The Fiscal Cliff

      The fiscal cliff looms over American politics like a menacing cloud, or so the political class would have us believe. If Republicans do not agree to raising taxes on “millionaires and billionaires,” curiously defined as people earning more than $250,000 per year, then automatic spending cuts will go into effect that will sharply diminish both defense and social spending. The numbers tells a different story.

     It is by now well known that President Obama has presided over the four largest annual deficits in American history, each totaling more than one trillion dollars. His remedy – to raise income tax rates on the rich so that they should pay the 39.6% top rate of the Clinton years – would generate approximately $80 billion in new revenue, which is about 2% of the annual budget, and around 7% of this year’s deficit. In other words, how does Obama’s plan even begin to address the budgetary crisis in America? It doesn’t, not in the least.

     In essence, it is government by non sequitur. Obama thinks the wealthy should be paying more in taxes simply because he believes the wealthy should pay more in taxes. He calls it “fairness,” even if it solves no discernible problem. Others might call by a different name the confiscation by government of well over one-half of one’s work product: slavery. The slave does not work for himself; he works primarily for others. So, too, the worker whose earnings mostly go to others and provides him no personal benefit does not really work for himself but for others – and strangers at that.

     The Wall Street Journal several weeks back (November 12, 2012) clearly illustrated the duplicity of the argument that the government requires more revenues. In 2007, the government took in $2.568 trillion and spent $2.729 trillion, a deficit of $161 billion. Call those the glory days. In 2008, during the financial crisis, revenues remained stable ($2.524 trillion) but outlays increased to $2.983 trillion – a deficit of $459 billion, horrific, but positively restrained by today’s standards.

      During the Obama years, America indeed jumped off the fiscal cliff, with epic mismanagement. In 2009, when the crisis devastated take-home pay, revenues dropped dramatically to $2.105 trillion, but expenses shot up to an astounding $3.518 trillion (a deficit of $1.413 trillion, the highest ever recorded). If that could be attributed to the bailouts necessitated (so they told us) by the financial crisis, then how does that explain the outlays that kept increasing even after the bailouts, to an all-time high of $3.599 trillion in 2011 (only slightly down this year to $3.538 trillion)? It is because the Democrats used the 2009 spending as the new baseline for future budgets, not as emergency spending to forestall the crisis. Thus, even though revenues have increased in the last few years, and now are only slightly ($75 billion) below the last Bush figure, government spending remains at least one trillion dollars over revenues, and that will continue for the foreseeable future.

     With all the talk of the “fiscal cliff,” the cliff is actually a forced reduction in government spending of a grand total of approximately $100 billion this year, less than 10% of the deficit and not even 3% of the projected budget. That is some “cliff.” That cliff would be perceived by an ordinary person as simple financial prudence – not spending money you don’t have on things that you don’t really need. But since government does not have any money of its own – it takes ours, borrows from other countries or prints more dollars – and politicians have big spending appetites with which they indulge the voters who keep them in power, the normal rules of spending do not apply to them.

     Hence, we are constantly barraged with fiscal legerdemain that fools the uninformed citizen. For example: Obama has been trumpeting his financial plan that “cuts” the federal budget by $4.4 trillion over ten years. That sounds great! But unaddressed is that his budget actually increases the federal deficit by almost $11 trillion. I.e., his “cuts” – should they ever be enacted, itself dubious – result in an additional deficit over that decade of about $11 trillion, rather than the $15 trillion deficit that would accrue without his cuts. Some sacrifice.

     Or, in a typical example that has been going on for years already in both parties, ”cuts” are deemed to be money that might have been spent but actually will not be spent because it is no longer needed. So, the fact that the US will not be fighting in Iraq from 2013-2016 or in Afghanistan from 2014-2020 is said to generate real “cuts” in spending each projected year that now can be used elsewhere. Really? Is money not budgeted and not spent really a “decrease” in spending? Not in the real world, but only in the politician’s alternate universe.

     Consider: my wife and I decided to buy a Jaguar XK. We really can’t afford it, but we figure that it is worth borrowing the money so that I can be the envy of all the other rabbis. After all, you only live once. But then, on second thought, we decided not to purchase that car, and – voila! – we just saved $81,000 that we don’t have that we can now spend elsewhere! Indeed, if we decide not to buy a Jaguar in each of the next five years, we will have saved over $400,000. Now we are talking about real money.

     It reminds me of the old joke about the kid who bursts into his house out of breath, and boasts to his father: “Dad, I just saved $2! I ran home from school behind a bus!” To which the father replies, dismissively, “You should have run home behind a taxi and saved twenty dollars!” That joke is now official government policy, and has been for some time.

     The sad truth is that government spending is almost never cut, because spending taxpayer money is the lifeblood of the politician. With it, he literally buys votes and assures his re-election. Every dollar spent by the government has an interest group lobbying for it, as if its life depends on it – and often it does. Thus, the president got a lot of traction out of Mitt Romney’s declaration that PBS federal funding would be cut – as if one network deserves special treatment in an era when television is glutted with privately owned networks. It became a rallying cry – Romney v. Big Bird. But if even those funds – basically, for entertainment purposes – cannot be cut, then nothing can be cut. Even the much celebrated “fraud and waste” in the federal budget have lobbyists. Every nickel goes somewhere – into someone’s job or someone’s pocket. And someone votes.

      Even the modest cut in the defense budget as a result of sequestration will restore Pentagon funding to the level of 2006, just a few years ago, and not at all dire. America will still spend on defense roughly the equivalent of the next ten nations combined. Somehow it will manage.

    So why the dreadful forecasts of cliffs and calamities? Because any “cut” drains the lifeblood from the politician. If these cuts become mandatory, then “someone” will lose something, and be unhappy as a result. But the current path is unsustainable. The American middle class who voted President Obama back into power want near-limitless benefits, as long as someone else pays for it. But there is no “someone else.” Not even the vaunted rich have the type of money that can underwrite the bloated budget, and they might as well sit on their money rather than see it taxed to oblivion.

     One rule of politics appears to be immutable: any increase in revenues will only lead to an increase in spending. Every dollar sunk into the federal treasury has some politician lusting after it. If spending decreased even to 2007 levels, the federal budget would be balanced in a year or two. So, let the Bush “tax cuts” expire. The very notion of a “tax cut” presupposes that government has some prior claim to our money, and only allows us to keep the remainder. Expose the rapacious government for what it is – a behemoth that can only subsist if it is constantly fed the red meat of the people’s hard-earned money. Let’s go over that cliff; we might enjoy the ride.

    Indeed, let the people be taxed enough so that the budget is actually balanced, without the gimmicks and duplicity to which we have become accustomed. It is probably the best way to revive and restore the ideal of limited government that was the original foundation of the American system.

 

Advertisements

13 responses to “The Fiscal Cliff

  1. Rabbi Pruzansky said:

    “The sad truth is that government spending is almost never cut, because spending taxpayer money is the lifeblood of the politician. With it, he literally buys votes and assures his re-election.”

    These sentences are gems of truth, logic and clarity; they reveal the root cause of persistent government deficits (federal, state and city) and currency inflation (the continual decline of the value of American dollars).

  2. Caulk up another home run for Rabbi Pruzansky — right topic, right analysis!

  3. So much clarity and common sense, traits I rarely see from my Jewish brethren.

  4. If every single non-mandatory non-defense program in the federal government were eliminated completely — that means no disaster relief, no border guards, no FBI, no weather service, no medical research, no embassies in any country, no court system — we would still have a large deficit. We need to raise taxes and the wealthy are the best able to handle a tax increase.

    • There isn’t enough money to cover more then 3 weeks of government spending if you taxed the so-called rich at 100%. Everyone will have to pay more in taxes, period. More importantly, though, is that the insane spending in DC needs to be cut. I’m fine going back to the Clinton tax rates, as long as we can go back to Clinton levels of spending.

    • Charlie….get the memo…..you could tak all the money the “rich” have and it would be a drop in the bucket compared to the debt/deficits…get a clue!

    • So then tax the rich. Will you have enough money to cover these services? Of course not. so what is next? Tax the middle class. It is only a matter of time. POTUS is going after the middle class next because we will run out of rich peoples money. increase the size of the poor that rely on others money.

      why are we moving towards the idology that is a proven failure?

  5. He added to the 2009 budget with additional spending that crashed through the trillion dollar deficit bsrrier. And there’s no looking back.

    -RSP

  6. Really Alan? 4 years or 3 years? how about 1 year? wouldnt that be enough? $2.7 Trillion to $3.6 Tillion in spending! Come on. Dont you see the insanity?

  7. I believe that the word “Frum” should be capitalized.

    We capitalize “French” and “Catholic,” so why not capitalize “Frum?”

    Furthermore, I believe that the word “Frum” should be italicized, because it is not part of the standard English language.

  8. Nearly 240 rabbis have signed a letter in support of the president’s proposal to allow tax cuts to expire at the end of the year for those making above $250,000 annually. The letter was written by Bend the Arc Jewish Action, which bills itself as the largest Jewish social justice organization devoted to domestic policy issues

    Making $250,000 in the tri state area does not make one wealthy. I notice this was signed by reform and conservative Rabbis. How many of them live in the tri state area, New York, New Jersey, and Connecticut? How many of them pay exorbitant tuitions to day schools and Yeshivas beginning at age four for their children? Most people do not spend this type of money until college. In many cases college is cheaper. I hope none of these Rabbis will tell me that sending my children and grandchildren to day schools or yeshivas is a luxury of choice. As an observant Jew I have no choice nor do the majority of young Observant families who even though they may make a combined salary of $250,000 are struggling. Try buying kosher food for the same price as non kosher food. The choice to live in a religious community is based upon the need to educate our families in the ways of Torah observance. It is a sacrifice we all make. Who are these Rabbis to tell us that we have so much money that we can afford the luxury of higher taxes?
    Rabbi Dr. Bernhard Rosenberg
    Edison, NJ

  9. Rabbi Pruzansy

    Is it true that you will not accept the clergy parasonage allowance since you feel that this is just a form of an entitlement gimicry that forces higher taxes on the wealthy?

    This is as commendable as Govenor Romney limiting the deduction (even though the tax law permitted him to do so) on his charitable deductions.

    If so, you should be commended for being consistent with your views.

    Yaasher Koach Rabbi Pruzansky

    Parsonage and Housing Deductions

    For income tax, the rental-parsonage allowance can be excluded. For figuring self-employment tax, your form W-2 wages, parsonage allowance and income or loss from Form 1040, Schedule C are included. If you receive $40,000 in wages, $20,000 in parsonage allowance and $10,000 in self-employment, your income tax would be based on the wages and self-employment ($50,000); the self-employment tax would be based on all income ($70,000). Deductible housing expenses include mortgage interest, mortgage payments, real estate and property taxes, rent, utilities, repairs, maintenance, insurance, household furnishings, trash pickup and homeowners association dues.

    Any part of the parsonage allowance exceeding your housing expenses must be included as income on Form 1040; if you receive a $20,000 parsonage allowance and use $19,000 for housing, the remaining $1,000 is considered taxable income. If your home is church-provided, you can exclude the fair market value of the parsonage rental, services and utilities received. If you own your home, you may itemize your real estate taxes and mortgage interest.

    Read more: Clergy Tax Deductions | eHow.com http://www.ehow.com/info_8687764_clergy-tax-deductions.html#ixzz2FNWzKkNX

    • I am not quite sure of your logic. I don’t make the tax code, I only follow it. I think it is admirable that Romney limited his charitable deductions. Anyone has the right to pay more than they wish, including you. Knowing how this government spends its money, I choose not to pay more in taxes that is demanded of me. There is now a federal deduction for parsonage but a state deduction in NJ. NY had a state deduction as well that I forfeited when I moved to NJ. But I fail to see the logic, morality or sense for my paying more in taxes so I can subsidize… well, this story that was sent to me this morning:

      A Ford Dealer’s Report – From Tom Selkis’ (Latham Ford) Facebook – True story yesterday at the dealership.

      “I’ll try to make this as short and to the point as I can.
      One of my salesmen here had a woman in his office yesterday wanting to lease a brand new Focus.
      As he was reviewing her credit application with her he noticed she was on social security disability.
      He said to her you don’t look like you’re disabled and unable to work.
      She said well I’m really not. I could work if I wanted to, but I make more now than I did when I was working and got hurt (non-disabling injury).
      She said the gov’t sends her $1500.00 a month in 1 check. And she gets $700.00 a month on an EBT card (food stamps), and $800.00 a month for rent.
      Oh yeah, and 250 minutes free on her phone.
      That is just south of $3500.00 a month.
      When she was working, she was taking home about $330.00 per week. Do the math and then ask yourself why the hell should she go back to work.
      If you multiply that by millions of people, you start to realize the scope of the problem we face as a country.
      Once the socialists have 51% of the population in that same scenario, we are finished.
      The question is when do we cross that threshold if we haven’t already, and there are not enough people working to pay enough taxes
      to support the non-working people? Riots?? Be prepared to protect your homes.
      She didn’t lease the Focus here because the dealer down the road beat our deal by $10.00/month. Glad to know she is so frugal with her hard earned money.”

      Yes, I think I’ll just follow the tax laws as written -RSP