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Posts Tagged ‘Fiscal Cliff’

Back in early December, I wrote in the New York Post that the fiscal cliff was just a speed bump and that our real problem was an ever-expanding burden of government spending.

Well, I should have waited until this cartoon was published, because it captures in one image what I tried to say in more than 800 words.

Spending Cliff Cartoon

I’m not familiar with this cartoonist, but he or she deserves kudos for recognizing the problem is spending. Deficits and debt are merely symptoms of the disease of excessive government.

Makes me wonder, by the way, whether this monster is related to the one in this classic cartoon from Lisa Benson.

P.S. If we want to slay the monster in today’s cartoon, we need to copy the very successful Swiss Debt Brake and restrain the growth of government spending. And to make sure we abide by that cap, we’ll need some sensible entitlement reform.

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By the time you read this post, it’s possible that the buffoons in Washington will have announced a deal on the fiscal cliff. Or perhaps we’ll have another month or more of fake drama.

Regardless of when the deal is announced, I fear the final result will be some sort of victory for Obama, with class-warfare tax policy that will undermine the economy’s long-run growth and reduce American competitiveness.

So let’s at least enjoy some good cartoons while taking another step in our journey to Greek-style fiscal collapse.

If you wonder why I’m feeling so glum, this cartoon is a pretty good summary of the debate. Or perhaps I should say bad summary. No wonder I’ve been wearing my red jacket to cheer myself up.

GOP Dem Fiscal Cliff Cartoon

By the way, don’t think the higher taxes will be balanced by any spending restraint. Click here to see a very depressing chart about Obama’s “balanced” proposal.

At the beginning of the month, I posted a bunch of cartoons that portrayed Obama as being very dogmatic and inflexible in the negotiations, while showing Republicans as being clueless and naive. Well, here’s another one with the same message.

Obama Fiscal Cliff Cartoon 2

So true. If anyone thinks we’ll get something good out of this, such as entitlement reform, get in touch with me because I have some great oceanfront property in Kansas that I’m willing to sell you.

This one targets Congress instead of Republicans, but the idea’s the same.

Obama Fiscal Cliff Cartoon 1

And in the middle of the month, while speculating why the GOP has been losing the debate, I shared a couple of cartoons illustrating potential explanations. Here’s a Chuck Asay cartoon based on the “co-conspirator” theme in that earlier post.

Boehner Fiscal Cliff Cartoon

The part in the final frame about the fiscal cost of Obamacare is a nasty touch, but sadly true.

All told, this is a very unpalatable situation. We’re going to give more of our income to a bunch of spendaholics, and they’re going to use the money to increase the burden of government spending and dig us into a deeper fiscal hole.

Heckuva start to 2013!

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We’ve opened all our presents, spent time with family, and enjoyed some tasty food.

Notwithstanding all this good cheer, there’s a a cloud of doom on the horizon. And that horizon is Washington, DC, America’s work-free drug city.

It appears that there’s no way of avoiding a tax increase. Either we go over the cliff, meaning across-the-board hikes for those who pay federal income tax, or Republicans acquiesce to Obama’s class-warfare tax agenda.

No wonder Santa left one unwanted present.

Santa Higher Taxes

I explain the grim outlook for Fox Business News, though my display of sartorial Christmas splendor somewhat offsets the dour topic.

In the interview, I don’t say what should happen, though I’ve previously argued that it’s better to go over the cliff rather than give Obama a victory that will set the stage for further defeats over the next two years.

Better to have a bigger tax hike now, in other words, than to create a precedent that will lead to even larger losses in 2013 and 2014.

Besides, it’s quite possible that Obama is bluffing and this is the right way to get all the tax cuts extended.

But I admit there’s lots of guessing and speculation in those sentences.

There is one thing, however, that I can say with complete confidence. We don’t need a tax increase to balance the budget. We can get rid of red ink in just 10 years simply restraining spending so that it grows by only 2.5 percent per year.

P.S. Notwithstanding the last sentence, our main fiscal goal should be smaller government, not a balanced budget.

P.P.S. I was glad to have an opportunity in the interview to defend Robin Hood’s reputation. As I’ve explained, he was a Tea Party guy, helping to reclaim and return money that was taken by the tax collectors of Prince John and the Sheriff of Nottingham. Here’s another Ken Catalino cartoon that sort of makes this point.

Obama Reverse Robin Hood

I’ve also had to correct Cal Thomas on Robin Hood’s philosophical bona fides, so this is a very common mistake.

P.P.P.S. This is my second attempt at creating a video in the absence of the Cato expert. There’s a hiccup around the 2:25 mark, but I think the picture quality is much better than my first effort.

P.P.P.P.S. If you like the red jacket, previous attempts to be on the cutting edge of fashion can be seen here and here.

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The politicians claim that they are negotiating about how best to reduce the deficit. That irks me because our fiscal problem is excessive government spending. Red ink is merely a symptom of that underlying problem.

But that’s a rhetorical gripe. My bigger concern is that politicians are prevaricating. They’re really talking about higher taxes in order to enable a bigger burden of government spending, not less red ink. I make this point in an interview on Fox Business Network.

This is the point where I often elaborate on issues raised in the interview, but let’s instead build on the discussion to look at policy and political reasons why the GOP  should not surrender to Obama’s tax demands as part of fight over the fiscal cliff.

Here are the policy arguments against higher taxes.

1. There is no need for higher taxes since the budget can be balanced merely by restraining spending so that it grows 2.5 percent each year.

According to the most recent Congressional Budget Office fiscal estimate, the 2001 and 2003 tax cuts can be made permanent and red ink can be wiped out in just 10 years so long as politicians simply control the growth of federal spending so that outlays don’t grow faster than 2.5 percent each year. Other nations have shown that this type of spending restraint is very successful, while no nation has ever taxed its way to fiscal success.

2. Since the tax increases stick and the supposed spending cuts quickly evaporate, budget deals that raise taxes have a long history of failure.

Last year, in an article that was designed to browbeat Republicans for being unreasonable about tax hikes, a New York Times columnist inadvertently revealed that the only budget deal that actually led to a fiscal surplus was the 1997 agreement that lowered taxes instead of increasing them. None of the tax-hike budget deals ever resulted in a balanced budget.

3. America’s short-run fiscal problem is the result of too much government spending, not inadequate tax revenue.

Because of large spending increases during the Bush-Obama years, the burden of federal spending has doubled in just 11 years. This is why today’s fiscal numbers look so grim. Some argue that tax revenues are below their long-run average of 18 percent of GDP, but CBO estimates show that tax collections will be above the long-run average by the end of the decade even if all the 2001 and 2003 tax cuts are made permanent. And the White House recently admitted this was true as well.

4. America’s long-run fiscal problem is the result of too much government spending, not inadequate tax revenue.

In the absence of entitlement reform, the burden of federal spending will double, measured as a share of GDP, and the overall burden of government will exceed the levels that currently exist in every single European welfare state. Tax revenues also will climb as a share of GDP thanks to “real-bracket creep,” so there is no plausible argument that the long-run problem is inadequate revenue.

5. The European evidence shows that genuine spending cuts are the only effective way of solving a fiscal crisis.

Nations such as Italy, Greece, France, Spain, Ireland, Portugal, and the United Kingdom have imposed massive tax increases, yet their fiscal problems remain. Indeed, in some cases, these nations are in worse shape because the tax hikes contributed to anemic economic performances.  Some of these countries have belatedly begun to trim their spending burdens, but generally by relying on transitory savings rather than permanent reductions in the obligations of the welfare state. The only relative success stories on the continent are Switzerland, which never got into trouble in the first place thanks to a spending cap, and the Baltic nations, which imposed genuine spending cuts when the crisis first began and now are reaping the rewards of that fiscal discipline.

And here are the political arguments against higher taxes.

1. With Republicans easily retaining control of the House of Representatives, the election was not a mandate to raise taxes.

Nobody argued that there was a mandate to raise taxes before the election, when Republicans controlled the House and Democrats controlled the White House and Senate, so how can there be a mandate to raise taxes today since the election didn’t change anything? Some assert that Obama has a mandate since he campaigned in favor of his soak-the-rich tax plan. That’s true, but House Republicans prevailed after campaigning against class-warfare taxes, so that’s a wash.

2. The GOP prevailed in the exact same tax battle back in 2010, before they controlled the House and when they had fewer seats in the Senate.

This is not the first fiscal cliff battle. The same fight took place at the end of 2010. At the time, Democrats has an overwhelming majority in the House and even stronger control of the Senate than they do today. But by holding firm and staying united, Republicans prevailed. If they lose today, when they have far more political power, it will be a damning indictment of their incompetence.

3. Acquiescing to tax hikes would set a tone of weakness for 2013 and 2014, much as the 2011 “shutdown fight” needlessly gave Obama the upper hand on fiscal battles in 2011 and 2012.

Back in early 2011, the GOP had a pivotal battle with Barack Obama over spending levels for the remainder of the fiscal year. Being a thoughtful guy, I gave them some unsolicited advice on how to prevail, explaining for National Review how Republicans basically won the shutdown fight of 1995-1996. Sadly, they didn’t take my advice and they wound up with a crummy deal. And that paved the way for subsequent defeats, such as the debt limit debacle that planted the seeds for the current tax-hike dilemma. The GOP needs to stop this carousel of capitulation. The fiscal cliff, while bad, is not as bad as a tax deal imposed on them by Obama.

4. If Republicans give up on taxes, they will get nothing in exchange.

I’ve actually written that I would accept higher taxes if we got some real fiscal reform to restrain the growth of government. There is zero chance, however, of any meaningful changes on the spending side of the fiscal ledger, such as program terminations or real entitlement reform. Heck, Obama even proposed more spending for additional Keynesian faux stimulus. Republicans will be laughingstocks if they get suckered…again.

5. Integrity matters, so politicians who promised the people that they wouldn’t raise taxes should honor those commitments.

I realize that it is silly to make an argument about honor and integrity when we’re discussing the actions of politicians, but I’m old fashioned. A promise should mean something. And even if promises don’t mean anything to these guys, they should remember that voters don’t like dishonesty.

Fiscal Cliff Parachute CartoonI’m not terribly hopeful that any of my advice will be followed, so let’s close this post with some gallows humor.

This cartoon has the same message as the seven classics I posted over the weekend.

Simply stated, Republicans are caught between a rock and hard place, and it looks like taxpayers are going to get screwed.

But they do have a choice about whether their fingerprints should be on the screw.

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I’m very concerned about both the fiscal cliff and its possible replacements. It will be bad news if we get an automatic tax hike on January 1, and it will be bad news if that tax increase is replaced by an even more odious plan concocted by the White House.

Fiscal Cliff Cartoon RamirezBut the cliff is not our biggest fiscal problem.

Here’s some of what I wrote for today’s New York Post about the fiscal cliff, along with a warning that we have a much bigger problem down the road.

…it’s a fight that has important implications, particularly since some of the tax increases will have a significantly harmful impact on incentives to work, save, invest and create jobs. In a competitive global economy, for instance, it is bizarrely self-destructive to increase the double taxation of dividends and capital gains. …This is all bad news, but it is not a crisis. If we go over the cliff, it simply means the economy will grow a bit slower and politicians will spend a bit more money. And the sequester actually would be (modest) good news, since it means the burden of government spending would be “only” $2 trillion higher 10 years from now, rather than $2.1 trillion higher. And even if Obama prevails in the fight, that simply means that we get a different mix of tax hikes and spending rises at a faster rate. Sure, that’s bad for the economy, but it’s not the end of the world. The real crisis is the ticking time bomb of entitlement programs and the welfare state. This bomb won’t explode this year or next year. It may not even explode for another 20 years. But at some point America will experience a Greek-style fiscal collapse if these programs are not reformed.

Just how bad is this future problem? Gee, I’m glad you ask.

A lot of people get upset about the national debt, which is somewhere between $11 trillion and $16 trillion, depending on whether you include money the government owes itself. Those are big numbers — but if you add up the amount of money that the government is promising to spend for entitlement programs in the future and compare that figure to the amount of revenue that the government projects it will collect for those programs, the cumulative shortfall is more than $100 trillion. And that’s after adjusting for inflation. Some politicians claim this huge, baked-into-the-cake expansion of government isn’t a problem, because we can raise taxes. But that’s exactly what Europe’s welfare states tried — and it didn’t work. Simply stated, even huge tax hikes won’t stem the flow of red ink in the long run if government keeps growing faster than the private economy. This is the fiscal problem that demands attention. Absent real entitlement reform, such as block-granting Medicaid to the states, the burden of government spending will consume ever-larger shares of our economic output with each passing year.

In other words, the solution is to follow Mitchell’s Golden Rule. That’s the only way to make sure that the burden of government spending shrinks relative to economic output.

Fortunately, that simply requires some modest spending restraint to address the short run problem and some intelligently designed entitlement reform to solve the long run challenge.

P.S. If my only choice is surrendering to Obama or going over the fiscal cliff, I’ll take the plunge without a second’s hesitation. At least we get the sequester if we go off the cliff, so there’s a tiny bit of spending restraint. Moreover, if the GOP capitulates to Obama on this fight, it will set the stage for additional bad policy over the next two years (much as the acquiescence to Obama during the March 2011 “government shutdown” fight was a sign of things to come for the last years, but at least we resuscitated two good cartoons and got some good jokes out of that debacle).

P.P.S. In addition to the Ramirez cartoon above, you can enjoy this bunch of amusing fiscal cliff cartoons. Or I should say they’re amusing so long as you don’t think about the implications.

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Earlier this year, I explained that tax revenues would soon climb above their long-run average of 18 percent of GDP, even if the 2001 and 2003 tax cuts were made permanent. In other words, the nation’s fiscal challenge is entirely the result of a rising burden of government spending.

Even though the data on tax revenue comes from the left-leaning Congressional Budget Office (yes, the same folks who seem to think you maximize growth with 100 percent tax rates), many folks on the left simply refuse to believe the numbers. In their minds, it is a religious tenet that red ink is the result of “tax cuts for the rich.”

So I wonder what they will think of this chart, produced by the White House, that shows tax revenues will…drum roll please…rise above 18 percent of GDP even if lawmakers decide to “extend current policy.”

White House Tax Admission

Apologies for the poor quality of the chart, by the way. It was sent out in an email by the White House and posted on the TaxProf Blog. It’s the best copy I can find.

But you don’t need 20-20 vision to see that tax revenues will get to about 18.5 percent of GDP 10 years from now if current tax policy is made permanent.

Here’s a chart I made. It’s not as fancy, but it shows tax revenue for the last 50 years of the 20th Century, plus the years leading up to Obama this century. The average is exactly 18.0 percent, with a slight upward trajectory according to the Excel auto-trendline feature.

Tax Revenue Average Is 18 Pct of GDP

The moral of the story is that the tax increase battle is not about deficits and debt. The President’s class-warfare tax policy is designed to enable bigger government.

In the short run, the tax increase will help lock in place the expansion of government that took place during the Bush-Obama years.

In the long run, though, the left will want even more taxes to enable the demography-drive expansion of the welfare state. Higher revenues, in other words, are a substitute for real entitlement reform.

What the left generally won’t admit, however, is that the rich are not a piñata, capable of disgorging limitless amounts of new money. There are big Laffer-Curve effects when tax rates climb too high, largely because upper-income taxpayers have considerable control over the timing, level, and composition of their income.

So the ultimate target will be the middle class, as more and more statists are admitting, and the most worrisome threat is the value-added tax.

P.S. You may have noticed that the White House used 20 percent of GDP as a benchmark in its chart, apparently because we should strive for the fiscal policy we had in Bill Clinton’s second term. I might be willing to take them up on that offer, so long as they’re also willing to accept Bill Clinton’s spending levels.

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Okay, I’ll admit the title of this post doesn’t really say anything. My toaster is smarter than most Republicans.

But let’s focus specifically on the budget and tax negotiations. As I explained the other day, we basically have a situation where the President wants to trick GOPers into jumping out of the “fiscal cliff” frying pan and into the Obama class-warfare fire.

The frying pan is not a good option since it means a return of Clinton-era tax rates (but unfortunately not a return to Clinton-era levels of spending and regulation), but at least there would also be “sequestration,” which is budget-wonk term for automatic reductions in the growth of government spending.

Obama’s class-warfare fire, by contrast, is nothing but bad news. The tax increases might not be as large in the short run, but they would be designed to impose maximum damage on the economy. And the sequester would disappear. Indeed, Obama’s actually demanding more Keynesian stimulus!

The President says (with a straight face, so he does have acting talent) that he also wants “spending cuts” as part of his “balanced approach.”

Gullible Republicans seem to think this is just peachy keen, but here is the work of some cartoonists with a more realistic assessment. We’ll start with my favorite, from Robert Ariail, if for no other reason than it builds upon a cartoon I created for this 2011 post.

Cartoon Fiscal Cliff 3

Here are two cartoons about that share the same theme, putting Obama in the role of Wimpy from the Popeye series. If that’s not a familiar cultural reference (i.e., if you’re not as old as me), watch this YouTube clip.

Cartoon Fiscal Cliff 2

Cartoon Fiscal Cliff 6

And here’s the cartoon version of a post I wrote back in 2011.

Cartoon Fiscal Cliff 4

Here’s one from the great Michael Ramirez, acknowledging the President’s willingness to meet his opponents halfway.

Cartoon Fiscal Cliff 5

Let’s now close with two really good additions to this collection. Here’s one mocking Republicans for their naiveté.

Cartoon fiscal cliff 1

Last but not least, here’s one showing that Obama prefers the European version of a “balanced approach” rather than the version I put together.

Cartoon Fiscal Cliff 7

By the way, here’s another original bit of Dan Mitchell humor – the very simple two-line Barack Obama flat tax.

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