Fiscal Cliff Thread

[namkcuR]

I thought this was a big enough deal to warrant having its own thread.

Expiration of Bush Tax Cuts+2011 Budget Control Act Taking Effect(i.e. big across-the-board spending cuts both domestically and on defense)+some other stuff = Fiscal Cliff

The President and Democrats in Congress have made it very clear that they won't agree to any bill that doesn't allow tax rates on the top 1-2% to increase. Even if such a bill were passed in congress, the President would veto. After he extended the Bush tax cuts in 2010, he said he wouldn't do it again, and he won re-election on a platform that made a big point out of keeping his word about that. I believe him.

Congressional Republicans have said they're open to more revenue, but not increasing tax rates, which I guess means they're open to closing loopholes, etc. They soundly rejected the Democrats' opening proposal on Thurdsay, and seem primed to hold the middle class tax cuts hostage.

House Minority Leader Nancy Pelosi threatened to use a procedure called a 'Discharge Petition' to get the bill already passed by the Democratic Senate(which lets the tax cuts expire for all but those making more than $250,000, I believe) on the floor in the House without Speaker Boehner putting it to a vote himself, but it's unclear whether or not she has the votes to succeed.

Some on the left(and those who care deeply about the deficit) - I saw Howard Dean say this on TV this morning - think that perhaps we should go over the cliff, that it might hurt in the short term but be the best thing for the country in the long term because the tax increases and spending cuts would go aways in reducing the deficit and getting us closer to balancing the budget.

Anyway, like I said, I thought it was a big and interesting enough story to warrant its own thread.

Discuss.

 

[trojanchick99]

Is it sad that the reason I know what a discharge petition is, is Legally Blonde 2.

 

[the iron horse]

With so many Americans trying to pay the bills, put food on the table,
and scrimp and save a few nickles and dimes...

It's a sad commentary that the high and the mighty in Washington
can't seem to do anything but spend our money and tax us more.

 

[Irvine511]

Agreed. Lets cut public education.

 

[BoMac]

Fiscal Cliff was my favourite character on Cheers.

 

[U2DMfan]

The only thing I hope and wish for is that something gets done and they don't just agree to kick the fucking can down the road again. We need some good news for once.

 

[digitize]

I wish people would stop pretending that there is any way that this can be tackled that will be, in the short term, good for the economy. Raising taxes on anybody - the rich, the middle class, the poor - will hurt the economy. Cutting government spending will hurt the economy, even if it goes into seemingly silly things (like, arguably, our [arguably] bloated Defense Department). In the long run, things may work themselves out. But in the short term, no matter what is done, reducing the deficit will be a net economic negative. The US will not only spend less but produce less. Austerity is not good for the economic short term... ever.

 

[U2DMfan]

I agree. We just have to be willing to take the pain right now.

 

[digitize]

I'm still not entirely convinced of that.

 

[Moonlit_Angel]

The only thing I hope and wish for is that something gets done and they don't just agree to kick the fucking can down the road again. We need some good news for once.

Same here. I'll be genuinely stunned if anything of that sort actually happens.

I do feel something notable could or will happen during these talks, because the Republicans need to rebuild their image a bit, so even if it's just for posterity's sake, they might give in on some part of the deal, and the Democrats need to try and look tougher. But whether or not what Congress comes up with will actually make people happy, however, that's debateable. Even if, as noted, it's something that needs to be done, the outcome likely will still piss people off somewhere.

 

[U2DMfan]

I'm still not entirely convinced of that.

And I am sure you could argue that side of it quite well. I am just a pedestrian armchair economist, at best. But I do deal well with numbers and fact. So I am always easily swayed on economics.

That said, the only thing that was ever going to allow them to do this kind of deal (politically) was a ticking clock. Now they have it. I know sheer politics quite well. And I know this is a great time to do it in that sense.

I understand any amount of cuts and tax increases could send us spiraling in this fragile recovery, but on the flipside, we could easily be stuck at or between 1-2% growth for the foreseeable future. Like, many years. And with a continuing deficit and stacking debt it will only get worse. That's my impression anyway, maybe I am missing something.

And again, maybe I am being naive, but I think the biggest problem with the economy right now (aside from the deficit, and in a broad sense) is consumer and corporate confidence.

There was a big tax increase/spending cut deal in 1993.
I don't know how similar the two would be but we ended up okay after that.
Granted the economies of 2013 and 1993 are likely quite different.

 

[U2DMfan]

Same here. I'll be genuinely stunned if anything of that sort actually happens.

I do feel something notable could or will happen during these talks, because the Republicans need to rebuild their image a bit, so even if it's just for posterity's sake, they might give in on some part of the deal, and the Democrats need to try and look tougher. But whether or not what Congress comes up with will actually make people happy, however, that's debateable. Even if, as noted, it's something that needs to be done, the outcome likely will still piss people off somewhere.

I hope people on both sides are pissed off.
That was Clinton's M.O. as well.
Compromise pisses off the base and the fringes.
But it gets stuff done. Progress is good.
And I think Obama likely agrees.

Personally, I think the President maybe should give in on rates (outside of capital gains, which should be doubled) and go for the lowered/capped/eliminated deductions and exemptions. He's got to get revenue and it will be a strong signal and concession to the Reps.

 

[IWasBored]

pedestrian armchair economist

Can't tell if you're walking or sitting down?

 

[deep]

one thing for certain, before it is all over this man will cry

 

[anitram]

Personally, I think the President maybe should give in on rates (outside of capital gains, which should be doubled) and go for the lowered/capped/eliminated deductions and exemptions. He's got to get revenue and it will be a strong signal and concession to the Reps.

Paul Krugman and others have written extensively on why this would benefit the wealthy.

I don't understand why Obama should pass on concessions to the Republicans when their ideas are bad and when (I believe) he genuinely thinks that they would hurt the economy and the somewhat stalled recovery. Just for the sake of conceding?

Just because both sides are pissed off doesn't mean the deal is good. It could very well mean that it's a bad idea all around.

 

[Salome]

Unless the system of tax deductions in place makes no sense and is unfair in the way people can benefit from them, then get rid of them.
Mostly because it will help to make the tax system simpler and more transparant.

If the deduction in place are there for good reasons, then increase the tax rates.
This way at least the effects on disposable income can be more accurately determined.

If possible, do a bit of both.

 

[anitram]

If possible, do a bit of both.

 

[anitram]

With respect to deductions, I have long felt that the mortgage interest deduction no longer makes sense in the US. There is a very high rate of home ownership compared to most western democracies, so you could argue that the goal has been achieved.

 

[Irvine511]

As someone who is on the hunt to own, I'd really like that tax deduction.

 

[anitram]

Sure, as would anyone. But it doesn't make for sound economic policy.

It needs to be phased out because it encourages people to take on debt and it discourages them from aggressively paying down debt. It makes little sense to pay down your mortgage when your interest rate is deductible because you are better off investing that money in something like a dividend-yielding or bank stock.

Why should that be subsidized given that mortgage rates are already lower than other interest rates because a mortgage is an asset-backed security? Right now would the the perfect time to start phasing this deduction out because interest rates are so low that you won't feel the shock as much.

Economic efficiency = lowering the rate and simplifying the tax code by eliminating loopholes and deductions. The Republicans are actually right about this it's just that they have no ideas and no sensical proposals to do so.

 

[Irvine511]

All may be true, and I agree, but the incentive to buy goes diminishes without the tax deduction, and given that the housing market is an overall drag on the economy, perhaps now isn't the time to do away with it. I'm not an economist, but from a buyer's perspective, the tax deduction is more attractive than a lower rate, and given that most people's biggest and sometimes only investment is their home, it's also a personal savings investment. Most people aren't prepared to effectively invest on their own, and home ownership often becomes one's retirement.

We're a different case than most people, though, and my personal interest is just that I'd really like to use that $8k to invest in other areas.

 

[U2DMfan]

Paul Krugman and others have written extensively on why this would benefit the wealthy.

I don't understand why Obama should pass on concessions to the Republicans when their ideas are bad and when (I believe) he genuinely thinks that they would hurt the economy and the somewhat stalled recovery. Just for the sake of conceding?

Just because both sides are pissed off doesn't mean the deal is good. It could very well mean that it's a bad idea all around.

Paul Krugman says a lot of things. Some of them worthless. Even according to his fellow Keynesians. The point is - if the President is bartering with them, as would be a good strategy for multiple reasons, he's got to give them something.

So what can he give them?
Or what are you willing to give the Republicans (in theory)?

Nothing? Then you are more a part of the problem than the solution.

Maybe giving in on rates is not a good idea. I am just trying to think of what would be a good idea. Corporate tax cut? That could work. But it would need to be revenue neutral and they wouldn't 'waste' the savings found (for cuts) on that. Not a lot of ideal scenarios for anyone.

And yeah, I believe - 100% - that any deal that is passed that completely pisses off the ideological bases and the lunatic fringe - is good. Because that means Obama signed it. And I doubt, aside from sheer politics, he cares much what they want at this point. So to hell with the partisan hacks using the guise of economics like Paul Krugman.

I don't know what a "bad idea all around" would look like as compared to any other deal they strike. Depends on what shoes you are standing in. I imagine there will be a lot of hand-wringing over this deal by everyone involved, some of it genuine (ideologues) and some of it feigned (sheer politics).

And lastly - you can't refute an idea by simply saying it's painful with any credibility. What - that is currently on the table - would not be painful?

It's not for the sake of conceding. It's negotiation.

Obama has had his ass handed to him practically every time he's had a political fight. One of the major reasons this is the case is being naive about the politics. Or that he has surrounded himself with such advisors that listen to the Paul Krugman's of the world. I don't think that's the case anymore.

We shall see.

 

[U2DMfan]

I responded above without clicking to the next page.

I see you are willing to do a little bit of both. Excellent.

I am for a mix of ideas myself.
Seems the best ideas are always a hybrid.

And so that furthers my point about pissing people off.
I want Harry Reid and Nancy Pelosi to have a bitter taste in their mouths when this is done. But I also want Obama to win the day.

I think if he gave them something, it neuters them politically.
Right now they can justify their fight, to some degree.

And again, maybe I am totally wrong about rates.
I'm not an expert on all of this. I just want a sane compromise and anything preventing that irks me these days.

 

[anitram]

All may be true, and I agree, but the incentive to buy goes diminishes without the tax deduction, and given that the housing market is an overall drag on the economy, perhaps now isn't the time to do away with it. I'm not an economist, but from a buyer's perspective, the tax deduction is more attractive than a lower rate, and given that most people's biggest and sometimes only investment is their home, it's also a personal savings investment. Most people aren't prepared to effectively invest on their own, and home ownership often becomes one's retirement.

We're a different case than most people, though, and my personal interest is just that I'd really like to use that $8k to invest in other areas.

Tax study after tax study shows that this deduction disproportionally helps two groups of people:
1. the relatively wealthy who are spending $1M+ on a house
2. the ones who are borderline middle/upper middle class but live in expensive urban areas where they have to stretch themselves beyond their comfortable means.

This is a very small proportion of the country overall and that is why you will see economists of all stripes rightfully say that this is a subsidy for the real estate industry. At $100B plus per year, the country can no longer afford it and so this has to go. It is arguable whether it goes now or in a couple of years but in any event you have to phase it out rather than getting rid of it overnight.

If it no longer existed, people would still buy houses. On the margins, you may have people deciding to spend less on a house - say $800K instead of $900K because the deduction is gone but why should that have to be a bad thing? Why should the government, which is essentially broke, be subsidizing a private citizen's more expensive home? It is not sound economic policy.

I get what you mean about personal interest (I actually just bought a house about 3 weeks ago), but we have to keep in mind that it is precisely that everyone is so tied to their personal interest that nothing gets done in Washington. Everyone has a lobby group for everything and nobody is willing to let go of anything that directly benefits them.

 

[anitram]

And so that furthers my point about pissing people off.
I want Harry Reid and Nancy Pelosi to have a bitter taste in their mouths when this is done. But I also want Obama to win the day.

But you see, this is an irrational position that is divorced from the fundamental question of, "what makes for good economic policy"? You could have a sound economic plan which both Reid and Pelosi are happy with and you would not be pleased - that's irrational. And for the record I have no love lost for either of them. I think Harry Reid is a largely ineffectual douchebag and Pelosi let a lot of pork barrelling through back in 2009 which came to bite her in the ass.

And again, maybe I am totally wrong about rates.
I'm not an expert on all of this. I just want a sane compromise and anything preventing that irks me these days.

The tax rates are a non-starter. The question is not should the tax rates go, it is, what in addition to the tax rates should go. And this is not a partisan view, it is an economic view. I know that this has been posted many times, but it bears repeating:

Really rather speaks for itself.

 

[BoMac]

Fiscal Cliff | The Simpsons | Animation on FOX - YouTube

 

[U2DMfan]

But you see, this is an irrational position that is divorced from the fundamental question of, "what makes for good economic policy"? You could have a sound economic plan which both Reid and Pelosi are happy with and you would not be pleased - that's irrational. And for the record I have no love lost for either of them. I think Harry Reid is a largely ineffectual douchebag and Pelosi let a lot of pork barrelling through back in 2009 which came to bite her in the ass.




The tax rates are a non-starter. The question is not should the tax rates go, it is, what in addition to the tax rates should go. And this is not a partisan view, it is an economic view. I know that this has been posted many times, but it bears repeating:

Really rather speaks for itself.

It's not irrational, maybe I haven't articulated myself well enough.
But you are responding to me as if I am oblivious to the revenue problem and that couldn't be further from the truth. Maybe that is my fault...my posts were done rather quickly, you know how that goes.

I don't mean to convey that it is the ONLY solution I would be happy with.
But if they are angry with it, and considering Pres Obama would have signed it, I would most likely be 100% satisfied. On the other hand, if they are happy, that is probably a good thing. I just believe the chance of that are almost nil.

I don't need one iota of convincing about lost revenue. Understand, the #1 (with a bullet!) reason I voted for Obama was because of economics. Mostly, the failure of Republican supply-side economics and their refusal to look for new revenues. But $80 billion dollars in additional tax revenue per year - if it comes from those other modifications (exemptions, deductions, etc.) or if it comes from the rates, seems the same sort of thing to me.

That is revenue that doesn't evaporate and increases over time with growth.
Maybe it is a mythical number that the Republicans have thrown out there, wouldn't surprise me, BUT if the numbers are relatively the same, why does it matter? I don't know if the CBO has scored such a plan or not. I will look into that.

 

[anitram]

Maybe it is a mythical number that the Republicans have thrown out there, wouldn't surprise me, BUT if the numbers are relatively the same, why does it matter? I don't know if the CBO has scored such a plan or not. I will look into that.

That's exactly what it is.

They have provided absolutely no backup to their claims and no serious economist anywhere believes that their numbers add up.

Good summary of the Joint Committee on Taxation, which explains how if you closed all the major loopholes (keeping in mind this is politically impossible), it would still be woefully inefficient:

Tax loopholes alone can't solve fiscal cliff - Lauren French - POLITICO.com

 

[MrsSpringsteen]

I don't know nearly enough about this, but I do know that I'm disgusted by all of them. Both sides. Compromise has definitely become a dirty word.

 

[Moonlit_Angel]

I was reading the USA Today this afternoon and it was talking about all the discussions surrounding Congress and this fiscal cliff stuff.

Then I read a story about people in Ohio who are living in their cars or are in poverty and struggling to afford a roof over their heads, let alone food or any other necessities.

In short, the members of Congress, all of them, desperately need a good slap across the face. Quit acting like petulant babies and fucking DO something worthwhile already.