I was asked repeatedly by family and friends over the holidays whether their taxes were going to skyrocket if Washington failed to get a deal before the year ended. My answer: As long as neither party saw a clear gain from going over the cliff, you can count on a deal. Just as in the case of the debt limit deal in summer 2011, both sides waited until the last minute to cut a deal. Just as in every case when there is a big deal in Washington, lots of pork (that has received next to zero publicity from mainstream media) was shoveled in at the last minute. And even better, the general public was greatly relieved that, at least for 99% of Americans, taxes would not be going up.
Here is where you have to give the Washington pols a lot of credit: the drama over the extension of the Bush tax cuts kept everyone's eyes off of all of the other tax increases that kick in with the arrival of 2013: a 2% increase in the payroll tax for everyone, a 2.3% tax on medical devices, and a 3.8% tax on investment income for those in high income brackets.
Of course the revenue generated from all of the new taxes, including those imposed on the top 1%, will not come anywhere close to keeping up with the growth of spending on entitlement programs. If anything, each party seems to have hardened its position in the last go around of talks with Republicans saying that this is all the extra revenue they will sign off on from tax increases and Democrats refusing to make any serious compromises on the growth of entitlement spending.
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