Call the Bluff

Bruce Krasting's picture



I damn near fell of my chair (laughing) yesterday watching Timmy Geithner on CNBC. When asked if the President was willing to go over the fiscal cliff if the tax RATE on the top 2% were not increased, the Treasury Secretary snapped back, “Absolutely”.


Maria Bartiromo was also floored by this; she spent the next hour telling the world she thought Geithner’s position was clear evidence that the US would be going over the cliff. She had big shot Senator, Richard Shelby (R- Al) on air. She showed him the clip with Geithner making an ass of himself; the Senator looked like he had swallowed a wad of tobacco while he watched.


I was convinced that Geithner had made a blunder, a slip of the tongue that would later be clarified or retracted. Not the case. Last evening, Treasury put out a Blog about what a great job Tim did on TV (link). I took this as a confirmation that Geithner did not make a gaffe on air, his words were carefully chosen. When he said he was “Absolutely” certain that falling off the cliff was in our future if tax rates don’t go up, he meant exactly what he said.



Given that Geithner will be out of his job running Treasury soon, I’m sure that he went on TV with the blessings of Obama, and he had a scripted message from the President. There will be no negotiations on tax rates, the top rate is going to 40%, or we will be sailing off the cliff. What an idiotic bargaining position.


At this point, I don’t think there is any significant opposition to increasing tax revenue from America’s wealthiest folks; the question is how to achieve it. Raising marginal rates is one option; cutting deductions can accomplish exactly the same thing. Geithner and Obama will not consider adjusting deductions; the reasons are a mystery to me. It appears that the President wants to “punish” some folks rather than to find a compromise that achieves the desired results.


So I agree with Bartiromo, unless the President backs off, we are going cliff diving in 20 days.


I believe the President has started a war, No real bullets or sabers in this war, but there will be casualties none-the-less. The question is, “Who is going to get hurt?” The thinking by all of the pundits is that a fall of the cliff will fall squarely on the shoulders of Republicans. If they stand up to the Administration on tax rates, the Republicans will get slaughtered in the Congressional elections two years from now.


The facts force me to conclude that Obama is, in fact, using the cliff negotiations to bend Republicans over and force them into submission. The goal is to destroy the Republicans, and have the House, Senate and the White House all Democratically controlled in twenty-two months. Harry Reid would be in charge of the Senate, Nancy Pelosi would be running the House, and the President would have the last two years of his administration with the government controlled by “friendly” hands. A disaster in the making.


If tax rates go up on the wealthy, as the President has demanded, then it will generate approximately $68B per year. Every year, taxpayers take advantage of $1.1 Trillion of deductions. Minimizing/eliminating deductions could easily achieve the same revenue increases that Obama wants. Nor would not be difficult to target the limitations on deductions to those who are enjoying high incomes. What the President wants can be achieved without raising marginal tax rates. So what is the problem?


In my simple mind there is no reason not to consider attacking the problem by limiting deductions. Therefore, I conclude that politics is the problem. The President does not want to solve the cliff or the budget; he wants to punish Republicans.


Two states, California and New York make up 20+% of GDP. These states have a big say in the makeup of the House, they have the biggest electoral votes. They have been solid supporters of Obama with both money and votes. And now Obama is going to piss on them.


Income taxes in lovely California are now at an economy numbing 13%; NY is slightly behind the idiocy in California at 9%. If Obama gets his way, the combined tax bite on income will be 52.5% in Cali and 49.5% in NY. Add to this mess the 3% surcharge for Obamacare, and the 8% sales tax in these two states. Welcome to Sweden.


The chips on the Obama plan fall heavily on NY and Cali. Another big state, Texas, will reap the benefits, as it has no income taxes. Texas is as “Red” as a state can get, so when Obama is saying he is supporting his base, he’s just lying.



I think the Republicans should call the President’s bluff. Lets take a walk over the cliff; see what happens when we get to the other side. It can’t be much worse than 50%+ tax rates in the most productive states in the Union. Will Republicans get hammered in the bi-elections as a result? Maybe. But one thing is sure, if the President gets his way on tax rates today, and we also have the Republicans lose the House in two years, it sets up the possibility for a return to a more conservative frame of mind for the country when the next Presidential election comes around. If Obama gets his way, the economy will pay the price. In the process, any legacy that Obama might have had will have been converted into something like Herbert Hoover’s. So who is bluffing whom?


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Big Ben's picture

I don't think Obama is bluffing. If we go over the cliff, there will be $400 billion in tax increases vs. $200 billion is spending cuts. And a lot of the tax increases will fall on people with high incomes (although withholding taxes will also increase). Also a lot of the spending cuts will hit things like defense that the Dems would probably like to cut anyway.

Obama definitely wants to go over the cliff. And he is trying to frame the debate so that Repubs will take the blame for it. He will claim: "We went over the cliff because Repubs refused to tax the rich." But of course, the fiscal cliff is mainly a tax increase, so how would enacting even more taxes prevent us from going over the cliff? Enacting more taxes just makes the cliff higher. But no one in the news media is pointing out the absurdity of Obama's position to the average voter.

Given these hard realities, the markets seem remarkably untroubled.

nmewn's picture

"If tax rates go up on the wealthy, as the President has demanded, then it will generate approximately $68B per year."


Yep, that's where our mathematically challenged TOTUS's head is at...class warfare...always has been.

"Two states, California and New York make up 20+% of GDP. These states have a big say in the makeup of the House, they have the biggest electoral votes. They have been solid supporters of Obama with both money and votes. And now Obama is going to piss on them.


Income taxes in lovely California are now at an economy numbing 13%; NY is slightly behind the idiocy in California at 9%. If Obama gets his way, the combined tax bite on income will be 52.5% in Cali and 49.5% in NY. Add to this mess the 3% surcharge for Obamacare, and the 8% sales tax in these two states. Welcome to Sweden."

lol...Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote ;-)

Cthonic's picture

Just a note, income tax rates aren't additive, so in effect, those states with high income taxes screw taxpayers in other states (via the shortfall at the federal level).

There are five types of federally deductible non-business taxes:

  • State, local and foreign income taxes
  • State, local and foreign real estate taxes
  • State, and local personal property taxes
  • State and local sales taxes, and
  • Qualified motor vehicle taxes
The Swedish Chef's picture

You are most welcome to Sweden, mr Krasting. 


It´s a lovely country, barred EU memebership, rampant atheism (Richard Dawkins would fit right in) and an unusually harsh winter. Where is that global warming by the way? Did the politruks take it with them to Doha? 


Politically it´s refreshing to live in a country that doesn´t spend more than it can. We have a shrinking national debt of 35% of GDP as we have enforced strict fiscal discipline over the last twenty years. Won´t do us a bit of good, however, as the economical giants of the world will drag us down with them when thay go down in flames. The downsde of being a small country that isn´t Switzerland. Switzerland always makes it. 

kevinearick's picture

when the dress comes off, it's always executive rule, via the 14th in this case...ironic.

EARLPEARL's picture

republicans are fucked either way......the 2 percent are going to pay higher rates now and in 2 years lose their deductions too...the top 10 percent is going to FULLY support the 90 percent FOREVER...AND THE DEMOCRATS WILL BE IN POWER FOREVER....

JohnFrodo's picture

Obama has the Republicans in the cross fire. Go over the cliff, they take the blame he gets Dem congress in 2012 and real deficit reduction happens automatically.

If they agree the base goes ballistic and he win 2012 dem congress.


Gimleteye's picture

Why does anyone imagine that if the debt ceiling goes away, and the Democrats return to the House, that Obama will NOT change/ignore the Contistuion adn maintina power? He has no real opposiition now politcally. If the Dems win the House in 2014 whthere the Reps support or oppose the cliff, it will be the final nail in Miss Liberty

Ned Zeppelin's picture

Bruce, it ain't a bluff if you're prepared to do it.  The Demoncrats have done the math and figured out the Rethuglicans have dug themselves into a corner with the electorate, and that the political pain of going over the cliff will fall largely if not entirely on the Rethuglicans.  I have heard that we are going off the cliff from a fairly reliable Hill source that I trust.  It is a shame they cannot simply reach a deal.    But when you put little kids in charge of matters reasoning adults should handle, this is what you get.

I think the key is to identify the House republicans who will not "die" politically (such as some here in PA) if they vote for a top 2% (or 1%) tax increase coupled with entitlements reform, and then cobble a bare majority in the House of those "safe" or "relatively safe" republicans and the rest of the democrats, and let the rest stand on principle and say they voted no.   I would agree if there are not entitlements cuts on the table the Republicans should loudly point that out and refuse to vote for a tax increase, although I onder if anyone is really looking for the quid pro quo:  I think the real problem is this: while it may be true that a tax increase for the 2% is in the cards, what is NOT in the cards is entitlements reform as far as the public mood is concerned. Moving ahead of what the public will tolerate politically is called either "leadership" or "political suicide," and you won't know which until well after the decision is made.   

Falling off the cliff may be the best route after all - mandatory, substantial cuts and higher taxes for all. Yep, a recession producer, but when are we going to start paying our bills, or do we apply Grecian Formula and hope it works out?  The equities market will throw a temper tantrum and go down to levels where it arguably belongs in the first place. The world will not end, life will go on, and unsustainable economic activity might have to stop or slow down.  It's too bad we didn't take the medicine in 2008 with the banks too.  Responsible adults missing in action when it was time to make tough decisions. 

Panafrican Funktron Robot's picture

"Falling off the cliff may be the best route after all - mandatory, substantial cuts and higher taxes for all."

I would suggest given that the plebs are kinda fucked either way, it really is the best solution for the wealthy (and I don't consider people who have to work for a living... even Fortune 500 CEO's... wealthy), and so it shall be.  The wealthy can largely avoid taxes on their wealth, and a good amount of them have a stake in maintaining fiat value (yes, I chortle at this too, but fiat can still be used to buy stuff).  The "debt downgrade" stick is sufficient cover. 

Consider also, a crash just lets you get in on whatever the fuck you want to buy at a discount.  ZH reported not to long ago the rapidly accumulating gigantic pile of cash accumlation via simple deposits at banks, that + the "excess reserves" at the Fed that are just itching to be deployed.  Those reserves don't get deployed vs. assets being sold at fair prices.  

wtlf555's picture

I like the info on marginal taxes verses eliminating deductions. My progressive friends will shout their "progressive: credentials by supporting Obama's stance and reap $69billion in revenues while keeping their mortgage deductions on homes I could never dream of owning

Meanwhile I will support tax changes that bring in closer to $1trillion and eliminate my subsidization as a renter of my much more "affluent" friend's mortgage credit and I will be called an obstructionist or worse yet a conservative

Bottom line on politics is that Republicans or anyone representing fiscal sanity is ABSOLUTELY irrelevant until the system crashes. While not a huge Romney supporter I did believe it was the last chance to attempt fiscal sanity. A majority of the public is on the government gravy train and its Democrats from here on out. Anyone hoping for or expecting fiscal sanity from politics would be better channelling their energies into survival or if they or on the train themselves keep quiet, enjoy the ride and figure out a plan B when their government entitlements (Social security, public pension etc) crash to near zero value.

Throughout history leveraged fiat societies are always faced with the same problem and always arrive at the same solution.

"We overspent and everyone must come together for the common good and take a haircut of 30-40%. Pensions, entitlements, services government employment - everything"

And every time in history the public responds that the common good was awesome on the way up to a bankrupt leveraged fiat society but we're not so much into the common good when it means taking a haircut on what we were promised.

So the entitled classes fight tooth and nail to keep their 100% until zero is left. So instead of everyone taking a fair haircut. Quite a few people get their 100% and the rest get ZERO.


the grateful unemployed's picture

so you dont consider paying higher taxes a form of subsidy to those who pay none? (well then you might be an old Republican, which is anyone who believes in fiscal sanity)  the economy is now 99% dependent on goverment jobs, and those people with two or three pensions (i would call them old democrats) are now new republicans, because they want to hold on to all that money. the new republicans (small business, and young religious) dont buy into the (old) socially conservative vlues (abortion, guns, religion) or their own old social values (the environment, racial equality, gay rights) those issues have been handed off the new Democrats, who are the old Green Party. there is some confusion that old Democrats (social progressives) put Obama in office, but its probably New Republicans, former boomers who have it and want to keep it. Obama didn't save the stock market for college students (who are getting royally screwed, when the New Republicans privatize most of government) Obamas target of 250 in INCOME will largely miss this group. it will kill small business which causes wall street to applaud. the corporate franchise has no competition. this is probusiness, just as mandating health insurance is probusiness. Only some GOP members have stood up against this, but after years of moving to the right (think Clinton on) the Democrats have finally arrived.

spooz's picture

99% government? What about all the McJobs?  Do those count as government jobs since they don't pay a living wage and need to be subsidized for people to eat? 

And the vast majority of small business owners are not making $250,000 and up, so small business won't be "killed":

GMadScientist's picture

When asked if he was, in fact, a mentally deranged dwarf/elf hybrid, he responded, "Absolutely!"

Apparently, they only had budget for one cue card.


PLove's picture

Hoover wouldn't wear the NWO.

Which accounts for FDR and Obama. 

GMadScientist's picture

You are pathetically devoid of historical knowledge, that much is abundantly clear.

Go Red Team! Rah! Rah!

orangegeek's picture

Government playing poker with their own pot of gold.  It doesn't get any more stupid than this.


I think that Barry hasn't planned on what could happen when all of us, including Barry, goes over the cliff - someone's going to shoot him dead.

Ned Zeppelin's picture

Well, that's certainly crazy talk.  You must like getting visits from guys with dark suits, earpieces, badges and absolutely no sense of humor. 

therearetoomanyidiots's picture

I agree with going over the cliff.  What would happen?  Not much, people pay a few more bucks out of pocket, who cares, really.  Maybe a few diners and bars go out of business because people won't have that extra 3-5% to spend on lunch out or 3 dollar beers.  I saw it happen in CT when that fuck Weicker lied to everyone that he wouldn't raise taxes adn the first thing he did after electing him, was implement for the first time a state income tax.   Diners and small stores everywhere shut down.  But, besides that, this whole 'scare the dummies into taxing the rich' approach is so simplistic and it worked in the last election.  And so what if the republican party goes away,'s been worthless the past, what 10 or 12 years anyway, if not longer. 

Besides we all know that you cannot raise taxes on the rich and solve any part of this problem, especially when you are going to spend almost 400 percernt, or is 4000 percent?  more than you get by exacting, what was it that Obama called it, oh yes, 'revenge' on the rich. 

Nothing will happen.  I go to France, it's a socialist state, they're just as well off as we are, they have more freedom or just as much as we do, and they bathe nude on the beach.  Don't mind the really poor begging on the street, those that do have jobs are very well dressed, have super cars and beautiful views of the Mediterranean and eat awesome blette for breakfast and truffle-scented ris-de-veau in the evening with a fine digestive to finish.  Sounds a bit like the current resident of the white

Finally, we have been a socialist entity for sometime now least back to FDR (is that short for "Fucked Da Republic"?)  

There won't be any big anything that happens if we go over the "cliff"....the 'horror' is just about the same as the 2000 millenial computer coidng crunch.  Woo hoo...big woop.

macdec35's picture

Check with the Mayans, the world is to end before the cliff.

GMadScientist's picture

The only thing set to end on the 21st is the littany of dipshit references from people who know less about astronomy than those Mayans.

justsayin2u's picture

Just don't cut spending - we've already cut to the bone>>>>

justsayin2u's picture

Ya baby.  Jump in.  The taxes are fine!!

SkiBivio's picture

Why not go over the "cliff?" It might be the cathartic experience the country needs. Revamp the tax code to benefit the FoR's (Friends of RINO's) in 20 days? Seriously? Let's just have a quiet Christmas / Holiday Season, and copious amounts of eggnog. Let the games begin, in January. Currently, nobody's math adds up, and won't add up any better, next year.

therearetoomanyidiots's picture

"let the games begin..."


Yep, the Hunger Games...

Orly's picture

There were significant events out of Europe today: the DAX made a four-year double-top and the Euro also double-topped against the USD.

Be cautious of German profit-taking tripping the wire to unwind a "risk-off" cascade, focused on the AUDUSD pair (the "new Euro"...).

Immediate downside target ~1.043 with a possible move to ~1.025.


steve from virginia's picture


Good grief!


Austerity is here whether anyone likes it or not.


Regardless of what the boffins in Washington, DC or NYC do the outcome is going to be the same: LESS.


There is no more 'growth' ... only 'shrinkth'.


There is less capital: the consequence is less industrialization, less credit, less 'wealth', less convenience, less employment (within industry), less services, less security ... less of everything except people. There will be more people, lots more.


Hungry, angry fat people.


Industrialization cannibalizes itself and is good at it. After a couple of hundred years the effects can be seen and felt: structural austerity that is 'baked into the cake'. Industry competes with the people for resources. The people's toys and pleasures are set to wage war against the people, themselves.


What is underway in government is part of the inevitable end-game of resource over-consumption ... when industry gobbles critical resources and there are no substitutes for them ... when scarcity prices the resources to level that industries cannot afford. Regardless of what the managers attempt, the US is going off a cliff.


We're all Greeks, now.

Tall Tom's picture

Okay. Did you really expect anything different? Even if there was a "deal" it will just be a paper over with absolutely no substance. After the details were exposed then one will see that nothing had changed. We will fly off the cliff and they just do not announce it. After it is discovered...The economy will tank as a result. 


If they actually made a deal (which I do not expect) then it will just be kicking the can down the road. Then the Credit Agencies will issue downgrades and the costs for Financing the Nat'l Debt will increase as a result of increesed Interest Rates. Of course that will bring us to total financial collapse. The economy will tank as a result.


So with the same results happening what difference does it make? We are headed into a deep recession if they do not make a deal. We are headed into recession and a total financial collapse of the Government if they do make a deal. The difference is the survival of the US Government.


I will short everything at this point or stay on the sidelines and keep my powder dry for the bargain shopping ahead.


CONSIDERING THE DEBT LIMIT...I really am hoping that they do not increase the Debt Limit. Then the Government defaults and we can start over again without the lying parasites in control any longer. The US Government has a total financial collapse.* 


*(The Republicans say that they will use the Debt Limit as a hostage. Isn't that what got us into the Fiscal Cliff scenario in the first place? Isn't it??? LMAO Oh the Credit Agncies will downgrade the USA once again, JUST LIKE THE LAST TIME, if that happens. With the increased costs of financing of the Debt then that will bring the US Government to total financial collapse.)


RIP USA. It was fun while it lasted.

1100-TACTICAL-12's picture

Like pumps on the just does'nt matter..

geno-econ's picture

Close loopholes and raise tax rates on the rich in order to narrow income disparity.  Otherwise we are headed towards ecomomic anarchy and a  greed creed by those in power.  Sure, cut spending and eliminate waste, corruption and usustainable entitlements as well but start with having wealthy  show commitment to preservation of a just and fair America. Otherwise capitalism in America is doomed to collapse and we all lose.

therearetoomanyidiots's picture

Any one with an ounce of sanity cannot let this comment stand unanswered.     Either you are a product of the public education system or you smoked bong hits in your mom's basement when you skipped math class.   No matter how you look at it, the top 10% of this country are paying 70% of the taxes.   The top 1% are paying 40%.  the bottom 50% are paying, yep, NOTHIGN.   You couldn't ask for it to be any more fair.  Could you? 

You've followed your leftist buddies in colleges and universities and in the media and the NY Times for far too long. 

Also, in case you haven't noticed, capitalism in America really hasn't been capitalism for some time.   It's a bastardized form of facism where the state is controlled by industry, rather than state controlling industry.   Or it's the same thing...

BraveSirRobin's picture

" It's a bastardized form of facism where the state is controlled by industry, rather than state controlling industry."

Technically, that is not Facism, but rather corporatism. We don't have either in the US, but an odd combination or symbiotic system developing.

shovelhead's picture

Inflation and bank bailouts are the biggest contributors to income disparity since the rise of financialization became the mover of the American economy.

Why not make billions on dodgy deals if the govt. backs all bets.

Why build a manufacturing business that requires work and employees when you can make far more money with a pile of paper with no real risk?

It isn't that the tax rates are not fair, it's that the loopholes allow corps and the ultra wealthy to avoid taxes altogether. Put the hazard back in risky business and let the TBTF go under. Any suckers that still bank with criminal enterprises deserve what they get. It wouldn't bother me a bit if they fail because there are plenty of solvent smaller banks not run by psychopaths that would fill in the gap.

Of course, this assumes that we keep FED, fiat money and fractional reserve banking intact which is the root of the problem anyway and any changes made will only allow us the luxury of wallowing in a Japan like coma and just stalling the inevitable collapse that losing dollar reserve status will bring.

Politicians won't go against the interests of TPTB, so any and all 'fixes' are really nothing more than window dressing anyway.

Our choices are limited to grim now and grimmer later and this is an optimistic outlook that assumes there will never be a credit event allowed to trigger the WMD derivative bomb.

I may be wrong but that's what it looks like from here.

therearetoomanyidiots's picture

Agreed, I expect the Student Loan Crisis to pass by with minimal impact...

Bear's picture

What crisis? ... Obama will take care of it

ZeroFreedom's picture

Republicrates, should clearly vote for increase taxes. 8 out 10 wealthiest counties in the US voted for Obama so that should follow the trend and let taxes rise come January 1 ,2013 since that is what they voted for and wanted. Then we can hear no more in the the so called media about the Bush tax cuts. Instead we can talk about the Obama tax increase for the next 10 years as we sync further into the abyss.

Republicrates should easily propose that we move to the Obama Flat Tax and eliminate all deductions which would increase the truly effective rate which gets overlooked in all the discussions.

Maybe Repulicrates could get back at the companies like GE with doing the same by going to corporate flat tax and eliminate all deductions as an example. Since that is what GE supported was higher taxes time they also pay since that is what they want.

Call the bluff.

Noticed no discussion on any spending cuts from the bloated budgets. I mean real spending cuts. Maybe a spending freeze should be an alternative with no adjustment for inflation.


therearetoomanyidiots's picture

The thing about letting the Bush Tax Cuts expire is that the Dems will bring them back, except for the millionaires and billionaires (which Iguess has been redefined in public education math to mean 200k for individuals and 250k for couples), and then they'll be called the Obama Tax Cuts.   It's all about him, don't forget....

fourchan's picture

he is fucking around in detroit today doing jack shit.

Tall Tom's picture

Good. Anytime that Government acts you can wager that you will end up paying through the nose for it. They all need to be doing absolutely nothing.

Sleepless Knight's picture

If I was to pay 53 % of my income to the gov, them I believe I'm working for them, not me. I have an issue with this. This makes me want to go on every handout possible and fuck the system like so many are. I am a small businees owner - I have pride in myself and my work. These assholes sure are making it difficult to hold your head high and have pride in yourself, what you do, and what your cutomers think. Fuck em, I already pay 40-42%.

Jon Bong Jovi's picture

I own several small businesses too, and I'm tired of being the damn scapegoat. Tired of this BS. Tired of trying to survive in this type of environment. Tired of FACTA. Tired of this fiscal cliff bs. I should bleed my companies dry, declare bankruptcy, and go on public assistance.


Who is John Galt?

Stop the motor and how the damn thing falls on top of Il Duce 2

therearetoomanyidiots's picture

Not enough apparently, you evil rich person you.

MachoMan's picture

Then, as a small business owner, you know that reducing your taxable income starts with schedule C (not schedule A).  The government's plan to turn everyone into an independent contractor is going to have a tremendously negative impact on tax revenue...

LawsofPhysics's picture

People become "independent contractors" when they have no choice but to turn to black markets for survival.  So what.

MachoMan's picture

They also do so when they are incentivized to do so by tax regulation or demand of their employer (instead of forcing workers to be part time, many professional agencies, etc. are pushing former employees to become independent contractors at the same or similar salaries). 

Some may say self employment tax is a bitch (but employees already pay half of it and independent contractors can deduct the employer portion), but it can be largely avoided...  The big issue here is that there are many, many more deductions at an independent contractor's disposal than an employee's...  think telecommuting [home office, internet, home phone, etc. deductions...  (i.e. costs you were already incurring but could not deduct)] or knick knack/hobby businesses that magically utilize similar things that you would eat anyway (e.g. seed business from your heirloom garden) or the standard mileage deduction (one of the biggest present loopholes imo) when you travel anywhere outside of your house for business [an employee that commutes cannot deduct the commute].  All of this is aside from the AGI limitations of Schedule A...

In short, Schedule C > Schedule A...  and the tax collector is going to have a tizzy of a time dealing with it.  [Schedule C also wins in the battle for biggest benefit for AMT, which seems slated to be a bit nastier next year]