Fiscal Cliff Issues Will Be Solved … We Have The Plan

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The fiscal cliff will be solved. Stop fretting, my friends because the solution is not only logical, it is imminently doable.

The Fiscal-Cliff components are:

a). $1.2 trillion in mandated spending cuts to Domestic and Pentagon programs.
b). $ 44 billion in the unemployment-benefit extension.
c). $100 billion in the temporary payroll-tax reduction.
d). $ 6 billion in the medicare-doc reimbursement fix ( currently a one-year fix).

Oh me, oh my … what to do??

Before I spill the beans, let me first correct a few inaccurate statements made by “the undertakers”. These are the folks that see “Big Foot Riding A Unicorn” whenever they seek to confuse facts with their own fiction.

Statement:
“President Obama increased the federal government deficit by $1 trillion in his first year”.
Lie. The CBO reported on January 7, 2009 that the 2009 budget deficit was projected to be $1.2 trillion. This was 13 days before President Obama took office. By the end of Obama’s first year, the deficit grew by an additional $290 billion. Obama deserves the fault for the $290 billion increase but the rest of that deficit was all from the prior administration.

The $1 trillion deficit statement is often quoted because people don’t realize the Fiscal Year 2009 budget is for the the period October 1, 2008 – September 30, 2009. The 2009 budget was President Bush’s budget not Obama’s.

Statement:
“The current administration is spending more as a percentage of GDP than at any point in history”.
Lie. Since 1947, (the first year this data was tracked), the average government spending to GDP was 20.2%. The Reagan Administration averaged a spending level of 20.7% of GDP.

Under the Obama spending, spending has averaged 19.2% to GDP.

Statement:
“Government spending has increased in every year of the current administration”.
Lie. Government spending peaked in the second quarter of 2009 and has fallen in every year since. Government spending in Fiscal Year 2012 is $billions below Fiscal-Year 2011.

Statement:
There is no way to reduce the cost of government by $1.2 trillion over a 10 year period without destroying the country”.
Too pessimistic and completely inaccurate.

I found these sites very valuable and they are the source of the attached charts;
http://www.factchecker.org/2012/06/obamas-spending-inferno-or-not/
http://www.economix.blogs.nytimes.com/2012/07/27/big-government-isnt-so/

http://www.economix.blogs.nytimes.com/2012/07/27/biggovernment-isnt-so/
www.economix.blogs.nytimes.com/2012/07/27/biggovernment-isnt-so/

www.washingtonpost.com/blogs/fact-checker/post/revisiting-the-cost-of-the-bush-tax-cuts/2011/05/09/AFxTFtbG_blog.html

OK, enough of that crud. Let’s move forward and start solving problems. How do we resolve the “self-inflicted” Fiscal-Cliff?

Here is the plan:

Congress created the “Super-Committee”,(which I refer to as the “Super-Fail” Committee), to devise a way to cut $1.2 trillion in government spending over a 10 year period. Unfortunately these knuckle-heads politicized the make-up of the committee and filled it with too many people empowered only to say NO.

As a result, this group of Fiscal-Einstein’s concluded they would force across the board cuts in Domestic spending and Pentagon spending equaling $600 billion each. $1.2 trillion over 10 years. They would exclude Medicare, VA, National Security, and Social Security. The concept was that no sentient being would take this kind of hatchet to the budgets of the Pentagon and all Domestic spending. Surely saner minds would intervene and save the crazy folks from the crazy folks. This would be a terrible time for anyone in Congress with a mirror, (“I have seen the enemy and them is us”).

These elected officials gave themselves 12 months to negotiate a better solution to find the $1.2 trillion in savings. Well, with 1 month to go, these folks still have not done their jobs!

Therefore a real plan will be presented this week by the newly elected President and many practical folks in the Senate. With the election over and the President granted the authority to get the country moving forward, tomorrow he will present his solution to the “Super-Fail” Committee’s failure to do their jobs.

Goal – Reduce the cost of government over a 10 year period by $1.2 trillion with a combination of cost reduction and new revenue.

1). Plan: First $600 billion

Effective January 2013, individual departments of the government will be told to work with their organizational structure and within the next 30 days, find $600 billion in spending cuts or reduced spending over the next 10 years. $300 billion in Domestic spending and $300 billion in Pentagon spending. Not $600 billion each. Instead of a hatchet or illogical across-the-board -cuts, these cuts would be logical and surgical. They would be driven by what will be best for the country and the function of the specific departments.

Believe me, these folks already know how to get to $300 billion because they have spent the last 11 months painfully trying to find a way to get to $600 billion each. They will be relieved to only have to hit $300 billion each without destroying their ability to serve the American people.

Now that Paul Ryan himself admitted that his own budget reduced the growth of spending and therefore counted the reduction in growth as “spending cuts”, the Republicans can accept the concept that reductions in planned spending are in fact “spending-cuts”. Happy days!

Ok, we have cut $600 billion. Good job. $600 billion to go.

2). Plan: Let all the 12 years of Bush and Obama tax cuts expire. Savings = $1.5 trillion over 10 years. The best data I can find shows the tax cuts cost between $1.8 billion-$2.1 billion during the combined 10 years of Bush and Obama. I am using $1.5 billion in order to be conservative.

The tax-cuts have to be allowed to expire since it is the only way many Republican’s can still claim to have never “raised taxes”. Once they expire, everyone will clamor for credit for new tax cuts.

Give them their wish in 2013.

Pass a new 2013 Middle-Class tax cut for those earning less than $200k in adjusted income.
Cost $700 billion.

$800 billion in new revenue remains.

Use $600 billion to pay down the remaining $600 billion shortfall.

What to do with the remaining $200 billion?

3). Well we could and should use it to pay down the deficit. However, it is more likely that we will use:

A). $44 billion to extend Unemployment Insurance for another 12 months. Jobs are coming back.
B). $55 billion to fix the Medicare Doc fix for 10 more years as Obamacare takes effect.
C). $99 billion to extend the payroll-tax reduction for 12 months. We need to end the payroll-tax extension sooner versus later since we do not want to negatively impact the sustainability of the system. However, there is a way to smooth the impact by gradually easing America back to pre-recession payroll tax rates after the first 6 months of the year.
D.) $2 billion to pay down the deficit. We have to start somewhere.

Fiscal-Cliff issue is solved.

Let me repeat, fiscal-cliff is solved.

I’m sure there are a plethora of ideas to deal with the fiscal-cliff; however, my position is if you are looking for a plan that does not wreck the planet, you are free to use mine. I’m being a bit goofy here but you see my point.

I believe on Friday at 1:30 PM eastern, President Obama will present a framework for resolving the fiscal crisis that will be imminently doable, reasonable and practical. It does not matter that some will fight against common-sense because it will be clear the leverage exists to solve the “self-inflicted fiscal-cliff. The tax-cuts are going to expire and everyone that watched this election knows full well the President told everyone exactly what he intended to do; he committed to let all of the tax-cuts expire and then pass new cuts on the FIRST $200k in adjusted income for EVERY TAXPAYER.

The fiscal-cliff issues will be solved because there is a plan that makes sense.

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5 Responses to Fiscal Cliff Issues Will Be Solved … We Have The Plan

  1. Michael12 says:

    Hi Vince,

    1st I agree with most of your stuff and good job.

    2nd I think the use of the “Fiscal Cliff ” is in fact a Red Herring, the Bush/Obama Tax Cuts were never meant to be Permanent and congress could always let it expire and than vote for tax cuts for the country or middle class since what’ expiring would return us to the Clinton Tax Rates(minus loop holes and deductions outside of the Bush/Obama Tax Cuts) Letting such expire would actually reduce the Deficit like both sides claims to do. To add we as americans play the lowest tax rates in something like 50+ years

    3rd As for the Across the board cuts, I think they should happen, if both sides agreed that if something didn’t get done this would happen and both sides(I say both but of course all things are not always equal and much of the blame falls on the republicans) agree than it should happen not that it’s cruel or mean spirted to groups that rely on xy or z program but it will be a reminder in the future of what digging one’s heels in can do and people may think more on who they are electing to represent them. Once expires Both sides can work together to either restore funding for xy or z program or further cut, votes and debates can be held. If voters feel xy or z congressman/women failed to do there job or work for america can than vote against them. Otherwise what I see is a system of no-accountablity to a even higher level and allows a few extreme people/groups to tank agreement without any accountability for there actions or the larger people/group to politic with programs for politican gains while spreading the backlash for their actions.

  2. Michael12 says:

    “play”=pay

  3. vincentmudd says:

    Thank u 4 your comment. I’m not sure who invented the phrase Fiscal-Cliff but at least we all know what it relates to when we see it in a sentence. I agree with your sentiment in many ways as it relates to the true temporary nature of all of these one-time gimmicks. You are 100% correct. You are not being cruel by stating these things should end, you are speaking as a fiscal conservative and it makes complete sense. Yet there is the way we think things should be and the way things actually are. I’m looking for a way to deal with the way things are after this election.

    As a business person, i have never, ever implemented an across-the -board anything. I cut where it makes sense and invest where it makes sense. A few years back, my sales cratered. I still had revenue, just not what I needed in order to meet my fiscal goals. I cut certain operational expenses and different levels and invested in new sales people , new technology and advertising in order to prime the sales pump. Across-the-board cutting is the laziest way to manage a fiscal crisis because it is not a principled management exercise. Cut what makes sense. Invest where it makes sense.

    In the real-world, does anyone think 60 senators and the majority of the House are going to propose and pass something that let’s everything expire? While it makes sense for some to want that, I think it makes sense to also explore another option that may win 60 votes in the Senate, the House majority and the signature of POTUS. I know I am being terribly inconsistent with my conservative roots but after having some time to mull this over, I like my solution because it gives the nation another year to reach its potential.

    I see many opportunities for growth and economic stabilization. We are not Greece. We are not Europe. Our spending levels are not increasing at rates inconsistent with our history. As a matter of reality, we are still the best large economy in the world tin which to invest and inflation is still tamed so i’m thinking we deserve one more chance to get on a good and sustainable path.

    If I am wrong, at least the debt does not increase in 2013.

  4. btg5885 says:

    Great post. Barney had a good one as well on this topic. Intellectually, it would be curious to see the abrupt effect of what is needed long term. The abruptness would likely throw water on our continued recovery, yet it would increase taxes for everyone (needed per Simpson-Bowles), make some very tangible cuts to many programs, especially the cash cow of defense, and start addressing our deficit. I would prefer a more staged plan of changes and hopefully we can get there. Yet, I saw this morning some Dems may want to go over the cliff and negotiate needed add backs. It will be interesting. Thanks for writing this. Well done. BTG

    • vincentmudd says:

      Thank u 4 bringing my position and Michael’s position together.

      I believe the strategy of going over the “falls” simply means allowing the 10 year old temporary tax cuts to expire. Then a new middle class tax cut gets proposed and passed with the support of a bi-partisan super-majority. Pubs and Dems will rally got those cuts. Even the anti-tax folks won’t be focused on the upper-end rate payers by voting no on the middle class cuts.

      Should there be any tax cuts for anyone? Debatable. However what we are most focused on is timing , effectiveness , broad job growth, reduced spending trends, and passage.

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