Fiscal Cliff To Be Fiscal Drag Amounting To 1% Of 2013 GDP

Tyler Durden's picture

JPM's Michael Feroli, who already quantified the impact of the 2% payroll tax cut expiration at $125 billion, has estimated the impact of the Fiscal Cliff on the US economy for 2012. The verdict: 1%. This is just on the Obama tax [cut|hike]. If and when any spending cuts are actually announced or enacted, this number will only go up, as will apparently the market.

From JPM's Michael Feroli:

The Senate-passed budget deal is broadly in line with our prior fiscal cliff expectations, which is to say a resolution which imposes considerable near-term headwinds to growth while doing very little to address longer-run fiscal sustainability issues. The table below summarizes our current assessment of the fiscal drag associated with fiscal-cliff-related measures, which we still see subtracting about 1%-point from GDP growth in 2013.


The heart of the deal is the extension of lower- and middle-income Bush tax rates combined with a variety of rate and non-rate upper-income tax increases. Relative to current policy, those upper-income measures are projected to raise revenue by $624 billion over a ten-year horizon. By comparison, under current policy (the CBO's "Alternative Fiscal Scenario") deficits over that period should amount to $9.975 trillion, and so the upper-income revenue increases should close about 6% of the ten-year budget gap. Beyond the ten-year horizon the contribution to sustainability is equally minimal (see "The ten-year mirage" on morganmarkets).


As expected, the payroll tax holiday was allowed to lapse on schedule. Moreover, Emergency Unemployment Compensation was extended for another year. The sequestration associated with the Budget Control Act was deferred for two months. The fate of these across-the-board budget cuts come March remains uncertain. This uncertainty, combined with the unresolved fate of the debt ceiling, probably curtails any "certainty bounce" in confidence that would be expected with the resolution of the fiscal cliff.


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Cursive's picture

this number will only go up, as will apparently the market.

EnslavethechildrenforBen's picture

Why make it a better world when you can rape, pillage and plunder without end?

Careless Whisper's picture

The Careless Whisper BURIED-NEWS UPDATE & Threadjacking (& One Day Ahead Of Drudge)


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Putnam County NY Refuses To Disclose Names/Addresses Of Lawful Gun Owners To Newspaper; County Clerk Dennis Saint: I Will Stand My Ground; State Senator Greg Balls: Gungrabbers Can Kiss My White Irish Behind




Zer0head's picture

you missed the creation of a new Natioinal Park in California - imagine that they actually voted for it on Sunday

GMadScientist's picture

"California had a higher physician-to-resident ratio than most states and a higher primary care physician-to-resident ratio than the national average."

"At the moment, the Bay Area, Sacramento and Orange County have enough primary care physicians and specialists"

Maybe LA can retrain plastic surgeons to do something more legit than mangling the old and ugly for money.

CClarity's picture

History will review this period as the fall of Western economic supremecy, diminishment of credit as fuel,  amid much bufoonery.

Cognitive Dissonance's picture

Perception management is the only "tool" the Fed has left.

<Good luck with that.>

tango's picture

You are absolutely right.  Perception is everything.   The US is utterly and completely bankrupt but as long as we keep pretending, things will continue rolling along - not merrily. evenly or smoothly but they will keep on keeping on.  That is why the words (paraphrased ) of the economist to the effect that economic movements take a long time to form but can collapse very quickly. 

Element's picture



They'll adjust the deflator to whatever level they need/want, and Hey-Presto!

Nominal growth = +3.2%


Bindar Dundat's picture

Perception is reality -- Politics is perception

Boilermaker's picture

So?  Let's but 400 on the DOW today.  Even more for RUT.


Water Is Wet's picture

+1.  I'm loving how the tax and spend Democrats came together with the tax and spend Republicans to tax the working people so they can pay the not-working people not to work.

Fuck this.

tango's picture

Actually, you're wrong.  The deal (well, 95%) dealt with upper class incomes and actually extended welfare to those on unemployment insurance. The real blow to the pocketbook is the meteoric rise in health care and health care insurance under the "Affordable" Health Care Act.  This will hit most families much more than the Cliff bill. 

MFLTucson's picture

Perfect, this is what the con man in chief wants to do to America and Bonier and Oconnell went along with the master of deception and fraud.

Curt W's picture

The exuberant oil speculators are going to cause a reccession after all.

HardAssets's picture

Yes, its always the 'speculators' - - they cause the cost of gasoline, food, and so many essentials to rise. They are to blame.

It has nothing to do with central banks printing money like crazy to prop their buddies up.

Tsar Pointless's picture

This is alarming! Quick, Mortimer - BUY BUY BUY!

otto skorzeny's picture

how much have gun/ammo sales added to GDP? much of that will be gone in 2013. IL is moving to total disarmament with a gun control bill to be rushed through in next few days of lame duck session.

Zap Powerz's picture

Some interesting facts:

500 murders in chicagho 2012.  Many of them with firearms, despite having some of the strictest gun control laws in the nation.

They want more murders in shitcago so they will pass more gun laws.

Zer0head's picture

I repeat Boehner's tenure as speaker is the next cliff, looks like if the TeeParty grows some nuts that the Dems will come to his resuce as the entire house gets to vote for Speaker, so yes the ship is sinking the question is are we talking years or decades - in the mean time the band plays on and those who chose to jump into the icey waters are the near term losers

Zap Powerz's picture

Boner is a useless statist smegma eating pederast in my opinion.

All republicans and all democrats belong to The Party.  The Government Party.  The Party always votes to increase the size and power of The Party.

There are NO "small government" politicians since Ron Paul left.  Those kind of people are not even allowed to run for office.

The Joker's picture

The Puppet Politicians Party

(credit to Roosting Chicken)

fonzannoon's picture


Republican Sen. Bob Corker told CNBC on Wednesday that he voted with his head, "not his heart," for the deal to avoid the "fiscal cliff," and it was like "eating a you-know-what sandwich."

"When you are trying to save our great nation, when you're trying to deal with these massive deficits we have, you have to use your head and not your heart," Corker said on "Squawk Box."

Jack of All Trades's picture

He's voting with his wallet as did all the other cretins who furthered this sham.

the not so mighty maximiza's picture

When they all voted for TARP 1 , Repukelicans sold their souls to the devil.  No going back.   All their pro bailout candiates fail just like their party soon.

optimator's picture

I'd have rather had "Tanks in the Streets" back then, rather than the "Armed Drones" in the Sky we'll be seeing shortly.

FL_Conservative's picture

Way to go, PORKER!  You dumbass!  Now you accomplished nothing towards the goal of reducing the deficit.

tango's picture

I've known Bob Corker for some time and he was a good guy - businessman, civic, charitable/  I'd like to think he still is.  (He is certainly not a tool of lobbyists, bankers or other such nonsense.)  However, I did write a personal note last night that he had gotten caught up in the DC Alterntaive Universe and I could not see any reason to vote/support the GOP since the ONLY reason I did so was their stand on financial solvency that they jettisoned yesterday.  

GMadScientist's picture

Man are you a shitty judge of character.

JPM, Goldman, Credit Suisse... he's just as embedded with the lobbyists as the rest of them, idjit.

tango's picture

In your universe, anyone not a rabid ZH true believer is an evil monster on the payroll of the banksters.  In reality, most folks think they're doing the right thing even when it's wrong.  (Like preachers teaching folks about an invisible being who monitors their thoughts.  They're not trying to fool anyone but actually believe such stuff.) And why should  Corker, who was rich before entering the Senate, be influenced by a chicken dinner from a lobbyist?

Zap Powerz's picture

Tango, you sound like a battered wife.

He just got done fucking your country in the ass and you hope he is still a good person?

What the fuck dude?

tango's picture

Zap - The trouble with ZH posters is their perpetual anger.  I mean, Jesus, they hate Presidents, Senators, Governors, CEOs, bankers, rich, Jews, TV, movies, foreigners, Wall Street, Democrats, Republican, the American "sheeple", the military - is there anything they don't hate?   Worse is the group think - like bees in a hive instantly adapting the buzz of the minute.  Corker's answer is at least more rational than your response - he is waiting for debt talks to get the cuts in.  Now I don't think that will ever happen but I'm willing to give him a chance instead of marching him to the gallows.

khakuda's picture

The perversity of debt monetization and ZIRP is that the market reacts euphorically to almost anything.  Raising taxes?  YAY!  Increasing goverment debt?  Double YAY!!  Natural disasters?  YIPPEE!

This period is no different than the late 1990s when Greenspan went off the deepend.  Ben just doubled down on the same policies that ultimately led to a decade plus bear.  But, until then, it was a huge party with doubters all the way.

With regards to the euphoric stock market, all you need to know is that they are debasing the currency at ever increasing rates.  The rest of it is all BS when the unit of measure is debauched.

NoDebt's picture

And I see no reason Congrerss won't cave when confronted with any of the other cliffs coming up this year, either.  All so dire that negotiation for any real change will be impossible when faced with 24 hours-to-deadline, as all of them will be. 

The rudder is locked in position, all levers have been pushed up into "run until failure" position.  Ramming speed, indeed!

Who knew that the best analogy for what is going on right now would be the movie "Speed 2" (the lousy one without Keanau Reeves) where they are trying to stop a careening ocean liner!


tango's picture

Sadly I must agree.  The time to make your stand is at the first, not the third or tenth charge.   I imagine many GOPers - those who had hoped to change things and really alter the course - are thinking. why bother anymore? 

hooligan2009's picture

do you mean cave up or cave down on spending...cave in i can understand..but what are they caving in to? no spending cuts? replacement of welfare spending with obamacare? cuts in home defence (cos guns are the weapon of choice by terrorists/home owners and not knives for cutting). it is getting harder and hareder to know exactly what is meant by caving in..mabe its a new expression for cowards who can't lead...caving out!!!

lolmao500's picture

What will the gun confiscation fiscal drag gonna be ?

pods's picture

That will surely be made up by the increase in prices, if the current trends continue.  

Ex:  The price of a PTR-91 is now almost to where the price of an actual HK-91 was a couple of years ago.

I didn't have the stomach to price an actual HK.


Grin Bagel's picture

Off Topic:

Security firm Archimedes Global wants a "Cyber Counterterrorism Persona Targeting Analyst." The title sounds great at parties, for one. But basically, it comes down to stalking people on Twitter. Aside from using a required top-secret security clearance to access computer systems maintained by the FBI and the Pentagon's cybercrime center to "support cyber [counter-terrorist] activities," a big part of the job involves using "social media analysis (to include Twitter, Facebook, and organic native language social media) in order to establish a pattern of life study of the 'target' and obtain information and positive attribution of subjects." And they pay you for it. It's also not the only job available along these lines. Data analysis firm Semantic Research -- not to be confused with the anti-virus company with a similar name -- is seeking a "Social Media Intelligence Analyst" to track "criminal activity ... in support of active federal law enforcement investigations." The six-figure income is more than cops make, too.

Fuck trolls

Bruce Krasting's picture

Why does the increase in Payroll taxes have a multiplier of only .75???


This is, dollar-for-dollar, out of people's pockets; all 125B of it. This is not a rich man's tax increase, it hits the lower/middle class. Therefore I think the multiplier will be higher, closer to 1.00. That would add another .25% drag on GDP.


Chime in Mr. Feroli, please?


Zer0head's picture

likely higher than 1 as the psychology will be to curb discretionary spending across multiple categories e.g. your next iPhone upgrade, private label cornflakes, walmart instead of target,

Zap Powerz's picture


excactly right.  My taxes are going up and Im pissed about it.  So, not only will I have less money to spend, but Im going to spend even less money.  Im going to participate as little as possible in this fucked up economy. I will spend money only on items of necessity and PMs. 

Just doing my part to crash this ponzi scheme.

Snoopy the Economist's picture

don't forget to get in line to buy the assault rifle...

tango's picture

I hope you are not saying that money taken from lower income works differently than that from higher income.  It does not.   Instead of beer, porn, Walmart crap and food (lower income) it's lack of investment, savings, capital formation, high-end products and particularly, charities (high income). Any transfer of large sums from the private to public sector ALWAYS has an effect and it's usually negative.

Bruce Krasting's picture

Well, I disagree. I think taking a dollar out of someone's pocket who makes $40k means much more than does a dollar out of someone making $500k.

If I'm right, then the .75 is too low.


But, I don't know the answer to this, so you could be quite right. That's why I asked for a clarification from the guy who made the chart.

GMadScientist's picture

Pretending there's no difference between a marginal dollar with inflexible demand (food is not a "kind of want to" purchase, no matter what hedonic adjustments may assume) and the completely discretionary purchasing of a high-income earner is more than a little daft. The low-income earner was guaranteed to spend that marginal dollar, the high-income earner was not.

They both have an effect, but nowhere near the same level of severity to the actual economy.



The Joker's picture

Question is, why do high-income earners avoid beer, porn, and food?

Do they just prefer chianti, prostitutes, and caviar?