Free Markets, Free People

sequestration


So what would happen if Dems got all they want?

California, of course:

“The California Republican Party is functionally dead. And how is California doing, now that liberals have successfully terminated the state’s remaining conservatives?” #1 in debt, #1 in welfare, #1 in taxing the rich. And hoping for a federal bailout, I suspect. As is Illinois, which is in similar straits for similar reasons. “One-third of all the nation’s welfare recipients live in the state, despite the fact that California has only one-eighth of the country’s population. That’s four times as many as the next-highest welfare population, which is New York. Meanwhile, California eighth-graders finished ahead of only Mississippi and District of Columbia students on reading and math test scores in 2011.”

You can warn people till you’re blue in the face (no pun intended) how the blue state model is going to end up, but sometimes it is instructive to just let it happen.  Of course that assumes that those observing the train wreck try to understand how it happened and work to avoid it elsewhere.  I’m not so sure that’s the case in this nation.  But fair warning, given the fiscal road we’re on California is as much in our future as Greece:

“For a century or so, guided by brilliant private sector leadership, California was a beacon to the world, a land of opportunity such as never had existed in human history. Unimaginable wealth was created. Yet it required only 40 years of liberal governance to bring the whole thing crashing down. Today, California is the most spectacular failure of our time. Its government is broke. Productive citizens have been fleeing for some years now, selling their homes at inflated prices (until recently) and moving to Colorado, Arizona, Texas and even Minnesota, like one of my neighbors. The results of California’s improvident liberalism have been tragically easy to predict: absurd public sector wage and benefit packages, a declining tax base, surging welfare enrollment, falling economic production, ever-increasing deficits. Soon, California politicians will be looking to less glamorous states for bailout money. Things have now devolved to the point where California leads the nation in poverty.”

California is a state which has modeled blue government for decades, despite warning of where it’s continuance would lead.

And, shockingly to the left, it has ended up right where it was predicted it would end up.  Yet, they blindly and willfully continue to march along as though the reality will change and economic laws will disprove themselves if they just persist in their actions.

California is our future.  Our near future.  See, it’s pretty much as simple as this:

If a country runs a deficit (as a percentage of GDP) that is equal to its growth rate, the debt level will remain constant. This year U.S. GDP will be a little less than $16 trillion, and its historical growth rate is 3.25%. That works out to what we might call a “safe” deficit of $520 billion, or even $600 billion if you allow for a little inflation. Last year, however, the U.S. deficit was $1.1 trillion — or roughly $500 billion too much.

That gap could be closed by ending all tax cuts, tax breaks and stimulus payments for everyone, according to the Tax Policy Center. But two-thirds of the burden would fall on the middle class — something both political parties want to avoid. All the proposed tax increases on the wealthy, however, even combined with the end of the payroll-tax cut, would raise only $295 billion. So unless there were spending cuts twice as big as the ones currently scheduled, the deficit would still be too large.

Those sorts of cuts aren’t even being discussed.  Imagine, if you would, radical cuts in the size and scope of our current federal government.  Imagine subsidies of all sorts being eliminated.  Imagine backing government out of many of the areas it has no business.  Imagine simplifying the tax code and giving business a warm fuzzy feeling about the business atmosphere by freezing regulation and in some instances rolling them back.  Imagine all of that, because none of it is going to be done.

Instead, the solution is to “tax the rich”.

So let ‘em have it (only if they repeal the Hollywood tax cut).  Tax the rich.  And when it doesn’t work, and it won’t (in fact, I’m not sure what “work” means in this particular case since the amount to be collected is a mere drop in a 1.6 trillion dollar ocean of debt that’s planned each year for the foreseeable future), they’re left with a lot fewer excuses, huh?

Not that they won’t try to point fingers when their grand plan crashes.

Yup, in the end it all looks like we’re headed to California.  Apparently we’re going to have to recreate that debacle on a national level before the blinders come off of the public and the realization that you can’t spend more than you have forever finally sinks in.

Whether or not it will too late to salvage the country at that point, remains to be seen.

~McQ


Remember Taxmageddon? It’ll make Sandy look like a tropical storm

The basics:

A horrifying combination of expiring pro-growth tax policies from 2001 and 2003, the end of the once-temporary payroll tax cut, and just a few of Obamacare’s 18 new tax hikes, Taxmageddon will be the largest tax increase EVER to hit Americans. It’s nearly $500 billion in one year, starting January 1. That’s two months away.

What that means per person:

  • Families with an average income of $70,662: tax increase of $4,138
  • Baby boomers with an average income of $95,099: tax increase of $4,223
  • Low-income workers with an average income of $24,757: tax increase of $1,207
  • Millennials with an average income of $23,917: tax increase of $1,099
  • Retirees with an average income of $42,553: tax increase of $857
  • One result you can count on:

    The businesses that would pay the higher tax rates proposed by President Obama earn almost all the income earned by small businesses that employ workers. According to President Obama’s own Treasury Department, these job creators earn 91 percent of the income earned by flow-through employer-businesses. These are the biggest, most successful small businesses. They employ more than half the private workforce, according to an Ernst and Young study. Raising their taxes would destroy more than 700,000 jobs.

    Meanwhile the guy in charge?  Well he’s got other things on his mind:

    It is worth recollecting the array of attacks from the Obama camp that failed to carry the day. Romney’s approval rating is now higher than Obama’s and the Obama team tried portraying Romney as: 1) the “vulture” capitalist; 2) a tax evader and/or a felon for signing (or not signing) Bain documents after he left to run the Olympics; 3) killer of Joe Soptic’s wife; 4) outsourcer of jobs to China; 5) determined to take contraception away from women; 6) ready to give a tax cut to the rich and hike middle-class taxes; 7) egging on the auto industry’s demise; 8) willing to throw granny over the cliff on Medicare; 9) President George W. Bush’s political twin; and 10) Big Bird terminator.

    Taxmageddon?  Yeah, not so much.  Romeny wants that, apparently.  No mention of the 18 ObamaCare taxes by our man.  Wonder why?  Jobs?  See result of Taxmageddon.  But he’ll tell you he’s focused like a laser beam.  Or is that Uncle Joe’s job?  Sequestration?  What’s that?

    He does have a shiny new booklet out that he calls “a plan”.  Nothing new, but lots of pictures.

    No sweat though … after the 700,000 jobs are destroyed, he’ll talk some more about a “Department of Business”, okay?

    ~McQ


    US economic policy – point fingers and hope the other guy gets blamed

    Via Charlie Cook, some things you most likely know:

    First, there’s Europe and the eurozone. It’s possible that the situation could be worse in Greece, but not that much worse. There’s a pretty good chance that country will be exiting the eurozone soon, but either way, Greece is putting enormous stress on its economy. Then there’s Spain, which has an economy larger than Greece, also in trouble. With Europe teetering on the edge of recession, there are limits to how much even Germany can do to keep the eurozone—now the world’s largest single economy—from going into a serious tailspin. Europe contributes 21 percent of global economic growth, so there is rather obvious significance for the U.S.

    And something you might be somewhat aware of:

    Then, there is China, whose economy is slowing. Acknowledging the problem, the Chinese government just announced that it was placing greater emphasis on economic growth. Its central bank is expected to lower rates soon. It’s unlikely that China will go into a recession, but don’t expect purchases of U.S. goods there to match those of the last few years.

    Key point in last sentence.  We may buy a lot of stuff there, but we also sell a lot of stuff to China.  And, our other major trading partner is what?  The Eurozone.  So what Cook is pointing out is the real possibility of a major slowdown and the problem that would present for a fragile US economy at, if you’re a Democrat, exactly the wrong time.

    So Cook lays this out for your consideration.  And while you may not agree with everything, read it through:

    But it’s the fragile nature of America’s own economy—and questions about whether our political process is capable of coping with immediate and simultaneous challenges—that make things so much worse. The Federal Reserve Board has acted heroically to pump up the economy. As the International Strategy and Investment Group reports, the Fed’s efforts put the trade-weighted dollar at close to a record low, making it almost as competitive as it ever has been. But a weak world economy still limits the U.S. advantage to sell.

    The term “fiscal cliff” has been rapidly entering the economic lexicon. People using the phrase may not know exactly what is scheduled to happen at the end of this year. Probably more than anything else, though, they may know that the George W. Bush-era income-tax cuts will be eliminated both for earners above and below the $250,000 level if not renewed by Dec. 31. They also may know that some significant spending cuts will automatically be made, unless Congress takes action, that will cut defense and nondefense funding pretty much evenly. Of course, Social Security, Medicare, and Medicaid, the real drivers in the increase of federal spending, are exempted from those cuts.

    A few may even know that  the capital gains tax rates will go up unless Congress acts. According to ISI Group, the top rate on dividends would almost triple, going from 15 percent to 43.4 percent. Andy Laperriere, who heads up the ISI shop, said understatedly in a report to his clients, “We find investors to be interested in the many facets of the fiscal cliff, but we don’t believe investors have repositioned their portfolios yet. We suspect that will change late this summer and into the fall as investors begin to focus on the outlook for next year.”

    Call me simple, but I think that means that people will start dumping their stocks.

    Bingo.  He calls it a “fiscal cliff”.  I’d characterize it as a fiscal trainwreck.  Dale might bring up the red kangaroo and point to the fact that none of this is a surprise – we’ve been able to see it coming for miles.  And, as is the nature of politics and government, at least in this country, to date nothing of any significance has been done to address it.  Nothing.

    The result, at least to now:

    The danger, of course, is another stalemate over taxes and spending, but bigger this time. Policy moves that collectively could take an estimated 3.5 percentage-point bite out of the U.S. Gross Domestic Product are scheduled to kick in at the start of next year, hitting a very fragile economy. And let’s not forget the threat of another debt-ceiling showdown. We have the ingredients for enough economic uncertainty that it would be bizarre if many large companies and financial institutions didn’t freeze hiring, expansion, investing, borrowing, and lending. Individual investors would also probably head for the exits.

    Sequestration, taxmageddon, the debt ceiling, a global economic slowdown, etc.  All looming large.  And about all that is happening is finger pointing.  If you wonder why business isn’t expanding, hiring and reviving the economy, look at this mess and wonder no more.  It’s because of policy – government policy.  Or the lack thereof.

    Cook, naturally, tries to pass it off to the Republican House.  But let’s get real here.  All of this – all of it – could have been addressed in the first two years of Obama’s presidency when he had a fully Democratic Congress and told us he was focused like a laser on the economy.  But in reality he ducked it for ObamaCare.  He was more concerned about his legacy than the country’s economic problems.  And now, after the Democrats were spanked by the electorate in 2010 for their economic inattention, he’s stuck with having to compromise, something he’s refused to do to this point.

    So yeah, the Charlie Cooks of the world will be spinning this as Republican obstruction – that’s a sort of knee jerk position for the left – but in fact, this is malfeasance by the Democrats and the President.  Their opportunity came and went and they did basically nothing.  The usual cure was tried – throwing trillions of debt ridden dollars at the problem – and it didn’t work.  Now they have this fiscal trainwreck coming and their solution is?

    Blame the other guys.

    But as we’ve been pointing out here, reality is reality.  And it is about to visit the finger-pointers in a big way.

    Forward.

    ~McQ

    Twitter: @McQandO


    HASC Republicans: A common sense solution to sequestration and national defense

    The DoD is presently working through a half trillion dollars in budget cuts mandated by Barack Obama which is going to see a much weaker military despite what any of the madly spinning politicians claim. 

    But the real meat axe is hanging just over the horizon in what is known as “sequestration” cuts, i.e. cuts which will be made across the board because the debit committee was unable to reach a deal on the cuts in the budget (by the way, Harry Reid, it’s now been 1001 days since you, Mr. Majority Leader, passed a budget out of the Senate) for the future.   That would mean an additional half trillion in cuts to DoD, the result of which, would simply be disastrous to our national security.

    Here, in this video, a group of Republican House Armed Services Committee members make a pitch for a common sense solution that would absorb the need for those sequestration cuts.  In short, cut the Federal workforce by 10% – but do it over time and strictly through attrition.

    Someone, anyone, tell me we couldn’t get along without 10% of the Federal workforce:

    ~McQ

    Twitter: @McQandO


    Supercommittee failure

    Question: is anyone – and I mean anyone – somehow surprised that the Supercommittee failed?

    Seriously?  Is there anyone who actually thought that this collection of ideologically loyal representatives handpicked by leaders on each side was ever going to compromise and try to work something out?

    I’m not suggesting that compromise was the right or best thing to do – I’m simply asking a question about the make up of the committee and how anyone who knows anything about how Washington DC works could have or would have expected success.

    And, as Michael said in the podcast, there was no incentive for them to succeed.  There was every incentive to do exactly what happened, fail to reach any sort of consensus.

    So, as Jim Geraghty quips in today’s Morning Jolt, they now get back to what they do best:

    After the Supercommittee, Congress returns to its core competency: finger-pointing

    And we will certainly see much of that in the next few weeks.  Already some in the media are trying to spin it a certain way.

    The imminent failure of the congressional deficit “supercommittee,” which had a chance to settle the nation’s tax policy for the next decade, would thrust the much-contested Bush tax cuts into the forefront of next year’s presidential campaign.

    Why do I consider that “spin”?  Because the “much-contested Bush tax cuts” are simply the current tax rate, nothing more.   Tax rates have changed over the many years of income taxation and never has one rate, which has been in effect for years, been referred too as a “tax cut”.  They certainly didn’t refer to tax increases under Bill Clinton as the “much-contested Clinton tax increases” did they?

    No, they were simply the new tax rates.

    So as with many things, the media has bought into the description that one side has put out there to keep attention focused in a negative way on the so-called “rich”. Rarely do they point out the amount of the total taxes these “rich” pay when they parrot the politicians call for the rich to pay their “fair share”.  Nor do they bother to point out that even if the “rich” pay 100% of their earnings in taxes it won’t solve the deficit problem.

    Presented as the unchallenged panacea to all that is wrong is this tax increase.

    Note what isn’t mentioned.  Spending.  In fact, we’ve quietly slipped past $15 trillion cumulative national debt in the last week.  That means that in less than a year, another trillion in spending borrowed money has occurred.  We’ve now managed to run up a debt equal to 100% of our nation’s GDP.

    That should be what we’re talking about in the 2012 presidential campaign.  How we managed in 3 short years to push the debt from $9 trillion to $15 trillion.  It certainly wasn’t the “rich” who did that, nor would increasing taxes on them have stopped it.

    While at some point revenue increases may end up being something the Congress will discuss, the problem to this point remains the fact that Congress has done absolutely nothing to stem the red ink that keeps running our national debt through the roof.

    And the sequestration cuts supposedly triggered by the failure of the Supercommittee take place when?  2013 of course.  After the election and when a new Congress, which can’t be held to the cuts made by a former Congress, comes into existence.

    In reality, this is nothing more than a new fangled way for our politicians to kick the can down the road while they squabble about something which really has no bearing and would have little effect on the primary problem: out-of-control spending.

    ~McQ

    Twitter: @McQandO


    Public opposes further defense cuts which may jeopardize national security

    As the Supercommittee’s deadline quickly approaches and their ability to reach an agreement diminishes, a new Battleground poll reveals the public’s strong opposition to more defense cuts.  Already under the gun to make $450 billion in cuts, the failure of the Supercommittee to reach agreement would mean additional across the board cuts in all areas of the Department of Defense.

    When asked for their opinion about further cuts, 82% were strongly or somewhat opposed to those cuts (59% strongly opposed).

    There is, it appears, a dawning realization that we as a country are again about to put ourselves in serious trouble if we don’t maintain our military edge that has served us so well since WWII.

    Recently, in a reply to an inquiry into the effects of the across the board cuts that will be mandated by a Supercommittee failure, Senators McCain and Graham asked Secretary of Defense Leon Panetta to detail them.   In his reply he noted some very disturbing results of further cuts.  The mandated cuts would amount to about an additional 20%.  According to Secretary Panetta, that sort of reduction would mean major weapons systems, designed to ensure our national security for decades to come, would have to be cut:

    •         Reductions at this level would lead to:

              o         The smallest ground force since 1940.

              o         A fleet of fewer than 230 ships, the smallest level since 1915.

              o         The smallest tactical fighter force in the history of the Air Force.

    All exceedingly dangerous developments.  All developments which would limit our ability to respond to a national security crisis and certainly effect our ability to deal with more than one.  Reducing our levels to those cited by Panetta would be extraordinarily short-sighted.

    For instance, reducing our tactical Air Force to record levels puts one of our major force projection (along with the Navy) means in a position of not being able to fulfill that role.   Today the tactical airframes our pilots fly are decades old and worn out.   They’ve reached the end of their service life.  It is critical that the next generation of fighters continue to be developed and fielded.  In a letter to Rep. Randy Forbes, 7 retired Air Force generals of the Air Force Association outline the risk:

    The Air Force now finds itself in a situation where another acquisition deferment will lead to the eventual cessation of key missions. Accordingly, while the recapitalization list is generally considered in terms of systems, it really comes down to a question of what capabilities the nation wants to preserve. Does the United States want to retain the capacity to engage in missions like stemming nuclear proliferation, managing the rise of near-peer competitors, and defending the homeland?

    Leaders need to fully consider the ramifications of the decisions they make today as they seek to guide our nation through this difficult period. Just as our legacy fleet has enabled national policy objectives over the past several decades, our future investments will govern the options available to leaders into the 2030s and 2040s. Investing in capable systems will make the difference between success and failure in future wars and between life and death for those who answer the call to serve our nation. When viewed in those terms, failing to adequately invest in the Air Force would be the decision that proves "too expensive" for our nation.

    Those two paragraphs outline the criticality of the need for continuing to fund the weapons systems of the future.   We may be able to get away with not doing so right now, but we guarantee that our options will be severely limited and our national security capabilities degraded significantly 20 to 30 years down the road if we do so today.

    And there’s another reason to resist the temptation to make further cuts at DoD that is particularly significant at this time.  Professor Stephan Fuller of George Mason University testified before the House Armed Services Committee that the cancellation of weapons systems would have a profound negative effect on both the economy and unemployment such as:

    – A loss of 1,006,315 jobs (124,428 direct, 881,887 indirect)

    – Raise the unemployment rate by .6% (9% to 9.6%)

    – Drop GDP growth by $86.46 billion (25% of the projected growth in 2013)

    No one is arguing that DoD is or should be a jobs program.  But it is obvious the impact would be severe not only among DoD prime contractors but even more so downstream.  Ironically, one of the reasons our politicians justified their bailout of the auto industry was downstream job losses in a time of economic turmoil.  That turmoil still exists today.

    If the cited poll is any indicator, the public has come to realize the dangerous waters we’re navigating with these possible cuts.   They’re realizing that what guarantees our peace is our strength and our strength is maintained by keeping the technological edge over potential enemies and developing weapons systems to deploy that technology.  Without that ability to guarantee our national security, all the other things we treasure are jeopardized.  Additionally, our military demise will only encourage the bad actors in the world to increase activities which are detrimental to both peace and our national security.

    While it is certainly a time to look for all legitimate means and methods to cut government spending, sequestration as demanded by the Supercommittee’s failure to reach agreement isn’t one of them.  Mindless cuts into that which guarantees our safety today and in the future will come back to haunt us if we allow them.

    ~McQ

    Twitter: @McQandO

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