Earlier this week Americans held their breath entering the new year as lawmakers soaked up every allotted second to reach an agreement on the fiscal cliff deal. While neither side of the political line is fully satisfied with the deal, both sides do agree that having reached some level of compromise is good for the future of our country.
Without getting into opinions on the matter, let’s look at the facts. First, there will be an increase in the income tax rate from 35 to 39.6 percent for those who earn $400,000 an higher. On one side, this means that there will be more revenue for the government to use for spending in other areas of policy and programs. On the other side, this increase could reduce charitable donations and investment potential; allowing for the potential to have a damaging effect the need for social programs and cause turmoil in the stock market.
However, the flip side to the tax increases does bring one important aspect of economic recovery, stability. How so? Large corporations, investment firms and entrepreneurs tend to favor confidence in predictability of the tax code before making large moves towards dispensing capital. This change in tax policy does afford for at least some level of prediction and control among the nation’s top venture firms, which is ultimately good for recovery.
Second, the mortgage interest deduction has been saved, allowing for homeowners to continue to seek a reduction in their tax bills through subtracting their payments in mortgage interest. This deduction has been an important tax issue that has helped combat the ill effects of the foreclosure and mortgage debt crisis, and is likely to benefit the continued recovery of the housing market.
While there is no need to throw a celebration quite yet, the deal that has been reached thus far does show some promising signs towards allowing the economy to move forward and out of a deep recession.