Thursday, December 20, 2012

Why the fiscal cliff doesn't matter to me.

So what if tax rates go up?
Average tax increase = $3500 / year = $67.31 / week
Middle quintile ($40K ~ $60K) = $2000 / year = $38.46 / week

That is your weekly contribution to lowering the deficit, and onto a path to cutting the debt.

In my case, it wouldn't cut down on my spending, since I already don't spend that much.  But it would slow my savings rate.  I'm guessing if most people are net-savers and not net-borrowers, they will be in the same boat, as well.

So what happens when you slow the savings rate?  Credit growth slows for borrowers.  But that's not a problem, as firms are holding onto cash or pushing out one-time dividends to beat the tax increase; for companies, it's not an issue of too little credit.

If you're going to have upward pressure on wages, now is the time, when inflation remains low.  Having downward pressure on wages (cutting federal spending and jobs) when inflation is already low, could be devastating, pushing us into deflation.

So here's to higher taxes.

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