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The Fiscal Cliff: What the Obama is Going On Here?

For those who wondered, I am not depressed by last month’s election results. Since October, I have worked on changing careers. Staring deeply into technical documents and prepping for certification exams has left little time for blogging. My apologies but…I’m ba-ack…..

Both sides in the so-called “fiscal cliff” (the combination of looming tax increases and spending cuts) debate have voiced their public positions. Here is a summary of Obama’s:

    The Obama administration is “absolutely” willing to go off the so-called fiscal cliff if Republicans refuse to increase taxes on the nation’s top earners.

    • Obama’s current spending cuts proposal looks eerily similar to his budget plan, which failed to garner a single vote in either the GOP-controlled House or the Democrat-controlled Senate. Obama’s plan is so flawed that Senate Democrats kept it from coming to a vote on December 5.

    Obama wants authority to unilaterally raise the debt ceiling, effectively transferring to the Executive Branch of the federal government a power constitutionally given to the Legislative Branch, or Congress, even though in 2006, then Senator Obama called increasing the nation’s debt “a leadership failure”.

Here is a summary of the GOP position:

    • Individual income tax rates stay unchanged; , additional revenues would come from subjecting more of an individual’s income to taxation, by removing provisions that shield income from taxation (closing loopholes) and limiting current deductions.

    • Reduce government spending, including raising the age for Medicare eligibility, and reducing annual Social Security increases.

    • It does not seem that the White House proposal for unilateral presidential authority to increase the debt limit will receive serious consideration.

Critics of the GOP plan note that the Bush era tax cuts gave money to upper income earners and, in part, led to the 2008 recession. However, those rates, implemented in 2003, after the 2000 – 2001 Clinton recession and the September 2001 terror attacks were, by 2005, generating more income tax revenue than in any year of the Clinton administration. Since lower rates generated higher revenues, the argument that low tax rates either hurt the economy or deprive the Treasury is a difficult one to make.

The press, for their part, appears more focused on identifying Republicans with a willingness to “break ranks” and raise taxes than reporting the objective consequences of either position. They could look to Europe, where the higher taxes, lower spending approach is en vogue. The results are not encouraging:

    • Greece raised taxes to bring in more revenue, only to see its deficit increase. Worse yet, tax receipts actually declined after taxes were raised. Additionally, the street demonstrations, protesting budget cuts, continue.

    • Great Britain was harder hit by the Great Recession than the US. After 6 T, after 6 quarters of decline, he British economy began to grow again in late 2009 at an annual rate of more than 2.5%. Then the government enacted an Emergency Budget in June, 2010, which contained a ratio of more than $3 of spending cuts for every $1 of tax increase. GDP growth retreated to less than 1% annually. And, as with Greece, there are the protests.

    Spain is taking the same approach with, predictably, the same results.

Bottom line, the “fiscal cliff” approach of raising taxes and cutting spending, to get government finances in order and to boost the economy has failed in Europe. According to CBS News, “Across Europe, six countries are in recession and economists predict the entire region could be heading for recession by the end of the year.”

Then why would the president be absolutely committed to going off the cliff if Congress refuses to raise tax rates? Well, he did say he wanted to “fundamentally change this nation.” Perhaps he is now revealing into what.

History teaches that economies are more likely to grow when taxation decreases and not increases, and now is a time when America could use more economic growth. The trustees of both Medicare and Social Security continue to sound the alarm that those programs are in deep financial trouble and need reformation to stay viable. And the Founders made it clear that one man should not control the nation’s purse strings. Yet, on each of these points, Obama seeks a path that demonstrably runs counter to American success or future prosperity. Further, he is not given to cogent explanations of how his approach would change the country’s current financial or economic plight.

Nevertheless, the president who claims to care for the middle class, would rather plunge them, and everyone else, into economic adversity that would bring more pain, debt, and poverty, rather than allow 2% of the nation’s income earners keep their current tax rates – just like everyone else. The revenue projected from what Obama desires, over a decade, is less than one year’s annual deficit. More than 4 times what the president seeks from the top 2% would be raised if all tax rates were allowed to rise (if the economy was so good under the Clinton rates, then why only bring them back for some of the nation?). If the nearly half of income tax filers who pay nothing contributed only $1,000/year, that would raise more revenue than the president seeks. So why the insistence?

The Defense cuts could cause more problems for an already troubled job market. No action on Social Security or Medicare could leave one or both of those programs unable to help seniors, Yet, Obama presses on, insisting he is right, but without saying what would happen should he get his way.

The president is an “all or nothing” negotiator, when anyone can get him to the table. His approach: “I won re-election, so now you must do whatever I want.” This ignores that every Republican in the GOP-controlled House also won an election on November 6, that there are more elected Republicans than Democrats in D.C., and that it is unlikely that voters sent Republicans there to bow to Obama. If only this were simply political drama, and not potential economic madness.

What the Obama is going on here?


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