Wednesday, August 22, 2012

CBO FY13 Assessment -- Cut Or Worse Recession

The direction our current tax and spend, spend, spend government it taking us... (Courtesy of Texas GOP Vote)

In May 2012, the CBO adjusted its January 2012 study on what effects the FY13 budget will have on calendar year 2013, if current trends are maintained. The result was, simply stated, not good.

Recently, they updated that study and found that their analysis to be most likely correct, however the results will likely be even more extreme. If taxes are increased and federal spending are not restrained, reduced, cut, or made reasonably responsible; then we are headed towards another deep-dip recession.

This is the "fiscal cliff" that Obama and his Keynesian-theory-loving advisers are driving us towards. It seems he is not interested in playing a game of chicken, either. He does not intend to speed towards that edge only to attempt to stop short. the direction Obama's proposed budgets, tax plans, and executive-invoked regulatory fees (such as EPA fees, USDA fees, increased regulatory fees on fossil fuels, etc.) amount to kicking in the NO2, putting on a blindfold, and disconnecting the brakes.

The CBO predicts that the current course will lead to shrinking the economy even further, as much as reducing GDP by another 0.5%. Our country cannot take any reduction in GDP. We need a 2-3% increase, not a decrease. In addition, unemployment will jump several points as businesses will reduce in order to preserve necessary capital in efforts to weather out the storm. That will mean some cuts in production, not taking risks in expanding product lines or services, and cutting payroll expenses. Those payroll expenses will mean anything from reductions in benefit packages to reductions in starting pay to layoffs.

The CBO already calculated the nightmare the PPACA will present to businesses, especially small businesses. Adding in those mandatory taxes and fees Obamacare forces upon those businesses, healthcare packages are not cuts that can be made without laying people off. So, that may be the policy of choice should this recession strike.

Legislators (and voters) on both sides of the aisle need to take some deep breaths and read economic studies written by Steve Moore and Art Laffer. They need to pay attention to the supply-side of the economy. It has been ignored too long. Raising taxes on those working will decrease the national marginal propensity to invest, to save, and to spend. There will simply be less disposable income. The supply curves will also adjust, making even necessities such as milk, bread, and corn more expensive. Those are the results of raising taxes. With fewer people working, the tax base will also be reduced and the overall revenue will be lower.

On the "demand side", the government needs to act responsibly. If your teenager maxed out three credit cards and spent every cent he made at his part-time job (without saving for college), you'd cut him off (and probably ground him until he paid back every penny). Well, the budgets Obama proposed (and were defeated outright even in the left-dominated Senate) wanted to max out not only his parents' cards, but those of every adult living in your neighborhood.

Proposing a reduction in spending increases is a start. However, real cuts need to be made, and soon. The FY13 budget starts on October 1, 2012. Cuts that impede national defense, national security, and intelligence gathering are not responsible. Cutting funding to the thousands of other wasteful programs are responsible.

Items the FY13 budget needs to spend money on, other than intelligence and defense, are paying down our nation's debts to foreign powers. In addition, those who have already paid into Social Security (especially those living off of the dividends) need to, at least, not lose what they have already invested.

With the elections coming up this November, voters need to consider the financial security and potential prosperity of themselves and their families. They need to do so on the municipal, state, and federal levels. The question is: do you vote for responsibility and accountability or do you vote for fiscal ruin, unemployment, and a dismal future. It's time to vote out those who want to start up more programs, increase taxes, and increase government spending, regardless of which party they claim membership.