Think Markets has an excellent piece on the Fiscal Cliff.

The highlights?

1. Table below shows exactly what gets cut if there is no deal

2 Consequences are stacked in “favor” of tax increases – not spending cuts.

3. Only $136 billion in cuts out of a Fed budget of ~$4 trillion for FY 2013.

4. Tax increases are $532 billion (including Bush tax cuts) — Yes, the GOP agreed to Tax to spending cuts of 4X.

5. Defense cuts are ephemeral; as soon as the US encounter any new war, spending quickly ramps up.

Full chart after the jump . . .

 

http://thinkmarkets.files.wordpress.com/2012/11/fiscal-cliff1.jpg
Source: WSJ, Think Markets

Category: Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “What, Exactly, Is the Fiscal Cliff, You Ask?”

  1. techy says:

    Does anybody have a list of purple state and blue state republican house member who will support higher taxes since their voters may do? Is it possible to get a bill with higher tax implication passed in the house?

    I dont think the red district house members are going to budge on cutting a deal of increasing taxes(the only reason they can use to obstruct).

    I wonder what happens if democrats dont agree to a bill and the markets tank and UE goes up in first quarter leading to a panic, which leads to a huge spending bill for job creation, but that also depends on house members from non red districts. Because the red district voters dont care if they lose one eye as long as secular, black/brown liberals lose both eyes.

  2. rd says:

    The income tax rates don’t matter to our family in the fiscal cliff scenario. The big tax hits to us come from the expiration of the payroll tax holiday and the AMT hitting without inflation-adjusted basis.

  3. rd says:

    techy:

    It is traditional for incoming presidents to try to get the hard stuff done in the first year so that any unemployment spikes and market hits are forgotten by Year 4 of their presidency. If Obama is going to play hardball, it is going to be in the next 12 months fresh off of an election victory with a demoralized Reupblican Congress.

  4. gordo365 says:

    Report behind graphic says “The “scheduled” spending cuts amount to only $136 billion out of a federal burget of about $7 trillion for next year.” $7T budget? WRONG.

    Is this blatant error – or is who thing skewed to make a point?

  5. techy says:

    rd: Its not only about Obama’s legacy, I dont think he cares that much. His biggest legacy will be how during his first term around 20% of the nation driven by extreme racism voted the democrats out, blocked healthcare which is supposed to help 95% and they tried to block all kinds of fiscal policies to help the economy. But he overcame those, bet his all on progressive ideas(marriage equality, contraceptives etc) and then he and the democrats won.

    Now if he can get a consenses to help the 95% by some stimulus jobs bill so that the republicans stop trying to use obstruction as the only policy and switch to real issues. If he can do that, in my books he will be among the greatest presidents.

    Playing hardball is not a big deal, but it all matters who will get his way and is it possible to sway some more people to vote for their own benefit? Are there conservatives who want a better economic life for themselves and are not racists or extremely religious or confused about supply side tax policies?

    Most of the conservatives I know in Alabama, Missisippi and Louisiana watch only fox news, and they want the black, secular liberals to be defeated, no matter what the cost. I need to find a tabulation of blue and purple republicans who will not play this russian roulette.

  6. theexpertisin says:

    While wars of choice in the 21st century, as in past eras, allow for a “ramp up” in military strength, anyone who thinks that in today’s environment of instant cyber warfare and elite weapon systems the luxury of time will allow for a successful defense needs schooled.

    Ramp ups will work for a build up to wage a war of choice on a second rate country like Iraq,

    Ramp ups will not work for a symmetric and asymmetric warfare such as China is rapidly developing , attacking our interests with a speed and disabling capacity that is fatal if not countered on the spot.

    There are military systems and costs that deserve to be sliced and diced. But the ability for a nation to defend itself is no longer solved by gradual reaction. Twenty-first century conflicts may be won (or lost) within the first fifteen minutes of action.

  7. 873450 says:

    What, Exactly, Is the Fiscal Cliff, You Ask?

    Simple – Grover’s Pledge premised on 30+ years of faith-based, disproved, nonsensical, trickle-down, voodoo Reaganomics dogma.

  8. Kevin_In_Philadelphia says:

    Per whithouse .gov, the President’s 2013 budget totals $3.8 billion. Where did the $7 billion come into play? I don’t mean to sound accusatory, just wondering.

    http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/tables.pdf

  9. Petey Wheatstraw says:

    We’ve already gone off the fiscal cliff. All we’re trying to determine now is who is in the front of the bus when we hit the ground.

    If thew 1% and corporations have their way, it’s their own death warrant, anyway — you can’t maintain a commercial business or continue sucking the government teat without robust employment and a confident consumer class.

  10. Frilton Miedman says:

    A brief glance at headlines over the past few days -

    - ‘Fundamentally, Profoundly Wrong’: Newt Blasts Citizens United Effect
    - “RICK SCOTT SOFTENS STANCE ON OBAMACARE”
    - “We’ve got to make sure that we are not the party of big business, big banks, big Wall Street bailouts,
    big corporate loopholes, big anything.” – Bobby Jindal
    - “GOP Govs Reject Secession Petitions”

    Both Fox and CNBC pundits are beginning to admit that maybe increasing income taxes on the wealthy might not be the end of civilization afterall.

    There’s a lot of backpedaling & repositioning going on, seems Obama has acquired some “political capital and he intends to use it”.

  11. carleric says:

    Who gives a crap about the “fearful” so-called fiscal cliff. The Bush taxcuts were one of the stupidest economic decisions in an administration repleet with them and who really believes that the Deprtment of Defense and its sleepng partners the defense contractors need more money….dear God, cut 50% of the defense budget today and more tomorrow….quit intefering in the internal workings of other countries. Who appointed us to intefere in the internal working of foreign governments and by the way do we really need 813 overseas bases? And this from a 20-year military vteren and abolish the Deprtment of Homeland Security to day. What a f**king waste that is….right along with the TSA.

  12. DeDude says:

    I sure hope we go right over that fiscal cliff. Then after the military cuts and tax increases are a fact that nobody can ignore then we can have an adult talk about what would now be completely new tax cuts and spending increases. The economic consequences of the “austerity bomb” (fiscal cliff) will not set in for 2-3 months – and even later if IRS keep the old table for withholding. The truth is that the Bush tax cuts made us all under taxed (relative to spending) so let them run out and lets have a clean slate.

    The 3 main spending areas are social security, medicare and military. The two first of those are covered by their own separate regressive tax systems and they are in pretty good shape (provided we curtail medical inflation). The main problem is that we simply do not collect enough (non-payrole) taxes to cover the hugely oversized and luxurious military machine we have decided to build and maintain. The fiscal cliff is the perfect solution to this problem as it cuts down modestly on the military and also increase those types of taxes that were supposed to, but have failed to, pay for this oversized luxury item for over a decade.

  13. James Cameron says:

    > Only $136 billion in cuts out of a Fed budget of ~$4 trillion for FY 2013.

    These are cuts to discretionary spending, which in 2012, for example, were projected by CBO to be approximately 1.3 trillion in their March 2012 analysis of the 2013 budget, or about 1/3 of all spending. Looked at this way, that’s roughly 10% in cuts to discretionary spending. Discretionary spending in this analysis remains very stable in the ten year projections (for what it’s worth) . . . the growth is in mandatory spending and interest. The last is now roughly 20% of discretionary spending . . . by 2022 it will be well over half in these projections.

  14. techy says:

    theexpertisin :

    so what do you recommend sir, spend another 200 billion on top of the current trillion for defense?

    How about simply having effective nuclear deterrents or intelligence or missile defense?

  15. Orange14 says:

    I agree with DeDude and don’t really think that this is a cliff in the ‘Roadrunner/Wylie Coyote’ sense of things. It’s more like jumping off a sand dune at the beach. Nothing much happens. The current house makeup has 195 Democrats and 234 Republicans with 6 seats still in doubt. If the 6 break evenly (I haven’t looked up all the races to see if this would be the case) and the Democrats all vote as a block, 20 R votes would be needed to get to 218 to pass something related to solving this. The Republicans have their backs against the wall and the reports today are that Obama is going to play hardball on this. The bottom line is the Republicans voted for this automatic rise in tax rates a year ago when nobody could agree on anything so they really own this one.

  16. jeffers5 says:

    In a nutshell, the Fiscal Cliff is little more than a clever metaphor put forward by Mr. Bernanke to highlight the fact that it’s time for elected officials in Washington to behave like adults and to deal with our long-term fiscal challenges that will not go away on their own. If the perceived threat of the cliff is sufficient to catalyze bipartisan action on this front, then we all owe Mr. Bernanke a well-deserved thank you. Some might argue it would be the crowning achievement of his tenure at the Fed.

    But, let’s think about what the Fiscal Cliff is NOT. It is not the problem. It’s simply the inevitable conclusion of 10 years’ worth of highly leveraged government spending. And, as all good things must come to an end, so too must this one. It’s time to pay the bills and clean up the mess. So while Washington wrangles over the mix of spending cuts versus tax increases, and economists wring their hands over multipliers, all we need to remember is that either way, we’re pulling money out of the economy. You say you want to cut defense? Those are high paying engineering and manufacturing jobs that are lost. You say it’s better to raise taxes on the top 2%? That’s discretionary spending that’s lost. And there’s the rub – how do you trim the deficit for tomorrow while you encourage the economy to grow today?

    The glib answer to that question is that we should cut taxes. However, for those of you who value facts, we now have more than enough data to debunk that theory. That leaves us with old-fashioned deleveraging – cut a little here, tax a little there and keep the presses running at the Fed.

    All of which begs the ultimate question: And how might all of this affect earnings? But the market seems to be sorting that one out already.

  17. Biffah Bacon says:

    the expertisin seems to have a bit of Tom Clancy rah rah priapism.
    We haven’t had a real naval war since WWII, and we haven’t had a real dog fight fighter jock combat situation since Vietnam (and the pilots were Russian loaners in that case, taking the opportunity to feel out our tactics). Romney wanted more carrier groups=nuts and graft-licious.
    The real future is going to be insurgency and low level conflict, nation building and stabilization in response to climate change and economic catastrophe, and suppressing religious fanaticism and latent nationalism as the US and others compete to extend hegemonic control over easily recovered natural resources.

    If we really wanted to conquer the world we would give out free solar powered televisions. The mullahs, commissars et al., can’t organize any trouble if the World Cup games are on. We Americans OWN money whiskey sexy.

  18. DeDude says:

    When they passed this “fiscal cliff” legislation the GOP leader said the they got 98% of what they wanted. Right now Obama have them over his knee – strange to think but either that’s what they wanted or they were really stupid.

    @jeffers5; yes cutting government spending is austerity and as such a wet dream for GOP. Spending on the military is like the “hire people to dig a hole and then hire them to fill it back up” example of Keynes. But the alternative spending plan would be to forget about holes and think about investments in the future such as replacement of carbon based energy sources with clean and renewable ones (would require a lot of engineering). The same with increasing/cutting taxes it is not all the same when you evaluate benefits. When you increase taxes on the top 2% you do not affect their spending much. You just take away some of that excess play money that they are using to speculate in commodities (and thereby put a brake on their driving up consumer prices on end products). However, if you raise taxes on the consumer class you hurt the real economy.

  19. jeffers5 says:

    Dude:

    I won’t argue the merits of spending, nor will I argue for or against the efficacy of various tax schemes, as these debates only serve to distract us from the material point – meaningful reduction of the deficit, let alone the debt, will inexorably lead to reduced aggregate demand.

    I’m not suggesting it’s a good thing or a bad thing. It’s just how it works. So if that’s the path the President and Congress agree to take, then accept it and manage your money accordingly.

    And although I fall within the 2%, with 3 kids in college or grad school and a parent to support, I’ve yet to stumble upon the so-called “play money” in our household at the end of the month.

  20. theexpertisin says:

    techy (3:15)

    I advocate a realistic defense to protect the country against what Class 1 nations (there are only a very few) can throw at us, regionally or into our country directly.

    Do you advocate doing less?

  21. beaufou says:

    Bring on the dancing horses.
    There’s gonna be no fiscal cliff, it didn’t happen last time and will never happen. Entertainment politics.

  22. techy says:

    theexpertisin: but looks like people dont want to pay for it. And if 700 billion is not enough to defend this country with no threat from neighbors, I would like to say thats all we can afford.

    How about we stop listening to military-industrial complex and spend some money on alternative energy so that we dont have to make enemies with middle east people?

    How about we make our allies pay for their defense?

    How about we spend a little bit more time doing diplomacy and less saber ratteling? How about we stop supporting Israel in the name of some religious fairy tale? (I am perfectly ok with supporting Israel as an ally but whats with all the religious stories?)

    Just because there is a small possiblity of nuclear war, does not mean I am going to spend 50% of my income to build a bunker and prep for something which has a very low probability.