The document discusses the US fiscal cliff and tax policies. It notes that US government deficit projections depend on interest rates, economic growth, capital investment, and demographics. Currently, payroll and income taxes make up the largest sources of government revenue. The document also examines topics like income inequality, effective tax rates on the wealthy, taxes as a percentage of GDP compared to other countries, and projections of future revenues and deficits under different policy scenarios. It argues that reforming the tax code and linking taxes more closely to economic activity are needed to address budget issues.
1. +
US Fiscal Cliff
Commentary
Gnostam Economics Commentary www.gnostamconsulting.com
December 5th 2012 Seattle, WA 98103 USA
pcorsano@gnostam.cm
2. +
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.
11. +
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.
12. +
We are an open international
economy. Fiscal reform matters.
13. + 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”;
14. +
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%
16. +
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.