Tuesday, March 5, 2013

Layman's Guide to the Sequester and 2013 USA Tax Increases

First of all, I only know a little of what is going on, go over to ProPublica they have a ton of infographics to try and explain what is happening. That link is so good if you don't at least take a look then you might as well not read anything else in this post.

Basically, California is going to get hit hard with the sequester because they have so many people. Virginia, Texas, Georgia, and North Carolina are going to get hit hard because of all the military cuts to the state. Florida, Texas, and California have retirees and thus cuts related to those dependent on the government. There will be cuts to education, fortunately we all know that a 35 to 1 student to teacher ratio is most effective for most students.

It is important to note that the 2% across the board spending cuts only apply to about 1/3 of the budget which means those discretionary spending programs will be cut in the 5-7% range.

There is a silver lining to the spending cuts. We will be spending less money. Okay, seriously, medicare will be cut up to 2%. Which is great! It turns out that Medicare is so big that it really has ultimate influence over the price of healthcare in this country. Everyone should be on medicare. It is really the best way to bring down the cost of healthcare for everyone. That's a tangent.

Regarding tax increases. The payroll tax went up 2%. That is a problem, for two reasons, first the shallow reason, all workers have less in their paycheck. Second, the payroll tax is a regressive tax, which is to say it affects those who make less more than it makes more. In other words, it taxes 6.2% of your income up to $110,000. So a person making $50,000 would pay $3100 in payroll tax. A person making $100,000 (that's a lot by most people's standards) would pay $6200 in payroll tax. A person making $150,000 would pay $6820, only 4.5% of his or her salary. A person making $370,000 (approximately the top 1% of earners in this country) would also pay $6820 or 1.8% of his or her income. However, they got hit with a raise in long term capital gains from 15% to 20%, which is kind of a big deal for people with a lot of investments.

In other words, we enjoyed so much for so long at the expense of debt. Well, we have to pay it back sooner or later and while I feel a few more years of stimulus would help we are starting to make the cuts now that are inevitable. We are doing it, we are fixing the budget. It is a slow process, and I hope that we make some better economic choices, like a progressive sales tax.

These cuts and increases in taxes are moving in a good direction, things are getting better, slowly, but not in the most economic sense. We are all going to suffer. Education will take funding cuts, despite the fact it is an amazing public return on investment, especially preschool. The military will be cut, which means many layoffs and perhaps fewer machines ready to fight wars. Syria, we apologize, but between Iraq and Afghanistan we are taking a break from fighting other's wars at the moment. On the positive side, Africa is developing just fine, perhaps we can immigrate there in 15 years.

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