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Wednesday, November 28, 2012

Over the Cliff

One of the late Jack Kemp's axioms (and a favorite of mine) was, "When you tax something you get less of it, and when you subsidize something, you get more of it."  It's so simple, yet so true.  It is one of those universal axioms that fit every circumstance I can think of.  If you raise taxes on any goods or service, it becomes less attractive to the buyer and thus you get less of it.  If you subsidize any commodity or service or any personal practice, you get more of it.

You undoubtedly read in this morning's paper about the fiscal crisis or you heard about it over the television or on the internet.  It's being called the "Fiscal Cliff" by the mainstream media.  What is the so-called Fiscal Cliff?  It's a combination of what has been called "Taxmageddon" by members of Congress—the expiration of the Bush tax cuts (which fall primarily on the middle class) and the trillion dollar implementation of Obamacare.

Taxmageddon has been described by the Heritage Foundation this way…

  • Unprecedented Tax Hike For 2013: Starting January 1, 2013, Americans will face a $494 billion tax increase, the highest ever in one year. Obamacare's tax increase over 10 years barely edges ahead of Taxmageddon at $502 billion. The average American household would see its taxes rise by $3,800 in 2013 alone. And this is just for one year. Taxpayers would see even higher tax hikes in succeeding years.
  • Expiring Tax Cuts and Obamacare's New Taxes: Almost 34% of the tax increases from Taxmageddon come from the expiration of the 2001 and 2003 Bush tax cuts. Another 25% comes from the expiration of the payroll tax cut. Most of the remaining increases come from Obamacare, notably from the start of the hospital insurance 3.8% surtax on all forms of income over $250,000.
  • Taxmageddon Hits the Middle Class: Taxmageddon falls primarily on middle- and low-income Americans. That's because 60 percent of the Bush tax cuts went to middle and low-income taxpayers. The expiration of the patch on the Alternative Minimum Tax (AMT) will cause these taxpayers to pay a tax they were never supposed to be hit with, and the expiration of the payroll tax cut is a tax hike almost exclusively on middle- and low-income families. That's just the direct impact. Americans at all income levels will feel the pain of Taxmageddon because it will slow job creation and wage growth.

If Taxmageddon weren't enough, the Budget Control Act of 2011 will also go into effect on January 1, 2013.  What are the implications of the Budget Control Act and how did it come about?

More than 1,000 government programs - including the defense budget and Medicare will be cut dramatically.  The defense budget will be effectively gutted, leaving the United States in a very precarious situation in an increasingly dangerous world.  On the positive side, the Budget Control Act will cut the annual operating deficit of the federal government in half.

How did Congress agree to such a potentially disastrous piece of legislation?  It was simply Congress (House and Senate) doing what they do best—kicking the can down the road.  It was also the result of the Democrats putting their hard line leftists the Joint Select Committee on Deficit Reduction, a super committee of the Senate and House charged with the responsibility of coming up with a compromise that would bring the budget into balance.  The Committee consisted of 12 members, six Republicans and six Democrats, six from the House and six from the Senate. 

The committee was given the responsibility of coming up with a deficit reduction plan that would keep the government from defaulting on its debts.  The recommendation of the committee was to have been voted up or down by a simple vote of the House and Senate (without any amendments).  It was the responsibility of this super committee to cut a minimum of $1.5 trillion over the coming 10 years.  If the super committee failed to act, "sequestration" i.e. across-the-board cuts of $1.2 trillion would automatically take place, including major cuts to Medicare and to the Department of Defense.  The Democrats stacked their super committee picks with hard line leftists—Senators Patty Murray and John Kerry with Max Bacus thrown in for good measure.  On the House side the Democrats picked three radicals—Xavier Becerra, Jim Clyburn, and Chris Van Hollen, perhaps the most partisan member of Congress.  For their part, the Republicans picked Senators John Kyl, Rob Portman and Pat Toomey.  On the House side the Republicans picked Representatives Jeb Hensarling, Fred Upton, and Dave Camp.  While the Republicans excluded Tea Party Congressman and Senators in favor of moderates (with the notable exception of Pat Toomey), the Democrats picked leftwing ideologues.  On November 21, the committee concluded "After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline."  There was no surprise in the outcome.  Essentially the Democrats would not agree to any specifically mandated cuts in spending, only promises of future cuts, while insisting on raising taxes.

Accordingly, the United States now faces a "fiscal cliff" that will, drive the nation into another recession, or frankly, into a depression.  The Democrats of 2012 are following the same recipe that was undertaken by the Democrats of the 1930's under the leadership of Franklin D. Roosevelt, redistributing income from rich to the poor.  But in the process, they will kill off the goose (free enterprise) that laid the golden egg (prosperity).

It is a continuation of the Marxist class warfare campaign waged by President Obama in the recent election.  Karl Marx said, "From each according to his abilities, to each according to his needs."  The modern version according to Barack Obama might be stated this way "Tax the rich to give to the poor."  There is no difference in intent or outcome.

The only problem with the Marx-Obama approach to handling the economy is that it doesn't work.  It has never worked.  Redistribution of income through the mechanism of socialism always ends the same way—in disaster.  It endeavors to force every person into the same mold, with each receiving the same income, the same reward (except for the political ruling class, the apparatchiks) no matter who works harder, who works smarter, who innovates, who takes risks, etc.

In reality, socialism simply freezes all advancement, all innovation, all progress.  It sacrifices freedom and progress on the altar of equality, and in the end equality doesn't exist either.  Sadly, President Obama and his cohorts in Congress either do not care about the consequences, or they do not understand the consequences.  The politics of greed, jealousy, and envy always lead a nation to economic collapse.

So here we are, facing Taxmagedden and a Fiscal Cliff.  Obama thinks the solution is to tax the rich, which is anyone who earns more than $250,000 per year.  But Jack Kemp's axiom always holds true.  A huge percentage of the folks who make more than $250,000 per year are small businessmen who operate subchapter S corporations, i.e. all expenses and revenue are passed through to the business owner.  The inevitable outcome of taxing these folks is that there will be less of them.  Many will simply go out of business and when they do so, so will the jobs they provide.  This group of business owners employ, in aggregate, more people than any other segment of the American economy.  They are the absolute worst group of people to tax at this critical time.  Yet, because of greed, envy, and petty jealously that's exactly what Obama plans to do and I fully expect him to be successful.

What makes this even more foolish is that the amount of revenues this punitive tax will produce to reduce the deficit is miniscule.  It compares to a homeowner seeing his house on fire and thinking he can simply spit on it and put it out.  But, frankly, that's not the reason for the tax.  The reason is to punish men and women who President Obama and his cronies think are greedy.

On top of this tax burden, the average taxpayer will suffer from a trillion dollar tax imposed by Obamacare, a house of horrors that will destroy the greatest medical care in the history of the world.  Today your chance of surviving cancer is greater than in any other nation in the world, but don't expect that to last for long.  The United States of America drives all innovation and research in medical care for the world, yet we are about to freeze it in place through a socialized scheme concocted by far left radicals.

The left only has one problem.  Everything they are proposing and everything they have enacted is financially unsustainable.  It will collapse of its own weight.  The question that remains is whether it will be replaced by freedom or by tyranny.  Socialism and freedom are incompatible. 

As I have said before, America has seen and overcome darker days.  I firmly believe that we will overcome this folly too.  The common sense of the American people will triumph.  The left has little to crow about in regard to the last election.  The result is that they held on to the White House by the skin of their teeth.  They were, in the President's words, shellacked in 2010 and they did not recover from that shellacking in 2012. 

Not only did the GOP add to their count of governors in 2012 and hold on to nearly all their gains in the House and in state legislatures, they also added to the "Demint" caucus in the U.S. Senate with the election of Ted Cruz from Texas (replacing a moderate) and Deb Fischer of Nebraska (who replaced Ben "Cornhusker Payoff" Nelson).  Do not underestimate the impact these dedicated and principled conservatives will have on the Republican Party and in the US Senate.

As Abraham Lincoln said, "You may fool all the people some of the time, you can even fool some of the people all of the time, but you cannot fool all of the people all the time."  Obama fooled too many Americans in 2012 and he had the luxury of running against a candidate who would not defend his own record and whose conservative principles were skin deep.  The next time around, by God's grace, we will run a true conservative, with bone deep principles who will route the left.

The off year elections in Virginia and New Jersey next year will give us a good indication of the temperature of the voters.  If the Republicans run strong conservative candidates and they win, it will be a good sign for 2014.  And, of course, the results of the 2014 elections will signal whether or not the GOP has regained its political footing. 

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