Well we’re back here again. In the middle of 2011 I wrote about budget cuts versus tax increases. The ideas haven’t changed much. The alignment of the parties in power hasn’t changed much. What has changed? The only major changes are that the US government has borrowed another $1.5 Trillion since then (about a 10% increase in the debt previously owed) and a so-called “fiscal cliff” looms on December 31.
What does the President have to say about avoiding this “fiscal cliff?”
It appears that cutting tax rates on the so-called middle class (the under $250K earners) so that these folks can get ahead will be defined as accomplishing the “urgent business” of avoiding the present “fiscal cliff.” Clearly, this “fiscal cliff” has little to nothing to do with the $100+ Million per month of additional debt we are still incurring (an additional .8% of additional debt per month). This “fiscal cliff” which the President is talking about has mostly to do with the expiration of the Bush tax rates, which will revert to the higher rates set under President Clinton in 1994 with the assistance of a Democratically controlled congress. This “hard choice” by the President cuts the guts out of the idea that revenue can be used to significantly reduce the amount of debt we are continuing to incur since the proceeds of an increase in taxes on the wealthy are paltry when compared with the tax bonanza of allowing all the Bush rates return to their Clinton-era alternatives. This ‘solution’ has the virtue, however, of being politically kind of easy since the “not middle class” don’t have very many votes. And, anyway, the capital gains tax rates on the real multi millionaires (many if not mostly being members of the Democratic party) will only go up from 15 to 20%, retaining quite the advantage over the folks who earn their income through their own personal effort. Even so, the President’s multi-millionaire constituents won’t fare so badly since the capital gains rate will still be quite a bit below Reagan’s capital gains rate of 28% even though the tax rates on the people who earn their living at work will be significantly above the 28% rate enjoyed under the same Reagan.
What wasn’t directly mentioned by the President was that this “fiscal cliff” also includes automatic spending cuts, half of them being taken out of the defense budget (a cut of nearly 10% in a single year). It may be a “defense cliff” but it just doesn’t seem like much of a generalized “fiscal cliff” when the $130 Billion in cuts is compared to the sheer size of a $3.7 Trillion federal government budget (3%). Maybe that part of the “fiscal cliff” doesn’t really bother him so much, you think?
The administration has also just opened a new front on the “fiscal cliff.” Through Treasury Secretary Geithner the administration is pushing for Congress to permanently forsake its authority to control the extension of credit by the United States. It is actually one of the 17 enumerated powers of the Congress, specifically Art. I Sec. 8.2, which provides that Congress has the authority,”[t]o borrow money on the credit of the United States.” Put this alongside the question of whether the Congress has the power to completely take over the health care system of the United States which is nowhere to be found, but that’s another question for another day. Here’s Secretary Geithner being interviewed by Al Hunt about it.
Talk about frightening. The executive branch is proposing a modification to the basic power structure of the constitution without attempting to amend it. Oh well, what else is new?
My conclusion is the same as it was 1.5 Trillion borrowed dollars ago. We must show that we can do the hard things in order to maintain our credibility as a nation. The hard things would include letting tax rates go up and stay up on everyone and cutting the budget in a way which is hard and painful for a large number of folks. We’ve got to do it in order to maintain the value of the dollar. In order to keep our credit rating. In order to maintain our self respect. In order to keep from destroying the good and healthy aspects of a government, of, by and for the people.
Short and Sweet Blog 