Given Thursday evening’s events in the House, it looks more and more like we may be going over the “fiscal cliff”. Therefore, I wanted to give you an update on what that could potentially mean for you. I also wanted to clarify the total impact of the income tax rate changes that we will face should we go over. These figures, which appeared in my previous “Laptop Report”, have been updated.

The total impact of all the income tax rate changes is estimated to raise revenue of roughly $4.5 trillion over 10 years. The total effect of all of this would be to reduce the deficit by approximately $7.7 trillion over the next ten years according to the Congressional Budget Office (CBO). That means CBO projects an “average” annual deficit of roughly $230 billion if we are over the “cliff” vs. a deficit of about $1 trillion a year if everything is extended.

Again, these projections are based on “static modeling”. That means they do not take into account the economic impacts and the behavioral changes that will occur as a result of what I’ve outlined above. When these tax hikes take place, people will most certainly take actions to… Read More

Just the Facts, Ma’am – Fiscal Cliff Edition: This was the famous, at least to those of us who were alive then, admonition offered by the fictional LA detective, Sergeant Joe Friday, to witnesses who would engage in too much speculation about a crime. Well, I generally give you a lot of my opinion. Every once in a while, though, I give you just the unvarnished facts so that you can draw your own conclusions.

You have probably heard the term “Fiscal Cliff” enough times to make you sick. But, do you really know everything it entails? Below, you will find a comprehensive list of every law that will expire at the end of this year, as well as the result of our returning to whatever the law was before. The accumulation of all of these things has been dubbed collectively by the media as the “Fiscal Cliff”:

• Unemployment compensation will revert from a 73 week maximum to a 26 week maximum. This takes it back to the duration that existed in 2008 and prior. This will reduce spending by approximately $30 billion over 10 years.

• For the past 2 years, there has been a “payroll tax holiday”. For this… Read More

The President’s “”Offer””: That is not a typo. I intended to have two sets of quotation marks around the word “offer”. That’s because it is unspeakably absurd to call what the president proposed on the fiscal cliff an offer. It was more like a liberal wish list. There was literally nothing in this proposal for Republicans to like and a liberal (pun intended) sprinkling of elements that most Republicans absolutely hate. For example, the proposal (I will no longer flatter this monstrosity with the label “offer”) raises taxes on families making over $250,000 ($200k for individuals) by more than would result from going over the “fiscal cliff”. On top of that, Obama threw in some stimulus spending, an extension of the 99 weeks of unemployment benefits, and an extension of the payroll tax “holiday” – which means more and more Social Security benefits are borrowed. This package actually both increases taxes and increases the deficit because there is so much additional spending. As a false gesture towards something reasonable, the president says they will make some… Read More

Taxes and Culture: Being a CPA and all, I often opine in these pages about things fiscal, financial and economic. Today, in the mainstream, establishment press, all you hear about is the “fiscal cliff” and taxes and such. I care a great deal about taxes and the deficit, as you regular readers well know. And, you will hear much from me about these issues in the coming months. But, the underlying issue before us right now with the so-called “fiscal cliff” is, in my opinion, not actually fiscal or financial. It is cultural.

As you may not be aware, I have always believed that the culture of an organization is the biggest single attribute that will determine the success or failure of said organization. In my 25 year business career, I was obsessed with the culture of our company and with that of companies we might acquire or with which we might do business. A business with a strong culture of customer service will empower people with service skills and will change or weed out those people who don’t care how they treat others. If a company has a culture of dishonesty, even an honest person will cheat now and then because… Read More

Compromise: First of all, thank you to all those who live in the new 45th Congressional District in California for your strong support of my reelection. It looks like I will have won by a margin of 18 points in spite of a new district (50% of which I have never represented), a poor year for Republicans and another opponent who spent many times more money than I did and spent it largely on negative advertising. I appreciate your confidence in me. I will not let you down.

But, I must confess, it didn’t feel much like a winning night. Frankly, I haven’t been this saddened in a very long time. Yes, I won convincingly, but politics is a team sport. I need friends and allies to get stuff done, and a lot of them lost.

I will let others do the political analysis of why the election turned out as it did. But, I will tell you that my sadness is much deeper than it was four years ago. In 2008, we were pretty sure that McCain was going to lose, and we had some hopefulness that Obama wouldn’t turn out to be as bad a president as we feared. But in 2012, we were pretty sure that Romney/Ryan were going to win, and we are pretty sure that Obama,… Read More

A World of Debt: It is no surprise to readers of these pages that we have a debt, spending, deficit and growth problem in the United States today. What you may not know, however, is that the rest of the developed world is suffering from the same malaise, albeit to different degrees. And, the causes of said malaise are the same the world over, again with variations only in degree. But, what is really disturbing is that governments around the world seem to be implementing exactly the same “solution” for the debt, spending, deficit and growth problems that abound everywhere. It’s disturbing because this “solution” will not work – at least it won’t work without potentially severe side effects that may make the medicine as bad or even worse than the disease.

Allow me to explain.

The U.S., Japan, the U.K. and continental Europe are all currently either in recession or experiencing very slow growth. All have massive, if not record, budget deficits, and all have record debt to GDP ratios. That means that the debt issued by the respective governments is a greater share of their economies than ever before. In fact,… Read More

Foreign Policy: My parents, who have now passed away, were both born around the start of World War I. They were of the “greatest generation” that came to adulthood during the depression and World War II. They grew up in a world where it was us and other democracies against the fascists and imperialists across the oceans. We had the white hats. They wore the black hats. The white hats won. It was all pretty clear.

I was born in 1955, square in the middle of the “baby boom” generation. We came of age during the Cold War and the Vietnam War. It was still pretty clear. There were 3 worlds: us with the white hats, the communists with the black hats, and the “third world” that we and the communists fought over. The Vietnam War was America’s first experience with a conflict that arguably did not result in the defeat of the opposition, which spoiled our air of invincibility. But, our objective for the Cold War, as Ronald Reagan famously described, was, “We win. They lose”. And, that is what happened. Also pretty clear.

After the Cold War came the “peace dividend” and a hope, if not an… Read More

Survey Results: You haven’t heard from me in a while. No need to check the obits, I’m still here. What with 2 national conventions, a busy month home in the district, and some vacation on my part, I thought I’d give us both a little break. Not that either of us could avoid the non-stop national campaigning.

When I last wrote you, I included a survey with various proposals on what to include and not include in a potential income tax reform bill next year. The results are detailed below. But, here is my “executive summary and analysis”:

• A majority of you agreed with all of my proposals.

• The most popular proposal with you all (76.9%) was to eliminate all deductions and credits except charitable contributions, home mortgage interest and non-elective medical expenses.

• The least popular proposal, albeit still over 50% at 56.3%, was to go to only 2 tax rates, one for incomes below $100,000 and one for incomes above that amount. 27.2% of you believe that we will need more rates than that, and 15.2% of you want only one rate.

• You may recall that I had a joke answer… Read More