The Fiscal Cliff

[Goatnapper'96]

It appears to me that Republicans are showing signs of consenting to increased revenue. To save face they want to eliminate loopholes/deductions, i.e. the Romney plan, and either lower rates or keep rates the same so Brother Norquist will still feel that he is the most interesting man in the world. I could care less if they return to the Clinton tax rates for the rich, although I would probably prefer it for all.

However, the Liberals are really digging in that there will be no cuts to Social Security or Medicare. I guess I can understand the logic that there is not the time to reform these two huge entitlements. But it appears to me that Liberals are becoming more convinced that our budget issues can be solved through some "modest" tax increases on the most blessed among us. Or perhaps they are becoming convinced they have another "mandate" or what one really successful President said after his re-election "I gots me some political capital, and I intend to use it." I think they are full of shit.

My Democrat friends have assured me that President Obama is really a pragmatist and he will find a way to lead towards a balanced approach on the budget/deficit. It will be interesting whether or not they are correct. I hope we don't just punt the fiscal cliff with some resolution that prevents the tax hikes and spending cuts until some grand bargain can be achieved. I just don't believe the Conservatives are willing to increase taxes enough to fix the issue and I don't think the Liberals can stomach the cuts it would take even if the taxes returned to the Clinton tax rates on just high earners.

Perhaps we will come out of this with higher taxes on high earners only and no spending cuts. Emotionally for those of us on the "R" side it would suck, but it would get us closer to fixing the issue I guess.

I guess elections have consequences!

[Uncle Ted]

Taxing the rich doesn't necessarily mean a significant increase in tax revenue. I believe Obama's own estimate was something in the neighbor of $70 Billion. In fact, a tax increase on the rich can actually cause a decrease in tax revenue as states and other countries are finding out the hard way.

I am still trying to figure out why going over this "fiscal cliff" is such a bad thing. So the Bush tax cuts will expire for everyone which will add something like $500 billion to tax revenue and another $500 billion will be cut from the budget. Is that the end of the world?

[Indy Coug]

As far as entitlements go, at the bare minimum they need to start raising the retirement age. It needs more than that to "fix" it, but at least that's a starting place that most rational people should be able to get on board with.

[Goatnapper'96]

Taxing the rich doesn't necessarily mean a significant increase in tax revenue. I believe Obama's own estimate was something in the neighbor of $70 Billion. In fact, a tax increase on the rich can actually cause a decrease in tax revenue as states and other countries are finding out the hard way.

I am still trying to figure out why going over this "fiscal cliff" is such a bad thing. So the Bush tax cuts will expire for everyone which will add something like $500 billion to tax revenue and another $500 billion will be cut from the budget. Is that the end of the world?

I agree with you that there is a limit to which the rich are willing to be taxed. I have read many of the studies that you often cite. However, the US is realizing a much lower percentage of GDP in government revenues than it has for many years. I believe we can increase government revenues through an intelligent tax reform process that does not hurt economic growth. Heck, I believe returning to the Clinton tax rates across the board and cutting spening (i.e. austerity) is a good plan. It would likely throw us into a recession for a while but it would also get us back to living in a world where our GDP and government revenues are a reflection of reality. Consumers have been forced to start living more within their means individually the past few years, now if we could just get the government to provide services as the services actual cost/revenues realized we would be moving in the right direction.

I also agree with you about the fiscal cliff actually not being such a bad thing. In my perfect world Romney would have won and a bitter Obama would have forced the fiscal cliff on the US by not budging on his position that "modest" tax increases on the wealthiest 1% would bring to pass nirvanna. However, he won and the Democrats seem emboldened that cuts to the spending are no longer neccesary.

[Applejack]

As far as entitlements go, at the bare minimum they need to start raising the retirement age. It needs more than that to "fix" it, but at least that's a starting place that most rational people should be able to get on board with.

Agreed. The only "easy" way to reduce spending in any of the budget areas that actually matter (defense, medicare, medicaid, social security) is to raise the retirement age and phase out s.s. payments for high net worth individuals. Social security could be fixed with some relatively modest tweaks that don't appear to me to be political poison. I'm sure that Congress will prove me wrong, however.

[Goatnapper'96]

As far as entitlements go, at the bare minimum they need to start raising the retirement age. It needs more than that to "fix" it, but at least that's a starting place that most rational people should be able to get on board with.

Now that I am beginning to lick my wounds from the election and read some political news again, I spent some time reading an article on the NY Times about the Simpson-Bowles plan. The comments were amazing to me. Bowles, who made his money as an investor, was not treated particularly well by the hard left that leaves comments there. I wonder what world those folks live in sometimes. One comment on Social Security made me chuckle in that the poster commented that nobody gets worried about where the money for the Pentagon to buy bullets comes from. It appears to me that Social Security has changed from a concept of a program we all pay into and thus receive benefits from to a safety net based upon re-distribution of wealth, well at least in the minds of some.

I agree with you that I cannot understand how a small adjustment such as raising the retirement age is so offensive to some.

[Uncle Ted]

The following seems like a nice summary of the problem...

[YOUTUBE]eiaYmhQsBHc[/YOUTUBE]

[Uncle Ted]

I agree with you that there is a limit to which the rich are willing to be taxed. I have read many of the studies that you often cite. However, the US is realizing a much lower percentage of GDP in government revenues than it has for many years.

Are you including the fact that the US has one of the highest corporate tax rates in the developed world (if not the highest) in with that percentage of GDP figure?

[Indy Coug]

For those that survive to the retirement age of 65, US male life expectancy has increased 51% and 39% for females from 1940 to 2011. That's an additional 6.5 years for males and 5.7 years for females. Yet, the retirement age has remained the same.

[Donuthole]

I can't remember who said it, but I got a chuckle from whoever said (paraphrasing) "With the country approaching the fiscal cliff, it probably wasn't a great idea to elect the candidate with the motto 'Forward'."

[Goatnapper'96]

Are you including the fact that the US has one of the highest corporate tax rates in the developed world (if not the highest) in with that percentage of GDP figure?

Taxes paid as a percentage of GDP don't take tax %'s into account. I think the US is getting about 15% of GDP in tax revenues and it has historically gotten 17-19%. I think the Laffer Curve demonstrates that no matter what your tax rates are you will never receive more than 19% of GDP in tax revenues and if the tax% increase to get higher than that it becomes self-defeating. But I don't think Liberals think much of Art's scholarship.

[Clark Addison]

I think there is a decent chance (30% to 50% maybe?) that nothing gets done by the end of the year. If that turns out to be the case, I think there is a decent chance that the stock market takes a bit of a short-term nose-dive before the folks in Washington figure out they better do something. I'm not talking looting in the streets types of societal breakdowns, but maybe a 5%+ drop. I am thinking of getting out of the stock market almost entirely in a week or two and seeing if there are bargains to be had in early to mid-January.

Feel free to tell me if I am being an idiot.

[Goatnapper'96]

I think there is a decent chance (30% to 50% maybe?) that nothing gets done by the end of the year. If that turns out to be the case, I think there is a decent chance that the stock market takes a bit of a short-term nose-dive before the folks in Washington figure out they better do something. I'm not talking looting in the streets types of societal breakdowns, but maybe a 5%+ drop. I am thinking of getting out of the stock market almost entirely in a week or two and seeing if there are bargains to be had in early to mid-January.

Feel free to tell me if I am being an idiot.

I am not sure that would be so bad. But you are still an idiot.

[PaloAltoCougar]

For those that survive to the retirement age of 65, US male life expectancy has increased 51% and 39% for females from 1940 to 2011. That's an additional 6.5 years for males and 5.7 years for females. Yet, the retirement age has remained the same.

That fact, coupled with the fact that the ratio of SS Contributors:SS recipients has dropped from something like 9:1 when I was born (1952) to less than 3:1 now, makes the liberals' refusal to cut benefits or push back the retirement age seem painfully absurd.

[Indy Coug]

That fact, coupled with the fact that the ratio of SS Contributors:SS recipients has dropped from something like 9:1 when I was born (1952) to less than 3:1 now, makes the liberals' refusal to cut benefits or push back the retirement age seem painfully absurd.

Thanks for adding that. I was going to talk about that too, but got distracted with work things. There is significant demographic risk associated with the current pay-as-you-go funding method used by the government because if your work force shrinks relative to the retirement "force" you either are forced to significantly increase how much each worker has to pay in order to pay for other people's retirement, or you have to cut back retiree's benefits.