Fiscal Cliff Predictions

what? the top 5%, i.e. the 'wealthy', paying ONLY 40% of all fed income taxes isn't fair enough for you? What is with you people's resentment of those more successful than you?

The graph you linked to cited figures in nominal $$. Someone pointed this out but you don't see this as a problem. When presented in inflation adjusted $$ it's clear that there was no growth. Revenue is the same in '08 as it was in '00, i.e. zero growth.

http://www.usgovernmentrevenue.com/revenue_chart_2000_2008USk_11s1li011mcn_F0f

As pointed out previously, growth was negative in relation to GDP. Not zero, but less than zero. Please explain why your conclusion is contrary to all available data including your own.

I'm all for reforming entitlements. But understand that we can have social security as is; a universal single payer health system, the strongest armed forces in the history of the world, a drastic reduction in taxes on jobs, maintain the current top marginal tax rate, and still be a financially stable country. In fact I don't see any way we can afford NOT to do this.

Here is how you do it:

1 Reform the tax code:

Raise taxes through following:

- Cut out virtually all tax loopholes that cost $600 billion/year

- Put in a reasonable VA tax, Carbon tax, and Financial securities tax.

- Have a reasonable Wealth tax. Have an exemption on the first $5 million in accumulated wealth and then a reasonable .5-1% tax on the rest.

Cut taxes through the following:

- Eliminate all payroll taxes. (Employer and employee).

- raise the standard deduction to $100,000 and a graduated tax bracket thereafter up to 35%.

- Eliminate the AMT.

- Cut corporate tax rates to about 10-15%.

Cut spending:

More or less use the Rand Paul proposal that cut $500 billion in a year. These were broad spending cuts across all of government but didn't touch entitlement spending.

I'm also a believer that eliminating payroll taxes, and raising the standard deduction will in itself cut welfare. People want to work. When these barriers to working are cleared you will see a drastic reduction in applying for unemployment benefits, food stamps, SSI, etc.

Also, rein in the Federal reserve which is artificially inflating the economy and creating a hidden tax and hidden spending with all the government spending that is linked to inflation. Again, eliminating taxes on jobs will in itself create the full employment the FED is ostensibly striving for and therefore should do away with the drastic monetary easing its doing now.

Wait a minute. Did you say there is a way to maintain the highest bracket where it is, maintain an exemption on any wealth over $1-2 million, cut payroll taxes, cut corporate taxes, cut spending, and rein in the Fed? Impossible. How could you propose such a thing? We HAVE to raise taxes and leave spending alone in the name of "fairness." That's the ONLY way to get out of this quagmire. The Fed can simply monetize Congressional largesse forever, can't it?

I don't agree with all of your ideas, but, finally, someone is talking some pro-growth sense.

I take it you are being a little facetious?

In any case, what I just laid out is not "pro-growth". Though it is not anti-growth either. Growth will take care of itself. But I do think Americans consuming less is not a bad idea and maybe let a small rate of deflation work through the system.

Its more just a common sense policy for America where the incentives are correctly aligned as they should be. Work and building up job skills is rewarded by not taxing work. Taxes are levied first and foremost on what is unhealthy (i.e. pollution). Then secondly when wealth is realized. Only as a last resort is work taxed.

Also, I support letting businesses being businesses. They should be free to hire and fire people at will and I don't mind "free trade" with communist countries and other oppressive regimes. But they should pay a high rate of tax for that incredible right they are given when they realize a large profit on that.

Your ideas bout spending cuts aren't realistic. The fact is that people like gov't programs and Congress won't cut them. Every gov't program has a constituency that likes it and the #1 goal of a politician is to get re-elected. Congressman won't risk losing a key constituency group. There's just no way gov't can cut 500 billion a year.

Right now. Yes. Hence why I only brought it up in about the 155th post of this thread. If you want realistic, given the politicians in power, I stick to what I said before and simply do nothing. That is the least worst and realistic plan we have. But one thing you should take note of. Just about everything I laid out is popular with a very large segment of the American public if not a majority. When you look at it, its actually a good compromise of all the best progressive and conservative ideas. Its progressive in that it is truly progressive, taxes wealth, and cuts corporate welfare. But has the best elements of the consumption tax (VAT) and flat tax (closing off all loopholes and keeping rates down) in addition to big spending cuts. But none of this is even remotely on the radar screen of anyone at the centers of power. It goes to show how bought off and corrupt the two major parties are. Its all about specific interest groups buying their way into the corridors of power and protecting their narrow interests.

Fluffy wrote:

Your ideas bout spending cuts aren't realistic. The fact is that people like gov't programs and Congress won't cut them. Every gov't program has a constituency that likes it and the #1 goal of a politician is to get re-elected. Congressman won't risk losing a key constituency group. There's just no way gov't can cut 500 billion a year.

No progress right now.

They are stuck on the same points that they have been the whole time.

At least that is what they are publicly saying (they being Obama and Boehner).

After tomorrow, Congress is scheduled to go on break for the rest of the year.

So they screwed themselves out of their break because they will have to be available for votes and writing up the details if and when they come to an agreement.

Basically, in order to implement any new plan, they have to come to an agreement by next Friday December 21, which coincides with the end of the world.

How poetic.

the election for speaker of the house is scheduled for january 3rd. i'd be surprised if boehner is interested in making a deal before then. he wants to be speaker.

Sagarin wrote:

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.

No. Raising a trillion dollars by changing tax rates moves a trillion dollars from private hands into government coffers just the same as eliminating a trillion dollars worth of exemptions and loopholes does.

No difference in the total amount of taxes paid. No reason to think that one is pro growth and the other is not.

This a conservative deception, plain and simple.

It's ridiculous you cherry-pick one point that you don't agree with and ignore the rest (by the way, when is the last time we actually did broaden the tax base and lower rates simultaneously?). You ignore this:

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

You ignore the rest:

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.

And you ignore this because it is incompatible with your philosophy:

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%.

http://www.businessinsider.com/mary-meeker-usa-inc-february-24-2011-2

If you'd like to cherry-pick what I've written further, however disingenuous, fine, but rebut Berkeley liberal Christina Romer or any number of economists who find that raising marginal rates is contractionary. Or rebut Mary Meeker's analysis (after you've read the whole thing presentation, which you won't, but there's some stuff in there or liberals too) that cutting spending is the most important thing we can do.

We can also invest in infrastructure and especially domestic energy infrastructure without a government mandate picking which industries "should" succeed. That alone would create millions of jobs.

Excuse me for not responding to every meandering point in your post other than the one that addressed my original request: "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."

What he said was:

"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."

But that doesn't make sense because if it results in tax evasion and sheltering and less revenue, then it isn't taking money out of the private sector and putting into the hands of the public sector.

There seems to be this obsession with the form of taxation over the amount of taxation.

It's like arguing that they would rather pay with four fives than a twenty.

And that paying with four fives creates more jobs than paying with a twenty.

The truth is - if you reform the tax code in a way that is revenue neutral in net, then it will always result in one group of people paying more tax and another paying less tax.

That is basic arithmetic:

A+B=C

If C is tax revenue and A and B are tax payers and you keep C constant, any change in code will change the amounts paid by A and B.

Either A pays more and B pays less or vice versa.

When reforming the tax code you have to figure who will be in group A and who will be in group B.

And the groups are usually defined by income level.

So in revenue neutral tax reform will high earners pay more or will low earners pay more?

That's assuming such sheltered money is put to work and allocated productively. Generally, it is retained or invested in a manner to merely produce income while waiting for reform. Webby, I answered your question and provided a lot of ammo to back it up. If you can't see that raising marginal rates is considered contractionary by a great many excellent economists, that we have a spending problem, not a taxing one, and that small businesses are telling us that overzealous regulation and taxation is hurting them, then there's no use furthering the discussion.

I will add that I understand some of the fundamentals of why people want tax reform.

Every deduction has a political purpose and usually came from lobbying for an industry.

So the tax code will assist certain endeavors and chooses favorites.

It favors home owners over renters and particularly favors people that borrow for homes over people that saved for homes and owe less.

High earners have a lot of different business expenses that can be deducted among other types of deductions.

The issue is that of these breaks are now embedded in the economy and would hard and maybe damaging to unwind.

Take the mortgage interest deduction away and a couple of things happen:

Those tax payers suddenly will have taxes go up and less money to spend.

And a bigger effect is that home values will drop because the tax break is factored into the sales price in most cases.

With over 1/4 of all homes still under water, this would be a huge set back and kill the recovery.

All of the tax breaks have their own story and any reform process will be a very big undertaking.

Not a two week plan, for sure.

Right now, it's just going to be about the rates.

Sagarin, here is why the debate seems centered on the revenue side. Everyone can see that spending needs to be cut. People see that government is bloated, they see that the growth in the costs of Medicare are unsustainable, they see that defense spending is through the moon. Everyone can see that tax rates are at or near alltime lows. Nearly everyone can agree that this combination is the driver of current deficits. Everyone that is but the anti-tax zealots and small groups opposed to any actions of the current President. To correct the current deficit there needs to be a policy prescription of spending cuts and tax hikes - everyone but a small minority of Americans support a corrective measure of this type. We even have decades of empirical data that show its effectiveness, primarily with Clinton's tax hikes, but also via the observable widening deficits after Reagan's cuts and Bush II's cuts.

Closing the deficit was the primary objective of last year's foolish debt ceiling fiasco. Now that decisions need to be made the discussion pivots to the need to protect growth or job makers or fairness. It is political distraction by one faction that refuses, under any circumstance, to use one of the two available levers to affect deficits. It is the rejection of empirical experience and known economic mechanics to support an ideological worldview. This is the current bottleneck in our nation's economic policy and this why the discussion continually turns to focus on the revenue side.

I read in the NY Times today that there is a coalition of the most "conservative" republicans and most "liberal" Dems who are willing to do nothing and let the "fiscal cliff" ride.

Its kind of entertaining watching this play out. There seems to be genuinely strong currents to get some kind of deal made. But whenever they come close to a deal a lot of people in the WH and Congress ask themselves "How is this any better than simply letting the spending cuts go through and the tax cuts expire?" The conservative Republicans don't like the tax cuts expiring. But they do like the spending cuts that are scheduled to go through. A deal risks losing those cuts. And they are probably right.

Congress also doesn't seem to be taking Bernanke that seriously. Again, I think they are right to do that. Bernanke as Fed Chairman might be right from a purely economic statistics point of view on the effect of going over the "fiscal cliff". But the Fed Chairman is an unelected official who has no business making judgements on how well off Americans are and what is best for them.

IT'S ALL HYPE. LAST YEAR IT WAS CALLED THE DEBT CEILING. CONGRESS IS A WHORE THAT DOES MORE TRICKS EACH YEAR TO REPEAT THE CYCLE- THIS FISCAL CLIFF TALK IS JUST A SPENDING BILL LOADED (ABSOLUTELY LOADED) WITH UNRELATED BILLS FOR THE LOBBY.

IT'S AN OLD TRICK. SUCKERS.

I won't spend much more time on this topic, as I feel I am merely recycling from old threads. Citing Clinton's taxes hikes as "empirical" data is amusing. A better word would be "spurious." Nevermind that he repealed Glass-Steagall with the prodding of Greenspan, Rubin, and Summers, that he benefited from a massive productivity boom as a result of the technology bubble that blew up in 2000, resulting in the recession of 2001, that he had the support of a feckless Fed, which helped promote the bubble, that he CUT capital gains rates, and even as he raised marginal rates, they were still lower, on average, than the Reagan years. Reagan and Bush were big spenders. I'm not arguing that. But feckless monetary policy and a housing bubble that crossed both aisles in the wake of the tech bubble left us with the "Great Recession."

Even if not in the short run, we will get far more bang for our buck if we focus on the spending side then the revenue side. A study of some 30+ similar episodes to the one we're experiencing right now by McKinsey Global Institute showed austerity as the only plausible way out in something like 75% of the cases studied. The other 25% were relatively small countries who could strategically default/devalue their way out. Austerity need not happen all at once, and it won't work right away. But it is extremely critical, as well as entitlement reform. X-Runner is right that there would be unintended consequences from getting rid of exemptions, subsidies, etc. But there will be unintended consequences either way. We can broaden the tax base and lower rates, or we can raise rates and lock up more capital. Frankly, the specter of increased rates is pulling revenue forward this year, companies are paying special one-time dividends, etc.

But, frankly, I'm fine with going over the cliff. Agreeing to tax hikes now for meager spending cuts and merely the promise of "more to come" is a road to nowhere. Congress and the president will find a way to spend the "extra" revenue as they always do, and even if they didn't, the Fed will continue to enable Congressional and Executive irresponsibility until the market forces its hand. The Fed is playing a dangerous game. Ryan is right. A little deflation wouldn't be a bad thing. Frankly, had we properly restructured our debts in '08 and not gone on a bailout binge, with the government picking winners and losers and deciding who should merge with who, we'd be in a much stronger position. As it is, the Fed monetizes, and the velocity of money stagnates.