Wednesday, January 2, 2013

2/1/2013: The Bitter ATRA Fudge

Some say never shall one let a good crisis go to waste... US Fiscal Cliff 'deal' of December 31st is an exact illustration. Here is the list of pork carriages attached to the Disney-styled 'train' of policies the US Congress enacted.

Have a laugh:

And to summarise the farcical output of the Congressional effort:

  • The American Taxpayers Relief Act (ATRA) has raised taxes on pretty much everyone. Taxes up means growth down. Now, recall that the US economy is not exactly in a sporting form to start with (link here).
  • The payroll taxes cuts are not extended into 2013 so every American is getting whacked with some 2% reduction in the disposable income, taking out $115 billion per annum (the largest revenue raising measure in the ATRA) out of households savings, investment and consumption, or under 1% of annual personal consumption.
  • The super-rich (or just filthy-rich, take your pick, but defined as those on joint incomes at or above $450K pa) will see income tax rising to 39.6% and will have to pay an additional 0.9% in Medicare tax to cover that which they will not be buying - the Obamacare. They (alongside anyone earning above $250K pa) will also pay 3.8% additional tax on 'passive' income - income from capital gains and dividends for same Obamacare.
  • Dividends and CGT are raised from 15% to 20% (again for joint earners above $450K pa).
Meanwhile, the US has already breached the debt ceiling and the ATRA has done virtually nothing to address the deficit overhang. So in a summary, the 'deal' is a flightless dodo flopping in the mud of politics. There are no real cuts on the expenditure side, there are loads of tax hikes that are likely to damage demand and investment and lift up the cost of capex funding for the real economy. And there is simply more - not less - uncertainty about the future direction of policy, as the White House and the Congress are going to be at loggerheads in months to come dealing with the following list of unaddressed topics:
  1. Spending cuts
  2. Budget deficit
  3. Further tax hikes
  4. Debt
  5. Reforms of the entitlements system
  6. Growth-retarding effects of ATRA and Obamacare.
Obamanomics have delivered fudged recovery, fudged solutions to structural crises and real, tangible increases in taxation. The latter is the 'first' since 1993.


astaines said...

Not sure it is as simple as Obamanomics. The US economy is a mess, partly because the political system is so badly divided, and there is so little consensus on the way forward. This may be the best they can come up with.

TrueEconomics said...

Political system is always badly divided. The role of Presidential Leadership is to brach this divide. LBJ was able to do it, so was Reagan. Clinton fought a decent fight and quasi-won. Obama so far has proven to be utterly incapable of going beyond the fudge. And that, in my view, is the essence of Obamanomics. The latest round went his way because the GOP blinked, scared of taking the blame for the Fiscal Cliff (potential) fallout. But his victory is Pyrrhic, because he has no vision. He could have won by passing reforms. He won only time.

Anonymous said...

The sole role of the US constitution when it was enacted was to limit the power of the Federal Government.
The US is a republic where sovereignty is vested in every citizen .The notion of compromise or liberal concepts such as fairness which spread like infections through parliamentary democracies should be alien in the American system.
An administration which passes no laws due to obstruction by the House of Reps. is the most successful form of US government.

The expansion of state control,the acceptance of oligarchical rule by a plurality of Americans and European style welfare dependence is killing America.