What's the Fiscal Cliff All About?
- Friday, December 14, 2012
So what’s the “fiscal cliff” that's been so much in the news lately? Perhaps, like me, you’ve just tuned in to this debate. After the election, I was weary of national politics. It was a welcome change to focus on preparing for and enjoying Thanksgiving.
But we should take a closer look, or, come January, we may be asking ourselves “What happened?” when our taxes go up a couple of thousand dollars and the economy heads into another recession — as some are predicting.
Initially President Obama proposed a $1.6 trillion tax increase, calling on the rich to “pay their fair share.” He also proposed hundreds of billions in new spending, and unilateral power to raise the debt ceiling anytime in the future. This was supposed to deal with the fact that virtually every tax cut enacted by Congress since 2001 is set to expire the beginning of 2013. In addition, some major spending cuts are due to go in to effect. This is what’s being called the “fiscal cliff.”
Economist Thomas Sowell helps put the rhetoric about the rich “paying their fair share” in perspective. “First of all,” says Sowell, “despite all the melodrama about raising taxes on ‘the rich,’ even if that is done, it will scarcely make a dent in the government's financial problems. Raising the tax rates on everybody in the top 2 percent will not get enough additional tax revenue to run the government for 10 days. And what will the government do to pay for the other 355 days in the year?”
We shouldn’t be fooled by the effort to shape the political narrative in terms of asking the rich to pay their “fair share.” This is only an effort to hide the fact that out-of-control government spending is the real problem. Unless a serious effort is made to rein it in, our nation is truly going to go over a cliff — and it’s a lot bigger than this one. In fact, Sen. Jim DeMint of South Carolina said on a Glenn Beck radio interview (12/7/2012) that we’ve already gone over the cliff. We just haven’t hit bottom yet.
None of the deadlines coming due in January have been a secret. Both Congress and the president have known all along that the Bush-era tax cuts on income, investments and inheritances, as well as allowances for married couples and families with children, were due to expire. And they knew that a major provision of the Budget Control Act will go into effect in January as well. This provision will require massive government spending cuts, unless a deal is reached by December 31 that cuts the deficit by $1.2 trillion — over the next 10 years. (Don’t forget that the government has been running trillion-dollar deficits for the past four years and it’s showing no signs of changing.)
When Congress passed the so-called Budget Control Act in August 2011, it raised the debt ceiling to $14.694 trillion. Since then, they have raised the debt ceiling two more times and now at a new high of $16.394 trillion. This is the real issue. We are drowning in debt.
What’s going to take place in January is only a “fiscal bump in the road” compared to what lies ahead. With all their political posturing, politicians have done nothing over the past decade to deal with government’s out-of-control spending. The present administration’s use of quantitative easing to inflate the currency (which amounts to printing fiat money), is no solution. In fact it may lead to disaster if the dollar is devalued as a world currency.
Since January of 2009, the U.S. national debt has been increasing by an average of four billion dollars a day. What’s more, the unfunded liabilities for Medicare and Social Security are $25 trillion and $21 trillion respectively — and that’s a conservative estimate. Baby boomers are now retiring at a rate of 10,000 a day. Most of them have not saved adequately for their retirement, and many of those who did saw their 401k plans devastated in the 2008 stock market crash.
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