Obama’s (dumb) Line in the Sand

Bruce Krasting's picture




So both Boehner and Obama have done their post election photo ops. They have spelled out their positions on the looming fiscal cliff. No surprises at all. The Republicans are saying “No” to any increases in tax rates while Obama has said he will outright veto any bill that is presented to him that does not raise taxes on rich folks.


I was surprised by the reaction in the press to the positions set forth by these two. The headlines make it seem like B&O are ready to work together, and achieve the necessary compromises to avoid falling off a cliff. I think the press has it wrong. We’re headed into a bitter fight; in part, because the President has drawn a very dangerous line in the sand.



The President has said that the recent election has shown that the majority of American’s want the rich to pay more in taxes. What is the President insisting on? Is he pushing for something that would make a difference? I don’t think so. More importantly, the Congressional Budget Office does not agree with the President’s position.


The CBO put out a report on this topic last week. It spelled out the consequences of an increase in the tax rate for those making over $250,000 (versus reversing all of the Bush tax cuts). It does not add up to much.





The tax that Obama wants to increase will result in a lousy $42Bn in 2013 and $38Bn in 2014 according to the CBO. That’s peanuts to a government that spends $3.6T a year. The tax increase that Obama is insisting on comes to three days of spending.


No tax increase comes without a cost. The CBO evaluated the implications of raising the taxes on those making $250k and up. The consequences to both GDP and jobs:





Raising high end taxes will reduce GDP growth by .1% and will result in 200,000 less workers finding jobs. It will do these bad things by the 4th Q of 2013. Some context for these numbers:


The .1% drop in GDP translates to $16Bn less growth in 2013. On average, the government takes in about 20% of GDP, so the drop in GDP relating to the tax increase will translate into a shortfall in revenue of $3.2Bn.


The tax increase mandated by the President will translate into 200,000 less jobs for 2013. If the people who did not find work as a result were forced to stay on unemployment it would cost the government $4.6Bn.


So Obama’s “must have” tax increase will generate $42Bn in revenue, but it will cost ~$8Bn. The Obama's plan is to decrease the deficit by about $34Bn in 2012, and by less than that in future years. These numbers are beyond chump change. It comes to 0.9% of total spending and just 3.0% of the deficit. It does not move the needle at all.


My conclusion is that we are in for a fight. Talk of compromise and “coming together for the good of the country” is just noise. The President is insisting on a tax increase that will not achieve anything of substance. Obama has drawn a very visible line in the sand over this issue. I can’t imagine how the House Republicans will go along with it. The President’s opening position on how to work through the fiscal cliff is about politics, not economic substance.


Get ready for a failure in these negotiations. We are going to fall off of that cliff in 53 days!



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moneybots's picture

Boehner and Obama's dumb lines in the sand.

moneybots's picture

"It will reduce the deficit by a trillion dollars over ten years.  Now lets start talking about cutting the military budget and closing corporate loopholes in the tax code. A transaction tax on financial trades, eliminate the carried interest tax break, start from scratch on health care, model it after successful systems that provide cheaper, better health care in any other developed country.

Theres a start."


That is not even close to a start.  It is a finish.  There is no intention to go beyond a start that includes only that which the left wants.


therearetoomanyidiots's picture

Why bother arguing xs and os.  This thing is over.  You best move out while you still can or, as in Invasion of the Body Snatchers, just go to sleep.  When you wake up, it won't feel any different. 


Quinvarius's picture

 Obama cannot possibly be stupid enough to raise taxes.  The Republicans cannot be stupid enough to stop raising the debt limit.  They will cut some small nonsense spending and then business as usual.

NoTTD's picture

Excellent! Bring on The Cliff!!  Default now!!!

Catullus's picture

So $16Bn increase from tax cuts on the wealthy expiring and leaving the other rates the same...

I think what's being missed here is that they're only allowing the highest marginal income tax brackets to go up.  I wonder what the impact of the capital gains tax increasing and the dividends tax being treated as normal income will do.

Regardless, $16bn in new revenue is not enough to offset +$1trillion in annual cash deficit.  Ron Paul is right: We're already off the cliff.  It just depends on where we land.

viator's picture

ZH has joined other websites in that it's comment section is becoming a forum for Marxist propaganda. As Karl himself wrote; "From each according to his ability, to each according to his needs!"

spooz's picture

Huh.  The only propaganda I see is the ignorant repetition of Fox soundbites.  I prefer to do my own research, and will call out the misinformation as I see it.


ColonelCooper's picture

Yet you would cite Media Matters as a source to refute Fox?

You are every bit the tool the FoxBots are.  Maybe more.

Rastadamus's picture

No one is serious until they cut the Pentagon budget by two thirds.... Then let's talk Social Security, Healthcare, and all of that. Let's raise taxes on any income over 500 million to 90%, over 400 million 89%, over 100 million 50% and income over 10 million taxed 39%. Everyone else would see their Bush tax cuts extended....

FleaMarketPete's picture

I agree, but we should also tax incomes under 250k at a flat rate of 25%. You want big government? You pay for it. Right? Because we are all in this together?

JamesBond's picture

 don't expect a response from Rastadamus.  its all about income redistribution, not paying your fair share with socialists like him



honestann's picture

At this point in time it is 100% clear that productive people only have 3 options remaining:

#1:  Leave the USSA (my choice).

#2:  Stop producing.  Go on the dole.  Collect unemployment and disability.  Collect social security, medicare, medicaid, etc.  And most importantly, stop producing.

It is time for producers to go on strike.  I am not talking about "the rich", many of whom are not productive, but have some kind of government-aided scam making them rich.  No, I'm talking about "producers", about people who produce real goods and goodies.

If the majority of producers went on strike and just stopped producing (and go on the dole if they can), this predators-gone-wild absurdity would collapse in no time.

I can no longer think of any additional alternatives to:

#3:  Accept overt enslavement.

For me, #3 is not an option.

Archon7's picture

#1 for me.  Hong Kong, Singapore, Australia, and New Zealand are the top 4 countries on the list.  Not only are they consistently the top-ranked countries for economic freedom and open market, but they're all westernized English-speaking countries.  I've always wanted to try Hong Kong.  Funny you mention this, because I've seriously been looking into a move, and have even hired realtors and consultants to look into things.

#2 is probably not possible for me - not only would I feel morally compromised, but they'd probably never approve me.  However, "stop producing", and staying put is an option, although not as desirable as leaving the USSA.

#3 - I would die before bending the knee to communist scum - this is defninitely not an option.

spooz's picture

What "dole" would that be? Unemployment benefits average 27.5% of previous wages.  Disability fraud is a crime that some states are willing to put you in jail for. You have to be elderly to collect medicare and impoverished with no assets to get medicaid. 

You might want to keep your job. But you weren't being serious, right?  Just spreading the usual misinformation.


honestann's picture

No, I'm not kidding one bit.  In fact, I escaped the USSA permanently 3 years ago.  As I indicated above, #1 was my choice, and obviously I consider it the best choice.  For many (perhaps while researching and preparing for #1), it wouldn't be too difficult to practice #2: slack off [more-and-more] at work (out of depression over the current situation/slave-state) until you end up on unemployment.  As for the other choices, I know people who work hard, earn money and produce, but would qualify for disability.  Others need to decide how much risk they're willing to take to prosecute a revolutionary war.

I personally work about 80 hours per week, and I would also be working 80 hours per week if I had decided to stay in the USSA.  However, I am living on savings now, and would be living on savings if I had stayed in the USSA.  If I was someone without much savings, I'd get myself into a [mostly] cash business and thus stop funding the predators [as much as possible].

Your answer seems to be "why would anyone seriously object to slavery, or try to escape slavery".  Well, I can tell you that a lot of people (albeit only a modest minority) are quite serious about not being slaves, but most of them have no idea how to achieve such.  I'm just listing the obvious approaches.

Jim B's picture

If I wasn't self employed a 99 week vacation would be nice, but I probably would get bored...  

I am not used to sitting on my ass and being a parasite.... LOL!

spooz's picture

Get with the program. You missed the boat on being a 99er. Unless Congress changes the law, all federal extended unemployment benefits are set to expire on December 29, 2012.

FleaMarketPete's picture

 #2 for me.  Why the hell would I ever start a business under Obama to support the leaches?  The risk of starting a business is far too high versus the security of Obama dependency.  I’m going on SNAP and disability and the job seekers can starve for all I care.


spooz's picture

I hardly think $130 of SNAP per month will replace your current income.  And disability fraud can land you in jail:


bobzibub's picture

First, the wealthy in the US are likely buying gold/tangible assets as an inflation hedge or hiring labour in poorer countries anyway, unlike prior to this recession when the econometric models were built.
Second the opportunity cost of not taxing this group may be higher still as the revenue will have to come from somewhere.

Greece cut spending. Spain cut spending. There is a political argument to be made with 25% unemployment but the wealthy might be against the wall in that situation. Or people might just decide to shoot at corporate jets? Who knows, but the powder keg would be real.

FleaMarketPete's picture

It's weird now that the liberal thought control started posting comments on ZH.  ATTTTACK WAAAATCH.......


lamont cranston's picture

As Jack Benny used to say, "WELL!" After 24 years of biz I fired everyone and subsist on subcontractors.

Don't care how the market runs, just enjoying how the river runs. 

Children of beeg operators are skeered...do the math. Now is the time to be small and flexible

Teabunny's picture

Another peak into those TEA leaves:
so, come dec 31st we face the fiscal cliff. 4 major issues involved; first sequestration: these are automated cuts to military spending (reducing military funding is something Obama wants) second the Bush tax cuts expire: these will effect americans earning $250,000 annually or above, the average american will NOT be effected in any drastic way, maybe $100 or $200 dollars or so... (exactly the class Obama wants to tax) Third student loan subsidies and interest rates; you will still be able to get pell grants, but it will be harder, the lowest income americans will not be effected, but those who are sending their child to a college and require additional monies to supplement tuition will suffer..and fourth the debt ceiling will need to be raised to avert 
government shutdown (gee, where have I heard that one before?) 

so let me get this straight, If our government does nothing, Obama gets exactly what he wants on taxes and military cuts, while leaving college only accessible to the lowest income persons.

yet, boehner, offers Obama a deal(?) we are willing to compromise; we will accept cuts to our loopholes, but not raising our rates. hmmm... hey boehner, have you noticed he does not need your permission to raise rates??? hey, but brilliant move there reminding him of the loopholes! now all Obama has to do is jockey the loopholes out of your grasp! 

Now how would that happen? well, lets talk government shutdown, shall we? you see, if the government shutsdown, no government checks go out.. after a few weeks, there are riots, trashing businesses, looting, civil unrest. Tell me, who gets hurt by this? the business owners, the very people who want to keep the loopholes, right? so, all Obama has to do to get your loopholes is tell you, if you want the debt ceiling raised you have to go through us to do it.. give up your loopholes and we will raise it for you.

revenge for the 2010 standoff, no? gee there's that word revenge again. Ask petraeus and the ceo of lockheed martin how they are doing under that revenge thing...

The democrats are playing chess, and the republicans are playing checkers...sigh.

FleaMarketPete's picture

Is that Patrick Stewart?  Sounds like Patrick Stewart.

Archon7's picture

"The Rich" already pay most of the nation's tax revenues.  The top 50% of taxpayers pay 98% of all US income tax revenues, the top 2.7% pay 50% of the revenues, and the top 0.5% pay 30% of the revenues.  You simply can't get much more progressive than that.  I would also suggest that there are no internal controls on the system that would keep it from getting even more progressive... progressive taxation is one of those slippery slopes that always ends with the proletariat seizing everything from the "the rich".  Communism has never worked anywhere else in the world, I don't see any reason why it would succeed in the USA...

spooz's picture

The top 1% takes home more than 20% of the income and own a third of our country's wealth. Taxes are lower for them than they have ever been.  In these hard times, they can certainly afford to pay a little more.


TexasTrader's picture

I think the point should be -  ' We dont have an income problem ... we have a spending problem.'  We must cut our financial obligations  to the bone and pay off what we have already spent..  It will be painful, but will be moreso if we dont do it voluntarily.


Lost My Shorts's picture

Yes, if you agree to stop all the bogus foreign wars, and defund the national security state that spends $100 billion plus to spy on us, I am right there with you.  Balance the budget tomorrow.

FeralSerf's picture

' We dont have an income problem ... we have a MILITARY spending problem.'

You're welcome.

JamesBond's picture

your financial IQ is below the moron level



Archon7's picture

You're not seeing through this, so let me help you...  the numbers of "the rich" have been in sharp decline since 2008.  There are several reasons why there are fewer of them left today than there were four years ago - some are no longer "the rich" since they aren't earning as much anymore, some have seen the deck getting stacked against them, and have picked up their chips and left the game, and some have left the game, and the building.  Since only 0.5% of taxpayers account for 30% of revenues, the government has essentially placed all its eggs in one basket, and is now about to start shaking the basket.  Raising taxes will only result in there being fewer of "the rich" to tax, for a number of reasons, but most importantly that "the rich" are the ones most capable of simply taking up their stuff and leaving the game.  You only pay income tax if you're earning income, and people who are that rich can afford not to earn income.  When "the rich" aren't there to tax anymore, who will pay for your "peoples' republic"? 

spooz's picture

For 30 years the rich have enjoyed low taxes as the inequality has grown and accelerated. The top 1% have seen their incomes increase dramatically while the rest have seen decline. Part of it is that they can afford to hire accountants to bring their effective tax rates down to less than the average middle class worker's. They are the ones most able to bear the higher taxes in our economic troubles and should step up. 

Good riddance if the rich decide to bail on the US because we raise taxes slightly by letting their tax cuts expire.  I doubt their families will enjoy living in their tax haven countries, though.

In any case,a recent study "The International Mobility of the Super-Rich" finds overall surprisingly few billionaires migrate:

"Relying on Forbes Magazine annual rankings for two decades, 1625 billionaires and their countries of birth and residence are identified, most of whom are self-made entrepreneurs. 13 percent of billionaires reside in a country other than that of their birth. Migration is linked to distance, to cultural ties and to the per capita income of the respective source and host country. Capital taxes have a statistically significant though economically modest effect. 80 percent of those who moved migrated from a lower per capita income to a higher per capita income country and 70 percent from a higher tax country to a lower tax country. Self-made billionaires are more likely to move to countries with larger market sizes. Overall surprisingly few billionaire entrepreneurs migrate. Previous research has found that self-employed tend to work in their home community at higher rates than employees. Entrepreneurship too appears to be local, with private equity be characterized by a home bias. One explanation may be the wide dispersion and local nature of information as emphasized by Hayek."


Coke and Hookers's picture

It doesn't really matter who you tax, the people who actually PRODUCE things will always pick up the bill in the end - or lose their jobs as companies close down and leave the country. Of course you could simply seize the assets of the rich through 'taxation' but that solves nothing in the long term. By all means pay Soros and Buffett a visit and seize their dough, it should pay for the deficit for a couple of days.

It's also important to realize that moneyprinting is a form of taxation. Obama prints close to 1.5 trillion a year to run the Government and this ex nihilo money dilutes the value of the currency and functions as a wealth transfer mechanism from the producers to the Government and the people dependent on it - just like bank bailouts transfer wealth from the people to banks through bubble formation and such.

The main issue here is not taxation. It's production of wealth. Labor force participation in the US is currently just over 60%. Something like a third of those 60% actually produce something. The rest basically work for the government or Walmart. How the hell are you going to run a welfate state with 60% participating in the economy? Well, you're not. Taxing Peter or Paul will solve nothing. It's like trying to fix a car that won't run because the engine is busted by changing a tire.

And Spooz, it's pretty clear that you are a troll. Nobody in his right mind would come in here and post links from mediamatters to back up his redistribution uhh I mean taxation idiology. Your form of 'understanding' is better suited to other sites, such as huffpo or something equally retarded.


spooz's picture

Yeah, Lloyd, and tell me, what did you produce to sell to the muppets?  You're a freaking hero. I'd love to seize your assets.  Maybe we can reverse some of that upward drain of our economy's wealth.  Must be nice to sit on the top of the heap and decide if and when you deign to throw a few scraps to the serfs.

Allowing an ever growing share of our national income to go to capital gains rather than income from labor is in the interests of the globalist neolibs who own our legislature.


Oldwood's picture

And exactly how will that solve even a small part of the deficit problem? Libs don't care about solutions just spreading the pain. Economic justice. Forward!    Reducing spending back to 08 levels would solve a lot, but we wouldn't want to go back to those terrible old Bush days.

spooz's picture

It will reduce the deficit by a trillion dollars over ten years.  Now lets start talking about cutting the military budget and closing corporate loopholes in the tax code. A transaction tax on financial trades, eliminate the carried interest tax break, start from scratch on health care, model it after successful systems that provide cheaper, better health care in any other developed country.

Theres a start.

myptofvu's picture

It will reduce the deficit by a trillion dollars over ten years. After 1 fiscal year the deficit becomes the debt. How do you get 1 trillion from 400 billion (Krugman math?) Now lets start talking about cutting the military budget While we still have soldiers in the field? and closing corporate loopholes in the tax code. Costs just get passed on to the Public A transaction tax on financial trades, If you can't see how bad of an idea that is What are you even doing on ZeroHedge? eliminate the carried interest tax break, Remove incentives for the sake of more Gov largesse? start from scratch on health care, model it after successful systems that provide cheaper, better health care in any other developed country. There isn't one...How about addressing the real problem, spending!

spooz's picture

Huh?  Actually, checked again, letting the tax cuts for the rich expire would add $850 billion in revenue over ten hears.

So, yeah, lets bring all those soldiers home and wind things down.  Paying them unemployment while not shelling out to private contractors will save us a bundle.

close the loopholes and let the public make economic decisions that aren't based on government subsidies.

A minimal financial transaction tax can be aimed at high frequency traders who distort and exploit equity markets.

Why should performance fees paid to financiers get a tax break with the carried interest loophole?

Your health care comment is too ignorant to respond to.

Carried interest, FYI:


BeagleOne's picture

This is just one circle jerk. O is ready to compromise. All you have to look at his potential Treasury Secretay nominee Erskin Bowles. He is on the board of Morgan Stanley, his wife is on the board of JP Morgan. Someone in movieland said "incest is best", but this is real life.

ShakaZulu's picture

WHAT?  iS THIS BLACK NeGRo Mooselum still playing golf on the taxpayer's dime?

are we there yet's picture

We got the best leaders money can buy .... the problem the money is worth less and buys less.

AngryVoter's picture

Who the fuck believes CBO estimates. Seriously. So why the fuck would you use them to support an argument?

SmallerGovNow2's picture

So I take it you support the Dork in Chief?

Tombstone's picture

Following Europe's brilliant strategy, the socialists in Washington will punt this baby into eternity, like Benny does with QE.  Actually tackling the debt burden would require a Congress with the backbone of a T-Rex.  The backbones we have now are kinda wormy and snake-like.  Here is what will happen; a deal will be brokered for artificial spending cuts over 10 years.  Never mind that the deficit will climb another $5-10 trillion even if cuts are enacted, especially when Obuttheadcare kicks in full tilt.  Taxes will be raised on the rich; this eventually means you are rich if you earn over $50k.  In the new Obamafare reality, even $50k will mean you have to share with the new majority of non-working, pilfering class of slugs.

Considering that the population voted for welfare and a free ride, there will be no need to create any more jobs.  Over the next four years, The Dictator will command an overwhelming army of takers that will need to be supported by a smaller army of slave workers.  The fiscal cliff is really meaningless.  We are far down the cliff of debt.  Does anyone see any reversing of our growing debt if welfare and entitlements are not re-jiggered?  If you do, you are officially now a member of the Marxist utopia dream world. 

However, there is one road that Obama might travel that is the most scariest of all.  He gives up the stupidity of windmills and solar panels and goes all-in for nat-gas and oil.  We now have about 300 years worth of natural gas and, oil, well our stated reserves are now about 20 billion barrels.  With over 20 major shale plays yielding over 20 billion barrels each....do the math.  If the Zero decides to go whole hog and develope this energy, he can tax the crap out of it and rake in a fortune to support his welfare utopia.  Oil = power and that to me is scary in the hands of a Marxist like Obama.  If he goes this way, you will see Obama2016 and Obama2020 stickers from here to Mars.

spooz's picture

Clueless. I don't like Obama either, but not for the bogus reasons you give. I don't have a problem with letting the tax cuts expire for people making more than $250,000.  Your hysteria about the guy making $50,000 being next is just a lot of hype.

And just what kind of free ride do you imagine people collecting from "welfare"?  Do you have any idea what benefits they are receiving from Temporary Assistance for Needy Families? The welfare reform act of 1996 (Clinton) put limits on benefits and gave states control over benefits and has been pretty successful at reducing poverty and reducing welfare rolls. I know some of the "pilfering slugs" who receive food stamps and they are living paycheck to paycheck on minimum wages.  I have no respect for people like you who look down on the less fortunate.

And why shouldn't we tax exploiters of our country's natural resources to pay for a sustainable economy? Why should private interests amass wealth from resources that should be shared?

I only wish Obama was a Marxist.  Alas, he is a crony capitalistic neolib.

FeralSerf's picture

The 800 lb. gorilla in the room is either taxes are raised a lot and/or spending cut a lot or the Fed keeps printing more to pay the bill.   Fed printing is a hidden, but very real, tax on savings.  It is killing the savers, especially the retired people that planned on living off their savings interest.

The Fed will print if and as much as is necessary to buy Treasury debt.  We don't get to vote on it and neither does Congress.

Oldwood's picture

I'm sure you do wish Obama was a Marxist. The wealthy, the prosperous, the rich who make more money than some party hack thinks is "neccessary" are our resource exploiters and should be punished on principle.  And if we just happen to have a use for that punishment derived money, its all the better. Social engineering at its best. Marx would be proud. Forward!