Thursday, November 22, 2012

Here's a Novel Concept: Let Those Who Want More Government Help Pay For It!

President Obama won. He got 51% of the people to vote for him.  He won the electoral college handily.

What has he promised to do?

'Raise taxes to pay for more government'. That is his basic message, isn't it? If there was ever a case of 'truth in political advertising', he would win hands-down.  Because that is how he has governed for the first 4 years and now that he has been re-elected by a majority of people in the United States of America, we fully expect him to push the pedal to the metal and do it even more for his second term in the White House.

Why, he even said so himself many times during the campaign:

'You ain't seen nothing yet!'

Well, in the interest of fair play and democracy, perhaps Congress should let him have his wish.

And here's the way to do it:

Let all of the Bush Tax Cuts expire on December 31, 2012.  In about 5 weeks.  At Midnight.

We know, we know.  We have heard all about the 'Fiscal Cliff' and how we might go into recession if Congress doesn't come to some agreement before the strike of midnight on December 31.

We might.  We might go into recession even if we solve the 'Fiscal Cliff' as more and more companies lay off workers or make them go part-time in order to avoid having to pay for Obamacare.  We are already seeing scores of companies do that already, Darden Restaurants (Olive Garden, Red Lobster, Longhorn Steakhouse) being among the first of them.

So why not shake things up a bit and 'throw the long ball' as they say in football? Let the tax cuts expire on December 31 and see what happens. After all, that is current law on the books signed into law by President Obama in 2010, not President Bush or anyone else.

If President Obama really wants to return tax rates to what they were before President Bush took office in 2000, maybe Congress should consider not passing any legislation before year-end and let ALL of the Bush Tax Cuts from 2002-03 expire at the end of this year.  Every last one of them, not just those on the rich. Let every single tax rate and provision revert back to exactly what they were under President Bill Clinton just as current law is written.

Every single dime.

What President Obama and his advisors have conveniently left out of his narrative when he speaks glowingly about the 'Golden Glory Hey-Days!' under President Clinton is that every single taxpaying citizen's taxes and tax rates were higher under Clinton than under W.  Clinton and the Democratic Congress raised tax rates on high-income taxpayers in 1993, to be sure, but he never cut the taxes for the middle-class as he promised to do during his entire 8-year term in office.

He promised middle-class tax cuts and promised them again and again and again...and they never came.  President Bush made them a centerpiece of his first term in office.

One of the major problems chipping away at the American democracy today is the palpable sense of being able to get something out of government and have other people pay for it.  It could be better schools.  It could be longer unemployment benefits.  It could be better roads.  It could be a more fortified defense.

It could be a string of tax breaks and deductions, although in that case, wealthy people are basically getting a 'refund' of the taxes they have already paid. Still, someone else will pay for all the government services a wealthy person will benefit from if by some chance they are able to shelter all of their income from taxation.

We believe that this is a very dangerous place for any democratically-elected republic to find itself in at any time in their history. Once a majority of people start thinking the government will provide them with more benefits they believe they will never have to pay one red cent more for in income taxes, or that the rich will always pay for it, or that we will keep borrowing ad infinitum, the connection and tension between taxes and spending is completely broken.

Unless something is done in a dramatic way to disabuse everyone of the notion that government can be expanded without any more income tax payments on their part, spending will increase unabated and the wealthy will just find more ways to cocoon and shelter their income from taxation. They always find a way, don't kid yourself that they won't.

Here's what the markets haven't figured in yet: What happens if President Obama caves in once he sees that Congress is not sending him a bill at all to extend the Bush tax cuts?  What does he do then?

First of all, he will have to almost certainly capitulate to Congress since Congress holds the constitutional upper hand when it comes to budget negotiations with the Executive Branch.  Close to 50% of words in the US Constitution deal with the enumerated powers of our US Congress, including the 'power of the purse' and powers reserved to the states. The powers allowed the Presidency accounts for only 14% of the amended Constitution today. Our Founders wanted to make darned sure that Congress holds virtually all of the money cards when it comes to running our government, not one person in the White House.

We Americans hate kings, remember?

A Democratic Congress made Republican President Reagan yield to their demands for more taxes in both the 1982 tax act and the 1983 Save Social Security (sic) Act.

A Democratic Congress made Republican President Bush 41 squeal 'uncle' in 1990 when they got him to break his 'Read my new taxes!' pledge from the 1988 convention and raise a few taxes. Bush 41 did get the PAYGO and discretionary caps in that bill which ultimately held spending down to an annual 2% overall increase for the last half of the 1990's and, lo and behold, we had 4 straight balanced budgets from 1998-2001.

Imagine that.

Maybe this Republican Congress could make Democrat President Obama squeal as well if they hold firm to just doing nothing to avert the tax hikes from coming and then hold the President to the true 3-to-1 spending cuts-to-tax hike ratio he has already said he would sign.

Letting the Bush tax cuts expire would bring in close to $4.7 trillion over 10 years, only $680 billion of that, 15% of the total coming from 'rich' people.

Holding Obama to a 3/1 ratio of spending cuts to tax hikes would generate close to $15 trillion of spending reductions and reforms on top of the $4.7 trillion in expired tax cuts.  Such a blockbuster Grand Compromise would total $20 trillion in deficit-reduction over 10 years.

A $20 trillion debt-avoidance package would be so unexpected in today's negative economic mood that the stock and bond markets would be stunned at first.  But since the markets have become so accustomed to governments around the globe kicking the can down the road and never solving the underlying structural problems causing their deficits and debt in the first place, such out-of-the-box thinking by the US Congress would shock them into the reality that America is not Europe and hopefully never will be.

It not only would hold the national debt down within reasonable levels, it would allow us to start paying down some of this ridiculous debt.  It was only around $3.5 trillion when President Bush took office in 2001, remember.

If Abe Lincoln were alive today, he would throw the long ball like Doug Flutie.  And complete it.

(You really should take your extended family and friends to see the movie 'Lincoln' this Thanksgiving weekend to see what a real leader in America history looked, sounded and most importantly, acted like in times of national stress)

Even if there is 'only' a $10 trillion 'Grand Bargain' where everyone has some skin in the game, that would be a major, major development in the current stalemate between the White House and Congress and prove that democratic republicanism can actually function again, right? Investors would cheer the fact that something 'big' got done and we might actually avert running into the debt iceberg that always brings down republics, monarchies and communist nations alike.

Excessive national debt that can't be repaid with sound currency doesn't give a damn what form of government you have.  Debt always wins.  You can look it up in the history books.  Try to find the Hapsburg Empire, the Roman Empire or even the Soviet Union if you can on the map today.

Seriously.  There are some very good reasons for Congress to allow the Bush tax cuts to expire.  The main reason?

'Every person in America will now be exposed to the simple concept that there is a cost to doing anything anywhere anytime.  Especially in government.'

54% of Americans think the government is too big right now as it is. Only 29% say they want a bigger government. The much-discussed Hispanic population is split evenly on that question but even the Latino cohort that overwhelming went for Obama think the country is 'on the wrong track' by a margin of 52-41%.  Yet, a majority voted him back into office for some reason

That 'reason' is because many people have never been confronted with the cold hard reality of having to come up with more money to pay higher taxes for anything in the last 12 years.  No one in America has been asked to dig deep and cut and scrape and sacrifice to pay the higher bills of our federal government since 2000.

We think once the cold hard steel of tax hikes hits everyone where it really hurts, right in the pocketbook and checkbook, they will be far more willing to support reductions of spending across-the-board, yes, even in the entitlement area that has been so difficult to contain over the past 30 years for the most part.

The good news for small government advocates is this:  those 54% of all Americans who think government is too big will swell to 64% or maybe even 75% once more people understand the direct connection between more spending and more taxes coming out of their pocket to pay for it.

All hard-working taxpaying Hispanics, African-Americans, Caucasians, men, women, heterosexuals, homosexuals know and understand one thing in common: Their hard work should be rewarded and higher taxes to pay for a bloated inefficient government is unjust and goes against common sense and reason.

This may be the only chance small government Jeffersonians will ever have to impress upon this generation of younger folk, African-Americans, Hispanics and big-government white folks that nothing comes for free, not even good intentions.

Leaders in Congress should consider this option.  It is not the 'nooclear' option as President Bush used to say but it is the most dramatic way we can get this country back on the right track towards fiscal sanity and balance.

Where America belongs.

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