"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Saturday, December 1, 2012

We have already fallen off the fiscal cliff

In Washington D.C., the fiscal problem is really just simple arithmetic--

Avoiding The Fiscal Cliff By Fixing The Fiscal Hole - Forbes: " . . . the amount of revenue raised by the government as a share of Gross Domestic Product (GDP) hasn’t changed that much, an average of 17.5 percent (due to the weak economic recovery revenues were 15.5 percent of GDP in 2012, well below the long-term average). Part of our fiscal problem is simple arithmetic: the federal government has spent an average of 20.2 percent of GDP over the same time period; the reason we now have $16-trillion dollar deficit vertigo. And, the over-spending problem has worsened recently due to the government’s four year string of trillion dollar annual deficits that grew the size of the federal government to levels that have never been greater, except during World War II. The other part of the fiscal problem arises due to the composition of government spending, and how that has changed. In 1962, for instance, 70 percent of the federal budget went on public goods such as defense, agriculture, education and energy, 13 percent went on social security, 10 percent went on unemployment compensation and other income security programs, and 6 percent went on interest payments on the national debt. In 2011, . . . 33 percent went on public goods, and 6 percent went on interest payments on the debt. But social security and Medicare (which started in 1965) now accounted for 34 percent of the budget, while unemployment and other income security programs accounted for 27 percent. . . . We cannot simply tax our way out of this math. Even if the tax increases under consideration were implemented, and annually raised the $82 billion expected by the Joint Tax Committee, 94 percent of the over $1 trillion annual deficit would remain. And, due to the negative impact tax increases have on economic growth, the tax increase may raise even less revenues. This is the fundamental reality of the so-called fiscal cliff. We’ve already fallen off. Climbing out is going to be painful – and it’s going to require us to rethink what we ask of government and not just what we give."

But when it comes to politics, the simple isn't so simple!



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