The Fiscal Cliff Approacheth

[Direckshun]

In an effort to make this thread sticky-worthy, I am going to update this OP to keep casual glancers informed.

This post is the official one-stop shopping of the key points/developments of the fiscal cliff negotiations.

Far as I understand, the fiscal cliff:

1. Gets rid of the Bush tax cuts for the wealthy.
2. Gets rid of the Bush tax cuts for everybody else.
3. Slashes defense spending by something like $500 billion.
4. Slashes domestic programs like the NIH, Head Start, and medicine/drug care for the poor by $500 billion.

The new idea is for Democrats to allow the cliff to hit, then immediately introduce a bill that would bring 2, 4, and some of 3 back. But not 1.

Here is a chart detailing exactly what the fiscal cliff is going to do, financially:

Spoiler!

Originally Posted by Direckshun

New CBO projection: if the fiscal cliff hits, we are in another recession, and lose two million jobs.

http://www.reuters.com/article/2012/...87L0JV20120822

The poor would be hurt by the fiscal cliff:

Originally Posted by Direckshun

Overall, if the tax breaks from the 2009 stimulus are allowed to expire—the EITC and Child Tax Credit expansions, along with American Opportunity Credit for college tuition—the poorest 20 percent of Americans would see their taxes go up by $209 on average, reducing their after-tax income by 1.9 percent, according to the Tax Policy Center.

As would the middle class:

Originally Posted by Direckshun

According to estimates by the Tax Policy Center, more than half of all married couples will owe an additional tax of around $4,000 unless Congress acts. And more than a third of families with children will fall subject to the AMT, with parents of three or more children facing an extra tax of $4,700.

Among married couples with at least two children and adjusted gross income between $75,000 and $100,000, the center estimates that 84 percent will face a significantly higher tax bill this year because of the AMT.

There seems to be some consensus between the parties that substantial revenues want to be raised. Boehner and the GOP hopes that's through limiting tax deductions rather than tax raises.

Obama's opening offer, essentially:

• Allow the Bush tax cuts on high earners to expire. $849 billion
• Limit itemized deductions to 28 percent, close some loopholes and deductions on high earners, eliminate tax breaks for oil and gas companies, eliminate the carried interest loophole, plus a few other items. $584 billion
• Create a special "Buffett Rule" tax rate for millionaires. $47 billion
• Restore the estate tax to 2009 levels. $143 billion
• Limit corporate income shifting to low-tax countries. $148 billion
• Other miscellaneous tax increases and reductions. About -$200 billion
• Total: $1.6 trillion

[Direckshun]

http://wonkwire.com/2012/11/21/the-a...nking-deficit/

The Amazing Shrinking Deficit
November 21, 2012

“Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II,” Investor’s Business Daily reports.

“If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn’t risk backfiring. That’s why the best way to address the fiscal cliff likely is to postpone it… In fact, a number of so-called deficit hawks are calling for short-term tax cuts to spur growth, rather than immediate austerity. From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.”

[dirk digler]

Originally Posted by Direckshun

http://wonkwire.com/2012/11/21/the-a...nking-deficit/

The Amazing Shrinking Deficit
November 21, 2012

“Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II,” Investor’s Business Daily reports.

“If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn’t risk backfiring. That’s why the best way to address the fiscal cliff likely is to postpone it… In fact, a number of so-called deficit hawks are calling for short-term tax cuts to spur growth, rather than immediate austerity. From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.”

This can't be true

[go bowe]

Originally Posted by Direckshun

http://wonkwire.com/2012/11/21/the-a...nking-deficit/

The Amazing Shrinking Deficit
November 21, 2012

“Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II,” Investor’s Business Daily reports.

“If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn’t risk backfiring. That’s why the best way to address the fiscal cliff likely is to postpone it… In fact, a number of so-called deficit hawks are calling for short-term tax cuts to spur growth, rather than immediate austerity. From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.”

pfffffft...

socialist propaganda!

skewed polling!

liberal lies!

[Direckshun]

Talk of raising the gas tax is on the table.

The federal gas tax was last raised in 1993 and 1990, each time as part of a deficit-reduction plan. After failing for years to overcome public opposition, supporters of another increase see the current talks as a once-in-a-generation chance to raise the tax.

The U.S. government spends roughly $52 billion a year on highway and transit projects, but the gasoline tax is generating only about $37 billion annually.

[Direckshun]

Boehner wants parts of Obamacare on the table:

The president’s health care law adds a massive, expensive, unworkable government program at a time when our national debt already exceeds the size of our country’s entire economy. We can’t afford it, and we can’t afford to leave it intact. That’s why I’ve been clear that the law has to stay on the table as both parties discuss ways to solve our nation’s massive debt challenge.

Obama does not:

In an email to TPM, a Senate Democratic leadership aide called the idea “a total nonstarter. Boehner’s office knows that, so even bringing it up is counterproductive.”

President Obama and Democrats have previously agreed to relatively minor cuts to the law, such as a reduction in the size of the prevention and public health fund as part of the deal to extend the payroll tax cut through the end of this year.

[Direckshun]

The key negotiators here:

Boehner's chief-of-staff: Mike Sommers
Obama's chief-of-staff: Jack Lew
Harry Reid's chief-of-staff: David Krone
Legislative laiason: Rob Nabors

Krone and Nabors have good relations with Sommers. To be sure, other players will be in the room, among them: Gene Sperling, White House chief economic adviser; Brett Loper, Boehner’s policy chief; Steve Stombres, the chief of staff for House Majority Leader Eric Cantor, R-Va.; Neil Bradley, Cantor’s policy guy; John Lawrence, House Minority Leader Nancy Pelosi’s, D-Calif., chief of staff; and Rohit Kumar, deputy chief of staff to Senate Minority Leader Mitch McConnell, R-Ky.

[mnchiefsguy]

Originally Posted by Direckshun

Talk of raising the gas tax is on the table.

Any politician who votes for or advocates raising the tax on gasoline has no credibly when it comes to talking about supporting the middle class, or any class below it. A tax on gas is direct shot to the gut, as the middle and lower classes are the ones using their cars to work their two to three jobs to make ends meet. A tax on gas also raises the cost of food, and pretty much anything that is transported via truck in this country.

If Obama truly cared about the middle class as he claims, this would not be on the table. The fact that it is not a non-starter with the Republicans shows that they don't give a crap about the middle class either.

[patteeu]

Originally Posted by mnchiefsguy

Any politician who votes for or advocates raising the tax on gasoline has no credibly when it comes to talking about supporting the middle class, or any class below it. A tax on gas is direct shot to the gut, as the middle and lower classes are the ones using their cars to work their two to three jobs to make ends meet. A tax on gas also raises the cost of food, and pretty much anything that is transported via truck in this country.

If Obama truly cared about the middle class as he claims, this would not be on the table. The fact that it is not a non-starter with the Republicans shows that they don't give a crap about the middle class either.

As long as we're going to fund our highways through a gas tax, the gas tax ought to be high enough to either provide that funding or discourage the driving that creates the wear and tear. I dont know if the current rate of taxation does that or not, but the article suggests that it doesn't.

I don't generally like targeted taxes like this, but taxing consumption is a lot better for our future economy than taxing production, IMO, and if there's one area of consumption that's been subsidized in a non-transparent way over the past few decades, it's petroleum products (via our big security investments made to keep oil flowing globally).

[BigRedChief]

Originally Posted by patteeu

I don't generally like targeted taxes like this, but taxing consumption is a lot better for our future economy than taxing production, IMO, and if there's one area of consumption that's been subsidized in a non-transparent way over the past few decades, it's petroleum products (via our big security investments made to keep oil flowing globally).

I haven't read anything lately about consumption vs. production tax revenue. But, what I have read about consumption taxes were that they were unbalanced and unfair compared to benefits.

Basically, it's easy to build a highway road and pay for it with a toll. It's not so simple for city and county roads, food, clothes, water etc.

[BucEyedPea]

Originally Posted by BigRedChief

I haven't read anything lately about consumption vs. production tax revenue. But, what I have read about consumption taxes were that they were unbalanced and unfair compared to benefits.

Basically, it's easy to build a highway road and pay for it with a toll. It's not so simple for city and county roads, food, clothes, water etc.

Estonia handled its fiscal cliff and revived their economy by keeping down their income tax (taxing production) and slightly increasing its consumption tax.

[patteeu]

Originally Posted by BigRedChief

I haven't read anything lately about consumption vs. production tax revenue. But, what I have read about consumption taxes were that they were unbalanced and unfair compared to benefits.

Basically, it's easy to build a highway road and pay for it with a toll. It's not so simple for city and county roads, food, clothes, water etc.

We're going to "fair" ourselves into the global poor house if we aren't careful. As for unbalanced, I don't know what you mean.

We used to essentially be THE global market and our producers didn't really need to worry about exports. Every year, our share of the global market declines and exports become more and more important to our prosperity. Taxing consumption instead of production is a way of eliminating the tax overhead in the price of our exports so they are better able to compete in global markets while applying equal tax overhead to the price of both domestically produced products and imports for our own market so our products are more competitive here.

In theory, a consumption tax can be made progressive to alleviate your fairness concerns but that comes at a cost of (a) added complexity, (b) increased economic distortion, and (c) decreased revenue. I'm against progressivity, but practical reality, i.e. the greed of the lower/middle class, would probably require some degree of it.

[BigRedChief]

Originally Posted by patteeu

We used to essentially be THE global market and our producers didn't really need to worry about exports. Every year, our share of the global market declines and exports become more and more important to our prosperity.

That era is never coming back. We had factories already ramped up for war. We were undamaged at home. We had a monopoly to sell the goods that rebuilt after the war.

During this post WWII era, we allowed the largest middle class the world has ever known to be built. We are still living off that success as our exports have declined.

We can't compete with $5.00 an hour wages. What we have to discover is that widget that we can build cheaper and pay "American" wages and still sell overseas or we are going to be a consumption economy forever. This is why I strongly advocate to keep the middle class strong. Without it, we are doomed for failure. Maybe not next year or the next but eventually everything will collapse.

[BucEyedPea]

Originally Posted by BigRedChief

During this post WWII era, we allowed the largest middle class the world has ever known to be built. We are still living off that success as our exports have declined.

Well, actually this started during the Industrial Revolution and continued after the disruption of the DD and WWII.

[patteeu]

Originally Posted by BigRedChief

That era is never coming back. We had factories already ramped up for war. We were undamaged at home. We had a monopoly to sell the goods that rebuilt after the war.

During this post WWII era, we allowed the largest middle class the world has ever known to be built. We are still living off that success as our exports have declined.

We can't compete with $5.00 an hour wages. What we have to discover is that widget that we can build cheaper and pay "American" wages and still sell overseas or we are going to be a consumption economy forever. This is why I strongly advocate to keep the middle class strong. Without it, we are doomed for failure. Maybe not next year or the next but eventually everything will collapse.

I'm not trying to bring any bygone era back. I'm anticipating the future world. Talk of keeping the middle class strong is a democrat (and to some extent a populist Republican) codeword for insulating our old ways from the realities of the global market and you can only keep that going for a while before the real world smacks you in the face. It's better to get out in front of it and do what we can now to align our society to thrive under those conditions.

Your mention of the era when we had the luxury of being the supplier for a war-torn world is worth keeping in mind. Under those conditions, we didn't have to be streamlined for export because we were the only game in town. Like you said, that's not likely to ever be the case again. We need to face that reality and stop trying to cling to the old ways (e.g. progressive income tax, luxurious employee-provided benefits like healthcare, high wages for jobs that don't require extensive training or skill, gold-plated welfare state, etc.).

[HonestChieffan]

Gas tax on top of a carbon tax seems great. Hope it applies to diesel so we can get transportation of goods and food up a bit higher.

Consumption taxes are not all bad.