Fiscal Cliff -the new self-inflicted wound

There is an interesting debate going on spurred by the concept of a “fiscal-cliff in December.

The contradictions are mind-blowing! Someone needs to have their collective mouths washed out with soap because the bs is getting foul. Let me see i can represent a proverbial “bar of soap”.

First, I firmly believe the full sequestration will not happen but the drama will still be performed with plenty of commercial breaks for fundraising while we-the-people watch with disdain .

We listened all last year that spending was too high. The growth of the deficit capable of destroying our country, stifling growth and killing economic freedom. We heard that we should be focusing on job creation with every fiber of our being. We heard the most important thing we could do to save our nation was the cut to bloat, fat , inefficiency ; but not just limit cuts to waste, we needed to cut expectations of services as well because it was the only way to save us.

We even had large numbers of elected officials refuse to increase the government borrowing limit – the money that we use to pay for the DEBT we already voted on, approved, incurred and are required to pay because the debt is only secured by the good faith and credit of this country. The deficit and the reduction of the deficit by denying future spending or simply denying payment already promised was more important than our standing with our creditors. Insert Factoid here: ourselves: Although China recently surpassed Japan as the foreign countries owning the largest share of our debt and those countries would be very injured by a US default, Americans own more of our debt than those two countries combined. A default on our creditors would be a default on ourselves. Could anything be more idiotic from a business perspective? Making this all GE more crazy, interest rates were the lowest in 20 years and we were selling our debt/Treasuries for less than .25. In addition, GDP growth was a moderate 2.7% in 2010 and 2011 and the country had experienced 16 months of continuous private-sector job creation. Somehow, in spite of ourselves, we were still the most desirable country for investment in the world in 2011 – making the theory of default even less logical.

However, we continued to create massive uncertainty by dragging out the concept of extending our debt ceiling. After months of upside-down-world thinking and Alice in Wonderland statements by politicos of every stripe, someone posited this concept: extend the debt ceiling in exchange for $1.2 trillion in spending cuts or revenue without risking job growth,economic expansion, and/or inflation. Hell, what an easy concept. And with that, a super-committee was born with the task of getting it done.

Last December, Congress created a “super-committee” to develop the plan that would save us from sure peril. Think movies like Armageddon and Deep Impact. This brave band of Americans had what it would take to deliver us from …. well, us.

After a month of negotiating …a solution. Extend the debt ceiling but instead of actually solving the problem in December 2011 with the super-dee-cooper committee, agree to send another 12 months negotiating a new deal with one super-hardcore hammer ; Sequestration with across the board cuts. Now keep in mind, we have been hearing simpletons grabbing microphones as praising the wisdom of across the board cuts for decades. They always implied the concept was “tough-love” and eliminated “sacred-cows”. They liked it because it was crisp, simple , direct and resisted external influence. Just cut everything x% and you have solved your problem.

This logic was now going to be put to the test because this time sequestration would have the following impact:
Excluding VA Medical, Medicare, Social Security, National Security, and the Three Branches of Government all other government sending would be cut by a total of $1.2 trillion over a 10 year period. Even more impactful was the ratio of cuts. The Pentagon and Military would be cut by $600 Billion; Domestic Spending cut by $600 Billion. 50/50 pain. Across the board without discretion. You can see how someone must have thought this logic made sense and was consistent with their fiscal management philosophy. What a crazy way to run a country.

Lest we forget, these cuts were actually passed into law by a majority of the House and Senate. This was bi-partisan and on record. Remember the shock and awe of some elected members as they criticized those that did not read every line in the 2000 page Healthcare bill? Well everyone in the country could be assured that every single member of congress read every single page of this new bill because “never-again” will our super-heroes be duped by some slick legal language foisted upon them in the dark of night. No citizens, this bill was passed in the presence of that disinfectant we call “light-of-day”. The passage of this measure was in fact a new budget for the country. The only way to avoid these cuts was to pass a new freestanding budget bill and legislation that matched the value of the cuts – a total of $1.2 trillion in either cuts or revenue.

But it was all a bluff. You see the logic was, no one would ever really, really actually implement the sequestration cuts. This was just a giant hammer to beat some sense into our super-heroes. Everyone knew that Congress would use January 2012 and maybe February 2012 to work with all of congress to “get-it-done” without these crazy sequestration cuts. Surely no one would risk the economic opportunity of our entire country by telling folks to buckle up and ride these cuts.

Well, it is August 2012 and guess what? Nada, nunca, zip; no new bill. We even hear some in Congress saying things like this : “it is a failure of leadership to put our nation at risk with these across the board cuts”. Or this: ” cutting Pentagon spending is going to risk a hundred thousand jobs – we can’t risk job cuts at this time”. Here is a really interesting one: ” once again, some in government are picking winners and losers and destroying our economy”. How about this one: ” i only agreed to this because i was sure it would never happen”. Oh, that’s rich!

What is crazy is not that the comments are not reasonable or logical but are coming from the very members of congress that were in chambers and passed this bill in the first place. I’m not necessarily saying all of the comments are coming from those that voted yes but I am saying I did not notice anyone exercised their right to set themselves on fire like a protesting Buddhist monk to stop this bill or it’s 50/50 budget method. What I did notice was the familiar sound of children kicking the can down the road. Well, now they are screwed because they have to deal with the mess they have created. Debt or jobs.

Remember, this entire soap opera started with this premise: no more spending increases that increase the debt and no more job killing legislation. I assure you, the concept of sequestration may reduce spending but it will kill jobs. If Pentagon spending falls, every dollar not spent is a dollar not going into our economy. Since the Pentagon spends over 90% of its budget in the private sector, this means the private sector will lose over $500 Billion in direct revenue (spend) across the board. Conversely, the FBI, National Institutes of Health, social services, youth-benefit
Programs, roads and highways – all programs that fall under the “Domestic” discretionary portion of the budget – will be cut by over $$500 Billion. Domestic spending may impact some “government employees” however it also will result in massive reduction in spending in the private sector as well. Lots of jobs will be lost as a result of domestic cuts as well. So what we have is a cut in spending that will result in a large reduction of private sector and public sector jobs. This may be exactly what is needed to reduce spending and apparently some in congress believed this so uh, they actually put it into law by passing the bill in December and agreeing to sequestration.

So its time to put your philosophy where your mouth is. If you believe across the board cuts in government spending is the best way to cut spending and reduce the deficit, you should support the implementation of sequestration as passed and shut-up with the fake righteous indignation and gnashing-of-teeth – this is exactly what you asked for and received. Because the bill has already passed, the savings already built into the budget and the theory of chaos is already working. Enjoy.

If you believed it was all a bluff and a better plan would be implemented, get off your ass and get it done. This is so friggin stupid if you think an economy can survive 2 years of poker with the largest economy in the world. What in the hell are you people smoking … or maybe not smoking? If you need a replacement for $1.2 Trillion and do not want another series of gimmicks, be prepared to show some real defiance and commitment. Get out your best robe, sit on the cantal
steps and do something that demonstrates your ability to stand your ground and govern.

Here is my take. I believe that if it is true our country found a way to have zero net job creation from 2000-2012, whatever we were doing then we should immediately stop doing because it did not work well, for “we-the-pople”. I would focus on ensuing that whatever we did would not reduce the number of taxpayers paying into the system nor would i do anything to create more citizens taking our system. This is because more people, taking means more government spending. I also understand that there is no private-sector customer that needs an aircraft carrier, cyber network that listens to 30 million international calls searching for bad guys or a standing army. Therefore if we want the private sector suppliers of these products and services, we can’t cut them from the budget otherwise say good bye to 300,000 taxpayers. I am unwilling to create hundreds of thousands of unemployed former taxpayers -private sector or public sector workers-because we can find another way to reduce our deficits over 10 years. As a business person, I manage debt and risk every day. I do not like my bank so much that I would risk my very livelihood in order to reduce a monthly payment when there was a more logical way to do it.

Here is my solution: Sunset a portion of the 2000 era tax-cuts and use $600 billion of that revenue to offset 1/2 of the sequestration. The balance of the sequestration could continue as previously planned 50/50 domestic and defense, however departments would be able to select how they achieve their cuts. The across the board trigger only happens if they do not have their cuts identified by December 1, 2012. I do not like this plan because I know there is a much more studied, nuanced, thoughtful way to deal with the other $600 Billion but since Congress has already played their across-the -board card, there is no reason to expect them to logically resist it again. Just so we are clear, my personal income, dividend, and capital gains taxes will therefore go up as a result of my suggestion. Counter to that, if we were to go though with sequestration as planned, the loss of opportunity as a result of the economic contraction will eliminate any possibility that I will be paying taxes because I will have no new net revenue, only losses. I’ll take the risk of paying more or my profits in taxes than take the risk of having no business or profits at all because some idiot destroyed the economy.

Check the narrative and news reports on the tax reduction of 2000. At the time there was a surplus coming from a decade (1990-1999) that produced +23 Million net new jobs and a prior decade (1980-1989) that produced +15Million net new jobs. By January 2000, we the people, had a surplus in our treasury and a balanced budget. Not bad. Many felt that the government had more than enough of our hard earned money and should give some of it back. Therefore, a temporary tax cut was passed into law that lowered rates for everyone. Happy days! If you ever asked a person when was the right time for a tax cut, they would say when there was a government surplus. Now some may have cautioned and said, “maybe we should have a number of years with surplus just to make sure we aren’t going to end up in deficit later because of a bubble”. Oh well, those folks were laughed out of the room and dismissed as naive and stupid. However if you were to ask the counter question: “with the systems threatening to cut spending and destroy job creation in the country, when is the time to let a tax-cut sunset? The logical answer would be: ” if we passed a tax cut when we had a surplus and if the decade that followed resulted in no net new jobs and the country was facing default because of its spending to revenue was as off as its ratio of debt to revenue, now would specifically not be the right time to continue THAT particular tax-cut.

Now is the time to stop playing games. We’re adults. We can handle plans that make sense. Once we are back to surplus , bring back the TAX-CUTS BABY!

Advertisements
This entry was posted in "We-the-People - 1 Business Dude's Perspective on Current Political Theatre, Energy, Jobs, Politics, Tax Rate Discussion, Uncategorized and tagged , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s