We’re doing something a little different on WSO this week. Since you can hardly turn on the TV or the radio, or go online without being inundated by stories about the Fiscal Cliff, we thought we’d give the Fiscal Cliff the old WSO treatment. To that end, TheKing and I will be doing a series of posts this week dealing with the two issues at the crux of the issue: taxation and spending. And we’d like your help to put it together. First things first:
What is the Fiscal Cliff? Essentially it’s the “perfect storm” of several macro-economic factors colliding all at once early next year. These factors include the expiration of the Bush tax cuts, a mandated increase in the payroll tax, and the violation of the debt ceiling yet again. Thus far, Congress and the President have made half-hearted overtures at getting a deal done to forestall the expected crisis, but as yet nothing concrete is in place. The ramifications of not getting a deal done, or “going over the cliff”, include another hit to our national credit rating, a fairly drastic increase in taxes (more or less across the board), and a potential cataclysm in the stock market. The US dollar is already suffering against rival currencies in response to the looming deadline and lack of a solution at the moment.
Anyone who has watched American government for more than 15 minutes knows that this is mostly Kabuki theater; no reasonable person thinks for a moment that a deal won’t be reached to kick the can a little further down the road. It’s what we do. But that doesn’t mean we can’t have a little fun with it in the meantime.
The way Fiscal Cliff Week is gonna work is that TheKing and I are each going to write two posts about our solutions to the crisis. One post each will be on taxation, and the other post each will be on spending. And here’s where YOU come in. If you have a specific question or comment about taxation or spending that you think we should address, let us know in the comments and we’ll try to get to it.
My first post will deal with the estate tax (one of the major components of the fiscal cliff) and my solution to the problem once and for all. Despite the fact that my plan is written with tongue planted firmly in cheek, I think you’ll agree that it’s more equitable than our current estate tax laws and, if you absolutely must have an estate tax, you might as well use it to accomplish a little social engineering.
Hopefully you guys will enjoy this week and we’ll get some good ideas and conversation floating out there. As usual, Patrick is concerned that it’ll turn into a political shitshow, but I’ve assured him that you guys will approach the topic with the same reasoned response, measured tone and mutual respect that I’ve come to expect from WSO.
So fire away in the comments. Let us know what’s on your mind about the Cliff and we’ll see if we can touch on it in the coming week.
Ever considered doing stand up?
A lot of my clients here in the D.C. area are on edge because of sequestration, which basically is a decent chunk of military spending cuts that are automatic if the "cliff" is reached. The defense industry is huge in the D.C. area, so I've got a vested interest in seeing this issue resolved.
Frankly, no matter where you stand on this topic, the fact is the President has done an awful job in leadership the last 4 years. The last 4 years have been a far, far cry from his 2004 DNC speech and his 2008 campaign promises of uniting a country under transcendent bi-partisanship. As a native of the DC area, these have been the most intensely partisan years since perhaps the Civil War.
With regard to solutions, there are the "right" solutions and then there is reality. The "right" thing to do would include an audit of the military to find $50 billion in annual waste and cut it (this would be incredibly easy to do); cutting half of the $100 billion in annual welfare and entitlement waste, fraud and abuse; cutting discretionary spending $100 billion across the board; raising the qualification age for Medicare and Social Security and means testing; repealing and replacing Obamacare; repealing and replacing Dodd-Frank; eliminating the corporate income tax; eliminating all or almost all deductions and sharply reducing tax rates across the board; and tort reform.
Do those things above and foreign investment would explode in the United States, the economy would boom, interest rates would start to rise which would further increase foreign investment, and the federal government would grow itself into a balanced budget in about 3 years.
I work in the defense industry and have seen our government blow through money in an attempt to utilize fiscal year budgets.
Example: Something costly breaks in August (Government Fiscal Years ends at the end of September). The Government has the option of spending X to fix it or spending X^10 to replace it because they have extra budget. They will always go for the new one.
This is going to sound rude, but it is a legitimate question:
--Are you a paid Republican internet troll?
Your argument essentially boils down to "I don't like Obama because he's not a conservative Republican, and we have intense partisanship because he doesn't want to implement far right conservative policies." Your post reads like a dream check-list for Americans for Prosperity that isn't based in reality.
This is going to sound rude, but do you have a pulse? Good public policy and facts don't have a partisan bent.
Obama has made absolutely no effort at all whatsoever to negotiate with Republicans. Republicans offered tax increases in the form of reducing tax deductions that would disproportionately--in fact, almost entirely--impact high income earners, but Obama rejected it on its face because it wasn't a "rate" increase. His own Treasury Secretary, Tim Geitner, said the administration is fine with going over the "fiscal cliff." Why? Because they're more interested in playing the blame game than living up to the ideals of unity that Obama won on in a landslide in 2008.
If my list sounds like it's from Americans for Prosperity then that must mean that organization is on to something. Everything on that list is 1) completely practical and 2) totally unlikely to occur because we're debating a bunch of false premises with intellectual midgets on both sides of the aisle.
Yep, that's government for you, whether it's the Department of Defense or Department of Labor--if Congress issues the appropriations then they will spend it. And Congress issues tens of billions of dollars in annual military waste--literally, money for projects the Pentagon says it is interested in!
Yes. While I agree that spending reform would do wonders in the world of defense, I really feel like these budget cuts on military spending are not going to be organized and are going to handled terribly.
Agreed. That's the fear with those who will be impacted by sequestration--the cuts are basically "blind" cuts in defense, not targeted toward waste.
^^ Care to explain how/why these cuts are blind? How will the cuts be decided?
Just curious.
I'm not entirely sure, but from what my clients have been telling me the fiscal cliff cuts to the military (sequestration) are going to be across the board cuts without care to value or lack of value of the program. Just generic military spending cuts. My guess to the reason is because 18 months ago when this package was put together no one wanted to talk about specific cuts. Anything specific will get you hammered politically ("Oh look, he voted to cut spending on missile defense." "Oh look, he voted to cut education spending."). It's a very, very toxic atmosphere here.
I think I understand now, thanks for the reply...
I used to work under the Department of Defense, and I found it ridiculous that they made you spend your entire budget or else they will slash it the following year. It pretty much incentivize waste, not prudence. And you know we are not going to be able to cut the waste because of political bullshit. The place I worked at pretty much blew money on construction projects, ripping out clean walkways with a new one that was 3 inch wider. They had to find something to blow their budget on.
http://www.coburn.senate.gov/public/index.cfm?a=Files.Serve&File_id=b7b…
Here's an interesting read done by a US Senator (meaning he wasted tax payers money to hire others to do it for him). Wastebook 2012.
We already did the total de-regulation of the financial markets and look where it got us. On the verge of complete and total collapse.
And trickle down is a fantasy. Not to mention, the plan to lower rates and eliminate deductions (i.e. the Romney plan) doesn't add up. It either leads to deficits, tax increases on the vast majority of Americans, or the complete and total gutting of entitlement programs. And, frankly, I don't want to live in a completely darwinist society where the wealthy thrive and everyone else is completely fucked.
To pretend that there are a few steps to follow that would lead to a balanced budget in three years is staggeringly laughable. Even the Ryan Budget, which organizations like Americans For Prosperity masturbate furiously to, didn't actually balance the budget until ~2020 and it made extremely generous assumptions with regards to economic growth from tax cuts...even though there is no actual evidence that further lowering tax rates would do anything to stimulate economic growth. And, if your entire argument is "wealthy people would basically end up paying the same in taxes because deductions are gone," then why lower rates at all?
Actually, there's quite alot of common sense in the idea of eliminating deductions and lowering rates. Granted, Romney's plan was a pipe-dream (20% across the board, really?), but the basic framework is extremely workable to simplify thing and lower the deficit. Here's how:
The top rate for people making $400k or more is 35%. However, the effective tax rate over the last 20 years for those making $1 million or more is a little over 28%. It would be very simple to lower the top rate to 33%, remove all deductions and special breaks from the code, and milk out more than the 20 year average. It would make avoidance alot harder, and compliance alot easier. The same could be done with middle and lower income rates as well. If you're solely basing it off of Romney's plan, than of course it will never work. It was never suppose to work. But the concepts behind the plan are pretty solid.
BTW, love your quote:
If you haven't noticed, we already do live in your darwinist society. It just doesn't sound like you've come to that realization yet.
I agree with much of what you say after the quote. Personally, I'd love us to go over the cliff or implement Bowles-Simpson. Anything else equates to pretending that we can fix the problems without taking our medicine, as bad as it might taste in the short run.
None of what I suggested is "deregulation". Repealing and REPLACING Dodd-Frank with an actually rational finance reform bill is not "deregulation". Those of us who actually work in REAL banking (not investment banking) almost universally laugh at the idiocy of that bill. Literally, you should listen in our our conference calls--the bill is a total joke (it's literally a joke). Repealing and REPLACING Obamacare isn't deregulation either. Are you so partisan that you can't see this?
Again, I'm not suggesting "trickle down economics"--if so, please point it out to me where I've suggested as much--although Ronald Reagan's economic explosion would strongly suggest that his form of "trickle down economics" is far more effective than Barack Obama's poor attempt at Keynesianism. I mean, Obama hasn't even been able to implement Keynes properly.
If you look at the White House budget projections, they are projecting that with simple continuing resolutions on the budget that we will have a balanced budget by 2016, and this is before any budget cuts or tax increases! These delusions are probably why the Obama administration is so unwilling to negotiate.
http://www.whitehouse.gov/omb/budget/Historicals
I'm sort of amazed that you would be selected by WSO to write on the budget fiscal cliff. In all honesty, it doesn't sound like you understand even the basics as to what's going on. If anything, I wonder if you're a paid troll of the Greece/Spain/Portugal/California faction of fiscal thought.
The right says "repeal and replace," but they don't actually offer replacements beyond tired broad-based rhetoric.
Personally, I'd like to go back to what we had in the 1990s with regards to financial regulations. I've said that time and again on here. Dodd Frank is better than nothing, in my view, because nothing helped get us in this mess. Unless we get elected officials with the guts to actually fix the problems sensibly, I don't see how we're going back to what we used to have. What would you like to see in its place?
As for health reform, what would you replace it with? Obamacare is based on Romneycare which is based on the GOP's own alternative to Hillary Clinton's early 90's health reform plan. The right now views their own ideas as unacceptable and offers no workable replacement plans. None.
Asserting that we should repeal and replace without offering real workable replacements gets us nowhere. If you've got ideas on what to replace these things with, let us know what they are.
Btw, I don't buy Obama's starry-eyed bullshit either. But, let's be serious. He ran on a platform that included letting the top two rates return to Clinton-era levels. Why would he suddenly cave on that when he has all the leverage? Why not come to an agreement on the top two brackets now to avert the cliff, and work on broad-based tax reform next year after the fiscal cliff has passed us by?
Can we all just agree Bill Maher is a douche bag?
We either take our medicine now or take it later. The budget isn't going to be balanced on the backs of the rich, nor is the deficit going to be reduced. While I agree that the 50% who don't pay Federal taxes probably don't because they are broke, the reality is while they don't pay, they consume. Someone has to pay the bill.
We need increased taxation, temporarily, combined with permanent and drastic cuts. Frankly, I would remove the child tax credit, and replace it with a child tax. We need to disincentive the poor and uneducated from reproducing. I am all for free birth control. In fact, I would like to see it injected into the water supply and into cheap food. Anything to stem the tide of the proletariat from growing.
But at the end of the day I am simply devoid of caring. I will do whatever I possibly can to minimize my tax burden because I do not identify with the people who clamor for my labor. We live in the land of opportunity, where immigrants come just for the chance to succeed. A place where foreigners thrive and natural born citizens wallow with their hands out. In an ever growing technological and informational rich society we simply cannot subsidize the Hill People to breed.
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