours. No rushing tired congressmen before cameras to endorse legislation they have not read because it only exists in outline form in someone else's briefcase.
If going into these "fiscal cliff" negotiations every participant knows that both his private and public statements will be heard by all Americans and that the final work product must stand the test of being read by citizens, the chance of another 1982 or 1990 or TARP 2008 will be greatly reduced. Risk can rarely be taken to zero. But the ability of the American people to watch the sausage made and read the contract before signing is a better guardian of our future than the hurried endorsements of the Washington establishment based on private assurances of politicians.