I think that is all rubbish. I will try to make the case that exactly the opposite will happen. There may very well be a relief rally for a bit after news of a deal. But I say that relief will turn to fear in a matter of months. Start with the President's words that I thought were important:
He made it clear on several occasions; The time is now.
We have to eat our peas.
But no sooner did he make clear his commitment to tackling the problems he said this:
I want to be crystal clear. Nobody has talked about increasing taxes now. Nobody has talked about increasing taxes next year. We’re talking 2013 and the out years.
This reconfirms old news. Anything that will come as part of the Plan will not be effective until 2013. No cuts, no tax increases.
This next part confirms what I (and others) have been saying. As part of the deal to raise taxes and cut spending in future years there will be a short-term stimulus program. The President made clear what will be a part of the package:
(cuts in FICA payroll taxes) would be a component of this overall package.
Now take a big leap and assume that this happens. What will we have?
*In 2012 there would be an expansion of the (one time only) reduction in payroll taxes. Employees would get an additional 2% reduction (total 4%) and employers would get a 3% cut. This reduction would be tied (in part) to job creation.
*In 2012 there would be no other changes of substance to the current 2012 budget. The total additional stimulus would be $350 billion (all through FICA reductions). The new stimulus would provide a boost to GDP of about 1.5%.
HOWEVER
Starting in January 2013 the roof will cave in. The short-term stimulus will have ended. The cuts and new taxes will be kicking in.
*Workers will get hammered. They will face a 4% increase in payroll taxes (versus the December check). That comes to $2,000 per year for the average family. That’s a very big number and it hurts the bottom end of wage earners the hardest. The YoY change will result in an increase in worker's FICA taxes by $240 billion!
*Business FICA taxes will also go up $120 billion. With that increase (reversal of the “one time” holiday) will go any incentives for hiring new workers.
That’s just a reversal of the short-term stimulus that returns us to “normal”. Then there would be those new tax increases/spending cuts.
*The Bush tax cuts on +250k will be gone. That will be another $50b that gets transferred to the Feds.
*The AMT is going to have to be re-indexed. This hideous tax will hit millions of taxpayers in 2013. It will cause homeowners with children to scratch their heads in dismay. Family incomes above $105k will all pay higher taxes as a result. Call that another $50b.
*Corporate taxes are going up. This will not add up to much. Maybe $20b guts sucked away from the fat cats.
*Speaking of fat cats, the Hedge Fund crowd will lose their special tax position. Their income will be treated as “Ordinary” versus “Capital”. That’s another $10b or so out of circulation.
*Taxes on dividends and capital gains are headed higher as well. This will be phased in over time in an effort to appease the big Wall Street donors. It could add up to $20b in 2013.
*Deductions of all sorts are going to be getting phased out. This will not be a big $ item in 2013, but anyone looking at the future will realize that most “prized” deductions will be lost in less than five years. This too will change the mood for investing in something like a house. It might even change one’s plans for having a child. There won’t be any deductions for the $400,000 it costs to raise a kid these days.
*The rate of automatic increases (COLA adjustments) for Social Security will be altered. Those on SS will not see a lower check in Jan. 2013. But they can expect to see that the checks will not grow anywhere near as fast as inflation for the next twenty years or so.
That will scare the crap out of a bunch of them. How will they respond? Trying to cut back on some more spending is the only way. It’s impossible to measure this reaction, but it surely will be felt to some extent. This too will be a drag on GDP.
*The rate of increases in Medicare/Medicaid disbursements will be altered. Instead of running full speed into financial oblivion these programs will lower the trajectory of expenditures to a walk. Whatever expectations you now have regarding the growth of the health care industry, you have to take them down a notch or two post 2013. That’s a massive change in thinking. Every hospital, doctor and treatment/diagnostic facility will be gearing down future plans.
I could go on for a fair bit. I hope you get the picture. The Plan that Obama outlined is going to result in a massive YoY adjustment in 2013. The reversal of the FICA (one time) tax holiday is $350b. Other tax increases could easily add up to another $100b. This is equivalent to a 3% immediate hit to GDP. I can’t think of a bigger historical YoY shift in taxes.
As I suggest, there are many other factors that will come into play. Consumption patterns and investment decisions will be altered. It all adds up to a very murky economic picture starting in 2013.
Obama is right when he says that confidence is a critical component of economic expansion. My question is:
“How are people going to be feeling a few months from now when the euphoria passes and the reality sets it?”
The press will have a field day with the story. Every blue chip economist and Wall Street pundit will be pointing to the same charts and concluding:
A recession is likely in 2013
Fear of the future is a powerful force. People will have a year to worry about the changes that are coming. They will worry over how those changes will affect their pocket books. I can’t think of a more depressing scenario.
There might be a month or two of renewed confidence following a budget deal. By wintertime it will fade. It will be replaced with the exact opposite. How could it not?
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OK, but what if the Dems cave? What if the Republicans prevail, get cuts in excess of the increase in the debt ceiling, do not tweak the payroll tax or raise any taxes, and then a Conservative wins in 2012? Assume that in 2013 a Republican Congress repeals Obamacare, castrates the EPA, rolls back the hideous AMT tax, lowers Corporate Taxes and slashes programs and spending: could we expect a brighter future?
ReplyDeleteI have a bias, but it does seem that making the right and difficult choices does pay dividends. Take a look at this: http://townhall.com/columnists/byronyork/2011/07/12/wisconsins_controversial_budget_law_begins_to_pay_off
Of course the reality is that there is no good choice anymore. We passed that exit a LONG time ago. We've painted ourselves into the proverbial corner and we're screwed. We can kick the can a while longer, but ultimately we pay the piper.
ReplyDeletebut aren't some of the choices better than others?
ReplyDeleteAnother sign post on the way to ecological and economic collapse. This is a net energy problem. The net energy required to simply maintain our economy and standard of living is trapping us between Iraq and a hard place.
ReplyDeleteOil. Oil. Oil. And money is debt is oil. Money is just a claim on the right to waste future oil for consumption.
The guy who wishes to castrate the EPA must've never looked between the legs before. Never mind, just take a look at the Midwest, the "Environment" is taking care of herself now.
Anonymous:
ReplyDeleteThe EPA on Wednesday finalized “cross-state air pollution” regulations which, beginning Jan. 1 will force the installation of new scrubber equipment that provides marginal improvement in air quality at tremendous expense. The extra cost would total $184 billion through the year 2030. This includes $72 billion in capital costs that coal companies will have to pay right now to comply. Electric bills will jump 12 percent by 2016 with areas such as Kentucky and Tennessee seeing a 24 percent increase. Estimates are that employment will drop by a net 1.4 million jobs.
The collapse will happen by design. YOU may be looking forward to a socialist dark age, but most people I know are not.
Other taxes coming in 2013:
ReplyDelete• Starting in 2013, the bill adds an additional 0.9% to the 2.9% Medicare tax for singles who earn more than $200,000 and couples making more than $250,000.
• For first time, the bill also applies Medicare's 2.9% payroll tax rate to investment income, including dividends, interest income and capital gains. Added to the 0.9% payroll surcharge, that means a 3.8-percentage point tax hike on "the rich." Oh, and these new taxes aren't indexed for inflation, so many middle-class families will soon be considered rich and pay the surcharge as their incomes rise past $250,000 due to tax-bracket creep. Remember how the Alternative Minimum Tax was supposed to apply only to a handful of millionaires?
• Also starting in 2013 is a 2.3% excise tax on medical device manufacturers and importers. That's estimated to raise $20 billion.
• Already underway this year is the new annual fee on "branded" drug makers and importers, which will raise $27 billion.
• Another $15.2 billion will come from raising the floor on allowable medical deductions to 10% of adjusted gross income from 7.5%.
• Starting in 2018, the bill imposes a whopping 40% "excise tax" on high-cost health insurance plans. Though it only applies to two years in the 2010-2019 window of ObamaCare's original budget score, this tax would still raise $32 billion—and much more in future years.
• And don't forget a new annual fee on health insurance providers starting in 2014 and estimated to raise $60 billion. This tax, like many others on this list, will be passed along to consumers in higher health-care costs.
http://online.wsj.com/article/SB10001424052702303812104576438130028027412.html?mod=WSJ_hpp_sections_opinion
Bruce why don't you come on my site and write. I'm paying for the marketing and you'll get plenty of exposure. Check out www.cbclifeline.com. Thanks - Rob Bascihis
ReplyDeleteImagine how in his program to make American jobs he would be helping the Chinese—who would be making our windmills—not us. Imagine a moment when he was sued by 48 states in that Obamacare was unconstitutional—surely, not from a lawyer.
ReplyDeleteNow imagine as this article projects tax plans into the future, he will be doing the same “pea” brain homework. And so you are wrong again: to think you were made to eat peas, instead you are again expected to swallow a camel!
“Attitude Is Everything”Standard Medical Release Form
ReplyDelete