Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Bob’s Take

Here’s the true skinny on the fiscal cliff if it’s allowed to happen.

What if we go over the fiscal cliff? Get ready for a surprise.

Thursday, 27 December 2012 06:30 Written by Bob Adelmann 1 Comment

Robert Murphy calls himself an anarcho-capitalist which is shorthand for a supporter in all things. He is preparing a long article on the impact on government finances if the  is allowed to happen. He gives us a sneak preview of what he has discovered.

He started out using the numbers from the Congressional Budget Office (CBO). That’s as good a place to start despite it being a government agency using government numbers. It doesn’t seem to have a hidden agenda. It just uses the best numbers it can find, and is considered by both sides of the aisle to be fairly accurate. Here’s this from his sneak preview:

Parsing the numbers tells you all you need to know: revenues to the government go up by nearly $500 billion, while government is cut – ready? – by $9 billion.

But the is cut nearly in half. As Murphy writes:

In summary, if we go over the “cliff,” the government plans on sharply reducing the budget deficit compared to its 2012 level. Of this $487 billion reduction in the federal budget deficit, the savings will come through two mechanisms:

==> A cut of $9 billion in government spending (1.8% of the deficit reduction), and

==> An increase of $478 billion in tax receipts (98.2% of the deficit reduction).

Happy holidays!

 

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This entry was posted on Thursday, December 27th, 2012 at 6:30 am and is filed under Economics, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
  • http://www.facebook.com/people/Jeff-L-Wright/1439074693 Jeff L. Wright

    I'm not sure the relevance of the CBO's (and therefore Murphy's) view of the fiscal situation due to two main issues discussed before.

    1) The CBO assumption on economic (GDP) growth rates which have proven to be way off-the-mark for decades, primarily because they're based off assumptions given to CBO by Congressional economists.

    2) The CBO assumptions on future T-bill and Bond interest rates which show interest paid going DOWN as debt continues to climb and against historic norms.

    Those two combined with the fact that increased taxes and another economic slowdown (or, most likely, another solid downleg) will most likely have exactly the opposite effect on government revenues (thereby decreasing them), says the likelihood of either the published or unpublished deficits going down is remote.

    Based on that, I'm not really sure what the purpose of the Murphy report was supposed to be. The probability of any significant decrease in deficits much under a $1 trillion, fiscal cliff or no fiscal cliff, for the rest of the decade, is very low.

    Not only will the sequester have to remain in effect for several years but additional hard dollars will have to be cut from the budget in near term years to have any real affect on the deficit or accumulated debt. And remember, there IS NOT ONE PLAN out there anywhere that actually PAYS DOWN any accumulated debt. NONE. We will be paying interest (high or low) on $20 trillion in accumulated debt soon, likely for decades, unless and until it is repudiated completely. That scenario becomes more likely with each passing month.

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