Bruce Bartlett takes a look at Britain’s experience and a study that documents it and concludes the same is probably true for here:
The study concluded that the behavioral effect of raising the top rate was much more powerful than anticipated. Two factors in particular had a large effect on revenues.
There was a timing effect. People moved income that they anticipated receiving forward so it would be taxed before the new higher rate took effect. They also postponed the receipt of income into the future in anticipation of a change in the tax rate after the election of a new government.
Also, because the British top rate had increased above that in all other major countries except Japan, many Britons relocated in reaction. For example, 1,379 people in high-income occupations moved to Switzerland in 2010, a 29 percent increase over the previous year.
The point, of course, is those who fall in the bracket in which the tax is increased are going to do what is necessary to minimize the impact of that tax.
Human nature 101. Consequently, the revenue projections are almost always high – and wrong.
Additionally, the Democrats like to imply that taxing the rich is a panacea for the spending problems we have. In the name of “fairness” they imply that if the rich would only pay their “fair share” well everything would be hunky dory. Of course we know the real problem is spending not revenue. But regardless, the real effect of the “Buffet Rule” for instance, is negligible:
But a March 20 analysis from Congress’s Joint Committee on Taxation estimates that implementation of the so-called Buffett rule, which would require those making $1 million or more a year to pay an effective federal income tax rate of at least 30 percent, would raise only $46.7 billion over the next 10 years. That’s a drop in the bucket compared with the $41.2 trillion in federal revenues expected to be collected under current law.
Note that last number and remember, this is a government which is claiming that it can’t get by on $41.2 TRILLION over 10 years.
Where again is the problem?
In case all this contraception talk has distracted you (as it surely was intended to do), you need to know that the deficit continues to grow and is on pace to go over a trillion dollars for the 4th year in a row:
The federal government set a new monthly record deficit of $232 billion in February and has notched a total of $581 billion in the first five months of the fiscal year, according to the Treasury Department’s official count released Monday.
February’s record is $8 billion more than the previous monthly record, set in February 2011, and came chiefly because of a drop in individual income tax receipts.
The overall deficit remains on pace to top $1 trillion this year for the fourth year in a row — but is down slightly from its pace last year …
Sorry to intrude with such boring reality.
Now back to “slutgate”.
Despite what Democrats thing and despite the fact that they’ve doubled down on this theme, the “tax the rich” meme of their class warfare agenda isn’t at all as popular as they think it is, as the Hill reports:
Three-quarters of likely voters believe the nation’s top earners should pay lower, not higher, tax rates, according to a new poll for The Hill.
The big majority opted for a lower tax bill when asked to choose specific rates; precisely 75 percent said the right level for top earners was 30 percent or below.
The current rate for top earners is 35 percent. Only 4 percent thought it was appropriate to take 40 percent, which is approximately the level that President Obama is seeking from January 2013 onward.
So this is another issue in which the GOP would be able to find majority support.
And on corporate taxes, much the same thing:
The Hill Poll also found that 73 percent of likely voters believe corporations should pay a lower rate than the current 35 percent, as both the White House and Republicans push plans to lower rates.
The Hill tires to argue that the results of their poll is counter to what other recent polls have found. But in reality, it isn’t:
The new data seem to run counter to several polls that have found support for raising taxes on high-income earners. In an Associated Press-GfK poll released Friday, 65 percent said they favored President Obama’s “Buffett Rule” that millionaires should pay at least 30 percent of their income. And a Pew poll conducted in June found 66 percent of adults favored raising taxes on those making more than $250,000 as a way to tackle the deficit.
Again, note the percentage number in the AP-GfK poll – 30 percent or the percentage they’re now paying. When you ask voters to put a percentage to the nebulous “the rich should pay more” meme, you find the majority of voters consider 30% more than fair. The fact that many may not know that the so-called “rich” are paying that amount is means the GOP needs to do a little educating and informing, but it is clear that voters find the 30% threshold to be more than enough taxation.
So while the Democrats continue to try to push 40% as “fair”, most voters don’t see it as that. The majority of votes seem to think that fairness in the amount of taxes paid is found at the 30% level. That’s information to exploit and use against the class warfare Democrats.
Additionally the AP-Gfk polls shows majority support for spending cuts over tax increases. That’s a winner for the GOP.
What the GOP can’t do is allow the Democrats to take the issue and frame it as Timothy Geithner tired to do the other day:
“…the only way to achieve fiscal sustainability is through unacceptably deep cuts in benefits for middle class seniors, or unacceptably deep cuts in national security."
That’s patent nonsense, but the usual scare tactics employed when anyone talks about significant cuts in spending. Always threaten the security of a large body of voters with false choices. There are literally thousands of different ways to work toward sustainability before either of those programs would have to be touched (and yes, those programs should be “touched” as well).
So what do Republicans have to do?
“It might be that people are underestimating how much the rich pay now,” said Bruce Bartlett, a former Reagan adviser and Treasury official under President George H.W. Bush.
The data could indicate a challenge to Obama’s push to increase taxes on the wealthy. The White House’s fiscal 2013 budget request included a number of tax hikes targeting the nation’s wealthiest. In addition to the “Buffett Rule,” it calls for raising taxes on family income above $250,000 in 2013, and returning the top individual rate to 39.6 percent.
But as Obama continues his push to allow the higher-end Bush tax cuts to expire at the end of the year, the poll suggests it might be difficult to persuade voters to buy in when it comes to hard numbers.
Start talking hard numbers and percentages. Point out that our problem doesn’t revolve around the “rich” not paying enough in taxes, but instead with our politicians spending money we don’t have.
The sustainability problem has never been a problem of revenue. It has always been a problem of overspending. And it is that which has to stop.
Speaking of the record compiled under the Obama administration, the CBO provides plenty of ammo for the GOP:
The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.
The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.
That’s because it has revised its previous estimate as the GDP growth numbers for last year were revised down.
Additionally, and reading between the lines, it also means that the administration and Congress has yet to even begin to get a handle on the main problem – spending.
Of course part of that stands to reason when you take into consideration the Democratic controlled Senate hasn’t passed a budget in over 1,000 days.
The Hill, ever the master of understatement, gives you a peek at what should be obvious:
A rising deficit and unemployment rate would hamper President Obama’s reelection effort, which in recent weeks has seemed to be on stronger footing.
“Hamper"?” It should put it in the crapper. Or so you would think. But then there’s the GOP primary going on, huh?
CBO Director Doug Elmendorf told reporters that Congress will have to make important choices this year regarding the supercommittee trigger and tax policy that will have huge effects on the deficit.
While unable to recommend choices, Elmendorf said that addressing the deficit sooner rather than later is easier.
The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.
Well, of course addressing the deficit sooner rather than later is a lot easier. Haven’t we been saying that for years? Decades?
Anyone think it will be addressed in this next year? Consider what the CBO recommends:
The deficit will be much higher if Congress takes several actions that many expect.
If the Bush tax rates are extended, for example, the deficit would rise.
It would rise if Congress patches the Alternative Minimum Tax, which lawmakers have routinely done to prevent higher taxes from being imposed on middle class taxpayers.
It would also rise if Congress continues to pass the “doc fix” that prevents a cut to Medicare payments to doctors, something that Congress has done on a near-annual basis.
Finally, if Congress does not follow through on cuts mandated by the failure of the supercommittee, the deficit will grow. Lawmakers are already talking about canceling scheduled cuts to the Pentagon’s budget.
So, let’s see – raise taxes, lower taxes, subsidize and cut spending. Or is that last one, cut projected spending?
The “doc fix”, unless passed, will see Doctors leave Medicare in droves. I certainly would if I were in their shoes. Any guesses how that turns out?
And while the Democrats only want the “rich” to pay higher taxes, if the current tax rates (also known as the “Bush tax cut”) are allowed to revert to their prior percentages, taxes will increase 30% on everyone by 2014. Catch 22?
The amount of money the federal government takes out of the U.S. economy in taxes will increase by more than 30 percent between 2012 and 2014, according to the Budget and Economic Outlook published today by the CBO.
At the same time, according to CBO, the economy will remain sluggish, partly because of higher taxes.
You don’t say? Stupid if you do, damned if you don’t? Nice position we’ve gotten ourselves in, no?
And finally, sequestration will “cut” 10% across the board, to include defense which has already taken that sort of a cut. Dangerous.
However, for the rest of the government, I expect the usual accounting tricks with no real cuts in spending if sequestration is enacted.
As for taxes increasing, the increase is fairly dramatic at a time the economy can’t absorb such increases:
The anticipated percentage increase in federal tax revenue is not only large when calculated in dollar terms but also when calculated as a share of GDP. The jump from 15.4 percent of GDP in fiscal 2011 to 20.0 percent of GDP in fiscal 2014 equals an increase of 29.8 percent. The jump from 16.3 percent in fiscal 2012 to 20.0 percent in fiscal 2014 equals an increase over two years of 22.7 percent.
Federal tax revenues have averaged “about 18 percent of GDP for the past 40 years,” according to CBO. So, in the next two years federal tax revenues will rise from a level that is below the modern historical average to a level that is above it.
Again I’m reduced to saying “what a freakin’ mess”. When I say over and over again, “we’ve been ill served by our political class for decades”, it is this to which I point.
Yes, all of this and the never mentioned additional 200 plus trillion in unfunded future mandated liabilities that have been amassed.
That is certainly the premise at work in Davos as “political and economic elite”, who’ve served us so well to this point, meet to
plot discuss modifications to capitalism.
Economic and political elites meeting this week at the Swiss resort of Davos will be asked to urgently find ways to reform a capitalist system that has been described as "outdated and crumbling."
"We have a general morality gap, we are over-leveraged, we have neglected to invest in the future, we have undermined social coherence, and we are in danger of completely losing the confidence of future generations," said Klaus Schwab, host and founder of the annual World Economic Forum.
"Solving problems in the context of outdated and crumbling models will only dig us deeper into the hole.
"We are in an era of profound change that urgently requires new ways of thinking instead of more business-as-usual," the 73-year-old said, adding that "capitalism in its current form, has no place in the world around us."
Show me “capitalism” at work somewhere, please? Social welfare, in its current form, driven by high taxation and deficit government spending, is what “has no place in the world around us”.
The dirty little secret these “elite” won’t admit was that their premise that capitalism could forever fund their social welfare states is absolutely wrong and failing. They’ve killed the goose that laid the golden capitalistic eggs. It isn’t “capitalism” that is failing. It is their social welfare system that is “outdated and crumbling”.
These are just the same people who got us into this mess trying to shift the blame from unsustainable policies founded in socialism to something which has kept their socialist utopias functioning for more years than they would have had it not been there.
And we should also be precise about what it is that has kept them stumbling along this long … a mixed economy, not capitalism. A mixed economy which has featured less and less capitalism as the years have gone by. Capitalism in its defined form exists in few, if any places in this world.
Margret Thatcher’s warning that the only thing wrong with socialism is you eventually run out of other people’s money has come true … again. The agony was only prolonged because some free market mechanisms were left to at least partially function over all these decades that the Europeans (and now Americans) were constructing their little social welfare houses of cards. The elite simply refuse to see that reality and now seek another target to which they can shift the blame. The ultimate in “can kicking”.
The eurozone’s failure to get a grip on its debt crisis and the spectre this is casting over the global economy will dominate discussions.
"The main issue would be the preoccupation with the global economy. There will be relatively less conversation about social responsibility and environment issues — those tend to come to the fore when the economy is doing well," John Quelch, dean of the China European International Business School, told AFP.
"The main conversation will be about a deficit of leadership in Europe as a prime problem," he added.
The deficit in leadership isn’t just found in Europe. It is found worldwide. And it isn’t a deficit of leadership from capitalists, but instead a deficit of leadership within the ranks of the political elite. They continue to do or try to do the same things that have gotten us into this mess and expect different outcome. We all know how Einstein defined such activity.
It is interesting to note, too, that the Euro elite are now ready to pitch “social responsibility (however they define that – does that mean the welfare state?) and environmental issues” over the side.
But, in fact, it is more than just that which they should be considering abandoning. The problems they face do not find their root in a capitalist system or within capitalism itself. In fact, capitalism could be their savior, if they only gave it an opportunity.
However, they’d also have to abandon most of the social welfare state to do so.
No, their primary problem is to be found with the institution that has attempted to control their economies and which constantly gets in the way of any capitalistic successes in the name of social justice.
Government. And more to the point, government spending driven by high taxes and borrowing. It requires a deficit in intelligence not to understand that.
In essence Davos will be the elite – the social welfare elite – trying their hardest to shift blame on a system they’ve done the most to try to kill over the decades (even while using it to extend the life of their social welfare states).
Controlling government, taxation that provides disincentives to business, labor rules that prohibit firing bad employees, mandated early retirement and generous welfare benefits are not the problem of capitalism.
They are the problem of large, intrusive and socialist leaning governments.
But, apparently, that won’t be a part of the discussion in Davos.
This out of control.
Obviously what I’m about to list isn’t going to make or break us as a nation in terms of monetary outlay. Each taken individually is but a drop in the sea of $16 trillion dollar debt we now float in. But the fact remains that each is an indicator of why we’re in that deep of a hole. Each points to another area where government has no business, especially spending taxpayer, or more likely borrowed money. Or it points to an expenditure not made on its reasoned merits, but on bureaucratic inertia, lack of control or monitoring or any of a great number of reasons the payment shouldn’t have been made. Doug Bandow provides us with the list.
Now, on with the show:
~The U.S. Agency for International Development (U.S. AID) spent $30 million to spur mango production and sales in Pakistan—and failed utterly.
Yup, mango production … in Pakistan.
~The Air Force spent $14 million to switch three radar stations to wind power; poor planning forced cancellation of one turbine and consideration of the same for the other two.
Because we all know windpower is proven and reliable.
~The Federal Aviation Administration devoted $6 million to subsidize air service at small, underused airports.
Market smarket … we’ll just create one. Until the money runs out, of course.
~A federal grant for $765,828 went to—I am not making this up, to quote Dave Barry—bring an International House of Pancakes franchise to Washington, D.C.
Because bringing IHOPs to DC is a primary function of the United States government and worthy of every dollar spent.
~The Department for Housing and Urban Development (HUD) provided a $484,000 grant to build a “Mellow Mushroom Pizza Bakers” restaurant in Texas.
Because it is not the market’s job to decide what restaurants should exist in a certain area, it’s the job of government.
~Another HUD grant, this one for $1 million, went to a foreign architectural firm to move its headquarters from Santa Monica to Los Angeles.
Because we knew you’d want us to do it. You need to move? Tough cookies.
~NIH gave the University of Kentucky $175,587 to study the impact of cocaine on the sex drive of Japanese quail.
Because we’re sure Japanese quail are the next target of drug dealers. Or something. But this is important … important enough to up the debt over and don’t you forget it.
~The Federal Highway Administration (FHA) gave $916,567 to underwrite horse-drawn carriage exhibits and survey shipwrecks in Wisconsin.
Because, well, we couldn’t think of anything else to do with the money.
~The Oregon Cheese Guild received $50,400 to promote cheese.
Because obviously the Oregon Cheese Guild wouldn’t be able to promote cheese without this.
~Uncle Sam spent $111,000 to send brewery experts to conduct classes in China.
Because the folks making Tsing Tao obviously couldn’t handle that.
~The ever busy NSF devoted $300,000 to developing a dance program to illustrate the origins of matter.
Because without it … oh nevermind.
And my personal favorite:
~Washington helpfully gave almost $18 million in foreign aid to China—money effectively borrowed from China.
The circle is complete. Borrowing money to give money back to the entity from which we borrowed it while still owing the balance.
Your government at work. Be sure to read the rest of the top 100 wastes of money that Sen. Tom Coburn has helpfully put together. And remember. They’re the top 100. There are plenty more than just didn’t make the cut.
It appears so. CBS News’ Sharyl Attkisson (yes the same Ms. Attkisson who has been the only reporter following up on Fast and Furious) has checked and it seems Solyndra was just one of many “green companies” which the Obama administration attempted to pick as “winners” by “investing” your money via loan guarantees:
Take Beacon Power — a green energy storage company. We were surprised to learn exactly what the Energy Department knew before committing $43 million of your tax dollars.
Documents obtained by CBS News show Standard and Poor’s had confidentially given the project a dismal outlook of "CCC-plus."
Asked whether he’d put his personal money into Beacon, economist Peter Morici replied, "Not on purpose."
"It’s, it is a junk bond," Morici said. "But it’s not even a good junk bond. It’s well below investment grade."
Was the Energy Department investing tax dollars in something that’s not even a good junk bond? Morici says yes.
"This level of bond has about a 70 percent chance of failing in the long term," he said.
In fact, Beacon did go bankrupt two months ago and it’s unclear whether taxpayers will get all their money back. And the feds made other loans when public documents indicate they should have known they could be throwing good money after bad.
That’s one. But there are more:
Others are also struggling with potential problems. Nevada Geothermal — a home state project personally endorsed by Senate Majority Leader Harry Reid – warns of multiple potential defaults in new SEC filings reviewed by CBS News. It was already having trouble paying the bills when it received $98.5 million in Energy Department loan guarantees.
SunPower landed a deal linked to a $1.2 billion loan guarantee last fall, after a French oil company took it over. On its last financial statement, SunPower owed more than it was worth. On its last financial statement, SunPower owed more than it was worth. SunPower’s role is to design, build and initially operate and maintain the California Valley Solar Ranch Project that’s the subject of the loan guarantee.
First Solar was the biggest S&P 500 loser in 2011 and its CEO was cut loose – even as taxpayers were forced to back a whopping $3 billion in company loans.
Anyone – does the Constitution have a “venture capitalist” clause in it that we somehow missed? Is it the job of our government to pick winners and losers in a market using taxpayer dollars?
Well according to the brilliant Steven Chu, Secretary of Energy, no politics were involved in any of this. But:
Nobody from the Energy Department would agree to an interview. Last November at a hearing on Solyndra, Energy Secretary Steven Chu strongly defended the government’s attempts to bolster America’s clean energy prospects. "In the coming decades, the clean energy sector is expected to grow by hundreds of billions of dollars," Chu said. "We are in a fierce global race to capture this market."
The government is blowing it big time. Why? Because, despite Chu’s claim, it is all about politics. And ideology.
In fact this administration has no trust in markets to develop the technology they desire so they’re sold on the idea that the central government should be used to facilitate their ideology. And that is precisely what this is all about. Solyndra, Beacon Power, Nevada Geothermal, SunPower and First Solar are just failed indicators of the bankruptcy of their approach. Given a treasury and the ability to spend money almost unchecked, they’ve committed to implementing their ideology on the back of taxpayers. And, unsurprisingly, they’re failing miserably.
But we’re assumed to be so dumb we can’t see through their political scheme.
Unfortunately, as it has been for quite some time, no one will be held accountable for this fiasco that has cost us billions in money we simply don’t have. If anyone ever wanted a case study of how out-of-control and outside the Constitutional box government has become, the failed “green energy” sector loan program provides the perfect scenario.
Meanwhile, in Canada:
Canada is now looking to Asian countries to market its abundance of oil, natural gas and minerals as plans to build the proposed Keystone XL pipeline have stalled with the U.S. administration.
Prime Minister Stephen Harper will travel to China next month to discuss selling Canada’s bounty to the rapidly growing nation.
The preferred initial plan was to build the $7 billion Keystone pipeline to deliver Alberta’s oilsands crude to refineries in Texas on the Gulf of Mexico.
Harper reasoned that the U.S. government would prefer to deal with a friendly neighbor to help meet its energy needs while creating thousands of jobs.
With widespread opposition by U.S. environmentalists, the Obama administration has delayed its decision on whether to approve the project proposed by energy giant TransCanada Pipelines.
The new plan would market to China and Asian countries through the proposed Northern Gateway pipeline that would transport Alberta’s oil and natural gas to British Columbia for shipment by tankers.
Yup, no politics at all.
Sometimes a couple of pictures are indeed worth a thousand words.
The real problem? Yeah, spending. Revenues are actually .4% over the normal 18% (that’s right, the government takes 18% right out of the GDP, in addition to all the debt it has amassed (over $15 trillion).
Oh and that “fair share” thing?
Seriously. We have a 15 trillion dollar national debt. Ever wonder how we got there?
Yesterday, although the paper warped it into a completely stupid rant on race, the NY Times told us that government workers are losing their jobs. Why? Because revenue is down and budgets are tight. But there are other reasons as well.
Montcalm County recently received a $900 Arctic Blast Sno-Cone machine.
The West Michigan Shoreline Regional Development Commission (WMSRDC) is a federal- and state-designated agency responsible for managing and administrating the homeland security program in Montcalm County and 12 other counties.
The WMSRDC recently purchased and transferred homeland security equipment to these counties — including 13 snow cone machines at a total cost of $11,700.
The machines were funded by a grant from the Michigan Homeland Security Program. The request for a snow cone machine came from another county, but all 13 counties received them.
Your first question has to be “why wasn’t a request to “Homeland Security” for a Sno-Cone machine summarily turned down with a warning that such requests were inappropriate? Especially in tight fiscal times? Well the simple answer to that is because Homeland Security isn’t dealing with its own money. It’s dealing with your money. And because of that apparently nothing is inappropriate, tight fiscal times or not.
Note the job description of the WMSRDC I’ve emphasized. And what is the reason for a Sno-Cone machine? Well here’s the reason given why it was “necessary”:
MCES Director David Feldpausch said the machine could be useful at the scene of a large fire or during very hot weather.
“I don’t like the term snow cone machine, because it sounds horrible,” Feldpausch said. “When you look at it as an ice shaving machine and its purpose, it makes a little more sense. I assume it will get used in Montcalm County a lot more in the summertime by the Fire Corps.”
Of course he doesn’t like the term “snow cone machine”. It doesn’t just sound terrible, it sounds inappropriate and wasteful. And it is both of those things. Oh sure, it might be nice to have. But a “necessity”? A bucket of ice and some water could serve the same purpose.
And of course there’s the matter of a single $900 request being turned into a $12,000 dollar expense when some bureaucrat decided all of the counties, even the 12 who never asked for one, get a Sno-Cone machine.
Now I know this comes from a completely different bucket of money, but any idea of what percentage of an employee’s salary this would pay if layoffs are being contemplated in the area? Is this the best and most appropriate use of Homeland Security money? Does anyone even review this stuff?
Profligate spending is the symptom of an out-of-control government. While $12k spending is but a mere speck on a drop in the bucket of money spent by government each year, it is indicative of how we got into the debt mess which we now find ourselves and is ever getting worse. Multiply these sorts of transactions by the millions and you understand how we have gotten where we are.
There is no necessity for shaved ice at a fire. Note the word. Necessity. There are plenty of much less costly alternatives. Like bagged ice and water. And this is for a contingency (“large fire”, summertime) for an event which may or may not happen.
The reason I highlight things like this is because the are better understood by people than complex and much more costly examples which are essentially the same but harder to wrap your head around. This is relatable. This shows clearly how wasteful government can be with a fairly low cost example that people can readily identify with.
Its like showing a picture of luxury food which is able to be purchased with EBT cards (Food Stamp Cards). You naturally know “this ain’t right”. You sort of go with the idea of helping the less able, but you bristle at being taken advantage of. Well the above example “ain’t right” and certainly an example of taking advantage of the taxpayer, but typical of literally millions of government purchases over the years.
Result. Well just take a gander at the national debt clock if you need a reminder.
As Bruce points out below, the failure of the Super Committee should come as no surprise to anyone who was paying attention. Even where committees arrive at an agreed solution, it rarely ever gets implemented. What’s worse, in this case, the Super Committee was operating under the sword of automatic spending cuts to domestic and military programs should it fail to arrive at a consensus — i.e. no side had any incentive to deliver more or less than what would automatically go into place anyway. Of course, Pres. Obama running a re-election campaign based on a “do nothing” Congress certainly didn’t inspire his Democratic brethren on the Super Committee to find common ground either.
But these aren’t the real reasons for the Super Committee failure. Instead, as Jeb Hensarling (R-TX) writes in the Wall Street Journal today, the underlying problem is one of ideological impasse:
Ultimately, the committee did not succeed because we could not bridge the gap between two dramatically competing visions of the role government should play in a free society, the proper purpose and design of the social safety net, and the fundamentals of job creation and economic growth.
For the members of the Super Committee, the choice seemed to be between raising taxes on a small percentage of earners and making no cuts or reforms to the shibboleths of Medicare and Social Security, or reducing taxes and modestly curbing entitlements at some point in the future. In other words, it was a choice between expanding or slightly retarding the growth of government. However, it’s not just the specifics that make compromise difficult, if not impossible. Where one side believes that government is always the answer to what ails us, and the other (at least nominally) operates from the premise that individual effort leads to greater prosperity for all, there is only so much compromise that can be reached between the two. Eventually, government will be either too small or too big for the other side to bear.
This is the crucible in which somehow a compromise was to be reached on federal spending.
As it stands now, government spending is equal to about 35% to 40% of GDP, while our national debt is around 100% of GDP. At the federal level, we are borrowing 40 cents of every dollar that we spend, and entertaining trillion dollar plus deficits year after year for as long as we can reasonably forecast. This is the vision of those who see government as playing the primary role in most every aspect of society since it costs a lot of money to execute that vision. Yet, despite the fact that government has done nothing but grow over the past sixty years, they are convinced that anything smaller than what we currently have will lead to economic and social ruin. To be sure, after finally getting the government foot in the door of universal health care, the liberal base is not about to countenance any willing walk-back on those gains. The Democrats on the Super Committee were well aware of this, and that accepting changes to Medicare and Social Security or any other dearly loved social program would result in a deep backlash from those who believe that all of life is dependent on government.
Opposing that vision are those who think that government should be smaller and less intrusive, especially with respect to our economy. They look at our ever-growing debt and anemic, if not illusory, economic gains and see nothing but trouble down the road we’re traveling. Unfortunately, while total government spending is often publicly recognized as the problem, too many of these visionaries think that simply reducing tax rates will flood the federal coffers and all will be right with world. It’s true that raising taxes in a declining or struggling economy will tend to exacerbate, not alleviate, the problem. But Republicans on the committee also know that their base stand ready to punish any member who suggests raising taxes, now or in the future, regardless of the fact that the spending cuts necessary to get our debt problems under control simply aren’t feasible. And they won’t have much better luck at the ballot box if they even hint at reforming Medicare or Social Security.
Even where they are willing to take that chance, however, the Democrats can’t politically afford to compromise:
The Medicare reforms would make no changes for those in or near retirement. Beginning in 2022, beneficiaries would be guaranteed a choice of Medicare-approved private health coverage options and guaranteed a premium-support payment to help pay for the plan they choose.
Democrats rejected this approach but assured us on numerous occasions they would offer a “structural” or “architectural” Medicare reform plan of their own. While I do not question their good faith effort to do so, they never did.
Republicans on the committee also offered to negotiate a plan based on the bipartisan “Protect Medicare Act” authored by Alice Rivlin, one of President Bill Clinton’s budget directors, and Pete Domenici, a former Republican senator from New Mexico. Rivlin-Domenici offered financial support to seniors to purchase quality, affordable health coverage in Medicare-approved plans. These seniors would be able to choose from a list of Medicare-guaranteed coverage options, similar to the House budget’s approach—except that Rivlin-Domenici would continue to include a traditional Medicare fee-for-service plan among the options.
This approach was also rejected by committee Democrats.
The Congressional Budget Office, the Medicare trustees, and the Government Accountability Office have each repeatedly said that our health-care entitlements are unsustainable. Committee Democrats offered modest adjustments to these programs, but they were far from sufficient to meet the challenge. And even their modest changes were made contingent upon a minimum of $1 trillion in higher taxes—a move sure to stifle job creation during the worst economy in recent memory.
Even if Republicans agreed to every tax increase desired by the president, our national debt would continue to grow uncontrollably. Controlling spending is therefore a crucial challenge. The other is economic growth and job creation, which would produce the necessary revenue to fund our priorities.
Meanwhile, we operate under a tax system that is so heavily skewed towards the highest income producers that our government is dependent on about five percent of the taxpayers for a majority of its revenue, and only a quarter of all tax payers for more than 85% of that revenue. To the Democrats, this is apparently a good start. Republicans, on the other hand, see an unfair system that, if properly reworked, could raise even more revenue. Either way the spending, and thus the government, grows.
The definition of “priorities” is the real sticking point. It means either that everything from price and income support to cradle-to-grave health care is a priority, or that only the basic structural necessities of national defense, courts of law and last-resort safety nets qualify. There has been a great deal of compromise on that definition over the past several decades (albeit, always resulting in an expanding government), but it seems that we’ve finally reached the limit where any further acquiescence by one side results in unbearable loss to the other side. It’s difficult to see how we can successfully move forward as a unified country with such diametrically opposed visions for the role of government. Indeed, maybe we can’t for very much longer.