Free Markets, Free People

Daily Archives: December 6, 2012


Taxes, Spending, and the Fate of the Republic

The direction the country is taking bothers me. Increasingly, I see little hope for a bright prosperous future. Frankly, things cannot continue going in the direction they’re heading without a disastrous result.

Mark Steyn wrote earlier this week:

Generally speaking, functioning societies make good-faith efforts to raise what they spend, subject to fluctuations in economic fortune: Government spending in Australia is 33.1 percent of GDP, and tax revenues are 27.1 percent. Likewise, government spending in Norway is 46.4 percent, and revenues are 41 percent – a shortfall but in the ballpark. Government spending in the United States is 42.2 percent, but revenues are 24 percent – the widest spending/taxing gulf in any major economy.

This is unsupportable, by any measure, and should be seen to be so by anyone with common sense, irrespective of political party, but apparently is not. And it’s important to recognize that the reason revenues are at a historically high 24% of GDP—the historical average is around 18%—is that GDP growth for the last 4 years has been atrociously bad, and well below the 3% historical trend rate of growth.

In a rational world, we would make a decision to settle on a continuum somewhere between cutting government spending to 24% of GDP, and raising taxes to 42.2% of GDP, which would necessarily imply massive tax increases on the middle and, yes, even the lower class.

At the moment, however, it is impossible to cut spending to 24% of GDP. Not just politically impossible, though that appears to be true also, but I mean impossible impossible. The reason it is impossible is that 24% of current GDP will not cover the cost of mandatory entitlement spending and service on the national debt. More than 62% of government spending is mandatory spending on essentially social security and Medicare. Another 6% is interest on the national debt, and it’s only that low because 1) the Fed has been buying massive amounts of US treasury bonds, and 2) interest rates are historically low.

In other words, 68% of the federal budget is taken up by entitlements and debt service, alone. We could eliminate the entirety of the rest of the federal government and, at current rates of taxation, would still run a deficit.

At the current rate of spending, we can expect to add over $12 trillion dollars in debt over the next decade. To combat this, the president has requested an additional 1.6 trillion in new revenue, which he expects to gain by increasing tax rates on only the upper class. Even assuming, arguendo, that such a taxation plan would actually result in that much additional revenue—which it likely would not—we would still add an additional $10 trillion in debt.

And that, of course, assumes interest rates would not rise from their current low levels. A rise to the historical rates of interest would increase debt service costs from $250 billion per year to $650 billion per year, or approximately 15% of the budget.

Neither Congress nor the President are proposing a serious plan to balance the budget, which would require a politically impossible mix of massive budget/entitlement cuts, and/or massive tax increases on the middle and lower classes.

Absent such a plan, we will inevitably default on our debt, or hyperinflate our way out of it, both of which are merely two sides of the same coin. In either case, the dollar will lose its status as the world’s reserve currency, and the life savings of every single person in the country—except, perhaps, those embodied in some classes of hard asset—will be rendered worthless. There will be massive unemployment, and a high possibility of civil strife. Imported goods will essentially be unobtainable, and I’m not just talking about BMWs and Land Rovers, but everyday things we never even think about, like fresh fruit from Chile in the winter, or clothes from Singapore and Taiwan at any time.

The least damaging course of action would be a massive reduction in government spending. A more damaging course would be a massive increase in taxation. The most damaging course would be to do nothing but nibble at the edges of spending and taxation until we default, either formally, or de facto through hyperinflation. So far, we are set on the third course.

We are set on a path to completely destroy the currency and economic life of the Republic, and we will inevitably do so without massive tax increases, massive spending cuts, or some mixture of the two.

Meanwhile, in Washington, DC, the Fiscal Cliff negotiations—by which I mean "farce"—continue. Personally, I’m a charter member of the Let It Burn club. The Democrats have set up a narrative in which, no matter what happens, Republicans will get the blame. And yet, 18 months ago, what we’re now calling the Fiscal Cliff was unilaterally hailed as a wise, bipartisan, and far-seeing compromise that would set the country on the road to financial rectitude. And quite frankly, the president is giving every indication that he wants to go over the Fiscal Cliff, and that he can weather the political and economic fallout from it.

OK. Then let’s test that theory.

This is not a risk-free strategy. As Ace of Spades points out:

The Walk Away/Let It Burn option is growing on people. One cautionary note, though: This will provoke a serious constitutional crisis and may undo the Republic. So a soft Let it Burn could turn into a genuine collapse of the Republic.

Obama is a tyrant. If Republicans do not lift the debt ceiling, it is perfectly obvious what he will do, as he’s argued for it before: Like Putin, he will begin unilaterally asserting power he doesn’t have.

And what will be the recourse? Court, I suppose. Impeachment, sure, but Democrats will block conviction. So whether or not the President can suddenly assert sweeping power over the purse — sweeping aside the last real check on his power granted to the House of Representatives — will depend on the vote of Justice Go Along to Get Along Roberts.

President Obama has already asked for it. It’s that one exception I mentioned before: He is asking for unilateral power to raise the debt ceiling and no president should ever have that power.

Our constitution is clear that the money bills must originate in the house. Equally clear is the principle of Congressional supremacy, in that Congress may pass laws even over a presidential veto.  The debt ceiling is clearly a Congressional, not a presidential prerogative.

Congress, of course, has already amended the Constitution’s strictures in practice. For instance, the Senate takes House bills, say, for building a dam, and strips the original language, then loads it up with budgetary items. The House accepts them in conference. Additionally, we have operated without a federal budget—though one is required annually by law—since 2009. This is a…constitutional novelty.

But giving unilateral budgetary power to the president goes far beyond novelty. In my view, granting this power to any president will mark the end of the Republic, just as surely as the creation of the First Triumvirate marked the death knell of the Roman Republic.

The American people elected President Obama. It is only right that they should reap the full measure of the consequences of that decision. Ace is right. Going over the Fiscal Cliff may undo the Republic. But if that is true, then I’m entirely unconvinced that the Republic should be saved.

~
Dale Franks
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Christmas tree ban: PC, stupidity or both?

This is a bit odd:

Residents in a Newhall senior apartment complex are protesting an order from management to remove their beloved Christmas tree from the community room because, they were told, it’s a religious symbol.

So, is it a government run facility?

No?

On Tuesday, Tarzana-based JB Partners Group Inc. sent a memo to staff at The Willows senior apartment building demanding they take down Christmas trees and menorahs in communal areas.

The company has owned The Willows for four years, but this is the first time it’s given such a directive to staff.

Ok, what’s the objective then?  Yes, I understand that they own the property and can do pretty much anything they wish, I’m just curious about the ‘why’.

If it isn’t a government facility and the overwrought nonsense that goes on about the separation of church and state, why is a private company demanding that people living in their building and using a common area in the facility refrain from putting up a Christmas tree?

Unless we’re deeply into political correctness and the horrible possibility that it might offend someone?

Ye gods … I swear, we seem to take joy in making life much more difficult than it needs to be at times.

~McQ


Economic Statistics for 6 Dec 12

The following US economic statistics were announced today:

The Bloomberg Consumer Comfort Index eased down -0.8 points to -33.8.

The Census Bureau’s quarterly information services survey reports that rose 0.3% in the 3rd quarter, up 2.1% On a year-over-year basis.

The Challenger Job-Cut Report indicates that November layoff announcements rose to 57,081 from 47,724 in October.

Initial claims for unemployment fell 25,000 last week, to 370,000. The 4-week moving average rose 3,000 to 408,000. Continuing claims fell 100,000 to 3.205 million. The weekly drop is being taken as an indication that all the Hurricane Sandy-related jobless claims have been fully unwound.

~
Dale Franks
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Fiscal cliff: Politicians play “chicken” with your lives and livelyhood

Because we’re served by the worst political class ever:

President Obama’slead negotiator in the “fiscal cliff” talks said the administration is “absolutely” willing to allow the package of deep automatic spending cuts and across-the-board tax hikes to take effect Jan. 1, unless Republicans drop their opposition to higher income tax rates on the wealthy.

Treasury Secretary Timothy Geithner said in an interview with CNBC that both sides are “making a little bit of progress” toward a deal to avert the “cliff” but remain stuck on Obama’s desired rate increase for the top U.S. income-earners.

“There’s no prospect for an agreement that doesn’t involve those rates going up on the top two percent of the wealthiest,” Geithner said.

Apparently there is no way to raise the desired revenue, at least according to Obama/Geithner, that “doesn’t involve those rates going up on the top 2%”.  No way.

Oh, wait …

What we said was give us $1.2 trillion in additional revenues, which could be accomplished without hiking taxes — tax rates, but could simply be accomplished by eliminating loopholes, eliminating some deductions and engaging in a tax reform process that could have lowered rates generally while broadening the base.

Say, wasn’t that President Obama in July of 2011 at a press conference?  Why yes it was.  So there is a way, but he and apparently his “negotiator” refuse to pursue it (btw, no I”m not fooled by the illusion that this isn’t just as much a tax hike as what they’re proposing)?  It that what is happening?

Why yes, yes it is.  So there is another way to do this, apparently.  Unless our President was telling a tall one about what he’d be willing to do in July?  Yeah, I know, perish the thought.  Lie to us?  Unthinkable.

Instead according to Turbo Tax Timmy, they’d “absolutely” take us over the cliff, because, you know, raising taxes on the “rich” is now the only acceptable position.  You and your life?  You’re a mere pawn for these poppinjays.  They’re fine with playing with your life and livelihood to score a political win.   They have no problem holding your life and property ransom and using your future to force their desired resolution.  But if we go over the cliff, screw you.

Meanwhile, in the House, Speaker Boehner continues to look for a comfortable place to lie down and surrender.

In the Senate the GOP actually tried to bring the President’s proposal to a vote and Majority Leader Reid denied it.  Because it was, per Reid, a “stunt”.

This is all a “stunt”.    A miserable stunt perpetrated by a miserable group of people who have no concept of leadership or service to their country but are long on ego and party.

It is the price of always voting for the “lesser of two evils”.

Screw ‘em.

~McQ