The McAleese Analysis

When you are in any contest you should work as if there were - to the very last minute - a chance to lose it.
 

- Dwight D. Eisenhower


Defense will be potential "Bill-Payer", given severity of reduced Tax-base
January 02, 2013

 

Key McAleese conclusions:

 

·        Diminished-size of $620B 2013-2022 increased Taxes on “Wealthy”, reinforces why White House previously-targeted all Households over $250K/year. This -$680B shortfall from President’s final $1.3T Tax-increase Offer, is clearly why President demanded large “Tax Reforms” in last night’s 11:30 PM Speech. Expect larger 2013 Tax Reforms, and Spending-cuts (Entitlements/Domestic/Defense), as direct result.

 

While final Tax Deal passed by 89:8 vote in Senate (+89%/-8%), ≈two-thirds of House Republicans voted-against because of lack of appreciable Spending-cuts.  Ultimately, 85 House Republicans (35%) voted-for the Bill, but 151 House Republicans (63%) voted-against the Bill.  This will make House Republicans particularly-aggressive in February Debt-ceiling increase, both in demanding Spending-cuts, and in minimizing proportionate-size of eventual Tax Reform Package.

 

·        President Obama originally-proposed $1.6T Tax increases, 2013-2022.

·        President proposed $1.3T Tax-increase in Final Offer to House Speaker Boehner on December 17th.

·        Final agreement yesterday will yield only $620B Tax increase, 2013-2022.

·        This leaves President’s Fiscal Strategy short by -$680B (-52%) increased-Revenues, (both Tax-increases/Tax Reform), from 2013-2022.

 

o   President’s Final Offer was $2.4T total Deficit-reduction, on December 17th:

§  $1.3T Tax increases;

§  $725B Social Security/Medicare/Medicaid/Mandatory cuts;

§  $200B Discretionary cuts; [≈$100B Defense, or ≈$10B/year]

§  $300B Interest savings.

 

·        President warns that there will be no Entitlement-cuts without additional Revenue (Tax Reform); and demands that Debt-ceiling be approved separately. [Final “Deal” only collects $620B Tax Revenues on “Wealthy”; which would require additional $680B (+52%) of new “Tax Reforms”, to achieve $1.3T Revenues in President’s final December 17th Offer to Speaker Boehner].

 

·        House Speaker Boehner will clearly demand major Entitlement-cuts as part of imminent Debt-ceiling increase: even if it means shutting-down the Government.  Senate Minority Leader McConnell is clearly targeting additional Spending-cuts of ≈2X-3X any additional Tax Reform Revenue in 2013.

 

·        President took pride in Middle-income Tax-cuts; Unemployment Benefits; and Medicare “Doc-Fix”. 

 

·        Resolving imminent Sequestration of Defense in March, is the driving-concern of McCain, Inhofe, and McKeon.

 

·        CBO projects US Government will collect $3.6T fewer Taxes during 2013-2022, plus incur additional $330B in new Spending; for total $4T additional 2013-2022 Deficit spending.

 

·        Key structural components of H.R. 8; “American Taxpayer Relief Act of 2012”.

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I.  President warns that there will be no Entitlement-cuts without additional Revenue (Tax Reform); and demands that Debt-ceiling be approved separately. [Statement by the President at 11:20 PM, January 1, 2013] [Final “Deal” only collects $620B Tax Revenues on “Wealthy”; which would require additional $680B (+52%) of new “Tax Reforms”, to achieve $1.3T Revenues in President’s final December 17th Offer to Speaker Boehner].

 

·        “I will sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing a middle-class tax hike that could have sent the economy back into recession…”

·        “The fact is the deficit is still too high, and we're still investing too little in the things that we need for the economy to grow as fast as it should.”

·        “Last year I signed into law $1.7 trillion in deficit reduction. Tonight’s agreement further reduces the deficit by raising $620 billion in revenue from the wealthiest households in America. And there will be more deficit reduction as Congress decides what to do about the automatic spending cuts that we have now delayed for two months.”

·        “I want to make this point:…I am very open to compromise. I agree with Democrats and Republicans that the aging population and the rising cost of health care makes Medicare the biggest contributor to our deficit.

·        “But we can't simply cut our way to prosperity. Cutting spending has to go hand-in-hand with further reforms to our tax code so that the wealthiest corporations and individuals can't take advantage of loopholes and deductions that aren't available to most Americans.” 

·        “While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed. Let me repeat: We can't not pay bills that we've already incurred.”

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II.  House Speaker Boehner will clearly demand major Entitlement-cuts as part of imminent Debt-ceiling increase: even if it means shutting-down the Government.  Senate Minority Leader McConnell is clearly targeting additional Spending-cuts of ≈2X-3X any additional Tax Reform Revenue in 2013. [January 1, 2013]

 

1)                Boehner“The federal government has a spending problem that has led to a $16 trillion national debt that threatens our country’s future.”

“Now the focus turns to spending.  The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the ‘balanced’ approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt.” 

“Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble.”

2)                McConnell“The President wanted tax increases, but thanks to this imperfect agreement, 99% of my constituents won’t be hit by those hikes.”

“We’ve taken care of the revenue side of this debate.”

“Now it’s time to get serious about reducing Washington’s out-of-control spending. That’s a debate the American people want. It’s the debate we’ll have next. And it’s a debate Republicans are ready for.”

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III. President took pride in Middle-income Tax-cuts; Unemployment Benefits; and Medicare “Doc-Fix”[White House Fact Sheet Messages; January 1, 2013]

 

·        Permanent extension of the middle class tax cuts: This will provide certainty for 114 million households… prevent the typical family of four from seeing a $2,200 tax increase next year.”

·        By raising income tax rates on the wealthiest and keeping taxes low for the middle class, the agreement will ensure we have the most progressive income tax code in decades.”

·        Extension of Emergency Unemployment Insurance benefits for 2 million people.”

·        Extension of tax cuts for 25 million working families and students: The deal extends President Obama’s expansions of the Child Tax Credit, Earned Income Tax Credit, and the President’s new American Opportunity Tax Credit, which helps families pay for college.”

·        Fixes the SGR (doc fix) with no cuts to the Affordable Care Act or to beneficiaries: The agreement avoids a 27 percent cut to reimbursements for doctors seeing Medicare patients for 2013…”

·        Postpones the sequester for two months, paid for with $1 of revenue for every $1 of spending…The agreement saves $24 billion, half in revenue and half from spending cuts which are divided equally between defense and nondefense, in order to delay the sequester for two months.” [March 1st Sequester]

·        Restores the 39.6 percent rate for high-income households, as in the 1990s: The top rate would return to 39.6 percent for…married couples with incomes above $450,000.” 

·        Capital gains rates for high-income households return to Clinton-era levels: The capital gains rate would return to what it was under President Clinton, 20 percent. Counting the 3.8 percent surcharge from the Affordable Care Act, dividends and capital gains would be taxed at a rate of 23.8 percent for high-income households. These tax rates would apply to…couples above $450,000.” 

·        Reduced tax benefits [Deductions] for households making over…$300,000 (for couples): The agreement reinstates the Clinton-era limits on high-income tax benefits, the phaseout of itemized deductions (“Pease”) and the Personal Exemption Phaseout (“PEP”), for couples with incomes over $300,000…”

·        “The agreement raises the tax rate on the wealthiest estates – worth upwards of $5 million per personfrom 35 percent to 40 percent…”

·        The agreement’s $620 billion in revenue is 85 percent of the amount raised by the Senate-passed bill, if that bill had been enacted and made permanent.”

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IV.  Resolving imminent Sequestration of Defense in March, is the driving-concern of McCain, Inhofe, and McKeon. [January 1, 2013]

1)                McCain:  “Critical issues remain to be resolved, particularly the $500 billion in defense budget cuts looming over our nation's military. I hope that President Obama will make good on his pledge that defense sequestration ‘will not happen,’ particularly since our Secretary of Defense and the Chairman of the Joint Chiefs of Staff have made clear that these cuts will be ‘devastating’ to our armed forces and America's national security.”

2)                Inhofe:  "One of my greatest concerns about the fiscal cliff has been the devastating cuts that would happen to our military due to defense sequestration.  This deal avoids those cuts for two months to allow for a better solution. While I would like to have sequestration addressed, I am hopeful the deal’s two-month delay will help us better prioritize deep spending cuts while protecting our military and national security.”

"I do not agree with the deal’s extension of unemployment benefits for another year or that it only achieves a small deficit reduction.  I look forward to negotiating more spending cuts when we deal with the debt limit increase.”  

“After four years of Obama running up $5.3 trillion in deficit spending, any deal to raise the debt ceiling must be contingent upon making significant cuts to get our fiscal house in order.”

3)                McKeon:  "I support this proposal with important reservations. Our troops have shouldered an unfairly large share of budget cuts to date, in addition to the strains of combat…This deal leaves the force vulnerable to sequestration's devastating and arbitrary cuts and it leaves Congress and the President with much work to do to end the crisis.”

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V.  CBO projects US Government will collect $3.6T fewer Taxes during 2013-2022, plus incur additional $330B in new Spending; for total $4T additional 2013-2022 Deficit spending.

 

Diminished-size of $620B 2013-2022 increased Taxes on “Wealthy”, reinforces why White House previously-targeted all Households over $250K/year. This -$680B shortfall from President’s final $1.3T Tax-increase Offer, is clearly why President staunchly-demanded large “Tax Reforms” in last night’s 11:30 PM Speech. Expect larger 2013 Tax reforms and Spending-cuts (Entitlements/Domestic/Defense), as direct result.

 

While final Tax Deal passed by 89:8 vote in Senate (+89%/-8%), ≈two-thirds of House Republicans voted-against because of lack of appreciable Spending-cuts.  Ultimately, 85 House Republicans (35%) voted-for the Bill, but 151 House Republicans (63%) voted-against the Bill.  This will make House Republicans particularly-aggressive in February Debt-ceiling increase, both in demanding Spending-cuts, and in minimizing proportionate-size of eventual Tax Reform Package.

 

·        President Obama originally-proposed $1.6T Tax increases, 2013-2022.

·        President proposed $1.3T Tax-increase in Final Offer to House Speaker Boehner on December 17th.

·        Final agreement yesterday will yield only $620B Tax increase, 2013-2022.

·        This leaves President’s Fiscal Strategy short of -$680B (-52%) increased Revenues (both Tax-increases/Tax Reform) from 2013-2022.

 

o   President’s Final Offer was $2.4T total deficit-reduction, on December 17th:

§  $1.3T Tax increases;

§  $725B Social Security/Medicare/Medicaid/Mandatory cuts;

§  $200B Discretionary cuts; [≈$100B Defense, or ≈$10B/year]

§  $300B Interest savings.

 

 

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2013-2017

2013-2022

1)   Changes in Revenue

 Title I – General Extensions [$3.6T Bush-era Tax Cuts]

-$207B 

-$266B 

-$291B 

-$316B 

-$344B 

-$373B 

-$395B 

-$427B 

-$461B 

-$497B 

-$1.4T 

-$3.6T 

Title II – Individual Tax Extenders

-$5.9B

-$5.3B

-$326M

-$44M

-$52M

-$68M

-$76M

-$75M

-$76M

-$77M

-$11.6B

-$12B

Title III – Business Tax Extenders

-$63B

-$26B

+$16B

+$11B

+$7.6B

+$5.4B

+$2.3B

+$1.2B

+$187M

-$133M

-$55B

-$46B

Title IV – Energy Tax Extenders

-$4.7B

-$2.1B

-$977M

-$1.2B

-$1.4B

-$1.4B

-$1.5B

-$1.6B

-$1.7B

-$1.7B

-$10B

-$18B

Title IX – Budget Provisions

+$293M

+$784M

+$914M

+$1.1B

+$1.2B

+$1.4B

+$1.5B

+$1.6B

+$1.7B

+$1.7B

+$4.3B

+$12.2B

Total Changes in Revenues

-$280B

-$299B

-$275B

-$305B

-$337B

-$367B

-$393B

-$426B

-$461B

-$497B

-$1.5T

-$3.6T

2)   Changes in Outlays

Title I – General Extensions [$280B Family Tax-Credit extensions]

+$2M

+$36B

+$37B

+$37B

+$37B

+$37B

+$23B

+$23B

+$23B

+$23B

+$148B

+$277B

Title V – Unemployment Compensation

+$22B

+$8B

$0

$0

$0

$0

$0

$0

$0

$0

$30B

$30B

Title VI – Medicare and Other Health Extensions

+$13B

+$5B

-$3.1B

-$3.2B

-$3.3B

+$120M

-$180M

-$690M

-$760M

-$5.2B

+$8.4B

+$1.7B

Title IX – Budget Provisions [January-February Sequester Delay]

+$14B

+$6B

+$2B

+$771M

+$452M

$0

$0

$0

$0

$0

+$24B

+$24B

Total Changes in Direct Spending

+$50B

+$55B

+$36B

+$35B

+$35B

+$37B

+$23B

+$22B

+$22B

+$18B

+$211B

+$332B

3)   Net Changes in Deficits

Net Changes in Deficits

+$330B

+$354B

+$311B

+$340B

+$371B

+$405B

+$416B

+$448B

+$483B

+$515B

+$1.7T

+$4T

[Source: CBO; “Estimate of the Budget Effects of H.R. 8, the American Taxpayer Relief Act of 2012”; January 1, 2013.]

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VI.  Key structural components of H.R. 8; “American Taxpayer Relief Act of 2012”.

 

TITLE I—GENERAL EXTENSIONS (Income Tax Extensions/AMT Tax Relief) [$3.9T, 98%]

Sec. 101. Permanent extension and modification of 2001 tax relief. [$1.6T; 40%]

Sec. 102. Permanent extension and modification of 2003 tax relief. [$290B; 7%]

Sec. 103. Extension of 2009 tax relief. [$134B; 3%]

Sec. 104. Permanent alternative minimum tax relief. [$1.8T; 45%]

 

TITLE II—INDIVIDUAL TAX EXTENDERS [$12B; .3%]

 

TITLE III—BUSINESS TAX EXTENDERS [$46B; 1%]

 

TITLE IV—ENERGY TAX EXTENDERS [$18B; .5%]

 

TITLE V—UNEMPLOYMENT (Federal Unemployment Benefits Extensions) [$30B; 1%]

Sec. 501. Extension of emergency unemployment compensation program.

Sec. 502. Temporary extension of extended benefit provisions.

 

TITLE VI—MEDICARE AND OTHER HEALTH EXTENSIONS (Extension Doc-Fix) of [$1.7B; .04%]

Subtitle A—Medicare Extensions

Sec. 601. Medicare physician payment update. [$25B; .6%]

 

TITLE VII—EXTENSION OF AGRICULTURAL PROGRAMS [N/A]

 

TITLE VIII—MISCELLANEOUS PROVISIONS [N/A]

Sec. 801. Strategic delivery systems.

 

TITLE IX—BUDGET PROVISIONS [$24B; .6%]

Subtitle A—Modifications of Sequestration

Sec. 901. Treatment of sequester.

Sec. 902. Amounts in applicable retirement plans may be transferred to designated

Roth accounts without distribution.

Subtitle B—Budgetary Effects

Sec. 911. Budgetary effects.

Last Updated on January 15, 2013
 

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