Adventures in Fiscal Irresponsibility

Late last night, the House passed a tax deal that would extend Bush era tax cuts. (OK, really, it was more like a deferral, but, whatever.) This represents a complete capitulation of Barack Obama and the Democrats to the Republicans. Scared to death of what the polls have been showing after what I think might have been the biggest, and longest (since the moment Obama took office) smear campaign in history, Obama is trying to salvage something — anything. And this is my biggest disappointment with Obama: That he has compromised and compromised, trying to work with the Republicans, giving in to fear tactics on everything from a public option in health care to various economic policies. In the end, all that has come of it is legislation that represents the worst of the left and the right, and that is good for practically no one.

The tax deal is a prime example.

Extending the Bush era tax cuts for everyone will be massively expensive and get us nowhere. The fact of the matter is that the Powers that Be, Republican and Democrat both, do not want to face the reality that spending cuts need to be made, and taxes need to be raised, if we are going to fix our country's fiscal problems. Beginning with the Reagan Administration, we have been following policies of increased spending coupled with tax cuts and easy money for the masses. Reaganomics laid the foundation for the idea that recessions were to be fought tooth and nail with tax cuts and government spending. And we're still there. It doesn't matter what Reagan said. Here is what actually happened during his administration, according to The Free Market, which is put out by the Mises Institute:

In 1980, Jimmy Carter's last year as president, the federal government spent a whopping 27.9% of “national income” (an obnoxious term for the private wealth produced by the American people). Reagan assaulted the free-spending Carter administration throughout his campaign in 1980. So how did the Reagan administration do? At the end of the first quarter of 1988, federal spending accounted for 28.7% of “national income.”

Even Ford and Carter did a better job at cutting government. Their combined presidential terms account for an increase of 1.4%—compared with Reagan's 3%—in the government's take of “national income.” And in nominal terms, there has been a 60% increase in government spending, thanks mainly to Reagan's requested budgets, which were only marginally smaller than the spending Congress voted.

Anyone who knows me understands that I believe the government has a modest role to play in the economy, and I believe that government spending for some things is important. We need  taxes to pay for things like infrastructure, education, health care (although I'll never see this; we'll continue to see pillage from for-profit insurance companies) and other things. Unfortunately, politicians in both parties are too into spending, and the American people, no matter what they say, are too into letting them. Especially if tax cuts are promised along with the spending. The old conventional wisdom is gone. Republicans are not the party of fiscal responsibility — and they haven't been since before the Reagan Administration. And Democrats obviously aren't about raising taxes on the rich anymore. It's all one big party, meant to help those in Washington maintain the status quo.

This current tax deal will be costly to us. Taxgirl, a respected lawyer and someone who knows about this stuff, writes about the cost of this tax deal (emphasis mine):

The cost of extending the cuts was enormous to begin with. The Treasury set the cost of simply extending the cuts at $3.7 trillion over 10 years. That would make a two year cut would be $740 million. But the deal goes beyond that. You have to figure in the federal estate tax provisions (see below), the payroll tax holiday (also see below) and more. I feel like an informercial spokesperson but… we’re not done yet! Now throw in the unemployment benefits extension. Yep, we’re at billions. The Dems look foolish as they were unable to stop piling on the tax breaks – it’s all very Oprah again, isn’t it? You get a tax break! And you get a tax break! Especially at the top. And the GOP should be ashamed of themselves. They promised not to let this happen. Where is the fiscal responsibility here? There is none.

So basically, everyone gets something in this deal with those at the top and those at the bottom getting the most benefit (of course). It will cost us billions. Initial estimates are at – hold onto your hats – $900 billion. And we’ll be back in the same darn boat in two years. This is supposed to be progress?

This is massively irresponsible. Massively. But no one wants to make tough cuts. And here's why. No matter what spending is cut, it will be insufficient to solve the problems. This is because most cuts would be insignificant. Even pork cuts would be insignificant. As you can see, most of the federal budget is “untouchable” for political reasons:

In the end, hard choices need to be made. Some of those hard choices, like an across the board spending freeze (thanks, my friends in Canada, for pointing this out), which would balance the budget in a few years, have been suggested. But no one wants to do it. Even Republicans don't want to do it. Because the American people don't really want it, even though we're on the verge of credit downgrade from Moody's.  We can yell and scream all we want about the state of our sovereign finances, but We the People let it happen because we're too focused on political theater and not actual policy. And we are continuing to let it happen.

As long as we have our bread and circus, we're content to just sit back and scream, without doing anything. This is especially true when it comes to making real sacrifices.

1 thought on “Adventures in Fiscal Irresponsibility”

  1. Sure seems like it’s going to take a major financial crisis much worse than what we saw in 2008 to finally force these hard decisions to be made.

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