Monday, July 23, 2012

The Looming "Fiscal Cliff" - Future Political Theater

Surprisingly, there is some room for rationality on the Washington Post's editorial board. The Post recently ran the following editorial  "Mr. Obama’s stand on taxes" recognizing that Obama's proposed tax policy would be inadequate. Bluntly, the Post writes: "We call this grossly inadequate because — as we’ve been saying since Mr. Obama irresponsibly promised during his first campaign that he would never raise taxes on the middle class — it’s impossible to tackle the federal debt by taxing only the wealthy. As the cost of retirement and health care for an aging population rises, the middle class is going to have to pay more, and federal benefits are going to have to be adjusted." The Post editorial concludes with: "The intelligent response would be to agree on long-term revenue increases and spending cuts while softening the short-term blow."

My response to that editorial was that the Post took a step in the right direction, but needed to go further. Missing from the Post editorial was the concept that he purpose of taxation is primarily to raise revenue to fund government operations. As such this country needs to define the level of services (military, entitlements, debt service, etc) that it will provide and tax accordingly.  The ultimate goal being a balanced Federal budget.

Furthermore, we need to divorce tax policy from economic policy. Neither Obama nor Romney should be promising to create jobs. They can't. This is especially true for Romney, who has asserted that he wants the government out of the private sector.

In casually watching the news, it seems that Howard Dean has been busy making appearances. Below are two video clips.

What is interesting to me, in the interview above, is that Howard Dean was quite candid in his assessment. Dean may have ended up viewing the state of the economy through rose-colored-glasses. Pat Toomey, on the other hand just tiredly regurgitated the Republican mantra of "No Tax Increase" and essentially avoided a substantive discussion. CNBC video with Howard Dean and  Pat Toomey.

This second interview above is better than the first. Doug Holz-Eakin made a much better case for the Republican side and even left room for tax increases.  I was disappointed with Larry Kudlow's concluding "No Tax Increase" remark. Basically, we are in the current financial mess due to blame Bush proposing tax cuts that backfired and also due to the lack of austerity.  CNBC Video of Howard Dean and Doug Holz-Eakin on the Larry Kudlow Show

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