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                                 US Fiscal Cliff
                                 Commentary
Gnostam Economics Commentary   www.gnostamconsulting.com
December 5th 2012              Seattle, WA 98103 USA
                               pcorsano@gnostam.cm
+
    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.
+
    Total US Debt
+ US Income inequality
+ Over last 40 years Top 1% pays
  less 250% in taxes
+ Effective Tax rates on wealthy




                           Taxes as % of GDP in
                           USA are 27% in 2010 vs
                           43% in Italy and 49% in
                           Denmark
+
    Top Individual Marginal Tax rates
+
    Taxes as % of GDP OECD nations
+
    Evolution of Fiscal Deficit in USA
+
    Revenues under
    alternative
    scenarios
+
    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%
+
    Effect of Economic Growth on Tax
    Revenues
+
    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.

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Fiscal Cliff Economics

  • 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.
  • 3. + Total US Debt
  • 4. + US Income inequality
  • 5. + Over last 40 years Top 1% pays less 250% in taxes
  • 6. + Effective Tax rates on wealthy Taxes as % of GDP in USA are 27% in 2010 vs 43% in Italy and 49% in Denmark
  • 7. + Top Individual Marginal Tax rates
  • 8. + Taxes as % of GDP OECD nations
  • 9. + Evolution of Fiscal Deficit in USA
  • 10. + Revenues under alternative scenarios
  • 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%
  • 15. + Effect of Economic Growth on Tax Revenues
  • 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.