For the past five years we have been building up debt in this country at an unprecedented and unsustainable way. Both parties are to blame for this because elected politicians of any stripe would much rather give than walk away from the revenue trough. The reasons for our debt, now 105% of our annual gross domestic product (which is the total output of our entire national economy), are very complex. But to simplify as much as possible: it’s too much going out the door and not enough coming in.
As would be the case in your own finances, imagine that your paycheck has been cut, your bills have gone up and you’ve had to max out your credit cards just to stay afloat. To make matters worse, the interest you’re paying for borrowing all that money on your credit cards is so high that making the minimum payment barely cuts into your overall credit debt. In a nutshell, that is how our government works. The U.S. economy has the lowest percentage of people in the workforce since the Great depression (let’s call it a pay cut since fewer workers means less tax revenue), Federal spending as a percentage of GDP is at an all time high (let’s call that an increase in your bills) and 45 cents out of every dollar the Federal government spends goes to pay interest on the debt (let’s call that the credit card problem).
Assuming you have the lower pay, higher bills, and higher interest problem in your own household, what would you do? I suspect you’d get a second job to offset the loss of pay and then use that money to pay down the principal on your debt, getting it more under control. That would be a common sense approach. However, that’s not the general thinking among those we elect and trust to look after the public purse. Their plan – minus all the details, of course – is to increase costs on the wealthiest taxpayers, many of them employers, and expect higher revenue. While this may have a short term gain, it will ultimately lead job producers to either pass along those higher costs to consumers (difficult to do in a global economy) or to cut jobs to save costs, leaving more taxpayers out of work and unable to contribute to the overall economy.
As to cutting the debt, Congress and the president, with three trained economists among them, believe they can solve the problem of spending beyond their means by spending more money. They also do something we all wish we could by printing more money to pay the bills. Politicians seem to ignore the economic reality that printing money cheapens the dollar (meaning consumers can buy less with the money they have), will eventually lead to high rates of inflation, and has to be paid back with interest to whomever is dumb enough to buy our crashed debt-rated bonds.
But we are all told this is just about the rich not paying their fair share and the poor getting stepped on because of budget cuts.
Let’s get real. The amount of money that could be raised by increasing taxes on households earning more than $250,000 per year, as first proposed by President Obama, would run the current annual budget for just eight days. The republican’s version of taxing earners with more than $1 million in annual income would run the government for half that time. If this is a revenue problem, the only revenue solution is to tax everyone regardless of income. But do any of us who pay taxes really believe we’re not giving enough of our income to provide needed revenue to the government?
Which brings us to cutting the Federal family budget. All proposed spending cuts are for merely cutting the planned increase, not cutting any amount currently being spent except in one place; the defense budget. So when you hear about harsh budget cuts, the fact is that the Federal budget will still increase under anyone’s proposal. Under Obama, it increases at a faster pace and even includes more stimulus spending to build the infrastructure that was supposed to be built under Stimulus I and II.
Which brings us to the harshest of harsh budget pain: the Fiscal Cliff (cue horror music). The fiscal cliff was a designed time bomb set to go off on January 1 because Congress and the president couldn’t decide how to fix the problem 11 months ago. So they did what Washington does best and decided to kick the can down the road and fix it later. But before they kicked the last can, Congress and the president decided to create an incentive to do their job and put tax increases and spending cuts on autopilot in the event they couldn’t come up with a plan that everyone liked. It’s now later and the problem isn’t fixed and both sides are acting like a college student cramming for a final at the last moment and hoping to do just enough not to flunk.
The headlines talk about trillions of dollars every time the fiscal cliff is mentioned. In one of the latest bits of political trickery, all plans are added up over 10 years to make them look more serious by using the magic word: trillions. The Soviets had a five-year plan, our current government seems to prefer the 10-year plan. Of course the only actual effect on these 10-year plans is for the first year since one Congress can’t bind a future Congress on spending. For honesty’s sake, we can only look at one year. On January 1, taxes will go up for all taxpayers back to Clinton-era rates. It will raise enough revenue (assuming no job losses) to run the current budget for 21 days. Then the automatic cuts would be $130 billion on defense (40% of its budget) and $109 billion on social programs. That’s all on a budget of $3.8 trillion. That would be the same as you owing $38,000 on credit cards and paying $2,300 to reduce your overall debt and thinking you solved your credit card problem.
To make matters worse, we’re adding $1.2 trillion to that $16 trillion deficit every year. Using the government’s 10-year plan, we will add $12 trillion to our deficit in ten years, only cutting that to $10 trillion under proposed budget cuts and an additional $1 trillion under the rosiest of revenue plans. The problem is, the cost of borrowing even at current historic low interest rates will consume nearly 100% of the budget, which will overwhelm any spending priorities.
So with such a miniscule divot in the Federal purse and increasing taxes on the wealthiest Americans (now agreed by the president to be only household incomes more than $400,000), why can’t the two sides agree? The answer is pure politics. Unless one side can gain a political advantage over the other, the automatic spending cuts and tax increases are a certainty. If this happens, both sides win because both sides can be seen reducing taxes by peeling them back to their current rate for all but the wealthiest. Taking away and then giving back, the perfect dream of a politician! We’ll build statues to them for their kindness. To make that deal work best, there will be bipartisan support to “save” certain programs and restore the already planned increases. Medals for everyone, I say!
Back to the beginning, however, and how our ignorant media has portrayed this. Since this is a true partisan battle, I will put it in partisan terms. President Obama is either an idiot or he hopes to go over the cliff just so he can save us all from the rascally republicans and “cut” taxes, despite raising them through laziness and wanton political gamesmanship. Obama’s latest ask isn’t just for tax increases on incomes over $400,000. He’s also asking for an extension of unemployment benefits, an extension of a cut in social security taxes, larger cuts to defense among most of a very general plan for non-specific budget cuts, $50 billion in new “stimulus” spending, and the kicker, to give a two-year reprieve on the debt ceiling (the only real stopgap to increased spending) and the ability to veto any attempts to block future increases, a constitutionally protected responsibility of Congress. That’s an offer even Don Corleone would blush to make.
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