December 20, 2012

The Hopeless Fiscal Cliff Negotiations

Filed under: Economy,Soc. Sec. & Retirement,Taxes & Government — Tom @ 9:10 am

Not even a band-aid.

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This column went up at FrontPage Magazine earlier this morning.

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The other-worldly nature of the current discussions and proposals in Washington over addressing the “fiscal cliff” can be seen in a brief look at where the country stands financially.

Through the first two months of the 2013 fiscal year which will end on September 30, 2013, the federal government has already run up a $292 billion deficit. Our overlords of Washington are clearly on track to run up a fifth consecutive full-year shortfall of over $1 trillion. Before fiscal 2008, the highest annual deficit ever recorded was $455 billion.

Federal outlays during October and November of $638 billion were 16 percent higher than during the same two months in 2011, and a breathtaking 52 percent greater than October and November of 2007. Collections in this lukewarm recovery, if you can even call it that, were up by less than 10 percent.

As of Monday, December 17, the national debt was $16.35 trillion, up by over $5.7 trillion in the 35 months since Barack Obama took office. The portion of the national debt known as “debt held by the public,” which is really debt held by any entity which is not part of the U.S. government but includes foreign countries and other foreign holders, made up $5.25 trillion of that amount.

A significant portion of that $5.25 billion is held by Ben Bernanke’s Federal Reserve, which many don’t realize really isn’t a part of the government. Instead, the Fed is a collection of 12 district banks, each of which is “a legally separate corporation that is owned by the commercial banks in its district.” Because they produce no goods or services, the district banks, and the Fed itself, have no inherent ability to repay the Treasury and other securities they have bought from our beyond-profligate government.

Within this dangerous framework, House Speaker John Boehner and President Obama are obsessing over whether taxes should be raised on those with annual incomes of over $1,000,000 — or $400,000, or $250,000, or whatever. Besides the obvious danger that any tax increase on our most productive citizens will slow down an already sluggish, low-growth, under-employing economy, the amounts raised will be a pittance, garnering less than 10 percent of the amount needed to close projected fiscal gaps (I would say “budget gaps,” but the government hasn’t passed a budget in nearly four years).

Where are the spending cuts? Or, more properly framed, where are the reductions in projected future spending? A Wednesday morning Associated Press dispatch on the President’s plans to veto Boehner’s so-called “Plan B” framework reported that the President would veto such a plan if it ever reached his desk — something that in the real world probably wouldn’t happen because Senate Majority Leader Harry Reid wouldn’t let any House bill Obama opposes get that far — because “the deficit reduction that would result from the `Plan B’ approach is minimal and offers no spending cuts.”

You read that right. The people who have brought us trillion-dollar deficits as far as the eye can see are positioning themselves to the right of the hopelessly timid Republican House.

Is Obama’s claim correct? Well, Erick Erickson at RedState writes: “The most significant thing John Boehner’s plan does is absolutely nothing on spending.” A Wednesday morning Wall Street Journal editorial identifies what can only be described as nibbling around the edges of the problem by changing how increases in entitlement spending and taxes are indexed, and tells us that it’s all about continuing with business as usual: “Tax and spending increases now, in return for the promise of spending cuts and tax and entitlement reform later.”

We’re long past the time where business as usual will work. The federal government’s financial condition today is the functional equivalent of a family taking home $27,000 per year, spending $38,000, and carrying over $160,000 in nonmortgage debt. The major difference between the family and our government is that while the family inolved would almost certainly be paying 10 percent or more interest on its outstanding debts, Uncle Sam is for now getting away with paying less than 2 percent. Oh, and Uncle Sam can keep on borrowing, while the family’s lenders would surely have ended any access to additional credit.

Even if the example family just described was paying only only 2% interest on its debts, its finances would still be considered almost beyond repair without major changes. Boehner’s Plan B is the equivalent of the family telling its lenders who wish to force them into bankruptcy that it will “solve” their problem by immediately having one of its members get a one day per month job paying $100 and by cancelling their premium cable channels and lawn service — starting a year from now. Maybe. If they feel like it.

Such a proposal would send lenders straight to bankruptcy court, as it would be obvious that this family isn’t at all serious about taking meaningful action. Boehner’s Plan B isn’t any better, and promises to send the credit rating agencies scrambling to see who can lower the federal government’s credit rating first.

Don’t get me wrong, what Obama and his party want — don’t touch Social Security, don’t touch Medicare, and don’t touch any other entitlements — isn’t serious either. But the fact that he can credibly claim that his “solutions” do more that Boehner’s Plan B shows how badly the Speaker has failed.

No wonder genuine conservatives are in open revolt. They should be.

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