Another factor is the story being planted left and right that that there is big progress being made on the debt ceiling. The talk today from the NYT, WaPo and WSJ is that Obama has put real cuts on the table for Social Security. That there is a plan to means test Medicare as a way to cut costs. (As of now there are no details on any of this)
One aspect of the “compromise” talk is a story about how changing inflation calculations could generate significant new revenue for the IRS. The technical description is a change from CPI-W to the Chained CPI for the purposes of indexing various aspects of the tax code.
The Joint Committee on Taxation did a review of this. I was surprised with the results. The consequences are measured in the following chart that looks at things out in 2021. Look at what income groups have a tax increase as a result of this. Those making Less Than $100k would get hit by the highest percentage. Those that make $500k-1mm do pay 0.1% more, but the really fat cats making over a Mil don’t feel it at all.
This analysis is restricted to just the changes in inflation adjustments. There are more changes that will be added to the final package (if any is achieved), including broadly higher tax rates. This one proposal is not an earth shaker. But it is representative of what we will see. My thoughts:
The proposal that was analyzed by JCT is a No Sale in my opinion. What Democrat is going to vote for this? None in their right mind, is the answer. This drives a stake in their base.
The same is true for any other of the “new” ideas that got floated today. Means testing Medicare will be an impossible sale. Reducing COLA adjustments for Social Security may look like a possible alternative on paper. But it’s a political third rail.
Market enthusiasm for what is being made to look like a break in the log jams on the debt limit talks is very premature. These ideas being bandied about will prove to be very unpopular. There is not one segment of the population that will like what is coming. If there is to be a credible plan to balance the government’s checkbook, there is one thing for certain: We will all hate the results.
The ‘solution(s) will all be rejected by some interest group(s) over the next few days. I would put a high probability on the process hitting the wall (again) at some point soon.
The markets are all pricing in a resolution. I think it will go down to the last hours.
There will be a ‘risk off’ market as a result of the sobering conclusions. This will come before the end of the month.
When some Pol from the left or the right tries to tell you who is going to be paying more taxes, just ignore them. They are all lying. As the JCT report shows, everyone will be paying more.
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Excellent insight and analysis.
ReplyDeleteKeep in mind that a politician will do what is "good for the party" before they do what is "good for the country". Therein resides the main problem.
"What Democrat is going to vote for this? None in their right mind, is the answer. This drives a stake in their base."
ReplyDeleteBut Democrat politicians are always driving stakes in the hearts of their base. The results will only become evident years later from the perspective of the uninformed, and can be blamed on Republican lawmakers, speculators, greedy businessmen, or bankers.
Their base is people who want to be taken care of and are repulsed by the idea of looking after themselves. So they will not look at this closely; they are trained to believe that liberal politicians are their friends. Did they recognize Social Security and Medicare as a ponzi scheme, forced unionization as the road to outsourcing, socialized medicine as restricting access to medical care, or welfare as the permanent institutionalization of poverty rather than its demise? Nope. -- BH
Yup. The chickens are coming home to roost. The US and other Western Democracies have been living beyond their means for too long. Kicking the can down the road. Now it is down the road. The only way back is acut in the standard of living, and/or inflation. But at the moment we seem unable to even stop digging the hole deeper.
ReplyDeletePoliticans have more empathy for other politicans than for the ones they represent.
ReplyDeleteAs I hear “compromise” talk again and again, I am taken back to a conversation in a beautiful and peaceful Garden where Mr. Serpent talked about everything being relative. He said, “Just compromise.” He winked and murmured under his breath, “Ha, ha. That’ll keep them busy arguing and never getting it right.”
ReplyDeleteGood job, anonymous / BH. You hit the nail on the head. Repubs want spending cuts. Dems want Tax increases. Neither wants what the other wants. So how will they compromise? In the last waning hours of Aug 1, they will concede to some spending cuts and some tax increases which will just nullify one another out accomplishing virtually nothing. That and once again redefining CPI - remember, they already redefined CPI years ago when they removed oil and food from the calculation. If you don't like the figure just redefine its calculation. Then they'll raise the debt limit and Obama will claim a great victory (engineered by him of course) - a great success by making the tough decisions. Yada yada yada. All BS. Nothing will be accomplished except more debt, more spending, and more taxes. Unless repubs hold the line (which they likely won't) there will be hell to pay, the like which haven't been seen since the great depression. None of us know what that was like but we will all have the opportunity to see since we don't learn our lessons from history. We continue to let greed and a something-for-nothing attitude the rule us. We will learn the hard way. And that will be sooner than later.
ReplyDeleteWhat youre saying is completely true. I know that everybody must say the same thing, but I just think that you put it in a way that everyone can understand. I also love the images you put in here. They fit so well with what youre trying to say. Im sure youll reach so many people with what youve got to say. Singapore travel Agen Sbobet holiday tips Malaysia travel tips
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