The Fiscal Cliff and Budget Negotiations

[Paulie]

Stop trying to stall and kick the issue down the road, and do your damn jobs. Give the dems the tax increases they want, give the pubs the spending cuts they want.

Many economists think that would ensure that we will see the current crappy economy continue for another decade. Why do you think it would solve the problem?

Economists are a dime a dozen and i can google and find ones that both agree and disagree with tax hikes and spending cuts.

I think we need to increase revenue and cut spending and we need congress to compromise to get it down. Business' want stability, in order to know how to spend their money they need to know what taxes are going to look like in the next 5-10 years not just 6 months or a year down the line. Continuing to keep everything exactly how it is and postpone the issue over and over doesn't solve anything and it leaves all Americans unsure.

Give a bipartisan map of the next 15 years, cut spending and raise taxes slowly over that period of time, add in the debt ceiling increase so we don't have another credit reduction and you will see the economy grow.

I actually think I could get behind this. It's definitely the uncertainty that's hurting the economy the most right now. Even if the solution takes from certain bottom lines, at least people know where they stand and can move forward with a plan for the future.

 

[Foxfyre]

Okay, there has never been a President in the history of our country who thought raising taxes in a recession was a smart move, and that included President Obama four years ago. Why the change of heart now, I don't pretend to understand.

And there isn't an economist worth his/her salt who thinks all tax cuts or credits have equal weight in stimulating the economy. Those that free up venture capital and provide confidence in a reasonably permanent policy will encourage and stimulate economic growth but there is a point of diminishing returns. The initial economic spurt will gradually smooth out and eventually settle into a normally expanding economy again, but it will generally settle at a higher level than from the point that was started.

When you don't know what the policy and regulation is going to be; when the tax rates are going to cut excessively into an already razor thin profit margin, the smaller businesses simply pull in their horns and maintain the status quo. When faced with oppressive regulation as they see in Obamacare, they will downsize and otherwise do what they have to do to avoid the extra costs.

Raising the debt limit without any concessions in spending seems as much of a fools folly as defaulting on our debts. Raising taxes when that will only discourage private enterprise further also appears to be the wrong way to go.

Without a healthy economy, we don't have a prayer to start cutting into the deficits or debt. or have room to maneuver to repair any of the other problems.

 

[Rshermr]

Foxfyre says:

Okay, there has never been a President in the history of our country who thought raising taxes in a recession was a smart move, and that included President Obama four years ago. Why the change of heart now, I don't pretend to understand.

First, we are not in a recession. The recession of 2007 and 2008 ended in mid 2009. The economy has been growing since. And your statement about presidents who thought raising taxes in a bad economy, even a recession in fact, is completely wrong. Three presidents who did raise taxes in a bad unemployment situation, as we have today, were FDR, Reagan, and Clinton. All for the same reason, which was to raise revenue for stimulus spending programs. And in all cases, the economy go better.
You need to check where you are getting your information. Someone is providing you with incorrect information.
"http://www.cbpp.org/cms/index.cfm?fa=view&id=3252

 

[JWBooth]

Let all the poisons that lurk in the mud hatch out.

 

[Foxfyre]

Foxfyre says:

Okay, there has never been a President in the history of our country who thought raising taxes in a recession was a smart move, and that included President Obama four years ago. Why the change of heart now, I don't pretend to understand.

First, we are not in a recession. The recession of 2007 and 2008 ended in mid 2009. The economy has been growing since. And your statement about presidents who thought raising taxes in a bad economy, even a recession in fact, is completely wrong. Three presidents who did raise taxes in a bad unemployment situation, as we have today, were FDR, Reagan, and Clinton. All for the same reason, which was to raise revenue for stimulus spending programs. And in all cases, the economy go better.
You need to check where you are getting your information. Someone is providing you with incorrect information.
"http://www.cbpp.org/cms/index.cfm?fa=view&id=3252

Many historians with economic savvy now honestly admit that FDR prolonged the depression with some of the tactics he used. Ditto for the Obama economy. For the 23 million Americans who can't find work plus the many millions more who are making do with part time or under employment. . . .for the many of us who depend on our 401K investments for some of our income. . . .for the tens of thousands of small businesses who are continuing to hold on by their fingernails or who expect to shutter their businesses if the economy doesn't turn around in 2012. . . . for the countless millions who remain underwater on their home mortgages and who have seen their home values decline year after year, the recession is still quite real. Yes, technically two quarters of growth signals the end of a depression, but the growth has been so minimal and anemic that we continue with trillion plus deficits.

Reagan did not see significant improvement in the economy during his administration until he dramatically reduced tax rates that triggered in the longests sustained period of prosperity and growth in U.S. history. Ditto for Clinton who took over at the end of a mild Bush 41 recession but didn't see things really take off utnil the GOP managed tax reductions in capital gains taxes and some other tax policy reform. (It was a tax increase in weak economy that triggered the recession in the last two years of the Bush 41 administration.)

As little as two years ago, President Obama was agreeing with the philosophy that you do not raise taxes in a recession. Again, I don't know why he now has had a change of heart about that.

But all that notwithstanding, your suggestions/conviction for pulling us out of our economic mess is to raise taxes?

 

[Paulie]

As little as two years ago, President Obama was agreeing with the philosophy that you do not raise taxes in a recession. Again, I don't know why he now has had a change of heart about that.

Not that I'm defending Obama, but we're not in a recession now.

 

[Foxfyre]

As little as two years ago, President Obama was agreeing with the philosophy that you do not raise taxes in a recession. Again, I don't know why he now has had a change of heart about that.

Not that I'm defending Obama, but we're not in a recession now.

If we can believe this administration who is posting gains in the GDP, no we are not. Nevertheless, the growth is so anemic that it has had negligible effecton the misery index. See my previous post.

 

[Paulie]

As little as two years ago, President Obama was agreeing with the philosophy that you do not raise taxes in a recession. Again, I don't know why he now has had a change of heart about that.

Not that I'm defending Obama, but we're not in a recession now.

If we can believe this administration who is posting gains in the GDP, no we are not. Nevertheless, the growth is so anemic that it has had negligible effecton the misery index. See my previous post.

I don't know...housing is up, new construction is up, malls are packed...which strangely enough they seem to have always been since the whole recession started...

It's not entirely a nationwide thing yet but it's hard to say there aren't SOME things improving.

 

[EdwardBaiamonte]

As little as two years ago, President Obama was agreeing with the philosophy that you do not raise taxes in a recession. Again, I don't know why he now has had a change of heart about that.

Not that I'm defending Obama, but we're not in a recession now.

not in a recession because the free market is pulling us out but slowly becuase Barry is working against the free market as FDR Stalin and Mao did.

 

[Toro]

Not that I'm defending Obama, but we're not in a recession now.

If we can believe this administration who is posting gains in the GDP, no we are not. Nevertheless, the growth is so anemic that it has had negligible effecton the misery index. See my previous post.

I don't know...housing is up, new construction is up, malls are packed...which strangely enough they seem to have always been since the whole recession started...

It's not entirely a nationwide thing yet but it's hard to say there aren't SOME things improving.

The economy is getting better. It's not where it should be but its improving.

Going over the Fiscal Cliff, however, and we go back into recession.

 

[oldfart]

At stake in the current budget deal necessary to avoid the fiscal cliff:

The phrasing assumes that the "fiscal cliff" is the worst of all possible outcomes and must be avoided at all costs. I believe this to be untrue. The CBO estimates (using New Keynesian models with no magic asterisks) that the result would be a halving of the deficit and a medium recession (GDP growth of -0.5% and unemployment peak of 9.1% in 2013). I've seen modeling of the Ryan budget that predicted far worse results.

If nothing is done, massive across the board budget cuts will hit the most vulnerable people the hardest. Also just some of what must be considered:

Income tax rates will go up.

AMT kicks back in at 2000 rates.

The capital-gains tax rate will increase to 20%.

Dividend income will be taxed as ordinary income.

The estate tax will revert to a top rate of 55%, with an exemption amount of $1 million.

Payroll taxes will go back up (nobody seems to want to extend these)

I think you are off on the size of the estate tax exemption but the rest of the tax changes are correct. The analyses of the tax law reversions indicate that about 20% of the increased tax burden will fall on working poor (mainly through the earned income tax credit and child tax credt which I noticed you did not mention; a sure giveaway that you have been reading too much right wing drivel) and the middle class. The rest falls on upper income taxpayers, with by far the biggest hit going to millionaires (you didn't mention that the carried interest rule would expire, forcing hedgefund managers to treat compensation as ordinary income rather than long-term capital gains; another tipoff). I would find this highly acceptable, even desirable.

The cuts in spending would be half in the military budget (another excellent idea) and half in discretionary spending, but not Social Security, Medicare, or Medicaid). Since no one has said just what these cuts will be (and I a unsure who will make them), there is a good possibility that like a lot of previous budget cuts, these will turn out to be more creative accounting.

Debt ceiling currently at 16.4 trilllion will have to be extended

It would be wise for any deal to include an increase in the debt ceiling, or better yet an abolition of the debt ceiling so that when Congress authorizes spending, it automatically authorizes paying for it. Our credit rating would be saved from engineered crises and "default". In the absence of a deal, we are just where we are now, except that the next fight will be in July rather than March because the deficit will be smaller.

Other tax provisions expire. Dozens of popular tax breaks expired at the end of 2011, and before 2012 ends Congress must decide whether to extend them, retroactively, to the beginning of this year. The list includes several business provisions as well as a variety of deductions for individual filers, including the IRA charitable rollover, which allowed individuals over the age of 70½ to roll as much as $100,000 from their Individual Retirement Account directly to a charity. Also on the list is the important AMT "patch" discussed above.

You forgot the trillions of dollars of abusive tax breaks corporations and big business have gotten that will expire, as well as the additional trillions they expect to reap from a "territorial tax system" they are pushing in any deal. Most of the breaks you are referring to only benefit major corporations or individuals making a million dollars a year or more. How big was your foreign tax credit last year? How much was Exxon's?

Perhaps you should read more than the Heritage Foundation's right wing tripe before reaching conclusions.

Also included is the uncertainty that is preventing American business from investing trillions of dollars of venture capital and thereby prolonging a crappy economy will continue.

Oh, please! Of all the thoroughly discredited zombie economic ideas of the last century, the confidence fairy is the worst. I suppose you believe in bond vigilantes too. Give up the Easter bunny and the bogeyman under the bed; you are embarrassing yourself.

And yet many believe the President’s proposals will hit the middle class the hardest while doing little to make a dent in unacceptable budget deficits.

While others believe the Republicans unwillingness to accept the President’s proposals are purely to obstruct his agenda and protect the rich.

And some people believe in fairies and other creatures of imagination with no basis in econmic theory or historical evidence. Show me the economic models that forecast these results.

And the deficits continue at a trillion plus each year and are projected to do so far into the future with the debt clock running at blurring speed.

I haven't seen a single projection that shows deficits of this size in the future. The CBO model shows decreasing deficits for both the "base line" and "alternative base line" projections. You really need to stop reading fiction masquerading as political economy.

So I vote for a jump off the cliff. It looks better than the probable outcome of budget negotiations. I'll be around if anyone wants to discuss economic forecasting, economic theory, or economic history. Folks who just want an emotionally satisfying vent are OK by me, I just don't see much purpose in replying, so forgive me if I don't.

 

[EdwardBaiamonte]

economic theory,

so then why be 100% afraid to tell us the theory behind liberalism????

 

[oldfart]

Many economists think that would ensure that we will see the current crappy economy continue for another decade. Why do you think it would solve the problem?

Economists are a dime a dozen and i can google and find ones that both agree and disagree with tax hikes and spending cuts.

Unfortunately you are correct about the state of the profession. Too many economists are simply bought and paid for. Others are subject to self-delusion. How do you tell the difference?

1. Forget the names and credentials. Economists for quote are a dime a dozen but economic models that predict well are not. Stick to people who make predictions where you can determine if they are using a good model or not. Listen closely to those whose predictions are accurate.

2. Learn some basic economic theory. Much of the misinformation today was debunked in standard college Econ101 textbooks in use for the last 60+ years.

 

[EdwardBaiamonte]

Listen closely to those whose predictions are accurate.

now that is pure genius!! Should I ignore those that are inaccurate too?? Where do I find the accurate ones. I want to sell all my real estate and invest it all based on the accurate forcasts. I beg you, where are they????

2. Learn some basic economic theory. Much of the misinformation today was debunked in standard college Econ101 textbooks in use for the last 60+ years.

so then why be so 100% afraid to give us your most substantive example???

What does your fear tell you about the liberal IQ and character??

 

[Foxfyre]

Listen closely to those whose predictions are accurate.

now that is pure genius!! Should I ignore those that are inaccurate too?? Where do I find the accurate ones. I want to sell all my real estate and invest it all based on the accurate forcasts. I beg you, where are they????

2. Learn some basic economic theory. Much of the misinformation today was debunked in standard college Econ101 textbooks in use for the last 60+ years.

so then why be so 100% afraid to give us your most substantive example???

What does your fear tell you about the liberal IQ and character??

I notice he didn't quote the links I posted to back up the numbers I used. Nor did he post any links of his own to support his rebuttal.

 

[Wiseacre]

Not that I'm defending Obama, but we're not in a recession now.

If we can believe this administration who is posting gains in the GDP, no we are not. Nevertheless, the growth is so anemic that it has had negligible effecton the misery index. See my previous post.

I don't know...housing is up, new construction is up, malls are packed...which strangely enough they seem to have always been since the whole recession started...

It's not entirely a nationwide thing yet but it's hard to say there aren't SOME things improving.

The last 4 years have seen fits and starts of temporary improvements followed by downturns. There's not a lot of reasons why we should expect sustained improvement in the economy; to the contrary, whatever tax increases and spending cuts are agreed to are not going to be helpful. And supposedly the Obama Admin is about to introduce a lot more regulation in several areas that will further curtail growth. If you ask me there are more reasons to be pessimistic than optimistic.

 

[oldfart]

economic theory,

so then why be 100% afraid to tell us the theory behind liberalism????

Liberalism is an eighteenth century political philosophy. You already know that, Ed.

I'm not afraid to explain anything to you, but I prefer to discuss economics. BTW, I'm not a "liberal" in the sense you use the term. I'm to the left of that. It's easier when I have no obligation to defend idiocy masquerading as "centrism".

 

[oldfart]

Listen closely to those whose predictions are accurate.

now that is pure genius!! Should I ignore those that are inaccurate too?? Where do I find the accurate ones. I want to sell all my real estate and invest it all based on the accurate forcasts. I beg you, where are they????

OK Ed, let's try a few examples. A bunch of people predicted four years ago that quadrupling the monetary base would cause hyperinflation within a year. I saw the TV ads shilling various exotic investments based on that premise. A group of ecocomists generally refered to as "New Keynesians" said that couldn't happen when demand was so weak, and predicted deflation rather than inflation. Prices fell. Which group was correct?

In 2009 the incoming Chair of the Council of Economic Advisers, Christine Romer, computed that the minimum effective stimulus package would be at least $1.2 trillion. Larry Summers said that $800 billion was the maximum politically feasible and that Obama could always come back to Congress for a second round of stimulus if needed. Romer, et al predicted the stimulus would be enough to avoid a full blown depresion, but not enough to return the economy to health. Who had it right?

2. Learn some basic economic theory. Much of the misinformation today was debunked in standard college Econ101 textbooks in use for the last 60+ years.

so then why be so 100% afraid to give us your most substantive example???

What does your fear tell you about the liberal IQ and character??[/QUOTE]

Ed, no one is afraid of you. Everyone is friends here. Since I am not a liberal, your references are wasted on me. If you want examples of what standard Hicksian models taught in basic eonomics textbooks starting with Paul Samuelson's in the early fifties had right that "fresh-water economics" got wrong try these:

1, Samuelson discussed the liquidity trap in Keynesian theory which explained how normal monetary expansion was ineffective in a depression. A corollary is that in these circumstances neither interest rates nor inflation will result from monetary expansion. That's three predictions that turned out to be true in 2007--2012. Exactly the opposite was argued for inflation and interest rates by all the business pundits.

2. Fifties and sixties vintage labor economics taught that some structural unemploment could result from workers not adapting to changes in requirements for job skills, but that generally this couldnot explain the absolute level of unemployment when all sectors showed rising unemployment. Only lack of effecive demand explained high levels of unemployment. Folks are making job skills arguments today without being able to point to any sector where wages are rising for workers with the "right" job skills. Either employers are incredibly dumb and markets don't work or employers are just whining that they can't get enough college educated people to work for minimum wage.

So, Ed, let me know when there is anything else you need to know.

Oh, and if you don't want to call me "oldfart" I also answer to Jamie.

 

[oldfart]

I notice he didn't quote the links I posted to back up the numbers I used. Nor did he post any links of his own to support his rebuttal.

I thought I handled the issue by chastising you for using the Heritage Foundation as a credble source of economic analysis. They make Marxian economics look good by comparison. Find some reputable sources before you start demanding things. It also looks like you don't have enough confidence in your own ability to make economic arguments when you rely on authority. If you can only mindlessly repeat pablum and never make a case of your own, give it up. Argue with me on ideas, not sources.

Generally, I make my own economic arguments and I use references for statistical purposes. I suggest you do the same. For the record, the main sources I rely upon for statistics are the IRS SOI series, the Census, CBO and the JCT, Bureau of Economic Analysis, and the Federal Reserve Bank of St. Louis. If you are going to argue economics, you need to be familiar with these sources.

If I find an interesting study, like the recent one about declining life expectancy at age 65 for Americans with less than a high school education, of course I'll reference it.

 

[EdwardBaiamonte]

I'm not afraid to explain anything to you, .

so then why be 100% afraid to tell us the theory behind modern liberalism????