The Fiscal Cliff talks

[3rdnlng]

Grover Norquist, love him or hate him, has an idea:

http://www.politico....0827.html?hp=r2

 

 

Hasn't the most transparent administration ever been putting everything on C-Span like they promised?

[John Adams]

but PBO is, once again trying to play the ending two wars as spending cuts. I think he needs to be called on that cause what's he gonna do? Go start 2 wars just to be able to say "I told ya so" ?

 

Both sides count the war windowns as cuts.

[B-Man]

Fiscal Cliff Notes

 

By Thomas Sowell

 

Amid all the political and media hoopla about the "fiscal cliff" crisis, there are a few facts that are worth noting.

 

First of all, despite all the melodrama about raising taxes on "the rich," even if that is done it will scarcely make a dent in the government's financial problems. Raising the tax rates on everybody in the top two percent will not get enough additional tax revenue to run the government for ten days

.

And what will the government do to pay for the other 355 days in the year?

 

All the political angst and moral melodrama about getting "the rich" to pay "their fair share" is part of a big charade. This is not about economics, it is about politics. Taxing "the rich" will produce a drop in the bucket when compared to the staggering and unprecedented deficits of the Obama administration.

 

{snip}

 

Debasing the value of money by creating more of it is nothing new or esoteric. Irresponsible governments have done this, not just for centuries, but for thousands of years.

 

It is a way to take people's wealth from them without having to openly raise taxes. Inflation is the most universal tax of all.

 

All the pretty talk about how tax rates will be raised only on "the rich" hides the ugly fact that the poorest people in the country will see the value of their money decline, just like everybody else, and at the same rate as everybody else, when the government creates more money and spends it.

 

If you have $100 and, after inflation follows from "quantitative easing," that $100 dollars will only buy what $80 bought before, then that is the same economically as if the government had taxed away one-fifth of your money and spent it.

 

But it is not the same politically, so long as gullible people don't look beyond words to the reality that inflation taxes everybody, the poorest as well as the richest.

http://www.creators....liff-notes.html

[/dev/null]

Hasn't the most transparent administration ever been putting everything on C-Span like they promised?

 

The Most Transparent Administration Ever^TM is doing a Twitter chat with the President this afternoon in regards to the Fiscal Cliff®. Which means some low level intern is sitting around waiting for some useful idiot to pose a question for which they have prepared talking points

Edited December 3, 2012 by /dev/null

[Joe Miner]

The Most Transparent Administration Ever^TM is doing a Twitter chat with the President this afternoon in regards to the Fiscal Cliff®. Which means some low level intern is sitting around waiting for some useful idiot to pose a question for which they have prepared talking points

 

There's no need to wait when Intern #1 poses the correct question to intern #2.

 

That's definitely a shovel ready job.

[TPS]

http://www.creators....liff-notes.html

And what will the government do to pay for the other 355 days in the year?

 

Bit of an exaggeration on his part. About 2/3s pf those days of government spending are already covered by current revenues. Second, once the economy is back at a more normal level of unemployment, say 5%, then we are looking at a structural deficit of about $200 billion (+/-50), which leaves about 20 days of spending yet to be covered. Throw in taxing the rich, and we get it down to 10 days. Taxing the rich reduces the structural deficit by 1/2, and that is the real issue.

[Cinga]

http://www.creators....liff-notes.html

 

It COULD end up much worse than 1.00 to 80 cents... We normally have about 800 billion is circulation but due to quantitative "easing" we have roughly 3 trillion as the Fed has tried to stimulate borrowing and spending. That gives us the potential anyway, of over 300% cumulative inflation rate if the economy picks up, and the Fed doesn't draw it back in quickly enough.

 

But quite frankly, I think the gov is counting on that inflation to cut the deficit. It would be a tax hike on everyone without having to raise a single rate as people move into a higher income bracket...

[3rdnlng]

Bit of an exaggeration on his part. About 2/3s pf those days of government spending are already covered by current revenues. Second, once the economy is back at a more normal level of unemployment, say 5%, then we are looking at a structural deficit of about $200 billion (+/-50), which leaves about 20 days of spending yet to be covered. Throw in taxing the rich, and we get it down to 10 days. Taxing the rich reduces the structural deficit by 1/2, and that is the real issue.

 

Gee, I hate to oversimplify things, but the unemployment rate was highest in October of '09 at 10%. It is now at 7.9% which means its over 40% of the way towards reaching your goal of 5% unemployment, that would get our deficit down to 200B. How much deficit reduction was gained from that drop in unemployment? What correlations can we draw from the last three years of deficit reduction to where we'll be when we reach 5% unemployment?

[John Adams]

Bit of an exaggeration on his part. About 2/3s pf those days of government spending are already covered by current revenues. Second, once the economy is back at a more normal level of unemployment, say 5%, then we are looking at a structural deficit of about $200 billion (+/-50), which leaves about 20 days of spending yet to be covered. Throw in taxing the rich, and we get it down to 10 days. Taxing the rich reduces the structural deficit by 1/2, and that is the real issue.

 

Oh, so all we have to do is lower unemployment by 3% and we're still hugely in the red every year. This is your argument for taxing the rich?

 

Is your mic on? Are you here all week?

[3rdnlng]

Looks like the Repubs don't have any problem going back to the deal from the Summer of 2011.

 

 

http://www.washingtonpost.com/blogs/right-turn/post/republicans-make-their-fiscal-cliff-counteroffer/2012/12/03/16f1b75e-3d8e-11e2-8a5c-473797be602c_blog.html?hpid=z2

 

In a letter sent to President Obama today, House Republican leaders made a new offer to avert the fiscal cliff centered around a middle ground approach first presented to Congress last year by President Clinton's former White House chief of staff, Erskine Bowles. The Bowles plan, presented in 2011 to the Joint Select Committee on Deficit Reduction, is consistent with the framework House Speaker John Boehner (R-OH) proposed

the day after the election

: a balanced approach of significant spending cuts and new revenues from tax reform with fewer loopholes and lower tax rates. This is another attempt to jumpstart substantive, good faith negotiations toward a bipartisan solution that can be enacted soon, a stark contrast to the unserious proposal the White House put forward last week.

[keepthefaith]

Bit of an exaggeration on his part. About 2/3s pf those days of government spending are already covered by current revenues. Second, once the economy is back at a more normal level of unemployment, say 5%, then we are looking at a structural deficit of about $200 billion (+/-50), which leaves about 20 days of spending yet to be covered. Throw in taxing the rich, and we get it down to 10 days. Taxing the rich reduces the structural deficit by 1/2, and that is the real issue.

 

I was with you until the word "second". After that I'd say you lost everybody and for good reason.

[We Come In Peace]

Do you really believe all these closed door sessions and emergency meetings are really about something as pedestrian a self imposed economic doomsday scenario? You people will believe anything.

 

You must look beyond to see the truth. And truth is, they are readying themselves for what lies ahead. And it has nothing to do with the economy.

[Cinga]

Both sides count the war windowns as cuts.

 

and both sides are wrong once again... How do you count money that we won't borrow as deficit reduction? Since we won't have to borrow it to begin with, it's NOT PART OF THE DEFICIT!!!

[TPS]

Oh, so all we have to do is lower unemployment by 3% and we're still hugely in the red every year. This is your argument for taxing the rich?

 

Is your mic on? Are you here all week?

Hanging out at PPP too long seems to make you unruly and irritable. Hugely in the red--what exactly does that mean? $1.5 trillion per year? $200 billion per year?

Here's the issue: When Bush2 cut taxes in 2002-3, he increased the structural deficit by some $150-$200 billion. The structural deficit is the deficit that you'd have at full employment. You can essentially compare the structural deficit under different tax structures by looking at the deficit for similar levels of unemployment. The average unemployment rate during 1998 was about 4.5%, and it was about 4.5% in 2007. With the economy operating at roughly the same level, there was a surplus of $69 billion in 1998 and a deficit of -$161 bil in 2007. There was a swing of $230 billion, and about 3/4 of that was due to Bush's tax cuts, the rest higher spending.

 

So, yes, if or when the economy recovers, and unemployment falls to levels of 2007, then elimination of the Bush tax cuts will create a balanced budget, and elimination of tax cuts for only the rich will lower it, but still leave a structural deficit of about $150 billion; but that's a number that is sustainable as long as the economy is growing at its long run average.

(Sustainable meaning the debt-gdp ratio will stay stable or fall over time)

[3rdnlng]

Hanging out at PPP too long seems to make you unruly and irritable. Hugely in the red--what exactly does that mean? $1.5 trillion per year? $200 billion per year?

Here's the issue: When Bush2 cut taxes in 2002-3, he increased the structural deficit by some $150-$200 billion. The structural deficit is the deficit that you'd have at full employment. You can essentially compare the structural deficit under different tax structures by looking at the deficit for similar levels of unemployment. The average unemployment rate during 1998 was about 4.5%, and it was about 4.5% in 2007. With the economy operating at roughly the same level, there was a surplus of $69 billion in 1998 and a deficit of -$161 bil in 2007. There was a swing of $230 billion, and about 3/4 of that was due to Bush's tax cuts, the rest higher spending.

 

So, yes, if or when the economy recovers, and unemployment falls to levels of 2007, then elimination of the Bush tax cuts will create a balanced budget, and elimination of tax cuts for only the rich will lower it, but still leave a structural deficit of about $150 billion; but that's a number that is sustainable as long as the economy is growing at its long run average.

(Sustainable meaning the debt-gdp ratio will stay stable or fall over time)

 

Then again, what deficit reduction have we seen from the unemployment reduction from 10% to 7.9%?

[TPS]

Gee, I hate to oversimplify things, but the unemployment rate was highest in October of '09 at 10%. It is now at 7.9% which means its over 40% of the way towards reaching your goal of 5% unemployment, that would get our deficit down to 200B. How much deficit reduction was gained from that drop in unemployment? What correlations can we draw from the last three years of deficit reduction to where we'll be when we reach 5% unemployment?

See my other response, but a back of the envelope here, the deficit was $1.55 tril in 09, and is projected at $1.1 trillion this year. Given those numbers, it should be about about $400 billion at 5%. Not too far off my other projections.

[3rdnlng]

See my other response, but a back of the envelope here, the deficit was $1.55 tril in 09, and is projected at $1.1 trillion this year. Given those numbers, it should be about about $400 billion at 5%. Not too far off my other projections.

 

Was there any exceptional expenditure in 2009 that would make your numbers suspect? Doesn't it take an expanding workforce to make your numbers work? Does just taking people out of the workforce in order to reduce the unemployment percentage really change anything?

[John Adams]

TPS correlates deficit directly to the unemployment rate. Sure, that's a direct relationship. And of course continues to assume that 5% unemployment will be achieved in the near future.

 

Anyways, back to big boy talk. At least the Reps put their nonstarter proposal on the table. Maybe soon both sides can arrive at a 4T cut (over ten uears, with future Congresses dealing with the cuts...so brave of our leaders) like they had on the table in 2011. Tick tock.

Edited December 4, 2012 by John Adams

[3rdnlng]

If the unemployment rate can fluctuate because of the people that give up on finding a job then the unemployment rate is at best a poor figure to use. It is the amount of people working that determines how much money is taken by the government. What is a non-starter with the republicans proposal? Isn't it basically what both parties had initially agreed to in the summer of 2011?

[TPS]

If the unemployment rate can fluctuate because of the people that give up on finding a job then the unemployment rate is at best a poor figure to use. It is the amount of people working that determines how much money is taken by the government. What is a non-starter with the republicans proposal? Isn't it basically what both parties had initially agreed to in the summer of 2011?

The CBO uses expected wages and profits generated each year to estimate revenues, but they also provide the projected u-rate. They project a 5.6% u-rate in 2017 with a deficit of $220 bil (which assumes all changes in the FC take effect). The primary deficit is projected to be in surplus, so it's the growing interest expense that generates the deficit in the later years.