Heh Boehner and Obama, have a credit downgrade!
Obama's most recent offer included $1.2 trillion in increased revenue over 10 years, with tax rate hikes on individual income above $400,000, a source familiar with the negotiations told Fox News. That would be a sharp departure from the president's past stance against maintaining the existing low tax rates on any income above $200,000, or $250,000 for couples. The latest offer would cut the deficit an estimated $2.4 trillion over a decade.
The two sides are getting close, but significant issues remain, a Republican source told Fox Business. They are said to have agreed to at least $1 trillion in spending cuts and at least $1 trillion in new revenue through a mix of tax rate increases on top incomes and tax code reform, though the details have yet to be worked out.
So we're talking about $200 billion in "closing distances" on the deficit, right?
Well, probably not.
First, note that the so-called "$2.4 trillion in deficit reduction over a decade" is about 20% of the deficit at today's run rates, if it happens. And it won't, because it relies on (1) people not changing their behavior and (2) unrealistic economic growth predictions that won't occur because the nation's debt load as a whole remains too high and thus is and will continue to block economic output.
There are also reports that Boehner is willing to agree to a two year debt ceiling increase, an amount that would have to be more than $2.5 trillion. This, standing alone, should be worth a credit downgrade -- and probably will be.
Worse, let's assume that the $15 trillion in existing debt winds up with a 2% interest rate, blended. This is ridiculously low and presumes that economic growth is tepid at best; if it picks up more then the rate will go up. In that case the interest alone will be $300 billion annually, or more than the alleged "savings."
This is the trap that ZIRP presents; it provides the allure that one somehow can find a free lunch, but as you grab for the sandwich and attempt to take a bite it magically disappears from your fingers, re-appearing just beyond your reach.
One item I cannot find a definitive answer on is whether the payroll tax cut, which utterly trashed Social Security's fiscal solvency, moving its "death date" from about 2039 20 years forward to about 2019, will expire on schedule December 31st. There are hints in a Bloomberg story that it will (and it must), but no confirmation, and the so-called "$1.2 trillion" in revenue isn't enough to cover it -- that particular tax rate change alone is worth somewhat over $200 billion annually.
This isn't "Rise Above" folks, it truly is "Sink Below", and if either side thinks they will find solace through this path they're nuttier than Aunt Blue's fruit cake.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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