Fiscal Cliff Predictions

ingenius wrote:

First off, your math is a bit short. A 2% increase in the payroll tax and at least a 1% increase in your effective income tax rate is going to cost a guy with your income $100 for one month.

Secondly, while $100 isn't going to send you into a life on the streets, the cumulative effect of everyone having $100-$500 less each month, for even one month, will have noticeable effects on the economy. Corporate managers don't just wait until sales dip to adjust production. Neither do analysts in the stock or bond markets. Without action before Jan 1, these changes will be priced into the markets before you see your smaller check.

On the bright side, is this good for deficit reduction? On a long term basis it probably is.

Ok, the point still stands. This isn't a cliff. $50/paycheck isn't going to break the bank, and if you're living in a manner that it will...you need to re-evaluate your spending priorities.

This situation doesn't have some cliff deadline. It could be resolved in Jan/Feb with minimal damage to most of us.

Wrong. Completely wrong. I'm not going to go deep into it in this thread. But Fannie and Freddie and the community reinvestment act had virtually nothing to do with the crises except in so much as Wall Street tried to push to privatize and profit off of it.

POMPATUS OF LOVE wrote:

No, you are incorrect. Your Wall St. reference is about subprime securities I assume, but where did they originate? From horrible residential lending policy dictated - even mandated - by the fed govt.

So now we're gonna blame Bush for fed tax revenue not being high in 2011-12 when barry's borrowing epidemic & attempt to drown our economy in red ink was in full force? How long do we blame Bush for all that's wrong?

saving my 401K wrote:

Flagpole,

I know this is slightly off topic, but I would like to know which mutual funds you're using for your 401K, if any. My company offers almost entirely all Vanguard funds.

Well, I should probably refrain from this, and I won't give you ALL of them, but I'll give you my biggest ones (as in most holdings, not necessarily biggest gains), and also, I don't ever recommend funds to others, because it's real money and I don't want to be responsible for their losses or bad gains, but here are my big winners from 2012 so far. I have Vanguard and Fidelity Funds mostly and then a side American Funds account.

All percentages are YTD

Fidelity

ARTISAN MID CAP INV - UP 17.04%

FID CONTRAFUND K - UP 15.43%

FID DIVERSIFD INTL K - UP 17.53%

FID DIVIDEND GR K - UP 16.98%

FID SM CAP DISCOVERY - UP 19.86%

SPTN US BOND IDX IS - UP 4.52%

Vanguard

My Vanguard stuff hasn't done as well as my Fidelity stuff this year. The total of my Vanguard stuff YTD is 14.2% while the Fidelity (and little in American Funds) takes the total YTD up to 16.2%).

My holdings in Vanguard include:

Extended Market Index Fund Investor Shares - UP 16.82%

Small-Cap Index Fund Investor Shares - UP 16.78%

Wellington Fund Investor Shares - UP 12.38%

Windsor II Fund Investor Shares - UP 16.15%

and several others

I change things around one or two times a year, but when I do that, I MOSTLY buy some other funds...some of the above have been part of my holdings for a long time.

Flagpole,

I've been meaning to ask you. What online brokerage account do you recommend to use. I currently have a Vanguard account. Its good in some ways. Its cheap obviously because of the whole Vanguard philosophy. But it seems more limited and constricting. I don't want to do anything close to day trading. I generally have my money in diversified mutual funds held for the long term. But I want to have a healthy cash balance and play the market a little. I read the news everyday and kind of like you I see where things are going and the market doesn't quite make sense. Every couple months or so I would like to buy or sell out of investments when opportunities seem to present themselves.

Mainly I just want to buy or sell index funds or mutual funds. But maybe individual stocks as well if something piques my interest.

This would all be from an IRA account if that matters.

Since it's open season and a prediction thread. The circumstances are basically a repeat of 1980 or was it 1981. Remember, hmmmm?

Remember shortly after Reagan took office he went on television to explain his budget proposal? Nobody understood the speech different time same circumstances.

I use Vanguard and Fidelity and American Funds. I am all in mutual funds and only switch things around very infrequently. I don't buy individual stocks, so I am not a good person to ask for this information.I suggest that people are ready to buy individual stocks only when the following is true:1) You have NO debt including a paid for house (or equivalent).2) If working you continue to put in 15% or more into retirement accounts made up of mutual funds.3) If retired you don't spend more on stocks than you can budget out of your retirement draw allotment.4) You own no fewer than 5 stocks and no more than ~20% are in any one sector.I still have a mortgage, so according to my own rules, I can't buy individual stocks. I may do it some day, but I might not too.

You're right - in a class by his self on that.. as in lowest increases in annual spending in 60 years.

http://www.politifact.com/truth-o-meter/statements/2012/may/23/facebook-posts/viral-facebook-post-says-barack-obama-has-lowest-s/

[quote]POMPATUS OF LOVE wrote:

I wasn't arguing that W didn't contribute to the deficit problem. I agree he was a huge part of it - but barry is in a class by his self on that..

barry & W can share blame for 2009, but the burst housing bubble - which was the source of most of our economic woes - can logically be blamed on democrats from Clinton to Barney Fwank/Chris Dodd.

Blame W for some of 2008-09 if you like, but to what do you attribute the spike in fed tax revenue in the years preceding?

right, my bad. Had nothing to do with the housing bubble. What was I thinking. Blame the rich, blah, blah...

Carry on.

brilliant - barry the fiscal hawk. Works for me - let's just forget about that $6T debt increase in 4 years too. Probably can find a facebook post somewhere that refutes that as well.

Sagarin wrote:

What the GOP needs to point out is that Obama agreed with closing loopholes only as recently as 2011 and he didn't want to hike rates because growth was so slow.

Please explain the difference in impact on the speed of growth between closing a trillion dollars of "loopholes" and raising a trillion dollars by raising taxes.

ryan foreman wrote:

Actually a huge answer to all of our economic problems is simply letting recessions happen. Really, why don't we have an honest discussion about what would really happen if we went off this fiscal slope. Apparently we would go into recession. So what?

I think we will find out if you are right very soon. It's likely that it would cause a brief recession followed by the kind of sustained growth we saw when Clinton/Newt slashed entitlements and military spending last time.

I have a hunch that Obama would be perfectly happy to let us go over the cliff, because it's a way to do what Clinton did without the backlash from the left -- because he can blame it on the right this time. And it's absolutely the only way he'll ever be able to cut military spending and raise taxes as long as the Republicans have a stranglehold on the House (not to mention the 40% of the Senate that is apparently enough for them to dictate policy).

My prediction is that we'll go over and be better off than we are now within a year or two. Or the Republicans will realize that it's win-win for Obama and cave so dramatically that it gives Obama one of his greatest political victories and makes the Republicans look utterly powerless.

Politifact is not Facebook. Let's just forget about the economic implosion of 08 and 09. The debt is all from Obama and his massive, non-existant spending spree. The world began on 1/20/09.

POMPATUS OF LOVE wrote:

brilliant - barry the fiscal hawk. Works for me - let's just forget about that $6T debt increase in 4 years too. Probably can find a facebook post somewhere that refutes that as well.

POMPATUS OF LOVE wrote:

Blame W for some of 2008-09 if you like, but to what do you attribute the spike in fed tax revenue in the years preceding?

Are you trying to put forth an argument for supply side tax policy? Lower taxes generate higher tax revenues, and so forth? This idea was discredited twenty years ago. It was discredited by a link to official government statistics posted in this thread, by yourself. Give it a rest bro.

Raising taxes takes money out of the private sector and puts into the hands of the notoriously inefficient public sector, and it always results in tax evasion and sheltering, resulting in less revenue. This is what is happening in CA. Closing loopholes and doing away with exemptions BROADENS the actual tax base, such that we could probably CUT some rates and would likely raise more revenue and promote growth as a result. A repatriation holiday would bring a mass influx of capital back to our shores, as it has done in the past. There are numerous economic studies showing that raising marginal rates is contractionary. Even the infamous Bruce Bartlett, who supposedly jumped ship from the supply-side to the Keynesian side back in 2008 penned an article for the Financial Times in 2010 that tax cuts and credits only work when they are made permanent. He referred to Bush's rebate as a stupid exercise in Keynesian policy (I criticized it at the time) and cited a subsequent study that showed most people merely saved the extra cash rather than spending it, as was predicted.

It's ridiculous that this entire debate seems only focused on the revenue side, as though that's our problem. Raise taxes on the top earners, fund the government for a few extra weeks, and thwart growth even further, while doing nothing about the liability side of the ledger. Makes sense to me. Even the NFIB survey of small businesses cited excessive regulation and taxes as some of the biggest stalwarts to growth, and they are the job creators who are going to be hurt the most. Multi-millionaires and billionaires will merely find ways to lower their effective tax rate, even if it means going offshore or moving.

Christ, just do away with the entire tax code and go strictly to a consumption-oriented tax that exempts "necessities" such that it's not overly regressive. That's how you "soak the rich." Our forefathers never foresaw an "income tax" or "tax on capital." They merely had transactions taxes. People are largely ignorant of this fact. Income taxes weren't even permanently implemented until 1913. Capital will flow to wherever it is treated the most friendly. That's why so many UK banks have fled for greener pastures like Singapore. That's why Panama has a "City of Knowledge" with a 0% corporate tax rate. They are attracting a lot of biotech research down there and that's how they will ultimately build their tax base. We live in a world of global tax and wage arbitrage and competition for capital capital and intellectual capital. This ain't the 1950s or the 1990s anymore.

I think raising taxes on the wealthy is more important than you do, but I agree that's not the only thing we need to do. I'm looking forward to my Social Security payments just like anyone else, but we need to acknowledge that we live longer...dates for SS and Medicare either need to be pushed out, OR less money given...I prefer dates pushed out. If people want to retire early, then invest for that.When Social Security was conceived, it wasn't intended to provide income for someone for 35 years or more...average life span was in the 60s then...now for men it's over 75 and women are now over 80. If you're white it's a little higher. If you're black, it's a little lower.

Former economic advisor to Obama, Christina Romer, for one:

"Her recent work (with David Romer) has focused on the impact of tax policy on government and general economic growth. This work looks at the historical record of US tax changes from 1945-2007, excluding "endogenous" tax changes made to fight recessions or offset the cost of new government spending. It finds that such "exogenous" tax increases, made for example to reduce inherited budget deficits, reduce economic growth (though by smaller amounts after 1980 than before).[10] Romer and Romer also find "no support for the hypothesis that tax cuts restrain government spending; indeed ... tax cuts may increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases."[11] However, she notes that "Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent." [12]"

http://en.wikipedia.org/wiki/Christina_Romer

webby wrote:

ryan foreman wrote:

Actually a huge answer to all of our economic problems is simply letting recessions happen. Really, why don't we have an honest discussion about what would really happen if we went off this fiscal slope. Apparently we would go into recession. So what?

I think we will find out if you are right very soon. It's likely that it would cause a brief recession followed by the kind of sustained growth we saw when Clinton/Newt slashed entitlements and military spending last time.

Clinton also restructured welfare, which Obama undid. Plus, we were pretty close to running a budget surplus back then and had a technology revolution underway. It was a game-changer, the likes of which we won't see again for quite some time.

This is dated, but that only makes the situation more dire, with its key takeaways:

Spending as a percent of GDP rose 3 percent each year from 1790 and 1930. Worse: It rose to 24% in 2010.

Here's a great breakdown of America's biggest costs.

Debt levels will be three times current levels by 2030. Entitlements and interest alone will exceed total revenue by 2025.

Only 1 in 50 Americans needed Medicaid when it was first created in 1965, 1 in 6 Americans receives Medicaid now.

Extended unemployment benefits could set back America Inc. $34 billion in the next two years alone.

The only good investments: technology, education and infrastructure.

The crucial reforms: entitlement and tax policies

There is no quick-fix to America's deficit problem. While raising taxes could help, the only real solution is cutting costs.

Why we should cut Medicare benefits by 53%

Why we should increase the retirement age to 73 or cut Social Security benefits by 12%.

BTW, you're right, the Republicans would get blitzed by the media as per usual, but does the president really want to risk a protracted recessionary malaise? is that the legacy he wants. And this Federal Reserve... Unbelievable.

Thanks for the update!