Business

January 4, 2013

Werner Braun: Explaining the ‘fiscal cliff’ deal

Once again, I have received an excellent analysis of a complex political issue from Andy Wright, the Carpet and Rug Industry’s ally in Washington, and a principal with the government relations firm of Polsinelli and Shugart. Andy’s observations about what was decided and what still hangs in the balance, particularly concerning implications to the carpet industry, were too good not to share with Dalton readers:

“After months of intense negotiation between the White House and Congress, on Tuesday the House of Representatives accepted a bipartisan Senate-passed bill that averts a combination of automatic spending cuts and tax hikes that could have plunged the U.S into another recession.  

“The legislation prevents tax rates from rising on households making under $450,000 and delays for two months scheduled across-the-board spending cuts that could cost millions of jobs and deep cuts to the military budget. In addition, the Alternative Minimum Tax is permanently indexed for inflation and the estate tax rises to 40 percent from its current 35 percent level, with the first $5 million in assets exempted.

“The big winners from Tuesday night’s vote are the American economy and middle and lower-income taxpayers. The deal has already resulted in a significant jump in the stock market, and is expected to extend, at least for now, the housing recovery that is so critical to the carpet and rug industry and our local economy.

“Unfortunately, the gridlock leading up to the deal makes it obvious, both here and abroad, that America is having a serious problem governing itself effectively. The failure of Congress and President Obama to come to terms on a ‘Grand Bargain’ that could have reduced the deficit and put the nation on the course to fiscal sanity is a severe disappointment.

“The best that can be said of this smaller agreement is that an economic crisis has been averted — for now. The agreement does little more than set the stage for another debt-ceiling showdown. The nation reached its borrowing limit on Monday, and the Treasury Department has warned that it can hold off default for only a couple of months. At that point Congress will once again have to decide whether it will raise the so-called debt ceiling to allow the nation to pay its debts.

“The Republicans in Congress intend to use this next crisis as an opportunity to seek steep budget cuts. The last time this occurred the negotiations resulted in a downgrade of the U.S. credit rating and a steep dip in the stock market. The stakes will be just as high over the coming weeks.

“In addition, most working Americans will still face smaller paychecks this year. A temporary, 2 percent cut to the payroll tax was not renewed. For taxpayers making $50,000, that’s an extra $1,000 in Social Security contributions. However, it could have been far worse.

“Other important provisions include:

• Taxes on capital gains and dividends will be held at their current levels of 15 percent for households with income of less than $450,000. They will rise to 20 percent for individual taxpayers and for households above that threshold.

• One-year extension of emergency unemployment insurance benefits.

• A delay in cuts to physician payments under Medicare.

• Personal exemptions will be phased out and itemized deductions will be limited for taxpayers making over $250,000 and families earning more than $300,000.

• The deal includes five-year extensions of the American Opportunity Tax Credit, which can be claimed for college-related expenses; the Child Tax Credit; and the Earned Income Tax Credit, which is a refundable income-tax credit for low- to moderate income working Americans.

• Business tax breaks. The bill also extends popular business incentives like the research and development credit, production tax credit for wind and tax credits for homeowners who add additional insulation to new or existing homes.”

Thank you, Andy. Your insights are always valuable to us here in North Georgia.

Werner Braun is president of the Dalton-based Carpet and Rug Institute.

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