Fiscal Cliff ... did the Republicans "win"?

Republicans win big in fiscal cliff outcome, continue to "starve the beast"

Excerpt:

To listen to all the moaning out of the House of Representatives yesterday, you could be forgiven for thinking that the Republicans are losing the fiscal battle in Washington.

Actually, they're winning. To see this, you just need to step back and look at the tax deal and the country's fiscal trends from a broader perspective.

Yesterday, the American government voted to extend almost all of the Bush Tax Cuts permanently. Not temporarily, as a stimulus measure. Permanently.

Ever since the Bush Tax Cuts were first enacted in 2001 — temporarily, as a stimulus measure — one goal of the Republican party has been to "make the Bush Tax Cuts permanent."

For most of the last decade, this goal has seemed like an extremist view: Making the Bush Tax Cuts permanent would drastically reduce the federal government's revenue. It would also increase inequality and balloon the national debt and deficit — so how could we possibly justify doing that?

And yet now, suddenly, almost all of the Bush Tax Cuts are permanent. The Republicans also got a good deal for the investor and owner class, making the Bush dividend tax cut permanent. This saves a lot of money in tax bills for America's wealthier investors.

Comment: Probably arguable whether one side won. Not dealt with ... debt crisis.

Congress doing what Congress does best

Comment: Image source: What Americans think of Congress’s procrastination — in one chart. I used Paint Shop Pro to modify.

More "Kick the Can"?

Fiscal Deal Would Do Little To Shrink U.S. Deficit
Excerpt:

The last-minute tax and spending deal being discussed in the Senate would do little to reduce the deficit, and could actually expand it, leaving difficult choices about Medicare, Social Security, and the country's borrowing limit until next year. .

.. This weekend, with talks moving closer to the deadline, the only item being discussed that would reduce the deficit is a White House proposal to let the Bush-era tax cuts expire for upper-income households. White House officials believe raising tax rates on income above $250,000, combined with changes in capital-gains, dividend, and estate-tax rules, would raise roughly $950 billion over 10 years, a level that is short of their $1.2 trillion goal. That means the White House is likely to try and pursue more tax increases as part of any subsequent budget debate in 2013.

According to its own budget estimates, that tax change would raise only between $50 billion and $60 billion in new revenue in its first year, less than 10% of the projected budget deficit.

Comment: The Washington way! “Never put off until tomorrow what you can do the day after tomorrow.” ― Mark Twain

Meanwhile ... Congress is on vacation

Comment: Harry Reid ... ? Never saw your plan! Nice job!

Fiscal Cliff Negotiations as Kabuki theater?

UH OH: The Current Fiscal Cliff Situation Is The “Worst-Case Scenario”
Excerpt:

If Wall Street finally begins to believe that this isn't just kabuki theater--that our leaders really are incompetent and might drive the country off the cliff--the stock market might drop in anticipation of a coming recession. And this, Valliere says, might suddenly wake up the politicians, who would then begin to worry about getting fired because of the crappy economy.

Comment: My conclusion is that our leaders really are incompetent. Consider Bowles: State of Fiscal Cliff Talks Is ‘Pitiful’

“When you think that for better or worse, America will spend over $40 trillion in the next 10 years and these guys can’t find $200 billion to close their divide and prevent an economic collapse, it is pitiful,” Mr. Bowles said in an email to the Wall Street Journal.

What's Kabuki theater? Kabuki theatre is known for the stylization of its drama and for the elaborate make-up worn by some of its performers.

Heading for the Cliff

Obama's Famous Tax 'Victory'
Excerpt:

Let us assume that Mr. Obama is correct in his bet that the GOP will prove more responsible than he is and won't cliff-dive. The president's recent baiting of Republicans—his unreasonable offers, his public campaign to belittle them, his refusal to negotiate—has not put them in a generous mood. If Republicans have to fold on the top tax rates, it's a decent bet they will do only that—and nothing more. .

.. Come February, Mr. Boehner will remind the president of his formula of $1 in spending cuts for $1 in a debt-ceiling hike. He will likely present Mr. Obama with the choice of doing serious entitlement reform that will get the debt-ceiling monkey off his back for a notable period of his presidency, or of monthly debt-ceiling fights. The latter has the potential to derail a second term. No question, the Republicans would suffer a bitter defeat if top marginal income-tax rates rise. Then again, if those rates are going up anyway—either because we go off the cliff or because Mr. Obama maneuvers them into a panicked, last-minute deal—the rational GOP response is to instead choose a deliberate course that mitigates its own political damage, and lands some blows. This is the corner our intransigent president has backed Republicans into. So, that Obama "victory": On Jan. 1, the president gets to give a news conference gloating over his tax win. He then faces four years and 20 days of a presidency marked by his ownership of a faltering economy, a spiraling debt problem, automatic sequester cuts, no prospect of further spending or tax revenue, and a debt-ceiling time bomb. If that's this president's idea of "victory," maybe it's what he deserves.

Comment: The "hoods" in DC don't care about our cars! (Famous scene from Rebel without a Cause)

Fiscal Cliff negotiations - let's clear the air

Senator Blasts 'Secret' Fiscal Cliff Negotiations
Excerpt:

In remarks on the Senate floor today, Alabama senator Jeff Sessions blasted President Barack Obama and congressional leadership for holding "secret" fiscal cliff negotiations. "I rise today to express my reservations about the fiscal cliff negotiations that are currently underway," said Sessions. "Over the last two years, Congress and the President have held an endless series of secret negotiations. There have been gangs of six and eight, a supercommittee of 12, talks at the Blair House and the White House. But the only thing these secret talks have produced is a government that skips from one crisis to the next. Everything has been tried but the open production of a 10-year budget plan as required by law and open discussions of the difficult choices." Sessions, the highest Republican on the Senate Budget Committee, saved most of his criticism for the president. "President Obama campaigned on a tax increase of ‘only’ $800 billion," said Sessions. "But now the White House is demanding $1.6 trillion in new taxes. Don’t the American people have a right to see these taxes and where they will fall? Shouldn’t the President of the United States, the only person who represents everybody in the country, lay out his plan, or must that remain a secret too? Will it just be revealed to us on the eve of Christmas or eve of the new calendar year? We will be asked to vote for it, to ratify it like lemmings, I suppose."

Grover Norquist wants fiscal cliff talks on TV Excerpt:

In light of the “he says, she says” fiscal cliff debate — with Republicans and Democrats blaming each other — one solution might be to put the talks on television. Grover Norquist, conservative lobbyist and president of Americans for Tax Reform, suggested televised fiscal cliff talks during his appearance on NBC‘s “Meet the Press“ on Sunday morning. Norquist was part of a roundtable on the topic of budget proposals and the fiscal cliff. “[The President] should get into a room with C-SPAN cameras there and negotiate,” Norquist said. He stressed that cameras would show for certain whether or not Republicans were being reasonable during negotiations. “Gotta have cameras in that room, none of these press releases after,” he added. At the end of the roundtable talk, Norquist again came back to the idea of broadcasting the budget debates.

Comment: Image source.

The Tax Policy Center 2013 tax calculator

The Tax Policy Center 2013 tax calculator
Excerpt:

The Tax Policy Center in Washington has posted calculators computing next year’s individual income taxes under four sets of assumptions

Comment: WSJ article

Simpson-Bowles sense (that would be "common sense")

Obamacare, Host of Others Need Slashing: Simpson-Bowles
Excerpt:

"We think that would promote dynamic growth in America and put people back to work," Bowles said. Social Security, he added, is "$900 billion cash negative" over the next 10 years and adjustments need to be made in eligibility. He noted that when President Franklin Delano Roosevelt created the program it kicked in at age 65 when the average life span was 63. Now, the plan kicks in at 62 when the average life span is 75. "Al and I don't want to throw grandma over the cliff, but we do want to make Social Security solvent," said Bowles, chief of staff under former President Bill Clinton.

Comment: FixtheDebt.org

More "Kick the Can?"

Obama, Boehner Open to Budget Bargain

Excerpt:

President Barack Obama and House Speaker John Boehner signaled Friday a willingness to compromise on tax positions that have led to a budget stalemate, in a bid to defuse partisan tensions before talks next week to avert a year-end fiscal crisis.

Comment: While I am home ill I am reading The Price of Politics. Both sides seem firmly entrenched.

"They worship the god of re-election."

US Nears Fiscal Disaster: 'Washington Doing Nothing'
Excerpt:

The U.S. is heading towards fiscal disaster and no one in Washington is doing anything about it, the authors of the Simpson-Bowles reform plan and Goldman Sachs CEO Lloyd Blankfein told CNBC Thursday.

"People are never going to understand how critical this particular time in history is," said Erskine Bowles, the North Carolina businessman and co-chairman of President Obama's National Commission on Fiscal Responsibility and Reform. "We have $7.7 trillion worth of economic events that are going to hit America in the gut in December, and in Washington they're doing nothing about it."

... "They're both in this," Simpson said of the warring Democratic and Republican parties. "They worship the god of re-election."

Comment: Fiddling while Rome burns

Dividend investing and the 'Fiscal Cliff'

‘Fiscal cliff’ tax hike won’t kill dividend income

Excerpts:

Unless Congress acts before year-end, dividends received from Jan. 1 onward will be taxed as ordinary income, instead of the current maximum 15% tax. And ordinary-income tax rates are scheduled to return to pre-2003 levels, with a maximum of 39.6% — plus a new 3.8% tax to help cover the Affordable Care Act, for a total of 43.4%. So dividend taxes would nearly triple for some taxpayers. ...

f the era of low dividend taxes ends, dividend stocks should hold their appeal for several reasons.

For starters, what beats stock dividends in today’s yield-hungry climate? Treasury bonds? Bank certificates of deposit?

No way, said Howard Silverblatt, senior index analyst at S&P/Dow Jones Indices LLC, a McGraw-Hill Cos. unit. “Where are you going to put that money?” he asked. “Competitively, I don’t see what’s going to take dividends’ place. On a risk-reward basis, these are still attractive rates.”

The S&P 500 Index yielded 2.25% at the end of August, more than half a percentage point above the 10-year Treasury note. If next year the income from dividends and Treasurys is taxed equally, stocks still keep their edge and offer potential for share-price appreciation.

“Income is very low and hard to come by,” said Daniel Peris, co-manager of Federated Strategic Value Dividend (SVAAX) , which focuses on companies with dividend-growth potential. “A dividend-focused strategy, even on a higher-tax basis, still compares favorably to the alternatives.”

Comment: Fiscal cliff defined (Google it ... there are a lot of articles):

The United States fiscal cliff refers to a predicted significant reduction in the budget deficit and corresponding slowing of the economy if specific laws are allowed to automatically expire or go into effect at the end of 2012.These include tax increases due to the expiration of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the spending reductions ("sequestrations") under the Budget Control Act of 2011.

Final comments: I expect that congress will act after the November elections. Image is Wiley Coyote