Senate Cliff Deal Settles For TEN TIMES LESS Revenue Than Cliff-Diving

As reported here:

"Before [Obama] spoke, details of the emerging deal emerged. It would raise $600 billion in revenue over the next 10 years [emphasis added] by increasing tax rates for individuals making more than $400,000 and households making above $450,000 annually, officials familiar with the talks said.  ... The Biden-McConnell negotiations appeared to offer the last hope for avoiding the fiscal cliff of $600 billion in tax increases and spending cuts that economists fear could throw the country back into recession."

$600 billion over ten years?

Notice how CNBC leaves out "per year" after "$600 billion" in that second part of the snip after the elipsis. A $600 billion annual hit to the economy would be bad indeed, but only because it would post as a bookkeeping negative. Government spending counts as GDP, and removing $600 billion annually from the pool of funds normally tallied under GDP would "book" a recession before we even got there.

Look, by letting the Bush tax rates expire we were supposed to face a tax increase generating revenues of $500 billion PER YEAR or so, plus $100 billion per year from separately agreed to sequestration cuts to defense and social spending from August 2011's debt-ceiling imbroglio. That's why this fiscal cliff was such a big deal. We were talking $600 billion per year in the case of the Bush tax cuts expiring, not $60 billion per year as the Senate has now agreed. Tax increases on the first $9,000 of income ALONE would have generated $65 billion per year by letting the Bush tax cuts expire on the lowest wage earners for the simple reason that that tax increase affects EVERYONE'S first $9,000 of income. That's how progressive taxation works. Keep going on up the income ladder with all those expiring Bush tax rates reverting to the higher Clinton rates and soon you are talking about $500-$600 billion PER YEAR in revenues. What do you think Obama and Dirty Harry Reid have been greedily eyeing after all? That they are caving to this "deal" just shows how really weak is their position, and how much power the House has in fact, if only they understood it.

Unless of course it is all an elaborate ruse, a trap for the House, which just might be conservative enough to reject the deal for its surrealism at a time when the political consensus in favor of "balance" is rearing its ugly head. In which case the political position of the conservative House will be marginalized more or less indefinitely, and the political power of the Senate enhanced.

The US Senate is clearly the most despicable institution in the federal system, if that were possible, for obscuring all this from the American people, for the way bipartisanship means liberals get to remain liberal while Republicans have to check their conservatism with the coat girl, for continuing to spend through borrowing, and especially for acting as a Super House in doing all this, trying to shove this crap down our throats just as it has already shoved the ObamaCare crap down our throats. Bills are supposed to originate in the House after all, but those which do are routinely ignored by the Senate, which thinks itself superior and possessed of a priority it does not have.

The problem clearly is the US Senate and the way it is elected, how long it serves, and the way it acts. If ever it were time to repeal the 17th Amendment, this is it.

Perhaps The Most Important Argument Against Consumption Taxes

Perhaps the most important argument against consumption taxes is Murray Rothbard's critique of them here, noting their time-preference prejudice:

"The major argument for replacing an income by a consumption tax is that savings would no longer be taxed. A consumption tax, its advocates assert, would tax consumption and not savings. The fact that this argument is generally advanced by free-market economists, in our day mainly by the supply-siders, strikes one immediately as rather peculiar. For individuals on the free market, after all, each decide their own allocation of income to consumption or to savings. This proportion of consumption to savings, as Austrian economics teaches us, is determined by each individual's rate of time preference, the degree by which he prefers present to future goods. For each person is continually allocating his income between consumption now, as against saving to invest in goods that will bring an income in the future. And each person decides the allocation on the basis of his time preference. To say, therefore, that only consumption should be taxed and not savings is to challenge the voluntary preferences and choices of individuals on the free market, and to say that they are saving far too little and consuming too much, and therefore that taxes on savings should be removed and all the burdens placed on present as compared to future consumption. But to do that is to challenge free-market expressions of time preference, and to advocate government coercion to forcibly alter the expression of those preferences, so as to coerce a higher saving-to-consumption ratio than desired by free individuals."

Rothbard goes on to ascribe this prejudice to "Calvinism", which may be entertaining to the libertarian who is interested in wine, women and song now and has a devil may care attitude about present frugality as a defense against want later. But this assumes there is no moral difference between savings and consumption, which there certainly is when the penniless old man turns up on your doorstep, hat in hand. The libertarian has his own time preference prejudice, were he to admit it, which life teaches us has serious consequences, more often than not.

Be that as it may, it is important to recognize that standard measurements of economic activity in the United States have for some time shown, in something like the following formulation, that "70% of GDP consists in consumer spending", and were it not for schemes like Social Security and Medicare there would be far more ringing of the bell going on at the front. This is quite a remarkable fact in a supposedly Calvinist civilization, a fact which argues for the moral superiority of savings over consumption because despite our better natures we in reality live otherwise. This suggests that we still ought to do everything we can to encourage the former and punish the latter, for the simple reason which the observation of human nature teaches. We are mixtures of good and evil, but unfortunately too often it turns out to be a bad mixture.

The ancient Greeks, among other things, notably taught us "nothing too much", by which we may infer that the preponderance of present spendthrifts demonstrates individual and social excess which ought to be remedied by tax policy encouraging the increase of savers. To right the ship would mean achieving a better balance between the two, and to Rothbard's main point, which is that under a consumption tax savings would inevitably be taxed in the long run anyway just as consumption is in the present because that is what savings becomes, we therefore ought to have no compunction about taxing savings in the end. That is what the death tax accomplishes, the final message to an excess of savings.

In the present context this recommends taxation of consumption in some form to encourage marginally less of it, better mechanisms of rewarding savings of which we have too little, and a death tax which approximates the same level as a consumption tax would operate at. This means that draconian schemes of estate confiscation by the government at death are in principle unjust because as consumption taxes we would never think of imposing similar levies on the living.

Unless, of course, we subscribe to The New Republic.

Interest Payments On The Debt Are Not Counted As GDP

So says this guy, here, discussing government spending for GDP purposes:

d. Interest paid on government bonds is NOT counted as part of GDP; the argument is that the interest is not usually for a loan purchasing capital equipment, and therefore is not connected to production; whereas net business interest typically is for a loan used to purchase capital equipment and is counted as part of GDP since it is related to production.

Interest Payments On The Debt Continue To Consume GDP Gains

Interest payments on the debt are reported here.

For the 7 fiscal years from 2006 to 2012, interest payments have totaled $2.898 trillion.

GDP has gone from $13.399 trillion in 2006 to $15.811 trillion annualized in the third quarter of 2012 (using BEA and Federal Reserve z.1 Release figures), up just $2.412 trillion, which means we're still in the hole $486 billion after 7 years.

I don't see the so-called money multiplier working too well here. And for all I know, these interest payments are probably double-counted, so to speak, showing up as GDP, so it's even worse than it looks. It's government spending, isn't it?

You can't borrow your way to growth.

Q3 2012 GDP Revised Up To 3.1% From 2.7% In Third Estimate

Full pdf report from the BEA here.

master of scratch

Since Obama was elected in 2008, the average report of GDP has been . . . 0.93%, still far and away the worst average report on record since World War II.

Rush Limbaugh Repeats The Rich Man's Lies: Middle Class Has "Bulk Of The Money"

Here:

Where this is all going to end up, I'm pretty sure -- we'll see if I'm right; won't be too long, maximum next year sometime, maybe two years -- where this is all going to end up is that the middle class is going to get soaked.  The middle class is going to see their taxes go up, and the reason is, that's where the bulk of the money is. 

You could confiscate all the money the middle class has and run the government for quite a while.  Much longer than if you confiscate all the money the rich have.  There's a reason why the rich are called the top 2%.  There aren't very many of them, folks.  They're only the top two, the top 1%.  And the idea that 98% of the country is not going to have a tax increase under this president is absurd.  Everybody is going to see a tax increase under this president, because his objective is to shrink the private sector and expand the government so that the government becomes the primary source of prosperity and benefits for the vast majority of people.

In 2011, the poorest Americans, those making between $0 and $20K, had total net compensation of $501 billion in the aggregate. The so-called middle class, those making between $20K and $75K per year where net compensation aggregates every $5K up the income ladder constitute piles of cash in excess of $200 billion each, had total compensation of $2.9 trillion in 2011.

The income tranches of the middle are what greedy liberal tax-farmers focus on, as do disingenous rich people, because they stick out like a sore thumb, representing as they do the largest individual tranches for ordinary income purposes and constituting an unbroken line of 11 of them just begging to be ogled. See them here for yourself. You will not find any tranches among the so-called rich in excess of $200 billion. But they make a lot of money nevertheless.

Add it all up and everybody making beyond $75K per year in 2011, which includes the upper middle class, if you piled all their net compensation for Social Security purposes together, would total another $2.8 trillion, just shy of the middle's $2.9 trillion.

If you think this proves Rush's point, you would be wrong. Such net compensation isn't all there is to it, not by a long shot. It's much, much more complicated, and obscure, than that. And that's the way rich people like it. If you can't see their income you can't know how rich they are and they can thus escape becoming a target. That's why so many rich people, and their advocates like Bruce Bartlett who want to tax the middle class and deflect taxes from themselves, insist so strongly that they are middle class just like you.

While net compensation totaled about $6.2 trillion in 2011, personal income was more than twice that. The Bureau of Economic analysis, here, reports that personal income was $12.95 trillion in 2011.

People like Jeffrey Immelt, Jamie Dimon, Mitt Romney, Warren Buffett and Bill Gates receive tons of income from stocks, bonds, capital gains, dividends, rents, royalties, et cetera et cetera et cetera, adding at least another $6.75 trillion to that $6.2 trillion in net compensation for Social Security purposes in 2011.

To be sure, lots of people who aren't the very rich receive such income, too, but there is no way on God's green earth that there are enough of them in the so-called middle receiving it to say that the bulk of the money is in the middle. The middle class would like to be receiving the bulk of its income as unearned income like the investor class does, but it doesn't for the most part. It works for its money (unless you're a government employee).

No matter how much the boob with the microphone and the subscription to The Wall Street Journal tells you otherwise, the bulk of the money is not in the middle, most people know it, and that's why Obama is succeeding with his class warfare rhetoric. He has picked his targets, personalized them, polarized them and frozen them, and all the rich can do, because there aren't enough of them, is surrender (Warren Buffett), create diversions (the home mortgage interest deduction flap) or tell lies (The Wall Street Journal).

It really is quite pathetic that we do this to rich people in America and pat ourselves on the back for it. It's actually disgraceful in a country which claims to believe in equal treatment under the law that a wealthier earner is discriminated against because we say he must pay taxes at a higher percentage rate on his ordinary income than a poorer earner must pay. And we feel guilty enough about it that we then turn around and create exceptions to these unjust tax rules when taxing income which is not ordinary. Is it any wonder then that more than half of the personal income in the country has fled for refuge to be classified as other than ordinary? The founders thought a tax was equal only if everyone in the country paid the same amount. This consensus necessarily kept federal taxation low and infrequent because the great masses of people could not afford to pay very much.

The least we could do in homage to that old idea of America would be to tax everyone's income in the country in similar fashion, at one low rate, making no distinctions between the income from a job and the income from an investment. Of course, that would mean a pretty low rate compared to what's exacted today, and would necessitate some pretty drastic cuts to spending. A 10% tax on the personal income of the country of $13 trillion in 2011 would have yielded only $1.3 trillion in revenues, far short of the $3.8 trillion or so we spent.

And that, as we on the right keep saying, is where the real problem lies. Unless we slay the spending monster, there will never be taxation equality in America.

Real GDP Per Capita 1980-2000 v. 2000-2012

Up 55% over the earlier twenty year period v. only 6.7% up over the most recent 11 year period.

Expensive Oil Since 911 Has Coincided With Slow GDP Growth

Reagan-Bush-Clinton era low energy costs coincided with economic "good times" when real GDP increased 83% over twenty years.

By contrast the last twelve years have witnessed real GDP growth of barely 24% in the face of soaring energy prices.

The country's most urgent need is for lower energy prices, not tax increases. Revenues take care of themselves when the economy is growing well.

Flashback July 2011: Obama Didn't Need Tax Rates To Rise Then

Oh, but now he does. As he was a liar then, so is he now, and ever shall be. Amen.

Video here.

US vs. EuroArea17 GDP Growth Rates Since 2007

Latest EA17 (and EU27) performance discussed here.

After 4.7 Years, UK GDP Remains In Depression

The top chart, discussed here, shows the failure to recover to zero after 56 months compared to the same point in previous recessions. The lower chart shows GDP rates of growth from October 2006 to the latest available figures.

Q3 2012 GDP Revised Up To 2.7% From 2.0% In Second Estimate

The full Bureau of Economic Analysis pdf may be found here.

Only two quarters have come in higher under Obama, the fourth quarters of 2009 and 2011 at 4.0% and 4.1% respectively.

All other quarterly reports of GDP have been lower than today's 2.7% report. It's appalling that there have been no reports in the 3.0s since Obama took the helm, especially after the depths to which we sank.

This is idle speed. The car is running in the driveway, warming up, but that's about it.

Truman Cut Spending Big Time In 1945. The Economy Boomed.

Speaker John Boehner, wake up.

Arnold Kling, here:

When World War II ended in 1945, President Harry Truman faced a problem. Public opinion called for a rapid demobilization that would bring the boys home as soon as possible. But the Keynesians who were gaining prominence in the economics profession warned that a rapid decline in government spending and the size of the public work force would produce, in the late economist Paul Samuelson’s words, “the greatest period of unemployment and dislocation which any economy has ever faced.”

Thankfully, Truman ignored the Keynesians. Government spending plummeted by nearly two-thirds between 1945 and 1947, from $93 billion to $36.3 billion in nominal terms. If we used the “multiplier” of 1.5 for government spending that is favored by Obama administration economists, that $63.7 billion plunge should have caused GDP to fall by $95 billion, a 40 percent economic decline. In reality, GDP increased almost 10 percent during that period, from $223 billion in 1945 to $244.1 billion in 1947. This is a rare precedent of a large drop in government spending, so its economic consequences are important to understand.

Look For A Negative GDP In Q4 Due To Sandy, Says Rosie

Here.

Obama Racks Up Worst GDP Record In Post-War Period

President Obama has the dubious distinction for the very worst GDP record, measured November on November, of any president in the post-war period.

And that's saying a lot when you consider that George W. Bush had been the worst before Obama,  with his average report of GDP over 32 quarters of just 2.0%, which was worse than his dad who over four years posted a 2.2% average report. Hell, Jimmy Carter's record at 3.0% is to die for compared to the Bushes.

But Obama comes in with a pathetic, ridiculous average report of GDP over 16 quarters of just 0.86%, over twice as bad as Bush.

No wonder it seems like a depression. Considering Obama had complete control of the government in 2009 and 2010, his 1.9% average report for just 2011 and 2012 to date speaks for itself. We're not working. What Obama is doing isn't working. He may have a nice crease in his trousers, but the suit is as empty as the chair in The Oval. 

Here's the table from the pdf of today's report of GDP from the BEA:

First Estimate Of Q3 2012 GDP Comes In At 2%

The first estimate of Q3 2012 GDP growth comes in at 2.0%, with growth in Q2 remaining at 1.3%. The growth rate in Q3 is now back to the rate prevailing in Q1. Big whoop.

The BEA reports here:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency . . .. The "second" estimate for the third quarter, based on more complete data, will be released on November 29, 2012.

The rate of growth at 2.0% remains a pathetic performance in a series of pathetic reports of an economy moving at near stall speed. And in a month the figure for Q3 could easily come in much lower in the first revision. At this late stage in a "recovery" GDP should be far more robust.

Transformation After Four Years: Lost AAA Credit Rating, 8.97% Average Unemployment, Average Report of GDP 0.825%, Housing Values Down 13%

"After decades of broken politics in Washington, and eight years of failed policies from George W. Bush, and 21 months of a campaign that's taken us from the rocky coast of Maine to the sunshine of California, we are five days away from fundamentally transforming the United States of America."

-- Sen. Barack Obama, October 2008, Columbia, Missouri

The Depression In Real GDP Per Capita: Still At 2004-2005 Level

Chart and data here. Last update was a year ago.

Peak observation was 1/1/07, from which we are roughly 3.5% down after having been down as much as 5.5%.

Not Even Fox News Catches Romney's Debate Gaffe

The answer to EVERYTHING is 42.

How many days has it been since the debate? Five? And still no one has caught Romney's gaffe equating Spain and the US, except little ole me?

Romney still hasn't corrected himself. Why would he when he's soaring in the aftermath of the debate of a lifetime?

Obama didn't catch the mistake, of course. He's too stupid about economics, with or without his teleprompter.

Jim Lehrer didn't catch it either (no surprise there--I don't think he's ever caught anything, not even a fish. Well, maybe a cold.).

And no commentary I am aware of has caught the mistake made by Romney.

And it is a big one.

Fox here spends a whole column on it, focusing on Spain's perceived insult, and of course the Spaniards aren't going to point out the mistake, even if they knew what it was. Would you, especially if it destroyed your sudden new-found equality with the most powerful nation on earth?

This is really depressing. The failure to catch the mistake indicates how deep the ignorance of economics is in the world today.

Here's the mistake, once more, as quoted, but unnoted, by Fox:

"Spain spends 42 percent of their total economy on government. We're now spending 42 percent of our economy on government,” Romney said during the debate. “I don't want to go down the path to Spain."

The mistake? Romney meant to say 24 percent, not 42. If he really meant 42, what relevance does warning about going "down the path to Spain" contain if we're already there?

Historically America has spent around 18 percent of GDP on average on government. Obama has ramped that WAY UP . . . by 33 percent in just four short years. That is fundamentally alarming because the expenditure is abnormal . . . and all borrowed.

But if America were already spending 42 percent of its GDP on government, we'd already be Europe with all its sclerotic problems. Life here would be much different than it is, more like what Obama wants it to be. Maybe that's why Obama hasn't said anything about it. The reason we are still so strong as an economic force in the world is that we are relatively much more free of such a burden as Spain endures, and the rest of Europe endures for that matter.

It's something of the utmost importance which we should all be discussing right now, but that the guy who holds the most promise for keeping us from such a fate as Spain's has flubbed the opportunity to discuss it in such spectacular fashion makes me pretty pessimistic about the future.

If you don't understand the problem, you won't understand the solution.

h/t Nita 

Sorry Gov. Romney, We're Not Spain

Romney, last night, in another odd coincidence with The Hitchhiker's Guide to the Galaxy:

"Spain -- Spain spends 42 percent of their total economy on government. We're now spending 42 percent of our economy on government. I don't want to go down the path to Spain. I want to go down the path of growth that puts Americans to work with more money coming in because they're working."

A little dyslexia is going on here, I think. Whatever Spain's expense is as a percentage of GDP, America's is not 42, it's 24.

Here's US News and World Report, in June:

Federal spending was close to 20 percent under the Carter administration, dropped to 18 percent under Clinton, and is currently at an incredible 24 percent of GDP. According to the Congressional Budget Office, federal spending may hover around 22 percent for the next decade.

It's a little disturbing Obama didn't catch this mistake. It's a little disturbing Jim Lehrer didn't catch this mistake. In fact, I've heard the soundbite repeated on the radio this morning without anyone referring to the mistake, and that's pretty disturbing, too.

Does anyone really know what time it is?