It Wasn’t Great, But It Could Have Been Worse

Sorry for the lack of optimism in the new year, but the basically the average American was not the winner in the budget deal passed by Congress this week. Yes, we avoided the fiscal cliff, but we continued the direction of more government spending and bigger government.

Bloomberg reported yesterday that the bill the Senate passed would raise taxes on 77 percent of American households. The Hill reported yesterday that the bill the Senate passed will add roughly $4 trillion to the deficit when compared to current law, according to new numbers from the Congressional Budget Office (CBO).

On December 31st, Breitbart.com reported that the Congressional Budget Office has determined that the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending while increasing tax revenues by $620 billion—a 41:1 ratio of tax increases to spending cuts.

So where do we go from here? I guess it depends on what America wants to be. When you look at the history of America, you realize that America was settled by people who were not content to stay where they were in their social or religious situations. The Pilgrims came here to find a place to practice their religion without government interference, the Irish fled the potato famine and the harsh conditions imposed by their British lords, and many Jews fled the pogroms of Russia and European countries. All of these people (particularly early in our history) took risks in coming here. Americans later left the comfort of their eastern homes to settle the western frontier. Historically, we have been a people with a work ethic who expect to be rewarded for our efforts. If government spending and programs continue at their current rate of growth, will we be able to maintain that spirit of adventure, risk taking and achievement or will it be wiped out by government programs? Recently I was talking to a friend who is a retired teacher, and she shared a story with me about an experience she had while working on her graduate degree. One of the students in the graduate program was the third generation of his family to be on welfare. Obviously, one of his goals in getting an education was to break that cycle. That is wonderful. However, it was less wonderful when he stated that if he couldn’t get the job he wanted after completing the program, he would simply go back on welfare because that paid pretty well. That is the danger we face with an ever-expanding government.

With the current President and current Congress, our chances of changing our current direction toward bigger government and increased taxes is very small. Conservatives are a very small part of Congress, and frankly, the Republican establishment is not a whole lot different from the Democrats when it comes to big government. The only real hope to turn this country around is the mid-term elections in 2014. Otherwise, we can expect to become Greece very soon.

One (very unpopular) solution to our current fiscal problem would be to make sure that every person in America pays taxes. Right now approximately 50 percent of Americans pay no income tax. If all Americans paid income taxes, they might be more inclined to elect people who were not likely to increase them!

Just one other note on the general state of affairs. As the third Quantitative Easing (QE3) begins to take effect, expect gasoline prices to rise. The current price for gasoline that we are paying at the pump is more related to the sinking value of the U. S. dollar than it is the price of oil. Unfortunately, unless economic policy in Washington changes, that will continue to be the case.

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Spiking The Football Before You Make The Touchdown Is Never A Good Idea

I have no problem with victory celebrations in football. It is a competitive sport and in that setting they are appropriate, but I will admit that President Obama is getting on my nerves with his political victory celebrations. Being President does not mean that you have to destroy the other political party–it means that you have to lead the country and create unity. I guess President Obama never got that message.

Last night Breitbart.com reported on the current state of the fiscal cliff negotiations. It appears as if a deal may have been reached (the question is whether or not the deal will pass in the House of Representatives). With passage in the House not a given, it was rather unwise of the President to spike the football–unless he wants the deal to fail so that he can blame Republicans. I hope that is not the case, because that would be putting politics over the welfare of the country, and I don’t like to think any President would do that.

The article reports:

However, there are several reasons a deal could fail. One is the President’s bizarre press conference earlier today, at which he appeared to mock Republicans and hinted at further tax hikes in the future. The event, timed at a sensitive stage in the negotiating process, irked Republicans and damaged whatever trust might have begun. Obama seems to have been torn between the desire to strike a victorious posture, and the real fear–driven, perhaps, by sharply falling approval ratings–that he would be blamed if the “fiscal cliff” caused a new recession.

The article also reminds us that we have already hit the debt ceiling:

Negotiations will also take place about the debt ceiling. The Treasury reports that the U.S. has officially hit the $16.4 trillion limit on what it can borrow, and that the government must resort to “extraordinary measures” to cover additional borrowing, which it can only do for a few more weeks. Congress will revisit the debt ceiling negotiations of the summer of 2011, even as it struggles with the aftermath of the “fiscal cliff.”

The problem is excessive spending–not lack of revenue!Enhanced by Zemanta

The Problem With Arithmetic

The problem with arithmetic is that if you always use the same numbers you always get the same answers. You can’t change the answer (solution) without changing the numbers. It’s just too rigid! Unfortunately, America is about to fall victim to the rigidness of arithmetic. It won’t be obvious until after it happens, but it is coming.

John Hinderaker at Power Line posted an article yesterday about the arithmetic involved in solving America’s financial problems. He points out that what is happening in America is also happening around the world.

The article states:

American voters accepted Obama’s claim that no change is necessary, that $16 trillion of debt is nothing to worry about. In France, voters put socialists into office, vowing not to give an inch on government benefits, ever. In Spain, Greece, and elsewhere around the world, politicians promise their constituents that nothing has to change, more money can be found somewhere. They are all lying.

The article cites an article by Janet Daley that appeared in the U.K. Telegraph on Saturday. The opening paragraph of the article asks:

Was 2012 the year when the democratic world lost its grip on reality? Must we assume now that no party that speaks the truth about the economic future has a chance of winning power in a national election? With the results of presidential contests in the United States and France as evidence, this would seem to be the only possible conclusion. Any political leader prepared to deceive the electorate into believing that government spending, and the vast system of services that it provides, can go on as before – or that they will be able to resume as soon as this momentary emergency is over – was propelled into office virtually by acclamation.

After France raised the taxes on millionaires, the millionaires began leaving the country. As California continues to raise its taxes on ‘the rich,’ the exodus of the wealthy from that state continues. After Maryland raised taxes on millionaires, the number of millionaires in the state declined, and state tax revenue declined. There is a lesson here, and America needs to learn it.

The article in the Telegraph points out:

Barack Obama knows that a tax rise of those proportions in the US would be politically suicidal, so he proposes a much more modest increase – an income tax rate of around 40 per cent on the highest earners sounds very modest indeed to British ears. But that is precisely the problem. If a tax rise is modest enough to be politically acceptable to much of the electorate, it will not produce anything like enough to finance the universal American entitlement programmes, social security and Medicare, into a future with an ageing population. There is no way that “taxing the rich” – that irresistibly glib Left-wing solution to everything – can make present and projected levels of government spending affordable. That is why Britain and almost all the countries of the EU have redefined the word “rich” to mean those who are earning scarcely twice the average wage, and pulled more and more middle-income people into high tax bands. Not only are there vastly more of them but they are far more likely to stand still and be fleeced, because they do not have the mobility of the truly rich.

As the debate on the fiscal cliff continues, we need to keep our perspective on exactly what is going on.

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Changing The Subject To Win The Debate

America is safe now–all the politicians have gone home for Christmas. They can do no further damage.

We are headed for the fiscal cliff. That will be at least a short-term problem, but let’s back up a bit and look at what has happened to the discussion. Two years ago we were talking about cutting spending. Government spending is running close to 25 percent of Gross Domestic Product (GDP). Traditionally, it runs about 18 or 19 percent. That is a major reason for the rapid growth of the federal deficit. Plan B, as submitted by the Speaker of the House, was about taxes. The debate has been almost entirely about taxes–raising them–not cutting spending. Somehow, when taxes are raised, spending increases–it very rarely goes down.

Dick Morris points out the change in the debate in an article he posted at DickMorris.com yesterday. The thing that we need to remember here is that President Obama is a very gifted politician. He knows how to play the game without taking any responsibility for the results. I have the feeling that about twenty years from now the generation that will have to pay for all this foolishness is going to look around and say, “How did our parents let this happen? How did this man get re-elected?” Unfortunately, the current voters are not there yet.

Dick Morris’ article concludes:

Take the tax issue off the table and Americans will see the real game going on here: Obama’s commitment to deficit spending which is driving the economy into ruin. No longer will he be able to avoid the blame for the coming economic collapse because he will have had his way on taxes.

Politically, if the Republicans agree on a tax increase but demand spending cuts in return — and Obama refuses to come across with spending reductions (which he will) — then the blame will fall squarely on the president for the ensuing economic breakdown.

Call Obama’s bluff! Make him face up to the need to cut spending and show Americans how he won’t do it.

That is the only way the Republican party survives this presidency.Enhanced by Zemanta

An Interesting Take On The Fiscal Cliff

Erick Erickson posted an interesting article at Red State yesterday about the current wrangling regarding the fiscal cliff. Mr. Erickson pointed out that in his opinion, John Boehner should not raise tax rates–it would be better to go off the fiscal cliff.

The article explains what is really going on here:

Why would every other issue move quickly if the Republicans would just agree to raise rates? Because of two issues.

The White House knows that if they cannot get the GOP to vote to increase rates, they will get crushed on the tax issue in the midterms. Their red state Democrats need political cover before they can vote to increase taxes. That cover is a Republican cave.

The White House also knows that if they can get the GOP to vote to increase taxes once, it will be far easier to get them to do it again.

Barack Obama needs the Republicans to raise rates. If they do not get it before January 1, all of the Bush tax cuts will expire and the GOP will not permit any reduction without it being an across the board reduction. Moderate Democrats in the Senate and the few remaining blue dogs in the House will be in a very difficult position.

Raising tax rates, rather than simply eliminating some loopholes, would cause a serious split in the Republican party. It would result in a serious power struggle within the party during the elections of 2014, probably giving the Democrats additional seats in both the House and the Senate. What would happen after that would be a nightmare for America–there would be no control at all on Barack Obama’s spending plans. If John Boehner has any loyalty to the country and to the Republican party, he needs to resist the pressure to increase tax rates.

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Working Together Is Really Difficult If It’s Something You Don’t Want To Do

The Washington Examiner posted an article about two defining moments of the Obama Administration. Both moments explain why the Obama Administration does not seem to be able to find common ground with the Republicans.

The first defining moment came early in the first term:

As recounted in Bob Woodward‘s book “The Price of Politics,” just three days after he was inaugurated, Obama invited House Republicans to the White House to talk about how he could incorporate their ideas into the then-unwritten stimulus bill.

At the meeting, Minority Whip Eric Cantor distributed a five-point Republican stimulus plan that included tax cuts for the poorest Americans, tax cuts for small businesses, no taxes on unemployment benefits and a new homebuyer tax credit.

At the time, it was entirely possible that Obama could have taken some, or even one, of these ideas and included them in his almost $1 trillion stimulus plan. If he had, he surely would have gotten at least some Republican votes for his stimulus bill.

Instead, Obama told Cantor, “I can go it alone. … Look at the polls. The polls are pretty good for me right now. Elections have consequences. And Eric, I won.” Obama’s chief of staff, Rahm Emanuel, was even more frank: “We have the votes. F–k ’em.”

As a result, Obama’s final stimulus bill had zero Republican ideas in it. Not surprisingly, it also got zero Republican votes. The tone for Obama’s presidency had been set: all partisan scorched earth all the time. And it’s been that way ever since.

Unfortunately, things have not gotten better since then:

Obama’s secretary of the treasury was an odd choice for a negotiating point man to begin with. Boehner and other Republican leaders had previously called on Geithner to resign. His relationship with House Budget Committee Chairman Paul Ryan, R-Wis., can best be described as confrontational. Geithner, and his perma-smirk, were not exactly signs that Obama was interested in a deal.

Sure enough, last Thursday the details of Geithner’s offer leaked. Not only did Geithner ask for $1.6 trillion in tax hikes (double what Obama campaigned on); not only did Geithner ask for new stimulus spending; not only did Geithner ask for an extension of “emergency” unemployment benefits; but he also asked for an infinite increase in the debt limit. That was the last real piece of leverage Republicans had.

The Geithner proposal completely killed any chance House Republican leaders had of convincing their members that Obama was an honest partner for anything — let alone major tax and entitlement reform.

I don’t know if we will be going over the fiscal cliff. I do know that a bad deal might be worse than no deal. It is unfortunate that America elected a President who does not seem to understand the concept of compromise.

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Some Wisdom From Fred Barnes

In 1995, Fred Barnes, William Kristol and John Podhoretz formed the Weekly Standard. Fred Barnes is also a regular commentator on Fox News, and has also written for numerous publications, including Reader’s Digest, The New York Times, The Wall Street Journal, The Spectator, Washingtonian, The Public Interest, Policy Review and both The Sunday Telegraph and Sunday Times of London.

In the December 10 issue of The Weekly Standard, Fred Barnes posts an article entitled, “Don’t Go Wobbly.” The article reminds us that although President Obama won the election, he did not win a mandate. He won by waging one of the most negative campaigns in American history.

The article reminds us:

House speaker John Boehner has rejected the president’s proposal as unserious. Senate minority leader Mitch McConnell broke into laughter when Treasury Secretary Tim Geithner outlined it for him. It’s a wonder even Geithner kept a straight face. Because what the president wants is the same-old same-old: tax hikes immediately, spending cuts down the road. We know how this plays out. Taxes go up, spending cuts never materialize. Obama is also seeking a new $50 billion stimulus. And there’s more. Obama wants to raise the debt limit without the approval of Congress and force banks to refinance troubled home mortgages.

Giving President Obama the ability to raise the debt limit without the consent of Congress is like giving your fifteen year old a credit card with no credit limit. Most grownups don’t have the restraint to handle a credit card without a credit limit–that is why banks set credit limits. Shouldn’t our government be as smart as banks?

The article cites some of the areas of reform that President Obama has asked the Republicans to agree to. These areas include tax rate increases on the wealthy, then limiting tax deductions on the wealthy in the coming year. This represents a serious increase in the expenses of small businesses and will prevent new hiring by small businesses. The President is proposing Medicare cuts–the Republicans need to ask for Medicare reform–not cuts. If we continue to cut the rate at which hospitals are reimbursed for Medicare patients, hospitals will stop admitting Medicare patients.

The article has two good suggestions for Republicans involved in this debate:

To strengthen their hand, Republicans would be smart to stress two things. One is the Simpson-Bowles commission’s strategy for handling the debt and deficit crisis. The Obama-created commission said uncontrolled spending is the cause of the problem, that the best way to gain more revenue is through tax reform, and that any deal must be bipartisan. Republicans agree and should say so loudly. Obama doesn’t agree.

The other is the prospect of a recession. The fiscal cliff is really a tax cliff. Taxes would instantly soar by $400 billion on January 1 and, according to the CBO, would drive the economy back into recession. So might the tax increase of $1.6 trillion advocated by Obama, in addition to higher taxes to finance his health care law that begin next year. Surely the president understands this.

Just as an afterthought–I am willing to go back to the tax rates of the Clinton era as long as we also go back to the spending levels of the Clinton era.

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Some Wisdom Regarding The Fiscal Cliff

Marc Thiessen posted an article at the Washington Post on Monday which provided a way forward for the Republicans in the budget debate.

Mr. Thiessen states:

So what should Republicans do? Resist the call for a down payment, and insist on real tax reform as the price for any new revenue from limiting deductions. If both sides can’t agree on such reforms this year, they can do it next year. The Post reports this morning that “with tax rates set to rise automatically in January . . . Democrats say they have little incentive before then to cut a deal that falls short of their revenue goals. That means going over the cliff, at least for a short time, remains a possibility, they say.”

If Obama and the Democrats want to take us over the fiscal cliff, let them lead the way. Once the Bush tax cuts expire, every American will pay higher taxes — which means the pressure for tax reform on both sides will be even greater. By contrast, if Republicans give away the revenues from deductions and loopholes today, they will alleviate that pressure and have no revenues left to pay for a simpler, fairer, pro-growth tax code next year.

Guy Benson at Townhall.com has a different approach that also might work:

Short on good options, here’s one play GOP leaders might be able to make to regain some of the high ground and throw the White House back on its heels: Embrace Simpson/Bowles.  President Obama established a bipartisan debt commission with great fanfare in 2010.  Its leaders were Alan Simpson, a former Republican Senator, and Erskine Bowles, President Clinton‘s former Chief of Staff.  The panel was tasked with engineering a solution to right America’s fiscal ship.  In the end, they produced a set of recommendations that received the blessing of a majority of its members.  The commission’s blueprint drew a fair amount of criticism from conservatives, but was roundly blasted by liberals.  Liberal malcontents like Paul Krugman torched the plan with noteworthy ferocity.  The president shelved the recommendations, and they’ve been collecting dust ever since.

Bringing back Simpson/Bowles is not a great idea, but it is a good starting point for the debate.  Simpson/Bowles calls for a 3-to-1 ratio of real spending reductions to tax increases and caps federal spending as a percentage of GDP at 21 percent. This is a great place to start.

The thing to remember here is that it is not in the interest of Washington bureaucrats to cut spending at all–their power comes from growing the budget. Unless the Congress and the President are backed into a corner with no escape route, they will not cut spending. They will pledge to cut spending down the road, but it will never happen. Going over the fiscal cliff or passing Simpson/Bowles may be our best options at this time. Elections have consequences. Until we elect people who actually want to cut spending, spending will not be cut.

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Rhetoric Vs. Facts

We’re hearing a lot lately about solving our nation’s fiscal problems by ‘taxing the rich.’ It sounds good, but the facts just don’t agree with the talking points.

Breitbart.com posted an article yesterday that crunched some of the numbers involved.

Breitbart.com reported:

“The president’s plan to increase taxes on the upper two percent covers the spending by this federal government not for eight years, not for eight months, not for eight weeks but for eight days. Eight days only,” said Mr. Price (Rep. Tom Price (R-GA)). “It’s not a real solution. So, again, I’m puzzled by an administration that seems to be more interested in raising tax rates than in gaining economic vitality.”

So what is going on?

The article cites a comment by Warren Buffett that may explain things:

Indeed, even Mr. Buffett seems to concede that he and the president’s “soak the rich” proposals are more an act of political theater designed to generate an emotional response than serious solutions: Mr. Buffett told Matt Lauer he believes his proposal would boost the “morale of the middle class.” 

This is not about fiscal responsibility. This is called class warfare, and unfortunately, a lot of Americans have bought into the idea that punishing success is better than formulating policies that will help more people achieve success.

There is one important thing to remember as we approach the fiscal cliff. The Republicans control only one-half of one branch of government. Whatever happens, if it is not successful, the media will blame the Republicans. The Republicans might as well stick to their guns about not raising taxes and at least get blamed for something they did right. The idea of raising taxes now and dealing with spending cuts later is laughable. The Democrats have made that promise before, and the spending cuts never happened.

The problem is on both sides of the aisle–bigger government means more power concentrated in Washington. Congressmen like power. Until we elect people who put the welfare of the country before their own personal ambitions, nothing will change.

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A Broken Promise

I seem to remember both Republicans and Democrats saying that they did not want to raise taxes on the Middle Class. Then how come, even if a deal is reached to avoid the fiscal cliff, taxes on the Middle Class are going up in January?

The Washington Free Beacon posted an article today explaining what is about to happen:

Employee payroll taxes are scheduled to rise nearly 50 percent in 2013 absent action by lawmakers, and there is a growing sense that both parties might be willing to let that happen.

Party leaders have about five weeks to resolve a host of budget issues to avoid going over the “fiscal cliff,” the term used to describe more than $600 billion in automatic spending cuts and tax increases scheduled to occur on Jan. 1, 2013.

The discussion thus far has focused on the Bush-era tax cuts, with very little discussion of what to do with the temporary cuts on employee payroll taxes that has been in effect for the past two years. The employee payroll tax cut affects roughly 160 million Americans and saves the typical middle class family $1,000 per year.

U. S. News posted an article in January 2012 which listed five facts about the employee payroll tax cut. One of these is very interesting:

Even though workers are paying less tax into the Social Security system, they do not suffer any reduction in the benefits that will ultimately be collected. The federal government promises to pay the benefit that would otherwise have been received. The benefits are figured on the basis of earnings (up to the wage base limit for the year) and not on the taxes paid.

So Congress took a program (Social Security) that has been teetering on bankruptcy for a number of years and reduced the amount of money paid into it without reducing the benefits being paid out. What a business plan!

The article at the Washington Free Beacon concludes:

There is some concern among Republicans that Democrats might disregard policy considerations in order use the payroll tax cut as a political wedge issue. Democrats did this in February when House Republicans arguably lost a showdown with the White House.

It remains to be seen whether or not lawmakers can strike a deal to avoid going over the fiscal cliff.

Either way, though, the payroll tax cut appears unlikely to survive.

Obamacare increases taxes on the Middle Class in January. It is likely that even if a deal is reached to avoid the fiscal cliff, other taxes on the Middle Class will be increased in January also. As Americans, we need to tell Washington–THE PROBLEM IS NOT A LACK OF REVENUE–IT IS TOO MUCH SPENDING!!! Until Congress and the President get that message, the American taxpayer will continue to be seen as a never ending source of money, and at some point the American taxpayer will run out of money.

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