Thursday, November 8, 2012

What is the "Fiscal Cliff"?

Yesterday, I posted a report from Robert Kahn, an economist at the Council on Foreign Relations, on how the "kick the can down the road" compromise by Congress that he expects will develop to avoid going over the "fiscal cliff".

It turns out that proposal is mostly about raising taxes rather than cutting spending. Going over the fiscal cliff would be pretty much the same, more taxes and very limited cuts in spending, $532 in tax increases, $136 billion in spending cuts. WSJ has put together the graphic below.


  1. Robert,

    What is amazing to me is that this is the proposal, not even what will get enacted.

    On top of that there is the unseen effect of tax increases, as France is now experiencing.

    The irrespective of the proposed additional revenue, the net effect will always be less than expected. Solely because of human action compensating for paying higher taxes, the government does not grasp what this ultimately means for GDP or their revenues.

    The "unseen" elements of higher taxes are elements of less consumption spending, lower productivity, and capital flight. Why work the same for less return? Why keep property and investments here when you can earn more return somewhere else? The extra money the government is taking from you means that you obviously have less to spend on non-essential items.

    This is the part the government never takes into account. They are central planners that don't understand the individual nature of the sources of their revenues. They only see the golden egg and the gun they have in their hand, never the future consequences of the dead goose.

  2. Can't anyone in govn't do basic math?

    If GDP growth at best was 2% annualized and tax increases proposed are 4% of GDP, shouldn't we expect a net -2% GDP?

    A con-business tax policy.