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Fiscal Cliff deal is pro-cyclical and dangerous

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  • Strongly Liberal Democrat
    Dallas, TX
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    The payroll tax holiday expiration is going to raise more revenue than the tax increases on the wealthy over the 10 year period. The WH is touting the $617 billion from higher taxes on the wealthy, but the 2% FICA holiday expiration is going to bring in over a trillion over the same period.

    FICA is a regressive flat tax, beginning on the first dollar earned up to the first $113,700 in paycheck incomes for FY 2013, and there are no deductions. While nominally split b/n employer and employee, the effects of the higher costs of employment are 'passed thru' to employees, who end up bearing the brunt of the employer side of the tax, in the form of lower wages, employer incentives to automate, etc.

    FDR said himself that payroll taxes did not make economic sense. They are there for political reasons, not funding. FDR called them a "useful fiction." They give SSI recipients a moral, political, and statutory legal claim to SSI benefits; which helps shield SSI from politicians who would cut SSI spending. As one can imagine, payroll taxes help mute/quiet conservative criticism of SSI as providing a "free lunch" to retirees, even though that line of argument is not exactly silenced by FICA.

    No reason besides the politics that SSI can't become a Social Insurance benefit for working in this great country of ours; and if a politician wants to try to throw grandma out on her ass, let them try, and let the American people defend grandma at the ballot box. If Republicans want to run as pure sadists, let them; it'll be good for Democrats twice over: once for cutting FICA taxes on working people, and twice for defending grandma. So I say, bring it on!

    But back to our current situation. With payroll taxes going back up, and income taxes going up for the few with the least propensity to spend, we're looking at a situation where revenues are going to rise faster than the jobs are going to be created. While I'm bullish (with government spending qualifiers) for the next year or so, before we get anywhere close to Clinton era employment levels, the government's budget is going to stall the recovery; and that's without the sequestration cuts in March happening.

    What sustained Clinton era employment levels was a massive credit expansion enabled and fueled in part by the creative destruction and creative addition of jobs through technological gains, and a lot of fraud. The Clinton era tax increases and spending cuts, which produced a SSI supported government surplus against the private credit expansion, caused a recession in 2000 that erased the government surplus before 9/11 under GWB, as lending retracted in the wake of heavy losses and reduced net-US dollar assets.

    Basically, the same thing happened in 2008 just on a much wider scale. The government deficit was mowed down to 1.7% of GDP in 2007, largely due to the fact that 1/3 to 2/5 of American home loans issued in 2006 were what the industry itself termed behind closed doors to be "liar's loans" (William K. Black). FICA nearly surpased income taxes as the single largest source of tax revenue! The FED moved interest rates up and all those adjustable rates went up, and all the liar's loans started defaulting. Everybody got screwed. Huge savings demands went unsupported by offsetting spending, and that output didn't get sold, and millions of people all over the globe went out of work. And the loss in tax revenue and automatic stablizer spending bled government deficits to produce the net-US dollar financial assets desired by the non-government.

    Modern Monetary Theory's (MMT) prescription for our sluggish growth is a FULL FICA PAYROLL TAX SUSPENSION, and the way forward for price stability is a JOB GUARANTEE (JG) for everyone able and willing to work, but unable to find gainful wage employment otherwise. Demand for JG employment would then determine the size of the countercyclical budget of the goverment. We should raise SSI benefits. We should provide per capita funding to states to help them get over the hump. Above all, we must invest in our children. We must invest in education: it's the only capital that will remain from our generation 50 years out.

    MMT is decidely academic. It is not itself a political movement. It is training a better one to come.
  • Independent
    Plymouth, WI
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    My taxes went up on my wages, what a joke, I thought this was Romney's secret plan, but here it is because of some crap the system says and the majority just takes it up the rear with out a word, what is going on here? Yes we have to invest in our children, but to pin a tax on me out of the blue, because congress couldn't agree? If we stopped over spending the tax money the majority pays already, we wouldn't need a tax increase, in fact we could have a tax cut if the system did what was right for the majority instead of what is right for the rich. I'm sick and tired of making the rich richer, aren't you too?
  • Strongly Liberal Democrat
    Dallas, TX
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    To be clear, federal tax dollars do not "pay" for the spending of the issuer of the currency. The federal government spends first and then we can pay taxes or buy government securities. Federal taxes regulate our spending, that is, they reduce our spending by reducing the amount we have to spend. Taxes 'drive' our currency, that is, without taxes the US dollar would have not have initial or any stable value overtime. B/c we have to pay our taxes in US dollars, we accept US dollars as payment for goods and services rendered. But the amount that we have to pay in taxes is a matter of inflation control. This might seem a little confusing with the existence of a banking sector. But what are banks? Banks are public-private partnerships. The US Federal Reserve is a government entity. The district banks are subservient privately owned co-ops. All they do is clear the checks, fund research, etc. In any event, those private banks are private-public partnerships. Banking is licensed and regulated by the government. Bank lending is constrained by capital requirements and regulation. So if there were no net-US dollars (government debt) held by the private sector, there could be no banking lending in US dollar denominations with US capital requirements in US dollar denominations. The government's debt is the equity that supports the credit structure of bank lending. government deficit=non government surplus

    In short, everything you have probably been taught about government deficits, banking, and finance is wrong. Dead wrong. The economics text books have been written by ideolouges.
  • Democrat
    Portsmouth, VA
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    I agree with you. I just heard on TV last night that the only people benefiting from any economic recovery are these same (super-rich ) who the congress really work for. If these people paid taxes, paid employees a living wage and stop all the jobs from going to China things might actually improve. People working for minimum wage have to get food stamps or not eat. But of course Romney mentioned food as an entitilment. We citizens need to take away thier entitilments! The working poor are the largest group needing subsistance under the elderly. THe elderly also have to deal with medical bills which can bankrupt them with just one illness.

    Many of us have given up talking to our congressmen etc. because the only ones they listen to is their investment counselors and the wealty who give them all kinds of "gifts" to keep them working only for the 1%. We need to raise our voices NOW and push to lower these congressmen's pay checks before they can do more damage. They don't care if the economy fails because their money is safe in the Camen Islands and tax shelters etc. THey also refuse to deal with common sense gun control because they only care about the NRA money they get.

    Their concern only for themselves is also evident by the removal of the sequester effect on Air Traffic control because it woul INCNVIENCE them directly when the flew home for another vacation!
  • Center Left
    Portland, OR
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    I definitely agree with you. I laugh when a reporter asks a politician about the reason for the congressional stalemate. You know a big song and dance is about to follow. The honest answer is simple, because they are paid to stand for certain issues without compromise. The supreme court put the final nail in the coffin of our democracy by legalizing super pacs. How much money was spent on the last Presidential and Congressional races. What if all this money would have been spent on job creation?

    I felt sickened every time I heard a political reporter talk about a candidate's chances because he or she had more campaign funding than an opponent. It makes me feel like our democracy is reduced to dollars and cents instead of issues.

    I recently heard a congressman talking about spending 20 to 30 hours a week on campaign funding. Imagine if our elected officials spent this time on making government more efficient and thereby reducing our deficit. Imagine if American companies spent the money that they spend on buying government, on true economic growth and job creation instead.

    The most ridiculous thing is that companies reduce their bottom lines by weakening the buying power of the middle class. If the majority of our country becomes the ever increasing number of the working poor, who will be left to buy their goods and services? How will our governments recover financially with an ever diminishing tax base?