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Deficit Comish: “Add another 100b to the Tab”
There is a possibility that only one recommendation by the Deficit
Commission ("DC") will be embraced and enacted into law. The joke of
American history would be if the proposal considered actually added a
$100 billion to the deficit.
These folks spent nine months in a room dreaming up ways to attack a
lethal disease. They came up with dozens and dozens of ideas that
probably should be kicked around. As far as I’m concerned they lost the
battle and the war on this critical issue by coming up with something
that is completely outside of their mandate. How dare the DC propose
something that turns the clock the wrong way:
Congress
should consider a temporary suspension of one side of the Social
Security payroll tax, financed by transfers from general revenue…..this
would cost $50-100 billion in lost revenue.
Whether or not the US should have a tax holiday is a matter for the
Administration, the new congress and the American people. For the DC to
pitch this it taints everything else.
There are no additional details on the tax holiday plan. That is
convenient. They refer to “one side” of they payroll tax. This means
they want to reduce taxes for wage earners, but they don’t want to
reduce them for employers. This comes to $625 for the 160mm covered
workers (assumes a total $100b tax break). As ‘checks from helicopters’
go this is a pretty big amount. But it is not a check. It is a
reduction of a tax so income goes up but it only comes to $12 a week on
average. That’s not going to change anything. This money will find its
way to the Wal-Mart to buy goods from Asia. It will have zero lasting
benefit and other than some temp work at the big boxes it will do
nothing for employment.
DON’T get me wrong. In my book zero stimulus is the right
number. My point is that what the DC has proposed is just some candy. It
makes them look silly.
I thought this slide from the appendix was interesting.
The GDP numbers translate into these growth rates:
These are estimates for what I call 'top line' GDP. Notice the hockey
stick of growth that we are going to experience from 2011 to 2014. To
get to real GDP you have to subtract an inflation number. Possibly the
DC consulted with Bernanke on this. To get 6% growth in 2013-14 you have
to have a lot of inflation. Ben probably told the commission that he
would guarantee 4% inflation for those years. That would put real growth
around 2.0%. Note also that in the critical period 2011 to 2020 there
is no period of economic slowdown much less a recession.
Short of a big jolt in inflation we will not see that level of economic
expansion. The DC plan is built on a economic model that will not be
realized. Who’s kidding who?
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I cant beleive you thought there would be anything coming out of the Debt Commision. A bi-partisan, 18 member, appointed commitee, with no power, and two Chairman!. In fact, the committee will not even vote to approve its own findings. This would be good comedy if it was not so depressing.
You quite simply do not get it.
It is all on the level.
Just Buy the Dip.
Like the FDA is going to do for food what it has done to drugs, what shortages?
Maybe they should get Goldman Sachs and Berkshire Hatheway to START paying some taxes.
Tax holidays?
What does it mean?
It means that the US tax payer is giving even more tax money to save the world.
Because in the US common citizen's world view, the more tax cuts, the more tax holidays, the more the US citizens are giving. Because US citizens are good people at heart. They could not live off extortion schemes.
So, as expected and as per usual, the plan is don't do anything now for the sake of growth (i.e. votes) but promise to make an extra super effort in a few years time - i.e. pass responsibility to another set of politicians. However, those politicians will decide they can't do anything then, for the sake of growth (i.e. votes), until something snaps. Of course, the biggest problem is oil prices, and what OPEC considers a fair price to be paid in continuously debasing Dollars. I suspect they will try to foment international conflict to raise the value of "the US security blanket".
However, domestically as long as the sheep can still afford fried chicken and have their minds numbed by crap on tv, nothing will change.
OPEC? Funny. OPEC are bailing out the world and they are not asked their opinion.
They have no say in oil prices.
They will keep taking what is handed to them.
Why do you think the arabs in ME have been growing nervous for more than one decade? Maybe because they feel more and more cornered in a suicidal pact with the US and some others.
Yes, but as every year passes, they have increasing options for who they can sell to. Add to that, both Saudi and Russia have greater domestic spending needs and new sources for crude (eg tar sands and pre salt in Brazil) are not going to cap price rises.
In the shorter term, it seems that the only thing that gets the Fed's attention in their lunatic stock pumping is when crude gets to $90 or so. It's one of the perils of trying to disguise inflation as growth.
And if Russia and China start paying in gold (gold-backed currency)?
Well, the 70s oil crisis was largely a consequence of taking the Dollar off the gold standard. The Arab Israeli conflict, was merely the alibi..
http://www.usgovernmentspending.com/defense_chart_30.html
I like the image of the cracked brick wall. The crack is an obvious defect, but the problem is the foundation. As is the economy not going to be fixed by pointing up the cracks; the foundation and philosophy must be repaired first.
Cut twice, measure once.
"I keep cutting and the board is still too short!"
I don't get the DC's recommendation to lower the top personal income tax rates (lowering the corporate tax rate I can understand). It makes even less sense than the one-sided payroll tax holiday if the DC's mandate is to reduce the deficit. Or did they have to throw a bone to the supply-siders on the commission?
4% inflation would not give you 2% real growth. Real growth would be negative. Oil would be over $100. Regular middle class and small business would export all free cash flow to oil exporters.
Small biz and 'regular' Americans would be forced to further reduce consumption. And don't forget the rapid change in demographics.
- reduces deficit (annual overages...not debt)from a planned $10T to $6T over 10yrs (reduces annual 10yr deficits by $4T...total debt still increasing by min. of $6T).
- of the budget, they plan to spend $2T less.
- Plan a reduction of spending on the 80% non-discrtionary (that is SS, DoD, UE/Welfare, MEd, Med, Interest) beginning at 1.7% ($19B of $2.841T) of total funding and rising to something like 3% by 2020 ($119B of $4+T).
- discretionary budget (the 20% that is everything else)- plan to begin w/ a 7% reduction ($49B of $704) up to 30% in 2020 ($241B of $750B'ish).
- the other $2T in deficit reduction comes from Tax reform ($751B), "other" revenue ($210B), net interest savings ($673B)?
- very optimistic growth and tax revenue projections
- spending and revenue caps are brilliant but impossible, tax reform good,
So, although everyone agrees the problem is the non-discretionary, this plan still doesn't really touch these and focuses on slashing the discretionary. Sorry but very weak if this is the best a non-partisan group can offer. Agreed this goes nowhere close to far enough and not a chance it will be enacted or if enacted it will all be backloaded so it can be kicked down the road by politicians.
Anyway, good to at least have an idea of what we disparage.
And for giggles - what it would take to fund the unfunded and hold our debt as is...
Servicing national debt per taxpayer = $248/mo
( $13.7T / 110m fed taxpayers = $124k per TP * 3% (-20% corp rev) / yr)
Funding "unfunded" liabilities per taxpayer over 30yrs = $2222/mo
($111T / 110m fed taxpayers = $1,000,000 * 30yrs (@ 0%)(-20%))
So, only $2470 / mo ($29,644 / yr) or nearly all the "average" households disposable income) per every tax payer in America for the next 30yrs and the unfunded's would be current and national debt interest payments are current (debt is still $13.7T but should be easily manageable from a GDP standpoint assuming GDP grows at any rate).
Everyone is kidding everybody. But not forever.
Isn't it proper to say who is kidding whom?
Well. Bruce is maybe making it a point. With math like this who cares about grammer anymore.
www.dailyjobcuts.com shows a dismal picture with all the existing stimulus. whats a SS tax reduction going to help with ? drop in a bucket with a huge hole !!