Category Archives: Economy

We’ve averted the fiscal cliff – or have we?

Passed by the Senate at a 2 am vote on January 1, 2013; passed by the house at an 11 pm vote that same night; signed into law by the President on January 2, 2013, the American Taxpayer Relief Act of 2012 is perceived as a deal struck by congress at the eleventh hour that largely eliminated the Fiscal Cliff.

Has this legislation really averted the Fiscal Cliff?

The Fiscal Cliff is the sharp decline in the budget deficit that could have occurred beginning in 2013 due to increased taxes and reduced spending as required by previously enacted laws.

But the deal to avert the Fiscal Cliff doesn’t achieve any of that. Instead, it…

A) Does not reduce the Federal Government’s budget deficit

B) Does not avoid increased taxes

C) Does not reduce spending

A) The Fiscal Cliff deal does not reduce the budget deficit.

The Congressional Budget Office (CBO) estimates the legislation to avert the Fiscal Cliff will reduce revenues and increase spending, overall adding nearly $4.0 trillion to the Government deficits over the next 10 years.

B) The Fiscal Cliff deal does not avoid increased taxes.

As a result of the deal, the Tax Policy Center, a nonpartisan Washington research group, estimates that taxes on 77.1% of U.S. households are going up in 2013.

Among the households facing higher taxes, the average increase in taxes would be $1,635, the Tax Policy Center said.

  1. The two-year old 2% cut to payroll taxes is being allowed to expire. The payroll tax, which was reduced to 4.2% in 2011 and 2012, returns to 6.2% in 2013. This is expected to take about $120 billion out of the economy, which should have a negative impact of about 0.7% on GDP growth.
  2. Marginal income and capital gains tax rates are increased for those with annual income over $400,000 for individuals and $450,000 for couples. The top income rate is going up from 35% to 39.6%. The top capital gains rate increases from 15% to 20%.
  3. A phase-out of tax deductions and credits for incomes over $250,000 for individuals and $300,000 for couples is reinstated.
  4. Estate taxes are set at 40% of the value above $5,250,000, indexed for inflation, up from 35% of the value over $5,120,000.
  5. A 2.3% tax on gross sales of medical devices (such as heart valves and hip replacement parts – a tax firms making equipment must pay even if they have no profit at all.
  6. A new 3.8% surtax on investment income (possibly including profits from the sale of a home) for individuals making more than $200,000 a year or couples with $250,000 or more.
  7. An increase of Medicare tax on wages above $200,000 for individuals and $250,000 for couples.  The current 2.9% Medicare payroll tax will be increased to a total of 3.8%.
  8. A raise in the threshold for allowed Itemized Medical Deductions from 7.5% of adjusted gross income to 10%, burdening those with the largest medical expenses by limiting how much of these costs they can deduct on their taxes.

C) The Fiscal Cliff deal does not reduce Government spending.

The budget sequestration created by the Budget Control Act of 2011 (the directed automatic across-the-board cuts totaling $110 billion per year for 10 years beginning on January 2, 2013, split evenly ($55 billion each) between defense and non-defense discretionary spending) is delayed by two months.

The American Taxpayer Relief Act of 2012 does include, however, over $67 billion in tax breaks for ‘renewable energy’, Hollywood, multinational corporations, Puerto Rico and Virgin Islands rum industry, NASCAR, plug-in electric scooters and others.

Obama Supports Offshore Oil Drilling?

Yes! In Brazil!

In 2009, the U.S. Export-Import Bank has approved a plan to offer loans or loan-guarantees to Brazil’s state-owned oil company, Petrobras, to finance exploration of an offshore oil field near Rio de Janeiro.

In March 2011, Obama called for increased offshore drilling as a way to promote American energy security and bolster the nation’s economy.

On the first leg of his trip to Latin America in March 2011, Obama said in Brazil that his administration wants to assist the Brazilian government “with technology and support” in developing its oil reserves.

“We want to partner with Brazil… on the issue of energy, which is why President Rousseff and I… agreed to launch a Strategic Energy Dialogue.  By some estimates, the oil you recently discovered off the shores of Brazil could amount to twice the reserves we have in the United States.  We want to work with you.  We want to help with technology and support to develop these oil reserves safely, and when you’re ready to start selling, we want to be one of your best customers.  At a time when we’ve been reminded how easily instability in other parts of the world can affect the price of oil, the United States could not be happier with the potential for a new, stable source of energy.”

On the other hand…

On June 29, 2012, the Obama administration released its 5-year (2012-2017) oil drilling plan which keeps 85% of America’s offshore areas off-limits to energy production.

With this plan, the administration reinstates the 27 year moratorium that was lifted in 2008.  Since taking office, Mr. Obama and Secretary of Interior Mr. Salazar have worked to restrict access to America’s offshore oil and gas resources by canceling and delaying lease sales.  More than 3 1/2 years into the Obama administration, nearly 86 billion barrels of undiscovered oil on the Outer Continental Shelf remain off-limits to Americans. Alaska alone has about 24 billion barrels of oil in un-leased federal waters. The Commonwealth of Virginia – where Mr. Obama has reversed policies that would have allowed offshore development – is home to 130 million barrels of offshore oil and 1.14 trillion cubic feet of natural gas.

Once you add those restrictions to the vast amount of shale oil that is being blocked, the administration has embargoed nearly 200 years of domestic oil supply.

Obama's Plan for Offshore Drilling

Offshore Areas Blocked for Drilling under President Obama’s Final 2012-2017 Plan

Offshore Drilling before Obama

Offshore Areas Open for Drilling when President Obama Took Office

 

The Private Sector is Doing Fine

In a press conference in Washington on June 8, 2012, President Obama said that “the private sector is doing fine”.

He added that “Where we’re seeing weaknesses in our economy have to do with state and local government, oftentimes cuts initiated by governors or mayors who are not getting the kind of help that they have in the past* from the federal government“.

Several times during his remarks, which included taking questions from three reporters, the president suggested that the private sector was in a good place. “We’ve seen record profits in the corporate sector,” he said.

 

With an official unemployment rate of 8.2%, and with private jobs down 4.6 million since they peaked in January 2008 – does this make any sense?

Of course it does!

Here’s why.

According to the Census Bureau, in March 2010**, the economy had 223,800 fewer small businesses*** than it did two years earlier.
Now that all the weak businesses that couldn’t ride the storm and couldn’t hold on during the recession have failed and gone under – now the private sector is doing just fine!

As to the federal government not helping out governors and mayors as it has in the past* – that can easily be explained by the federal government running out of money, partially because its work force has grown during the same period by 11.4% – a staggering 225,000 more federal-government employees.

 

Alright!  Calm down. Relax. There is a solution to this. Really. A simple one.

David Axelrod, president Obama’s top campaign strategist said on Sunday June 10, 2012, that the country needs to “accelerate” job creation in the private sectorby hiring more teachers, police and firefighters.

“The private sector, we need to accelerate job creation in the private sector,” Axelrod told CNN’s “State of the Union,” before adding: “One of the ways that we can do that is putting teachers and firefighters and police back to work because those are good middle-class jobs.”

Told that teachers and firefighters are part of the public sector, Axelrod continued to defend his statement. “But that will help accelerate the recovery,” Axelrod said.

 

A footnote on federal-government employment

  • During President Reagan’s 8 years in office – the federal government’s workforce grew by 12,000 employees.
  • President Carter, during his 4-year term, added 100,000 new federal employees.
  • President Obama, in his 3½ years in office, has so far added 130,000 new federal employees.

* Referring to the $780 billion stimulus of early 2009 which funneled massive funding to state and local governments.
** More recent data is not yet available
*** Companies with under 100 employees