Fiscal Cliff Result: The Can Is Kicked

Nothing happened.

I was hoping that we would go over the fiscal cliff because taxes would go up on everyone. I think everyone should suffer the pain of paying for the government’s uncontrollable spending. Perhaps the “middle class”, whom politicians believe are clueless, would then start to think about the future of our country. Perhaps they would take exception to the cost of what their government is doing to them.

The proposed deal includes a token tax increase on the $400/450K income level which, with other taxes, will raise $60 billion a year. They currently spend $1.1 trillion more than they take in every year so new revenues of $60 billion is a symbolic tip of the hat to the Democrat’s liberal base.

They didn’t have the moral fortitude to tackle the spending issue, so they pushed it off for a few weeks or months. As I warned you before, the spending cuts and entitlement reforms will never happen. It appears that automatic (sequestered) across the board cuts are the only way to tackle this problem.

The media have been horrible in reporting this issue over the last few months. Always you hear that Congress can’t get together and do something for good of the country. The issue is defined almost solely in terms of revenue raising (new taxes) rather than the real issue, spending. The refrain is that there are some recalcitrant Republicans, specifically the “Tea Partiers”, who are responsible for our misery and malaise. If only they could see the broader picture and compromise and get things done (i.e., raise taxes on the rich).

We have compromised ourselves into a $16.4 trillion national debt. This debt is equal to 106% of GDP. When do you change things?

Federal-debt-v-GDP

Another way to look at the “Tea Partiers” is that they are heroes who have stuck to an important principle in order to stave off ultimate bankruptcy. They actually do understand the real issue and are willing use their leverage to force spending cuts. Thank you, Ladies and Gentlemen.

I have yet to hear from any economist presented on the media who has gotten this issue right. Typical was an interview I heard  tonight on BBC with an NYU economist who could have been channeling Paul Krugman: spending cuts are needed but not right now; the government needs to continue to spend to revive the economy, taxes need to be raised on the rich but not on the middle class because the middle class will spend all their money which is good for the economy; everyone (the Republicans) needs to compromise. That passes for economic wisdom in America.

It will be a long New Year Eve in Congress tonight. Who knows? Perhaps it will be defeated in the House. Whatever. Sleep well.

Happy New Year, dear reader.

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12 comments to Fiscal Cliff Result: The Can Is Kicked

  • Norman

    Curious, you say that you wished there was no compromise, that all taxes went up so that everyone shared in the burden. Now what would you say to the tax rates going up to when Eisenhower was P.O.T.U.S.? That would be fair wouldn’t it? A new tax code is needed, but one where there isn’t any loopholes, and none of this off shoring nonsense that’s prevalent today. It’s nice to have the money, but you seem to forget that the infrastructure is crumbling from lack of maintenance, but those who use it from an industrial sense, don’t want to pay to maintain it. I’m not pointing the finger at you personally, but this attitude of us against them is stupid. We are all in this together, so we should all be paying, at least those who are capable of doing so, because what you’re advocating, your children/grandchildren will pay for.

  • RW

    Norman, you have it quite backward. What our children/grandchildren will have to pay for is Congress’s out-of-control spending that is creating unsustainable national debt. The revenue problem they trumpet pales in comparison to their spending addiction, and Congress has been unwilling to address spending, instead borrowing more and more. Thus the interest alone on the exploding national debt is now crowding out discretionary spending on urgent needs like infrastructure, as you point out. Raising taxes on the rich will only symbolically raise enough revenue to pay for a few highway project signs that boast how your tax revenues are repairing bridges. I agree that simplifying the tax code could perhaps raise more revenue and improve tax fairness. I’m all for it. But let’s address the two biggest elephants here. Entitlement spending is also exploding out of control. By 2025 (just 12 years from today) the combination of entitlement spending and interest on the national debt will consume ALL revenues: http://www.heritage.org/research/reports/2012/10/federal-spending-by-the-numbers-2012. We all need to do some math and stop falling for our politicians’ blarney. Those phonies are about to kick the can down the road a few months, raise some token taxes, and continue to spend our nation into 3rd world status.

    • dd

      RW, do not mind Norman. he is senile.

      sorry Jeff, i know that’s not nice but i’ve about had enough of the nonsensical thought out there. i’ve just had it.

      “we’re all in this together” … no Norman. not at all, this country was built on individualism and personal liberty. what has torn it down is the collectivism of which you speak. sheesh, i think i’m going to vomit.

      “this sucker is going down.”

  • mak

    RW….Yes, it is spending that is the problem, not taxation. You can not have it both ways…tax all you want till there is nothing to tax…now where are we??

  • Norman

    Come on now fellas, calling names? Yes, the congress spends more than it takes in. That said, where are you on this matter? Do you do anything or just mouth off as they say? If you drive down the street in your town, are the roads in tip-top shape? Does the transportation system provide a seamless way to get from point a to point b? Consider just who will be left holding the bag, when those demanding cuts in the name of austerity, get their wish? Look at Europe. Do you propose the U.S. to imitate them? I’m not advocating taxing the rich, to those that are drinking the anti-taxing koolaid, I asked about the rate, also that we are all in this together too. Perhaps we should just do away with congress, then we wouldn’t have to deal with that segment. We are supposed to be a nation of laws, yet those laws are selectively enforced today. Where are you in calling for justice for the TBTF frauds and everything relating to such? You sound like selfish greedy NIMBY people because you don’t agree with anyone who doesn’t buy your line. Remember, you too can and may be thrown under the bus, especially if you let arrogance influence your ego.

    • bigmac

      Norman, what I get from your two posts is the tired refrain of many from the liberal point of view. They usually point to the roads, the police/fire stations, the teachers/schools, etc. and tell all that this is what taxes pay for – implication being that if more taxes are “needed”, don’t complain and pay up.

      There are a few points co-mingled in the discussion. First, is a “tyranny of the majority” point where those who “receive” government services/benefits are able to “force” others to pay for them, as the tax structure is “unbalanced” in their favor. The second is that the fiscal problem is a spending problem vs a revenue problem. The third, related point, is that there is a problem within government in the priorities on spending. The fourth, (your point, I believe) is that there are those who seem to benefit from their position of power and wealth (e.g. special regulatory rules, tax loopholes, selective enforcement, etc.). As a result of this co-mingling it becomes muddled and hard to have a focused response.

      However, from where I stand, they are all symptoms of one problem – a large and growing government that has perverse incentives contrary to the interests of the people it was meant to serve.

      Unlike us as private individuals or business owners, government does not have the starvation/death imperative. There is no limiting force on government other than defined by law. But the law is rather broad and has been changing (in the hands of government itself, no less), such that the scope and reach of government has been growing incrementally for decades, by any measure (pages of regulations, expenditure as a percent of GDP, public sector employment, etc).

      Government has become much too big because its incentives are strictly political. There is no need for efficiency. There is no benchmark to judge efficacy of policies and operations. There is only the electorate. Politicians are incented to “buy votes”, to “mollify” public sector unions, and to court private sector unions and corporations. In turn, special interest groups have a strong incentive to influence government to their favored policies, just because they can for their own benefit, usually at the expense of the unorganized and silent majority. There are endless multitudes of interests with “problems to solve”.

      When each presidential candidate spends >$1B, that ought to tell you something about the “value” of that position of power. Does that not strike you as a problem?

      So, when we talk about TBTF frauds (I agree, btw) – maybe we should question the premise that government is needed for all of our real and perceived problems. Maybe it is the government that we envisioned with all those good intentions creates the very tools of power that get turned around and used against us.

      When we talk about infrastructure is crumbling because many don’t want to pay for it (true) – maybe we should question the premise that government should be responsible for it all. Maybe we should question the rationale for non-infrastructure program spending that take resources away from infrastructure. Maybe we should question how we measure success in government programs that they can live or die by (vs immortality). Maybe we should question the accountability and transparency to which our government reports its finances (perhaps truly holding them to the same standard they hold corporations with Sarbanes-Oxley). Maybe we should question the (non-arms-length) union contract agreements with the public sector employees, whose benefits far out-weigh the equivalent in today’s private sector, and creates major future liability (which is probably under funded, btw).

      I fully agree with tax reform. It seems to me that we should be able to do taxes on the back of a postcard. The current system is a tremendous waste of economic resources. However, IMHO, before I’d ask anyone for more money (net of any changes), I’d want to explore the above questions to find money.

      We must get out of the “if only…” notion of government – if only we had the right party in place, the right president, the right policy on x, y, and z, etc. It just digs us all into a hole. Government, by and large, is our collective problem today.

    • dd

      oh with the roads argument. how did the TVA work out?

      Norman, your understanding of where the deficit comes from (spending), who the perpetrator of bad spending efficiency is (government), and thus why we have a problem is very limited.

  • Before this gets into a shouting match, let me make a few points

    Norman, if it were all about infrastructure then we probably wouldn’t have a problem. That of course ignores the issue of who can do a better job of building and maintaining infrastructure. You should ask yourself why the infrastructure is crumbling. The answer is that governments are not very good at maintaining it. They take the money that’s supposed to go to repair roads and bridges and spend it on other things. At least that’s the way it works in California.

    The broader question is: what is the best way to provide for the services that citizens want? I see tremendous waste and incompetence in everything the government runs. As you know, Norman, politicians keep promising more than they can pay for. So, when the government has done a poor job at providing such services, I get upset when they ask for more money to flush down the proverbial toilet. Things need to change.

    The bottom line is that they can’t tax us enough to pay for all that they’ve promised. So when do you say no to them? Kumbayah doesn’t do any good because they are unwilling and even incapable of solving the real problems. I’m not being selfish when I wish to assure a decent future for my children and grandchildren and their grandchildren. That future is in jeopardy as I see it.

  • Leslie Goudy

    Until they cut spending also, nothing will change except the Government will get larger. Bernanke and his new “loosening” – On Wednesday December 12, Fed policy makers announced that they will boost their main stimulus tool by adding $45 billion of monthly Treasury purchases to an existing program of buying $40 billion of mortgage debt per month. This decision is likely to lift the size of the Fed’s balance sheet from the present $2.86 trillion to $4 trillion by the end of next year

    An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself

    From the Article I just read, it seems the banks are not ready for more agressive lending. Personally I think Bernanke is insane
    http://mises.org/daily/6326/Bernanke-Loosens-Up

    Happy New Year DD, Jeff

  • RW Hobert

    Thanks to all for some good points and discussion. Have a happy new year – only we can take that away from ourselves, at the personal level.

  • Pat

    Thanks for all your comments, even Norman’s. The crux of the issue is that there are fewer people working for a living than there are people who vote for a living. A dire warning accompanied the vision of our founding fathers when they penned the constitution, that only in the hands of moral people can this vision thrive. Everyone who risks their independence relying on the government to provide for them can claim a chunk of responsibility. What empire hasn’t failed when the people rely more on the government than they rely on their choice to be self reliant. We are plagued more by a moral irresponsibilty than a fiscal irresponsibilty. Sweet Dreams