Mon Dec 31, 2012, 04:55 AM
grahamhgreen (15,200 posts)
"The Fiscal Cliff Is Just a Long-Overdue Hangover" - Harvard Business Review
"US annual GDP is just over $15 trillion. So the sum of the cuts ($1.2 trillion) over ten years is just over seven percent of one year's GDP. If this amount were to be cut in one year, it would indeed cause a Depression-level contraction. It would be a monumentally bad idea, right up there with Hoover's 1932 tax hikes. But the actual cut for 2013 is a tenth of that figure, less than one percent of GDP, each year, over ten years, which is far less dramatic.....
So the real effect of the fiscal cliff, on the cuts' side at least, is less than one percent of GDP a year (assuming strong negative fiscal multipliers), half of which is in a defense budget that is bigger now than it was at the height of the Cold War and desperately needs downsizing. Indeed, after the cuts the real rate of growth in both defense and discretionary programs will still be around 1.5 percent a year. Jumping over the cliff does not even produce an absolute decline in spending.
But of course, the cuts are only half the story — the other portion of the cliff comes in the form of tax hikes. Payroll taxes will go back up to their 2009 level, while income tax rates will rise across the board — to where they were in the 1990s. Americans will pay, by one estimate, up to $400 more a year in taxes for the bottom 20 percent of earners, up to $14,000 a year more for the top 20 percent of earners, and up to $120,000 a year more for the top one percent.Yet even then, at the end of this ten-year phase-in of higher taxes and lower spending, Americans will still pay less in tax than practically all other taxpayers in rich countries.....
Since the Bush tax cuts of the early 2000s, the US federal government has taken in about 18 percent of GDP in revenues while spending 25 percent. That's where the US budget deficit comes from. Multiply that over time, and you get a large proportion of the "out of control debt" that Congress has been banging on about since 2008. But if Congress really cares about the level of debt, then raising taxes and cutting spending are precisely what's needed."
There are 2 main reasons for the deficit: tax cuts & big war.
not Medicare or Social Security.
Please call the White House 202-456-1111, and your rep (202) 224-3121!
Tell them NO CHAINED CPI, no cuts to Social Security, it does not add one nickel to the deficit! Cut Defense instead (it is the elephant in the room).
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"The Fiscal Cliff Is Just a Long-Overdue Hangover" - Harvard Business Review (Original post)