January 2nd, 2013

The fiscal cliff deal—so far

If you want to read at length about the latest in the fiscal cliff negotiations and legislation, go to Memeorandum and get cracking.

But here’s my shorter two cents:

After doing a lot of reading on the right side of the blogosphere, in articles and especially comments sections, I get the impression that a lot of conservatives are hopping mad that the Republicans in Congress voted to raise taxes for those who make over 450/400K (that is, those conservatives who hadn’t already deserted the GOP prior to the vote). I agree that it’s incredibly frustrating that Boehner et. al. didn’t see fit to do something stronger and more conservative, just as a statement, knowing that it would be defeated in the Senate.

But as I (and others) have written before, the defeat in the 2012 election—not just Obama’s victory, but the failure to do better in the Senate—sealed the Republicans’ fate and took away a great deal of their negotiating power. This doesn’t mean that Boehner is not at fault; he is, most particularly for setting up this situation in the first place during negotiations last year.

But it’s important to note that, in the political sense, this bill may remove at least some of the tried-and-true “Republicans won’t cooperate” argument. They did.

John Hinderaker looks on the bright side:

But what happens now that Obama has gotten his way? It will soon become apparent that the fiscal cliff deal, including precisely the tax increases that Obama has been demanding for four years, makes hardly a dent in the deficit. At best, it will reduce the deficit by five or six percent. We will continue to run up deficits of close to $1 trillion a year, and the national debt will continue to grow, as Obama has always intended. This fact can’t be hidden; it will be reported. Journalists who have pulled their punches in the past because they wanted Obama to be re-elected will now begin to ask, what are we going to do about the deficit and the debt? At some point, perhaps sooner rather than later, interest rates will begin to rise, at which point the debt issue will become a crisis. And Republicans will say: we told you so.

That’s too optimistic for me. For example, I can’t even imagine that Hinderaker is correct about the MSM.

The most important negotiations are still to come, the ones where Obama refuses any cuts except in defense, and the Republicans either go belly-up or belly-partway-up.

And as this article points out, the current bill will have the effect of raising payroll taxes for middle class Americans:

But lawmakers’ decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households will pay a larger share of income to the federal government this year, according to the center’s analysis.

The tax this year will increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.

Indeed, for most lower- and middle-income households, the payroll tax increase will most likely equal or exceed the value of the income tax savings. A household earning $50,000 in 2013, roughly the national median, will avoid paying about $1,000 more in income taxes — but pay about $1,000 more in payroll taxes.

I don’t even pretend to know what effect this will have on the American public, except to say I think that, although “widely expected,” most people don’t follow politics that closely and therefore this aspect of the bill will still be a surprise. As to who will be blamed for it, I’m not at all sure. Previous experience says it would be the Republicans—that’s Obama’s and the left’s and the MSM’s specialty. But something in my gut says that the American public might just give this one bipartisan credit/blame. Congress in general hasn’t exactly ingratiated itself with voters in recent years.

[ADDENDUM: Many more links here from Instapundit on why this isn't necessarily such a bad deal for the Republicans.]

8 Responses to “The fiscal cliff deal—so far”

  1. M J R Says:

    Hinderaker’s piece is “too optimistic for me [neo]. For example, I can’t even imagine that Hinderaker is correct about the MSM.”

    Quite agreed. But I believe it’s a useful balance for all the pessimism here — my own pessimism very much included!

  2. DirtyJobsGuy Says:

    Less gloom is in order. Note that except for Obama’s insistence on raising taxes on the ‘rich’ , all the Bush tax rates would have been preserved and been popular with the public. There is no public demand for Bill Clinton’s tax rates (and for that matter going back to the FICA taxes intended to fix the program). As for spending cuts, the public operates on the theory that it all is a big crooked deal where the fix is in. They want their piece of the pie because they have no confidence that if spending is cut the benefits will not flow to political cronies. Since the world has not collapsed (yet) from high deficits, they are not convinced it will happen at all.

    The trick is to take the middleman out of the system and convince the general public this is a good deal for them. I like letting people privatize the retirement part of SS for say 80% payout, or sell TVA and issue dividend checks to all taxpayers as part of the deal.

  3. Artfldgr Says:

    Austerity

    RIGA, Latvia – When a credit-fueled economic boom turned to bust in this tiny Baltic nation in 2008, Didzis Krumins, who ran a small architectural company, fired his staff one by one and then shut down the business. He watched in dismay as Latvia’s misery deepened under a harsh austerity drive that scythed wages, jobs and state financing for schools and hospitals.

    But instead of taking to the streets to protest the cuts, Mr. Krumins, whose newborn child, in the meantime, needed major surgery, bought a tractor and began hauling wood to heating plants that needed fuel. Then, as Latvia’s economy began to pull out of its nose-dive, he returned to architecture and today employs 15 people – five more than he had before. “We have a different mentality here,” he said.

    Hardship has long been common here – and still is. But in just four years, the country has gone from the European Union’s worst economic disaster zone to a model of what the International Monetary Fund hails as the healing properties of deep budget cuts. Latvia’s economy, after shriveling by more than 20 percent from its peak, grew by about 5 percent last year, making it the best performer in the 27-nation European Union. Its budget deficit is down sharply and exports are soaring.

    In contrast to much of Europe, Latvia today has no tradition of labor activism. “What can you achieve in the street? It is cold and snowing,” said Peteris Krigers, president of the Free Trade Union Confederation of Latvia. Organizing strikes, he said, is nearly impossible. “It is seen as shameful for people who earn any salary, no matter how small, to go on strike.”

    Also largely absent are the leftist political forces that have opposed austerity elsewhere in Europe, or the rigid labor laws that protect job security and wage levels. In the second half of 2010, after less than 18 months of painful austerity, Latvia’s economy began to grow again. Other European countries “should not miss this point,” said the prime minister, noting that the “debate in Europe often goes the opposite way: that austerity destroys growth.”

    Why did they not allow whatvwe allow???

    Experience

    They know the real purpose of the cancers we love

  4. Artfldgr Says:

    I know one thing it changes…..
    Where did this finance bill originate?

    By making a massive adendum to a house bill the senate gets and end around on the limit that finance comes from the house…

    The public will now ignore that constitutional thing

  5. blert Says:

    I’m glad that the Speaker is taking my gambit to heart.

    Flexible Defense means giving way — and making certain that the flow of events puts the ownership upon the Democrat Party — not just Barry.

    Hinderaker is making the well neigh universal gaff of assuming that interest rates are set by the market.

    Wake UP!

    In a hyperinflating monetary regime — like right now — interest rates are held well below the currency debasement rates by the issuing authorities.

    For, the WHOLE purpose of hyperinflating the currency/ debasement is to take taxes in the form of a WEALTH TAX upon US Dollar denominated assets.

    At the absolute top of the list are all debt-assets — particularly to include US Treasury paper.

    ==========

    In the popular mind, ‘hyper-inflation’ occurs when ‘regular inflation’ gets out of hand.

    That is an entirely wrong mental concept.

    Regular inflation, the one we all think we know, is driven by the animal spirits of capitalism — and the PRIVATE SECTOR. Until recently, the vast bulk of modern monies were created by new and rising tempos of bank loans.

    During a trend reversal, the amount of money in circulation contracts. It’s this reality that has the authorities’ hair on fire. Such a liquidity contraction causes deflationary price pressures across the entire economy. Our legal system is ill equipped to hand out quite that much pain/ bankruptcies.

    In complete contrast, Hyper-inflation is strictly, and purely, a government driven, money-printing phenomena — only possible in a fiat currency regime.

    It has no correlation with positive economic outcomes. The dominant form of hyperinflation supports out and out warfare. Lesser forms are driven by a political desire to remain steady on course with wholly unproductive spending priorities.

    In Weimar Germany those priorities were the national railroad system and other war infrastructures. Those spending priorities are almost never mentioned as the cause of Germany’s fiscal disorder.

    Instead, countless words are printed up about her treaty obligations. Modern writers are ignorant: No serious amount of money was sent to France or Britain by Weimar Germany. Instead, the can was being kicked down the road. In fact, they were still arguing over the size of the bill. And every time Germany got into a pinch, she stopped sending money.

    Weimar Germany stopped hyperinflating its currency late in 1923. Yet the terms of the treaty didn’t vary, before or after. Currency debasement didn’t get Weimar Germany out of ANY of the treaty terms. They weren’t written demanding payment in Germany’s fiat currency in the first place.

    ===========

    In fiat money regimes it is always true that money-printing / hyperinflation = wealth taxation.

    This relief door for big government has been so roundly abused in Europe that all wealthy Europeans shunt their liquid assets off to Switzerland. They know the drill. This makes them much more savvy than the typical American.

    The need for Swiss currency is so vast that she’s printed more 1,000 franc notes than 1 franc notes. (!!!!) That’s unique in the issuance of currency — and by a country mile, too.

    Every vault in every Swiss bank is full to the brim with these notes. The over-flow is so vast that all first-class Swiss hotels are now jammed with 1,000 frank notes, too. — Foreigners are using their vaults — built for visitors — as permanent stash boxes. (!!!!)

    Indeed, the Swiss are now building ‘vault-hotels’ consisting of nothing but safety deposit boxes — floors of them — with suitable security arrangements. Non-Swiss demand is so great that boxes in such ‘hotels’ are being contracted for before the dang thing is even built.

    The travails of the Euro has merely amplified this trend. So much currency is stampeding into the Swiss frank that national policy had to shift. Now their central bank is printing just to hold the exchange rate steady. Swiss exporters had been screaming bloody murder.

    ============

    In sum: interest rates will not track the debasement of the dollar, ever. Period, stop.

    Anyone opining such is not to be listened to or respected. Put a dunce cap on them.

    Instead, pricing of critical imports will simply take off. For Weimar Germany it was American wheat — which was priced in gold-linked US Dollars. Only US Dollars could buy it.

    Today, OPEC oil is the price setter. Because oil is fungible, any gross abuse of the US Dollar will cause the international price to rise, and rise, and rise.

    This will cause, by chain reaction, endless starvation and turmoil in less competitive economies.

    The Spendists/ Stashists can cause more pain than WWII by just flat-lining the US Dollar.

    There’s not enough gold on the planet to replace it.

  6. Artfldgr Says:

    blert, that was very good..

    add to it the fact that they work at every point they can work at the same time, and even if its cross purposes and you have a real recipe for a world war causing cluster storm…

    ie. they work many lines at once hoping one will succeed, but never asking the question what if many or all succeed at once, then what? nor do they ask what other states will do if we go off the rails even for a short time and get really weak self attacking in fear over lack of ability to go it on their own

  7. Terrye Says:

    I don’t blame Boehner for all this, if he had a real partner to work with it could have been avoided. If Obama had taken the House deal back in 2011 this whole fiasco would not have happened.

    As for the payroll tax, they should have raised it…well they did not actually raise it, they let it go back to 2010 levels. The government was borrowing a 100billion a year to pay for that cut and those same tax payers were going to have to pay it back. They might as well take the money up front and save the interest.

  8. Sam L. Says:

    They will STILL complain about Repubs not cooperating. It’s what Dems do.

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Previously a lifelong Democrat, born in New York and living in New England, surrounded by liberals on all sides, I've found myself slowly but surely leaving the fold and becoming that dread thing: a neocon.
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