The Fiscal Cliff and the Grand Bargain

[Sooner5030]

Charles Hugh Smith makes a few good points. I liked his books and sometimes enjoy his blog. Although I don't agree with him on everything it is nice to get a contrarian view. I am a little sick of all the news coverage about how are we are gonna fix the fiscal cliff. The fiscal cliff just means that once we stop the deficit induced growth then the economy will tank in order to get back to its natural level...which is about $1 trillion lower than the calculated statistical inference that is reported. Yet we continue to reschedule growth from the future in order to have a good GDP # for the qtr/year to keep the mob happy. We're just trading our future for the here and now.

http://www.oftwominds.com/blognov12/fiscal-cliff11-12.html. I only quoted part of his posting but it is a good read in its entirety.


The Grand Bargain was this: we at the top will pay significant taxes as long as we get to control the levers of financial and political power. We in the top 19% will pay much of the taxes as long as we and our children can continue to live well and accumulate wealth. We in the "middle class" will continue to work hard as long as we have hope of bettering our lifestyle and the lives of our children. We in the bottom 50% and retirees agree not to threaten the top .5%'s power and the wealth of the top 19% as long as we can get by on our government transfers.

This Grand Bargain is now fraying as the promises made to everyone cannot possibly be met. Claims on welfare and disability programs are skyrocketing at the same time that the demographics of an aging populace are causing 10,000 people a day to enter Social Security and Medicare, the two costliest government programs. The triple-whammy is the upper-middle class that pays most of the taxes has been slammed with lower income and a devastating drop in their net worth.

That which is unsustainable will be replaced by another more sustainable arrangement. Everyone who slips off their ideological/self-interest blinders knows the Status Quo is unsustainable, and so everyone in the 3.5 classes is shifting nervously: will I get taxed to the point of "uncle" or will my bennies get slashed?

By heavily taxing earned income, the system extracts the highest taxes from the most productive citizens, leaving the less-productive with essentially no income taxes and the super-wealthy with the huge tax break offered to capital gains and other unearned income.

As I noted in Tyranny of the Majority, Corporate Welfare and Complicity (April 9, 2010):

In essence, this is a vote-buying scheme by the Status Quo: the top .5% control the policies of the State in alliance with the State's own Elites, and together they buy the complicity of the bottom 50% to passively accept their dominance.

In other words, the bottom 50% pay relatively modest taxes or are recipients of Central State aid and the top .5% who "own" the political process limit their taxes by favoring unearned income (what they collect from sales of securities, stock options, rents, etc.). Thus the productive quintile (top wage earners) pay the highest tax rates and most of the taxes.

It's a partnership of "Tyranny of the Majority" and "entrenched incumbents Elites." If the political Status Quo alienates the majority by making them pay more taxes, they risk losing power in the next election. If they alienate the top .5% who fund their multi-million-dollar campaigns, then they will also lose power. So they heap the tax burden on what remains of the upper-middle class.

When that 20% rebels, falters or opts out, the system collapses for want of tax revenues. Not coincidentally, that happens to fit the Pareto Distribution: the 20% "vital few" exert outsized influence on the 80%.

The Grand Bargain is unraveling, and a new arrangement will take the place of the Status Quo--whether we like it or not.

[yermom]

the top .5% didn't uphold their part of the bargain.

the dude from Costco sums it up pretty well. so does Warren Buffett

our economy is the result of people investing money and expecting returns in a quarter. no one cares about the long game anymore

[okie52]

the top .5% didn't uphold their part of the bargain.

the dude from Costco sums it up pretty well. so does Warren Buffett

our economy is the result of people investing money and expecting returns in a quarter. no one cares about the long game anymore

Then why punish LTCGs?

[Bourbon St Sooner]

In my view, I don't think passive investing such as buying stocks on an exchange should qualify for privileged tax treatment. I think the behavior you are trying to incentivize is investing in start ups and small businesses. The argument for the preferential treatment was that you have a small business owner that's had a business for 40 years and wants to get out, but takes a huge tax hit if he does. The way it is now though, seems to be a prop to the stock market and just encourages rest seeking behavior.

[BermudaSooner]

the top .5% didn't uphold their part of the bargain.



What part of the bargain where the top .5% pay 30% of all taxes means that the top .5% hasn't held up their part of the bargain? I don't remember signing anything that said, "Hey the harder you work, the more and more as a percentage we will take from you."

[okie52]

What part of the bargain where the top .5% pay 30% of all taxes means that the top .5% hasn't held up their part of the bargain? I don't remember signing anything that said, "Hey the harder you work, the more and more as a percentage we will take from you."

That is evidently the "unspoken rule"...the implied convenant.

[BermudaSooner]

In my view, I don't think passive investing such as buying stocks on an exchange should qualify for privileged tax treatment. I think the behavior you are trying to incentivize is investing in start ups and small businesses. The argument for the preferential treatment was that you have a small business owner that's had a business for 40 years and wants to get out, but takes a huge tax hit if he does. The way it is now though, seems to be a prop to the stock market and just encourages rest seeking behavior.

Huh? How do you think businesses get capital? If you discourage my investing in business (yes, that is what buying a share of stock is), how do you expect the economy to grow?

[Soonerjeepman]

http://www.foxnews.com/opinion/2012/11/28/inconvenient-truth-about-fiscal-cliff-and-taxing-rich/?intcmp=obnetwork

interesting take on taxing the rich, they'll just find other loopholes. Romney proposed changing or limiting the loopholes.

[yermom]

What part of the bargain where the top .5% pay 30% of all taxes means that the top .5% hasn't held up their part of the bargain? I don't remember signing anything that said, "Hey the harder you work, the more and more as a percentage we will take from you."


we at the top will pay significant taxes as long as we get to control the levers of financial and political power. We in the top 19% will pay much of the taxes as long as we and our children can continue to live well and accumulate wealth.

when you exploit the workers, the consumers, to get maximized profits, and send jobs out of the country, you cease to have consumers with money to buy your **** at some point

[BermudaSooner]

You lost me at exploit the workers...last I checked slavery was abolished in the US. And exactly how would one exploit consumers? Force them to buy their products? How does that work?

[Curly Bill]

You lost me at exploit the workers...last I checked slavery was abolished in the US. And exactly how would one exploit consumers? Force them to buy their products? How does that work?


Pay tention! In the liberal world everyone is a victim.

[BermudaSooner]

Pay tention! In the liberal world everyone is a victim.

Got it, thanks.

I'm gonna look into this exploiting consumers thing. My business is down in 2012, so anything I can do to force some more customers to buy from me would be a big help.

[LiveLaughLove]

the top .5% didn't uphold their part of the bargain.

the dude from Costco sums it up pretty well. so does Warren Buffett

our economy is the result of people investing money and expecting returns in a quarter. no one cares about the long game anymore

Warren buffet even now as he goes on TV shows saying, "tax me more!", is in court fighting a $1 billion back taxes that he owes currently through his company.

Don't give me the company and he are different crap. He's another hypocrite liberal (which is about as redundant as you can possibly be).

Only in the united states of idiocracy would .5% paying over 30% of the taxes be considered not holding up their end of the bargain. I guess they missed the part where they were supposed to drop their trousers and just bend over.

[FaninAma]

Warren Buffet is the embodiment of hypocrisy. It is disgraceful how the liberals trot him in front of the media to espouse the liberal talking points. Berkshire-Hathaway was nothing but a glorified hedge fund and corporate raider in the beginning.
http://www.nypost.com/p/news/opinion/opedcolumnists/saint_warren_dark_side_mhMyAHUqp3nn0jR0xdtGmI

[SoonerorLater]

It won't be soon before Atlas Shrugs.

[yermom]

You lost me at exploit the workers...last I checked slavery was abolished in the US. And exactly how would one exploit consumers? Force them to buy their products? How does that work?

the workers are the consumers.

Walmart, for example, pays their workers peanuts and then shows them how to apply for government assistance so they can survive.

[SanJoaquinSooner]

It will be interesting if they cut middle class welfare benefits.

Do y'all think they will cut or reduce the home mortgage interest deduction?

[KABOOKIE]

the workers are the consumers.

Walmart, for example, pays their workers peanuts and then shows them how to apply for government assistance so they can survive.

How much should a shelf stocker make? I bet they're compensated more than most unskilled laborers around the world. I think most people have confused high living with the cost of living.

[8timechamps]

It will be interesting if they cut middle class welfare benefits.

Do y'all think they will cut or reduce the home mortgage interest deduction?

The interest deduction will go away. At some point, there are going to be a lot of cuts that won't be popular, but will have to be made. I think the mortgage interest deduction will be among the first.

[8timechamps]

How much should a shelf stocker make? I bet they're compensated more than most unskilled laborers around the world. I think most people have confused high living with the cost of living.

That's where I take issue too. Nothing is stopping someone from bettering their situation, and making more money. If they're pissed off because they feel like they should make more and aren't being paid more, then quit and find another job. Or better yet, start a business.

[8timechamps]

Warren buffet even now as he goes on TV shows saying, "tax me more!", is in court fighting a $1 billion back taxes that he owes currently through his company.

Don't give me the company and he are different crap. He's another hypocrite liberal (which is about as redundant as you can possibly be).

Only in the united states of idiocracy would .5% paying over 30% of the taxes be considered not holding up their end of the bargain. I guess they missed the part where they were supposed to drop their trousers and just bend over.

Yes, Buffett and his company are two separate entities. Sorry if that doesn't jive with what you want it to be. Secondly, can you link a legitimate source that shows Berkshire Hathaway owes $1b in back taxes? Probably not.

Take off your ultra conservative glasses for a minute on this one. Buffett is not the enemy.

[LiveLaughLove]

Yes, Buffett and his company are two separate entities. Sorry if that doesn't jive with what you want it to be. Secondly, can you link a legitimate source that shows Berkshire Hathaway owes $1b in back taxes? Probably not.

Take off your ultra conservative glasses for a minute on this one. Buffett is not the enemy.

Googles a wonderful tool. Is The Huffington Post ok with you?

http://www.huffingtonpost.com/2011/08/29/warren-buffett-taxes-berkshire-hathaway_n_941099.html

All he has to do is tell them to pay the frigging taxes. It's HIS company.

Of course, all he has to do is pay a higher rate voluntarily too. But I notice he doesn't.

I also notice he doesn't mention taxing WEALTH, just income. Wonder why?

Lastly, he most definitely is an enemy. In exit polling somewhere in the neighborhood of 40% of voters actually thought the rich pay a lower percentage in taxes than the middle class and poor. That is a direct result of he and Obama misleading the public.

The fact the public is that incredibly stupid is mind boggling. The fact that the two of them knew they would be that stupid and preyed on it is insidious.

[SoonerorLater]

Buffet is just just like every other limousine liberal save his easy to see through aw-shucks persona. He is in favor of tax increases that he is certain he will never pay.

[FaninAma]

Googles a wonderful tool. Is The Huffington Post ok with you?

http://www.huffingtonpost.com/2011/08/29/warren-buffett-taxes-berkshire-hathaway_n_941099.html

All he has to do is tell them to pay the frigging taxes. It's HIS company.

Of course, all he has to do is pay a higher rate voluntarily too. But I notice he doesn't.

I also notice he doesn't mention taxing WEALTH, just income. Wonder why?

Lastly, he most definitely is an enemy. In exit polling somewhere in the neighborhood of 40% of voters actually thought the rich pay a lower percentage in taxes than the middle class and poor. That is a direct result of he and Obama misleading the public.

The fact the public is that incredibly stupid is mind boggling. The fact that the two of them knew they would be that stupid and preyed on it is insidious.

The American electorate is painfully stupid. Jay Leno's man on the street interviews are funny and sad at the same time.

[diverdog]

Then why punish LTCGs?

Why punish labor?

[diverdog]

Huh? How do you think businesses get capital? If you discourage my investing in business (yes, that is what buying a share of stock is), how do you expect the economy to grow?

It is also speculation and it is taxed at a rate below labor.

[okie52]

Why punish labor?

Are taxes being raised on labor? Guess i missed it. In fact unionized labor was given a $60,000,000,000 exemption on taxes by Hussein regardless of income.

Now what is really stupid is raising taxes when it decreases tax revenues out of..."fairness". Well, as shown above, we can see where "fairness" ranks with Hussein.

[soonercruiser]

Picture is worth a thousand words!

http://i305.photobucket.com/albums/nn212/SoonerCruiser_photos/IfIhadabrain.gif

[Soonerjeepman]

The interest deduction will go away. At some point, there are going to be a lot of cuts that won't be popular, but will have to be made. I think the mortgage interest deduction will be among the first.

ok, so obama, who promised NOT to raise taxes on the "middle class" (I fall into that cat. due to making 60K a yr), is wanting to close the deduction. I will not be able to deduct the interest on my house off taxes, essentially "raising my taxes"...nice. I usually don't get a big refund nor owe a lot, try to keep it about even. So I'm assuming that since I will not be able to take the interest off my income that will raise my tax liability.

[BermudaSooner]

the workers are the consumers.

Walmart, for example, pays their workers peanuts and then shows them how to apply for government assistance so they can survive.

And who again is forcing them to take the job? When I hire someone, we make a deal. I will pay you this for that--just like buying a hamburger at McDonalds. They have no obligation to take the pay I am offering. If they can get paid better somewhere else, go there. Paying someone minimum wage is not exploiting them--they are under no obligation to take the job.

[BermudaSooner]

ok, so obama, who promised NOT to raise taxes on the "middle class" (I fall into that cat. due to making 60K a yr), is wanting to close the deduction. I will not be able to deduct the interest on my house off taxes, essentially "raising my taxes"...nice. I usually don't get a big refund nor owe a lot, try to keep it about even. So I'm assuming that since I will not be able to take the interest off my income that will raise my tax liability.

No, likely the deduction will phase out. At $60k, you will most definitely get the deduction, at $1 million, you probably get none to very little of it. No way Congress votes to get rid of the mortgage deduction full stop. Too big of a banking, real estate and construction lobby, not to mention all of the voters it would hit.

[BermudaSooner]

It is also speculation and it is taxed at a rate below labor.

Diver, this country was built on speculation. Speculation is a good word, not a bad one. Speculation is what creates jobs--it shouldn't be punished, but encouraged.

[pphilfran]

No, likely the deduction will phase out. At $60k, you will most definitely get the deduction, at $1 million, you probably get none to very little of it. No way Congress votes to get rid of the mortgage deduction full stop. Too big of a banking, real estate and construction lobby, not to mention all of the voters it would hit.

Go with Rom's idea and limit total deductions...we won't have the infighting over what to keep or not keep...each individual can pick and choose which deductions to use and benefit from..pick a number...25k...50k...whatever floats your boat...

[BermudaSooner]

Go with Rom's idea and limit total deductions...we won't have the infighting over what to keep or not keep...each individual can pick and choose which deductions to use and benefit from..pick a number...25k...50k...whatever floats your boat...

I somewhat agree, although this is essentially what AMT currently is...and what a lot of taxpayers will get hit with next year if things don't get sorted.

[BermudaSooner]

Go with Rom's idea and limit total deductions...we won't have the infighting over what to keep or not keep...each individual can pick and choose which deductions to use and benefit from..pick a number...25k...50k...whatever floats your boat...

Although realize this would hit charities substantially. Take Romney for example, I think his latest tax form released had him earning $13 million and giving $4 million to charity. Now if he were to still pay taxes on that $4 million (meaning he has to make $7 million to be able to pay $4 million to charity), I'm assuming that number given to charity the next year is substantially lower.

[pphilfran]

Although realize this would hit charities substantially. Take Romney for example, I think his latest tax form released had him earning $13 million and giving $4 million to charity. Now if he were to still pay taxes on that $4 million (meaning he has to make $7 million to be able to pay $4 million to charity), I'm assuming that number given to charity the next year is substantially lower.

It could hit a bunch of different areas...but at least it still allows the middle class and below to use their current amount of deductions and would still allow everyone to choose where to take the deduction...I don't know what limit to use but it makes more sense then eliminating a bunch of them or putting in individual deduction caps...

The rich could still donate they just wouldn't get the tax deduction...and the rich doesn't donate a million so they can save 200k in taxes....

[yermom]

And who again is forcing them to take the job? When I hire someone, we make a deal. I will pay you this for that--just like buying a hamburger at McDonalds. They have no obligation to take the pay I am offering. If they can get paid better somewhere else, go there. Paying someone minimum wage is not exploiting them--they are under no obligation to take the job.

so are people lazy and jobs grow on trees?

is that why unemployment is so high?

[BermudaSooner]

so are people lazy and jobs grow on trees?

is that why unemployment is so high?

Let me make sure I understand this correctly. Your position is that unemployment is high because employers exploit their workers? I don't see the connection. Please help.

Unemployment is high for many reasons--I can't see how an employer wanting to get the most out of his employees is one of them though.

I'd like to understand what you mean by exploiting the workers. When I hire someone, I want to get the most out of that person. It means my business grows faster, I make more money, and maybe I can hire another person. Am I one of these exploiters? If I thought I could make more money by being open on Thanksgiving, and so told my employees they'd have to work on Thanksgiving, would I be an exploiter? I'm not forcing them to...they can go work somewhere else.

[BermudaSooner]

so are people lazy and jobs grow on trees?

is that why unemployment is so high?

Let me tackle this from a different direction. I'm drawing a conclusion that by exploiting you mean underpaying. You do realize that if an employer pays a higher wage, he will employ less people, right?

Said another way, let's say McDonalds has a sale on hamburgers. $0.25 a piece. You think this is way too cheap. How can they make money? Do you offer to pay $1 a hamburger? And why not? If Walmart, for example, can hire workers for $8 a hour and fill the slots it has, how is that exploiting? Why is it any different than the hamburger example? Should Walmart voluntarily choose to pay $16 an hour?

[LiveLaughLove]

Let me tackle this from a different direction. I'm drawing a conclusion that by exploiting you mean underpaying. You do realize that if an employer pays a higher wage, he will employ less people, right?

Said another way, let's say McDonalds has a sale on hamburgers. $0.25 a piece. You think this is way too cheap. How can they make money? Do you offer to pay $1 a hamburger? And why not? If Walmart, for example, can hire workers for $8 a hour and fill the slots it has, how is that exploiting? Why is it any different than the hamburger example? Should Walmart voluntarily choose to pay $16 an hour?

I believe the liberal answer will be, no, the GOVERNMENT should force them to pay $16/ hour.

Just guessin'.

[soonercruiser]

Yes, Buffett and his company are two separate entities. Sorry if that doesn't jive with what you want it to be. Secondly, can you link a legitimate source that shows Berkshire Hathaway owes $1b in back taxes? Probably not.

Take off your ultra conservative glasses for a minute on this one. Buffett is not the enemy.

REALLY???
Come on lefties! At least be intelectually honest.
That explanation wasn't allowed when linking Romney to Bain Capital!
You can't have it both ways!

[SicEmBaylor]

I'm probably one of the few people looking forward to sequestration.

[BermudaSooner]

I'm probably one of the few people looking forward to sequestration.

No, I'm with you. I get soaked either way....at least the rest of you bastages get soaked too! Maybe then voters will see the error of their ways.

[Curly Bill]

Yeah, it might as well all go to hell in the fastest manner possible. Any "fix" our representatives might come up with would likely not fix anything, but give them cover that they've done something. Let's let the sh*t hit the fan.

[SoonerorLater]

I say lets hit the cliff full speed like Thelma and Louise. No deals. Better to crash now and start rebuilding from a responsible fiscal and monetary base. Bad debt is liquidated and all imprudent speculators are impoverished. Debt holders take haircuts. Bankers wiped out in minutes.

[Sooner5030]

I'm for going off the cliff......it's what life is really like without borrowing/rescheduling growth from the future.