I am trying to figure out what people are saying about this "fiscal cliff" thing. I like how quickly after this last election attention turned to this newest monster -- I assume in order to prove to us how effectively and earnestly our votes are working for us. As I was browsing some older posts here (our most recent ones, ahem), I noticed a striking similarity between what the politicians are doing now and what they were doing in the summer of 2011. Does this cartoon look familiar at all?
In a piece cleverly [shameless self-promotion intended] titled "You've Lost that Lovin Ceiling", it seems that the same dissatisfaction then has persisted to the present day. Posturing. Hypocracy. False Mandates. No Real Solutions. Ugh. Is Charlie Brown's Christmas special on TV? Much better for the soul.
And in case you have been suckered in to paying attention to the media/politician manufactured hype, consider this quote from a friend-of-a-friend professor in Kansas City:
The most stripped down version of the dispute between the two sides is that the Republicans do not want to raise income and corporate taxes and the Democrats do not want to cut spending. Neither position is tenable given the realities of the debt and deficit – at least according to the bulk of the analytical community. The Congressional Budget Office has been perhaps the bluntest of the messengers but they get support from nearly every economist in the country. The debt is bigger than the GDP (over $16 trillion and growing) and the annual deficit is on track to exceed $1.3 trillion. These are the facts in the debate.Merry Christmas, Season's Greetings and Happy New Year from the Loop and the Lou to You, Dear Reader, and Yours. As we used to say before toasting a long-overdo drink with friends, "Here's to looking up your old address."
The Simpson-Bowles plan remains one of the most realistic solutions as it managed to evoke massive opposition from all sides in the discussion. The task was to create a solution to the issue – not create a politically feasible solution. The result was a plan that would cut spending deeply at the same time that revenue would be hiked through a combination of higher income tax rates and closing of tax loopholes.
Analysis: The arguments that preoccupy the political leaders today are akin to asking how many angels can dance on the end of a pin. The Democrats and President Obama are bound and determined to task the wealthy but the revenue boost that will come from that hike will reduce the deficit by less than 10% over the course of ten years. The tax reform that the GOP suggests will bring in less than that. The spending cuts suggested by the Republicans will lower the deficit by perhaps 7% over the course of that decade. The Democrats have put forward a set of cuts that will reduce that deficit by less than 3%. In other words the fight is over a plan that does almost nothing to address the underlying problem.
The problem has been obvious for some time but the solutions are as elusive as ever. To reduce a debt and deficit of this magnitude means tax hikes for most everybody – something pretty close to the fiscal cliff we all fear. Reducing the size of government is not accomplished with some nibbling around the edges of marginal programs. A serious reduction means big cuts in Medicare, Medicaid and Social Security as well as Defense and other sectors. This level of reduction will most certainly mean that the economy will slow. This is precisely what has been happening in much of Europe and the region has indeed sunk into recession.