Guest Post: About Raising Taxes As The "Solution" To The Fiscal Cliff...

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Raising taxes is the "solution." Too bad incomes are declining. What will raising taxes do to household savings, spending and the economy? 

We all know cutting Federal spending is politically impossible, so that leaves raising taxes as the only "solution" to the "fiscal cliff."


Since most income tax revenues flow from household income, let's look at some charts of the workforce and household income:
As a percentage of the population, the workforce has contracted to levels of the late 1970s.
As a percentage of national income, labor's share is in a free-fall:
Hourly earnings have been trending down for years:
Income for every age group other than 65+ seniors has declined sharply:
The income of those in their peak earning years 45-54 have been slammed:
Household debt loads have soared far above wages:
Meanwhile, government expenditures are up, up and away:
Yes, I know: the solution is to "tax the rich." The Problem with "Tax The Rich": It Won't Work (May 28, 2010)
The parasitic Elites should certainly pay as much as the heavily taxed middle class (The Real-World Middle Class Tax Rate: 75% (July 5, 2012), but since the parasitic Elites have captured the machinery of governance, the chances of Congress actually raising taxes on the top 1/10th of 1% are nil.
There will be noises made, of course, for perception management and public relations, but when April 15th rolls around we will find tax revenues are stagnant: loopholes and tax breaks will have blossomed like mushrooms, magically enabling the parasitic Elites to escape any serious reduction in their income.
Even if we were able to squeeze some additional taxes out of the parasitic Elites, their income stream is dwarfed by the Federal spending that looms ahead: The Fiscal Cliff and Demographic Drag. The top 1/10th of 1% cannot pay the rapidly expanding Federal benefits of the 99.9%, even if we confiscated every dollar of their incomes.
How can tax revenues increase when household incomes are declining? Transfer more of the national income to taxes and that leaves less for savings, investment and consumption. The economy contracts, reducing the workforce and wages further.
If that isn't a death spiral, it is a close approximation of one.
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Fri, 10/26/2012 - 10:50 | 2921478 mrktwtch2
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hear is a novel idea how about we grow the getting rid of some of the stupid regulations we impose on  buisness??..oops sorry i forgot that may actually

Fri, 10/26/2012 - 10:54 | 2921498 GetZeeGold
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Clearly you hate polar bears.

Fri, 10/26/2012 - 11:01 | 2921526 Precious
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Raising taxes also prevents cancer, lowers blood pressure and reduces premature ejacuation.

Fri, 10/26/2012 - 11:05 | 2921544 MillionDollarBonus_
MillionDollarBonus_'s picture


Fri, 10/26/2012 - 11:06 | 2921550 Precious
Precious's picture

Coming from you, -1 is considered a complement.

Fri, 10/26/2012 - 11:43 | 2921720 MillionDollarBogus_
MillionDollarBogus_'s picture

That . was a test to see how well I am respected around here.

You people are pathetic...!!!

Fri, 10/26/2012 - 11:55 | 2921780 Theosebes Goodfellow
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Aw, come on, MDB, it's Friday for Pete's sake! Consider the good you do just putting up a blank post! It has absolutely nothing to do with respect, really. We love you, man. You're beautiful, don't ever change.

/tongue out of cheek

/smirk off face

Fri, 10/26/2012 - 11:30 | 2921653 fuu
fuu's picture

This may be your best post ever. I was starting to think you had lost your mojo but then you come screaming back with a barn burner like this.

Sat, 10/27/2012 - 01:08 | 2923459 MeelionDollerBogus
MeelionDollerBogus's picture

that's the second time I've been witness to you having your "period" in public.


This is just too much, MillionDollerDouche


Fri, 10/26/2012 - 11:03 | 2921533 MillionDollarBonus_
MillionDollarBonus_'s picture

Nice job failing to mention tax free offshore corporate accounts.  If politicians had taxed offshore corporate accounts, they almost certainly would have used that money to balance the budget, and we wouldn't have so much debt. Trickle down economics has failed, and there's no denying it. Where's my share of the wealth? What do I get? If CEOs get to make millions then why can't I earn more and get more vacation?

Fri, 10/26/2012 - 11:05 | 2921542 Precious
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Yah ... and corpurashuns are not peeples !

Fri, 10/26/2012 - 11:10 | 2921568 surf0766
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End all corporate taxes

Sat, 10/27/2012 - 01:09 | 2923460 MeelionDollerBogus
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and while we're at it end all protection for corporations from any kind of liability for anything, just like every other person and organization.

Fri, 10/26/2012 - 12:14 | 2921848 NidStyles
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Yes, you have to violate International laws and just tax assets in foreign nations right? Moron.

Fri, 10/26/2012 - 16:36 | 2922620 Bicycle Repairman
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Yeah, can't see this government violating international law.  Are you out of your freaking mind?

Sat, 10/27/2012 - 01:10 | 2923462 MeelionDollerBogus
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that's kick-back bribe money FOR the politicians. It is taxed just in a more personal manner, off the books.

Fri, 10/26/2012 - 12:11 | 2921841 NidStyles
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Just like Darwin said, if it's between me and the stupid bears, I will be eating Bear burgers.

Fri, 10/26/2012 - 10:57 | 2921517 kridkrid
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Nope. That also won't "work". There is no solution to debt based money with interest attached to it at creation. Every suggestion of a solution works to obscure the predicament.

Fri, 10/26/2012 - 12:05 | 2921740 WhiteChrist
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The Lord's fee will forever a yield bear. There will be no end to the naughts and ones, His tongue, as He speaketh whenever He will, and as He will. As soon as a fool taketh his fee out of the cheapings, the Lord putteth the same back in again. Yeah, even more. There is no answer, as one is naught needed. There is no Christ but White Christ, and man is His foe. Buy these cheapings till the Kingdom come. If in tweel as to where to begin, begin with homeloan-backed sickerhoods. Blessed be His mains that be!

Fri, 10/26/2012 - 11:24 | 2921624 Spastica Rex
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But what about all the people employed ensuring that these regulations are followed? What of them?!

Fri, 10/26/2012 - 11:36 | 2921682 kridkrid
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I know you say that TiC, but that's part of the mathematical corner we have painted ourselves into. Say we end imperialism and bring back the troops from all four corners? WTF are those guys going to do? There isn't anything for them to come home to, minus the police force for the coming social unrest. The middle east served two purposes... Secure access to oil and train for domestic operations. Maybe throw in control of the poppy fields, for good measure.

Fri, 10/26/2012 - 11:42 | 2921716 Spastica Rex
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I used to be one of those "regulators." I worked as a state bureaucrat in public education. My job was to threaten school districts if they didn't pay my agency money. I then used that money to make the jobs of classroom teachers much harder. I quit becuase I couldn't live with myself. The end result for me has been long term unemployment - without bennefits, of course. We have baked ourselves a rather unappetizing cake, haven't we?

Fri, 10/26/2012 - 11:50 | 2921752 kridkrid
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Yeah, I remember you telling me about the whole sordid affair. I have immense respect for you.

Fri, 10/26/2012 - 15:27 | 2922433 Whiner
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Rex, I feel your pain. I was a senior executive in the DOJ. All we did was have DC types fly us around to develop new regulations, like how many times our subjects could fart and how we could hire more minorities who could give a shit less about the system. All the efforts of congress to localize our oversight was swalloed up by DC expansion and controls. Government is like a toe fungus. It just grows and grows, choking out all innovation and productivity. Can you name a government agency that was ever dissolved?

Sat, 10/27/2012 - 00:49 | 2923444 Tijuana Donkey Show
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The SEC. More figurative than litteral, but WTF.

Fri, 10/26/2012 - 12:03 | 2921806 XitSam
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What of the people that are unemployed now? What of the people that have lost their skills through lack of use? The government parasites will need to tough it out like everybody else. The short sighted view that so commonly prevails now ignores the longer term view that the country will be better off and more productive.

I know your comment wasn't literal, I'm just venting.

Fri, 10/26/2012 - 11:35 | 2921670 DaveyJones
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better yet, lets jail some of the "stupid" regulators

Fri, 10/26/2012 - 14:47 | 2922339 RKDS
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That would depend on whether or not you're talking about regulations that're actually stupid and not just what you happen to find inconvenient...

Fri, 10/26/2012 - 10:50 | 2921482 Hulk
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There is no fiscal cliff (near term) as the printing will continue...

Fri, 10/26/2012 - 11:05 | 2921547 kridkrid
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That will work, until it doesn't, then look the fuck out.

Fri, 10/26/2012 - 11:33 | 2921665 DaveyJones
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I'll trade you four lemmings for that ounce of silver

Fri, 10/26/2012 - 11:55 | 2921757 HungryPorkChop
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Everyone is beginning to change into Yuan and regional currencies for international swaps. There's near $12 Trillion in dollars floating around for these swaps and if those start coming home then buckle up cowboy, Infinity And Beyond.

So forget the national debt, that's just a long term fiasco versus the oil and trading swaps.

Fri, 10/26/2012 - 10:51 | 2921484 Stuck on Zero
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Is this another editorial bought and paid for by the parasitic rich?


Fri, 10/26/2012 - 10:51 | 2921488 e1618978
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That hourly earnings chart is BS - you need to adjust it for inflation.  Why do you think that there is a spike in 1980?  Because inflation had a spike then.

Fri, 10/26/2012 - 16:01 | 2922549 Nehweh Gahnin
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I suspect the chart does in fact reflect inflation-adjusted dollars.  I think CHS just didn't get that part of the key in there.  If not, it would have trended upward.  Inflation-adjusted, that trend-line looks correct.

Fri, 10/26/2012 - 10:53 | 2921489 fonzannoon
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Not to pimp Schiff but the conversation he is having with Bob Prector on his radio show right now is epic. I think you can go to and listen to it live. Otherwise you have to subscribe to hear a rerun later.

(hyperinflation vs deflation hard default)

Fri, 10/26/2012 - 11:02 | 2921535 Quinvarius
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Prector is wrong.  I don't even have to listen.

Fri, 10/26/2012 - 11:03 | 2921540 fonzannoon
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Yeah I agree, Schiff calmed down and then bent him into a pretzel.

Fri, 10/26/2012 - 10:52 | 2921494 odatruf
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Jesus Charles, it's like I'm reading something written by my brother's retarded kids.

Fri, 10/26/2012 - 12:33 | 2921781 socalbeach
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Unfortunately you are right.

For example, his chart (3rd from top) of "Average Hourly Earnings Y/Y % Change" is accompanied by the text,
"Hourly earnings have been trending down for years"

So if his chart is showing the % change in earnings, then what it shows is that earnings are increasing at a decreasing rate, not that earnings are decreasing, since the % change is positive.

Stopped reading at that point...


Fri, 10/26/2012 - 13:26 | 2922074 odatruf
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That's only one example of his corruption. I say corruption rather then incompetence because I believe he knows what he is doing.

Fri, 10/26/2012 - 10:55 | 2921503 JPM Hater001
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"The top 1/10th of 1% cannot pay the rapidly expanding Federal benefits of the 99.9%, even if we confiscated every dollar of their incomes."

I dont want their income.  I want Rothchilds entire net worth.

I think that would cover half.

Fri, 10/26/2012 - 10:55 | 2921506 WhiteChrist
WhiteChrist's picture

There is no cliff. The Lord can rear fee from naught. AAPL at 610 and AMZN at 230 are great buys. The Lord will uphold these stocks. We should fear the Lord's anger if the S&P were to reach 1400. As soon as the fool putteth in a stop, the Lord runneth him over.

Fri, 10/26/2012 - 11:02 | 2921537 Thisson
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That, sir, is pure genius.  Carry on!

Fri, 10/26/2012 - 10:55 | 2921507 redd_green
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"The top 1/10th of 1% cannot pay the rapidly expanding Federal benefits of the 99.9%, even if we confiscated every dollar of their incomes."


Not even close, Tylers.   Look at the real spending explosion since 2001: Military, and you have to look at ALL of the on and off budget military spending, it is absolutely insane.   


But, somebody sure will like your analysis, however wrong it is.

Fri, 10/26/2012 - 11:32 | 2921662 NotApplicable
NotApplicable's picture

Speaking of wrong, you're critiquing CHS, not any Tyler.

But, somebody sure will like your analysis, however wrong it is. ;)

Fri, 10/26/2012 - 10:56 | 2921508 Akrunner907
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As Gordon Ramsey says, "We're in the shit!"

Fri, 10/26/2012 - 10:57 | 2921518 HurricaneSeason
HurricaneSeason's picture

The only jobs to protect are military, teachers, firemen, police, automotive and solar power. All the other jobs can be in China or Laos for $2 an hour. We just need to put heavier import taxes on foreign products until the "system" finally fails. It'll be foreign countries that will announce the failure with the value of the dollar cut in half, which is what The Bernank, Republicans and Democrats want.

Fri, 10/26/2012 - 11:33 | 2921658 Tirpitz
Tirpitz's picture

"The only jobs to protect are military,"

The North Koreans or Chinese will gladly defend our country for the right price. They may, however, hesitate to send their platoons for defending a failing empire.


Can be had cheaper right from some Indian slums.


Each shack burning down, each national park cleaned out by wild fires offers unique opportunities for well-heeled 'development.' In a free market, after all, Darwin reigns. And money.


Some Arab companies of the Blackwater kind will gladly send their paid killer thugs to do such essential governmental jobs as harassing innocent citizen and protecting the rich. Without lavish pension benefits and averse headlines.


Didn't the Hyunday car long ago surpass the Mexican GMC trucks in quality and reliability?

"and solar power."

China beat us long ago here as well... So what's to be kept and well protected, essentially, that's the undertaker jobs. For what's left of a once flourishing economy, and to dispose of the oversized baby boomers.

Fri, 10/26/2012 - 11:41 | 2921712 Urban Redneck
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Surprised Krugman hasn't come out for a federal regulation or law banning all firefighting to be enforced by 100,000 new paper-pushing bureaucrats...

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