"Only One Thing To Say To This"*by Karl Denninger
"Yeah, it's pretty clear, eh? "The Senate early on New Year's Day voted overwhelmingly in favor of a fiscal cliff deal that would extend tax rates on annual household income under $450,000 and postpones automatic spending cuts for two months. The bill was approved in an 89-8 vote that came after only 10 minutes of formal floor debate and no official score from the Congressional Budget Office. The Joint Committee on Taxation estimated it would reduce federal revenue by $3.93 trillion over the next decade compared to current law."
Net spending reduction? $15 billion. In other words, effectively zero.
I thought I'd update you on where I think things are going to shake out in the short term. First, everyone's taxes are going up- the invisible taxes. Specifically, the Payroll Tax Cut is going to expire. Count on it. I strongly support this; it was a massively-destructive revenue cut that was intended to and did destabilize Social Security funding.
Neither side of the aisle will talk about this but it's a fact. This particular tax change alone will add about $200 billion to Federal Revenues annually, and it falls "on employers" (supposedly.) In reality it falls on all employees, because every tax assessed on an employer is immediately passed through to the employee, and is considered when all salary offers are made- dollar for dollar.
If you have any interest in balancing the budget you want this tax "cut" to expire. If you have an interest in the national debt you want this tax "cut" to expire. And if you are either receiving Social Security now, or think you will at some point in the future- any point in the future and in any amount- you want this tax "cut" to expire.
By law when the Social Security "trust fund" runs out of surplus all benefits must be ratably cut immediately to eliminate any shortfall. The "cliff" date for this has been widely quoted as 2039. This "tax cut" had accelerated this to as soon as 2019 or thereabouts, roughly 6 years hence! The problem is that a huge percentage of the damage is already done, and ZIRP does even more as it lowers on a permanent basis the coupon that is earned on long term Treasuries, which is what the "trust fund" holds and buys. Even ceasing the Payroll Tax Cut now will not reverse the damage that has been inflicted, but it does stop it from accumulating. Once the dust settles I will try to run an actuarial calculation on exactly where the exhaustion date is now, but my suspicion using just some rough guesses is that it's around 2025 - that is, the few years of "tax cut" has taken more than 10 years off the lifetime of the existing "trust funds" under existing law.
Second, those who continue to have the insane view that "deficits don't matter" or worse, that any sort of exponential (compound) growth system can persist on an indefinite basis are about to get a very rude awakening, and it's not going to be fun.
2013 is going to bring many changes and you're not going to like them, no matter what side of the aisle you hail from, or if you refuse to buttonhole into one of the "left/right" paradigm cubbies. Of that I'm certain.
As such you had better figure out where you stand on many issues, where your lines in the sand really are, whether they're really lines or whether you will move them in which case you have no moral compass or lines at all, and exactly what you are willing and prepared to immediately do in response if they are crossed. There will be many attempts to cross those lines this coming year and the seminal issue for all in this nation is are those lines you draw rhetorical devices - in other words bull**** - or are they real? Unfortunately. Happy New Year."- http://market-ticker.org/ *:
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