Posts tagged with: fiscal cliff

With the most recent fiscal cliff approaching this Thursday (February 28), it is worth asking, “How did we get into this mess?” My answer: a little leaven works its way through a whole lump of dough….

Touchstone Magazine
(March/April 2013) recently published my article, “The Yeast We Can Do,” in their “Views” section (subscription required). In it, I explore the metaphor of yeast in the Scriptures—how little things eventually work their way through our whole lives and can lead to big consequences. In some cases, I point out, this is a bad thing. For example, I write,

According to Evagrios the Solitary, one of the early Christian hermits of the Egyptian desert, our spiritual struggle can be summarized quite simply: it is because we have first failed to resist little temptations that we eventually fall to greater ones. Following John the Evangelist’s warnings against succumbing to “the lust of the flesh, the lust of the eyes, and the pride of life” (1 John 2:16), Evagrios identifies three “frontline demons” in particular: gluttony, avarice, and seeking the esteem of others.

Little by little, when we give in to small temptations, they eventually work their way through our whole lives, leaving us vulnerable to bigger, related areas of temptation.

Now, how does this relate to our over $16.5 trillion national debt and annual deficits over $1 trillion for the last four years that brought us to a looming sequestration deadline, with little time to come up with some solution to drastically cut spending to get our finances under control, adversely affecting the lives of millions? Well, as I said, a little leaven works its way through the whole lump of dough. (more…)

So … what happened? With regular coverage of the US “Fiscal Cliff” running up to the new year, PowerBlog readers may be wondering where the discussion has gone. While I am by no means the most qualified to comment on the matter, I thought a basic summary and critique would be in order:

  • With six minutes to read this 157 page bill, the US House of Representatives passed it. (Note: either I’m an exceptionally slow reader or none of them could possibly have read it.)
  • According to Matt Mitchell at Neighborhood Effects, the bill itself, comically titled “The American Taxpayer Relief Act,” has three strikes against it:
  1. “It ignored the evidence that tax increases are more economically harmful than spending cuts.” The bill puts the Cliff’s spending cuts off for two more months. (I see a sequel in the works: Fiscal Cliff  2: The Reckoning, perhaps?)
  2. “It opted to raise revenue through rate increases rather than loophole closings.” Why is this bad? “Put simply, a rate increase has deleterious demand and supply-side effects, whereas a loophole closing only has deleterious demand-side effects.”
  3. “It actually expanded corporate tax loopholes!” He continues by adding some valuable substantiation to this claim: “On the last point, don’t miss Vero’s pieces here and here, Tim Carney’s pieces here and here, Matt Stoller’s piece here, and Brad Plumer’s piece here.” The point: the primary (and likely the only) taxpayers who will see any relief from “The American Taxpayer Relief Act” are crony capitalists.
  • Small businesses, on the other hand, will be hit the hardest by the bill. As Eileen Norcross writes at The Spectacle Blog,

With tax rates raised on those earning over $400,000 some may imagine that only a rarified tier of high earners will be forced to fork over more income to the federal government. However, tax increases in this category also includes [sic] small businesses. These hikes will affect decisions over hiring, expansion, and wages. The outcome — slower economic growth for all.

In summary, the bill—which the House had only six minutes to read—does almost nothing to address our debt and deficits, and what it does do is mostly negative and/or sub-optimal (unless you’re a crony capitalist, that is). Not only does this bill negatively affect most Americans today, it puts off, yet again, any hard decisions of reigning in our unsustainable spending addiction. We now have two more months before we careen over that cliff, but with how much time Congress had to negotiate an alternative deal before settling for a poorly designed, 157 page bill they only had six minutes to read, I’m not holding my breath. (more…)

New York Post illustration

New York Post illustration

In the New York Post, Acton Research Director Samuel Gregg looks at “the spread throughout America of economic expectations and arrangements directly at odds with our republic’s founding” and asks what the slow walk to “Europeanization” means for the long term. Gregg:

Unfortunately there’s a great deal of evidence suggesting America is slouching down the path to Western Europe. In practical terms, that means social-democratic economic policies: the same policies that have turned many Western European nations into a byword for persistently high unemployment, rigid labor markets, low-to-zero economic growth, out-of-control debt and welfare states, absurdly high tax levels, growing numbers of well-paid government workers, a near-obsession with economic equality at any cost and, above all, a stubborn refusal to accept that things simply can’t go on like this.

It’s very hard to deny similar trends are becoming part of America’s economic landscape. States like California are already there — just ask the thousands of Californians and businesses who have fled the land of Nancy Pelosi.

Europeanization is also reflected in the refusal of so many Americans to take our nation’s debt crisis seriously. Likewise, virtually every index of economic freedom and competitiveness shows that, like most Western European nations, America’s position vis-à-vis other countries is in decline.

Is there a way out, even as the “fiscal cliff” negotiations vividly illustrate the inability of Washington’s political elites to take spending and tax problems seriously? Gregg holds out hope: (more…)

388px-The_Last_of_the_Spirits-John_Leech,_1843Matt Mitchell at Neighborhood Effects offers an interesting perspective regarding the fiscal cliff. As we hurriedly approach the edge, Mitchell’s insights ought not to be ignored, whatever the outcome of today’s last minute meeting at the White House. Evoking the Ghost of Christmas Yet to Come from Charles Dickens’s A Christmas Carol, he writes,

At the risk of mixing metaphors, we should think of the fiscal cliff as the Ghost of the Fiscal Future. It is a bleak lesson in what awaits us if we don’t get serious about changing course.

Mitchell goes on to hint at the serious issue of intergenerational justice that our government’s current fiscal behavior will affect if it continues unchanged:

The non-partisan Congressional Budget Office [CBO] now projects that, absent policy change, when my two-year-old daughter reaches my age (32), revenue will be just a bit above its historical average at 19 percent of GDP while spending will be nearly twice its historical average at 39 percent of GDP. This is what economists mean when they say we have a spending problem and not a revenue problem: spending increases, not revenue decreases, account for the entirety of the projected growth in deficits and debt over the coming years. (more…)

Now that we know what the fiscal cliff is all about, what are the plans for dealing with it? Below are the four approaches that have been proposed:

The Democrats’ Plan

Treasury Secretary Timothy Geithner offered the White House’s fiscal cliff proposal to Republicans in the last week of November. Although the proposal wasn’t released to the public, news reports say it was basically a reprise of Obama’s most recent budget request and contained the following items:

• End the Bush tax cuts for those making more than $250,000. The result would be $1.6 trillion in new taxes over 10 years, $160 billion a year.
• Cuts to Medicare and other entitlements over 10 years equal to $400 million, or $40 million a year.
• Additional stimulus spending of $50 billion.
• Authority to allow President Obama to to raise the debt limit without asking Congress in order to prevent “fiscal cliff”-style triggers from being put in place in the future.
• The White House also counts “savings from ending the wars in Iraq and Afghanistan” in their savings tally, even though no one has proposed maintaining war spending over the next decade at the current rate.

Reception: The Republicans rejected Obama’s plan but offered to let it be voted on in the Senate. However, yesterday Senate Majority Leader Harry Reid (D-Nev.) blocked a vote on the president’s proposal.
(more…)

Blog author: jcarter
Wednesday, December 5, 2012
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What is the “fiscal cliff”?

The term “fiscal cliff”, which is believed to have originated in Congressional testimony by Federal Reserve Chairman Ben Bernanke, refers to the substantial changes to tax and spending policies that are scheduled to automatically take effect in January 2013. The changes are intended to significantly reduce the federal budget deficit.

What are the tax and spending policies that will change?

Several major tax provisions are set to expire at year’s end:
(more…)

Below is an excerpt from a 1925 Washington Post editorial on President Calvin Coolidge’s Inaugural Address. The comments speak directly to the moral arguments Coolidge was making for a free economy. It is the kind of moral thinking about markets and taxes we desperately need today from our national leaders.

The excerpt comes from an excellent book, The High Tide of American Conservatism: Davis, Coolidge, and the 1924 Election by Garland S. Tucker, III.

Few persons, probably, have considered economy and taxation moral issues. But Mr. Coolidge so considers them, and his observations give a fresh impression of the intensity of his feeling on this subject. He holds that economy, in connection with tax reduction and tax reform, involves the principle of conservation of national resources. A nation that dissipates its resources falls into moral decay. Extravagance lengthens the hours and diminishes the rewards of labor. “I favor the policy of economy,” says Mr. Coolidge, “not because I wish to save money, but because I wish to save people” [emphasis added]. He would protect those who toil by preventing the waste of the fruits of their labor. The burden of taxation is excessive. It makes life more meager, and falls hardest upon the poor. The United States is fortunate above other nations in the opportunity to economize. It is at peace and business activity has been restored. “The collection of any taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare is only a species of legalized larceny,” is Mr. Coolidge’s vigorously expressed conclusion on the subject of economy.

It’s a logical, simple, and a deeply moral message. Some might call it common sense. Our times and the economic peril we face clearly calls for a commitment to reducing government spending and our tax burden. It has fallen on deaf ears in Washington and much of America. Coolidge’s words resonate today because it is the cure for our fiscal cliff and the ailing economy. And as Coolidge understood so well, it is the moral thing to do.

Over at Think Christian I take a look at the looming fiscal “cliff,” which we are being told from every conceivable quarter represents a significant danger to America’s fragile economic recovery:

But apart from the numbers themselves, the framing of the issue by politicians and pundits ought to give us pause. The idea that returning deficit spending to 2008 levels represents a “cliff” is not just political hyperbole. It reveals something deeply broken about not only our political system, but even more of our cultural expectations. As long as we continue to expect politicians to deliver programs and policies that are not sustainable, they will continue to promise them, and what is perhaps even worse, they will continue to try to make good on them, no matter the cost to current and future generations.

Today over at CNN Money, Paul R. La Monica tries to rein in some of the hype (HT: The Transom):

Yes, we all have the fiscal cliff on the brain. Wall Street is anxious. CEOs and labor leaders have headed to Washington to try and convince President Obama that the consequences of falling over the fiscal cliff would be dire. But is the fiscal cliff panic just a wee bit overdone?

La Monica’s answer isn’t an unqualified “yes,” but his piece does give some insights as to some of the political reasons for exaggerating the potential impact of sequestration.