Fiscal Cliff or Fiscal Hill

by Bill O'Connell on November 29, 2012

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As our so-called leaders are focusing on what won’t solve the problem, taxes, rather than focusing on what will solve the problem, cutting spending, we are being told calamity awaits us in the form of the “fiscal cliff.” What will happen if there is no deal on Capital Hill? The so-called fiscal cliff will trigger automatic tax increases and spending cuts. While I am dead set against tax increases as being ineffectual (if high rates don’t bring in more revenue than low rates, why wouldn’t you prefer low rates?), if the only way to really cut spending is to allow the tax increases, so be it. So how bad is it?

Spending Cuts

The spending cuts in the sequester are $1.2 trillion. That’s good, right. Er, no. That is over nine years, not next year. In 2013 the cuts amount to $109 billion out of total expenditures of $3.8 trillion, which amounts to a reduction of 2.87%. This draconian cliff that will bring about the end of the world means we will still be spending about $3.7 trillion. I have been in private industry where the word came down from the top, that we have to cut spending. Every department head with a budget then had to come up with cuts. The order to cut 10% was not unusual. It wasn’t easy, sometimes with payroll being a large component of most budgets, jobs had to be cut, but it was cut expenses or go out of business. We have 535 members of Congress and a President of the United States who are all paid north of $174,000 per year and they can’t get the job done.

Since we are using metaphors such as a fiscal “cliff” how about a spending “gulf”. The gap between revenues and spending has generated trillion-dollar deficits in every year of the Obama administration. The gap cannot be closed by raising taxes, it has to be done by spending cuts and no one is talking about spending cuts. This is from today’s New York Times

Mr. Obama has embraced specific cuts to the federal budget in the past and has committed to an agreement with Congress that will include deep reductions in spending. But it would be easy for those who listen to his public pronouncements lately to miss it. In public statements since his re-election, he has barely discussed how he would pare back federal spending, focusing instead on the aspect of his plan that plays to his liberal base and involves all gain and no pain for 98 percent of taxpayers.

Erskine Bowles, who along with Alan Simpson headed up Obama’s Simpson-Bowles Commission to address the fiscal deficit problem which Obama completely ignored, added this:

After meeting with White House officials this week, Mr. Bowles said he believed “they were serious about reducing spending” but added that “we need to talk more about the spending side of the equation.”

Republicans have shown flexibility on the revenue side but are increasingly frustrated with the president.

“We have not seen any good-faith effort on the part of this administration to talk about the real problem that we’re trying to fix,” said Representative Eric Cantor of Virginia, the House majority leader. “This has to be a part of this agreement or else we just continue to dig the hole deeper, asking folks to allow us to kick the can down the road further. And that we don’t want to do.”

This is reckless. The President of United States is presiding over the worst economy since the Great Depression and he has no plan on how to deal with it. “Tax the Rich” is not a plan. “I won” is not a plan. A plan lays out how the federal government is going to get its house in order. Let’s raise taxes now and see what happens is a blueprint for becoming Greece. He is completely disengaged and is still in campaign mode even though he has nothing to campaign for, his last election is over. He has to decide what his legacy will be.

 

That’s my opinion; I’d like to know yours. Please comment below.

 

 

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