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.