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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Dr. No's picture

In terms of GDP, it is a zero sum game.  It is obvious the government spends every dime it takes in so the 1% will be put back  in regards to GDP calculations.

youngman's picture

We are all celebrating today...for a two month jubilee....this the new deal...every two months a new kick the can...the market goes up because there is another 300 billion washing around...the politicians will not do anything now...nothing...

One thing the 4th quarter will be strong as all the up front payments and fiscal cliff selling...but wait 3 quarters and things will stop as all these new taxes..regualtions...rules will be in place and companies will say NO.....I quit...

I predict new records for food stamps...disability...

Zap Powerz's picture

This is a slow, painful death we are experiencing.

lolmao500's picture

GDP is a flawed metric to measure real economic activity anyways... this whole thing is a joke.

hooligan2009's picture

don't worry..everybuddy earning between 30,000 and 65,000 will ask for a salary cut all the way down to 29,000 so they can get state handouts that take them to an equivalent salary of 69,000...


“Oh what a tangled web we weave, When first we practice to deceive”


as per my previous comment here on this strand: the 29,000 earner will demand a 40,000 increase in earnings before it becomes a promotion? hahahahahaha..

and for the next trick...just watch the HUGE increase in claims if this ever gets out to the gerneral public who had NO IDEA this is how the maths worked!!!!

millions will be asking for pay cuts down to 29,000 and making new benefit claims

maybe we will see a leap of weird company benefits in lieu of salary cuts so that the state can pay about fucked up communist thinking!

or maybe everyone can go snatching those hard to get shelf stacking jobs for 69,000 including all benefits!


SheepDog-One's picture

Wait, wasn't the GDP estimate for 2013 not much more than 1% to begin with? So we're 0% GDP now....with Debt/GDP 115%?


Could you even imagine 20 years ago the announcement that Debt/GDP had suddenly shot to a catastrophic 115%? The markets would have gone batshit panic...making any previous collapse look tiny.

the not so mighty maximiza's picture

Algos don't have emotions, just "does not compute" errors.


Alex Kintner's picture

Has anyone else noticed that when they talk about deficit reduction, they Never Once Mention the INSANE LEVELS of spending on Military and Intelligence complexes? Not to mention Endless Pointless Wars (did you realize we are still bleeding tax dollars down the Afgan rathole )?

q99x2's picture

The market alone will represent up to 5% of GDP. Nobody has to work ever again. Its on like donkey kong. Party like no tomorrow. Bama bout to start his second term.

Ok Ok that's enough. BTFD.

ItsDanger's picture

'Emergency' unemployment needs to be more clearly defined.  Another article explained it as 2.1m people receiving unemployment benefits would be extended.  Are these 2 different?  The latter would be far greater than $30b.  Also, the payroll tax holiday needs further detail.  Not paying into hasnt created a liability?  what about the employer's side.  Im getting tired of all the half-assed explanations on all these issues.

aztrader's picture

A major part of the bill that wasn't touched.   Screw the middle class with a 2% tax increase and let the Carried Interest rule remain....

Grin Bagel's picture

Off Topic:

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Fuck trolls