FISCAL CLIFFHANGER?

    The irony of the fiscal cliff feared by many is best illustrated by a report earlier today of veteran CBS News journalist Charles Osgood, lamenting the approaching cuts to such worthy government expenditures as leukemia research and the like. All true, but he prefaced it by depicting the cliff as “Americans seeing their taxes go up and government services going down,” or something like that. But, indeed, there should be something natural, even moral, in having taxes increase to pay for services received. His alternative seems to be a reduction or stabilization of taxes – but a maintenance or increase in spending.

    Can’t anyone ask the simple question: how do you keep spending money you don’t have?

    Neglected in the “conversation” to date is the notion, familiar to all families, of prioritizing spending. No one can buy everything, so therefore choices have to be made as to what is more important and what is less important. But government does not seem to operate that way; everyone who is connected and wants something, and has the ear of the decision-makers, gets what he wants, perhaps not as much as he wants, but enough to keep him (or his cause) going until his cause becomes entrenched and subject to the annual increases that government doles out.

Apparently, “prioritizing” is not a viable option, even if it is feasible. Certainly, the research labs whose research cutbacks were mourned by Osgood can be funded from the money saved eliminating government subsidies to public television, and closing the Departments of Education and Commerce, and maybe one or two others. (Private sector research is even a better option, with tax credits during the process as well as after any dramatic finding, but that’s a different argument.) The problem is that the people voting on the distribution of government largesse are politicians, and they depend on the votes of the electorate to survive. There are no votes in cuts, only in spending – so why make choices?

Never do I recall a political class so uniquely unsuited to the moment, so ill-equipped to deal with the challenges before them, lacking even a real acknowledgement of the problem – too much spending for too little revenue – and focusing on the popular rather than the necessary. And dealing with a public that feels exactly the same.

The American people choose politicians who will distribute the goodies to as many of them as is possible – but do not want to pay for it. Of course, one can argue that the main problem is lack of revenue, not too much spending. There are many of us – not enough, for sure – who believe that the government should be able to sustain its vital services for the $2.4 trillion dollars it is spending annually, and recognize that none of the tax increases on the rich suggested will come within a trillion dollars of denting the deficit. So why try? It’s a fiscal joke, an unserious attempt by unserious people to score political points.

Speaker Boehner seems like a decent person who struggles to get his message out clearly, and his message should be that the matter is not taxes but spending. Here’s an indication of the extent of the farce of modern government: Obama was quite outspoken for years in opposing and ridiculing the “Bush tax cuts for wealthy.” In fact, “tax cuts for the wealthy” became such a mantra that one might have thought the original bill was entitled the “Bush Tax Cuts for the Wealthy.” Suddenly, lo and behold, the bulk of the “Bush Tax Cuts for the Wealthy” seemed to have benefited the middle class, so much so that a reversion to the middle class tax rates that existed before the “Bush Tax Cuts for the Wealthy” will apparently crush the middle class. Well, if those rates would crush the middle class, then why did Obama and his fellow liberals oppose them so vehemently when they were first proposed? Perhaps, Boehner can make this point, ask the Democrats to apologize and thank President Bush for the tax rates that are today so indispensable to middle class prosperity – and then point out the travesty that Obama’s planned tax hikes on the wealthy solve no problem, raise little revenue, and, if so, are best opposed.  If there is no willingness to deal with the deficit and to drastically cut spending, then people might as well keep their hard-earned money for themselves.

It pays to remember that government revenues increased under the “Bush tax cuts for the wealthy” each year until the 2007 crash.

The more bitter irony is that there will be no cliff, and the resolution – likely within two weeks – will either kick the can down the road another few months or reveal the utter vacuity of the modern politician. That is: no politician (certainly no Republican) wants to vote for a tax increase on anyone. Thus, by letting the tax rates rise automatically on January 1, then every single Congressman and Senator – Rep or Dem – can then officially go on record as voting for tax cuts. Neat trick. The only question will be whose taxes remain the same, at the new increased rate (over $250G, over $400G, over $1M). But everyone will be voting to decrease taxes on most people, and raising taxes on no one. What a scam, and I can already see the campaign commercials boasting about the “lowering of taxes.” But, of course, they were the ones who implemented a system wherein taxes would automatically rise if an agreement on spending and taxes was not reached – so in effect, they all voted to increase taxes indirectly, in slow motion, time-release fashion, yes? But try explaining that in a 30-second commercial to the average voter who already struggles with his attention span and comprehension.

A responsible government would see fit to explain to the public that there must be austerity, and government cannot continue to underwrite every societal cause or demand; that there have to be cuts and government job losses, worthy programs will continue or be adopted by the private sector, and unworthy programs will simply cease to exist – not because they don’t have value to some small group but because they don’t have value to a large enough bloc of the citizenry to demand that other people pay for it.

The likelihood of that happening is nil. Instead, the increase in payroll taxes, the estate tax, and income tax rates will get people’s attention, so those will be reduced to manageable levels (except for the estate tax, which will rob heirs of the financial legacy but more likely lead to creative trusts and pre-distributions that encumber the estate-holders but still do not benefit the government. Revenue will probably increase slightly in the short term, and then drop sharply, as the “wealthy,” resentful of being Big Government’s ATM machine, restructure their income and investments to ensure that they are not paying a nickel more than they are now, and probably less. Fewer jobs will be created, the deficit will continue to increase, and we can prepare for the same charade when the debt ceiling has to be raised again – to $17, $18, or $19 trillion.

And, by then, does it really matter anymore? If interest rates go up even slightly, it is quite possible that in the near future, annual interest on the national debt will exceed one trillion dollars. By that time, Europe’s current problems will pale before America’s future predicament. There is simply no source of revenue available that can feed and satiate the beast that has been created. Yet, each party has acceded to annual trillion dollar deficits as long as the eye can see, the Chinese continue to lend and the Fed continues to print money.

It sounds like whatever happens over the next few weeks, America has already plunged over the fiscal cliff. The only questions remaining are who is wearing a parachute, how well does it work, and where do we land?

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4 responses to “FISCAL CLIFFHANGER?

  1. From Bill Gross:
    “To keep our debt/GDP ratio below the metaphorical combustion point of 212 degrees Fahrenheit, these studies (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. An 11% “fiscal gap” in terms of today’s economy speaks to a combination of spending cuts and taxes of $1.6 trillion per year!” How to do this? Simple. Entitlement programs need to be cut — that is social security and Medicare. That is where the real money is. The other area is defense — we no longer need a giant conventional army. So we can cut there significantly. In terms of entitlements we can means test social security and Medicare –limiting benefits and taxing those same benefits for people whose incomes are above a certain threshold.

  2. Just to clarify, the “how to do this part” is mine:)

  3. Today, taxing production loses $1.4T annually. Until amendment 16, americans taxed consumption, exclusively. Today, the nations largest grassroots organization petitions for the repeal of the communist production tax and the return to exclusive production based taxation. Visit http://www.fairtax.org ; Call 1-800 Fair-Tax ; see research compiled at http://firstallegiance.us/1-800-FAIR-TAX.html .

    Founders for Fairtax: http://firstallegiance.us/uploads/FOUNDERS_FOR_FAIRTAX.pdf

    Be well – Mike