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Mayans Forecast Boehner Fail?
Is it possible that the Mayans, in their infinite wisdom, somehow anticipated that Boehner would fail to bring any legislation that might patch the cliff? The Boehner “fail” happened last evening, it was already 12/21 in Asia. So far, the Mayans’ timing for the Beginning-of-the-End is spot on. The cracks in the system have been spreading ever since the fateful no-vote in Congress last night. At this point, we are faced with the very real prospect that those cracks will get longer and wider in the next few days. If this happens, people will start falling into the widening rifts.
I have watched, read and listened to almost all of the endless discussion on the topic of the cliff. I’m convinced that there is not a single commentator that has properly evaluated the economic consequences of failure to address the deadline that is now just days away.
All the analysis I’ve looked at considers the consequences to the 2013 economy of changing tax rates and reduced spending that will occur if no deal is reached. But this does not include the consequences of the retroactive tax increase for 2012 that will take place.
I wrote about this on November 14 (Link). To repeat, if we go off the cliff, as many as 60 million taxpayers will be forced to file a separate Alternative Minimum Tax form (unbelievably complicated). Of the 60 million, as many as 33 million will be faced with a higher 2012 tax bill. This will result in some folks digging into their pockets to pay Uncle Sam the extra $3,000 to $4,000 this will cost (a disaster for some). Others, will get a smaller refund that they think they are due (bye-bye to that trip to Disneyland). The numbers are big. The "surprise" 2012 tax that the cliff will bring comes to a very lumpy $100-120 Billion.
The drag from the 2012 AMT look-back will be felt in the first quarter. It will “feel” as if this is a 2.5% reduction in 1stQ GDP just from the AMT. By itself, the retroactive AMT tax will produce negative economic growth. ADD to this, the fiscal consequences that kick in on 1/1/13. If spending is adjusted by this much, it will translate into fall in economic activity in excess of 4% in the 1stQ. If the year gets off to such a dismal start, the US will face a technical recession in the first half of the year, the full year will be lucky to breakeven.
A very steep drop in activity in the USA for the next three-months is not in the market’s mind today. It’s as if investors have forgotten that Europe and Japan are already in recession and China is still a question mark. Now we face the prospect of a very hard landing for the US.
Maybe the Mayans had it right all along…..
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Fed and ECB monetary policies are completely abnormal. What we are talking about is fiscal policy. To learn more, please read.
“WORLD-MARKET-STATE vs. DEMOCRACY: Why We Should Go Over the Fiscal Cliff.”
while i'm a big fan of going over the cliff...it's mainly for entertainment purposes...right up there with a Sarin gas strike on Christmas Day. Brohhaha! Umbrage! Artifice Ridiculi! I laugh at the clowns trying to support the existing order...but hey, we all have a stake in it so "where it goes we all go." I read your article and found it completely ridiculous. Would i rather have Congress working together to not solve our problems? Sure. Will they? Apparently they will be normal this time and not solve our insolvable problems through the more normal approach of "bickering, in fighting, personal attacks and unfounded rumour and innuendo." Those are normal people in my view. Abnormal people work together to think they can solve problems. Insofar as "markets are trying to create a world Government"...yo, Debt Brother..."economics and by extension capitalism is fundamentally about nothing more than what goes on in your home." It hates ALL government. I'll leave the whole "world government" malarkey to the oddity that people actually get paid to write that stuff. I might have a Dark Mind...but it's not a ridiculous mind that's fer sure.http://www.youtube.com/watch?NR=1&v=JQeKdvXliIU&feature=endscreen
What I don't see here is the other possibility -- that people who once were mostly truthful about what they earned and the methods that they gained income will simply say "Fuck it".
Look for more IRS enforcement actions in the future as actual returns start to decouple from what the government thinks they'll receieve.
Simply FIRE THEM, with the flat tax!
What a tragedy! The Bush tax cuts for the rich are about to expire! Damn, if those 1%ers can't every wish granted, then this isn't America, by the rich, for the rich, and of the rich! Thank God Bruce is here to defend those tax cuts!
How about instead of being pro-tax cuts for the rich, being anti-austerity for the 99%--no cutbacks to SS and Medicare, unemployment, food stamps, etc. ? Unthinkable, I'm sure.
There is no 99%'ers....sorry you have bought this nonsense. There is no money for the programs you reference because the wonderful gracious leaders of the state have spent all.
Keep praying to the state for your blessings - they have done us all so well. No doubt the will fix everything for you.
peAce
Do you really think that the taxes the 1% pay have anything to do with our current mess? Those beating that horse are only looking for their pound of flesh.
I second that. Anyone who thinks raising taxes is the answer should look at what the political class has done to this country and we keep on reelecting them.
Best one I have read as of late. Mish hits this one spot on.
http://globaleconomicanalysis.blogspot.com/2012/12/congressional-spendin...
Bruce - thanks for the post.
You don't get it. This is targeted right at the middle class. This all about hitting the 98%.
Even worse, this is looking bckward to 2012. It will be a very big, unpleasant surprise.
So cut back the AMT on the middle class, but let the Bush tax cuts for the rich expire. Meanwhile, oppose cut backs in SS, Medicare, unemployment, and food stamps. Oppose austerity for the middle and lower classes. Impose a financial transactions sales tax to get Wall St to maintain the social safety net.
You don't understand, they are playing ALL or nothing.
dup
So the message is give up, you've already lost, and Bruce agrees with you. I don't have any hope that rationality will play any role in this, given the corruption of our congressswine. But, in principle, those Bush tax cuts were a cynical ploy to enrich the rich and should be allowed to expire.
I confess that I deeply mistrust Bruce who seems to talk out of both sides of his mouth, for example, concerning SS. He "laments" that this program is unable to pay its way and should be put on a sound fiscal basis to be able to do that. However, even if it were put on a sound fiscal basis, that would only make it an even more inviting target for congressional depredations. Indeed, it is in (calling a spade a spade) stealing these deferred wages of the middleclass that congress has ruined the retirements of a whole generation. How is that different from Jon Corzine? It is as if Bruce is saying to the MF Global clients that they should reduce their expectations because their accounts have a reduced present value of future income streams.
So to me, Bruce is crying crocodile tears over the harm that will come to the middle class when really, the whole point is to make permanent the Bush tax cuts, the Norquistian nostrum for heaven on earth. You won't find a single flesh and blood American who would argue in favor of letting congress steal those deferred wages for any purpose whatever. The whole business is a scam. This fiscal cliff nonsense is pure propaganda meant to protect parasites.
Exactly right. But there is no ALL, so it's looking like NOTHING.
Great reporting and analysis, Bruce! As always...
Looney
AMT hurts people in blue states (which have higher state income taxes) more than red states. The Dems the blue states put into office created the AMT. So at least it is fair from that perspective.
the AMT was meant to close tax loopholes, so if they allow the tax cuts to expire, then AMT does all the heavy lifting for the GOP, if tax cuts are extended, they go after the loopholes separately. if you're part of that 33M you're going to get hit either way (while they figure out a way to save small business owners) maybe that's why they call it plan B..
Yes, so one of the loopholes that can be closed is eliminating the deductibility of state income taxes (which will make the AMT issue smaller). Works for me.
I'll take letting ALL Bush tax cuts expiring over letting just a few of the Bush tax cuts expiring. Remember, we have clearly been told the Clinton tax rates were fair and reasonable. The ONLY way you get to Clinton tax rates is to let ALL Bush tax cuts expire. It is so easy.
I'll be for going back to Clinton era tax levels when they go back to Clinton era spending levels.
That'll be about the time hell freezes over.
Some deal will be reached regardless of the time frame. The end result will be the same: American's(That are still paying taxes) will loose, and all involved will stand firm in stating they did what was best for the country. But, on the bright side John Kerry will be our next Secretary of State, just think of all good laughs that will come from that.
I was kind of hoping they would pick Sarah Palin as she couldn't have been as bad as the female Caligula has been.
I'm holding out for her nomination to Treasure Sec. We will still go down in blazing glory but imagine how much fun we'll have before that!
.Gov is inoperable and broken, which the Mkts are starting to wake up to. The ongoing fiscal debacle should be in some 3rd world Ctry, not the Usa.. wait a minute...
Bruce, I don't think the AMT look back is going to work the way you are suggesting it will. Even if it does cause some (mostly contractors with jobs over $10 million that are in process) to submit higher prior period earnings, that does not mean the estimated payment to be made must be inflated for the final 2012 quarter.
And, like everyone else, you fail to consider what happens if a deal is reached, which assuredly means that the small token steps of fiscal stewardship represented by the tax expirations and spending sequester are vacated. More simply, markets, you think we have markets?
Not sure what you're talking about. AMT has nothing to do with contractors and $10m.
This is about individuals with income of $75k. 33m of them.
In the link I provided are more links to both the IRS and the WSJ.
As the wise one posted above...."the people have voted, let them be punished". The majority of thee 33m voted probably voted for Obamsta (or did not do enough to stop him), so let them eat it. Consider it "tuition".
I see a potential bright side. 33 million affluent folks in concerted tax-revolt are *powerful* enough to ensure something actually changes. We the people really do have the POWER to force the Feds to do something productive. Most of us forget this most of the time.
What are they going to do about it? Send the FBI door-to-door with calculators and AMT worksheets?
This empire is just another bank. What did our banks do when folks stopped paying their mortgages?
I repeat....The people have spoken and they must be punished.
This is all designed to stress the system and collapse it. We are on the short march now to Social Welfare Euro Social style. Do be so surprised!!!
Well, maybe there is nothing wrong with "Social Welfare Euro Social style" - at least if one does not have the parts of the EU that consume a lot more that they produce, of course with the help of the banking system that gives credits with money that does not belong to the banks. Just there will be slow growth, and if it is in the right direction the system will be sustainable for a long period of time ( in human terms )
The problem having such system in US is that 95% consume A LOT more than they produce, unless of course, one consider production emails, web marketing content, useless/harmful drugs or financial/virtual instruments. Just there will be a slow growth, and if it is in the right direction definitely will be sustainable for a long period of time. Of course US has to change/restructure its economy from CONSUMPTION TO PRODUCTION oriented one, in order to achieve that. And that is the hardest part.
WTF IS this fabled "Social Welfare Euro Social style"?
It exists only as the figment of some American political propagandists
Every single european nation has a different set of policies
The only serious similarity are the National Health Services
And yet the SNAP card seems to be an American Invention. Very subtle, that one...
It's also been said that if nothing happens with negotiations that come the first week of 2013 Congress will be voting on massive tax cuts post cliff instead of tax increases pre cliff. See how that works? What's to prevent a retro active "fix" to AMT? Unsure about sequestration rollback.
I dont want no stinking deal. Let the huge tax increases and spending cuts happen. I really like the idea of the current non contributors to start contributing something for a change.
To paraphrase a great song from my youth:
"We dont need no deal let the mother fucker burn! Burn mother fucker, BURN!"
Therer are no spending cuts in sequestration, only decreases in the rate of spending increase. But the rise in taxes is real.
So the bald guy says" Deal or No deal" NO DEAL PLEASE
And we the chosen believe no deal is needed to bring sanity back to the world. Most of us our out of stocks so we don't care if they crash. The rest of the people were never in stocks, so they don't either. Let the cliff come and end this pathethic melodrama.
Curtis LeMay and you are dead right. +1
Hardly the end of the world
@3.7.77
Apparently you haven't met people who can't be without their iphone in one hand and a $10 cup of sugar "coffee" latte from Starbucks in the other. America is full of hardy souls who trekked the Oregon Trail anymore.
And the Mayans saw that !
What is this AMT you speak of? LOL. Excellent analysis, Bruce, but did you expect any talking heads to know anything of import? We've all had a collective feast and now the restaurant bill has come and the arguing for who is going to pay is going to get wild. Cracks? We ain't seen nothing yet.
Aggrovated mumps testicles.
We either collapse quickly from taxation or slowly from massive inflation. Choose your poison. Coincidentally, the song on the radio as I write this contains the refrain "These are the good old days."
Reality is about to deliver a hard slap in the face to most Americans.
Only if DC shuts down. Otherwise, reality is so distorted, the slaps aren't even honest.
Obameo won the election, so in essence he will now get what he, and presumably 'the people' want via a Senate inspired bill and the republicans will really not be able to stop it, so that is a good thing isn't it?
Will someone please explain the difference between a Republic and a Democracy to Dexter_Morgan.
... And remind him which one he lives in.
Not sure I get your comment, but a bill can be originated in the Senate, no? Then the house takes it up and they conference on a final bill? So how many RINO votes would the dems need to push their bill through? If I am mistaken in my understand of how bills flow through the congress, then I am sorry, but if either the republicans just voted present, or enough to get a majority voted along with the dems then the dems could pass a bill?
I understand the difference between a democracy and a republic my friend, perhaps I don't understand the rules of the house and senate though.
A democracy is, two wolves and a lamb voting on what to have for lunch. A republic is, a well armed lamb contesting the outcome of the vote ;-)
Neither?
so 45 million get to tell the other 265 million what to do with themselves?. Tyranny of the majority.
Sometime between Xmas and NewYears Boner and Pelosi will make love delivering sufficient votes from Dem and Rep to pass someting to avert the cliff - Boner's speakership is toast and he knows it - the carrot (not that he needs more beta-carotene) for him will be a gift appointment by O and mission accomplished complete isolation of what is left of the TP conservatives.
"Sometime between Xmas and NewYears Boner and Pelosi will make love"
Now I need eye bleach... :-(
Someone please put more Jack in the eggnog! :-)
"Sometime between Xmas and NewYears Boner and Pelosi will make love"
And to everyone's amazement, the plan that springs forth from her rotted womb will look, talk, and stink exactly like the Kenyan. Then Boehner, with a tear in his eye, will gush that he couldn't be prouder.