So our fearless leaders in Washington have reached a last-minute deal to avoid the fiscal cliff. Don’t you just feel like giving them all a big hug?
After weeks of scaring the daylights out of consumers, and suppressing what should have been a solid holiday season for retailers, President Obama and Congress managed to do what should have been done months ago. Hail the conquering heroes – with a Bronx cheer!
Put aside for one moment whether going off the cliff would actually have resulted in a recession, which is probably true. The fact that it got to this point should tell even low-information voters (see Jay Leno’s dope-on-the-street interviews) that Washington is dysfunctional. Let’s see, we get an impactful bill that was passed at the last moment, with no time for lawmakers to read or understand what they were voting for, and with no time for the Congressional Budget Office to score its fiscal impact beforehand.
Bravo, ladies and jerks.
Here is why this dog-and-pony show is a pox on everyone’s house:
President Obama: If public opinion polls are any indication, the President will escape the blame for this near fiasco, when in fact he’s as much to blame as anyone. His dismissal of House Speaker John Boehner’s offer to eliminate tax breaks for the wealthiest Americans, which would have raised an estimated $800 billion in revenue over 10 years, prolonged the foolishness. The President preferred an increase in tax rates, and Republicans eventually compromised on that point, but he could have gotten even more revenue by closing loopholes.
According to the Wall Street Journal, when Speaker Boehner reminded the President that he offered $800 billion in new revenue by eliminating tax breaks that benefit the wealthy, and asked what he would get in return, the President reportedly replied: “You get nothing. I get that for free.”
Wow! The President could have gotten more revenue over time by eliminating tax breaks, compared to the roughly $600 billion he gets with a small increase in tax rates, but he chose to drag this out until the very last minute just to get a little movement on rates. Could he have brokered a truly balanced deal earlier if he had not been so obstinate? Perhaps, but that was never his goal. Let’s stop the pretence that he cares about the fiscal train wreck he’s steering us toward. He doesn’t.
The best way to raise tax revenue, Mr. President, is through policies that promote stronger economic growth, not by raising tax rates. Even with mediocre growth in fiscal year 2012, the government gained about $344 billion more in revenue, according to U.S. Sen. Ron Johnson, R-Wisconsin, one of the few in Congress who actually cares enough to count (I’ll bet he actually reads bills he votes on, too). Double the current rate of growth to about 4% per year, and it’s reasonable to assume we’ll double the amount of additional taxes collected.
Compare that to the estimated $80 billion (top end) that would have been gained annually by letting the Bush tax rate cuts expire for, as our President calls them, “millionaires and billionaires” who earn $200,000, and it’s pretty clear that a robustly expanding economy is the key piece on the revenue side. Assuming that the expiration of the Bush tax rate cuts wouldn’t have dampened the economic activity that generates tax revenue, meaning $80 billion more in tax revenue would actually have been realized, that sum isn’t even enough to erase the shortfall from October of 2012, the first month of the 2013 fiscal year, when the government spent $120 billion more than it took in.
Moreover, about 75% of that $80 billion would have been offset by additional spending increases sought by the Obama administration during the fiscal cliff negotiations, so there would have been negligible deficit reduction. As it stands, the actual fiscal cliff deal increases spending, so while we avoided economically damaging rate increases, we get very little if any deficit reduction.
Now I know why the President used the term “shovel-ready.” We’re in a massive hole, and he keeps right on digging.
And then there was the surreal scene of the President holding a press conference on New Year’s Eve, complete with a cheering section of human props. There he was, after having focused exclusively on the tax side during the fiscal cliff negotiations, asserting with a straight face that there’s no way he’ll agree to anything but a “balanced” approach, much to the delight of the adoring crowd.
I’m not sure if this perpetual campaign stagecraft speaks to the man’s insecurity or his ego, but I suspect he has just enough self-love to die in his own arms.
A pox on Republicans: In fairness, the GOP had a weak hand to play here, so it was probably too much to expect the fiscal cliff deal to address our exploding entitlement spending or make significant progress on deficit reduction. To no great surprise, it did neither. The momentum for spending restraint probably will gather steam when it comes time for Congress to raise the debt ceiling, sometime in the late February, early March time frame. Given the sycophantic nature of the Washington press corps, Republicans will be portrayed as villains for forcing the President to actually pursue a balanced approach that includes spending discipline, but this nation is on an unsustainable fiscal path, and excessive spending is the prime culprit.
In case anyone still cares, we’re headed toward a fifth consecutive annual deficit of more than $1 trillion. On our current path, our national debt, now at $16.4 trillion and counting, will reach the $20 trillion mark before inauguration day 2017, assuming we avoid a recession that could bring it about sooner. The longer we wait to get our spending under control, the more austere and painful the solutions will become. The same people who think we can tax our way out of this problem are the same people who will get whacked the hardest by forced austerity.
A pox on both houses: Since the fiscal cliff negotiations were conducted over the holiday season, American retailers took it on the chin. Most forecasts pointed to 3% to 4% growth in holiday sales over a solid 2011 season, even with the fiscal cliff baked in, but the early returns suggest that all the talk and anxiety about going over the cliff spooked consumers to the point that holiday retail sales increased less than 1%. Perhaps subsequent reporting will reveal better holiday results, but there is no question the knuckleheads in Washington undermined holiday cha-ching.
If anything good comes out of this, Congress and the White House will avoid a repeat of this unnecessary, and economically damaging, year-end drama.
The final insult
Lost amid this avalanche of sheer stupidity, President Obama signed an executive order increasing the pay of Congress. This is the same Congress that includes a U.S. Senate that hasn’t passed an annual budget in three years, while the country’s finances are being destroyed. It’s the same Senate led by a cull named Harry Reid, who was so useless in negotiating a fiscal cliff deal that Republican Mitch McConnel had to call on Vice President Biden to get a deal done.
Need I say more about the feckless nature of American leadership?
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