Two Fiscal Cliffs: The Good and Bad

November 19, 2012 • Featured, Politics & Government • Views: 3082

In Obama’s Soak-the-’Rich’ article in Cato Institute, the writer Daniel J. Mitchell says,

“Tax Hikes are Worse than the Fiscal Cliff

America actually will fall off two fiscal cliffs in January, but only one of them is bad. The good fiscal cliff is the so-called sequester, which is the inside-the-beltway term for automatic spending cuts. These aren’t really spending cuts, just reductions in the growth of spending. If the sequester takes place, total federal spending will climb by $2 trillion over the next 10 years instead of $2.1 trillion. But anything that restrains the growing burden of government spending is a good idea, so a small step is better than nothing.

The bad fiscal cliff is the automatic tax hike, which exists because the 2001 and 2003 tax cuts are scheduled to expire at the end of the year. This means higher tax rates for all taxpayers, as well as increased double taxation of dividends and capital gains.”

What many economists and politicians don’t recognize is that there is a difference between money saved or spent in the private sector versus the public sector and the ‘unintended consequences’ of behavioral changes by the individual and the marketplace as a result of public policies that increase taxes, create more regulations and which usually means tax avoidance and spending decisions that are short term and counterproductive.

Unfortunately, as government does with most ‘hard political decisions’, politicians in Washington after much saber rattling will compromise on the important decisions of redefining the role of the Federal government and making some significant spending cuts and policy changes in Defense, Social Security, Medicare and other entitlement programs that for the most part should be remanded back to the states. Instead there will be a mirage of spending decreases from the baseline budget as mentioned earlier and there will be a phase out of tax deductions at an income level of $250,000 or so, which like the AMT was never bracketed or indexed and eventually inflated its way into the ‘Middle Class’ where most of the money is. As a result the market response will be to hide more income and investment strategies that moves more capital into the ‘shadow economy’ and overseas.

This past week in a ‘Farewell to Congress’ retiring Rep. Ron Paul took some time to reflect on his 40 year contribution to raising a warning of abusive federal power, “Dependence on our government is the worst it has been in US history..Why does the changing of parties and politicians not change policies, could it be that both parties are essentially the same?..Real Patriotism is challenging the government (and your party) when it’s wrong.”

While we appreciate past generations like those who grew up during the Great Depression and fought in WW2 and Tom Brokaw nicknamed the ‘Greatest Generation’. With deference to that generation, I believe the Greatest Generation is ahead of us, growing up before our eyes, rejecting today’s Historicism being taught of our past and embracing instead the original underpinnings of Individual Liberty that were forged in the US Constitution and which sailed a great Republic.

Hip Hip Hurrah for Elections and Representation! The Status quo won again and as Rep. Ron Paul slips out of public office, will there be a GOP or Democrat party that realigns itself to the Constitution and will there be new voices crying in the wilderness, “This is the way to Liberty, Walk Ye in it!” or are we inevitably headed down the slippery slope of more centralized government?

Christopher M. Mahon, Editor

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