Election Perspectives

Between TTH, R4C and I you'd think this deficit reduction thing wouldn't be so hard to get done.

Between TTH, R4C and I you'd think this deficit reduction thing wouldn't be so hard to get done. Originally Posted by Boltfan

That's because your focus is on solving the problem, not on attracting and/or protecting 'contributions'.

The New York Times interactive piece is an interesting little exercise, but I'd like to disabuse you of the notion that deficit-busting is anywhere near as easy as it suggests.

For instance, what year-over-year GDP growth estimates does the model use for the period between now and 2015? The authors don't say, but I'd bet a few big chips that they're either White House numbers or CBO estimates. In either case, they're based on fantasy, not reality. I got the first hint of that when I saw this item a few days ago. Someone commented about how easy it was to achieve a satisfactory level of deficit reduction simply by electing a carbon tax and a big tax increase on the affluent. That ought to be the first hint that something's a little fishy.

The CBO has produced estimates that sustained year-over-year GDP growth will be in the 4.4% range between 2012 and 2015. That's faster growth than we've had at almost any time in modern history. (The 1983-2007 average was about 3.5%). Most private forecasters believe that the CBO numbers are wildly optimistic. If fact, some say they're simply ridiculous.

In my opinion, Mohamed El-Erian understands today's economy as well as anyone. He has written frequently on what he calls the "new normal" -- an extended period of sluggish growth in the 2% range. This should surprise no one. We're suffering a hangover not only from the financial crisis but from excessive, entrenched government spending, which almost always retards prospects for economic growth.

Remember, too, that deficits are extraordinarily sensitive to the rate of GDP growth over time. Look at what happened in the late 1990s. Of course, we did a better job of restraining the rate of growth of government spending than at any other time in the last 50 years, but better-than-forecast growth is an even bigger reason that the deficits melted away so quickly.

In short, this is just another case of GIGO. It's based on fantasies that are very unlikely to come to fruition.

While in full-blown debunking mode, I might point out a couple of other assumptions that are obviously ridiculous.

For one thing, the "millionaire's tax" (a 5.4% surtax on personal income over $1 million, presumably stacked on top of the resurrected 39.6% rate, making it an even 45%) is scored at $50 billion/year. This is the sort of stuff produced by budget analysts who have no idea how the real world works and assume that no one will do anything differenly in the face of rising tax rates. Anyone who has noticed what happens when states try to jack up income tax rates on high-incomers knows better. The more they jack up the rates, the more income that simply pulls a disappearing act.

Another fantasy is that you can get much more money out of affluent investors by raising capital gains tax rates. Take a look at this graph showing an inverse correlation between the realized capital gains/GDP ratio and the top rate on cap gains:





Since the graph was promulgated by the CBO, you'd think its analysts would at least be informed enough to use some sort of dynamic scoring analysis! Amazing.

Another option in the NYT interactive involves raising the top tax rate on qualified dividend income to 39.6%. Aside from my belief that it would not raise much additional revenue (again, high income investors have a lot of choices regarding whether and how to realize income), I think it's a terrible idea to devalue portfolios, even if only modestly, in this shaky equity market. A lot of non-affluent seniors depend on dividend-paying stocks such as utilities and energy, and anything that reduces demand for these issues shaves a bit of net worth from 401k and other retirement accounts.

When politicians responding to wealth-envy sentiments start firing at successful individuals, they often end up wounding innocent bystanders.

CM - Awesome post. Who would have thought we would have this kind of dialog in this forum. The diversity of perspectives is great.

You raise several good points. I report most of my income in this country because I find the USA/Texas to be quite tax-friendly and I benefit from being here and want to contribute. However, I could easily pull a Google and have my income paid to me in our off-shore location and avoid paying any taxes other than sales and property taxes.

I do think that Google's scheme is criminal. Google – and other *US companies* like them – who derive so much of their income in this country should be required to pay a fair tax rate here in the US – or be prevented from offering services here. If Google paid a 30% tax, that would be fair and it would be a 28% increase over what they paid last year.

Thanks, L4L. Great thread; I enjoy the discussion.

And I strongly agree with you on the Google issue. They're simply pulling a "Double Irish." The fact that it's allowed is a thorough disgrace.

I think it's just one more thing that points up the need for complete reform of our corporate tax structure. It's an unmitigated disaster. We have one of the highest rates (35%) of any wealthy country, yet collect less revenue as a percentage of GDP than almost everyone else. We should lower the rate and broaden the base like everyone else. It's a critical competitiveness issue.

Agreed CM. And in case anyone hasn't noticed, Ireland – half of Google's tax avoidance scheme – is on the verge of insolvency and is at risk of becoming the next 'Greece'. It's not just 'their problem' because our markets are being impacted by fear and uncertainty.

We need massive simplification of our corporate and personal tax systems. I'm a fan of a flat tax system. People living below the poverty line don't pay any income tax and people above it pay a flat tax rate. No more than five allowable tax deductions for fundamentals like charity, education, energy conservation, and things of that ilk. Churches have become profit-centers so they should lose their tax-exempt status. Corporations should all pay a flat tax based on income and market segment. Those that require significant investment (alternative fuels, bio-tech) should pay less tax than corporations that are frivolous applications (Twitter, etc.).

There... I can fix it!

we sure have some smart people here and I have an MBA, just do not do a value added tax for us small business folks

Do you guys not understand how to use hyperlinks? My link is in the damn post. Originally Posted by Boltfan

I saw your choices. My question what justified your comment that the NYTimes feature wasn't "accurate"?

we sure have some smart people here and I have an MBA, just do not do a value added tax for us small business folks Originally Posted by cptjohnstone

I agree completely. VATs are another way that governments stick it to the little guy, the average mass-market consumer. I'd be ok with VATs for extravagant items, like cars, boats, planes, and maybe even houses above a certain value.

Another source of revenue is fines. When I lived in the UK, I received a minor speeding ticket. I went to court and the fine was based on 'my ability to pay'. You have to submit a summary of income and net worth to the judges before your appearance. I pleaded guilty and was assessed a fine of $750 US for going 13 MPH above the speed limit.

I saw your choices. My question what justified your comment that the NYTimes feature wasn't "accurate"? Originally Posted by TexTushHog

Did you balance the budget? If so, let's see your work? Originally Posted by TexTushHog

Really? So which is it, did you see my choices or did you not? Which way is the wind blowing today?

And I believe Captain Midnight explained far better than I could that the model is not accurate based upon real world estimates. As if balancing the budget could be done in a cut and paste fashion such as this. It was a fun exercise but nothing close to accurate (nor did it include all options, where is the tax savings from abolishing the IRS?).

Between TTH, R4C and I you'd think this deficit reduction thing wouldn't be so hard to get done. Originally Posted by Boltfan

Well, it seems to me that we couldn't do any worse than Reagan (increased the Federal deficit by 186%) or Cheney/Bush (increased the Federal deficit by 78%) - sorry the facts don't bear your comments out, but Dems always have to fix what the Repubs screwed up going back to the Great Depression, at least. It's hell for the Dems to have to follow the Repubs around with a giant roll of toilet paper.....

...It's hell for the Dems to have to follow the Repubs around with a giant roll of toilet paper..... Originally Posted by Randy4Candy

Why is it that to some people everything seems to be all about blind partisanship?

"The other party always fucks everything up, my party always fixes things!"

Yes, Republicans in the early-to-mid '00s were just about the most irresponsible group of big spenders and political hacks in history. But just look at what the Democrats have been doing for the last couple of years. Instead of returning us to a more responsible, sustainable course, they've set about to dig an even deeper hole. The electorate didn't want wasteful, phony "stimulus" packages and more unaffordable political payoffs and entitlement expansions. By the time this last election date rolled around, people had obviously seen enough of the Obama/Pelosi fiscal kamikaze mission. Are you partisan Democrats actually going to try to defend that record?

Who seriously believes that either of our dysfunctional parties is capable of much more than preventing the other from cramming through a ruinous agenda?

Well, it seems to me that we couldn't do any worse than Reagan (increased the Federal deficit by 186%) or Cheney/Bush (increased the Federal deficit by 78%) - sorry the facts don't bear your comments out, but Dems always have to fix what the Repubs screwed up going back to the Great Depression, at least. It's hell for the Dems to have to follow the Repubs around with a giant roll of toilet paper..... Originally Posted by Randy4Candy

So whose "fault" was it we had a balanced budget in the late 90's? My guess, based upon your previous statement, is that it was Clinton who would get the credit? Or could it be that we actually had two parties "somewhat" working together coupled with a period of growth that allowed things to work out.

Just recalling from my civics classes, doesn't CONGRESS control spending? The sitting President may submit a budget but he isn't the only one with fingers in the pie.

Here's your list of 20th Century Recessions from CNBC:

http://www.cnbc.com/id/20510977/A_History_of_Recessions

Cap'n, it's just how it works out. Sorry that I don't take the luxury of placing perception above reality. Anyone is welcome to ignore whatever facts they wish though they shouldn't get all excited when their hand is called. Try not to focus so much on what something is "called." It was stupid and impolitic to call a program to stop the bleeding and head off a world wide depression a "Stimulus." A more appropriate name for it is "Oh, Fuck! Wall Street did it AGAIN and ONCE AGAIN we've got to save our ASSES no matter what!" Oh, that's what TARP means..... And, Cheney/Bush implemented the original "Stimulus" package - sorry, it's not an Obama deal no matter how much you want it to be. Given their propensity to overname things (see Mission Accomplished) I'm not surprised it was called "Stimulus."

Hey Boltfan, just make sure you don't heap any undeserved praise on your guys based on what Congress did...LOL. Yeah, Newt's bunch really helped everyone out - one of the classic comedic acts in American History - those guys must have got something in their eyes or, otherwise, they wouldn't have blinked since they were all "true believers." It's going to be much the same way with the new "reformers" that have come in once they see how this shit really works. It's sad because they want to reform the wrong thing, i.e. the process. The process is fine, it's the people involved in the process that keep screwing things up: As long as our representatives are elected in races requiring ultra big money in districts which have been Gerrymandered in order to guarantee safe seats (for both parties) most of this is really pointless. Anyone with relatively moderate ideas cannot win as a rule because MONEY is going to go to candidates who reflect and are very open to the will of those handing out the cash. Hmmm, wonder where all that Tea Party cash comes from - little old, blue-haired ladies sending in five bucks over the internet?

Hell, you don't need a freaking MBA to figure out that more people making more money will raise revenue. Plus, they'll create more demand. The operative idea here is MORE PEOPLE, not fewer ones at the top. But, it's better for business to bring in Julio, Jesus and Maria to work 80 hours a week for $6.00/hour (overtime, they don't need no f*cking overtime!), tax free.

...Cap'n, it's just how it works out. Anyone is welcome to ignore whatever facts they wish though they shouldn't get all excited when their hand is called. Try not to focus so much on what something is "called." It was stupid and impolitic to call a program to stop the bleeding and head off a world wide depression a "Stimulus." A more appropriate name for it is "Oh, Fuck! Wall Street did it AGAIN and we've got to save our ASSES no matter what!" Oh, that's what TARP means..... Originally Posted by Randy4Candy

Randy, I'm not ignoring any facts. Seems to me that you're the one doing that.

Are you conflating the TARP with the $860 billion "stimulus" package? (It sure looks like it from your post.)

One may argue that the TARP was not handled as well as it should have been, but I think we can all agree that some type of rescue package for the financial sector was urgently necessary in the fall of 2008. Imperfect as it was, it did prevent a worse calamity.

On the other hand, the $862 billion February 2009 American Recovery and Reinvestment Act of 2009 (a misnomer if there ever was one) was irresponsible, wasteful, and completely unnecessary. Provisions such as extentions or expansions of unemployment compensation could have been passed as stand-alones.

It was designed to be a political stimulus package, not an economic one. Claims that it increased the prosperity of the nation or created (or "saved") millions of jobs are patently ridiculous. The debt hangover resulting from it simply exacerbates our fiscal problems, as is now increasingly apparent.

It's no wonder Pelosi rushed it to a vote before anyone had a chance to review it and find out how bad it was.

A more appropriate name for the ARRA would have been the Government Growth, Entitlement Expansion, and Political Payoffs Act of 2009.