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wundayatta's avatar

We have avoided the fiscal cliff! Are you surprised?

Asked by wundayatta (58349 points ) December 31st, 2012

Check out the news coverage on HuffingtonPost.

I am not surprised. I expected this to happen at the last minute, although actually, I thought it would take two more days.

What do you think of the deal?

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35 Answers

gailcalled's avatar

See this earlier question.

ETpro's avatar

We have not avoided anything yet. Unless Speaker Boehner has grown the cajones overnight to say no to the Hastert Rule, 52 Tea Party fanatics still hold the power to derail any government action, and this group of Tea Baggers still believes that the ultimate government is a failed state like that in Somalia

Even if they do manage to bring the measure to the House floor for a vote, it’s a lousy, partial solution that leaves the actual problem unaddressed. So the real winner is, once more, kicking the can down the road.

CWOTUS's avatar

It’s a problem that Congress has made (repeatedly throughout my lifetime), a fake, made-up “cliff” that they also made, and now a stopgap, not-quite-there (spending cuts postponed? of course they were!) not-ready-for-prime-time non-resolution created by Congress because they had left themselves no other choice. I don’t absolve anyone who is or has been in Congress for the past half-century except maybe Ron Paul, and I can only fault him for not being more articulate.

JLeslie's avatar

Nope. All theatre and bullshit in my opinion. I mentioned on another Q I wonder if the politicians and their friends have been buying and selling stocks, purposely making the markets unsure.

YARNLADY's avatar

It was all stuff and nonsense from the very start. I’m surprised war didn’t break out somewhere in the world. It probably would have if Hillary Clinton hadn’t unexpectedly ended up in the hospital.

edit: unless that’s fake too.

TinyChi's avatar

They were just building up the suspense dude.

chewhorse's avatar

I personally am not at all surprised.. There was no way these political jerk-offs were going to sacrifice they’re cash cow.

SABOTEUR's avatar

I was convinced Republicans would allow us to plunge off the so-called cliff just to spite Obama.

ETpro's avatar

@SABOTEUR Damn, I hate to defend RepugniCons. But in fairness, they didn’t take us over the cliff to spite President Obama. Well, maybe a little but to spite Obama, but that was a secondary motivator. Their main fear was a primary from the even further right.

Even though taxes were going to go up on EVERYONE if they did nothing, voting to stop the tax hike on 98% of us could, and would, get turned around by the Right = Wrong clown squad into “You voted to raise taxes.”

By going right on over the cliff, they arrive at a world that is exactly the same as the one they just left, except in this new world taxes will already have gone up on EVERYBODY and they can now vote to CUT taxes for 98% of Americans. They end up doing exactly the same thing either way, but their base is way too stupid to realize that. So doing it after the fact makes the RepugniCon base VERY happy whereas doing exactly the same thing before we went over the cliff would make the RepugniCon base EXTREMELY angry. This is the lunacy you get when you think with your gut instead of your brain.

SABOTEUR's avatar

ETpro I’m glad there’s people, like yourself, who understand what’s going on. I tend to view politics too simply. I’m naive to what’s really going on. If I dwell upon it I get depressed, so more often than not I don’t think about it at all.

There’s got to be a better way than “my side” and “your side”. I seriously doubt I’ll live to see what that better way will be.

JLeslie's avatar

@YARNLADY What do you mean fake? Do you think there is something different wrong with her than what they state?

Linda_Owl's avatar

Our government has not avoided the ‘fiscal cliff’ ... all they have done is push the problem into the future.

Jaxk's avatar

I can’t help but wonder what we think we’ve avoided. We seem to be happy that we’ve raised taxes on the successful. That must be a good thing. No one even suggests that it will do us any economic good but hell, it’s only fair. I don’t know if anyone remembers Christina Romer but she was Obama’s chair of the Council of Economic Advisers. A well respected economist and a liberal’s liberal. She did an extensive analysis of tax changes and how they affect the overall economy. The impact of raising or lowering taxes on GDP and it’s eventual impact on tax revenues.

Her findings seem pertinent to the current celebrations about Obama’s seeming victory in getting taxes raised. A summary of the statistical work estimates that a tax increase of 1% of GDP would lead to a fall in output of 2.2% to 3.6% over the next 10 quarters. and goes on to say “In all cases, the effect of tax changes on output remains large and highly statistically significant,”. They also say “we examine how exogenous tax changes affect the components of GDP, such as consumption, investment, and imports. The most striking finding of this exercise is that tax increases have a large negative effect on investment.”

So by my calculation we have raised taxes by 2% of GDP which should result in a 6% reduction in GDP over the next ten quarters. This is what Republicans were trying to avoid. This is what we should be talking about instead of merely getting even with those wealthy guys or clamoring for free birth control. Misdirection and derision however, is name of the game. God help us.

YARNLADY's avatar

@JLeslie She was feeling no symptoms, and the so-called blood clot was discovered during a routine examination. Come on, how is that even possible?

Adirondackwannabe's avatar

Jump the gun much? Eric Cantor is playing the dick now. The cliff is still there. I won’t believe it til it’s signed.

AngryWhiteMale's avatar

As others here have mentioned, this just kicks the can further down the road. No one really seems to want to take responsibility for cleaning up the mess this administration, and past administrations, have made. However, at some point, the piper must be paid. It’s not going to be good once that day arrives…

Also, as some of you state, it was a totally manufactured bit of theatre. Simplest solution? Get rid of the damned debt ceiling. Only Denmark has a similar construct in place to handle debt issues. Granted, we need to whittle down debt at some point, but the way we’re going about it right now is not, to my mind, a good solution. You’d think we’d pay more attention to what’s happening in Greece, Spain, etc., and return to Keynesian policies rather than instituting “austerity” measures, but I guess that’s too complex a concept to understand for a bunch of clowns (from the White House on down, yes, all of them) more skilled in brinksmanship than statesmanship.

JLeslie's avatar

@YARNLADY I didn’t know those details. I would probably guess there is some les and some truth in there.

gailcalled's avatar

@YARNLADY: Hilary Clinton suffered a concussion earlier this month after she hit her head when she fainted…

A concussion is defined as temporary unconsciousness caused by a blow to the head. A MRI is a routine diagnostic tool after this kind of event.

I knocked myself out after a fall several years ago. I had an MRI done shortly after I arrived at the ER. Luckily, I did not have a blood clot. But I could have. You do not notice the clot until it breaks off, travels to the brain and causes a stroke or death. Then, you do notice.

JLeslie's avatar

When I was in my accident my friend who also was hurt had hit her head diagnosed with a concusion and a 5 inch skull fracture. Finally after 5 days in the hospital still very symptomatic they did another CT scan and found she had a subdural hemotoma. As far as I am concerned they were incompetent to not find it sooner. I don’t know if the blood clot can be caused by the injury Hillary had or if the blood clot might have caused her to feel well and maybe pass out? I simply don’t know enough about blood clots. What I do know is blood clots typically cause pain, at least the ones in the leg do, and I think redness and swelling, but from what I understand that is not always true.

After a fall usually scans are done to look for bleeds, not clots. Unless there are signs of stroke of course, then it could be either.

ETpro's avatar

@Jaxk Regardless of who says the Clinton tax rates crashed the economy and the Bush cuts created a jobs bonanza, it’s a lie. Under the higher Clinton tax rates, we were actually paying the debt down. And the Clinton years saw the greatest job growth in US history. The Bush tax cuts brought us the worst job growth since Herbert Hoover and the Great Depression. Facts are such an inconvenient thing for ideologues, aren’t they?

SABOTEUR's avatar

There’s a concept I live by that’s done wonders for my mental health:

You can’t make sense out of nonsense.

You see, once I recognize something as nonsense, I immediately dismiss it. It no longer requires the effort to figure out because there’s nothing to it.

(“Nothing from nothing leaves nothing.” -Billy Preston)

My wife uses this trick to prevent her from leaving the house late. She sets the kitchen clock ahead 5 minutes. This is supposed to get her out of the house 5 minutes earlier.

Doesn’t work.

Doesn’t work because she knows the clock is 5 minutes fast. She pretends that it works despite the fact that it obviously doesn’t.

She disregards her own technique!

So, what’s this got to do with the “Fiscal Cliff”? Well, the wife mentioned they picked such a dramatic name. I reply that’s because they’re a bunch of drama queens.

That’s when it clicked for me.

This “Fiscal Cliff” was a technique they used to try to motivate them to resolve this budget issue in a timely manner.

No one bothered to mention that the timeliest way to resolve the budget issue would be to…

resolve the budget issue.

But they don’t really want to resolve the budget issue because that would mean compromise. Some of them were probably betting on the fact that a new President would simplify the process.

The President gets re-elected.

“The Fiscal Cliff” threatens to smack them in the face.

Only they forget…or they pretend to forget…or (here’s the kicker) they’re very much aware that “The Fiscal Cliff”...

…is something they made up.

“You can’t make sense out of nonsense.”

gailcalled's avatar

There will be only a slight pause for water, food and naps in preparation for the next round in two months.

CWOTUS's avatar

Right. There should be a pretty girl in a bikini (or less) wandering around and holding a sign above her head reading “Round 2”.

Damn, where is that girl, anyway? I hope she’s not off somewhere feeding babies.

wundayatta's avatar

@Jaxk First of all, you are acting as if taxes do nothing. Taxes don’t change GDP, they change where the money is spent. Instead of being spent or invested (more likely) by rich people, it is spent by the government. But the government will spend it. Rich people might not. So rich people are more likely to take the money out of the economy.

Now if you use this money for capital, you can say that if the government taxes it, rich people no longer have the capital they need. I think this is unlikely. As you point out, it is only a small portion of GDP, and there can be other sources of capital. Indeed, the government can make all the capital they need available simply by fiat. So by taxing the money, we get the best of both worlds. We reduce the debt and we maintain the available capital. We simply are exchanging public debt for private debt, which should be a good thing for conservatives. Maybe even for liberals.

Second, there is the issue of the largest tax increase in this deal, which is at the behest of the conservatives. That is the increase in the payroll tax, which the Republicans were for and the Democrats chose not to fight, for whatever reason. So the Republicans were against income tax on the rich, but had no problem with increasing the payroll tax by a significant percentage for everyone except the rich (the rich, as you know, have the payroll taxed capped on income above 110K per year).

This package is clearly made of politics and not principle—for both parties. I think the conservatives once again got the better of the liberals, so you guys should be crowing. And you will do even better in the deficit reduction negotiations, now that Democrats have nothing left to bargain with.

If we see a dip back into recession, which I doubt, you’ll be able to blame Democrats, but you won’t be able to take credit for being clear eyed and ideologically pure. Life goes on.

Jaxk's avatar

@wundayatta

I can’t imagine how you read my post and came to the conclusion that taxes do nothing. Virtually all economists agree that raising taxes retards growth and lowering taxes stimulate growth. The growth we are talking about is GDP. Obama’s argument has not been that it isn’t true but rather that it is only true for the middle class. Of course @ETpro‘s argument seems to be that it is the reverse (raising taxes stimulates growth and lowering them retards growth). I can’t really deal with that argument since it is so far off the beaten track, I don’t know where to begin.

If you read the study I referenced, it actually controls for all the other government actions you you bring up and a lot more. Government spending, changing interest rates, printing money, etc. It’s actually pretty good even if a bit dry to read. Very surprising to see a liberal try and use all the data instead of selective parts. And just for the sake of argument, payroll tax will affect small businesses as much or more than they affect the middle class. Regardless they will be a retardant to economic growth.

I would agree that this deal is pure politics but have trouble seeing how it benefits Republicans. We get absolutely nothing from it. Democrats get thier vaulted tax increases but that’s the only thing in the deal. And to make you all happy he has promised more tax increases as we move toward the debt ceiling debate. Frankly, I don’t see any winners here, only losers. I had hopes that even if taxes went up, we would at least be able to stabilize the economy by stopping the debate about raising taxes. Unfortunately we don’t even get that.

wundayatta's avatar

@Jaxk We’ll see. You could be surprised at the level of spending cuts. Although probably it will never be enough to suit you.

As to this study—I understand the concept. I’ve read through the first part. I’ve got some questions, such as about the appropriate lag time between policy and outcome. I’m going to take some convincing about the methodology for separating exogenous from endogenous motivations for tax changes. I also wonder about the trade-offs between reducing deficits by increasing taxes, and reducing deficits by cutting spending, which generally causes a lot of harm to society that is not measurable. If these effects are not included in the model, then I’d say it moves us forward, but it has a long way to go.

I.e., GDP may not be the most appropriate measure for the outcome of tax policy. GDP focuses on measurable output. But it doesn’t measure things like life satisfaction or education levels or lost opportunity.

I may or may not get back to the article, but those are my thoughts at the moment.

ETpro's avatar

@Jaxk We have been through all this so many times before. Is your memory that compromised, or are you just being willfully ignorant of all those past discussions. We have previously both agreed that a tax rate of 100% would bring the government the same eventual revenues as a rate of 0%, that being zero revenue.

Republicans have lied about tax rates for ages, falsely claiming that reducing revenues produces more revenues because all tax cuts always magically stimulate the economy so much they more than make up for the rate decrease. They claimed this when Bush pushed his two big tax cuts that mainly favored the wealthy. But we have the numbers now. Bush’s two stupidly conceived wars ended up costing us $1.4 trillion over the past 10 years. His two stupidly conceived tax cuts cost us double that.

Who says so? Republicans, now that it is Obama who wants to extend the Bush tax cuts for 99% of Americans, those tax cuts suddenly will cost money, and therefore they must be paid for through corresponding spending cuts—just the opposite of what Bush did. He launched two unfunded wars and a massive giveaway to drug companies in the prescription drug benefit confident that cutting taxes would fund them. Cutting taxes didn’t. Bush doubled the debt he inherited and tool us from paying down the national debt to sending it skyrocketing.

The CBO has calculated that the Bush Tax Cuts alone will contribute 50% to the national debt by 2020 if nothing is done to curb spending.

I have said all along, @Jaxk that there is a sweet spot for taxes. It isn’t 0% and it isn’t 100%, and since we’re going deeper and deeper into debt, we are too low right now. If cutting taxes ALWAYS increased revenue, then we should immediately reduce taxes to -100%, so the government just sends you a check for however much you made that year. Cutting taxes has its limits. Raising taxes has its limits. We need to raise enough in revenue to pay for those things that government must do (defense, border security, the war on terror) and those investments that government uniquely can make that grow the economy of the future. I’m all for cutting spending that is truly wasteful, but my sense is that it’s a far smaller part of the total federal budget than those who insist tax cuts finance themselves are willing, from their delusional fantasy land, to admit. People who can only reason in bumper-sticker sloganeering should not control complex, complicated policy. They would better be confined to pushing for this or that singer to win The Voice.

Jaxk's avatar

@wundayatta

Not bad. I would agree with most of your points. The study doesn’t attempt to assess the affects of spending but rather only controls for them so that the affects of taxes can be isolated. I have no problem with criticizing the methodology. That is always something we should look at with a jaundiced eye.

The problem we always have with these discussions of tax policy or spending, etc. is that there are too many things happening in the economy to show any real causation. Sure we raised taxes in the 90s and the economy grew. Of course we also changed fiscal policy and monetary policy and spending and the business cycle, and so forth. So we pick the measure we like (the one that proves whatever point we want to make) use that and ignore any other measures. But if we can measure the effects of each action we will get a better idea of how the overall economy will react. It may be worth it to increase spending on education and raise taxes to pay for it. But it would be good to know the price we pay, as well as the benefit we get, for doing so. This is one study that attempts to supply a missing piece of that puzzle.

wundayatta's avatar

@Jaxk I do agree the study and others in the field add to our knowledge and that is helpful. I just want to be careful about making policy based on its conclusions because, as you know, we are dealing with the entire economy, not just one, isolated aspect of it.

Still, I will say this is something to watch out for.

Jaxk's avatar

@ETpro

Yes, we have had these discussions many times. Words like ‘always’ or ‘never’ tend to shut down any discussion rather than promote any understanding. Consequently, I will ignore them. I know you believe the ‘sweet spot’ is somewhere much higher than where we are, while I believe it is somewhat lower. This particular study, places the number at a tax rate of 33%. Similar to other studies I’ve seen. This particular study was done by Liberals which should tend to lessen any conservative bias and encompasses more than 50 years of data. That alone doesn’t make it accurate but does provide a firm foundation for the conclusions.

Ignore it if you wish. Just as I will ignore Rachel Maddow’s opinion of what the GOP thinks.

ETpro's avatar

@Jaxk If you know that, you are mistaken in your belief. We actually did very well under the tax rates in place during the Clinton years. They are not way higher than current rates, they are a little higher. They in fact are way LOWER than marginal rates during and after WWII.

We live in a much larger economy now than at any time in US history. Our population is larger now than at any time in US history. And yet we are being taxed at the lowest rate in 70 years. If we went back to a Federal Government just like we had in WWII, the effect would be a total collapse of the economy. Greed may make you want something for nothing, but greed doesn’t drive reality. I’d love to live in a world where free money came form tax cuts. I really would. I’d love it if taking a day off work increased my revenue. Sadly, the world simply doesn’t work that way.

As to your ad hominem about Rachel Maddow, set the messenger aside for a moment. Are you denying that the GOP is now calling for the tax cuts Obama pushed through to be paid for by spending cuts?

Jaxk's avatar

@ETpro

“If you know that, you are mistaken in your belief.” I really don’t know what you think I’m mistaken about. I know you want to focus on the tax rate but the real issue is what revenue those rates generate. Revenues as a percent of GDP are actually slightly higher today than they were in the early 90s. The truth is we are generating more revenue for the government at today’s rates than we were when the top tax rate was over 90%. Both in terms of real dollars and percent of GDP. Unfortunately Rachel Maddow will never tell you that.

We have a spending problem. The GOP Is trying to address our deficit and the latest round of tax increases does nothing to do that. Most likely they will slow the economy even more making the deficit worse not better. It’s possible that another event such as a business cycle event may come along and counteract the tax event event. Obama keeps telling us that will happen with ‘Green Energy’. I see no signs of that but we can hope.

The good part is that according to this study, a tax event will only last 10 months. So unless we have another, the Dems should see some improvement before the the 2016 election. Of course Obama has vowed that won’t happen by promising even more tax hikes in the future. And frankly, it is Obama that is and has been promising free money for 5 years now. It’s no wonder you love him.

ETpro's avatar

@Jaxk That revenue chart is wildly inaccurate. Actual revenue as a percent of GDP was 10.4% in 2011. Somebody is pushing a propaganda site.

It’s too late this evening to even deal with the rest of the distortions in your answer. Tomorrow, perhaps.

Jaxk's avatar

@ETpro

Actually it’s not. It is a measure of all government revenue, fed, state, and local. That is how you measure the tax burden.

chewhorse's avatar

Not at all.. They’ve been playing these types of games for years.. Once this ‘cliff’ is taken care of, another, more dire cliff will follow, of that I have no doubt.

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