How Any New Debt Limit Deal Will Hurt The Middle Class
Needless to say I’m not holding my breath for any miracle solutions. In fact I’m pretty concerned that any solution will target one of the United States’ greatest endangered species – the Middle Class.
There’s not enough money in the top tax brackets to squeeze out any more money and the politicians are too scared to make any real cuts from social and entitlement programs.
My personal viewpoints on the solution to America’s addiction to spending is more in line with what the video below portrays… We have an addiction and we need to conquer it.
In the end the Middle Class is the only real piñata that politicians can still bust open to feed their cravings.
The Middle Class compromise 50% of American households and they make up the majority of earned income before taxes.
This is a ripe target that will no doubt be attacked no matter what kind if deal is made.
How The Middle Class Will Be Financially Affected
The possibility of tax raises are still on the table and most likely inevitable. Only targeting families making more than $250,000 would require tax rates close to 80% according to the Tax Policy Center. This practically impossible being politically risky, financially unsound and would greatly discourage productive activity by those most productive in society. Why would I work if 80% was going to be stolen by the government? This means the tax raises would have to spread among both the Wealthy and Middle Class.
Social Security and Medicare are huge portions of the Federal budget and any changes would certainly be felt by the Middle Class. One idea is to change the way Social Security increases are calculated using a much slower moving Consumer Price Index. The Congressional Budget Office projects this could save over $90 Billion over a decade but that 31% of those most affected would be families earning $50,000 – $100,000.
Most deficit-cut proposal call for making beneficiaries shoulder future cost increases. Another goal is to raise the eligibility age from 65 to 67. This could save over $125 Billion but once again most of the cost would come from the Middle Class.
Nationwide homeownership is 67% and homeownets are able to deduct local property taxes and mortgage interest. Property tax deductions reduced Federal revenue by over $15 billion in 2010. Also mortgage interest deductions cost tens of billions of dollars every year. Let’s not forget also 401K and Roth IRA deductions. All these are potential targets for change.
One of the greatest tax deductions available and one most people don’t even realize is that employee health care benefits are exempt from taxation. This one deduction alone costs over $160 Billion a year. This benefit has already been targeted in Obamacare with a 40% tax on Cadillac health plans. Of course the tax is designed to hit the Middle Class since its not tied to inflation and it’s only a matter of time before more and more people bracket creep into this tax.
This is by no means a definitive list but it certainly is some powerful food for thought. The fact of the matter is that the United States spends way too much money; serious cuts will have to be enacted. The scary part is that the Middle Class is the only “politically correct” group to target.