Taxes, spending and the fiscal cliff dwellers
“Would you tell me, please, which way I ought to go from here?” asked Alice.
“That depends a good deal on where you want to get to,” said the Cat.
What’s this fuss about a US fiscal cliff looming on New Year’s Day? It’s about devastating reductions in all government spending and devastating increases in all our taxes, including a 50 percent increase to those paying the lowest rates. In effect, measures that will assure another major recession.
Few people have thought through the companion questions of taxes and government spending as thoroughly as the late Nobel Prize-winning economist Milton Friedman. Friedman said, “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible.” But even Friedman added that proviso at the end. That’s what separates thoughtful tax cutters from political ones, such as Bush I and Grover Norquist.*
To prove he was conservative enough to be Reagan’s heir, in accepting the 1988 Republican nomination for president, George HW Bush said, “Read my lips! No new taxes!” He received a thunderous ovation, as shown on here. I remember seeing that speech, and when he said that line yelling at him—through my TV—“You #### idiot! You know you’ll raise them!”** True to my word, he did.
Indeed, Bush’s popularity eventually rose to an almost unprecedented 91 percent as our first war with Iraq (which boasted the world’s fourth-largest army) was won in record time with minimal casualties. Eighteen months later, having already reneged on his tax pledge and with the nation slowly recovering from a relatively mild recession***, his approval collapsed far and fast. How far and fast? In the 1992 presidential election, Bush garnered 37.5 percent of the popular vote, only twice what independent challenger Ross Perot received. That was significantly short of Bill Clinton’s 43.8 percent.
Today we have Grover Norquist, founder of Americans for Tax Reform. Most Republican congressmen have signed his Taxpayer Protection Pledge. To me, the Norquist pledge exemplifies the saying, “Too clever by half.” I think that, deep down, most of the signers knew that, too. It is one of those stupid litmus tests, like abortion or prayer, that Republicans tend to inflict on each other. Some of this delayed-action destructive power was seen in our recent election.
But let’s be fair. When parties preach high-sounding principles, the preachers are politicians. Such principles are fine when they don’t require candidates or constituents to sacrifice. That’s why we shouldn’t overdo them. I recall a good rule that’s applicable here is, ALWAYS remember to NEVER say “always” or “never.”
From my vantage point, the Republican leadership was trying to keep peace in a family where feelings could get ruffled at the slightest disagreement over a most trivial matter. During this past Republican primary season, before I joined Allvoices, I wrote that, while I understood why Republicans kept trying to “out conservative each other,” it was an incredibly imbecilic practice. That’s because successful politics is about bringing together a large group of people. Twelve people will have at least a dozen different views. Politics is about bringing people together over one or two core values, not every value. The test is to include as many as possible, not to exclude. Nobody’s perfect. By contrast, the Democrats seemingly didn’t much care who joined them, and they won.
Another issue for Republicans is their apparent knee-jerk reactions to losing the recent election. Historically speaking, it’s the norm for the president’s party to gain seats in both houses of Congress in the presidential election and to lose seats in the midterm election. So Republicans shouldn’t throw out ideas they claim they stand for or swallow the instant analysis of either their own supporters or that of the incredibly biased mainstream media.
Remember, Mitt Romney lost the election—which is different than Barack Obama winning. Obama got a couple of percent more votes, not a mandate. He received less than 51 percent of the popular vote; Romney received over 47 percent. It wasn’t a mandate, a landslide, or enough to justify silly talk about a third term. So let’s just try to get our nation through to Jan. 20, 2017, successfully, thank you.
While Republicans haven’t had time for a proper assessment of Nov. 6, they have had to focus on this fiscal cliff charade they helped create last year. So what to do?
One thing we must remember is that this fiscal cliff is a government artifact, not an economic law. Being a government artifact means the government can remove the fiscal cliff anytime it wants.****
If, like Alice, we want to reach our destination—away from the cliff—I suggest the following: Each major party should defend one thing it wants to be known for, and give up a little on another. Each side should sacrifice something it has given one of its constituencies.
For example, the Republicans could allow higher taxes for the wealthiest if and only if the Democrats concurrently restore all the work/training requirements in welfare (that Obama quietly removed in a pre-election power abuse). That must also include “means testing.”
Think of the politics. Republicans would reduce the very deleterious entitlement mentality and relieve some of the working class’s burden of supporting those whose don’t work, whether by chance or choice. Democrats would boast about finally taxing the rich some more. This would reduce two gnawing emotional issues and could promote other essential compromises. Basically, each party would take something from one of its constituents. In this case, OK, the wealthiest would pay a few percent more, while the unemployed would assume more responsibility for themselves. It would also help if, unlike with Obamacare, both sides actually read the entire bill first.
* Grover Norquist is the founder and president of Americans for Tax Reform. He’s the lobbyist who convinced virtually every Republican member of Congress as well as those running but not (yet) elected to sign a sacred pledge to never under any circumstance vote for a new tax or an increase in an existing tax. Read more about Norquist here.
** In the “no new taxes” link, “them” refers to the Democratic Congress.
*** Bush allowed taxes to go up in 1990. In July of that year a relatively mild recession started, one that ended around the time Desert Shield became Desert Storm.
**** The fiscal cliff is a sort of D-Day-like strategy. On June 6, 1944, when the Allies invaded France, the troops waded onto Normandy’s beaches, and the ships that carried them immediately returned to England. The troops then had to win or be killed. There was no middle ground. Fortunately, they won.
Apparently, the “Super Committee” got a similar idea last year when they couldn’t agree amongst themselves on taxes and spending. So they said, Let’s take a year to think about and discuss this problem of our runaway national debt. The election will be over. Then we make the pain of the tax increases and government spending cuts so great that everyone will be forced to compromise. No one will like it, but they won’t be able to retreat so we’ll start on the road back to fiscal sanity because no one is going to want the consequences they will face if they don’t compromise. It seems it was Federal Reserve chairman Ben Bernanke who first used (or at least who the mainstream media first heard use) the metaphor that we are on a fiscal cliff. We won’t be able to stay there, so, like Alice, Congress and the president will either have to find a way back by Jan. 1, or jump. “Jump” being the huge tax increases and spending cuts triggering another recession.
The negotiating approach so far has been to couple discussions about taxes with discussions about spending. Recently, some reports suggest some participants want to de-couple the twin issues of taxes and spending.
Unlike D-Day, I would bet on either Congress spinning some reason to prolong how long we can stay on the fiscal cliff, or Dr. Fuzzy Math will ride to the illusion of a rescue with skilled use of the weapons known as smoke and mirrors. And then the market’s judgment will have to be spun.