2013 Fiscal Cliff: Opportunities abound
On January 1, 2013, numerous laws regarding taxation and spending in our nation will either expire or go into effect. Among these, the most notable are the expiration of tax cuts passed by the GOP in 2001 & 2003 as well as the spending cuts required by the House of Representatives during the most recent debt ceiling increase. Although many people appear to be in the early stage of panic regarding this upcoming issue, I am optimistic that this “crisis” is actually an opportunity to dramatically reform our taxation and spending habits for the better. Although naysayers will try to prevent our transition to the new paradigm, I believe the reelection of Barack Obama and the weakening of the GOP in Congress will serve to make the next few months the best time for reform.
It has been said that only Nixon could go to China. Today, it could be said that only Obama could reform entitlements.
During the summer of 2011, the Republican Party demonstrated a complete lack of rationality when it threatened to refuse an increase in the debt ceiling in order to achieve policy concessions. Republicans were sought to forcibly coerce a balanced budget without any regard to its short-term detrimental effects on our economy. At the time, President Obama signaled that he clearly favored a "grand bargain" whereby entitlements would be cut in exchange for restoration of Clinton-era tax rates on some of the wealthiest Americans. This time around, it is likely that Obama will again place entitlement cuts on the table.
This is something that would never have been accomplished if Romney had one the election. Obama's work passing the PPACA in 2010 has inoculated him from criticism from the far left regarding entitlements, which enables him to take such a bold stand today. Romney could have achieved a similar immunity if he chose to run as a "Massachusetts Moderate" rather than as a "severe conservative" for the bulk of his campaign. Instead, Romney ran away from his successful record in Massachusetts and instead embraced the Tea Party Movement, which represents a small minority of public opinion.
Regardless, Obama will be our President for the next 4 years and he has the opportunity to achieve a tremendous amount of reform. The GOP is at a point of weakness, and this is perhaps the only time they will accept any sort of compromise. Not only will this allow Obama to finally deliver his promise of Bipartisanship, but it will also go a great ways towards fixing our medium term debt problem. Our debt to GDP ratio is at a 6 year low, but we still have quite a ways to go.
It would certainly be great if our Federal debt could follow the same direction as the rest of our country's debts. However, this is only a medium term goal. In the short term, it remains imperative that we continue to borrow money as long as the yield on US Treasuries remains at record lows. Short-Term US Treasuries may even be sold at negative rates in the near future. Nevertheless, entitlements remain the 300 lb elephant in the room when one looks at our medium to long term fiscal picture.
I understand that this essay is an optimistic one, but I believe it is my right to be optimistic at this stage of the process. The good news is that even if we go over the "fiscal cliff", the results will probably not be all that bad. Sure, taxes will go up on the lower and middle class, but the new rates would only resemble those from the 1990s. At the same time, the Department of Defense will receive budget cuts that it deserves as we finally wind down our wars in Iraq & Afghanistan. Our military will ultimately have to adapt to a future where conflicts will not be fought with conventional arms and their budget should not be bloated with mechanisms to fight such nonexistent wars.
Nevertheless, there will be plenty of time for pessimism later on. Three months from now, we'll know whether or not I am right or wrong and we'll be able to discuss my vindication or humiliation then.
Posted by Warren Porter at November 14, 2012 8:11 PM
BTW, if anyone was wondering, I am the same person that used to comment under the name “Warped Reality”.
Among these, the most notable are the expiration of tax cuts passed by the GOP in 2001 & 2003…
Shouldn’t you also mention that these same tax cuts were extended by the Democrats for two years? And they did it at a time when they held all three branches.
A manufactured crises, to be sure Personally I hope the Reps keep stonewalling and BO invokes the constitution. Questioning the debt of the US is not allowed, period. 14th amendment as I recall. It was put into place because southern congressmen were trying to renege on Civil War debt. Seems the same caste of traitors are still at play.
Section 4 of the 14th Amendment to the U.S. Constitution says the following….
“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
The president is not obligated to recognize any debt ceiling limitation by congress. It is probably a good thing if they can come to an agreement that does not weaken SS, Medicare or Medicaid but if the Reps insist on destroying the economy or trashing these pieces of social insurance then I hope BO falls back on the Constitution. Hope, hellI expect and demand him to.
Warren, good post. As the conservatives work through the 5 stages they will eventually come to anger. When they do they will also become self righteous and believe they need to dig in even further, to oppose Obama. Opportunity for them to get on board and do the right thing for the country will be short lived. Obama, the dems and the independents in Congress along with any moderate repubs will need to stick to their guns against the onslaught of conservative misinformation half truths and outright lies the conservative media will be slinging.
Bills is very astute. Wonder if Greece has such a law written into their constitution?
As for j2t2’s comments…..more of the same. We good; they bad. It grows old. Yankees and Red Socks; Israeli’s and Palestinian’s; the Hatfield’s and McCoy’s.
“The validity of the public debt of the United States, authorized by law…”
Are the operating words here not; “authorized by law”? Would that not be congress? As far as I know the president can authorized regulations, but makes no “laws”.
It is time for the HOR to work with the senate and pass something for the president to sign that will not damage either party or the country.
“It is time for the HOR to work with the senate and pass something for the president to sign that will not damage either party or the country.”
Perhaps I am the only one here that finds it curious that you put party before country.
A Freudian slip perhaps?
Really Marks? Only a dreamer would believe that either party would intentionally damage themselves. Guess I am just a realist.
I might add Marks, that both parties have passed legislation that has done plenty of damage to the country.
People, cmon. Don’t worry about the fiscal cliff. If you believe there is a looming cliff, then you believe we didn’t cross it years ago.
Here’s the truth: Government spending falls into 3 categories - mandatory, discretionary, and interest on debt. Our economic situation is so bad, we don’t collect enough tax revenue to cover mandatory spending and interest on debt alone. If we cut ALL discretionary spending (foreign aid, welfare, entitlements etc.) We would STILL be 251 Billion short THIS year according to CBO numbers.
There are only roughly 115M households in America, and half pay no federal taxes whatsoever. So the tax increases being cried as a harbinger of doom ($400 - $4000 per household) would not cover the spread that would be left IF ALL discretionary spending was cut.
60 Million taxpaying households x $4,000 = $240 Billion
And that’s even if every household (that pays taxes) paid a flat $4000 across the board. We are a nation in a fiscal coma, with a currency that is only kept alive by a combination of money-printing, naivete and normalcy bias.
They aren’t even discussing any real cuts to mandatory spending, I think I read a pathetic 16.9 Billion.
So don’t worry about the cliff… just feel the wind rushing through your hair and keep watching The Voice. You know… the important stuff.
Meanwhile, I’m bracing for the Fiscal Splat.
Jake…don’t you know that the left doesn’t want to hear that? The golden goose never runs out of eggs according to them. The last landslide election will be for the dems and then…well; why worry, we’ll all be in the wagon huddled together wondering what happened because there is no one left to pull it.
Great Analogy Royal.
What’s even more ridiculous, is the notion that increasing taxes results in a linear increase in revenue. For the past 60+ years, the government has been all over the board with tax rates, yet averages a surprisingly stable 17.7% of GDP (in annual golden eggs getting laid in their laps.)
Increasing taxes does not have a positive effect on GDP. It has a measurable and immediate deleterious effect on it however.
The only way you increase revenues to the government is to GROW THE ECONOMY.
An interesting “here’s your sign” article from the Wall Street Journal
The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the agency’s finances, a development that could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.
Together with Fannie and Freddie, federal agencies are backing nearly nine in 10 new mortgages.
The FHA accounted for one third of loans used to purchase homes last year among owner occupants.
Though the agency guarantees fewer mortgages than either Fannie or Freddie, it now has more seriously delinquent loans than either of the mortgage-finance giants. Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from a year ago. That represents about 9.6% of its $1.08 trillion in mortgages guaranteed.
Who’d have guessed it? By keeping interest rates low while QEternity plays out and continuing to finance people who cannot and should not OWN their home, you can fool people into thinking their has been a housing recovery.
Said another way, if declared inflation is 4% one year and your home property value stays the same; you took a beating.
Now factor in real inflation…
Now they’re making GM and Chrysler car loans to people with questionable credit so they can brag about how well it’s going. The next big bust will be in the car market.
Jake, the primary difference between the left and right is simple. The left believes that government is the best equipped to rule their lives. The right believes that individuals themselves are best equipped to rule their own lives.
The left depends upon government to provide for them in hard times and the right saves and plans for possible hard times. In good times the left spends as though the good times will never end. When the good times do end, they continue to expect government to spend even more to take up the slack.
The left believes in group rights while the right believes in individual rights.
Royal, well said.
I wish we lived in the same town so I could buy you a scotch.
Jake, I do to…we would take turns and get roaring drunk.
In the past I have often heard the left talk about “mission creep” in wars. I wonder if they understand how that applies to government spending and entitlements.
I have a simple plan to balance our national budget. All we need do is increase the minimum wage to $200per hour. Our tax revenue will be so great that we will have money to burn.
$200/hour X 40 hours X 50 weeks = $400,000 per year. Everyone will be paying the higher tax rates obama desires and all will be just wonderful. A simple piece of legislation and all who work will be rich.
I believe obama now has the votes to repeal the XXII amendment. Or, he could simply ignore it and run for president as many times as he wishes with approval of a majority of the electorate. He could simply bypass congress as he frequently does now.
As for j2t2’s comments…..more of the same. We good; they bad.
John I didn’t really mention any “we good” just opined that conservatives will look to continue the gridlock based upon the different bits of whining I have seen from them already, but please feel free to prove me wrong.
Royal it sounds as if you have put the tin foil hat on and started drinking without Yukon. From your comments it is obvious you do not understand those to the left of you. Perhaps it is the conservative kool you been drinking, not the scotch.
It has been my experience that conservatives believe in individual rights alright, but not for others, while the lefties in general believe in individual rights and justice for all. According to conservatives there is only economic rights but liberals think economic rights are but one piece of the pie , that social and civil rights should also be a part of the pie.
“authorized by law” is operative. The funds already spent or promised were done so by law and may not be questioned under the Constitution.
I took a hiatus from WB for a few years. I just could not understand how people collecting Social Security could have such ambivalence toward the government. Now I am finally old enough to have started collecting myself and I still can’t seem to get it. Whats your secret?
j2t2…let me get this straight…you don’t see any part of gridlock emanating from Obama/Reid, et al?
“It has been my experience that conservatives believe in individual rights alright, but not for others”
Can we get some examples of this?
“while the lefties in general believe in individual rights and justice for all”
Now this is just silly J2.
Leftist ideology requires the stripping of individual rights in order to reach the leftist definition of justice. Whether it is re-interpreting rights like the 2nd Amendment or creating new rights of marriage or health care, individual rights always come second to the leftists desired goal.
kctim it is conservatives that tell us corporations are people. This type of individual rights is as collectivist as it gets.
I’m unaware of this leftist ideology that you speak of. I think you mistake, as an example, gays as being a group not individuals wanting their rights the same as anyone else.
Whether it is re-interpreting rights like the 2nd Amendment or creating new rights of marriage or health care, individual rights always come second to the leftists desired goal.
Perhaps the problem is the inability of conservatives to recognize civil and social rights along with economic rights kctim. If you don’t accept the rights of others it may seem others are re-interpreting rights, however that is due to the shortcomings in your thinking not those you disagree with IMHO.
It is your error in thinking that causes you to interpret what those to the left of you are actually saying and doing. I can understand that with all the misinformation half truths and outright lies coming out of the conservative media. But I’m pretty sure the founding fathers didn’t intend to restrict rights that weren’t specifically mentioned in the constitution.
Their are many on your side who would use their religious rights to restrict the rights of others. I’m, also sure that was not the intentions of the founding fathers.
Corporations cannot take away individual rights. The policy that says that the people who own corporations are people, does not take away individual rights.
Gays have the same rights as everybody else, so I don’t quite get why you think I don’t care about their rights.
“Perhaps the problem is the inability of conservatives to recognize civil and social rights along with economic rights kctim.”
Individual rights, J2. People on the right tend to believe that individual rights come first…civil, social and economic desires come 2nd. Which is the exact opposite of what leftist believe.
Your desires are not rights, and they sure as hell do not trump my rights to privacy and choice.
“If you don’t accept the rights of others it may seem others are re-interpreting rights, however that is due to the shortcomings in your thinking not those you disagree with IMHO.”
I accept the individual rights of ALL, J2. If I don’t, then you should be able to provide a valid example.
“It is your error in thinking that causes you to interpret what those to the left of you are actually saying and doing.”
No, it is the lefts own actions and policy that has defined the way they believe. But again, I would love for you to point out one of these errors you bring up.
“I can understand that with all the misinformation half truths and outright lies coming out of the conservative media.”
But the liberal misinformation half truths and outright lies that you take to heart, are to be respected? Funny.
Fact is, I don’t watch the one TV station you blame for everything, and I don’t watch the 10 or 20 TV stations that promote the leftist agenda. I read actual news to form my own opinion.
“But I’m pretty sure the founding fathers didn’t intend to restrict rights that weren’t specifically mentioned in the constitution.”
Of course they didn’t, and I have never said that. What I have said is that our individual rights are not to be infringed on in order to satisfy the desires or fears of others. And that if you wish to infringe on them, there is a rigorous process you should honor in order to do it right.
“Their are many on your side who would use their religious rights to restrict the rights of others. I’m, also sure that was not the intentions of the founding fathers.”
The only religious right an individual has is to worship as one so chooses. What you fear for some reason, is opinion formed by religion and those opinions are no different than opinions formed by liberalism.
Tell me J2, why do you fear being ruled by religious opinion in the name of some God, but yet embrace being ruled by liberal opinion in the name of government?
j2t2…let me get this straight…you don’t see any part of gridlock emanating from Obama/Reid, et al?
John based upon conservatives telling us GWB had a mandate back in ‘04 it seems to me Obama has a mandate now. He ran on raising taxes on the wealthy. More than a few of the worst of the teabaggers were thrown out of office by the voters this time around. It is the repubs/conservatives who have signed a loyalty pledge to Norquist.
Polls tell us the American people do not want SS and Medicare dismantled, nor do they want yet another bill from the teabaggers trying to rescind Obamacare. The American people do not want to see another fight over raising the debt ceiling that would damage our credit rating’s further.
We are today where FDR was in ‘37 when he tried to make budget cuts only to fall back into recession. It is happening in Europe now as a result of the conservative austerity programs of a few years ago. The conservatives here in this country have tried to sell us on cutting entitlement programs as the solution to the debt problem.
So it seems to me that yes it is the conservatives/repubs who are the cause of the gridlock as they continue to adhere to a failed ideology and a party before country line.
j2, the fact that you are blaming the catastrophe that is Europe’s financial situation on conservative austerity explains your microscopic understanding of economics and the european financial crisis. It’s the medicinal equivalent of blaming a surgery death on the doctor for not successfully transplanting a heart in a patient on their death bed; utter foolishness, but appropo given your other statements.
The American people never backed Obamacare… passing it in spite of its unpopularity WAS the scandal. That socialized medicine could be rammed down the throats of the American people without majority support. Your leftist queen Nancy Pelosi’s famous quote sums it up: “We have to pass this bill to find out what’s in it.”
I think you may be a little intoxicated with your recent election win and have a case of confidence creep.
Europe’s financial situation boils down to where we are headed. The public is so accustomed to (as Royal Calls them) Golden Eggs dropping from the government goose, that when the money stops, they literally will not allow, nor vote for, anyone who won’t promise to reinstate social programs, regardless of the fact that there is no money.
They [the people] are wearing blinders of ignorance as they stampede down the chute and into the financial glue factory. Read up on the European financial crisis before you go trying to boil it down to a last-minute treatment plan that won’t succeed because it is socially unacceptable to the spoiled masses, who picket and protest over a 36 hour work week.
bills, I am 35. I neither expect Social Security to be there, nor plan on ever getting any portion of my money back when I am retirement age.
j2, the fact that you are blaming the catastrophe that is Europe’s financial situation on conservative austerity explains your microscopic understanding of economics and the european financial crisis.
Lets face it Yukon cutting taxes to “job creators” hasn’t worked since at least the turn of this century.
“A study recently found that rather than increasing growth and reducing debt, austerity was driving down economic growth and increasing debt levels. Others have shown that austerity has put 116 million Europeans at risk of falling into poverty.”
The American people never backed Obamacare… passing it in spite of its unpopularity WAS the scandal. That socialized medicine could be rammed down the throats of the American people without majority support.
I agree Yukon there is something for everyone to not like about the ACA but it perhaps is a step towards a “socialized” health insurance system if we are fortunate. I dislike the employer based aspect of Obamacare myself as it makes us less competitive as a nation.
That being said I find it ironic that you tell us Obamacare is socialized medicine when its origins are with the Heritage Foundation. Which leads me to my point, the conservative propaganda against Obamacare was so outlandish, so misleading, so rife with half truths and more than a few outright lies that it is amazing that anyone would support it. But they did and still do according to polls.
I think you may be a little intoxicated with your recent election win and have a case of confidence creep.
I didn’t win an election Yukon. I did vote for Obama but as is usually the case it was a choice of the lesser evil for me. Obama supports free market policies instead of fair market policies and by doing so allows us to continue our slide into 3rd world status started by Reagan and the conservatives. The difference between him and Romney is in other areas.
The Europeans have similar problems as we do they didn’t do the right thing to recover from the GWB meltdown but they just dug the hole deeper with their austerity plans which were similar to those proposed by conservatives here. Seems Iceland had the best approach to the meltdown as they are recovering well.
J2t2…my problem with you, and others, is that you can’t ever just acknowledge that there are mistakes and stinky stuff going on in the Dem camp, too. You can’t be that blind.