Generally and very simplistically, the “fiscal cliff” involves expiring tax cuts and across-the-board government spending cuts scheduled to become effective Dec. 31. If that date passes with no compromise on the part of the White House and Congress, what happens next?
First and foremost, the average Mississippian will pay higher taxes. But according to the Tax Foundation, Mississippians would pay on average $1,310 more in taxes annually (lowest increase among the 50 states) while Connecticut taxpayers on average would bear the largest increase at $5,783 in additional taxes annually.
For Mississippians, that would translate into an average tax hike of 3.15 percent. More than half the states would see a minimum $2,000 tax hike for the average taxpayer in their state.
Estate taxes will be a major change. Currently, federal estate taxes at a rate of 35 percent are due from individuals with a minimum net worth of $5 million and married couples with a minimum net worth of $10.2 million. Going over the fiscal cliff means that the “death” tax would then apply to people with a net worth of at least $1 million at a rate of 55 percent.
Second, federal spending will decrease and most analysts predict that private investment will decrease right along with it. The nation’s stagnant employment numbers are likely to be exacerbated – and that would hold true in Mississippi, too.
Cuts in defense spending would hammer a number of Mississippi communities where Raytheon, Northrup Grumman and other defense contractors and subcontractors have manufacturing plants.
Higher taxes, even with Mississippi seeing the lowest increase in the nation, will put more pressure on small businesses and on retail businesses. In states like Mississippi where sales taxes are the dominant driver in government revenues, pressure on retail sales translates into stagnant or reduced government revenues at the state and local level.
Considering the impacts on Mississippi of going over the so-called cliff, one would hope that the saner path of compromise would be reached along the lines of the Bowles-Simpson deficit reduction plan made by the bipartisan presidential commission on the nation’s debt and deficits.
Back in 2010, the co-chairmen of the commission (former Clinton administration White House chief of staff Erskine Bowles and former Wyoming Republican U.S. Sen. Alan Simpson of Wyoming) told the nation’s governors that current budgetary trends constituted “a cancer that will destroy the country from within” unless Congress and the White House takes action.
The basic premise of the Bowles-Simpson plan was that present federal revenue is consumed by the obligations of three federal entitlement programs: Social Security, Medicare and Medicaid.
“The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans – the whole rest of the discretionary budget is being financed by China and other countries,” Simpson said. Bowles has said: “We can’t grow our way out of this.”
Significant tax hikes without significant spending cuts – including entitlements – won’t avoid the more ultimate and ominous “fiscal cliff” that threatens the U.S. in the longer term.
Sid Salter is a syndicated columnist. Contact him at firstname.lastname@example.org or (601)507-8004.