Fiscal Cliff

System

Any chance of a bigger picture?

BertieUK

CLAPTON wrote: »

yes, I'm in favour of die by dates ; the only one I know of is the armed forces acts that needs renewing each years (UK law doesn't allow a standing army)

but it would be good if all laws only had a limited life span and then we could evaluate them properly and simply let them lapse if they are considered rubbish.

This 'die by date' would be very helpful if it had been applied to certain 'covenants' that applied restrictions that a century ago protected the property and today whereby the owner of the covenant can have too much power and will not let it be changed.

michaels

On the tax side I believe George W Bush wanted to cut taxes for political reasons but this resulted in an unbalanced budget and thus increasing deficts going forward so the tax cuts were drafted as 'temporary' thus forward deficit projections would not include them beyond their expiry date and so no out of control deficit....

Spending cuts - I believe the automatic cuts were introduced as part of the deal to extend the debt ceiling in the middle of last year. The joint expiry date (after the election) of the tax cuts and automatic spending cuts was a 'suicide pact' between the two parties - the idea being that both were so unacceptable that the parties would have no option but to come to an agreement....

What would be useful would be to be told how many % of GDP the fiscal spending cuts and tax rises represent. I suspect they are pretty close to The_White_Horse economics Does anyone know?.

Thrugelmir

michaels wrote: »

What would be useful would be to be told how many % of GDP the fiscal spending cuts and tax rises represent.

If all impact at once. Effect is around 4% -5% of GDP.

MacMickster

michaels wrote: »

On the tax side I believe George W Bush wanted to cut taxes for political reasons but this resulted in an unbalanced budget and thus increasing deficts going forward so the tax cuts were drafted as 'temporary' thus forward deficit projections would not include them beyond their expiry date and so no out of control deficit....

Spending cuts - I believe the automatic cuts were introduced as part of the deal to extend the debt ceiling in the middle of last year. The joint expiry date (after the election) of the tax cuts and automatic spending cuts was a 'suicide pact' between the two parties - the idea being that both were so unacceptable that the parties would have no option but to come to an agreement....

What would be useful would be to be told how many % of GDP the fiscal spending cuts and tax rises represent. I suspect they are pretty close to The_White_Horse economics Does anyone know?.

http://www.bbc.co.uk/news/business-20237056

JP Morgan economist Michael Feroli has estimated that more than $550bn could be sucked out of the economy. "In all, the tax increases and spending cuts make up about 3.5% of GDP, with the Bush tax cuts making up about half of that," he said.

The US-based Tax Policy Center (TPC) estimates that the average annual tax bill for each American would rise by $3,500. The super-rich face an average tax rise of $120,500 a year, while the lowest earners will see an increase of about $412.

For the middle earners - about 60% of the population - the TPC estimates that the average annual tax rise would be about $2,000.

The article also contains an interesting table illustrating the potential tax rises.

michaels

MacMickster wrote: »

http://www.bbc.co.uk/news/business-20237056



The article also contains an interesting table illustrating the potential tax rises.

So about the same impact as a 60k (100k usd) earner losing 2.4k of child benefit - what are they moaning about?

What percent of GDP tightening is the current UK govt trying to achieve over it's term?

Generali

Thrugelmir wrote: »

If all impact at once. Effect is around 4% -5% of GDP.

They don't do that though.

Imagine the impact fell solely on income tax so everyone's income tax rate rose by 4%. In month 1 the impact would be 1/3rd of 1% of GDP extra would be taxed. If an agreement was reached at the end of January then GDP for 2013 would be .33% lower than otherwise for the year. But.......

That's where things get a little complicated. If Government borrowing falls then there is more money available to be lent to companies to invest and thus employ. There is a huge amount of evidence that inflation in China plus lower gas prices in the US is leading to manufacturing going back onshore to the US.

If that is the case then US companies will need more money to invest so getting the Government out of the way could be just what is needed.

Thrugelmir

michaels wrote: »

What percent of GDP tightening is the current UK govt trying to achieve over it's term?

In the US. Consumer spending accounts for around 70% of GDP. So a reduction in disposable income through tax rises across the board will have a very immediate impact.

Generali

Thrugelmir wrote: »

In the US. Consumer spending accounts for around 70% of GDP. So a reduction in disposable income through tax rises across the board will have a very immediate impact.

Tax rises are a little under half of the fiscal changes. Included in the tax changes are an increase in capital gains tax which would presumably have little or no impact on consumption.

Thrugelmir

Generali wrote: »

They don't do that though.

Imagine the impact fell solely on income tax so everyone's income tax rate rose by 4%. In month 1 the impact would be 1/3rd of 1% of GDP extra would be taxed. If an agreement was reached at the end of January then GDP for 2013 would be .33% lower than otherwise for the year. But.......

That's where things get a little complicated. If Government borrowing falls then there is more money available to be lent to companies to invest and thus employ. There is a huge amount of evidence that inflation in China plus lower gas prices in the US is leading to manufacturing going back onshore to the US.

If that is the case then US companies will need more money to invest so getting the Government out of the way could be just what is needed.

I was merely reading a report this morning that was published last June. Here's the conclusion.

The results are therefore not surprising—large declines in real economic activity, sizeable losses in employment numbering in the millions of persons, a jump in the unemployment rate of around 1 1/2 percentage points in each of 2014 and 2015, and one to two percentage points lower inflation.
This “program” of coming tax increases, essentially a kind of “tax austerity” pushes the U.S. economy and inflation farther away from the goals and objectives of the Federal Reserve, i.e., full employment and price stability, with the unemployment rate far above any level that might be considered full and inflation far below the 2% target set recently. If nothing is done to pull the economy back from this “Fiscal Cliff”, the macroeconomic effects of these tax increases could be quite substantial, with the potential to induce a recession.
While the U.S. economy is growing (if anemically), it is probably in a sustained and sustainable expansion,but the negative fiscal shock of large tax increases in 2013 could cause a significant downturn.