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Thread: Obama tax compromise ... 'good' for dancers in the short term at least

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    Banned Melonie's Avatar
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    Default Obama tax compromise ... 'good' for dancers in the short term at least

    from

    (snip)"The points, if I got them all, include:

    •A 2% payroll tax reduction (FICA/Medicare.) This is one we simply cannot afford, given the budget. And it's damn expensive - $120 billion a year, more or less.

    •All Bush tax rates extend for the next two years. This has no net impact from today. That is, today's deficits will remain as so will the tax rates.

    •99-week Unemployment extended for the next year. That's another $60 billion.

    •Expensing of all capital expenses. This will be very expensive if you have a profit, but if not, it costs nothing. The price of that is highly-variable and has a lot to do with how much demand it pulls forward. But all this does is pull forward buying into next year from out-years.

    The capital expense deal was done during Clinton's years to a limited amount and I took advantage of it. It's a good deal if you have realistic capital expenses you can make that will add to your profitability. But beware, it's not necessarily revenue-positive for the government in the out years. I used mine to buy a call director system and fire our receptionist! Oops.

    Estimates are that the package will add $500 billion to the deficit ($900 billion over two years) from where we are now. If that's anything close to accurate we're in big trouble - we're running $1.6 trillion now! I'd hope there are some offsets in there and this isn't the net change - it's difficult at this hour to know - because if it is net change we're going to hit the wall once the market figures this out.

    This isn't done yet - there are people who deeply unhappy with the deal on both sides of the aisle. I'll be keeping my ear to the ground and see what I can come up with in terms of a more-accurate idea of costs. I hope I'm wrong on the numbers - but I fear I'm right.

    A $2 trillion deficit would put our deficit over 14% of GDP next year, which is higher than the level that triggered the explosion in Greece and Ireland. And there is nothing in this proposal that offsets with spending cuts, so as far as I can tell, it's all going right on the credit card.

    I'm all for tax cuts provided we match 'em dollar-for-dollar with spending cuts. Even better is two dollars of spending cuts for a dollar of tax cuts. But of course we didn't get that, which makes this a really bad deal for America all around.

    If you were wondering if we were going to run smack into the wall at 100mph and splatter our nation, wonder no more - the answer is YES."(snip)


    (snip)Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.

    The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates."(snip)


    While it remains to be seen if this 'compromise' can actually be passed, if it does the short term effect will be to place a few thousand extra after-tax dollars into the hands of America's poor, middle class and rich alike. This will probably translate into America's upper middle class feeling better about discretionary spending, which likely means higher earnings for Tiffany's, Ralph Lauren, and exotic dancers !!!

    However, as the mainstream news stories fail to point out, the 'costs' of this compromise will indeed add another 1/2 trillion or so to next year's US federal budget deficit with no guaranteed offsetting tax revenues. This will undoubtedly lead to additional FED money printing thus higher US energy prices, higher US food prices, higher US prices for all imported manufactured goods etc.

    This will also accelerate the coming political battle to raise the current federal deficit ceiling somewhere around next February, at which point the US federal gov't may face its own Schwarzennegger moment !!


    (snip)"SACRAMENTO (AP) — Gov. Arnold Schwarzenegger has declared a fiscal emergency and is asking lawmakers to meet in a special session to save the state $9.9 billion over the next two years.

    Schwarzenegger on Monday unveiled a plan that relies largely on cuts to health care and social services for the poor.

    About $7.4 billion of his proposal would come from cuts, include reducing cash assistance to needy families by 15.7 percent in April, then eliminating the entire welfare-to-work program in July.

    He is proposing to eliminate vision coverage and increasing monthly premiums for Healthy Families, a program that provides health coverage for children of low-income families.

    The governor also is asking the state to limit prescriptions and cap physician visits to 10 a year for Medi-Cal recipients."(snip)

    from



    Enjoy the next couple of months ..... because things could get extremely 'interesting' after that !

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    Banned Eric Stoner's Avatar
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    Default Re: Obama tax compromise ... 'good' for dancers in the short term at least

    It was a LOUSY deal on so many levels. In a perverse way, BOTH sides were better off letting the Bush Tax Cuts expire to provide incentive for real, genuine Tax Reform. Instead they just keep propping up the same broken, disfunctional tax system that rewards wealth and punishes income.

    At what point do we stop extending unemployment ? State unemployment funds are already broke. Employers cannot afford continual increases to their contributions. And NOBODY is going after all the fraud and double dipping. How do you think it feels when an employer has to lay off an employee who collects unemployment but finds out they are working somewhere else "off the books" ? And that's NOT an isolated occurrence. When you subsidize something, you get more of it and we are subsidizing unemployment. At least call these extended benefits what they are : "WELFARE" ! A 13 month extension ? 13 months ! Not very confident in a short term turnaround, are they ?

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    Banned Melonie's Avatar
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    Default Re: Obama tax compromise ... 'good' for dancers in the short term at least

    ^^^ indeed, the Schwarzennegger moment in California must have been based, at least in part, on the 'unspoken' fact that a federal 13 month extension of emergency unemployment benefits also thrusts additional costs ( matching funds ) on state unemployment funds that are already bankrupt and already borrowing extremely large amounts of money ( $40 million a day ! ) from the federal gov't to keep unemployment checks flowing. And for better or worse, the higher a state's unemployment rate, the higher this unanticipated new drain on state budgets will be !

    As to extending unemployment benefits once again, the 'gold foil hat' crowd will tell you that this is a 'stealth' bailout of states with high unemployment rates because, even though a portion of the unemployment benefit costs will be borne by those states, that cost is far lower than it would be if the long term unemployed who had exhausted unemployment benefits signed up for state social services programs i.e. SNAP, subsidized rent, subsidized utilities, medicaid etc. Some of the 'talking heads' will undoubtedly point out that extending unemployment benefits yet again will encourage some number of long term unemployed Americans to continue turning down available jobs since the after-tax net 'earnings' from their unemployment checks is 80% as much as the after-tax net earnings from an available job ( but without having to leave their house, without having to buy gas to drive to work etc.).

    At any rate, circling back on the direct topic, if this tax compromise does actually pass it will probably mean some ( short sighted) 'celebratory' discretionary spending over the next couple of months - which will be beneficial to dancer earnings potential.

    However, at some point soon after, the dollar devaluing effects of the FED 'printing' billions of additional US dollars to pay for the increased deficit spending required by this tax compromise is likely to result in an even larger increases in US dollar denominated prices for oil / energy, for food, for imported goods etc. Thus every additional after-tax dollar that the American 'poor' and 'middle class' thought they were going to be receiving as a result of the tax compromise will soon need to be spent on higher grocery bills, higher heating bills, higher costs of filling the gas tank etc.

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    Default Re: Obama tax compromise ... 'good' for dancers in the short term at least

    and here's the possible reason that the Republicans were so willing to accept Obama's compromise ( as opposed to playing hardball on permanent tax rates )

    (snip)"Trojan Horse in Tax Compromise: GOP Plan to Bankrupt States, Break Unions (Updated)

    This alert came via James Pethokoukis of Reuters:

    Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

    That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

    In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.

    This report has serious, and apparently unrecognized implications:

    1. The cheery observations that state tax receipts and spending are set to increase in 2011 by 5% will be more than undercut by budget brinksmanship in key states

    2. This GOP strategy sounds troublingly similar to the famed scene in Blazing Saddles where the new black sheriff, getting a less than welcome reception from townspeople, threatens to shoot himself. The GOP is willing to shoot the economy to precipitate a crisis with the hopes of forcing the most favorable resolution possible to a long-standing desire of theirs. But the collateral damage will be considerable. Uncertainty over the muni bond market will likely extend well beyond particular states (many people invest in munis via funds rather than specific bonds, and if they exit that market, it will damage all sorts of blameless government entities who have the vast misfortune to need to access the market in 2011). And it is also not inconceivable that unions might actually get the balls to strike, shutting down critical services. If a drama of civil unrest takes place, this will damage the markets (and hence the wealthy GOP investor base) and the economy generally.

    3. It isn’t hard to recognize this move as part of an effort to push America further into banana republic land, with a small and wealthy elite controlling the government and a greatly disproportionate share of the wealth. As we’ve indicated, those sorts of societies are unhealthy, even for those at the very top, but that does not seem to deter anyone behind this campaign. Notice that the objective here is not to do the responsible thing, which is to figure out the fairest and least destructive way out of the states’ budget woes; it’s instead to push this festering problem to a crisis to achieve another goal, namely, break unions, with the objective of transferring even more to the rentier class. Now that we’ve had stagnant average worker wages for over thirty years, government worker pay, which used to lag considerably, now looks not too bad (although various studies have pointed out that government pay is not out of line when you look at job skill requirements; you have more white collar jobs in government than in the private sector. Cherry picking examples of arguably overpaid government sector workers is no different than trying to base private sector tax policy on examples of ostentatiously overpaid private sector workers, like John Thain’s driver, who made $230,000 in 200.

    And note that those stagnant average worker wages resulted not from some widespread failing of US workers, as some critics like to allege, but because the benefits of productivity gains, which used to be shared between workers and the companies, now accrue entirely to companies.

    Update 3:00 AM: Bruce Krasting, who is not at all left leaning, sees the elimination of the Buy America Bonds Program as a disaster, a black swan in the making:

    It wasn’t the political muscle that lead me to believe that BABs would be extended. I saw it as a critical component in municipal finance. If it was eliminated I thought we could quickly evolve into a crisis with certain states debt. I was by no means alone in that observation. This comment from the rag for the muni market, The Bond Buyer:

    If the Build America Bond program expires at the end of this year, long-term tax-exempt bonds could lose their latest pillar of support.

    Parts of me want to be proved right about the significance of this development. I am one of those who thinks there is too much debt creation at the governmental level. Well, it just got more difficult for munis to borrow. By itself, that will curb debt creation.

    There is another part of me that is saying “gulp”. By definition, you do not see a black swan in advance. I did not see this at all. I don’t count, but the market does. If you follow markets you now have to have a screen for muni pricing. As this sorts out over the next 60 to 90 days the muni market might drive the global markets.

    I’m thinking to myself, “How could they have blundered on this?” They extend the Bush cuts for everyone. They tack on another 120b of deficit spending with a cut in SS taxes. And they throw in another year of unemployment checks. They threw the sink at the economy at the sake of the deficit. But they failed to pass BABs? Knuckle heads. If there is a hiccup that takes a big state out of the market for a spell it will trump the economic benefits of all the new deficit spending. It might do it a few times over."(snip)

    from


    For anybody who doesn't follow such things, Build America Bonds were instituted as part of Obama's stimulus program. They basically allowed the US federal gov't to 'lend' its credit rating to individual states, as well as providing a 33% federal taxpayer funded subsidy on the borrowing costs. In essence, BAB's constituted a 'stealth' federal subsidy to those states which had relatively poor credit ratings and also needed to borrow a ton of additional money to meet operating expenses. BAB's are NOT part of the Obama compromise. Thus after January 1st, if states like California, Illinois, New York, New Jersey attempt to continue borrowing money to meet operating expenses they are going to have to pay market interest rates on newly issued state muni bonds that are based on the state's individual credit rating. Theoretically this could shift these states' actual borrowing costs from a federally subsidized 4% to an unsubsidized 8% !

    This is of course somewhat good news for uber-rich residents of these states, who will now receive totally tax free 8% interest earnings on any money they choose to deploy purchasing state muni bonds. But for the taxpayers of these states it is somewhat bad news since the out of pocket cost differential involved between paying 4% interest on BAB's and 8% interest on 'long term' muni bonds amounts to adding 15-20% to state budgets ... many of which are arguably already bankrupt at 4% !!!

    The implied situation over the past couple of years has been that Obama and the US federal taxpayer would be able to provide ongoing 'stealth' bailouts of these heavily indebted and primarily Democrat states. There was also an expectation from some quarters that, if pushed to the point of impending state bankruptcies, Obama and Congressional Democrats would by one means or another arrange an 'official' federal bailout of these states.

    Of course, as a result of last month's election, Congressional Republicans how have the ability to prevent this from happening - which not only precludes an 'official' federal bailout from happening but also is resulting in the shutting down of existing 'stealth' bailout mechanisms like the BAB's. The train of thought here is to force these states to face their fiscal situations on their own, and to use bankruptcy ( actually default ) as a means to terminate 'sweetheart' gov't worker contracts, as a means to reduce social welfare payments, as a reason to cut state educational subsidies, as a reason to impose stiff state tax increases etc. in order to finally bring their state budgets into balance regardless of who may be forced to endure some 'pain' in the process. Or put another way, a year from now California etc. could very well be in Ireland's shoes.

    ~

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