We hear all sorts of opinions on whether or not we should avoid the fiscal cliff. For those in the middle class, it’s that extra $2000 the White House has been talking about. For the small business owner, the fear is that they’ll have to figure out how to pay the extra amount that was afforded through the temporary payroll tax cut. For the working poor, the fear is that they will lose the safety net that has kept them from slipping further into poverty. An ever shrinking group of Republicans are saying that the so-called job creators won’t be able to afford the extra 5% on capital gains. And some Democrats want to call the bluff of those Republicans who are afraid of that 5% increase by letting the whole thing go over the cliff.
With all the din in the foreground, we don’t hear the screams of those who are freaking out about a substantial increase if the fiscal cliff is not averted. It’s not the capital gains tax rate that they’re worried about, but instead it’s the tax rate that they’ll have to pay on dividends. The effective rate will go from a low 15% to 39.6%. If you add on the new tax to pay for the Affordable Care Act, it comes to a whopping 43.4%. This is a big increase, even for those who make plenty of money from their stock dividends to live off, and a bunch extra for luxuries most of us can only dream about.
There’s no need to worry. They’ll still be able to pay the pilot for their corporate jet, but they may think twice about upgrading to the newest model. These jet setting stockholders won’t be standing in line at the nearest food pantry. They’ve got big fat checks that will be in their stockings before the year is over. Big companies are sending out special dividend payments, or they are moving up the date of their regularly scheduled quarterly dividend checks, all before the January 1st deadline. Companies that are sending out those checks in anticipation of the tax Armageddon include household names like Caterpillar, Dillard’s, Sirius XM Radio, Southeby’s and Wal-Mart.
Other companies are feeling more confident that the fiscal cliff will be averted. They are not frantically printing and sending out those checks. Instead, they are staying with their regular payment schedule. The question is, why are some companies confident that the fiscal cliff will be averted while others are cutting checks early? The answer: follow the money. In this case, follow the money makers to Washington D.C.
On Tuesday, over 160 executives signed a letter saying they would be okay with raising taxes, at least on the ones that most people can relate to. They’re willing to compromise on that issue in order to avoid the much larger increase that would drastically increase rates on dividends. Negotiations continued yesterday at the White House. Several hedge fund managers met with White House Aide Valerie Jarrett on how to resolve the fiscal cliff.
Knowing all this makes me believe that the fiscal cliff will be diverted after all. Right-wing Republicans and Grover Norquist will have to take this one on the chin. The vast majority of those in the 1% have come to their senses by realizing that they really can afford the 5% tax hike. Of course, it’s easy to be without worry when you control a very large chunk of the country’s wealth and assets. That nice fat check in the stocking doesn’t hurt either.