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The fiscal cliff is dominating the news and the markets at the moment, and it's anyone's guess whether DC will have a solution in place by the end of the year (I'm not particularly optimistic). Bloomberg sat down with the President yesterday to discuss the issue, and I have to say he sounded pretty reasonable. When pressed on the cuts vs. increased taxes issue he responded, "It's not me. It's just a matter of math." TheKing and I are going to be doing a week's worth of posts on the fiscal cliff starting next Monday, but this interview is as good a way to kick off Fiscal Cliff Week as any. I'm no fan of Obama, but I defy you to make the case that this doesn't make sense.

Comments (31)

  • Nefarious-'s picture

    Juliana Goldman is terrible.

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

  • West Coast rainmaker's picture

    I actually think Boehner's proposal is reasonable. Obama's insistence on rate hikes for the top few % is purely political - the extra revenue is immaterial. He is also talking about the reducing the deficit, not the debt (even as a % of GDP).

    In a perfect world, we would get a drastic simplification of the tax code. For instance, eliminating the mortgage interest deduction. But this isn't likely, now or ever.

    Fundamentally, we need to restructure entitlements. Social Security/Medicare/Medicaid will be the items that kill us, not tax revenue. If you believe in Hauser's law, our tax revenue will trend towards 19% to 20% of GDP. Tax revenue is down because the economy is lagging and unemployment is high, not because we are taxing millionaires at 35% vs 39%.

  • crackjack's picture

    Edmundo Braverman wrote:
    I'm no fan of Obama, but I defy you to make the case that this doesn't make sense.

    Challenge accepted.

    First off, the baseline:
    Expiration of the Bush (and Obama) Tax Cuts: Net revenue gain of ~$300 billion a year.
    Expiration of the Payroll Tax Cut: Net Revenue Gain of ~$125 billion a year.
    Sequestration: ~$120 billion in spending cuts.
    Net Deficit Reduction (2013): ~$550 billion

    Obama's Proposal (aka Christmas Wish List):
    Expiration of the Tax Cuts for the top 2%: Net revenue gain of ~$80 billion a year.
    Additional Limits on High-income Earner Deductions: Net revenue gain of ~$80 billion a year.
    Extension of the Bush (and Obama) Tax Cuts for everyone else: Net revenue loss of ~$220 billion a year.
    Extension of the Payroll Tax Cut: Net Revenue Loss of ~$125 billion a year.
    Removal of Sequestration: $0 in spending cuts.
    Additional Stimulus Spending: ~$50 billion a year.
    Unlimited power to raise the debt ceiling: Priceless
    Total Deficit Reduction (vs. baseline) (2013): -$235 billion (yup, an increase)

    There's absolutely zero items in Obama's deficit "reduction" plan that really does much to reduce to deficit (except for this tax increases on the rich). There's two things he's pretty much avoided with this whole argument, which is 1) serious deficit reduction hits poorer and middle class taxpayers hard, and 2) little to no mention of serious entitlement reform. He can harp all he wants about the rich not paying their "fair share" (whatever that is), but the fact of the matter the poor and middle class aren't either. The effective tax rate of someone making $40,000 in 1999 had an effective federal income tax rate of 8.6%. In 2012 is was 4.2%. For someone making $100,000 a year, it was 14.5% in 1999 and 8.9% in 2012. If he (or anyone in Congress) was serious about the long term fiscal health of the country, they would either 1) let the Bush Tax Cuts expire for everyone, and bite the tax bullet now, 2) Do tax reform that raises substantially more revenue from the poor and middle class but simplifies the code, or 3) institute a NST/VAT. Without this piece, all that will happen is 10 years down the road the poor and middle class are going to take it in the butt as far as taxes, and they won't have a choice in the matter (aka a Greece scenario).

    Then their's the entitlements. Medicare is suppose to go belly up in 2024, Social Security insolvent in 2037, and the president has proposed what? Nothing as far as I've read. Some vague promises about "increasing efficiencies" or some nonsense. By 2020 the entire tax revenue will equal the spending for SS/Medicare and the interest on our debt. All of our "discretionary" spending will be financed on borrowed money (most of it is now anyway). Again, either they're going to have to gut (or "reform") these programs so that they are more cost effective, or substantially raise taxes.

    From what I've seen neither side is willing to do what is really needed to deal with the deficit. Republicans are not willing to raise revenues enough, and Democrats only want it from the rich. Democrats don't want to cut spending, and Republicans are too vague on their proposals that they get used as fodder for the Democrats. Maybe I'm just super pessimistic, but really this country is going to have many crappy years (and it's probably going to have to get alot worse) before the people up on the hill start taking the steps they need to fix this mess.

  • mikesswimn's picture

    Are you out of your mind? I'm barely into the interview and the case he's making is utter nonsense. Somehow, two completely insolvent programs, social security and medicare, need to be "strengthened without hurting seniors or beneficiaries", that they've "already cut $1 trillion" and that magically, that "rates on the top 2% are going to go up" (roughly $42 billion a year) in order to make revenues sufficient.

    I think I can safely stop at 3:30 and say the president's case makes no sense whatsoever. Please somebody let me know if the latter 82% of the interview contains any semblance of sanity.

    Note: I suspect that the speaker's plan is equally ridiculous.

    "My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

  • In reply to adapt or die
    rogersterling59's picture

    adapt or die wrote:
    How about DeMint... Coming in HOT

    The fact that so many uber-conservatives are pushing back on Boehner's plan shows you just how fair it is. The fact theat the left base is so united behind Obama's plan is because it is a laundry list of DNC talking points. I applaud Boehner for putting together a plan that actually does what a bipartisan plan should do: raise revenues AND cut spending.

    I would agree with you, but then we'd both be wrong.

  • In reply to crackjack
    mikesswimn's picture

    crackjack wrote:
    Then their's the entitlements. Medicare is suppose to go belly up in 2024, Social Security insolvent in 2037.

    Just a quick point of note (sorry for being nitpicky) but both are already insolvent. In order for the programs to be considered "solvent" requires (in the basic sense) that the present value of future taxes and currently held assets be at least equal to the present value of future benefits. So, by virtue that you can point to two specific dates where the programs will stop working means that they're effectively insolvent at this very moment.

    "My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

  • In reply to rogersterling59
    andres17's picture

    rogersterling59 wrote:
    adapt or die wrote:
    How about DeMint... Coming in HOT

    The fact that so many uber-conservatives are pushing back on Boehner's plan shows you just how fair it is. The fact theat the left base is so united behind Obama's plan is because it is a laundry list of DNC talking points. I applaud Boehner for putting together a plan that actually does what a bipartisan plan should do: raise revenues AND cut spending.

    Boehner's plan is not cutting spending in the "defense" budget. Only on "entitlements". How can you call his plan bipartisan? Obama will send it back. No deal.

  • In reply to crackjack
    Finametrics's picture

    crackjack wrote:

    Challenge accepted.

    First off, the baseline:
    Expiration of the Bush (and Obama) Tax Cuts: Net revenue gain of ~$300 billion a year.
    Expiration of the Payroll Tax Cut: Net Revenue Gain of ~$125 billion a year.
    Sequestration: ~$120 billion in spending cuts.
    Net Deficit Reduction (2013): ~$550 billion

    Obama's Proposal (aka Christmas Wish List):
    Expiration of the Tax Cuts for the top 2%: Net revenue gain of ~$80 billion a year.
    Additional Limits on High-income Earner Deductions: Net revenue gain of ~$80 billion a year.
    Extension of the Bush (and Obama) Tax Cuts for everyone else: Net revenue loss of ~$220 billion a year.
    Extension of the Payroll Tax Cut: Net Revenue Loss of ~$125 billion a year.
    Removal of Sequestration: $0 in spending cuts.
    Additional Stimulus Spending: ~$50 billion a year.
    Unlimited power to raise the debt ceiling: Priceless
    Total Deficit Reduction (vs. baseline) (2013): -$235 billion (yup, an increase)

    Just out of curiosity, where are you getting those numbers from?

  • In reply to andres17
    rogersterling59's picture

    andres17 wrote:
    rogersterling59 wrote:
    adapt or die wrote:
    How about DeMint... Coming in HOT

    The fact that so many uber-conservatives are pushing back on Boehner's plan shows you just how fair it is. The fact theat the left base is so united behind Obama's plan is because it is a laundry list of DNC talking points. I applaud Boehner for putting together a plan that actually does what a bipartisan plan should do: raise revenues AND cut spending.

    Boehner's plan is not cutting spending in the "defense" budget. Only on "entitlements". How can you call his plan bipartisan? Obama will send it back. No deal.

    Of course Obama will send it back, but Boehner's plan is a much better plan to start the debate with than Obama's plan, which is at best laughable.

    I would agree with you, but then we'd both be wrong.

  • In reply to Addinator
    Black Jack's picture

    Addinator wrote:
    The problem really is one of how much government do we want going forward and are we all willing to pay for it. It's pretty simple really. If we all want healthcare coverage, social programs etc we WILL ALL have to pay for them. You can make the wealthy a pariah until the cows come home but the amount raising taxes on them will contribute is irrelevant to the overall picture of the problem. When I see these deficit deals of 1 or 2 trillion dollars I want to puke considering these are all over 10 years! Who gives a flying fuck about 2.2 trillion over 10 years when we are running a deficit of 1 trillion a year every single year. Anyone with half a brain knows that you simply cannot levy enough taxes to pay for how much we are spending. At this point, I would actually like for them to raise taxes enough to close the deficit. Hold spending equal and just raise them enough to pay for everything people want the goverment to spend on. Shit will get ugly really quickly and people will begin to see the issues really damn quickly.

    The issue is that we all don't want national healthcare coverage, social programs, etc. and thus all do not want to pay for these sorts of things.

  • In reply to Black Jack
    Nefarious-'s picture

    Black Jack wrote:
    Nefarious- wrote:
    Juliana Goldman is terrible.

    +1

    RE Edmundo- the guy always sounds calm/reasonable- that is his thing.

    But you didn't give me a SB?

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

  • In reply to crackjack
    Grayson's picture

    crackjack wrote:

    First off, the baseline:
    Expiration of the Bush (and Obama) Tax Cuts: Net revenue gain of ~$300 billion a year.
    Expiration of the Payroll Tax Cut: Net Revenue Gain of ~$125 billion a year.
    Sequestration: ~$120 billion in spending cuts.
    Net Deficit Reduction (2013): ~$550 billion

    Obama's Proposal (aka Christmas Wish List):
    Expiration of the Tax Cuts for the top 2%: Net revenue gain of ~$80 billion a year.
    Additional Limits on High-income Earner Deductions: Net revenue gain of ~$80 billion a year.
    Extension of the Bush (and Obama) Tax Cuts for everyone else: Net revenue loss of ~$220 billion a year.
    Extension of the Payroll Tax Cut: Net Revenue Loss of ~$125 billion a year.
    Removal of Sequestration: $0 in spending cuts.
    Additional Stimulus Spending: ~$50 billion a year.
    Unlimited power to raise the debt ceiling: Priceless
    Total Deficit Reduction (vs. baseline) (2013): -$235 billion (yup, an increase)

    To be clear. I'm not a fan of Obama's plan at all, however, you aren't representing the revenue losses correctly in the second example. If we are using today's tax structure as the base, extending the tax cuts should result in no change, not a loss as you are illustrating. The "loss" is included in the spread between the two plans (if you consider letting automatic changes a plan).

    "He chose money over power, a mistake nearly everyone makes. Money is the Mcmansion in Sarasota that starts falling apart after 10 years. Power is the old stone building that stands for centuries. I cannot respect someone who doesn't see the difference."

  • crackjack's picture

    mikesswimn wrote:
    crackjack wrote:
    Then their's the entitlements. Medicare is suppose to go belly up in 2024, Social Security insolvent in 2037.

    Just a quick point of note (sorry for being nitpicky) but both are already insolvent. In order for the programs to be considered "solvent" requires (in the basic sense) that the present value of future taxes and currently held assets be at least equal to the present value of future benefits. So, by virtue that you can point to two specific dates where the programs will stop working means that they're effectively insolvent at this very moment.

    True enough. Supposedly SS is still running a surplus (i.e., taking more than it's paying out), but that will only last until like 2017 so somewhere around then. Then it's suppose to start dipping into its "reserves", which have basically been spent already. Then there's the tens of trillions of future liabilities. I just use the "technical" term which is when SS runs out of reserves and has to rely solely on revenue to pay out benefits (or ~75% of the benefits they should be paying out).

    Finametrics wrote:
    Just out of curiosity, where are you getting those numbers from?

    Well, the "fiscal cliff" numbers have been thrown around alot lately, so their easy enough to find by Googling various financial articles (CNBC, FT, Bloomberg).

  • In reply to Grayson
    crackjack's picture

    Grayson wrote:
    crackjack wrote:

    First off, the baseline:
    Expiration of the Bush (and Obama) Tax Cuts: Net revenue gain of ~$300 billion a year.
    Expiration of the Payroll Tax Cut: Net Revenue Gain of ~$125 billion a year.
    Sequestration: ~$120 billion in spending cuts.
    Net Deficit Reduction (2013): ~$550 billion

    Obama's Proposal (aka Christmas Wish List):
    Expiration of the Tax Cuts for the top 2%: Net revenue gain of ~$80 billion a year.
    Additional Limits on High-income Earner Deductions: Net revenue gain of ~$80 billion a year.
    Extension of the Bush (and Obama) Tax Cuts for everyone else: Net revenue loss of ~$220 billion a year.
    Extension of the Payroll Tax Cut: Net Revenue Loss of ~$125 billion a year.
    Removal of Sequestration: $0 in spending cuts.
    Additional Stimulus Spending: ~$50 billion a year.
    Unlimited power to raise the debt ceiling: Priceless
    Total Deficit Reduction (vs. baseline) (2013): -$235 billion (yup, an increase)

    To be clear. I'm not a fan of Obama's plan at all, however, you aren't representing the revenue losses correctly in the second example. If we are using today's tax structure as the base, extending the tax cuts should result in no change, not a loss as you are illustrating. The "loss" is included in the spread between the two plans (if you consider letting automatic changes a plan).

    That makes sense. Considering I wrote this a six this morning I'm amazed it came out that clear. Still though it would end up being a slight reduction in the deficit (about $100 billion) if you also make the "temporary" payroll tax cut a no-change in revenue. $100 billion from a, what?, $1.3 trillion annual deficit is choke change. FYI, I'm all for going over the cliff, so maybe his plan is not drastic enough for me to jump on board (not to mention the unbearable political pandering to his base).

  • In reply to crackjack
    LBT's picture

    crackjack wrote:
    mikesswimn wrote:
    crackjack wrote:
    Then their's the entitlements. Medicare is suppose to go belly up in 2024, Social Security insolvent in 2037.

    Just a quick point of note (sorry for being nitpicky) but both are already insolvent. In order for the programs to be considered "solvent" requires (in the basic sense) that the present value of future taxes and currently held assets be at least equal to the present value of future benefits. So, by virtue that you can point to two specific dates where the programs will stop working means that they're effectively insolvent at this very moment.

    True enough. Supposedly SS is still running a surplus (i.e., taking more than it's paying out), but that will only last until like 2017 so somewhere around then. Then it's suppose to start dipping into its "reserves", which have basically been spent already. Then there's the tens of trillions of future liabilities. I just use the "technical" term which is when SS runs out of reserves and has to rely solely on revenue to pay out benefits (or ~75% of the benefits they should be paying out).

    Finametrics wrote:
    Just out of curiosity, where are you getting those numbers from?

    Well, the "fiscal cliff" numbers have been thrown around alot lately, so their easy enough to find by Googling various financial articles (CNBC, FT, Bloomberg).

    The payroll cuts put SS at a loss in 2011 and 2012, so the program is adding to the deficit already.

    http://www.ssa.gov/oact/tr/2012/II_A_highlights.html

  • Bankn's picture

    Black Jack wrote:

    The issue is that we all don't want national healthcare coverage, social programs, etc. and thus all do not want to pay for these sorts of things.

    Side note here, but eventually the U.S. will need socialized health care to maintain equal access to preventative healthcare. The ability of preventative medicine (such as gene therapy) will continue to grow, and unless you want a Draconian society based of social class, there will need to be socialized medicine.

  • In reply to ladubs111
    Nefarious-'s picture

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.