Archives for December 2012
’Twas the night before Cliff-mas, and all through the House Not a member was working, no ideal to espouse; Their offices closed, the members all gone, No solution for a budget plan had yet to be drawn.
Our Congress had spent a year feuding again, While uncertainty and poor growth plagued businessmen; The economy had slowed, unemployment was high, Things weren’t looking up for a taxpayer, like I.
On December 31st tax rates were scheduled to rise, Which many agreed was not in itself wise. With this, another date caught the country’s fiscal fixation—The second of January was set for across-the-board sequestration.
I’d heard all the talk, all the senators saying, “If we’re spending this much, someone has to be paying!” The rhetoric from the news droned on in my head, As I turned off my light, and crawled into bed.
When out on the Mall there arose such a clatter, I sprang from my bed to see what was the matter. It was the President! His sudden arrival was thrilling, He went after the Congress, he called them by building:
“Now, Senate! Now, Hart! Now, Russell and Dirksen! On House! on Rayburn! on, Longworth and Cannon! The fiscal cliff is approaching! We need to make cuts! Bad policy and spending got us into this rut!”
Out came the lawmakers, their cheeks from sleep rosy, I saw Boehner, Reid, McConnell and Pelosi; They gathered together, their eyes straight ahead, Some seemed optimistic, as the president said:
“We need to end this uncertainty, if we are to stay strong, I know we can do it, if we all get along. We won’t hurt the middle class, we’ll raise taxes on the wealthy! It’s right for everyone to pay a fair share to keep our economy healthy!”
Reid stepped up as well, his voice rather hoarse, “We know that we need to include a few cuts, of course. This deficit spending hurts our economy in the long-run, But for now, raising some taxes will help everyone!”
“Now hold on one minute,” Boehner said with a sigh, “You know the tax increase you propose is too high! The wealthy you speak of—they aren’t you and me; They’re middle-class, and small business owners you see!”
“You won’t close the tax loopholes, you won’t lower our debt! You’ll create a situation where new investors will sweat! We need tax reform, to resolve all this clutter!” He stepped back with a nod—the crowd started to mutter.
Was he right? Was it true? Could reform solve it all? Or would a tax hike spur investment and keep us from a fall? It was the same talk I’d heard, the same from before—So I ran down the stairs, and I opened the door:
“You say you’ll manage the tax code, and cut wasteful spending, But it’s these political struggles that keep our economy pending! We need real reform, not this spending obsession; ‘Else this cliff should put us in another recession!”
The lawmakers started, they had not known I was there; And they sputtered and scattered and ran without care; I watched them go and yelled after them, as they took flight: “Avoid the fiscal cliff for all, and to YOU a good-night!”
Avik Roy writes in Forbes that the recalcitrant GOP representatives may be right in resisting the current “Plan B” as put forth by John Boehner. If we go over the “fiscal cliff” there are some aspects of the cuts and tax increases that, though painful, might be wise. First, he summarizes what are the main two components to the fiscal cliff:
Fiscal cliff component #1: Tax increases
The first aspect of the fiscal cliff is that taxes will go up. Income tax rates will revert back to the rates we had under President Clinton, leaving aside the additional $1.2 trillion in tax increases that Democrats passed under Obamacare. The top income tax rate will rise to 39.6 percent from 35 percent.
In addition, there are a number of other temporary tax provisions that will expire. Congress steps in every year to add an inflation adjustment to the Alternative Minimum Tax, because the AMT was not originally indexed to inflation. Without an inflation adjustment, more people will meet the income threshold for the AMT.
The deficit impact of extending these provisions, as people on both sides of the aisle want to do, is $330 billion in 2013, and $420 billion in 2014, according to the Congressional Budget Office.
If Congress were to extend all of these temporary tax provisions except for the lower tax rates on individuals with incomes above $200,000, as President Obama has advocated, the deficit impact would still be steep: $288 billion in 2013, and $382 billion in 2014.
Fiscal cliff component #2: Spending cuts
The second aspect of the fiscal cliff is that, if we go over it, spending will go down. Temporary payroll tax holidays, which reduce the Social Security and Medicare payroll taxes paid by employed individuals, will expire. In addition, the “temporary” extension of unemployment benefits undertaken during the recession will finally end. Continuing those temporary tax holidays and temporary unemployment benefits will increase the deficit by $108 billion in 2013, and $150 billion in 2014.
Importantly, Medicare’s Sustainable Growth Rate will take effect, reducing Medicare’s payments to physicians by tens of billions of dollars. This provision, and a few others, will reduce federal spending by $40 billion in 2013, and $61 billion in 2014.
In addition, the Budget Control Act—the law passed last year during the epic debt-ceiling fight—automatically sequesters, or reduces, defense spending by $24 billion in 2013 and $51 billion in 2014.
Next, he analyzes why it might be better to suffer through the above-outlined events rather than hash out a deal that Obamacare-esque in its integrity:
Much of the Republican behavior on Capitol Hill has been driven by fear of how the electorate will view Republicans if they don’t continue to pass temporary tax cuts. But reducing the deficit will have to happen sometime, and whenever it happens, it is likely to have some negative impact on the economy. If Republicans don’t want to reduce the deficit two years away from the next election, under a Democratic President and a Democratic Senate, they’ll never reduce the deficit. The time to reduce the deficit is now, before a real fiscal crisis emerges, one that makes Greece look like a picnic.
By leaving town and letting America go over the fiscal cliff, Republicans don’t have to vote for tax hikes that they justly oppose. Economically counterproductive spending, like the unemployment benefit extension, will come to an end. And an enormous amount of irresponsible accounting gimmickry, like the annual wrangling over the Medicare “doc fix,” will end also.
And once Democrats gain their generational victory—returning to the Clinton-era tax rates—what case will they be able to make for even higher tax increases next year? Instead, the conversation will move back to what it always should have been about: the fact that the government spends too much taxpayer money, money it doesn’t have.
In an opinion piece in the Washington Post, Steven Mufson puts forth a novel idea: have the federal government sell its 69% share of its land holdings in Alaska.
Absurd? No more absurd than the spectacle taking place right now as we skid closer to the “fiscal cliff.”
Selling real estate at top dollar is all about timing, and now’s a great time to unload the 49th state. The federal government, which owns 69 percent of Alaska, could cash in on the vast, resource-rich state at a time when oil prices are high and wild salmon is flying off the shelves at Whole Foods. Selling Alaska could fetch at least $2.5 trillion and maybe twice that amount, enough to lop off a huge chunk of the national debt and perhaps as much money as President Obama and House Speaker John Boehner hope to save or raise over the next decade.
The real question is who would be in line to purchase it. The obvious folks would be Russian and China. However, a private individual could assemble the investor funds to make the purchase as well. How about The Donald:
How about an individual buyer? Donald Trump comes to mind. He could advertise on Mount McKinley — or just rebrand it Mount Trump, the highest peak in Trumpistan. He could even issue his own birth certificates to avoid any confusion about the national origin of public officials there. Of course, this 570,640.95-square-mile bauble would be a tad expensive for him, and he’d have to make it a very leveraged buyout, but he’s gambled big before.