Fiscal Cliff Predictions

The historical relationship of tax income to GDP is about 18%. During Clinton's second term, under the previous rates, tax income averaged about 20% and the deficit was closed. This was part of the justification for Bush's aggressive 2001 tax cuts if you remember. In the first year of the new rates 2002 revenues fell below 18% of GDP for the first time in ten years. In '03 and '04 it was 16% of GDP.

Remember that on the other side of the ledger the country has now committed itself to two foreign wars. Tax revenue to GDP climbs to 18.5% in 2007, the historical average. Remember on the other side of the ledger we have added a new and expensive expansion to Medicare, Medicare D. The rate of tax income to revenue then plummets under the same rates to 15% of GDP for the first three years of the Obama administration.

Our problem now is a structural deficit and massive public debt. It's a matter of basic arithmetic. Push tax income back to 18+% of GDP, cut giant recurring expenses like unending wars and Medicare part D. Neither side is even discussing the latter two options. That is our the deficit problem in a nutshell, and yes Bush had a lot to do with it.

Forgot this:

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205

Let's categorically dismiss this because of the source, notwithstanding the truth:

http://news.investors.com/politics-andrew-malcolm/121012-636426-americans-figure-out-public-employees-have-it-better-than-private-workers.htm#ixzz2EhDuT2Qk

This isn't rocket science. We can close loopholes and do away with exemptions and subsidies, thereby broadening the tax base and actually LOWERING some rates. We can put a repatriation "holiday" on the table that will bring a massive influx of capital back to the US as it has done before. Both are pro-growth strategies, IF we get the government out of the way instead of bloating it further, as we are at the Federal level. Prevent the government from picking winners and losers. Have smart, not overzealous regulation. Start tapping our natural resources and building thorium nuclear reactors to create millions of real jobs. Audit the Fed and turn off the printing presses. Cut spending, but not all at once. There will be short term pain, but the longer we put this off, the more painful it will be.

The compromise eluded to here earlier is merely akin to kicking the can. If we're not going to do anything, then sell Alaska (and maybe Hawaii or some other US territories). Or lease it. That would go a long way toward paying down our deficit. Lastly, massively overhaul entitlements. I'm not being facetious. At least Canada would tap those resources.

berzerker wrote:

Forgot this:

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205

Sagarin wrote:

Let's categorically dismiss this because of the source, notwithstanding the truth:

Yes, we can all see why the calculation * receipts/gdp * could be so easily dismissed as deceptive propaganda. Classic slight-of-hand to the unsuspecting.

Word is that the Republicans are pissed about high earners rate probably going up and they are ready to hold the debt ceiling hostage again when it comes up in the next couple of months or so.

Mitch McConnell brought a bill to vote to give the president power to raise the debt ceiling with the need of a veto-proof majority of Congress to over turn it.

But then right after he introduced it, he fillibustered his own proposal.

Obama could require a debt ceiling increase right now in exchange for an agreement to lower rates on the lower 98%.

It's definately a pisssing match.

The Republicans seem at a disadvatage right now.

Doing nothing hurts their ideals more.

The game continues.

berzerker wrote:

Yes, we can all see why the calculation * receipts/gdp * could be so easily dismissed as deceptive propaganda. Classic slight-of-hand to the unsuspecting.

I was referring to my link, not yours. That much should've been obvious. X-Runner is correct. It is a pissing match. But even the specter of raising taxes on the "rich" is pulling revenue forward and will result in less revenue and lower GDP going forward.

California is a great proxy for the nation and a reason people are fleeing the state. Detroit is on the brink. IL, NY, and NJ are all a mess. Meanwhile, all 50 states have a secession petition going, however small.

“It’s outrageous what public employees in California receive in compensation and benefits,” said Lanny Ebenstein, who heads the California Center for Public Policy, a Santa Barbara-based research institution critical of public payrolls.

“Until public employee compensation and benefits are brought in line, there will be no answer to the fiscal shortfalls that California governments at every level face,” he said.

http://www.bloomberg.com/news/2012-12-11/-822-000-worker-shows-california-leads-u-s-pay-giveaway.html

A proxy indeed. Are you paying attention Dirty Harry Reid?

Fear-Mongering and Tax Hikes

Is this a spending problem or a revenue problem?

The answer should be clear, but thanks to fear-mongering by governor Jerry Brown, fear-mongering by teachers' unions, fear-mongering by police and fire unions (and fear-mongering by every other public union in the state), California voters were stupid enough to pass Proposition 30.

The proposition hikes California’s sales tax to 7.5% from 7.25%, a 3.45% percentage increase over current law. It also "temporarily" hikes income taxes for seven years, on four high-income tax brackets for taxpayers with taxable incomes exceeding $250,000, $300,000, $500,000 and $1,000,000.

The top income bracket in California is now 13.3% tax rate on taxable income over $1,000,000--a percentage increase of 29.13% over current "millionaires tax" policy of 10.3%.

Proposition 30 Will Backfire

I confidently predict Proposition 30 will backfire.

Indeed, proposition 30 will be the final straw prompting many millionaires to exit the state. I expect some major businesses will follow as well.

Expect More Hikes in Taxifornia

A US recession started this summer or is on the way now (take your pick). Either way, since California could not bring in enough revenue in 2011, it will fail to do so in 2012, even with those monstrous tax hikes.

Expect unions to ask for still more tax hikes because tax hikes and unions go hand-in-hand. Good luck with that Taxifornia.

http://finance.townhall.com/columnists/mikeshedlock/2012/12/11/taxifornia_lessons/page/full/

apologize for all the bolding...

cluelessyank wrote:

Flagpole's investments will return +20% for 2013, just like always.

No, not like always. I LOST a lot in 2008. I WISH I always got 20+% every year...I'm more on 11% a year on average since 1989.

So far in 2012 (not including today's UP day), I'm up 16.2% YTD. Nice year.

I'd like to look more into the scenarios of state income tax.

A quick look says that the high tax states are a mess.

But a second look shows that they are the more densely populated states.

Lower populated states seem to try to entice people with low or no income tax, like Tenessee.

I don't know if people are fleeing California.

The population is steadily increasing past 35M on its way to 40M and it hasn't lost any congressional seats.

Tons of people want to live in New York and California because there is work there and more money to be made there so they will pay the higher rates.

And I suppose they give more benefits, so lower income poeple are not inclined to leave, which causes that high cost burden.

People can go to Florida or Texas for nice income tax rates if they can find work. We know Florida attracts retirees.

As more people are able to work from home and remote in to work, we may see more people move and work in low tax states and get the benefit high pay from a company based elsewhere.

The US gets pretty complicated with all of these borders and different state laws and regulations.

This whole "Fiscal cliff" mess has just proven (again, as though there was any doubt) that neither party is serious about reigning in deficit spending.

X-Runner wrote:

The US gets pretty complicated with all of these borders and different state laws and regulations.

Yes it does, but it's a perfect paradigm for what happens when you incentivize/disincentivize capital. And it's now a global paradigm, which is why all of these arguments about your father's or grandfather's economy and tax rates won't work. Skilled people and people with money are leaving CA. As for total population growth, yes, it's probably climbing, but I would want to see a demographic breakdown for that as well.

The Fed should just quit monetizing the debt and let what will eventually happen, happen. Then our politicians and president will be scrambling.

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.

Ask him about the qualifications for being a real man, too while we're off topic.

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..

Your analysis of fed tax revenue is a lame example of cherrypicking stats to 'prove' an opinion. Simple graph here of 2000-08 tax revenue:

http://www.usgovernmentrevenue.com/downchart_gr.php?year=2000_2008&view=1&expand&units=b&fy=fy11&chart=F0-fed&bar=0&stack=1&size=m&title&state=US&color=c&local=s

Nominal dollars, eh? Understand that at 2% inflation a full 3/5ths of the gain over that period is not-real. You aren't even looking at the fiscal years in which Bush had a hand in creating policy, those would be years 2001-2009 (Federal fiscal year ends Sept. 30).

Using your data source and changing the parameters I get this graph, which presents tax revenue as a percent of GDP:

http://www.usgovernmentrevenue.com/revenue_chart_2001_2009USp_11s1li011mcn_F0f

It reflects the same values I used in the source you disapprove of.