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The Fiscal Cliff

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  • #519282

    hivner1
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    it’s not a Cliff. Not a Huxtable, not a Clavin, it’s simply not a cliff.

    #519283

    Coremodels
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    James said:
    And I believe the fastest increase in federal receipts and the greatest reduction in debt was associated with the period when the rates were lowered (and growth accelerated and spending was constrained) – 1996 – 2000.

    Huh? The rate hikes were in 1993, they didn’t change in 1996.

    #519284
    JeepGirl
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    Walker said:
    I’m certainly not advocating for unaffordability of necessities like food, shelter and access to healthcare. Just saying that I imagine everyone would find a way to get by with some belt tightening. A few less trips to the mall… a few less trips through the drive thru. ;)

    Hmmmmmm, what about bars, sit-down restaurants, food trucks, and independent retailers? Do you advocate less trips to and less spending at those establishments as well?

    #519285
    Walker Evans
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    JeepGirl said:
    Hmmmmmm, what about bars, sit-down restaurants, food trucks, and independent retailers? Do you advocate less trips to and less spending at those establishments as well?

    Yep. Burn everything to the ground. You got me! Good work!

    #519286
    JeepGirl
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    Walker said:
    Yep. Burn everything to the ground. You got me! Good work!

    Awww, don’t be mad. ;)

    #519287

    James
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    Coremodels said:
    Huh? The rate hikes were in 1993, they didn’t change in 1996.

    Taxpayer Relief Act of 1997

    #519288
    Walker Evans
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    JeepGirl said:
    Awww, don’t be mad. ;)

    Not mad at all! ;)

    #519289

    Coremodels
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    James said:
    Taxpayer Relief Act of 1997

    Taxpayer relief act didn’t touch the top two income brackets that Clinton raised in 93, again that’s what Obama is suggesting we do as well.

    #519290
    cbus11
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    I am not sure if Jeepgirl is trying to stir the pot, but yes it will be the entertainment budgets that get cut the hardest. People will spend less at bars, restaurants, gyms, theaters etc. Eating out on a Friday is easily $20 + with a few beers and a tip. One meal for one person once a week is your cable & internet bill for a month. Netflix is $8. Some of the food items brought over for movie night, questionable but conversation starters. There are a lot of advantages to entertaining at home and cost is just one of them. That one meal on a Friday is equal to $1,000 a year.

    Those industries will take a hit, but I also think it will make the competition stronger and not necessarily be a bad thing.

    #519291

    derm
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    hugh59 said:
    I have read some of Krugman’s older stuff and he can be extremely informative. But his brilliance came down a lot when he became a pundit. I have read a lot of his articles at the New York Times and he seems to be making his case to people who already agree with him. He has become a cheerleader for one side of the political debate. That does little good for people who are not yet convinced.

    The person who I am alluding to is HS Dent. He uses demographic models and historical cycles to predict what spending will be like. He has been pretty accurate since the early nineties when he started. He also puts a ton of his research out for free as opposed to being one who requires you to pay exclusively. As opposed to Krugman, or any of the others he is basically stating there is little that can be done to stop the deleveraging, as it is cycle and demographic driven, and the QE stimuli and such will only make it worse.

    #519292

    tdziemia
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    To James’ earlier points, there’s has been only one significant de-leveraging, and that was the drop in national debt between WWII and 1980, when it went from about 110% of GDP to 32% of GDP. Several features characterize this period: 1. GDP growth averaged over 4.3% for the first twenty years of it, (2) incremental tax rates on the wealthiest Americans were 70% or higher, (3) federal budget deficits rarely ran over 2% of GDP (once each in the 50s and 60s, 7 times in the 1970s). The Clinton era reduction in debt from 67% of GDP to 56% of GDP is probably best seen as a temporary interruption to a 30 year increase in debt which coincides with (a) a permanent(?) drop in US economic growth to an average level below 3% since 1980, (b) tax reduction policies and spending increase policies which have led to long term structural deficits over 2% of GDP. The current acute problem is due to both tax revenuye being at a postwar low (15% of GDP compared to historical averages of 18%) and spending being at a historic high (24% of GDP compared to historicoral avg of 20%).

    There is no compelling data that supports the notion that reducing tax rates on the wealthy stimulates SUSTAINED economic growth, since when tax rates were their highest (1950-1980) the economy grew the strongest, and growth rates have been weaker (under 3%) ever since the top tax bracket dropped below 70%. Yes, other macroeconomic fators come into play, but that’s just the point. In recent years we have had some short term improvements in economic growth during farorable tax regimes (Reagan) but also had a short period of sustained growth during unfavoroable tax policies (CLinton). And our worst recession in 80 years came on the heels of the Bush era tax custs.

    So anyone who claims there is convincing evidence for tax cuts favoring growth is not looking at any real historical data.

    #519293
    hugh59
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    tdziemia said:
    To James’ earlier points, there’s has been only one significant de-leveraging, and that was the drop in national debt between WWII and 1980, when it went from about 110% of GDP to 32% of GDP. Several features characterize this period: 1. GDP growth averaged over 4.3% for the first twenty years of it, (2) incremental tax rates on the wealthiest Americans were 70% or higher, (3) federal budget deficits rarely ran over 2% of GDP (once each in the 50s and 60s, 7 times in the 1970s). The Clinton era reduction in debt from 67% of GDP to 56% of GDP is probably best seen as a temporary interruption to a 30 year increase in debt which coincides with (a) a permanent(?) drop in US economic growth to an average level below 3% since 1980, (b) tax reduction policies and spending increase policies which have led to long term structural deficits over 2% of GDP. The current acute problem is due to both tax revenuye being at a postwar low (15% of GDP compared to historical averages of 18%) and spending being at a historic high (24% of GDP compared to historicoral avg of 20%).

    There is no compelling data that supports the notion that reducing tax rates on the wealthy stimulates SUSTAINED economic growth, since when tax rates were their highest (1950-1980) the economy grew the strongest, and growth rates have been weaker (under 3%) ever since the top tax bracket dropped below 70%. Yes, other macroeconomic fators come into play, but that’s just the point. In recent years we have had some short term improvements in economic growth during farorable tax regimes (Reagan) but also had a short period of sustained growth during unfavoroable tax policies (CLinton). And our worst recession in 80 years came on the heels of the Bush era tax custs.

    So anyone who claims there is convincing evidence for tax cuts favoring growth is not looking at any real historical data.

    Reading some of Dent’s material, he states that the deleveraging is unavoidable. However, it does not mean that we need to completely stop spending. Rather, we need to stop excessive borrowing. And he looks more at consumer borrowing than government borrowing.

    That means it is okay to buy stuff on your credit card provided you pay it off in full at the end of every month. I need to dig further into his materials; I wonder if Dent views debt incurred to purchase durable assets (individuals purchasing a home; businesses purchasing manufacturing equipment) differently than debt incurred to pay operating expenses or short term expenses.

    Interesting ideas there. I don’t know enough about economics to test his theories or even check his data.

    UPDATE

    Reading a little more, he seems to be a bit of an alarmist. I am always very cautious when reading materials presented by alarmists, especially when I lack the technical knowledge to review their work. This does not mean I think he is wrong; it just means I need to be cautious.

    #519294
    Walker Evans
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    tdziemia said:
    There is no compelling data that supports the notion that reducing tax rates on the wealthy stimulates SUSTAINED economic growth…

    I was thinking a bit about this the other day and couldn’t quite wrap my head around the logic. Reducing personal (income) taxes on the wealthy is supposed to allow the “job creators” to create more jobs, but most highly wealthy people are not creating a whole lot of jobs out of their personal incomes. It the companies that they preside over that actually create jobs. Taxing a CEO on their personal income more or less shouldn’t have a whole lot of effect on whether or not the company they preside over can hire more/fewer jobs.

    Unless you treat your personal income as a CEO and your corporate bank account as one of the same. And if that’s the case, then you’re probably a Bluth.

    #519295

    James
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    tdziemia said:
    To James’ earlier points, there’s has been only one significant de-leveraging, and that was the drop in national debt between WWII and 1980, when it went from about 110% of GDP to 32% of GDP. Several features characterize this period: 1. GDP growth averaged over 4.3% for the first twenty years of it, (2) incremental tax rates on the wealthiest Americans were 70% or higher, (3) federal budget deficits rarely ran over 2% of GDP (once each in the 50s and 60s, 7 times in the 1970s). The Clinton era reduction in debt from 67% of GDP to 56% of GDP is probably best seen as a temporary interruption to a 30 year increase in debt which coincides with (a) a permanent(?) drop in US economic growth to an average level below 3% since 1980, (b) tax reduction policies and spending increase policies which have led to long term structural deficits over 2% of GDP. The current acute problem is due to both tax revenuye being at a postwar low (15% of GDP compared to historical averages of 18%) and spending being at a historic high (24% of GDP compared to historicoral avg of 20%).

    There is no compelling data that supports the notion that reducing tax rates on the wealthy stimulates SUSTAINED economic growth, since when tax rates were their highest (1950-1980) the economy grew the strongest, and growth rates have been weaker (under 3%) ever since the top tax bracket dropped below 70%. Yes, other macroeconomic fators come into play, but that’s just the point. In recent years we have had some short term improvements in economic growth during farorable tax regimes (Reagan) but also had a short period of sustained growth during unfavoroable tax policies (CLinton). And our worst recession in 80 years came on the heels of the Bush era tax custs.

    So anyone who claims there is convincing evidence for tax cuts favoring growth is not looking at any real historical data.

    You’re right. There’s no clear link that changes in tax rates will increase revenues or increase deficits. But growth has been the only way we seem to have deleveraged (public debt). Anything that lowers growth gets us further from paying down debt, and that can include poorly considered changes to tax code.

    #519296

    James
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    Walker said:
    I was thinking a bit about this the other day and couldn’t quite wrap my head around the logic. Reducing personal (income) taxes on the wealthy is supposed to allow the “job creators” to create more jobs, but most highly wealthy people are not creating a whole lot of jobs out of their personal incomes. It the companies that they preside over that actually create jobs. Taxing a CEO on their personal income more or less shouldn’t have a whole lot of effect on whether or not the company they preside over can hire more/fewer jobs.

    Unless you treat your personal income as a CEO and your corporate bank account as one of the same. And if that’s the case, then you’re probably a Bluth.

    Economists on all ends of the political spectrum have recommended eliminating corporate taxes for this reason (corporations, not people, create jobs) but also because you are taxing people of differing income at an equal rate when you tax corporate profits.

    I think it would be much fairer to eliminate corporate taxes and raise personal taxes in a progressive manner and treat dividends as normal income, that way you capture a fair share of corporate profit when it’s paid out to highly compensated executives or shareholders.

    There is some mind boggling number (over a trillion, I think) for the amount of retained corporate earnings sitting outside of the US waiting to be repatriated. It would be quite a spending stimulus if even half of that came back to be invested because corporate rates were zero – lots of state and local coffers would be pumped with taxes.

    I also think it would let small, local businesses complete more effectively with large companies. It’s the McDonald’s and Home Depot’s that can afford corporate tax lawyers and lobbying, and can negotiate sweet deals with states as the price for investment that small companies can’t. Make sure these are eliminated in exchange for a 0% corporate rate and you could see an explosion of small business growth.

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