Fiscal Cliff, come incide

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Fiscal Cliff, come incide

Il fiscal cliff, espressione con la quale si indica il precipizio fiscale che sta spaventando gli Stati Uniti, è stato in grado di risollevare le borse europee e Milano si è candidata come regina d’Europa nella sessione di scambi di ieri.

Il pericolo del precipizio fiscale sembra essere stato allontanato e le borse tirano un sorriso di sollievo sapendo che ormai, il ritorno degli USA nel settore degli investimenti, è soltanto questione di tempo. Wall Street si rilassa e il Dow Jones cresce dell’1,65 per cento.

Avanza anche in Nasdaq guadagnando ben 2,21 punti percentuali e segna un +1,98 per cento anche lo S&P 500. Il fatto che sia stato raggiunto un accordo sul fiscal cliff e in attesa delle decisioni dell’Eurozona sulla Grecia, Milano prende coraggio e il Ftse Mib chiude la giornata con un +3,05%.

Vanno bene in Europa anche Parigi dove il Cac 40 fa registrare un +2,93 per cento, il Ftse 100 di Londra che sale del 2,36 per cento, il Dax di Francoforte che recupera il 2,49 per cento e l’Ibex madrileno che fa registrare un ottimo +2,31 per cento.

L’attesa per la decisione sugli aiuti da fornire alla Grecia entusiasma anche i rendimenti della borsa di Atene che fa registrare un progresso di ben 5,54 punti percentuali.

Fiscal Cliff Diving

I have to admit finding the “fiscal cliff” debate a little bit silly, given that the “cliff” in question is entirely artificial. But if you start pulling that thread, it’s not clear where it ends. And even if the cliff is a figment of the collective political imagination, the harm that cliff-driven decisions could do is very real. If you swerve your car to avoid the unicorn you’re hallucinating, the tree you crash into isn’t a hallucination, and the damage done is real and potentially terrible.

I have to admit finding the “fiscal cliff” debate a little bit silly, given that the “cliff” in question is entirely artificial. But if you start pulling that thread, it’s not clear where it ends. And even if the cliff is a figment of the collective political imagination, the harm that cliff-driven decisions could do is very real. If you swerve your car to avoid the unicorn you’re hallucinating, the tree you crash into isn’t a hallucination, and the damage done is real and potentially terrible.

Apparently, one of the possible consequences of the latest “cliff” debate would be to put a cap on charitable deductions. Conceivably, that cap could put a severe dent in higher ed philanthropy.

This piece from Business Week, of all places, does a nice job of surveying the philanthropic landscape for higher education. Broadly speaking — and yes, there are praiseworthy exceptions — the largest donations tend to go to the wealthiest schools with the wealthiest and best connected students. And even there, the bulk of the money comes from a small group of high rollers. (The article claims that at Colgate, 90 percent of the money comes from 10 percent of the donors.) Folks with that much money tend to be quite savvy about it, and they plan their giving with full awareness of the tax implications. If those tax implications change, their giving may change.

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Reading that, it was hard not to be struck by the gap between politics and economics.

Most undergrads in America go to colleges at which philanthropy is a relatively small part of the operating budget. (For present purposes, I’ll define philanthropy to include the interest income thrown off from endowments.) Most donors to higher education give smallish amounts of money. The major sources of income at most community colleges and four-year public colleges are tuition/fees and state (and sometimes local) government support. Philanthropy comprises a hefty chunk of the operating budget only in a rarefied tier of institutions.

But at the top end of the prestige hierarchy — the part that gets the most coverage — a smallish number of megadonors exert tremendous influence. One major outcome of that influence is to ensure that the prestige hierarchy remains exactly as it is now.

The philanthropic impulse is praiseworthy and worth encouraging; I’d hate to see the tax deduction for charitable contributions just go away.

But I wouldn’t necessarily mind if the discussions occasioned by the fiscal cliff started steering policy in a different direction.

At one level, obviously, this is really about income polarization, which is a much larger issue. But it’s also about aspiration. People don’t generally donate because of perceived need; they donate to be part of something they consider successful and admirable. That’s why development offices love to tell success stories.

Put differently, that’s why it’s important to maintain tax deductions for middle-class givers (and tuition payers). Once you lose the middle class, and an institution becomes identified in the public mind as intended only for the poor, then the institution gets kicked to the political curb. In the public mind, poverty equates to failure. The way to get support is to show success, and it’s easier to have success when you have support. Put up a barrier to that support — say, by taking away a tax deduction — and you could start an unfortunate dynamic.

But if rates on the wealthy were to increase, and some of that revenue used to help shore up the lower-cost institutions, then we could reap the best of both worlds. Higher rates would increase the relative worth of deductions — the higher your tax rate, the more a given deduction pays you — and a more realistic and predictable funding stream for community colleges and four-year colleges would make possible the kind of success that tends to draw voluntary private money. Let’s not lose the forest for the trees here. We could get a virtuous cycle going if we do this right.

The fiscal cliff may be silly, but the opportunity it presents isn’t. Here’s hoping that we don’t get distracted by political unicorns.

Inside the Fiscal Cliff

As December 31, 2020 approaches, many Americans question how their finances will be impacted if the country goes off the fiscal cliff. Talk of the fiscal cliff has dominated headlines for the past few months. And while some people felt that both political parties would have reached an agreement long before the end of 2020, this hasn’t been the case.

Going off the fiscal cliff will trigger higher taxes and spending cuts which can have a major impact on our already shaky economy. On one hand, higher taxes and spending cuts increase revenue to reduce the federal budget deficit. But with a reduction in household income, a recession seems inevitable.

To understand exactly how the fiscal cliff may impact your pocket, you need to grasp the main components.

1. Expiration of the Bush Tax Cuts

The largest component of the fiscal cliff – the expiration of the Bush tax cuts – will result in a higher income tax rate for the majority of Americans. These temporary tax cuts were enacted by President Bush in 2001 and 2003, and they essentially lowered the amount each taxpayer owed in federal taxes. Originally set to expire at the end of 2020, President Obama granted a two-year extension. But if the country goes off the fiscal cliff, income tax rates will increase from 10, 15, 28, 33 and 35 percent to 15, 25, 28, 36 and 39.6 percent. What does this mean? As a whole, each household will pay (on average) and additional $3,500 in income taxes per year.

The expiration of the Bush tax cuts also result in higher payroll taxes, in which the current withholding rate of 4.2 percent increases to 6.2 percent. Estate taxes rise to 55 percent from 35 percent. Currently, estate taxes only apply to inheritances over $5 million. However, inheritances over $1 million will be subject to higher taxes if we go off the fiscal cliff.

Taxes on dividends will increase to 39.6 percent from 15 percent. Taxpayers are currently taxed between 5 and 10 percent on capital gains. This will increase to between 10 and 20 percent beginning January 1, 2020. Other taxes affected by the expiration of the Bush tax cuts include the child tax credit and the alternative minimum tax.

2. Spending Cuts

In an effort to reduce the federal budget deficit, automatic spending cuts are scheduled to take effect on January 1, 2020. These include reductions in defense and discretionary spending. If spending cuts take effect, $55 billion will be cut from defense spending over the next decade. This cut does not impact current war costs or veterans’ benefits. Additionally, discretionary spending cuts include a $55 billion slash in areas, such as education, public safety and law enforcement.

3. Unemployment Benefits

With the American Recovery and Reinvestment Act, unemployment benefits were extended from 27 weeks to 99 weeks. This change occurred in February 2009. As of January 1, 2020, these benefits revert to the original 27 weeks, resulting in the loss of unemployment compensation for many jobless Americans.

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