Sunday, November 18, 2012

The Coming "Fiscal Cliff" II

Last week marked the kick-off for achieving a solution to the "fiscal cliff". In recognition, the Washington Post wrote this summary article: "Both sides appear upbeat on opening round of ‘fiscal cliff’ talks". Since these are "early" talks, it is too soon to say how things will progress. Hopefully compromise really is on the table.

In my prior post on this topic, I highlighted several concerns that still remain relevant. These concerns were updated in the list below. So when reading or listening to the news concerning the "fiscal cliff" readers are encouraged to consider the points below.
  1. Will any additional revenue collected through tax increases and/or the elimination of tax breaks be used for real reductions to deficit spending  OR will these additional revenues be used to justify increased spending thereby negating any reductions in deficit spending? 
  2. The article alludes to the fact that the participants recognize that deficit reduction will involve slowing the rate of program grow for certain programs and that some other programs may actually need to have their funding reduced.  Will the "grand bargain", if it is achieved, actually make definitive proposals and not kick-the-decision-can to a later date?
  3. Though not mentioned in this article, one misleading and fancifully concept that keeps popping up are future savings 10 years from now. Should any "grand bargain" be achieved, the supposed "savings" must be specified as occurring between now and 2016Supposed "savings" after 2016 are meaningless. They would be equivalent to once again kicking-the-fiscal-decision-can down the road. A new administration will take over in 2016 and they will have little interest in carrying forward the budget proposal of a prior administration. Look at what Blame Bush did to Clinton's budget.
  4. Obama, when campaigning, promised to make the "tough" decisions, to be "transparent", and to be "above partisan politics".  Time for Obama to stop-up-to-the-plate. 
Why the list above? Obama sells a populist message. So it is critical to carefully parse Obama's words for what was actually said and what was not said. As Romney noted Obama's populist message is one of "diversions, distractions, and distortions". The Economist, even-though they endorsed Obama, wrote the following: "Above all, Mr Obama has shown no readiness to tackle the main domestic issue confronting the next president: America cannot continue to tax like a small government but spend like a big one. Mr Obama came into office promising to end “our chronic avoidance of tough decisions” on reforming its finances—and then retreated fast, as he did on climate change and on immigration. Disgracefully, he ignored the suggestions of the bipartisan Bowles-Simpson deficit commission that he himself set up. More tellingly, he has failed to lay out a credible plan for what he will do in the next four years. Virtually his entire campaign has been spent attacking Mr Romney, usually for his wealth and success in business."

Obama is a populist demagogue who chooses an easy target, such as the rich, and vilifies them so that he can get favorable tax legislation passed under the mantra that it is "only fair" to have the rich pay more in taxes. Not mentioned by Obama is that the fact that the "tax the rich" fiscal policy will have little impact on reducing deficit spending assuming that the tax revenue raised is actually applied to reducing deficit spending. The Wall Street Journal (August 15, 2011) wrote: "But one thing is certain: While raising taxes on millionaires might be emotionally and politically satisfying for some, it would only begin to fill the nation’s budget hole."

So far Obama's disingenuous "tax the rich" policy has had its intended effect of distracting the electorate. Many are jumping onto the tax the "evil" rich bandwagon since it is "fair". Michael ( April 21st, 2011) wrote: "Class warfare in the United States is heating up again.  As the overall economic pie shrinks, the poor are being taught to go after the rich and the rich are being taught that the poor are a threat.  Lately, the calls to “tax the rich” have grown louder than ever.  As thousands more American families fall into poverty every single day, and as U.S. government debt continues to soar, many are touting higher taxes on the wealthy as the solution to all of our problems."

Attacking the the rich, has generated much discussion, but this discussion unfortunately neglects the critical issue that taxing the rich would not resolve the issue of deficit spending, only hide it. At this point, I need to step-in and explicitly state that everyone has to pay more in taxes and that spending has to be reduced so that revenues and expenses are more in-line with getting a balanced budget.  I am NOT defending the rich, they need to pay more too. PolicyMic wrote: "The president’s strategy to focus so extensively on tax increases for the affluent to rectify the debt crisis is not a fair and balanced approach for his next four years. ... Every American should contribute something to reduce the deficit and/or to improve the country." We need Obama to be the leader  he was elected to be and to negotiate a true solution to deficit spending which will require tax increases for everyone and real reductions to programs.

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