The Fiscal Cliff talks

[Alaska Darin]

I know this will be hard for you to understand, but here goes. As i argued with GG, economic growth and Greenspan's belief that the so-called "non-accelerating inflation rate of unemployment" (NAIRU) had fallen (due to productivity growth) meant the Fed let the recovery continue (around 1997) as the unemployment rate fell below 6% (most economists thought this was the value of NAIRU, the rate that would cause inflationt to accelerate). The number one factor that generated more revenues was the fact that unemployment fell to 4% (GG argues cap gains revenues were more important).

 

Now, how does this square with my comment on Clinton's tax structure? The tax structure influences what's known as the full employment budget deficit/surplus. That is, if the economy was at FE, it's the estimated (by the CBO) budget value. As I've done several times here, I've compared the budget deficit for Bush and Clinton during years when both regimes exerienced unemployment of about 4.5%. On the revenue side, Bush's tax cuts added somewhere between $100-150 billion to the deficit. So, yes, when the economy is at an equivalent state (same level of unemployment), the higher taxes under Clinton generate more revenues. Why do you think the CBO is estimating more revenues from the just announced tax increases? Are they biased?

If you don't believe that tax increases will generate higher revenues over time, then I guess you also must believe that tax cuts don't cause deficits, but then you would have to come up with a story to explain the 1980s and 2000s.

 

Ok, let your insults continue.

There certainly won't be a serious response; that hasn't happened since the last time the Bills were in the playoffs.....

You don't warrant a serious response because you take very basic statistics and try to sell them as absolutes. The problem with that "thinking" is the U.S./global economy is extremely complex and the underlying factors between the comparison periods are extraordinarily different.

 

For example, maybe we could compare the price of a BBL of oil from 1993-2000 and then from 2000-2008. Think that may have had an impact on the economy and somehow affected tax revenue? Nah, not you. You're educated. You have a statistic in your favor. That's one enormous difference, there are many more.

 

But keep ringing that bell, I'm sure your students lap it up. Young minds tend to be more drone like and willing to swallow your **** than those of us who've actually seen the world.

[3rdnlng]

TPS is at his best when he stomps his feet and declares that the fed's policy of printing money won't lead to inflation.

[TPS]

 

You don't warrant a serious response because you take very basic statistics and try to sell them as absolutes. The problem with that "thinking" is the U.S./global economy is extremely complex and the underlying factors between the comparison periods are extraordinarily different.

 

For example, maybe we could compare the price of a BBL of oil from 1993-2000 and then from 2000-2008. Think that may have had an impact on the economy and somehow affected tax revenue? Nah, not you. You're educated. You have a statistic in your favor. That's one enormous difference, there are many more.

 

But keep ringing that bell, I'm sure your students lap it up. Young minds tend to be more drone like and willing to swallow your **** than those of us who've actually seen the world.

The argument focuses on federal personal income taxes. Did the Bush tax cuts lead to a fall in federal personal tax revenues or not? conversely, did the higher rates under Clinton lead to an increase in federal personal tax revenues? I'm willing to listen and accept any rationally supported arguments. The problem is that most of the arguments made by those on the right tend to be vague and require a "belief" that something caused something else. I accept GG's argument that there was an increase in cap gains because the data show it. However, for the 2 best years, it added only $40 billion above the normal cap gains revenue. It helped push the budget into surplus territory, but it was income-based revenues that generated a bigger haul as unemployment came down.

 

If you want to explain how the price of oil caused higher personal revenues, I'm all ears. However, under the government's data, excise taxes on gas fall under a different category. In addition, the tax nominal value of the tax doesn't change as the price changes--it's not a % tax, it's a fixed amount. Again, if you have an explanation that can be supported, I'm all ears.

 

Finally, the argument about how taxes influence revenues is not mine. While supply-siders have tried to claim that lower tax rates lead to higher revenues, those who actually do the numbers in practice know better. The CBO estimates personal income tax revenues based on tax rates and wage and salary income (which they base on projected unemployment). When tax rates are increased, their estimate of revenues over time is increased; and when tax rates are cut, their estimates of revenues is decreased. This is based on the evidence (data) they have seen.

 

Btw, I'm sure it's the huge oil bonus that you all get in Alaska....

Edited January 3, 2013 by TPS

[Azalin]

 

Holy crap! Where the hell have you been?

oh, I've been around....lurking, as it were. I guess I wasn't content keeping my big mouth shut after all.

[TPS]

TPS is at his best when he stomps his feet and declares that the fed's policy of printing money won't lead to inflation.

Dude, I simply point out that the Fed has "printed" trillions of dollars for 5 years now, and I ask you why haven't we seen the inflation that you've been squawking about? It's obvious that you have no clue on the cause of inflation or about how Fed policy influences the economy. Seriously, try and provide an explanation for why we haven't seen high inflation when the Fed has printed trillions of dollars, and tell me when it will happen and how? If you can't, then stop squawking about things you don't know.

[Alaska Darin]

If you want to explain how the price of oil caused higher personal revenues, I'm all ears. However, under the government's data, excise taxes on gas fall under a different category. In addition, the tax nominal value of the tax doesn't change as the price changes--it's not a % tax, it's a fixed amount. Again, if you have an explanation that can be supported, I'm all ears.

You really need to me explain why global energy prices that were 4-500% lower during the time period would lead to higher tax revenues? REALLY?

Finally, the argument about how taxes influence revenues is not mine. While supply-siders have tried to claim that lower tax rates lead to higher revenues, those who actually do the numbers in practice know better. The CBO estimates personal income tax revenues based on tax rates and wage and salary income (which they base on projected unemployment). When tax rates are increased, their estimate of revenues over time is increased; and when tax rates are cut, their estimates of revenues is decreased. This is based on the evidence (data) they have seen.

I could give a crap about CBO estimates or any other statistic the government has thrown out. At the end of the day, the government has proven that no matter how much money we give it, they will spend that much and then MUCH, MUCH more. The answer will NEVER be to give them more money, it's to reign in the spending and limit the negative effect.

 

oh, I've been around....lurking, as it were. I guess I wasn't content keeping my big mouth shut after all.

Post more. For crying out loud!

[TPS]

 

You really need to me explain why global energy prices that were 4-500% lower during the time period would lead to higher tax revenues? REALLY?

 

I could give a crap about CBO estimates or any other statistic the government has thrown out. At the end of the day, the government has proven that no matter how much money we give it, they will spend that much and then MUCH, MUCH more. The answer will NEVER be to give them more money, it's to reign in the spending and limit the negative effect.

 

 

Post more. For crying out loud!

Yes, I really want you to tell me how lower oil prices lead to higher federal personal income tax revenues for a given level of unemployment in both cases. How did lower oil prices increase YOUR personal income taxes paid to the federal government? I'm willing to learn.

If you can't argue using some numbers (data), then all arguments boil down to beliefs. I can't argue with your beliefs. I do agree with your point that the government will spend all revenue it takes in, so if you want it to shrink, then you need to starve it. That's a different point.

[Magox]

IDK Obama can play hardball which he will, and he has a compelling argument if he communicate what the debt ceiling really is to the people...but all in all...he's going to have to deal on that one and I wouldn't call it an "upper hand" but it will be better than it was this last month.

Oh really? So when you say that he has a "compelling argument if he can communicate what the debt ceiling really is to people", I suppose you mean how the debt ceiling has been raised many times before, and that it shouldn't be used as a political ploy of some type. Yeah that makes sense, specially considering that

Obama Was For Debating Debt Limit Before He Was Against It

 

Yeah, I guess it's different when he did it. So yes, please give us your compelling argument on what the debt ceiling is really about.

[3rdnlng]

Dude, I simply point out that the Fed has "printed" trillions of dollars for 5 years now, and I ask you why haven't we seen the inflation that you've been squawking about? It's obvious that you have no clue on the cause of inflation or about how Fed policy influences the economy. Seriously, try and provide an explanation for why we haven't seen high inflation when the Fed has printed trillions of dollars, and tell me when it will happen and how? If you can't, then stop squawking about things you don't know.

 

As I've explained before, we will not see rampant inflation until the economy picks up. Now a point could be made that we will not see it because the economy won't pick up, but can you imagine the competition for goods and services if (in spite of Obama's policies) the economy kicks off?

 

You fail to use your noggin to understand the unintended consequences of a fiscal policy based on perpetually kicking the can down the road. You base your opinions on false hopes supported by your warped economic theories. If you are not going to be a thinking man, then I guess you can satisfy your own intellectual honesty by taking numbers on their surface and trying to make something of them. Ask yourself this: Why are corporations sitting on tons of cash? What happens when that cash is needed to expand their businesses? Instead of stating only the statistics that support your theories, why don't you try looking at the total picture? Anybody can predict history, especially if they slant it.

[TPS]

 

 

That's not the exercise. Draw the exact correlations to QE and fixed income funds inflows/outflows. That will give you an answer in whether the Fed is also playing with the long term rate. Or whether it's also contributing to another another credit time bomb.

In the first post you said corporate bond issuance; whereas in the quote here, you are saying fixed income funds inflows/outflows. Are you talking bonds issued by corps, or flows into fixed income funds by investors and others? If it's the latter, then that would include mortgages, which we all agree the Fed is manipulating. And that's a lot different than your first statement.

[Magox]

no... the Rs spent too much time last go 'round, offering to slash deductions, instead of raising taxes. Dems are already trumping the loophole thing in anticipation of the next negotiations...

No, the "the loophole thing" is a bargaining chip. You should know how it goes, Dem's usually push for higher taxes, R's for spending cuts, and since the "loophole thing" wasn't part of the fiscal cliff outcome, it naturally will be in the next round of negotiations. The R's have the upper hand in this argument for the reasons that I already outlined earlier. Obama's seen as very weak on the national debt, it is his achilles heal (that and the economy) and in order to try to salvage his legacy, he will have to come through with a meaningful deficit reduction bill. His problem is his base, they don't want to touch the entitlements, specifically S.S. But my guess is that he'll do it, and even though he is an ideologue, and he loves progressive causes, if there is anything he loves more, it's himself. Which means that he will do whatever he can do to build on his legacy, even if that comes at the expense of pissing off some of his base.

 

And if you think that Conservatives aren't breathing fire after the ass whooping they just got from this last Cliff Deal where there were $600 B in tax increases, $50 B in stimulus and only $15 B in spending cuts, then you are delusional.

 

The R's will hold tough on this next debt deal and they won't concede until they get the cuts they are happy with, and even the moderates will hold the line along with them, considering that they just gave Obama what he wanted in the Cliff deal.

 

Funny enough, Politico's main piece of the day is titled Obama's Debt Problem.

 

President Barack Obama won’t be able to enjoy much of a victory lap from his win over congressional Republicans on the fiscal cliff fight.

There are about 16.4 trillion reasons why.

The staggering national debt — up about 60 percent from the $10 trillion Obama inherited when he took office in January 2009 — is the single biggest blemish on Obama’s record, even if the rapid descent into red began under President George W. Bush.

 

Obama has long emphasized Bush’s role in digging the immense hole. But he owns it now, and it’s a significant political liability as he girds for a fast-approaching brawl with the GOP over how to deal with converging deadlines of a new debt ceiling fight and the need to come up with $1 trillion in deficit reduction mandated by the so-called “sequester.”

 

 

 

Former Clinton administration official Alice Rivlin, a member of Obama’s defunct deficit commission, says Obama “understands the [deficit-reduction] issue” but “he’s got to deal with his own left wing, which is not enthusiastic about doing it. The real problem … is that Social Security has become kind of [a] no-no” to liberals.

 

Now that Obama has his tax hike on the wealthy, “all the stories are going to say there’s no deficit reduction and you got what you wanted and it didn’t work. At some point, the questions are going to be asked and the charade will be revealed,” Chocola said.

By squeezing $600 billion in tax hikes on the rich out of the GOP, Obama, in effect, ate his dessert first.

Now comes the eat-your-peas part: A united GOP is in no mood to offer a dollar more in tax hikes, as Obama hopes to extract in the upcoming talks. If he wants to avoid draconian domestic and defense cuts, he’ll likely have to compromise. That might mean accepting tens of billions more in spending and entitlement cuts beyond those he’s already laid out.

Obama and his team has said they won’t negotiate over the debt ceiling again after last year’s fiasco, which led to a national credit downgrade. But by extending the sequester for a scant two months, they have guaranteed that fight will happen, several White House allies said.

 

“I think that a lot of his leverage is gone,” said a top aide to a senior Hill Democrat involved in the negotiations over the fiscal cliff. “By agreeing to a short-term deal, he’s set up a flashpoint with Democrats.”

Senate Minority Leader Mitch McConnell, Obama’s surprise ally on the fiscal cliff fight, laid down the marker on Wednesday: No more taxes.

 

“Democrats now have the opportunity — and the responsibility — to join Republicans in a serious effort to reduce Washington’s out-of-control spending,” McConnell said in a statement intended as a shot across the Obama bow.

“That’s a debate the American people want. It’s the debate we’ll have next. And it’s a debate Republicans are ready for. … And now that he has the tax rates he wants, his calls for ‘balance’ mean he must join us in our efforts to achieve meaningful spending and government reform. We have an immediate opportunity to act: the debt ceiling.”

 

[TPS]

 

 

As I've explained before, we will not see rampant inflation until the economy picks up. Now a point could be made that we will not see it because the economy won't pick up, but can you imagine the competition for goods and services if (in spite of Obama's policies) the economy kicks off?

 

You fail to use your noggin to understand the unintended consequences of a fiscal policy based on perpetually kicking the can down the road. You base your opinions on false hopes supported by your warped economic theories. If you are not going to be a thinking man, then I guess you can satisfy your own intellectual honesty by taking numbers on their surface and trying to make something of them. Ask yourself this: Why are corporations sitting on tons of cash? What happens when that cash is needed to expand their businesses? Instead of stating only the statistics that support your theories, why don't you try looking at the total picture? Anybody can predict history, especially if they slant it.

I'm glad that you at last understand that we won't see high inflation until the economy picks up. Btw, what's your definition of rampant?

 

As for the "competition for g&s," with unemployment at close to 8% and most industries and foreign companies operating at below average capacity, more goods will be produced and we'll import more as the economy "kicks off." And guess what will happen to the deficit as more is produced and more people are hired? With growth, the deficit will come down to a more manageable level. Everything else is a long term issue (see below).

 

As the economy picks up, those corps will start using their "tons of cash" to fund expansion. On the other hand, without increased demand for their goods, they'll continue to sit on that cash.

 

As for kicking it down the road, SS is funded through 2035. Medicare is funded for about another 10 years. However, it IS the healthcare liabilities that generate the really big numbers that people use when forecasting out 25+ years. Bring the cost of healthcare in line with other industrialized countries, and 2/3 of the projected deficits go away.

[3rdnlng]

I'm glad that you at last understand that we won't see high inflation until the economy picks up. Btw, what's your definition of rampant?

 

As for the "competition for g&s," with unemployment at close to 8% and most industries and foreign companies operating at below average capacity, more goods will be produced and we'll import more as the economy "kicks off." And guess what will happen to the deficit as more is produced and more people are hired? With growth, the deficit will come down to a more manageable level. Everything else is a long term issue (see below).

 

As the economy picks up, those corps will start using their "tons of cash" to fund expansion. On the other hand, without increased demand for their goods, they'll continue to sit on that cash.

 

As for kicking it down the road, SS is funded through 2035. Medicare is funded for about another 10 years. However, it IS the healthcare liabilities that generate the really big numbers that people use when forecasting out 25+ years. Bring the cost of healthcare in line with other industrialized countries, and 2/3 of the projected deficits go away.

 

Don't have time to answer all of this now but how is SS and Medicare funded with anything other than IOU's?

[Azalin]

Post more. For crying out loud!

count on it!

 

[TPS]

 

 

Don't have time to answer all of this now but how is SS and Medicare funded with anything other than IOU's?

I'm glad you stated this, because it is the crux of the issue! I've got to take off for a bit myself, but this is the real discussion that won't be had in public by congress!

[IDBillzFan]

As for kicking it down the road, SS is funded through 2035. Medicare is funded for about another 10 years.

 

How odd. The last time the president took the country down Debt Ceiling Row, he repeatedly told America if we didn't fund the government, old people would suffer because we would be unable to send them checks for SS and Medicare.

 

So one of you is wrong.

[GG]

In the first post you said corporate bond issuance; whereas in the quote here, you are saying fixed income funds inflows/outflows. Are you talking bonds issued by corps, or flows into fixed income funds by investors and others? If it's the latter, then that would include mortgages, which we all agree the Fed is manipulating. And that's a lot different than your first statement.

 

Not really, because fixed income is investing in corporates, and more specifically high yield. While in theory FI buy mortgage paper, the levels of RMBS have remained depressed, as has Fan/Fred issuances. So you will get a fairly good correlation of the gifts that Ben is giving to Obama & CFOs (who can get the financing), while stoking another credit bubble.

 

And, PS,

 

If you're going to bring up our prior discussion on Clinton tax rates and the surplus, frame it properly. It was the extraordinary cap gains that pushed the budget into a surplus. Without the dot com boom, there would be no surplus, even with full employment. Plus, your explanation is backward looking and does not address why the economy continued its growth and unemployment continued down. The biggest misrepresentation of your numbers (again) is your reluctance to admit that if Clinton didn't change tack, there would have been no economic rebound, because the economy was heading for a double dip if he followed through on his first term promises.

 

Yet, Obama keeps barreling ahead because the Clinton experiment worked so well.

Edited January 3, 2013 by GG

[TakeYouToTasker]

Dude, I simply point out that the Fed has "printed" trillions of dollars for 5 years now, and I ask you why haven't we seen the inflation that you've been squawking about? It's obvious that you have no clue on the cause of inflation or about how Fed policy influences the economy. Seriously, try and provide an explanation for why we haven't seen high inflation when the Fed has printed trillions of dollars, and tell me when it will happen and how? If you can't, then stop squawking about things you don't know.

Because the majority of this money has been sitting on various bank ledgers, and has not found it's way into the general economy yet.

 

This is not in any way an argument against the idea that it won't make it into the economy, causing a tremendous amount of inflation, over and above what we've already seen. And despite your assertions otherwise, we have seen inflation of around 9%/yr for the past four years. We've covered this already.

[Magox]

 

 

And, PS,

 

If you're going to bring up our prior discussion on Clinton tax rates and the surplus, frame it properly. It was the extraordinary cap gains that pushed the budget into a surplus. Without the dot com boom, there would be no surplus, even with full employment. Plus, your explanation is backward looking and does not address why the economy continued its growth and unemployment continued down. The biggest misrepresentation of your numbers (again) is your reluctance to admit that if Clinton didn't change tack, there would have been no economic rebound, because the economy was heading for a double dip if he followed through on his first term promises.

 

Yet, Obama keeps barreling ahead because the Clinton experiment worked so well.

 

What do you mean? Everything in TPS world is in a vacuum. I mean if Clinton had a surplus and he raised individual income tax rates, then that would surely mean that because of the higher rates it would of had to have led to the surplus. Never mind the fact that spending relative to GDP was down, never mind the fact that we were fully employed, going through a massive and historic stock market run, and that corporate profits and tax receipts were soaring. Nooooo, it was all because of the income tax rates.

[TakeYouToTasker]

Tim Geithner is planing to leave his position before cliff negotiations resume in two months. The leading candidate to replace him? White House Chief of Staff, Jack Lew who has almost zero experience in the financial sector.

 

http://www.bloomberg.com/news/2013-01-03/geithner-said-to-plan-departure-before-debt-ceiling-deal.html