The Edge of the Cliff: Deadlines Reveal 16 Trillion Fault Lines

Fiscal-CliffI wish everyone a happy new year as we together, hand in hand, jump off the cliff into fiscal oblivion…

I have spent the last two weeks consumed with work related to two deadlines that strangely parallel the deadlines facing our political system. I disconnected myself as much as possible from distractions and focused on making concrete progress every day. It’s been a tough process, and I’m disappointed with the rate of progress. The only thing that brings me comfort is when I compare my accomplishments in these two weeks with that of the United States Congress. Of course, they got nothing done, and anything is more than nothing.

There is an absurd game going on in Washington that is summarized well by Senator Everett Dirksen a half century ago: “A billion here, a billion there, pretty soon, you’re talking real money.”

The United States is in debt about 16 trillion dollars. That’s about $140,000 per taxpayer. That’s how much you owe. Assuming you would resort to crime in order to repay that, you would have to rob a bank over 20 times to cover that amount (source: US News article).

The problem is that we are (1) spending too much and (2) being taxed too little. You probably disagree with one of those statements depending on whether you like the color blue or red better. The problem is that your disagreement is grounded in an ideology that isn’t based in honest evaluation of where you really stand. Majority of people who call for “smaller government” want a smaller government as long as it doesn’t affect them. Everyone is for “spending cuts on that other guy’s stuff but not my stuff”. Same hypocritical philosophizing goes for taxes.

And of course the poor politicians have to represent us selfish contradictory facebook-positing taxpayers. Their job is essentially to try and make 300 million children eat broccoli, while pretending it’s delicious cake. Of course when the children discover that there is not cake, it’s the job of the politicians to blame someone of the opposite party.

There are no easy solutions. The only thing I can recommend, and will do myself, is to be a productive citizen who does not add to the bickering but adds to the civil discourse about the ideal that our country is (on its better days) slowly edging towards.

Tax Cuts Do Not Pay For Themselves

Main point: Democrats raise taxes and overspend. Republicans cut taxes and overspend. The former is at least somewhat more sustainable.

Cutting the top tax rate (currently those making over $370,000) is something that has been promoted by many of the the Republicans currently running for president in the form of a flat tax (or variations of it such as the 9-9-9 plan). There are many arguments for this notion and many against.

It’s possible to point to historical data and claim that such tax cuts either do or do not lead to:

  1. Economic growth
  2. Income growth
  3. Wage growth
  4. Job creation

I’m not going to engage in such armchair analysis. I have my opinions, but they are just that, opinions, and are hardly founded in real scientific reasoning.

What I do want to say about it is that human nature and the way that politicians operate makes such tax cuts destructive to our long-term economy. Why? Because they do not pay for themselves in the short term. That means deficits increase. That’s fine, as long as the tax cuts are matched with major cuts in programs. The Republicans talk about cutting “wasteful spending”, but at the end of the day, they cut very little. So if you believe in “small government” you need to wake up a bit and realize that cutting taxes is not the first step to small government. The first step is cutting programs, and 99% of politicians just don’t have the guts to do that.

The problem in a nutshell:

  • Democrats raise taxes and spend like crazy
  • Republicans cut taxes and spend like crazy

That’s why I support Democrats that are fine with big government but want to make it more efficient.