The Fiscal Cliff: If Walls Could Talk

December 3, 2012

by Nancy J. Thorner and Ed Ingold

Having won a decisive victory in the Electoral vote (but only 3% by population), the President intends to dictate a solution to the “fiscal cliff” on his own terms. He feels his opponents have no choice but to capitulate, otherwise bear full blame for any consequences. The key word in the President’s position is “spend.” Consumers should spend more to help the economy. The Government should spend more on “infrastructure” to provide union jobs, and to enable states to continue otherwise unsustainable pension and benefit packages for public employees. In order to spend more, he wants to raise taxes, ultimately to spend much more than any increase in revenue that might generate, and make up the difference by borrowing money from our children and grandchildren.

The Keynesian view is that spending drives the economy, whereas Milton Friedman proposed that growth is the most important thing. In theory, the difference is whether the glass half full or half empty, either spending or tax reductions would grow the economy. In practice, unrestrained spending causes the economy to shrink, or at least not grow at a rate to support the increased population. That is the true crisis, not some singular event on January first.

There are solutions to the fiscal crisis, if only politicians will come together. In an abstract written by J.D. Foster, PhD. and Alison Acosta Fraser, and produced by the Thomas A.Roe Institute for Economic Policy Studies, the authors noted that lawmakers “should steer clear of the fiscal cliff and the President should lead be addressing the entitlements,” under the premise that as large and as major a concern as today’s federal budget deficits represent, “they are of secondary consequence when compared with the fiscal quagmire of unaffordable entitlement spending in the next decade.” The article, “Six Bipartisan Entitlement Reforms to Solve the Real Fiscal Crisis: Only Presidential Leadership Is Needed,” sets out six simple reforms to improve the fiscal future for Social Security and Medicare.

Given the discussion so far between leaders of both parties, and a president who relies on campaign speeches in a ploy to win the American people over to his way, it is unlikely that President Obama will touch upon entitlement spending, much less offer any presidential leadership? Without President Obama’s leadership, Republicans would be ill advised to give in to Obama’s demands.

Thursday, November 29, Treasury Secretary Timothy Geithner delivered President Obama’s opening bid in fiscal cliff negotiations to Republican leaders. The proposal included $1.6 trillion in new taxes over the next decade, $500 billion in fresh stimulus spending, and $400 billion in saving from federal health entitlement programs. Furthermore, the President wants the ability to increase the debt limit on his own, unless overridden by a 2/3rds majority of Congress.

He expects the Republicans to respond with “Ok. What’s the catch?” “It’s not just a bad deal, this is really an insulting deal. Robert E. Lee was offered easier terms at Appomattox, and he lost the Civil War. The Democrats won by 3% of the vote and they did not hold the House, Republicans won the house. So this is not exactly unconditional surrender, but that is what the administration is asking of Republican.

Not only were no cuts offered, there’s an increase in spending with a new stimulus, and double the tax levies already on the table. They obviously expect the Republican will cave on everything. The Democrats are demanding that the Republican counter with the cuts that they want to make, ” which the Democrats will immediately denounce as being “unfair to those who have contributed to and expect these benefits.” If they want a counter offer from the Republicans, why not start with the 34 spending bills passed by the House, and languishing under the desk of Harry Reid in the Senate?

In the absence of any real spending cuts, there are compelling arguments to allow the so-called “Fiscal Cliff” to go its course. Charles Krauthammer, in a commentary on Friday, November 3, expressed a similar view. According to Krauthammer, Republican ought to simply walk away. The authors of this article are of the same persuasion.

(1) The President campaigned on taxing the rich and giving breaks to the poor – class warfare at its most crass form. The money he would collect by increasing the top tax rates is a pittance, about $85 billion, a mere 1.5% of the projected deficit. It is clearly a political ploy, not a “balanced” approach. The President claims that the Republicans are holding tax breaks for the middle class hostage in order to protect the “rich.” In fact, the President is holding the future growth of the economy at risk over a campaign talking point to “make the rich pay their fair share.”

(2) If the Republicans give in, Obama wins and will crow about it. If they hold firm, he will blame them for any repercussions to the economy, but that will happen anyway. Nothing on the table will prevent that from happening. If the economy fails to recover, he will blame the Republicans for not allowing him to spend enough. That was good enough to explain Roosevelt’s failure to end the 12 year “Great Depression,” and it’s good enough to explain Obama’s failure in the last four years and the next as well.

(3) The counter-offer by Secretary Treasury Geitner was a joke, a manifesto not a solution. POTUS wants 1.6 trillion in new taxes over 10 years, 50 billion to spend this year on “stimulus”, extension of unemployment benefits and the payroll tax exemption, mortgage relief, and unlimited Presidential authority to raise the debt limit. The last is frighteningly close to the “Enabling Act” of 1933 in Germany.

(4) Taxes are going up anyway. The “Affordable Care Act” alone accounts for over $1 trillion dollars in the next decade. If the “middle class” elected Obama, why not give them the opportunity to pay for their decision?

(5) If true that revenue is down 15% from 2007, that can largely be ascribed to the true level of unemployment – over 15%, and nearly stagnant growth of the economy. The only way to increase revenue is to allow the economy to grow naturally. It can’t grow and will continue to shrink if we try to spend our way to prosperity, and take money from capital investments. The Democrats think the recession continues because people don’t have money to spend, so they’ll give them money we borrow from China (or Bernanke prints in his basement), or take from the job producers. What are they thinking?

(6) The payroll tax exemption hurts Social Security, which will be bankrupt by 2020. SS has paid more than it gathers since 2010, and it will only get worse as more people retire and fewer are able to find jobs. The President will give you a pittance now, then take it out of your retirement later – some bargain.

(7) The crisis existed before the “Fiscal Cliff” gave it a name, and will continue to get worse if nothing substantial is done to reduce spending. Better to take our lumps now than have rioting in the streets in 2 or 3 years.

According to Daniel Greenfield in a article posted from FrontPage Magazine on November 30, “The Working Class and the Government Class,” he doubts the very existence of a fiscal cliff. Greenfields’s explanation rings true in light the American voters electing President Barack Obama to a second term:

“Forget all the talk about whether we will or won’t go over the fiscal cliff. We ourselves are the fiscal cliff and have been for some time now. The real fiscal cliff is not the point at which we run out of money, our credit rating sinks lower than Enron and everyone is fighting over jars of cat food at Wal-Mart. The real fiscal cliff is when even the dumbest person in the country is no longer able to deny what the packs of robbers and thieves he appointed to steal for him have perpetrated for their own benefit in his name. And that fiscal cliff may never come.”

Under our hybrid system, many Americans already live under Communism. And the rest of the country pays for it. As the number of people living under communism grows and the number of people subsidizing Communism shrinks, the fiscal cliffs begin coming in faster that Wile E. Coyote on jet-powered rocket skates.”

Is anybody in Washington even talking with one another. Instead, all seem to be talking past each other : Our names:

GLOSSARY OF TERMS

Savings = accepting a budget less than you asked for; alt.: a growth in spending less than projected; obsolete: spending less than in the previous year.

Budget = a non-binding resolution, proposed by the President, passed by the Senate and reviewed by the House (never mind Article I, Section 7 of the Constitution).

Balanced Budget = a delicacy served in Washington DC, composed of rainbows, poppycock and unicorn milk.

Deficit = a non-classified talking point, loosely related to spending more than you collect in taxes.

QE = “Quarterly Easement”, alt. “Quick and Easy” – printing money to cover the deficit, instead of borrowing it from the Chinese.

Published initially at Illinois Review on Monday, December 3. http://illinoisreview.typepad.com/illinoisreview/2012/12/the-fiscal-cliff-if-walls-could-talk.html#more

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