Friday, November 30, 2012

Should We Just Go Cliff Diving?

Since the election at the beginning of November 2012, most of the rhetoric coming out of Washington, DC has been over the so-called "Fiscal Cliff".

Several conservative-minded economists have been talking about this for over six months. I seem to remember Steve Moore making mention of its possibility under the poor fiscal policies coming out of Congress and the White House as early as last May when I heard him speak at a convention in North Carolina.

The "cliff" isn't something new. It isn't some "where the heck did that come from?" surprise. Anybody who pays any amount of attention to fiscal policy and the economy has seen it coming for quite a while. In fact, it is partially responsible for many decisions made by larger US-based companies who increased their international outsourcing or, at least, decreased their domestic production rates.

The looming fiscal and economic disasters that will be caused by the PPACA just aggravate the situation. The PPACA is poised to enact what are effectively 21 new taxes on median income earners, some of them starting January 2013. Penalties against employers who don't comply with the new law are increasing under-employment as many employers are cutting their workforce or transferring many positions to part-time, under 25 hours a week.

The simple fact is that if fewer people are working, fewer people are paying payroll and income taxes. The simple fact is that if people are making less money, on average (as is the current case versus January 19, 2009), then the aggregate revenue is lower.
Obama and the socialists have a plan to increase that potential revenue. Instead of employing common sense and promoting an increase in the number of people participating in the tax base, they seek to, instead, increase the rates on those who employ them. That will mean a shrinking of that tax base. It will be an incentive to not produce. That will lead to even lower revenues.

The various CBO reports show clear implied tasks in the mission of restoring prosperity and avoiding this "fiscal cliff". Those tasks are simple. First, yes, the federal government must increase revenues. The trick will be doing so in a manner that will not reduce GDP. The only means to do that is to increase the tax base -- the number of people paying into the coffers.

The second implied task is that the government must cut its ridiculous spending. It must do so in accordance with the US Constitution. That is something that neither side of the aisle likes the idea of doing. Both sides have their little pet projects they want to spend our money on. Well, Mommy and Daddy provide you allowance, kids. We have told you that you must spend money on certain things (The US Constitution MANDATES military spending). With what is left over, you can choose one of several things. You cannot afford all of them. You sure as heck cannot afford to add to your "wish list". Some of  those things on your "wish list" are beyond your means and you may have to look at a more cost-effective alternative. However, the simple fact is that those of us who provide your allowance do not want to increase it. You have demonstrated you have enough trouble living within your means.

The CBO projects that the budget can be balanced, the deficit greatly reduced, and the national debt actually being paid off by 2020 if spending is cut by $1,000,000,000,000.00 a year. That is in conjunction with increasing revenues in a means that does not push U3 unemployment over 8% (at a 2006 Workforce Participation Rate) and allows GDP to grow over +1.7% . The most recent proposal from the socialists is predicted  to cause GDP to decline by up to -0.5% and push U3 unemployment as high as 9.1% combined with a declining WPR. Do not overlook the fact that the unemployed are not only not producing, but they are a burden upon tax-payers as well. Increasing employment means more people producing and fewer people sucking up unemployment benefits, thus a double-cut to the deficit achieved by increasing employment and workforce participation.

Courtesy of the Congressional Budget Office (CBO)

With the perceived stalemate between unicorn-riders and fiscal conservatives on Capitol Hill, it begs the question on what our representatives should do. Well, it's obvious that tax rates should not be increased. Doing so will just further decrease GDP, decrease disposable income, increase unemployment, and fail to generate the revenue increases the federal coffers require to pay what it already owes.

The president's proposal also does not cut spending. It actually increases it. It may call for a smaller increase than in previous years. However, it does not include any actual spending cuts.

If  the conservatives cave-in, things will get worse. If they stand firm, the socialists will blame the eventual fall from the cliff on them. Well, their plan speeds us over the cliff faster, and into a deeper abyss. In the case of folding, those conservatives will lose their support. The rhetoric has already started with Saxby Chambliss's gaffe that was interpreted as a willingness to cave. Though it appears to be a lose-lose situation, it isn't.

Americans are exceptional. Those who produce will produce. Those willing to work towards prosperity will do so. Americans have a remarkable resilience and propensity to rebuild, better, stronger, and faster than before. America is traditionally a nation of "Six-Million-Dollar" people. The simple truth is that, in order to do so effectively, we need government to get out of the way. They need to cease being an obstacle. Instead  they need to be minesweepers and Bangalore torpedoes that get those obstacles out of the way.

It is starting to appear that the best way for that to happen and allow us to return to a state of prosperity is to allow them to implode. Let the government bus head over the cliff. The conservatives need to get off of that bus. They need to stand by and watch it, shaking their heads. In other words, NO COMPROMISE!

They need to force a reformed and simplified tax code that reduces marginal rates on median and upper wage earners. They need to provide motivation for lower wage earners toward upward mobility, as well as pay their fair shares instead of taking from those already paying more than their fair share. More than that, they need to employ at least $500,000,000,000.00 ($5 Billion) in spending cuts (not smaller increases, but actual CUTS).

They need to do so without taking a penny away from defense spending. That doesn't mean that defense spending is immune from reform. It requires reforms as well. Equipping, training, housing, feeding, and paying the force must be maintained or increased. However, there is plenty of waste in the defense department that can be cut, such as money wasted on windmills on US Army installations.

The same goes for the VA. Veterans sacrificed much already. Many continue to sacrifice. They earned every VA benefit. Some even deserve increased benefits. However, VA bureaucrat employees don't need tax payers to pay millions on vacations that are passed-off as "training conferences". No, that funding should have gone directly to providing those earned benefits to the veterans. (Note that congressmen who opposed fraudulent and wasted spending that did not directly provide for veterans were deemed "anti-veteran" by the IAVA.)

Social Security needs reform. It should be partially privatized. It should be individual accounts, and not part of the general fund. This does not mean throwing Granny off the cliff. What this means is that the federal government has already stolen Granny's purse, then decided to be charitable and give her a little bit of her money back as it sees fit, but never all of it.

The same goes for Medicare. Medicare should be treated as individual HSAs.  Again, this isn't throwing Granny off of a cliff. The federal government already stole her purse, with her prescription allowance inside of it.

Fiscal conservatives want to see these necessary reforms?  Do not cave to the impractical plans presented by the unicorn-riders and Animal Farm residents. Vote "Hell NO!". Don't try to slow the bus. It is going to go over, regardless. Look past that "cliff" towards mitigating the impact upon those smart enough to get off the bus. Look at providing life preservers to those who are willing to swim rather than drown. Everybody else, tell your representatives to stand firm. Get off the bus or go put on your swimsuits. It is looking like it may be time to do some cliff diving.

Courtesy of the Congressional Budget Office (CBO)