+ US Fiscal Cliff CommentaryGnostam Economics Commentary www.gnostamconsulting.comDecember 5th 2012 Seattle, WA 98103 USA firstname.lastname@example.org
+ US Taxes and Policies n All US Government deficit projections depend upon projections: n Of interest rates; n Of economic growth rates; n Capital Investment; n Demographics. n In 2010 biggest source of revenues for the US Government were: n 40% Payroll taxes; n 42% individual income taxes; n Corporate taxes just 9% n During period from 2000 -2010 the incomes for high school graduates fell by 14%. Therefore, the source of much of US Government taxes has been shrinking because of ……… Inequality.
+ Number that matter n Current budget deficit: US $ 1090 bn; n US GDP in 2012 projected at $15,090 bn; n Financed by Goodwill of China’s surplus and other countries with strong surplus’s; n CBO projects US tax revenues of $2,450 bn revenues in 2012 or 15.7% of GDP. Under Reagan tax revenues 18.2%, Clinton 19%; n Total US Debt: $16,235 bn. Obama projection, reduce by 7,100 bn by 2014, unlikely unless we have increase in tax revenues as % GDP. n Revenues raised: n Under Obama plan: +65% (1,600 bn); n Under Boehner plan: +32% (800bn); n Deficit would be paid down in 3 years if revenues as % of GDP were OECD average.
+ We are an open international economy. Fiscal reform matters.
+ The tax code must be reformed n Industries that legally pay almost no taxes: n Biotech; n Internet Software; n Pharma n Banking and Financial Services; n 87% of State and Local taxes are “indirect”;
+ Effective taxes paid by US Major Corporations in 2011 n GE 5%; Corporations are NOT people: n IBM 1%; • They pay no taxes on worldwide n Conoco 8%; income like individuals; • They can deduct interest from n Wells Fargo, JP Morgan 14%; taxable income, unlike individuals. n Exxon 2%; Chevron 4%; n Apple, Microsoft 11%; n Walmart 19%
+ Deficits are a function of economic activity n US tax revenues are the most leveraged to economic activity; n Cannot fix US deficit without fixing US employment and economic activity, [Under Clinton tax revenues were >3.7 pts more as % GDP than under Obama]. Overseas wars have huge detrimental effect on US fiscal responsibility and sustainability; n The economic crisis in 2009, -5.1% real GDP had a huge impact on tax revenues. Only Mexico and Chile collect less taxes as % GDP than US; n US must change its dependency on payroll taxes and move to a progressive tax system, two tax brackets, 25% 35%, with no taxes payable on single/married incomes below $22,000/$32,000 and mortgage interest deduction phased out for those with incomes > $250,000; n Corporations need to pay tax on worldwide income. Should have a one time tax amnesty for those who wish to bring funds back to US.