Goodnight Mrs. Calabash … wherever you are
For many years comedian Jimmy Durante signed off from his radio and television shows with the statement “Goodnight Mrs. Calabash … wherever you are.” I am sometimes reminded of that Jimmy Durante quote at the end of something. And there are a few “somethings” that have brought that goodbye-statement to mind.
One thing obviously coming to an end is the year 2012, with many people hoping that 2013 will offer more opportunities for happiness, success and economic security. That leads to another thing that will end Dec. 31; any immediate hope for economic certainty. Members of Congress are now home for the holidays without a “fiscal cliff” resolution. The final factor that reminded me of Jimmy Durante? I’ll get to that shortly.
Earlier this fall I listed the major elements of the fiscal cliff and how they would collectively produce a downward influence on the nation’s economy amounting to approximately $600 billion in tax increases and spending cuts that automatically take place as the New Year begins. As the past couple of months have unfolded, people and businesses have become increasingly aware of the economic cataclysm that is nearly upon us. And I don’t use the words “economic cataclysm” lightly; with the Congressional Budget Office forecasting a recession and millions of lost jobs if the country totally falls off the cliff.
So what does all of this suggest about the (in)security of people’s lives as 2013 begins? Clearly, that will depend upon what specific political compromises will be made over the next several weeks. Even a cynic such as me does not believe politicians are so repulsive as to allow this disastrous scenario to unfold in all of its excruciatingly painful glory. So, what are the immediate elements that could impact people’s lives?
First, there is the issue of tax rates. Without a doubt, millionaires and billionaires are going to see federal marginal income tax rates go up in 2013; it’s just a matter of whether the thresholds begin at $200,00/$250,000 (for single/joint filers) — rather odd definitions of millionaires and billionaires — or some other starting point. Regardless, the tax rate tables used by employers for withholding are not likely to change immediately, so this factor probably will not have a quick impact on take-home pay. What will change January 1st is the payroll tax rate for Social Security, rising from 4.2 percent to 6.2 percent. So, for those workers who pay into Social Security, after tax income will drop two percentage points, with the payroll rate likely to remain at this higher (normal) level.
Also taking place will be an end to monies received by unemployed people via extended (federal) unemployment benefits. So, for any person who started drawing unemployment benefits before the second half of 2012, such funds will cease. And for those who became unemployed in the year’s second half, only twenty-six weeks of benefits will be available, specifically, those provided by the state one resides within.
Also having an impact will be something many people know little about, the Alternative Minimum Tax. It was originally conceived back in the late 1960s to keep the rich from being able to dodge tax obligations. Sadly, it was not well-structured, and as time progressed, more and more middle-income filers were potentially impacted. To keep this from occurring, Congress usually passes a “patch” to alleviate the unwanted consequences. Well, no patch has been crafted for 2012; so some 20-plus million additional families may be gouged by the federal government. While a patch will likely occur eventually, it will hamper the ability of the IRS to process tax returns and refunds may be delayed by months for huge numbers of tax filers.
The few factors listed above do not represent everything that may impact people’s lives adversely. But space limitations for this column do not permit me to discuss everything.
And speaking of this column, that brings me to the final issue reminding me of Jimmy Durante’s farewell to Mrs. Calabash. With this column, I will be signing off as a weekly columnist for The Delaware Gazette. Perhaps I will be back from time to time if the paper and its readers permit. But after nearly seven years, this seems like a good time to depart from my weekly writing ritual. In so doing, I would like to take the opportunity to thank everyone for their willingness to let me bend their ears (and eyes) for the past several years. It has truly been an honor and a pleasure.
Dr. James Newton serves as Chief Economic Advisor to Commerce National Bank and is an auxiliary faculty member in economics and statistics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not necessarily reflect those of Commerce National Bank or OSU-Marion/Newark.