Fiscal Cliff Notes

If the Bush tax cuts were only “tax cuts for the rich,” as we’ve been told over and over, then what does it mean to keep them for those earning less than $200,000/$250,000? Keep what?

Have you noticed how the word “millionaires” has morphed into the phrase “millionaires and billionaires”? Doesn’t anyone remember that a billion is a thousand million?

Have you also noticed how, when it comes to taxing, millionaires and billionaires are defined as individuals earning $200,000 or more and couples earning $250,000 or more? (Not to mention the slight of hand that converts a stock (wealth) into a flow (income).

I agree that raising tax revenue by reducing “tax expenditures” would have less of an adverse incentive effect that raising revenue through higher marginal tax rates. However, the term “tax expenditures” gives the unfortunate impression that the money is being given up by the government rather than by the people who earned it.

I understand that one new approach being considered is to gradually reduce the value of deductions on higher incomes. This is not new. It’s been going on for a long time. Legislators don’t know that because they don’t do their own taxes.

There should be a law requiring all members of the house and senate do their own taxes, without tax lawyers or accountants—at their kitchen table, of course.

Is schadenfreude a sin?

The Wall Street Journal reported recently that charitable donations are speeding up ahead of the fiscal cliff. So much for the idea that there is no connection between giving and the tax treatment.

The same goes for dividends.

If 98 percent of voters can vote for more government services to be paid for by the remaining 2 percent, we have a bit of a problem.

The 2 percent party had better shift the debate from taxes to spending, quick. Or join the other party and become blue dogs instead of red dogs.

I’ve been struggling to get through Bob Woodward’s The Price of Politics. It’s about the behind the scenes negotiations between President Obama and Speaker Boehner that failed to resolve budget issues last year and set us up for the fiscal cliff. It’s tedious because every word spoken (imagined or real) seems to have been deemed worthy of inclusion in the book. But the other reason I’ve struggled is that it seems obvious that exactly the same words and arguments are being made today with the same resulting feeling of hopelessness. I should have waited for next year’s book on how we went over the fiscal cliff.

 

Comments (1)

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  1. Benjamin Cole says:

    There is a lot strange about the fiscal situation.

    Did you know that VA outlays alone now tower around $125 billion, and are growing rapidly?

    Total outlays for defense, VA and homeland security are about $1 trillion. That’s $3,000 per resident of the USA. When an average family of four sits down, there $12k taken off the table and sent to DC, just for those three agencies. Every year, but more every year.

    And our largest subsidized and mandated renewable fuel program? Ethanol. GOP moonshine.

    I prefer national consumption and PIGOU taxes to all others, but fat chance on that, and limiting federal outlays to 15 percent of GDP (now about 22 percent), but fat chance on that either.

    I would like to see some Fed types answer this question, maybe McTeer:

    The Fed is on course to monetize $3 trillion in debt in this recession (through QE). And the Cleveland Fed Index of Inflationary Expectations is hitting all time lows. Globally, we are seeing sovereign yields trend towards zero.

    Japan has little to no inflation after their QE of 2001-5. In fact, they are suffering from deflation.

    Soon, we will see zero bound, all the time, everywhere. Japan here we all come.

    Given that there is no inflationary impact of QE at these levels, should not the Fed up the game? And what does it mean when we can wipe out trillions in taxpayer debt and suffer not inflation? Is not this a great thing? Why not–just outdated shibboleths against monetizing debt?

    And what does it say about the economics profession that it is still hand-wringing about inflation, when zero-bound and perma-recession are the biggest threats?