How will the looming fiscal cliff impact the US economy and job market?

[boomtrain]

I think universal health-care is worthwhile to pursue for a variety of reasons, and it can be done fairly efficiently. Even the most basic health-care access can help to prevent conditions and diseases that require intensive and life long treatments. In addition, it can help health experts identify and isolate bugs quicker. And I would even go so far as to say it's a national security risk. Overall, universal health-care should help increase our participation rate in the overall-economy due to the early prevent of conditions and diseases that takes people out of the marketplace. And a higher participation rate should lead to a more optimal economy.

you forgot to mention it'll bring about world peace...

do you have sources for any of those claims?

 

[russ_watters]

Lets talk a little about the political gamesmanship going on because I really don't understand what the various players are after, particularly Obama.

Obama is repeating (CNN report I'll link when I get home) his campaign refrain of "lets begin our work with where we agree", which is the extension of the Bush Tax cuts for all but the upper bracket -- and oh, by the way also include a debt ceiling increase. He follows that with "don't call my bluff". What bluff? I don't get it. Is he saying that if Republicans don't give him the middle class tax cut extension he's going to let taxes go up for everyone? Is that what he wants anyway? Is he trying to spin a potential win-win situation by getting what he wants either way and/or blaming Republicans for a tax increase even if he actually wants it?

Beyond that, what is not on the table for Obama is interesting to me: any proposal to not raise taxes. That includes the two options for raising income taxes and also allowing the social security tax reduction to expire. So Obama is apparently not considering any proposal that doesn't raise taxes. Let me rephrase: Obama wants to raise taxes in the middle of a weak economic situation. It just isn't clear to me by how much or if he's trying to blame it on others.

And as I said, he wants a debt ceiling extension. Is there any room for negotiation and does anything else about the fiscal cliff and debt issues concern him? "Entitlement" reform? Spending cuts? Are they on the table at all?

What bothers me is that doing nothing makes something happen at least on the spending cuts and he is not clearly articulating what he really wants. Now that he doesn't have to campaign anymore, he has that "flexibility" he told Russia to wait for, so why isn't he using that flexibility to actually do bipartisan negotiation and even do things that may be politically unpopular but fiscally necessary? Instead, he seems to be doing the same leading-from-behind-while-muscle-flexing he did with his healthcare reform: make provocative, politicized, inflexible statements about a small and/or vague part of the issue and let other people figure out the rest of it.

Republicans for their part seem to be willing to deal. Several have rebuffed their Norquist pledge, to their credit (though better would have been to never sign it in the first place ) and stated explicitly that they may be willing to raise taxes. And there may be enough for an actual vote to raise taxes to pass in the House.

What worries me is a repeat of the '80s where Republicans gave concessions on tax increases and Democrats reneged on promises of spending cuts that were supposed to follow. That's what "just pass what we agree on now" really says to me. Maybe that's his plan? The problem with that though is I don't think politicians really have the stomach to accept the cuts of the "sequestration". Its just that no one is talking about it, so I have no idea at this point where that is going. We're not in an active campaign and Obama never has to campaign again. It should not be this hard to figure out what people want. Why is this so hard?

Opinions?

 

[Alfi]

Opinions?


why ask ...


unless backed by some 'authority' ... they seem-to-be not allowed here.

do you have sources for any of those claims?

 

[russ_watters]

Opinions?why ask ... unless backed by some 'authority' ... they seem-to-be not allowed here.

That is very, very wrong. In fact, I'd say you've mostly missed the point of the politics forum: it exists largely to share opinions on world events. Otherwise, it would just be a repository for links to news articles.

Assertions of facts must be supported. Opinions, by definition, do not require factual support/citation. As-worded in the guidelines at the top of the forum:

2) Citations of sources for any factual claims (primary sources should be used whenever possible).

4) When stating an opinion on an issue, make sure it is clearly stated to be an opinion and not asserted as fact.

 

[mheslep]

...
Republicans for their part seem to be willing to deal. Several have rebuffed their Norquist pledge, to their credit (though better would have been to never sign it in the first place ) and stated explicitly that they may be willing to raise taxes. And there may be enough for an actual vote to raise taxes to pass in the House.

Not just several. If Boehner speaks for the GOP, then the GOP position is a yes to raising tax revenues, though maybe not via rates:

... said Republicans are willing to accept "new revenue, under the right conditions" to get a bipartisan agreement. He repeated his opposition to raising marginal tax rates, as Mr. Obama has proposed, but opened the door to bringing in more revenue by "closing special-interest loopholes and deductions, and moving to a fairer, simpler system."

But to get those increases in new law, Obama and Reid have to address some cuts. So far, nothing. Democrats like Durbin have explicitly rejected cuts to Medicare and SS.

 

[mheslep]

...
And, personally, I wouldn't like to see such drastic cuts in defense spending.

Might I ask why not? The US spends 60% more today than what it spent at the height of the Reagan defense build up in the cold war (constant dollars)

The pending defense cuts would be on the order of $40 billion / year for ten years, against the spending of ~800B. Is that drastic?

 

[mheslep]

The President gave speech today on the fiscal cliff topics. He mentioned the deficit seven times, used 'balance' seven times, referenced 'tax'es several dozen times, but not a word on reducing spending. Not for anything. He did mention working on the deficit "next year".

http://www.whitehouse.gov/the-press...rks-president-extending-tax-cuts-middle-class

 

[BobG]

Not just several. If Boehner speaks for the GOP, then the GOP position is a yes to raising tax revenues, though maybe not via rates:

Boehner's interpretation of increased revenue:

While Boehner suggested that Republicans would still oppose Obama’s plan to take “a larger share of what the American people earn through higher tax rates,” he said the party is open to “increased revenue . . . as the byproduct of a growing economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes, and lower rates for all.”

In other words, Boehner's position is the country needs tax cuts to increase government revenue.

 

[BobG]

Might I ask why not?

Sadly, it's because I'm as optimistic about Congress's ability to cut defense smartly (vs cut defense anywhere it doesn't affect jobs in my district) as I am about their capability to balance a budget.

I wouldn't say it's a drop dead issue for me. But it would definitely raise some trepidation.

And, full disclosure, I'm a defense contractor living in a city with five military installations.

 

[mheslep]

Boehner's interpretation of increased revenue:



In other words, Boehner's position is the country needs tax cuts to increase government revenue.

I don't think that's accurate:

"closing special-interest loopholes and deductions"

with fewer loopholes

Other GOP politicians have cited the $trillion/10 years of deduction cuts found by Simpson-Bowles commission as a possible target.

Cutting deductions and leaving marginal rates as they are, would dollar for dollar be better for the economy in my view.

 

[SixNein]

you forgot to mention it'll bring about world peace...

do you have sources for any of those claims?

Honestly, this should be just common sense...

But...

On prevention:

Primary preventive measures in a clinical setting are those provided to individuals to prevent the onset of a targeted condition (for example, the routine immunization of healthy children), whereas secondary preventive measures identify and treat asymptomatic persons who have already developed risk factors or preclinical disease but in whom the condition has not become clinically apparent (for example, screening for diabetes or colon cancer).

http://www.uspreventiveservicestaskforce.org/uspstf08/methods/procmanual.pdf

For example, here is a list of vaccinations of preventable diseases:
http://www.cdc.gov/vaccines/vpd-vac/

Something as simple as oral checkups can go a long way. For example,
http://www.telegraph.co.uk/health/healthnews/8979191/Bad-dental-health-can-lead-to-pneumonia-Yale-study-suggests.html

As far as national security, have you ever stopped to think about the prospects of a bio-terror attack?

In the area of patient access to health care, more challenging dilemmas arise. Strong ethical reasons have long been recognized as supporting universal access to a decent minimal set of health care services,19 yet our nation has been unable or unwilling to accomplish this.20 Perhaps if policymakers understand that inadequate access to care poses a threat to national security, progress can be made.21,22 In the United States, more than 40 million Americans lack health insurance, and this number is rising.23,24 Although some uninsured individuals use emergency rooms to obtain care when they are acutely ill, many of the uninsured and underinsured avoid the health care system for as long as possible.20 Some have argued that bioterror-related illnesses are so severe that anyone affected would surely seek care.25 But uninsured patients discriminate poorly between appropriate and inappropriate care and tend to avoid both equally.26 Numerous studies demonstrate that the uninsured are more likely to present in an advanced stage of illness, and many die without ever being evaluated

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1448404/


Explanation of participation rates in the economy:
http://en.wikipedia.org/wiki/Labor_force

 

[russ_watters]

Might I ask why not? The US spends 60% more today than what it spent at the height of the Reagan defense build up in the cold war (constant dollars)

The pending defense cuts would be on the order of $40 billion / year for ten years, against the spending of ~800B. Is that drastic?

Does that include and/or is the difference based on the two wars? If I remember correctly, one of Obama's spending cutting claims was based on the winding-down of the wars. I'd like to see it cut by perhaps a third from 800B but as with Bob I have no confidence whatsoever in Congress's ability to make smart cuts. Defense spending is in many ways the largest boondoggle we have.

 

[BobG]

One revenue increaser: http://finance.fortune.cnn.com/2012/11/27/charitable-deduction-reform/?hpt=po_c2 . Not eliminate them entirely. Just 'reform' the tax deductions one gets for tax deductions.

Romney suggested something similar, except his proposal was to cap deductions, period. That would have an inordinate effect on charitable organizations.

And Simpson-Bowles also made a very similar proposal.

You could probably raise about $10 billion/year without affecting donations at all. Or raise more, but then have to address how much of a decrease in charitable donations the country wants to accept (for example, you could probably raise $25 billion with a side effect of reducing donations by around $10 billion).

Obviously, one 'reform' doesn't solve the deficit, but if there is talk of reforming tax deductions, reforming them, and only some of them, is better than eliminating all of them (including mortgage deductions, college deductions, etc).

 

[Astronuc]

or raise revenue 10% and cut expenses 20%,

or raise revenue 20% and cut expenses 10%,

or ?

Examples based on FY12/FY13 numbers

                                                 numbers in $trillion
                                      %revenue increase/%expenditure decrease
(enacted FY12)                 10%/-20%  20%/-10%  20%/-20%   10%/-30%  20%/-30%
revenue      $2.469 trillion    2.7159    2.9628    2.9628     2.7159    2.9628
expend.      $3.796 trillion    3.0368    3.4164    3.0368     2.6572    2.6572

Balance     -$1.327 trillion   -0.3209   -0.4536   -0.0740     0.0587    0.3056

                                   /%expenditure decrease
(requested)                       /-10%     /-20%     /-30%
revenue      $2.902 trillion    2.9020    2.9020    2.9020
expend.      $3.803 trillion    3.4227    3.0424    2.6621

Balance     -$0.901 trillion   -0.5207   -0.1394    0.2399

http://en.wikipedia.org/wiki/2012_United_States_federal_budget
http://en.wikipedia.org/wiki/2013_United_States_federal_budget

Pardon the quick and unverified numbers from Wikipedia.

So let's bite the bullet and adopt austerity measures for the next several decades.

At $300 billion surplus, we can pay down $16 trillion of debt in 53 years.

 

[SixNein]

I have no confidence whatsoever in Congress's ability to make smart cuts.

I agree with you here. One of the reasons that I distrust congress' ability to do anything is due to partisanship. Politics is trumping economics way too often in congress and throughout the world. The global economy is very unstable. The financial system is very unstable. I don't think it would take much at all to push the world back into a depression. Asia looks like a bubble, and Europe looks like a black hole.

I don't think people are fully connecting the dots between government spending and GDP. Moreover, I rarely hear anyone talk about multipliers on our government spending. If we make big cuts to things with high multipliers, we may very well live to regret it as Europe is probably regretting their methods of austerity (which was way less than we are talking about with our fiscal cliff). We need to think about these programs from a pure economic viewpoint instead of an ideological one.

Congress needs to make cuts, reform both health-care and foreign policy, increase taxes, eliminate loopholes, and yes put some serious stimulus spending on infrastructure.

 

[mheslep]

Does that include and/or is the difference based on the two wars? If I remember correctly, one of Obama's spending cutting claims was based on the winding-down of the wars. ...

I'm not sure from that source. The breakdown is here by programs, troop spending, operation & maintenance, but I'm not sure if Afghanistan spending included therein.

 

[mheslep]

or raise revenue 10% and cut expenses 20%,

or raise revenue 20% and cut expenses 10%,

or ?

Or, as proposed today by Geithner, the US gets the revenue increase of ~10% and on the spending side, zero. A $50B spending stimulus *increase* was proposed instead.

WASHINGTON — Treasury Secretary Timothy F. Geithner presented the House speaker, John A. Boehner, a detailed proposal on Thursday to avert the year-end fiscal crisis with $1.6 trillion in tax increases over 10 years, $50 billion in immediate stimulus spending, home mortgage refinancing and a permanent end to Congressional control over statutory borrowing limits.
...
In exchange for locking in the $1.6 trillion in added revenues, President Obama embraced the goal of finding $400 billion in savings from Medicare and other social programs to be worked out next year, with no guarantees.

 

[russ_watters]

Or, as proposed today by Geithner, the US gets the revenue increase of ~10% and on the spending side, zero. A $50B spending stimulus *increase* was proposed instead.

In exchange for locking in the $1.6 trillion in added revenues, President Obama embraced the goal of finding $400 billion in savings from Medicare and other social programs to be worked out next year, with no guarantees.

I trust that Obama will try just as hard to fulfill that promise next year as he has this year.

Or perhaps the law can be written in such a way as to clarify that "next year" means that the spending cuts are always a year away. At least that will enable the CBO to better take into account that they aren't ever going to happen.

 

[Astronuc]

Or, as proposed today by Geithner, the US gets the revenue increase of ~10% and on the spending side, zero. A $50B spending stimulus *increase* was proposed instead.

Well, I see from FY12 and FY13, that the requested revenue (tax receipts?) is increased from $2.469 trillion (enacted) to $2.902 trillion (requested), or approximately a 18% increase, yet the expenditures are projected to be about the same, or ~$3.8 trillion.

Of course 'next' year probably means next fiscal year FY2014, which begins October 1, which effectively means 2014.

 

[Borg]

The rhetoric coming from both sides this week sounds a lot like last year. I wonder what the odds are of them just punting the problem out another year again.

 

[mheslep]

The rhetoric coming from both sides this week sounds a lot like last year. I wonder what the odds are of them just punting the problem out another year again.

To my recollection, higher tax revenues were not on table last time. This time they clearly are, articulated in public. Spending cuts have not been put on the table in public for the Jan 1 fiscal cliff. None. Spending *increases* were proposed instead yesterday.

 

[mheslep]

Well, I see from FY12 and FY13, that the requested revenue (tax receipts?) is increased from $2.469 trillion (enacted) to $2.902 trillion (requested), or approximately a 18% increase, yet the expenditures are projected to be about the same, or ~$3.8 trillion.

Of course 'next' year probably means next fiscal year FY2014, which begins October 1, which effectively means 2014.

That Wiki revenue projection from the US budget includes a projection about what the future economy, as budget revenue projects do, so you can't disambiguate tax increases directly from that aggregated number.

 

[Astronuc]

That Wiki revenue projection from the US budget includes a projection about what the future economy, as budget revenue projects do, so you can't disambiguate tax increases directly from that aggregated number.

I wasn't asserting anything about taxes. Revenue could be from royalties from resources on federal land. However, miscillaneous sources and customs duties are only about 5% of revenue. The rest are taxes.

http://nationalpriorities.org/budget-basics/federal-budget-101/revenues/

While the official tax rate for most corporations is 35 percent, the effective tax rate—that’s the percentage of profits a corporation actually pays in taxes—varies enormously from one corporation to the next.5 That variation is the result of incredible complexity in the tax code as well as corporations’ varying exploitation of “loopholes” to avoid tax liability. Loopholes refer to provisions in the tax code that exempt certain activities from regular taxation. For example, multinational corporations can allocate profits to overseas operations and reduce their tax liability by doing so.

. . . .

There are numerous legal tax shelters the small businesses can use to reduce tax liability.

Meanwhile - a side story - Is Puerto Rico the Greece of the Caribbean?
http://finance.yahoo.com/blogs/daily-ticker/puerto-rico-greece-caribbean-141121081.html

Corporations have been granted favorable federal tax rules, e.g., exemptions or reductions for locating/operating in PR.

Interesting resource - https://www.jct.gov/publications.html

and somewhat relevant (wrt an agreement) - http://news.yahoo.com/very-different-lame-duck-lessons-2010-130055187--abc-news-politics.html

 

[mheslep]

I wasn't asserting anything about taxes. Revenue could be from royalties from resources on federal land. However, miscillaneous sources and customs duties are only about 5% of revenue. The rest are taxes.

...

I was mainly interested in pursuing the earlier suggestion of

or raise revenue 10% and cut expenses 20%,

which I find reasonable though I think the ratio should be at least three to one.

There seems to be some agreement on some revenue increases, but none on the expenses side. That is, not only are there no new expense cuts on the table for this year from the White House despite frequent use of the term 'balance'. The White House is instead proposing new [/I ]spending - $150B over three years w/ $50B in this first year.

 

[Astronuc]

I could swear I posted a response earlier today.

Anyway, I think the numbers warrant a reduction of 30% in expenditures over the current requested, with taxes (or revenue) enacted where they are. That would mean a severe reduction in government programs, including social security, Medicare and Medicaid, and the defense budget.

In the meantime, we would need to put on the order of 8 to 10 million folks to work doing something productive, and earning an income between $50K and $100K per year. Folks earning less than $50K don't pay much if any taxes, particularly if they are supporting families.

 

[SixNein]

I could swear I posted a response earlier today.

Anyway, I think the numbers warrant a reduction of 30% in expenditures over the current requested, with taxes (or revenue) enacted where they are. That would mean a severe reduction in government programs, including social security, Medicare and Medicaid, and the defense budget.

In the meantime, we would need to put on the order of 8 to 10 million folks to work doing something productive, and earning an income between $50K and $100K per year. Folks earning less than $50K don't pay much if any taxes, particularly if they are supporting families.

Do you not think it would be reasonable to take some of the money saved through cuts and stimulate through infrastructure spending?

I'm kinda cautious about Austerity. A big Austerity program right now could rape our economy. We are in a liquidity trap with interest rates at 0 which means the central bank is going to have trouble manhandling an austerity program. So we can't exactly count on the Fed to smooth everything over. And People will invest less now due to expected future cuts. The more severe those cuts are, the more blow-back we'll see in investment especially with programs with a fairly high multiplier effect.

I don't know if people understand what I mean by the multiplier effect. So I'm going to explain it real quick just in case.

Suppose the government spends 100 dollars. A person receives 100 dollars and saves 10 from the government. The rest is spent which becomes income for the next person. The next person receives the 90 dollars, saves 10, spends 80. And on and on and on. This creates a multiplier effect. So every dollar the government spends will usually create much more than a dollar in terms of GDP.

Tax cuts also have multiplying effects; however, it's not typically as strong as government spending. Highest income bracket usually has a fairly low multiplier while the lowest bracket usually has the highest multiplier.

The point being here that Austerity (especially during a liquidity trap) is not as simple or safe as some seem to think. Just because you cut 100 billion out of the deficit does not mean your budget will be 100 billion closer to black. These multiplier effects will tend to shrink the tax base; as a result, tax revenue will decline. So cutting spending does not go dollar for dollar towards a deficit. In addition, the federal budget could trigger more cuts at the state level adding to the multiplier effect. In a basic nutshell, Austerity comes with its own set of risks especially in the middle of a liquidity trap. And I don't understand why people aren't discussing them when they cough them up frequently for stimulus spending. We are only growing at around 2%, so we don't have a lot of wiggle room for mistakes.

 

[Astronuc]

Well, we could distribute the debt liability according to net wealth and income. The treasury could send out a statement with a list of options for a payment schedule - 1 yr, 2 yr, 5 yr, 10 yr, . . . .

 

[SixNein]

Well, we could distribute the debt liability according to net wealth and income. The treasury could send out a statement with a list of options for a payment schedule - 1 yr, 2 yr, 5 yr, 10 yr, . . . .

Congress needs to plan everything around multipliers and not ideology. I'd raise taxes on people with the lowest multipliers, make reforms to control growth rates on future spending with programs like medicare and military, and stimulate the economy through investments in infrastructure with some of the savings. The infrastructure will expand the tax base and should provide a source of long term revenue for the government (it's what 2 trillion behind now?).

If we just ignore multipliers and allow our infrastructure to continue to degrade, we are going to severely damage our economy. We can't run a top economy on a 3rd world infrastructure. The risk here is that we end up in a nasty spiral that is very hard to pull out.

 

[SixNein]

Congress needs to plan everything around multipliers and not ideology. I'd raise taxes on people with the lowest multipliers, make reforms to control growth rates on future spending with programs like medicare and military, and stimulate the economy through investments in infrastructure with some of the savings. The infrastructure will expand the tax base and should provide a source of long term revenue for the government (it's what 2 trillion behind now?).

If we just ignore multipliers and allow our infrastructure to continue to degrade, we are going to severely damage our economy. We can't run a top economy on a 3rd world infrastructure. The risk here is that we end up in a nasty spiral that is very hard to pull out.

On second thought, I think congress needs to pass an infrastructure stimulus bill now. I think it's just too dangerous to do Austerity right in the middle of a liquidity trap. Congress instead needs to focus on getting the US to full employment so the interest rates start lifting. At that point, the US needs to follow up with Austerity, and the central bank can then smooth things out so that it doesn't do too much harm to the economy.

 

[Oltz]

SixNein this is one of the rare times I agree with you in a way

The only increased spending I would accept would be infrastructure roads/bridges/dams water/sewer/gas/power line work is so lacking we are due for some major repair that state and local governments just have not been prudent enough to undertake over the last 30 years.

But I would achieve that by ~10% increase in revenue ~30% cut in spending across all programs and redirect 15% of that to infrastructure projects with the caveat that no funding goes to new projects all of it goes to repair/replace/maintain projects with full bidding and distributed to each representative district to eliminate the desire for pet projects.

No high speed rail until we get what needs fixed taken care of and every district in the country needs work giving it to the state governments will only see the "city" issues fixed leaving dams and distribution lines in the rural areas untouched.

I would run this program and those cuts for at least 5 years but would push for 10.