Sunday, December 30, 2012

Off the Cliff

Meet 'Rollo'
  The United States is scheduled to go over the fiscal cliff at the end of the year. The ‘fiscal cliff’ isn’t really a cliff at all. It is just a catch phrase. What is really going to happen is that the 2011 Budget Control Act that President Obama and the Republican Congress cobbled together to allow for an increase to the US debt ceiling will expire. The act also allowed for the continuation of the tax cuts enacted in 2001 by President Bush and the Republican Congress, a 2% decrease in the amount of Social Security payroll taxes. In addition, the bill specified that if the Congress could not reduce the deficit by a specified amount, automatic across-the-board spending cuts would be triggered on January 1st, 2013.

  The Democrat response to trying to reduce the deficit is to allow the Bush tax cuts to expire for people making over $250,000 a year with minimal cuts in spending and President Obama agreed to allow the cuts to remain for people making over $400,000 a year. The Republican response is to not allow the cuts to expire for anyone and while House Speaker John Boehner tried to allow the tax cuts to expire for anyone making over $1,000,000 a year he was shot down by his party and had to get back to the party line of no tax cuts expiring for anyone.

  The economic pundits have declared that the automatic spending cuts combined with the expiration of the tax cuts will send the country into a recession. I’m no economist, but I can’t understand how the economy in expansion when the deficit is 1.2 TRILLION DOLLARS a year but will be in recession when we are only running a deficit of $600 BILLION DOLLARS a year can be healthy in any regard.

  The government has had out of control spending for the last 10 years (here is the chart). It doesn’t matter whether there was a Republican President and a Republican Congress (2001-2006), a Republican President and a Democrat Congress (2007-2008), a Democrat President and a Democrat Congress (2009-2010), or a Democrat President and a Republican Congress (2010-2014), the deficits just get bigger and bigger and bigger. The deficit is so large as to be almost beyond comprehension. The 2012 deficit was 1.1 TRILLION DOLLARS, the smallest in four years. Warren Buffett is one of the wealthiest men in the world but his net worth of 44 BILLION DOLLARS wouldn’t pay the deficit for three weeks. The Powerball lottery reached 550 MILLION DOLLARS earlier last month. That jackpot would pay off for four and a half hours of the deficit.

  It would be easy to blame the Republicans or the Democrats or the terrorists or the bankers or anyone for the exploding deficits but the real culprit is the American people who keep electing the same people to office (regardless of party) to spend money and cut taxes and when the bill comes due expect others to pay for it. The Bush tax cuts were designed to expire in 2010 but any mention of letting them expire is talked about as a tax increase and not the end of the tax break. It’s the same way with President Obama’s 2% Social Security tax break. It was meant as a temporary spur to the economy but no one wants to give up their little extra money as long as the deficit can be borrowed from somebody else.

  Politicians of all parties are attempting to make a last minute deal to avoid the expiration of the tax cuts and allow the spending to continue and positioning themselves to be able to blame the opposing party in case there is no deal. I hope there is no deal and the tax rates revert back to what they were. Once the politicians get done blaming each other for the ‘tax increase’, the politicians can start working on a new round of tax cuts that they can all take credit for. I can’t imagine the millionaires being able to get a tax cut so the one thing that everyone who is not a millionaire agree on will come to pass (millionaires paying more in taxes), but after all the talk of the 1 percent and the 47 percent I’m very interested in seeing where the line that divides the income levels whose tax rates approach the ‘pre-cliff’ levels from those that don’t.

  It’s admirable as a society to help people who are struggling by providing welfare and food stamps and paying for their health care. It’s admirable as a society to give students assistance to pay for their college tuition. It’s also admirable to want to have a defense system that can protect our interests around the globe and provide assistance to other countries. But to be borrowing over a TRILLION DOLLARS a year to promote these admirable ideals just seems stupid to me. If someone you knew asked for a hundred dollar loan so they could give it to their favorite charity, maybe you would one time. But would you make the same loan week after week and year after year? If you never got paid back? Wouldn’t you suggest that if your acquaintance wanted to contribute to less fortunate people they should pay for it themselves?

  It’s easy to say that the rich people paying more taxes will solve the deficit problem. If there are five million millionaires in the US, they would have to each pay $200,000 to cover this year’s TRILLION DOLLAR deficit. This isn’t people who make a million dollars a year, just people who have a million dollars. I don’t think there are enough millionaires to pay off the deficit and even if there were, they would be the most likely to find ways to avoid paying the new taxes anyway.

  If there end up being no tax cuts, I don’t think there will be too adverse an effect on the economy. Whatever money that comes out of the people’s pockets will go to the government and be spent on other programs. The spending cuts total around 300 BILLION DOLLARS of a 3.7 TRILLION DOLLAR BUDGET. Eight percent of the government spending is a lot, but keep in mind that this is all borrowed money anyway and the money lost on the expiration of the tax cuts will be that much less money spent at the Wal-Mart on Chinese made goods.

Left: Rollo was made in China but I got him from this vending machine. Rollo hopes he doesn't fall off the cliff.

  Will having to pay 6 or 7 percent more in taxes hurt me if all the tax cuts expire? Yes, of course. But I’ll find a way to get through it by cutting back or finding ways to save or finding ways to make more money. Yesterday was Kathy and my 22nd wedding anniversary and to celebrate we went out to Zeno’s, a local pizza restaurant to celebrate. In an alcove of the restaurant were some videogames and a couple of vending machines that dispensed toys. I fished three quarters out of my pocket, borrowed a fourth from Kathy and bought a ‘Hood Hounds’ toy. It was a little dog that I named Rollo. For my dollar, I got a little piece of plastic made in China.

  If the economy falls off the fiscal cliff, the ’Rollos’ of the world will be one of the first casualties in my household. I don’t think the economy would collapse if Rollo and all his little ‘Hood Hound’ friends have to stay in their vending machine case. I might have to take a second job if things got so bad that I had to stop getting Daisy and Baxter beef stick treats. These would just be some tough choices I’d have to make. I don’t think it’s unreasonable to ask the government to make some tough choices themselves.