2014 Deficit estimate down to 514 billion

[MTAtech]

It is important to remember how the budget system works. Congress has the prime responsibility. Obama in 2013 submitted a budget for $3,883 billion in spending and fortunately Congress passed a spending resolutions that ended up with $429 billion LESS in spending. If not, perhaps we would be talking about a $943 billion deficit in FY 2013. See page 205:
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/budget.pdf

For the FY2014, Obama wanted $3,778 billion in spending while Congress, or the CBO, is projecting spending at $3,543 billion, or $235 billion LESS. See page 183.

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf

Let's not give excess credit or blame to Presidents for the budget that Congress passes.

While you try to credit those fiscally tough Republicans in Congress, the CBO has a different take on why the deficit is falling:

CBO | The Budget and Economic Outlook: 2014 to 2024
Federal revenues are expected to grow by about 9 percent this year, to $3.0 trillion, or 17.5 percent of GDP—just above their average percentage of the past 40 years (see the figure below). Revenues were well below that average in recent years, both because the income of individuals and corporations fell during the recession and because policymakers reduced some taxes. The expiration of various tax provisions and the improving economy underlie CBO’s projection that revenues will rise sharply this year. Those factors will increase revenues further in 2015, with CBO’s baseline showing another 9 percent rise. After 2015, revenues are projected to grow at about the same pace as output and to average 18.1 percent of GDP under the current-law assumptions of CBO’s baseline.

So, if Mitt was elected, he would have joined the House's push to make those expiring tax-cuts, which are responsible for adding the revenue that's bringing the deficit down, permanent.

 

[MTAtech]

So, if Mitt was elected, he would have joined the House's push to make those expiring tax-cuts, which are responsible for adding the revenue that's bringing the deficit down, permanent.

Let me correct that terrible sentence structure.

So, if Mitt was elected, he would have joined the House's push to make those expiring tax-cuts permanent, which are responsible for adding the revenue that's bringing down the deficit.

 

[Eric7216]

While you try to credit those fiscally tough Republicans in Congress, the CBO has a different take on why the deficit is falling:


So, if Mitt was elected, he would have joined the House's push to make those expiring tax-cuts, which are responsible for adding the revenue that's bringing the deficit down, permanent.

Well, I did not mention Republicans in my post, simply Congress. And Congress already had made 82% of the Bush tax cuts permanent in January, 2012, after extending all of them 2 years before. Romney may have reinstated tax cuts (unlikely) but he certainly would not have gone back in time and made the expiring tax cuts permanent because they already were.

 

[imagep]

Well, I did not mention Republicans in my post, simply Congress. And Congress already had made 82% of the Bush tax cuts permanent in January, 2012, after extending all of them 2 years before. Romney may have reinstated tax cuts (unlikely) but he certainly would not have gone back in time and made the expiring tax cuts permanent because they already were.

So you are suggesting that the fiscal policy of a theoretical republican POTUS would be virtually identical to the fiscal policy of our real life democrat POTUS?

 

[WhyNotWhyNot]

So you are suggesting that the fiscal policy of a theoretical republican POTUS would be virtually identical to the fiscal policy of our real life democrat POTUS?

A couple of years ago I wrote:

These families are the same ruling cast of American society and their fundamental life experiences are essentially all the same. The majority are lawyers by education, many of whom specifically went to law school to train to become professional politicians. Consider the education training of the US Presidents who have held the office for the last 24 years and will for at least the next four years. George H. W. Bush was a Yale graduate. Bill Clinton and also Hillary Clinton have law degrees from Yale. George W. Bush graduated from Yale and subsequently received a Masters of Business Administration from Harvard. Barrack Obama has a law degree from Harvard. Mitt Romney has a law degree and also an MBA from Harvard. All were taught by the same very small group of professors at two elite east coast private schools. There was very little diversity of training and because these schools tend to accumulate high society students very little diversity of experience and outlook on life.

I do not mean to denigrate the dedicated, often philanthropic, families that have served our nation to the best of their ability with honest dedication. I do not mean to suggest that there is a power grab conspiracy by any means. Having a good education and accumulated wealth through business success are positive traits for people charged with leading the nation. But I do want to make the point that those who have had the most influence on the direction of the nation for more than 100 years have generally been unconsciously trained by their family and social environment and consciously trained in their formal education to form a ruling fraternity that is both Republican and Democratic.

The two party system gives us the illusion that we have fundamental policy choice in elections and that we democratically determine the role of central government in the US. The candidates would have us believe that they are “conservative” versus “liberal”. Candidates love to deliver the message “our nation is going the wrong directions, vote for me because I am the true agent of change”. There may be occasional specific local elections where there is true distinction, but on average the two parties have governed with little difference and will continue to govern similarly. The opposing candidates in this year’s (2012) Presidential election are President Barrack Obama (Democrat) and Candidate Mitt Romney (Republican). They are using highly inflammatory language and advertising to define themselves as being strongly opposite on all issues. It seems that it is against the rules of modern American elections for candidates to ever make the slightest acknowledgement of agreement on anything. The old adage “leopards don’t change their spots” is solid wisdom. Both candidates have aristocratic tradition, both have law degrees from Harvard, both were elected to major political positions in usually liberal-progressive Democratic states, both successfully proposed and negotiated universal health care coverage laws, and both will find that deviation from their established trajectory through life can only be gradual and small if they are to govern successfully. “The Party” won the 2012 Presidential election 9 months before the votes were cast just exactly as George Orwell fantasized in 1984.

The real doctrine of both parties is “progressivism”. The first President to embrace this doctrine was Teddy Roosevelt, a Republican. His fifth cousin, President Franklin D Roosevelt, a Democrat, greatly advanced the cause and cemented it as the keystone of 20th century political philosophy. Both Roosevelts attended Harvard. - from the essay Government By the Party and of the Party in The Wind of Hope

Now Hillary seems to be rising to the top of the list of potentials. That would extend the Harvard - Yale streak.

 

[imagep]

A couple of years ago I wrote:



Now Hillary seems to be rising to the top of the list of potentials. That would extend the Harvard - Yale streak.

So our choices are either ying, or yang, who are identically shapped and are only different in that they are spooning each other...

 

[Eric7216]

So you are suggesting that the fiscal policy of a theoretical republican POTUS would be virtually identical to the fiscal policy of our real life democrat POTUS?

No, just responding to a post that claimed knowledge of what a theoretical President Romney would have done which seemed odd. And even odder because it suggested that he would have done something that Obama and Congress had already done, which was make permanent the Bush tax cuts (for the most part).
BTW, As Governor, Romney greatly increased both spending and revenues. Doesn't see like a tax cut guy. He liked to live within one's means.

 

[MTAtech]

No, just responding to a post that claimed knowledge of what a theoretical President Romney would have done which seemed odd. And even odder because it suggested that he would have done something that Obama and Congress had already done, which was make permanent the Bush tax cuts (for the most part).
BTW, As Governor, Romney greatly increased both spending and revenues. Doesn't see like a tax cut guy. He liked to live within one's means.

Romney is on record of wanting to make all the Bush tax cuts permanent. Obama just made the middle class cuts permanent, which I disagree. Romney also wanted to eliminate capital gains and the estate tax.

 

[Eric7216]

Romney is on record of wanting to make all the Bush tax cuts permanent. Obama just made the middle class cuts permanent, which I disagree. Romney also wanted to eliminate capital gains and the estate tax.

Middle class cuts. Have we gone that far down the rabbit hole to call giving people making $199,999.00 or couples making $249,999.00 middle class? Here I thought that I was a fortunate member of the upper middle class when my father (and household since my mother did not work outside the home) made $110,000 in todays money. Now that puts him almost in the group that would get subsidies for ACA. He is probably turning over in his grave about that. He was a classic FDR liberal that actually enjoyed paying taxes as he achieved something and wanted to help others do as well. Now he, apparently, was some loser struggling to make ends meet.

If the modal average income is $60K or so, people making 3 times that are not middle class. Taxes should have gone up on people making over $75K at least. At some point, you have enough money. Not sure about capital gains because at some point the people with capital just invest overseas or buy boats and paintings. As to estate taxes, it has always bothered me that both liberals and conservatives seem to like to keep them low when you would expect the opposite. You can't have self-reliance and independence with inherited wealth and you can't have equality and fraternity either. Inherited wealth leads to a class-based society that we escaped from.

Romney's economic adviser, Greg Mankiw, supports pigovian taxes to raise revenues.

 

[MTAtech]

Middle class cuts. Have we gone that far down the rabbit hole to call giving people making $199,999.00 or couples making $249,999.00 middle class? Here I thought that I was a fortunate member of the upper middle class when my father (and household since my mother did not work outside the home) made $110,000 in todays money. Now that puts him almost in the group that would get subsidies for ACA. He is probably turning over in his grave about that. He was a classic FDR liberal that actually enjoyed paying taxes as he achieved something and wanted to help others do as well. Now he, apparently, was some loser struggling to make ends meet.

If the modal average income is $60K or so, people making 3 times that are not middle class. Taxes should have gone up on people making over $75K at least. At some point, you have enough money. Not sure about capital gains because at some point the people with capital just invest overseas or buy boats and paintings. As to estate taxes, it has always bothered me that both liberals and conservatives seem to like to keep them low when you would expect the opposite. You can't have self-reliance and independence with inherited wealth and you can't have equality and fraternity either. Inherited wealth leads to a class-based society that we escaped from.

Romney's economic adviser, Greg Mankiw, supports pigovian taxes to raise revenues.

When it comes to defining upper-income, I agree with you. In the 1990s, the Clinton rates defined upper-income as $250,000. That's never been indexed for inflation. $250K in the 1990s is more like $400K today.

I don't see a need to have capital gains rates different from ordinary income rates.

 

[WhyNotWhyNot]

When it comes to defining upper-income, I agree with you. In the 1990s, the Clinton rates defined upper-income as $250,000. That's never been indexed for inflation. $250K in the 1990s is more like $400K today.

I don't see a need to have capital gains rates different from ordinary income rates.

The classic justification for defining capital gains as a unique income category that is separate from “ordinary income” and taxing it at a lower rate is that such policy is necessary to add attractiveness to investment that stimulates business growth = economic growth and employment growth. For the most part, this argument is indefensible. Suppose you have $1,000 to save / invest for two years. Also suppose that your other sources of income put you in the position where your tax rate on every additional ordinary income dollar earned is 32%. Had you put this money in a bank savings account or a CD you would have made $15 per year. That would be ordinary income so you would make about $21 after tax gain. The stock market historical average gain has been 5.3% per year (last year it was 20+% but we are talking about the long term capital gains rate so the long term market performance is more realistic for this discussion). With some smarts you can buy a group of stocks that pay about 2% annual dividend. So the two year capital gain will be $106 and the ordinary income will be $40. The after tax gain under current policy would be $117 which is nearly 6 times the amount made by savings interest. If the capital gains rate was equal to the ordinary income rate, the after tax gain would be $99, which is about 5 times the amount made by savings interest. Clearly the benefit to invest in corporate stocks is great no matter which capital gains tax rate is applied and the argument that an increase in capital gains rate will reduce investment is bogus.

 

[MTAtech]

The classic justification for defining capital gains as a unique income category that is separate from “ordinary income” and taxing it at a lower rate is that such policy is necessary to add attractiveness to investment that stimulates business growth = economic growth and employment growth. For the most part, this argument is indefensible. Suppose you have $1,000 to save / invest for two years. Also suppose that your other sources of income put you in the position where your tax rate on every additional ordinary income dollar earned is 32%. Had you put this money in a bank savings account or a CD you would have made $15 per year. That would be ordinary income so you would make about $21 after tax gain. The stock market historical average gain has been 5.3% per year (last year it was 20+% but we are talking about the long term capital gains rate so the long term market performance is more realistic for this discussion). With some smarts you can buy a group of stocks that pay about 2% annual dividend. So the two year capital gain will be $106 and the ordinary income will be $40. The after tax gain under current policy would be $117 which is nearly 6 times the amount made by savings interest. If the capital gains rate was equal to the ordinary income rate, the after tax gain would be $99, which is about 5 times the amount made by savings interest. Clearly the benefit to invest in corporate stocks is great no matter which capital gains tax rate is applied and the argument that an increase in capital gains rate will reduce investment is bogus.

Notice how the argument is that investors need to be encouraged to invest their money, which earns profits, while people don't need to be encouraged to get up at 6AM and go to work? Yes, the argument is only an indefensible excuse to lower taxes on those few whose money earns their money.

 

[WhyNotWhyNot]

Yes, the argument is only an indefensible excuse to lower taxes on those few whose money earns their money.

Not so fast with the accusatory position. I am one of the beneficiaries and you probably are also - everyone who diligently builds retirement savings holding mutual funds etc. benefits. The capital gains rate policy is not a conspiracy by a few ultra-rich people. My point was simply that elimination of this tax break would not have the negative economic impact that its promoters use to scare the public. It is not a necessary policy. I personally see no difference in the "color" of dollars earned and hence no justification for different tax rates or most tax deductions. I see such policies as divisive where the social damage cost far exceeds any minimal economic benefit. Our tax policies encourage the Robin Hood / Royal Court electioneering that is so popular today. They also encourage large scale graft (or at least the perception of it) - trading tax breaks for votes and influence. These are things that conservatives and liberals, Republicans and Democrats, generally agree upon when they aren't competing to establish election positions. We should design a comprehensive tax policy beginning with this common ground and resist jumping into the rich vs middle class, government expenditures vs revenues arguments that divert our attention and tear us apart. We can put rate tables in at the end - after we agree on the policies.

 

[MTAtech]

Not so fast with the accusatory position. I am one of the beneficiaries and you probably are also - everyone who diligently builds retirement savings holding mutual funds etc. benefits. The capital gains rate policy is not a conspiracy by a few ultra-rich people. My point was simply that elimination of this tax break would not have the negative economic impact that its promoters use to scare the public. It is not a necessary policy. I personally see no difference in the "color" of dollars earned and hence no justification for different tax rates or most tax deductions. I see such policies as divisive where the social damage cost far exceeds any minimal economic benefit. Our tax policies encourage the Robin Hood / Royal Court electioneering that is so popular today. They also encourage large scale graft (or at least the perception of it) - trading tax breaks for votes and influence. These are things that conservatives and liberals, Republicans and Democrats, generally agree upon when they aren't competing to establish election positions. We should design a comprehensive tax policy beginning with this common ground and resist jumping into the rich vs middle class, government expenditures vs revenues arguments that divert our attention and tear us apart. We can put rate tables in at the end - after we agree on the policies.

I am not being accusatory. I am agreeing with you. Elimination of the lower cap gains tax rate would not be a drag on the economy.

But retirement accounts are different with respect to taxes. People who have 401K plans never benefits from lower capital gains taxes. The money is contributed pre-tax but when it is distributed, it is taxed at the ordinary income rate, even the portion which is a capital gain. Thus, retirees are paying taxes on those funds. It almost is better contributing to funds post-tax and let the money grow and then the distribution is subject to the lower capital gains rate.

 

[fmw]

Notice how the argument is that investors need to be encouraged to invest their money, which earns profits, while people don't need to be encouraged to get up at 6AM and go to work? Yes, the argument is only an indefensible excuse to lower taxes on those few whose money earns their money.

The capital gains tax rates apply to everyone, not just "investors." It applies to people who work for a living as well.

 

[MTAtech]

The capital gains tax rates apply to everyone, not just "investors." It applies to people who work for a living as well.

Except that half of the capital stock is owned by the top 1% and half of that is owned by the top 0.1%. The bottom 99% have the other half, and I bet the bottom 50% don't have any.

 

[WhyNotWhyNot]

I am not being accusatory. I am agreeing with you. Elimination of the lower cap gains tax rate would not be a drag on the economy.

But retirement accounts are different with respect to taxes. People who have 401K plans never benefits from lower capital gains taxes. The money is contributed pre-tax but when it is distributed, it is taxed at the ordinary income rate, even the portion which is a capital gain. Thus, retirees are paying taxes on those funds. It almost is better contributing to funds post-tax and let the money grow and then the distribution is subject to the lower capital gains rate.

We agree on how 401K plans work. But many of us do not have 401K plans. We are the self-employed or we work in the millions of micro-businesses that line our city streets. We can save pre-tax dollars in IRAs but the contribution cap is pretty low - so it is prudent to have additional post-tax retirement accounts that are invested and paying capital gains tax. The presumption of the 401K idea is that retirees will be in reduced income tax brackets when the funds are distributed. That is contrary to the advice of most retirement planners who suggest that you should set things up so that retirement income will not decline significantly. If you are able to make that happen, then your comment regarding paying taxes up front and then paying capital gains taxes may prove to be true - given the current capital gains tax law!

Perhaps I should have used real estate as the example. For many, their "nest egg" is the equity in their house. There comes times when converting the equity to cash is the right thing to do. Older people may sell the big house and buy a small house to make retirement cash for example. The tax rate on the appreciation of the house value may be either 0% or the capital gains tax rate depending on your house buying / selling history. My personal example is that I refinanced our house to raise cash; I used the cash to start a business; some years later I sold the house and bought one of lesser value - I paid capital gains tax; five years after that I sold the business and paid capital gains tax; that produced a modest retirement fund (which is much less than any professional would advise) that is invested and is paying capital gains tax whenever it sells a security for a profit. That is how "mom and pop" business in America works. The point is that the beneficiaries of the capital gains tax rate are broadly distributed through the American middle class. They will pay more tax if the capital gains tax is raised without compensatory changes to other tax policies.

I agree that there should not be a reduced capital gains tax rate. And, my earlier post was for the purpose of demonstrating that the argument that raising the capital gains rate will reduce investment incentive is bogus. But, I have heartburn with the justification that it should be raised because it will only affect a few elite rich who will not notice a lifestyle change and who deserve wrath because we are jealous. It will affect the lifestyle of middle class people unless some compensatory change is made elsewhere in the tax policy. This might be increased standard deduction or reduced rates in middle brackets for example. What we need to do is not focus on a specific tax code element as though it stands alone. Rather we need to take a systems engineering approach to the whole mess.

 

[MTAtech]

I can't disagree with what you posted WNWN.

 

[washunut]

Except that half of the capital stock is owned by the top 1% and half of that is owned by the top 0.1%. The bottom 99% have the other half, and I bet the bottom 50% don't have any.

Lets remember ( or learn) that capital gains does not just apply to stock ownership. It applied to people who own homes. Many rely on the ability to sell their home at retirement, downsize and use some of the proceeds to live.

Many others are small business owners who sell their businesses or farms. They have built up these businesses and farms.In many cases the much of the enhanced value is based on inflation so they may have little true gains in constant dollars.

You might also be surprised to learn that tax advantaged capital gains are for assets held more than a year, not trading profits. Perhaps you also know that all capital gains are taxes albeit at a lower rate, but losses are limited in any given year. So heads the government wins tails ( like 2008/9) you lose.

 

[MTAtech]

I am sure washunut, that the lower middle class are going to benefit when they sell their homes, businesses and farms. Oh wait...

 

[washunut]

I am sure washunut, that the lower middle class are going to benefit when they sell their homes, businesses and farms. Oh wait...

First you talk of only the .1 of 1% benefiting, then when it is shown that is BS, then the argument is shifted to the lower middle class. I am not even sure where you put that number. But if it is working class folks that bought their homes let's say in a suburb of New York 40 years ago, then yes even those folks get to sell their modest homes for what is a good buck and move to a small condo in perhaps Florida.

You need to move down the foodchain quite a bit.

 

[MTAtech]

First you talk of only the .1 of 1% benefiting, then when it is shown that is BS, then the argument is shifted to the lower middle class. I am not even sure where you put that number. But if it is working class folks that bought their homes let's say in a suburb of New York 40 years ago, then yes even those folks get to sell their modest homes for what is a good buck and move to a small condo in perhaps Florida.

You need to move down the foodchain quite a bit.

40 years ago the working class could largely afford owning a home. Back then there were good manufacturing jobs available. NYC had a garment center. Today, those jobs are gone and it is less likely that it is a reality to own a home for many of these people. It is not a reality for the lower middle-class.

So when we discuss capital gains, let us focus on who owns assets. As you can see from the below chart, the top 1% own 34% of U.S. assets while the bottom 60% own just 4.2% of the assets (I combined two pie pieces.) That's really not far down the "food chain" --- that's 60% of Americans. That lower 60% isn't likely to derive much income from capital gains.

 

[washunut]

40 years ago the working class could largely afford owning a home. Back then there were good manufacturing jobs available. NYC had a garment center. Today, those jobs are gone and it is less likely that it is a reality to own a home for many of these people. It is not a reality for the lower middle-class.

So when we discuss capital gains, let us focus on who owns assets. As you can see from the below chart, the top 1% own 34% of U.S. assets while the bottom 60% own just 4.2% of the assets (I combined two pie pieces.) That's really not far down the "food chain" --- that's 60% of Americans. That lower 60% isn't likely to derive much income from capital gains.

The problem with your logic as I see it is that you seem to think that the ranks of the top and bottom are stagnant.

Just yesterday Facebook bought a company for $19 billion. The founder came to this country and for a while his family was on food stamps, now he is an instant billionaire, many of the workers in the firm are millionaires.

Look, I would like to see fixes in the tax code. I think that carried interest which allows billionaire hedge fund managers to report what for others would be ordinary income as capital gains. Neither party will touch the subject because these are the folks that finance the political campaigns for both parties. I would not mind a cap on charitable contributions so that folks like Buffet can't set his kids up with big trusts and never pay any taxes.

Perhaps if capital gains were indexed so that any gains over lets say $2 million in any year would be taxed at the ordinary rate.

 

[MTAtech]

The problem with your logic as I see it is that you seem to think that the ranks of the top and bottom are stagnant.

Just yesterday Facebook bought a company for $19 billion. The founder came to this country and for a while his family was on food stamps, now he is an instant billionaire, many of the workers in the firm are millionaires.

Look, I would like to see fixes in the tax code. I think that carried interest which allows billionaire hedge fund managers to report what for others would be ordinary income as capital gains. Neither party will touch the subject because these are the folks that finance the political campaigns for both parties. I would not mind a cap on charitable contributions so that folks like Buffet can't set his kids up with big trusts and never pay any taxes.

Perhaps if capital gains were indexed so that any gains over lets say $2 million in any year would be taxed at the ordinary rate.

What you are discussing is income mobility. In the U.S., income mobility is among the lowest of developed nations.

 

[ttwtt78640]

What you are discussing is income mobility. In the U.S., income mobility is among the lowest of developed nations.

Those international studies often try to compare apples and oranges.

The income compression in rival countries may also make them seem more mobile. Reihan Salam, a writer for The Daily and National Review Online, has calculated that a Danish family can move from the 10th percentile to the 90th percentile with $45,000 of additional earnings, while an American family would need an additional $93,000.

Even by measures of relative mobility, Middle America remains fluid. About 36 percent of Americans raised in the middle fifth move up as adults, while 23 percent stay on the same rung and 41 percent move down, according to Pew research. The “stickiness” appears at the top and bottom, as affluent families transmit their advantages and poor families stay trapped.

http://www.nytimes.com/2012/01/05/u...-to-rise-from-lower-rungs.html?pagewanted=all