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Discussion in 'Men's Economics' started by Michael Scally MD, Dec 2, 2012.
[ame=http://www.youtube.com/watch?v=aZOdjgYJu_s]Why the Fiscal Cliff is a Scam - YouTube[/ame]
Deficit Reduction: Fiscal Drag or Addition through Subtraction?
Why the fiscal cliff will be averted
Why the fiscal cliff will be averted - FT.com
December 3, 2012 8:18 pm
By Roger Altman
Last Thursday saw the start of negotiations in Washington on a deficit-reduction agreement to be passed by year-end. If struck, a deal would avert the much-feared fiscal cliff – $500bn in annual tax increases and spending cuts, which is set to begin in four weeks. Despite the immediacy of this threat, there is widespread fear that the negotiations may fail, triggering this huge fiscal contraction and pushing the fragile US economy back into recession.
Fortunately this fear is misplaced because America will not go over the fiscal cliff and stay there. However bumpy the talks, a deficit agreement will probably emerge just before or a week or two after the year-end deadline. The agreement will reduce deficits without injuring economic growth. And it will boost consumer and business confidence.
Why this relative optimism? First, in the presidential election that just ended, taxes were debated every day. Not only did President Barack Obama win the election decisively but exit polls indicated 70 per cent support for his position on taxes, namely that high earners should pay more, but the middle class should not. In other words, the people have spoken on this issue and members of Congress cannot ignore that without jeopardising their own positions.
Second, capital markets will rebel against stalemate and recession risk. They are the most powerful force on earth, repeatedly forcing global outcomes that normal political processes cannot. The October 2008 congressional vote on the troubled asset relief programme legislation is particularly instructive. At that time, Lehman Brothers had collapsed, credit markets were frozen and fear reigned. The Bush administration proposed Tarp, and the Senate voted to establish it. But the House voted No. Stock prices immediately fell 800 points and, within 48 hours, the House reversed its position. Why? Because constituents were terrified.
Markets are already preoccupied by the fiscal cliff. If negotiations appear stuck, share prices will fall as year end approaches. Then, if the deadline passes without agreement, they will probably plummet. Under that pressure, as in 2008, Washington will probably produce a deficit agreement. At worst, Congress and the president would extend the middle income tax cuts on which they agree. There will be no direct blow to the economy.
Third, the US business community is now pushing for an agreement. Since election day, Mr Obama has spent considerable, productive time with business leaders on this. Most of them will accept moderately higher tax rates, provided that spending cuts and the total savings package are big enough. This flexible approach from business weakens the anti-tax forces in Congress, who are the biggest obstacle to an agreement.
A successful agreement would embody three principles; it will be large enough to stabilise the debt to gross domestic product ratio, meaning about $4.5tn in savings over 10 years; it will include a balance of spending cuts and revenue raising measures; and it will be divided into two phases because, with just four weeks left, there isn’t time to legislate the entire package.
The negotiators already know the main elements of an agreement. Spending cuts should exceed the amount of new revenues. That should not be hard because $2tn of cuts are already agreed; $1.2tn in reduced discretionary spending was enacted last year and an additional $800bn will be realised by ending the Iraq and Afghanistan deployments. But it is also time to restrain entitlement spending, which has been soaring. Steps such as means testing Medicare, modernising cost of living adjustment formulas and others could save another $600bn. When the resultant interest savings are added in, total spending is reduced by $3.2tn over 10 years.
It is also important to include a growth initiative. The 2010 payroll tax cut and bonus depreciation should be extended together with emergency unemployment insurance and other expiring provisions. These would cost $200bn annually, reducing the net spending cuts to $3tn.
That leaves at least $1.5tn of revenue increases to truly solve the debt problem. Two-thirds of that can be achieved by returning to the, slightly higher, Clinton-era tax rates on income and capital for high earners. Those rates coincided with an economic boom in the 1990s. Our income tax system is now less progressive than ever and a big majority favours such a move. Then, to reach the revenue target, the value of most tax deductions could be capped at about 20 per cent, removing the advantage high earners enjoy, where the value of deductions equals their higher rate of tax.
This overall package would fix the debt problem, support the economy and protect middle-income Americans while avoiding the fiscal cliff. It would also spur business investment and hiring and pave the way for eventual positive growth surprises. That’s why these negotiations must succeed.
The writer, who served as US deputy Treasury secretary from 1993-94, founded and chairs Evercore Partners
[ame=http://www.youtube.com/watch?v=c91usT4P1u0]Fiscal Cliff | The Simpsons | Animation on FOX - YouTube[/ame]
[ame=http://www.youtube.com/watch?v=amPQcsW3jg8]12-04-12 Macro Analytics - Fiscal Cliff & Constitution in Crisis - YouTube[/ame]
[ame=http://www.youtube.com/watch?v=626XBDUXcS8]Fiscal cliff: All it takes is a superhero - Felix TV - YouTube[/ame]
Ray Dalio’s Full Discussion at the DealBook Conference
PRAGMATIC CAPITALISM – Ray Dalio’s Full Discussion at the DealBook Conference
I have been preaching about this problem for more that 10 years. I am, or was until 6 months ago, a Political Scientist (PhD from East Coast school).
The current deficit is $55k for every person in this country. However, the largest age cohort (baby boomers) are starting to retire. Thus, they will no longer be working and paying taxes into the system, but instead drawing Social Security and Medicare benefits. The deficit it will become much worse.
We finance our out of control debt via selling bonds to the Chinese. A bond is essentially a promise to pay back the loan w/ interest. China no longer views us as a good credit risk.
Gundlach: Fiscal Crisis the Issue, Not Fiscal Cliff
Gundlach: Fiscal Crisis the Issue, Not Fiscal Cliff: Video - Bloomberg
U.S. Budget Compromise Deal Reached
U.S. Budget Compromise Deal Reached - WSJ.com
Full-Text Bill: Mat 12564
Congress approves ‘fiscal cliff’ measure
Congress approves ‘fiscal cliff’ measure - The Washington Post
Not sure this deal really helps anyone long term and there are so many other things that need to be hashed it.
That said I will say moving up from $250k to $400k will help a great many people. Or put another way keeping tax increases at $250k would've hurt many people.
I know when the average house hold income is $50k it hard to convince people that $250k isn't a whole lot of money in certain parts of the country but it's not.
Take a dentist for example who attended a private college and a private dental school. These poor bastards are coming out of school with $400k in debt (that's roughly $3500 per month to repay). Don't forget they've also been out of the work force for 10+ years. In my town in CT the average home is $600k - that's for a typical 2500-3000 sqft house and we're not talking granite counter tops and marble bathrooms. Cost gas, utilities, food, all services right down to child care are all significantly higher than Kansas.
Now you start to buy into a practice and that's another million dollar loan. You need insurance, etc, etc.
Now you have a family and you try to be responsible and you need life insurance which must cover your family's needs PLUS your practice debt. Disability insurance etc, etc, etc.
Average dental practice has 60% overhead and if you factor into that your business loan repayment 75% over head. If you produced $1M in dentistry (doesn't happen overnight - may take years and some practices never reach this mark) you'd make that $250k. Start subtracting out all the above and you're living paycheck to paycheck and can be classified as economically fragile.
This is not necessarily my situation but it is the situation for MOST of the new doctors, dentists and lawyers I know in this area.
Anyway the $400k seems more reasonable.
Fiscal cliff? Who cares? But a fiscal CRISIS now that's a different matter, LMFAO.
These morons are absolutely pathetic!
We would ALL be better off if government would cease governing and return home, rest assured few would note their absence.
Of note, in France the new proposed RESIDENT "tax rate" for the "super rich" approximates 75%. Now just guess which developed country is suspected of becoming "poor" overnight if these changes are instituted, (just to save the lazy, oh I'm sorry I mean the poor.... defined in France as inadequate funding for "morning Tea")
I like you more and more everyday Doc!
American Taxpayer Relief Act of 2012
After the Debt Ceiling is increased ...
Calculated Risk: After the Debt Ceiling is increased ...
The US Economy in 2013-2016: Moving Over the Hump
The Future's so Bright ...
Calculated Risk: The Future's so Bright ...
[ame=http://www.youtube.com/watch?v=8lnslMWhOTw]Keiser Report: Welcome Home German Gold (E395) - YouTube[/ame]
No Growth, Easy Money: Navigating the New Normal
No Growth, Easy Money: Navigating the New Normal: Video - Bloomberg
Jan. 25 (Bloomberg) -- Bank of Italy Governor Ignazio Visco, Deutsche Bank's Anshu Jain, French Minister of Finance Pierre Moscovici, Bank of America CEO Brian Moynihan, China Investment Corp.'s Jin Liqun and Bridgewater Associates Founder Ray Dalio debate the future of the global economy. Bloomberg's Francine Lacqua moderates. They speak on the Bloomberg Television Special, "No Growth, Easy Money: Navigating the New Normal."