I hear you.
I’m starting to get worried the ‘caveats’ are winning

🙁

in any case the charts are still saying ‘sell’ even though,
ex caveats, the fundamentals are ok.

So in any case timing isn’t right yet for a long position, seems

On Fri, Nov 9, 2012 at 7:25 AM, Michael Norman wrote:
You’re pretty sanguine on being able to avoid the fiscal cliff, however, I just don’t see it.

51 Responses

  1. Taxes are scheduled to go up; Boehner can’t stop it unless Obama caves. Most likely scenario is that Obama gets the middle class (extension of) tax cuts he wants and gives Boehner some of the (extension of) tax cuts for the wealthy he wants.

    But even Obama’s plan–never mind whatever compromise he gives Boehner–only starts to raise taxes above $200k income. I find it hard to believe that changing tax rates on people that wealthy will have much effect on short term aggregate demand. People at that level of income have big savings, low propensity to spend, etc. etc.

    1. @Chaz,

      “I find it hard to believe that changing tax rates on people that wealthy”

      Huh. Wealthy!? Where do you live? I live in West LA. $200,000 is not wealthy where I live.

      1. @Bullish_Bear, it is wealthy. You can live a more than comfortable life with that amount of income per year. Plus I read taxes only will go up for those making over 250k year.

        Saying that they should raise taxes on those only making 1,000,000 year. In other words make a new tax rate.

      2. @Adam2,

        Everything is relative. One can argue that the poor in the US aren’t really poor. Dinesh D’Souza once asked a friend of his in Bombay why he wanted so much to emigrate to the US, and his friend said “I really want to move to a country where the poor people are fat.”

        My definition of “rich” has always been a person whose financial means is such that he can sustain his standard of living without having to work, as well as insure himself against a financial calamity due to an illness, a hurricane, a lawsuit, etc. That’s not directly related to income.

      3. @Adam2,

        @ESM

        It may not be related to current income but it is definiitely related to your past income or someones past income (like your daddys if your last name is Bush Kennedy or Romney)

        No one achieved great wealth without having great income at some time.

        You make a good point about relative wealth which also applies to the rich. 39% tax rate is NOT oppressive and inheritance taxes can keep Kennedys from always having a leg up on their peers.

      4. @Adam2,

        “39% tax rate is NOT oppressive…”

        On an absolute level, no, it’s not. But the change hurts. You’re going from leaving people with 65 cents of every extra dollar they make (not counting state and Medicare and Obamacare taxes) to leaving people with 60.4 cents. That is not immaterial. But regardless, the tax hikers will never say what level they think is “fair.” They’ll just use whatever the prevailing rate is as a base to raise taxes further when they note that income inequality persists. That’s why it’s important to fight them every step of the way.

        “… inheritance taxes can keep Kennedys from always having a leg up on their peers.”

        LOL. Great satire. Mind if I borrow that sentence?

      5. @ESM2,

        I am happy to say what would be fair: the total state+federal rate being 60% on individual income over $100k, 70% on income beyond $200k, 80% on income beyond $300k, then some function taking you up to 100% on income beyond $1m. Those are just some numbers on the spot but it’s roughly in line with what I think would be “fair”.

        Now as a matter of policy I support slightly lower tax rates than those, because when you get up to 100% rich people tend to hide all the money or not bother accumulating it. Studies put the revenue maximizing rate at around 75%, so I would make that the top rate (on everything above ~$300,000).

        Of course we would need large spending increases and tax cuts for lower incomes to achieve full employment with these levels.

        The reason you don’t frequently see leftists conceding that rich people’s taxes should not be raised is because we never reach levels anywhere near the appropriate rates.

      6. @Adam2,

        @Chaz:

        Thankfully I think there are few in the US who share your notion of “fair.” In Europe (particularly France) you would have more company probably. My view is a bit different. I don’t think taxing income is fair at all. Taxing wealth and/or consumption, on the other hand, is justifiable.

        “Studies put the revenue maximizing rate at around 75%, so I would make that the top rate (on everything above ~$300,000).”

        But why is maximizing revenue the goal? Shouldn’t we be trying to maximize production? Consider a highly productive person who would work hard enough to generate $1MM of income at a 40% marginal rate. Above your $300K threshold, the taxes paid by this guy would be $280K. Now suppose that at a 75% marginal rate, the guy scales back his hours and only generates $700K of income, thus paying taxes of $300K above your $300K threshold. The government has netted an extra $20K of tax revenue at the higher rate, but hasn’t the economy lost $300K of production?

      7. @Adam2,

        @ESM

        “But why is maximizing revenue the goal? Shouldn’t we be trying to maximize production? ”

        I agree completely. Maximizing revenue is only for people who are following balanced budget economics, which I reject.

        “Consider a highly productive person who would work hard enough to generate $1MM of income at a 40% marginal rate. Above your $300K threshold, the taxes paid by this guy would be $280K. Now suppose that at a 75% marginal rate, the guy scales back his hours and only generates $700K of income, thus paying taxes of $300K above your $300K threshold. The government has netted an extra $20K of tax revenue at the higher rate, but hasn’t the economy lost $300K of production?”

        This does NOT follow though. Ive seen this argument or some version of it trotted out before and it fails the fallacy of composition test. Just because person A chooses to forgo 300,000$ of income (which is someone elses spending) that 300,000 is not lost, it is only lost to person A. You think person B or C or ….. is going to leave $300,000 on the table?!! This assumes that your income is driven entirely by your own production, which is not correct. Your income is the result of someone elses spending. So the potential income that person A said no thank you to, will almost assuredly be picked up by someone else and they will say “Thank you very much”. The total income to be taxed in the system will remain the same. Whatever service that person A provides that someone was going to pay 300,000 for, WILL be done by someone else, I can guarantee. Person A is not the only provider of said service (in a healthy market). If they are we got problems beyond our tax rates.

      8. @Adam2,
        I don’t agree. Most production starts with borrowed money. With no reasonable profit in sight, most would not borrow. There might be someone else out there who does want to do work for little profit, but relatively few people are actually able to borrow, so that’s where the argument dies (and the tax is lost).

      9. @Adam2,

        @Greg:

        “Whatever service that person A provides that someone was going to pay 300,000 for, WILL be done by someone else, I can guarantee.”

        The combination of arrogance and ignorance (arrgnorance?) in this claim simply takes my breath away.

        “Person A is not the only provider of said service (in a healthy market). If they are we got problems beyond our tax rates.”

        You know, aside from the fact that any substitute providers B and C are probably in the same position as A vis a vis taxes and incentives, it simply isn’t true that you can find good substitutes so easily. Do you know how disruptive it is when a key employee leaves a business, or a key lawyer is unavailable to give advice, or a key mechanic isn’t around to help fix a piece of equipment? How about a doctor with whom you have developed a relationship, or a psychologist, or a teacher? I actually already have this problem, since my family doctor has cut back his working days to just two per week. Your claims are so contrary to common sense and everyday experience that I have to believe that you just wrote them in haste and don’t really believe them yourself.

        I think you have a fundamental misconception about consumption vs production, and it’s something that I’ve mentioned before. Consumption is easy; production is hard. Our standard of living isn’t high because we spend so much. Our standard of living is high because we produce so much. The problem of insufficient demand is easily remedied. After all, money is just an intangible that can be created ex nihilo. But you can’t create goods and services from nothing.

      10. @Adam2,

        @ESM

        Whoa!!

        “You know, aside from the fact that any substitute providers B and C are probably in the same position as A vis a vis taxes and incentives, it simply isn’t true that you can find good substitutes so easily.”

        Doesnt matter. If you are arguing that EVERYONE will turn down the 300,000 its you that has some splainin’

        ” Do you know how disruptive it is when a key employee leaves a business, or a key lawyer is unavailable to give advice, or a key mechanic isn’t around to help fix a piece of equipment? How about a doctor with whom you have developed a relationship, or a psychologist, or a teacher? I actually already have this problem, since my family doctor has cut back his working days to just two per week”

        Not arguing that there wont be “real” issues if your proposed scenario occurs especially en masse. Im simply saying that a loss of income to the system and lower taxes is NOT one of them. When people were boycotting ChikFila and their sales dropped if someone would have complained about calorie consumption lost to our economy you would have rightly laughed. BTW doctors retire everyday and their patients need to find new ones……… and they do!!!!

        .” Your claims are so contrary to common sense and everyday experience that I have to believe that you just wrote them in haste and don’t really believe them yourself.”

        You are hyperventilating over my claims without thinking about what Im really arguing.

        A guy I work with has made a version of this argument, saying he might not work OT anymore since Obamas gonna tax it all away. He claims this is proof that higher income taxes lead to less work because it punishes work. I asked him if he thought anyone else would do the work, and of course he thought someone would. I said “We dot need YOU to do the work we just need the work” And if they cant find anyone to do OT at current bid our physicians have two choices…. raise the bid or do the work themselves. A surgeon with a case WILL get anesthesia.

        “I think you have a fundamental misconception about consumption vs production, and it’s something that I’ve mentioned before. Consumption is easy; production is hard. Our standard of living isn’t high because we spend so much. Our standard of living is high because we produce so much.”

        Agree but its a two sided coin, We produce because someone WILL consume. Can Ford get rich selling only to its employees? Of course not. We need other prosperous people for us to profit off of. Supply side economics is mostly religion.

        We agree on this more than you think. Re read my claim and I think youll find it less controversial. Im referring to measurements of spending and income in the system. They wont change in your scenario just because one guy goes Galt. Might the quality of real output change? Sure. But Ill just say no one is irreplaceable

        Youll find another good doctor

      11. @Adam2,

        “I am happy to say what would be fair: the total state+federal rate being 60% on individual income over $100k, 70% on income beyond $200k, 80% on income beyond $300k, then some function taking you up to 100% on income beyond $1m. Those are just some numbers on the spot but it’s roughly in line with what I think would be “fair”.

        “Now as a matter of policy I support slightly lower tax rates than those, because when you get up to 100% rich people tend to hide all the money or not bother accumulating it. Studies put the revenue maximizing rate at around 75%, so I would make that the top rate (on everything above ~$300,000).”

        Chaz – I understand that this is a MMT forum not a Supply Side forum, but our host Warren Mosler makes the case that for the size government we have here in the US, we are grossly over taxed. Have you ever heard of the Laffer Curve?

      12. right, that means higher tax rates don’t make sense from a macro economic point of view

        but they might make sense to some from a ‘social engineering’ point of view.

        my point is the distinction between the two issues.

      13. @Bullish_Bear,

        Keep in mind that $200,000 is the cutoff for any marginal rate increase at all. So if you make $200,000 your taxes would not go up at all, and if you make a bit over $200,000 then they go up by a tiny amount. If you’re married then the cutoff is even higher. The level of income required to be significantly affected by Obama’s plan is way higher than everyone (including Obama) implies.

        Of course no matter where you set the level people at that level will say it’s middle class, and people way below it will say it’s rich. To a lot of people, if you’re able to live in West LA at all and you’re not someone’s maid, then you are wealthy.

      1. @vincent,

        Not sure if I understand your question. Obama wants to raise taxes because he wants a smaller deficit. He wants to cut spending for the same reason.

  2. Obama’s main goal seems to be to make the wealthiest people pay more tax. He seems to be willing to cut spending to achieve this aim.

  3. Aren’t you neglecting the obamacare caveat. It’s creating a need for massive restructuring in the supporting industries. Going to mean a lot of jobs lost.

      1. @WARREN MOSLER,
        good point, but i think that’s a few years out. in the meantime, it’s cut cut cut. just ask medical labs and device makers. these jobs tend to be well paying, so defeats the obama narrative, at least in the near term.

      2. @vincent,

        I can speak from experience in an operating room, there is no shortage of crap being peddled to doctors on a weekly basis. Much of it is simply reworking and cheapening an existing technology but that is a result of many technologies reaching a natural peak.

        Laparoscopic surgeries, nascent a couple decades ago are now ubiquitous and the technologies supporting them hard to improve on. Now folks are just coming up with cheap imitations to grab a market share. Hospitals in budget crunches embrace some of these to save money, but some of the crap doesnt do what its advertised and surgeons get pissed.

        Robotic surgery is the new craze but its very expensive AND time consuming. Very few guys have done enough to the point where they are not taking 4-5x longer than the old way.

        Not right to blame Obamacare for these changes because these are mostly all from budget crunches which came in 2007 GFC (when we ran out of money!!) They save where they can on old stuff and try to buy the right new technology to get market share.

      3. @vincent,

        I agree for the most part. Interesting that Hilary Clinton, going back to the Hilarycare days, was quoted as saying that medical costs will decrease with advances in technology. To me, it’s just the opposite.
        The Obamacare law mandates certain adjustments to fees, and that’s what i was referencing. For all I know, it could well be beneficial to the country in the long run (i;m sure deficit hawks think so), but in the short run, i think it’s going to cause a lot of pain related to restructuring, particularly since they’re not giving much notice (CMS is releasing final fee schedule on Nov 16th for Jan 1st). Madness. Why spend the money on MDs, when you can wire it to the Solyndras of the world.

      4. @vincent,
        Warren, i really think it’s back loaded, because no real services until they get the insurance exchanges running. Right now mostly rule changes, and deficit reduction (fee cuts, and 3.8% investment tax this year)actually. Also, lots of businesses re-organizing to shield themselves–layoffs, and substituting part time for full time employees.

  4. Correct me if I’m wrong but if you make 250,001 dollars then your taxes only go up 4 cents. Your only taxed for what you make at that bracket.

  5. he is against raising taxes on people who have enormous amounts of fiat currency but is ok with slashing the safety net on the rest of us working class. “the modern conservative is engaged in one of mans oldest exercises in moral philosophy;that is,the search for a superior moral justification for selfishness. John Kenneth Galbraith john boner is a snake in the grass, and should be ashamed of himself

  6. Whenever I hear suggestions that taxes be raised, they are so rarely based on what is good for the economy and so frequently based in envy and class warfare. A poll today indicated that 47% of Americans support a tax increase on the rich. Of course they do. They’ll always vote to tax someone else if they think it’ll help them. What’s miraculous is that the number isn’t closer to 90%!

    Additionally, when Warren Buffett suggest that he should be paying more in taxes, he doesn’t seem to recognize that he and other billionaires have to reduce investment to get it done. There is no way that this is good for the economy. His willingness to pay more is based on the entirely flawed concept that his money is needed more by the government than it is by the private sector. The government doesn’t need his money.

    1. so how would buffet paying more in personal taxes reduce investment?

      is there some investment with a high risk adjusted return going begging for lack of available funding?

      if so, I’ve never seen it…

      1. @WARREN MOSLER, Why does it have to be high risk? It can be a low risk money market fund that is providing liquidity to a more risky private sector business. The point is that it is private sector dissavings based on the flawed premise that the government needs the money more than the private sector and one of our wealthiest and perceived brightest citizens is arguing that somehow it’s patriotic for him to pay more to reduce the debt.

  7. I don’t think we’re on the same page. The problem, as I see it, is that the democrats point to Buffett and say “he’s willing to pay more, so should you”. If it’s just Buffett, the effects are minimal. If it’s everyone above $250k, the effects are enormous. Again, I don’t believe that Buffett understands that the private sector needs his money more than the government needs his money. Even if the private sector barely needs his money at all, it’s still greater than the need from the government. Do you agree?

    1. @Ivan,

      Oh, Warren Buffett understands well enough. That’s why he gives all of his money to charitable foundations and pays very little tax.

      His motives are purely selfish. First, he is positioned to benefit from higher tax rates in his municipal bond businesses; second, he is positioned to be hurt relatively less from higher tax rates than his super-wealthy peers (and of course it’s a competition, so all he cares about is relative changes); and third, he is effectively buying indulgences from the 99%.

      The third one is probably the main reason. There’s nothing quite as effective to deflect attention from your obscene wealth and outrageous consumption than to take up some progressive causes. In Buffett’s case, his consumption is eminently reasonable, so a more important element is to deflect from his decades of insider trading.

      1. @ESM,

        “he is effectively buying indulgences from the 99%…. The third one is probably the main reason. There’s nothing quite as effective to deflect attention from your obscene wealth and outrageous consumption than to take up some progressive causes. ”

        Interesting observations… rsp,

        Ivan, “I don’t believe that Buffett understands that the private sector needs his money more than the government needs his money.” : He may not have that much “money” if any, if we define “money” as $NFA… he may just have a lot of shares and other real assets… rsp,

      2. @ESM,
        it’s funny how every press piece about buffett always focuses on the fact that he lives in omaha, in the same “modest” house for 50 years or so. you rarely see anything about the laguna beach compound. and why did hank greenberg go down, but not buffett, when he was doing the same thing?
        another scotoma!

      1. @WARREN MOSLER, Is this the same Warren Mosler? Does the government need Warren Buffett’s money to fund itself? Is taking his money away from him good for the economy? Would Warren Buffet paying higher taxes be better for the economy than Warren Buffet doing just about anything else with that money?

      2. @Ivan, But his savings could be someone else’s spending. If he buys commercial paper through a money market fund and the company receiving the proceeds meets payroll, isn’t that net positive for the economy? Isn’t it better than destroying private sector net financial assets?

  8. Warren Buffett says better to go over the fiscal cliff if that’s what it takes to raise tax rates. Do you suppose he thinks the federal government is revenue constrained.

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