The Good, the Bad, and the Ugly in the Fiscal Cliff Package

Last night, the Senate voted on and approved a package to avert most components of the fiscal cliff, which we took a preliminary review of last night. Today, however, there are many more details to review now that the legislation is available and JCT has estimated the revenue effects.

In short, the package would permanently extend most of the 2001/2003/2010 tax cuts for incomes below $400,000/$450,000 while letting the ordinary rate above that threshold rise to 39.6 percent and the capital gains and dividends rates to 20 percent; it would increase the estate tax rate from 35 to 40 percent; it would permanently patch the AMT; and it would extend various “tax extenders” for 2012 and 2013. On the spending side, the package would delay the sequester for two months, enact a doc fix for a year, extend unemployment benefits for a year, extend the farm bill for a year, and enact about $50 billion in spending and revenue offsets to pay for the sequester delay and doc fix.

Based on more recent estimates, CRFB estimates that the entire package would increase deficits by about $4.6 trillion over the next ten years compared to current law projections (assuming everything expires or activates as called for) but would decrease deficits and debt by about $650 billion compared to more realistic current policy projections. These revised estimates continue to show that debt would remain on a upward path over the next ten years -- reaching 79 percent of GDP by 2022 – if policymakers are unable to offset a repeal of the sequester and Sustainable Growth Rate. That would be a slight improvement over the CRFB Realistic Projections, which show debt rising to over 81 percent by 2022. Clearly, lawmakers will need to go further, however, to put in place much more savings.

Below is our effort to roughly estimate the parameters of the deal.

Savings and Costs in the Fiscal Cliff Package

So what’s to like and dislike about the deal? Below we explain:

The Good

  • Avoids most of the abrupt economic harm from the fiscal cliff by extending or delaying most provisions
  • Raises $620 billion in gross revenues relative to current policy, which would contribute to reducing the deficit compared to current policy
  • Sets the precedent that extending the sequester has to be paid for and strengthens the precedent that the doc fix should be waived only along with offsetting health provisions
  • Leaves in place the ability for lawmakers to discuss further and more meaningful deficit reduction measures in the coming weeks in order to avoid sequestration in the beginning of March

The Bad

  • Does not put in place the measures necessary to stabilize the debt as a share of the economy, let alone reduce it
  • Does not include any serious entitlement reforms or set up a clear process for considering such reforms even though rising health costs remain our largest single fiscal challenge on Social Security is on a road toward insolvency
  • Does not include a process to enact pro-growth and revenue generating tax reforms
  • Does not specifically offset the costs of the tax extenders or UI benefits, setting a bad precedent for future extensions

The Ugly

  • Uses a tax timing gimmick to pay for part of the sequester. Specifically, it raises $12 billion by allowing people to convert certain retirement accounts to "Roth" accounts so that they can pay their taxes now instead of later
  • Cuts taxes by almost $4 trillion relative to current law projections, with a permanent resolution to the 01/03/10 tax cuts and AMT enacted on a deficit-financed basis even when deficit reduction needs have not been met
  • Represents an incredible failed opportunity by missing what Erskine Bowles calls a “magic moment” to put in place a comprehensive plan that would simultaneously avoid the fiscal cliff and more importantly enact the spending cuts, tax reforms, and entitlement reforms necessary to truly control rising debt

CRFB hopes that lawmakers will return the table very quickly in the new year to enact savings sufficient in size and scope to solve the country's debt problems.

 Hold all of there pay checks

 Hold all of there pay checks until they do something about our DEBT!!!!!! Foreal not just a side show I feel like they think were all idiots and should just shut up and mind our own business well Im sorry but this country means alot to me and my family  !!!!!! Please come to the table with a plan not a list of whats wrong thank you sincerely   Scott L Riegelmann

 

 their*

 their*

Learn how to spell

Dear Scott,

 

Before you rant and rave again, try learning to spell.  It's "their" not "there."  It's "for real" not "foreal."  And "alot" is 2 words = a lot. 

Learn to use "there" and

Learn to use "there" and "their" properly, and someone might take your suggestions seriously.

 The vast majority would not

 The vast majority would not be effected at all or very little by doing that as they are all rich. 

Responsibility

 Lawmakers need to be responsible vs worrying about politics

Aww...not enough granny

Aww...not enough granny starving in it. Poor you.

Social Security an Entitlement????????

 Since when is Social Security an entitlement.  We pay into a plan that we will never even recover half of what we put in.  This is what I have to say to Republicans.  You want to cut your so called entitlements well then stop collecting the money out of our paychecks for Medicare and Social Security, let Americans put the money into thier own 401K plans and use it to pay for thier Healthcare and you can have your entitlement back.  Now lets talk entitlement House Republicans, pay your own health care for you and your family, and how about a pay cut since you have had a horrible year end review on your job performance.  

Social Security an Entitlement

My understanding  current retires are receiving benefits of 6 times what they contributed to SS.  With baby boomers now retiring the pyrmaid scheme will end as you can't contintue to pay out 6 times what you collect.  Basically the current generation is collecting benefits much greater than future generations.  Everyone wants to blame republicans because they dont want to face reality that were borrowing 40% of what were spending.  Would you run your household this way.

Stop calling Social Security an entitlement

 I paid into it it's mine.  I'm not eating dog food so billionaires can put gas in their yachts.

 

What crazy talkshow host are

What crazy talkshow host are you watching?  This had almost nothing to do with social security.  The only person cutting social security funding is Obama under the "Payroll Tax Holiday" which finally ended thank god.  He helped to bankrupt that program sooner.  When they say cut entitlements it's the things like food stamps, unemployment benefits which are now going on for something like 3 years??  How do you continue paying someone who has been out of work for three years is beyond me.  Free cell phones for the poor... because they really need a cell phone.  Free housing for the poor.  It has become a freebie governement.  Don't work and we'll pay for everything.  I agree that they need to raise minimum wages.. but otherwise family, communities, churches etc should be supporting these people.  Government needs to stop handing people free money.

The payroll tax holioday did

The payroll tax holioday did not reduce the social security trust fund bu one cent since congress required that the treasury deposit into the fund any lost revenue.

Social Security is not a savings account

Social Security is not a savings account that you put part of you paycheck into. What we pay in SS goes to the current retirees and other benefit recipients. When we retire, we collect off the paychecks of our children and grandchildren. Since people are living longer and the birthrate is declining, SS will collapse at some point in the future. It always was and is a pyramid.

I don't think "entitlement" means what you people think it means

"Entitlement" isn't a naughty word. The Right has turned it into one.  Social Security is an entitlement, whether you think it's good or bad and no matter how it's funded. 

Social Security..an Entitlement or a Trust Fund ?

Well, a skeptic might see that it is neither- (sorry to disappoint that fun guy, Vt. Sen. Bernie Sanders).

Rather, it may well be a self-delusional 'Pyramid Scheme' if we ' follow the money', begun on an workable acturarial basis in the mid 1930's, but diluted into a growing actuarial mirage.   

Indeed, thru its' generational changes, and critically demographics, this 'system' can be visualized as an inverse pyramid teetering on apex w/ base in the future. 

'Follow the Money' ?    That 'Trust Fund' holds i.o.u.s written by the U.S. Treasury- the paid in money is long gone w/ this 'Scrip' replacement non-saleable in  any market and to be 'refunded in the future w/ More Treas. debt !   

...more to say, but the self deluded may take umbrage on some 'polemical' basis ?

               

                    Kipsberg' .        .    

 

 

Avoid weasely 'reform' for honest descriptions of the issues

 I see the line "the spending cuts, tax reforms, and entitlement reforms necessary to truly control rising debt."

 

Let me suggest that CRFB avoid the lack of clarity implicit in "tax reforms" and "entitlement reforms". "Reforms" says nothing about what's needed.

 

A more honest way to say this would be:

 

"the spending cuts, tax increases, and measures to rein in America's wildly disproportionate health care costs." 

 

1. Spending cuts should be part of any measure to bring the national debt into a stable relationship with national income and production. We spend an awful awful lot of money on our military, for example, which is scarcely justifiable by any measure. When the United States alone spends more on military costs than the next 15 or so nations in the world _combined_, "defense" is clealry a misnomer. Every honest American since Ike has recognized that the 'defense-industrial complex' is simply collecting rents paid for by taxpayers -- but breaking the systemic corruption involved (particularly without doing at the expense of the men and women who actually serve in our military, rather than at the expense of high-roller defense executives) will be brutally hard. There are other areas for saving, often involving rent-seeking lobbies of various kinds, but they're as entrenched as the defense-industrial lobby, so that won't be easy either.

 

2. Tax increases are essential, one way or another. The United State's tax burden as a portion of GDP is substantially lower than in other industrial nations, and insufficient for a range of expenditures that enjoy broad public support. If the voters want to spend, they (collectively) have to pay for the spending, and the word for this payment is 'taxes'. Ideally, we'd raise the net tax burden while radically simplifying the tax code. Opinions differ about whether Pigovian taxes would help do this, notably a carbon tax and a financial transactions tax, allowing simplification of income taxes without net revenue increases. However, as long as the "no taxes ever" crowd runs Washington, we'll get mealy-mouthed screeds about 'tax reform', and the genuine public support for paying what we spend will be sidetracked.

 

3. "Entitlement reform" sounds like another effort to hide the real issue.

 

-- Some of our social insurance programs that offer an entitlement to benefits -- notably Social Security -- need only minor changes to stay fiscally sound.

 

-- Social Security Disability is more problematic because its costs have exploded recently, suggesting a higher level of need or -- more likely -- a higher level of gaming disability either by recipients or by service-provides who use recipients as conduits to private rents.

 

-- But the elephant here is medical care. The high level of costs for Medicare and Medicaid has put these programs out of financial balance. Medicare rests on payroll premiums that are not enough to pay for the benefits. Medicaid rests on an increasingly broken state-Federal partnership and is underfunded at both ends in comparison to costs. At the same time, payments to providers are wildly out of whack (primary physicians are way underpaid, while specialists are overpaid and suppliers of products have huge incentives to game the system.) The real measure, though, is that health care costs in the United States run a twice the level per capita than in Switzerland (one of the most expensive countries in the world with a highly effective health care system). Tackling the wildly excess costs will gore major oxen who will lobby furiously (behind pictures of cute kids and sweet little old ladies) to keep their rents. 

 

So, let's be honest and say: 

 

"the spending cuts, tax increases, and measures to rein in America's wildly disproportionate health care costs necessary to truly control rising debt." After all, as long as we tiptoe around the real issues, they will stay off the table.

entitlement has become too loaded a term

I suggest that we need a new term to describe what we traditionally call "entitlements"--especially  Social Security and Medicare.  Too many people believe that these progams are a form of "insurance" because they have been paying into them and should be entitled--that term again--to the benefits later in life.  Apparently the term "entitlements" tends to connote something like welfare, which many people find odious. 

 

So how about describing these programs as "intergenerational transfer payments"?  That is exactly what they are:  younger workers pay SS and Medicare taxes, which then go to pay benefits to older folks, so one generation subsidizes another generation.  And then those younger workers, when they become older, expect to be subsidized by the next younger generation.  It's a social contract, but certainly not a legal contract like insurance coverage.  It is not an enforceable contract, but a compact that people have bought into for nearly 80 years (in the case of SS) and 50 years (in the case of Medicare).  What would happen if SS and Medicare became insolvent and no one received benefits?  Beneficiaries might want to sue for breach of contract, but I doubt that any court in the land would rule in favor of the beneficiaries.   

What are we thinking?

As seen by Maxiene:

 

Bail'em out!!! ????  Hell, back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evation and, as required by law, tried to run it. They failed and it closed. Now, we are trusting the economy of our country, our banking system, our auto industry and possibly our health plans to the same nit-wits who couldn't make money running a whore house and selling whisky? What the hell are we thinkin?

 

The sad part is that this is true. No matter what they do at this point the people (the majority mass) are screwed. Remove the redundant parts of government and the pieces we dont need and that might be a place to start. Getting rid of lobyists would be another great help.

ok

I don't understand why lawmakers didn't allow the Bush-era tax-cuts to simply expire in 2010 or now. The last time we did not have a deficit was under Clinton; so, why not go back to the tax rates that were in place whenu he was President? Then, Congress could focus on ways to cut spending. For instance, we could build less multi-miolion dollar military equipment and use our military personell to guard our bases and maintain military housing, rather than hiring contractors to do this work. Sarah Hart America's Third Party

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