Dec 22 2012

Schadenfreude: Fiscal Cliff Edition

Posted by Steve Ross in National Politics, Policy, shenanigans, snark

schadenfreude: pleasure derived by someone from another person’s misfortune.

You’d cry too if you had to herd feral cats

So I know just about everyone is talking about the NRA’s crazy town response to the Newtown shootings. I think all that needs to be said about the speech delivered Friday is nicely summed up here.

Quite frankly, I’m shocked that anyone was shocked by that announcement. LaPierre has been spouting crazy for the NRA since 1991. Same song and dance, over and over again. It ain’t about gun ownership…its about gun sales. Manufacturers pay the bills at the NRA. Don’t forget it.

So aside from providing a distraction, the NRA event was irrelevant. Unfortunately for everyone, a distraction was needed, in the wake of the massive failure to herd feral cats, some called the display “a clown show”.

How We Got Here

It’s important to remember is how we got here, where it started and who is responsible.

November, 2010 – A wave of of GOP wins in Congressional races, led by 40 candidates claiming “Tea Party” affiliations, leads to the composition of the US House of Representatives flipping from 255 Democrats to 242 Republicans.

August 2, 2011 – In the wake of a contentious battle over the debt ceiling limit, the Budget Control Act of 2011 was passed with bipartisan support. The bill raised the debt ceiling and put in place a series of deep budget cuts and tax increases if the Congress could not reach an agreement.

66 Republicans voted against the deal, which would not have passed without Democratic support.

August 5, 2011 – In the wake of the vote on the Budget Control Act, Standard & Poor’s downgraded the US Credit rating stating concerns with the current state of political affairs in the Congress.

February 2012 – Fed Chairman Ben Bernake coins the term “fiscal cliff”.

July/August 2012 – On July 25th the US Senate passed a proposal that would have avoided the tax increase portion of the fiscal cliff. The proposal was rejected by the House on August 1st.

November 2012 – Elections result in more GOP moderates losing. Democrats gain 8 seats in House. Incoming makeup of the House: 201D – 234R. Incoming makeup of the Senate: 55D – 45R

December 2012 – Negotiations between Speaker Boehner and President Obama net a compromise. Said compromise not brought before the House. Boehner’s bill pulled for lack of support. The House did pass a bill dealing with spending cuts, however that bill has little chance of passage in the Senate and faces a Presidential veto.

This list is hardly exhaustive, but mentions most of the highlights. Had Republicans not tried to make political hay over increasing the debt ceiling, we wouldn’t be where we are today.

The Failure Option

Now I want to be very clear here: while I do get some pleasure from the outright #FAIL that was the Speaker’s effort to pass a watered down version of what he and the President were negotiating, I also understand that a failure to act by the end of the year will have some serious consequences for regular folks. Those consequences will be immediate for all of us, though many of them will have a limited impact.

If they fail to act, the payroll tax cut will disappear, the Bush era tax cuts will disappear, and some pretty stiff spending cuts that no one seems to want will be enacted.

What does this mean to you? Well based on the median household income you will see about $1000/yr less as a result of the payroll tax hike, about $1500 less as a result of the income tax hike, and a whole lot fewer services.

Interestingly, if the Obama proposal were to pass, a household making the median income would see a tax DECREASE of about $225/yr (payroll and income) rather than the increase of $2500 House Republicans seem to favor in the wake of their inaction. You can see how the fiscal cliff and the Obama proposals would impact your income here.

(Note: The tax calculator is provided by the anti-Keynsian, pro-business group The Tax Foundation. They bear responsibility for any inaccuracies.)

The Failure Option – Part II Electric Boogaloo

The financial impact of failure for household incomes is pretty dire. Considering that inflation adjusted incomes have been flat since 1967 for 80% of the population, losing $2500 for a median income represents a nearly 5% hit in real purchasing power. That’s not going to be good for an economy that is just really starting to emerge from weakness. Add to that increased instability from a potential market panic and Joe 6-pack is going to take a huge hit.

Investors know this. They make lots of money knowing this. And while we haven’t seen an increase in incomes to rival the increase in markets (1967 Dow was 825, 2012 Dow was 13190.84 as of the closing bell on Friday, a nearly 1600% increase), the panic that will ensue due to uncertainty if the fiscal cliff is not avoided will hurt average Americans more than investors, who will certainly lose wealth, but not much standing.

Investors have more ways to make money in the face of a market panic that regular folks don’t, including betting on failure. This kind of risky bet is usually only played by the wealthiest individuals and huge investment houses. It may seem counter-intuitive and to fly in the face of what we consider to be patriotic, but remember, in the church of the almighty dollar, anything goes that makes you rich.

Plenty of folks profited from the pain of the Great Depression and the more recent “Great Recession”. There will be winners if a huge market panic ensues come Jan. 2 as well.

Joe 6-pack won’t be one of them, so don’t even think about it.

I feel confident that a solution won’t be found before the end of the year. The House Republicans don’t seem to have the will to give any ground, and in their disarray they have given their Democratic counterparts some resolve to stand their ground. With 201 incoming votes, it will take just 17 Republicans to pass a Democratic measure…should it reach the floor. That seems like a possible scenario now that people are starting to point to conservative recalcitrance as the problem.

The Senate has already passed a bill, which was rejected by the Tea Party led House in August. The House could take the measure back up if they chose to. I can’t imagine that happening before the end of the year. I just don’t think the votes are there before the end of the year.

This means that a market panic is almost a certainty come Jan. 2. The next Congress convenes the next day. We’ll see what they do, but I’m putting my money on passing something like the Senate proposal and dealing with the spending side later…probably right before the next debt ceiling vote which will need to happen before February of 2013.

In the current climate, I just can’t see this leadership actually…you know…leading.

Dec 05 2012

Much is required

Posted by Steve Ross in National Politics

I don’t normally write about national issues, but this fiscal cliff thing is one particularly dumb set of concern trolling on the part of the national media so it seems like a prime target.

Beep! Beep!

Its dumb because as the Wonk Blog explains this is anything but a cliff. It’s a slope at best. A slope to recession, sure, but it’s not as if this is a Wyle E. Coyote moment. Nope, Just a leisurely stroll down Recession Lane.

To be clear, I don’t want to see a recession happen any more than anyone else, but considering the players involved, and the lack of real governance from the Tea Party caucus that rules the roost in the House, there’s no real reason to believe anything other than a pull of the trigger, or an extension of the deadline is on the immediate horizon.

Now I’m sure some of my more moderate friends are screaming compromise right about now. Compromise is a two way street. Getting rid expensive tax cuts for 2% of the American populous at a time when everyone (wrongly) seems to think deficit reduction is what we need to do is the definition of compromise. 98% of the people benefit and there’s some new revenue to satisfy the deficit chicken hawks. Seems like a good deal. If you don’t get that, your definition of compromise involves a great deal of ankle grabbing.

Ward, don’t you think you were a little hard on the Beaver…

Not my idea of a good time, but to each his own.

Of course, ankle grabbing compromise has defined the politics of the past 30+ years. As Nick Kristof candidly explains in this NY Times editorial we’ve been screwing up the future for, by his estimation, 50 years now with cheap tax rates for folks who didn’t need them, that were supposed to create jobs and growth and didn’t. That strategy hasn’t worked and its not going to work. Its time to bring back a new look at an old strategy that did work. 1950’s era tax rates here we come!

In the 1950′s top earners paid as much as 92% on everything they made over $400,000/yr. Don’t believe me? Here’s the chart from the IRS.

Of course, no one’s asking that from the top 2%. Just a return to the 39.6% marginal rate of the Clinton era. You know, the Clinton years, where we had that huge recovery and 4% unemployment? Yeah, doesn’t sound so bad does it?

Republicans are losing their minds over this because according to the funders of their campaigns, any kind of tax increase is devastating. But if the GOP wants a return to the 1950′s, which is something they’ve been saying essentially for 30 years, then why not the tax rates that went with them? Seems to me you can’t have one without the other.

Because, more than anything else, that’s what Republicans want right? A return to a simpler time that never really existed. Remember the coded language of the 1980/90′s GOP? A return to a “simpler” time when “family values” were values and the world was a picturesque reflection of “Leave it to Beaver”.

Honestly, the GOP rhetoric hasn’t changed much since. The difference now is that rather than “Family Values” the right is pushing Prosperity doctrine. If you’re not familiar with prosperity doctrine here it is in a nutshell:

“If you believe/give to the church/etc. more you will succeed”, which by implication means that because you haven’t succeeded, you therefore do not believe enough.

Sounds just like GOP rhetoric doesn’t it? They built it!

Interesting that they ignore the gospels when they quote the bible. Probably because its just too inconvenient. Here’s what Jesus had to say about people who are without want.

For unto whomsoever much is given, of him shall be much required: and to whom men have committed much, of him they will ask the more. Luke 12:48

See, if you read the gospel literally, and I understand that’s all the rage these days, folks that are without want are REQUIRED…called by God, to do more to help people. If they actually did it, then maybe we could talk about some of the rewards they’ve received over the years. But since those guys don’t seem to be holding up their end of the bargain, only bringing mythical job creation, imaginary investment, and the like, I guess its time to return to the prosperity of the distant past to pressure them to do their part for society. We won’t get there by continuing tax cut policies of the past 40 years.

Here’s the dirty truth: tax cuts don’t drive expansion, they drive savings…and we’ve seen a mass expansion of savings for those who have something to save. The rest of us have been limping along barely keeping up with inflation.

He’s so sensitive about saving the wealthy

If it continues, we’ll have the first generation of folks since the Great Depression that didn’t see an appreciable increase in their standard of living or quality of life. That’s something you’re going to be hearing from me a lot over the coming months, because that’s what’s at stake.

As for the fiscal cliff, we’ll just have to see, but I’m not that worried. House Republicans have made their counter offer, weak and repackaged as it may be. Now the Kabuki Theatre can start in earnest. Chances are, they still will not vote for any tax increases, even if it only impacts the top 2% of earners.

That’s right, they’re ready to throw the other 98% of us under the bus for the 2% that pay for their campaigns…like Sheldon Anderson.

Jesus may have said For unto whomsoever much is given, of him shall be much required but you’d be hard pressed to convince the funders of the GOP that their assault on tax equity over the past 40-50 years makes them anything other than victims of the majority, all while they’ve benefitted from our collective 30+ year slumber.

So, you have a choice. You can choose to be scared as hell about this fiscal cliff and all the rhetoric that’s being bandied about, or you can look at what we’ve been doing that’s not working, what we’ve done in the past that did work, and make an intelligent choice.

One thing should be clear. After 30 years of tax cuts for people who don’t need it amidst declining incomes and lower standards of living for millions of middle class Americans, you need to ask yourself if you’re better off than you were, or your parents. If you aren’t, maybe its time to do something different.