The Fiscal Cliff: 3 Clear Goals

    A couple of friends in London (here for the holidays) have asked "why would you Republicans risk so much damage to prevent 2% of the population from moving from a 35% to a 39.6% marginal tax rate." Republicans are obviously terrible marketers, but there are three clear considerations as they manage their two points of leverage - the fiscal cliff, and the companion debt ceiling increase.

    1.  We cannot continue with trillion dollar deficits and the Democrats refuse to slow down the pace of spending. In the short run there is little pain from the deficits- except for those looking for a job or trying to live on income from bonds - but in the long run high inflation is inevitable. That may not matter much to people on the dole or working people with salary leverage, but to the rest of us - particularly pensioners and bond-holders - it will be ugly. Very ugly.  

    2. The expansion of the federal government from 20% to 24% of the Gross Domestic Product under President Obama is not just a statistic. It reflects a transfer of power from individuals to government in the form of mandated healthcare insurance, control of student loans and the mortgage market, more payments for those not working, and more EPA and financial regulators and IRS agents. Like France where employers are reluctant to hire because they cannot fire unneeded employees (and top marginal tax rates are now 75%), American employers are reluctant to hire because of Obamacare mandates and a hostile tax environment.

    Goals 1 and 2 say "lets go off of the cliff" and pick up the pieces. Recent history has shown that we do not have the discipline to manage our finances any other way.  Goal number 3 requires a more nuanced calculation.

    3. Republicans must control the House to provide some check on a presidency controlled by the left wing of the Democratic party. In 2009 and 2010 when the Democrats controlled everything we got Obamacare and and an expensive, corrupt, and ineffective Stimulus Plan. With another Pelosi/Reid/Obama trifecta in 2014 we could get Democrat-dominated corporate and individual tax reform, blanket immigration amnesty, "cap and trade" climate legislation, and any number of other liberal wish list items. So, what is the risk of Republicans losing the House?

        - Most Americans want taxes raised for those earning over $250,000, and that was enough of an issue to carry Obama to re-election with a lousy economy and scarce other ideas.  Few seem to care that a "tax the rich" victory would do little to solve our financial problems. While a majority now feel "a pox on both your houses" if agreement cannot be reached, the public's attention span is short and the impact in November 2014 is anything but clear. If  Republican ideology is correct, a path to a balanced budget would be a major boon for the economy which would overshadow any residual blame for a two-year old conflict.   

        - And, few incumbents are really at risk.  In our polarized country only some 85 Congressional contests had two reasonable, well-funded candidates this year - 350 were not seriously contested. The allocation of seats to the states and the district boundaries shaped by the 2010 census together allowed Republicans to  win 54% of the House seats with 48% of the national House vote and will continue for a decade. Also making austerity more attractive, off-year elections draw lower turnouts favoring activists and partisans who usually have more to fear in primaries than in general elections.  With the Republicans holding a 234 to 201 majority in the new House (down seven from the exiting Congress), and relatively few facing a serious threat from the left in 2014, the Republicans would seem to have a secure blocking position, given the right leadership.  

    Perspectives change during prolonged, complex negotiations. Since impasse seems to be the only path to reducing spending and stopping the growth of government, and Boehner's effort to go beyond the will of his caucus met a stiff-arm from Obama, the Republicans would be better to let the current forces work themselves out and hire some good PR people back home. The country will survive.

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    This week's video offers a glimpse at soon-to-be Senator Tim Scott of South Carolina, another dynamic young Republican leader.

bill bowen - 12/29/2012             

Comments

[Bill McCormick]

AND DOWN THE ROAD WE GO---as we thought we got a deal that was significantly one sided. In the end the President was awarded his tax hike on the rich promise and that was it. Any sane analyst and corporate executive can tell you that in terms of addressing the $1.2 Trillion deficit we kicked the can down to February to fight once again over the spending cuts using the trigger of the debt ceiling and the squestration as the leverage. The President begins once again with an unwinnable position of no negotiations on debt ceiling. I guess they will use Biden once again to take the President out of the leadership position. It's like watching a tag team wrestling match. Pure entertainment. Republicans have no leadership as of now. Rubio votes no. Ryan votes yes. Boehner votes yes. Cantor votes no. The good news: we now know what the rates are for 2013. On to the battle over how much we reduce the automatic spending increases.

[DickG]

BOENER OPTS FOR THE 'SLOW HEAT';like the frog in the 'pot'. A Yale Univ symposium discussed the phenomenon of there "no longer being a 'MIRROR' of threatening AND failing 'Leftist Communist Governments' ". Until the fall of the USSR and our simulated westernization of China ; there always existed several countries displaying the ravages of COMMUNIST LEFTIST Totalitarianism.
"Today, Hillary Clinton and the Left won't dare mention 'Human Rights' problems with China or Cuba; only here and the West."1. Careful not to expose any association between them and 'Leftist policies.

1. A recently televised CSPAN symposium at Yale on Wittaker Chambers by Conservative publishers.

[DickG]

THE ENDLESS 'POKER GAME'. Boener; "the House has done it's work. It's time for the Senate and Majority Leader Reid to act". SO - why call the House into SESSION and keep the Media Focus on them ? Is this some kind of 'PLOT' or just 'The Circular Firing Squad' forming up AGAIN ?

[DickG]

10% ACROSS THE BOARD SEQUESTRATION CUTS; so what's so terrible? They've been unsuccessful in accomplishing 1% in ten years. 'Across The Board' is by no means ideal but I'll take it. Possible 10% 'DEFLATION' might follow; a 'fixed income' Retiree BONUS . I'll take it . A respite before the real 'Devaluation'/INFLATION sets in.

[DickG]

DETROIT-WATCHING THE 'CANARY'. Michigan Republican Legislature and Governor re-establishing streamlined Emergency Financial Control Plan. Financial collapse of The City of Detroit could be imminent.
Do we want to imagine such a move by the 'Administration' ? 'Fiscal Cliff' may present such an opportunity; as the WH considers 'DEBT LIMIT IMPASSE'. IMPEACHMENT BILL should be presented also an an EMERGENCY MEASURE; should such an attempt be made.

[Bill McCormick]

TWO GREAT LEADERS---Yesterday we lost General Schwarzkopf. We have President GHB fighting for his life in the hospital since November. These two leaders showed the world how aggression should be addressed. GHB put together a coalition of international forces to oust Saddam Hussein's forces from Kuwait with clearly defined objectives. General Schwarzkopf put together a magnificant plan to carry out the objectives. CNN was there to put on the show. In order to provide the transparency that these two was NOT prsent in Vietnam they embedded journalists in the front lines and the military headquarters. Once the rout was on the President called for an end to the killing and kept his word to limit the objective to the ousting of Iraq from Kuwait. The General was brilliant in his management of the war information as he used the embedded reporters to show the world the action, the impressive performance of US modern laser guided weapons and modern tanks. I will never forget the first night when the General faced the cameras and described the accomplishments of US allied forces without a SINGLE US casualty. America will miss this General and his brilliance in advancing the public interest and confidence in the military. And, perhaps we can all pray that GHB finds the strength to return his smiling face to our lives once again.

[Bill McCormick]

NOTHING MATTERS MUCH---that will be done. It appears this President even in his lame duck term is a slave to his far left game plan. Without the benefit of Executive experience, the understanding of shared risk taking or any real reason to care about free enterprise the President has let these negotiations lag way too long to get anything substantial done before 2013. It appears he could not get his budget ceiling lifted along with his tax hikes from Republicans in return for some smoke and mirrors spending cuts. Therefore he will take it to the next level in February with the new more Democratic Congress to make the grand bargain. Whatever, we get in the next few days will likely be a minor deal to push negotiations down the road a few more weeks. By doing that he will get the tax hikes in place for virtually everything from personal wages, to inheritance, to capital gains, to dividends, etc. He can then negotiate from the point of giving some back in return for spending cuts to get the debt ceiling increased. It clearly puts him a position of strength focing the Republicans to shut down the government to win concessions. Republican leadership is clearly absent.

[DickG]

BROADENING OF THE TAX BASE; couldn't be a better Romney 'New Year Resolution'. May be only the begining to an inevitable migration of process toward 'Common Sense',though unintended a consequence .
A broader sector of the population will feel the 'sting' of Government expenditure and waste. This pressure probably to be followed by a reduction in Commodity availability. Inflation pressures will force the fixed income shopper into systematic product illimination.
The GOP hopefully will improve their ability to associate this Administrations' abuses and antiquated ideologies with economic failure.