January 2, 2013 9:15AM

Grading the Fiscal Cliff Deal: Terrible, but Could Be Worse

By Daniel J. Mitchell

The faux drama in Washington is finally over. The misfits in Washington reached a deal on the fiscal cliff.

Republicans and Democrats managed to come together and decide that they should get a bigger slice of what the American people earn. Gee, what a surprise.

First, the good news:

...

...

Oh, wait, there isn’t any.

Now for the bad news.

  • The top tax rate will increase to 39.6 percent for entrepreneurs, investors, small business owners, and other “rich” taxpayers making more than $400,000 ($450,000 for married couples). This is Obama’s big victory. He gets his class-warfare trophy.
  • The double tax on dividends and capital gains climbs from 15 percent to 20 percent (23.8 percent if you include the Obamacare tax on investment income).
  • The death tax rate is boosted from 35 percent to 40 percent (which doesn’t sound like a big step in the wrong direction until you remember it was 0 percent in 2010).
  • The alternative minimum tax will still exist, though it will be “patched” to protect as many as 30 million households from being swept into this surreal parallel tax system that requires people to use a second method of calculating their taxes – with the government getting the greatest possible amount.
  • Unemployment benefits are extended, ensnaring more Americans in joblessness.
  • Medicare spending is increased as part of a “doc fix” to increase reimbursement payments for providers.

This is sort of like a late Christmas present, but we must have been naughty all year long and taxpayers are getting lumps of coal.

That being said, I was expecting the final outcome to be even worse, so this deal almost seems like a relief.

Bipartisan cliff cartoon

Sort of like knowing that you were going to have your arm amputated, but then finding out that at least you’ll get some anesthetic. You’re not happy about the outcome, but you’re relieved that it won’t be as bad as you thought it would be.

But let’s not delude ourselves. This deal is not good for the economy. It doesn’t do anything to cap the burden of government spending. It doesn’t reform entitlement programs.

And we may even lose the sequester, the provision that was included in the 2011 debt limit that would have slightly reduced the growth of government over the next 10 years.

What a dismal start to 2013.