Fiscal Cliff Economics
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Transcript of Fiscal Cliff Economics
+
US Fiscal Cliff Commentary
Gnostam Economics Commentary December 5th 2012
www.gnostamconsulting.com Seattle, WA 98103 USA [email protected]
+US Taxes and Policies
n All US Government deficit projections depend upon projections: n Of interest rates;
n Of economic growth rates;
n Capital Investment;
n Demographics.
n In 2010 biggest source of revenues for the US Government were: n 40% Payroll taxes;
n 42% individual income taxes;
n Corporate taxes just 9%
n During period from 2000 -2010 the incomes for high school graduates fell by 14%. Therefore, the source of much of US Government taxes has been shrinking because of ……… Inequality.
+Total US Debt
+US Income inequality
+Over last 40 years Top 1% pays less 250% in taxes
+Effective Tax rates on wealthy
Taxes as % of GDP in USA are 27% in 2010 vs 43% in Italy and 49% in Denmark
+Top Individual Marginal Tax rates
+Taxes as % of GDP OECD nations
+Evolution of Fiscal Deficit in USA
+Revenues under alternative scenarios
+Number that matter n Current budget deficit: US $ 1090 bn;
n US GDP in 2012 projected at $15,090 bn;
n Financed by Goodwill of China’s surplus and other countries with strong surplus’s;
n CBO projects US tax revenues of $2,450 bn revenues in 2012 or 15.7% of GDP. Under Reagan tax revenues 18.2%, Clinton 19%;
n Total US Debt: $16,235 bn. Obama projection, reduce by 7,100 bn by 2014, unlikely unless we have increase in tax revenues as % GDP.
n Revenues raised: n Under Obama plan: +65% (1,600 bn); n Under Boehner plan: +32% (800bn); n Deficit would be paid down in 3 years if revenues as % of GDP were
OECD average.
+We are an open international economy. Fiscal reform matters.
+The tax code must be reformed n Industries that legally pay almost no taxes:
n Biotech;
n Internet Software;
n Pharma
n Banking and Financial Services;
n 87% of State and Local taxes are “indirect”;
+Effective taxes paid by US Major Corporations in 2011
n GE 5%;
n IBM 1%;
n Conoco 8%;
n Wells Fargo, JP Morgan 14%;
n Exxon 2%; Chevron 4%;
n Apple, Microsoft 11%;
n Walmart 19%
Corporations are NOT people: • They pay no taxes on worldwide
income like individuals; • They can deduct interest from
taxable income, unlike individuals.
+Effect of Economic Growth on Tax Revenues
+Deficits are a function of economic activity n US tax revenues are the most leveraged to economic activity;
n Cannot fix US deficit without fixing US employment and economic activity, [Under Clinton tax revenues were >3.7 pts more as % GDP than under Obama]. Overseas wars have huge detrimental effect on US fiscal responsibility and sustainability;
n The economic crisis in 2009, -5.1% real GDP had a huge impact on tax revenues. Only Mexico and Chile collect less taxes as % GDP than US;
n US must change its dependency on payroll taxes and move to a progressive tax system, two tax brackets, 25% 35%, with no taxes payable on single/married incomes below $22,000/$32,000 and mortgage interest deduction phased out for those with incomes >$250,000;
n Corporations need to pay tax on worldwide income. Should have a one time tax amnesty for those who wish to bring funds back to US.