The Reality of the impending ,, Fiscal Cliff ’’ has reached Washington, today, New Year's Eve. After Weeks of Predictions by various Pundits both inside and outside of the Government that a ,, Last Minute Deal ’’ would be reached, now, it appears that, at best, some Sort of ,, Last Minute Patchwork ’’ is the best one can hope for.
Former Senator Alan Simpson was ridiculed by both Democrats and Republicans for uploading a Video on YouTube in which he ,, danced ’’ well, sort of, along a Can of Soda (or, maybe was it a Beer Can?), symbolically pointing out to what is likely to happen, which is, kicking the Can forward.
There are numerous Factors which have contributed to reaching this sad Situation and this Column would like to attempt to refresh our Recollections as to how we may have gotten to where we are and why it seems that both Congress and The President appear so powerless in finding a Solution, a real Solution, not a Patchwork.
To this, we also wish to add the Following Observation. One of the Attributes which is necessary for the Political Leadership and, yes, the Political Infantrymen as well, to find Solutions to or in difficult Situations is Enthusiasm, Élan and just a pure Desire to get Things (or at least something) accomplished. This Attribute, this Force is lacking, lacking so glaringly that one cannot but feel the
,, Negative Energy ’’ which surrounds those who must struggle and find a Solution.
But what are the Factors which got the Federal Government into this horrid Situation and who was responsible for getting us there? The List is long. Below, we can only attempt to enumerate some of the Factors, likely important ones but certainly not all of the important ones along with Reasons why addressing these Problems is ultimately necessary in order to address the ,, Fiscal Cliff ’’ as well as the surrounding Decisions which need to be made (increasing the Federal Debt Ceiling).
§ Afghanistan - Defense Expenditures. It is generally accepted by a good Number of People now that the War in Afghanistan has been a Financial Disaster. Expenditures in Afghanistan as well as Iraq and Pakistan need to be addressed as President Reagan would have put it, with a
,, Red Pencil.’’
§ Income Tax Rates. It is Time not only for the Republicans but for everyone else to recognize that the Principle of
,, Reaganomics ’’ which theorized that the Government can eventually raise more Revenue by lowering Taxes (and stimulating the Economy) is, basically, what President G. Herbert Walker Bush called ,,Voodoo Economics.’’ Moreover, specifically as to Corporate Income Tax Rates, while it is true that some Industrialized Countries have lower Corporate Income Tax Rates than the United States, none has the Array of Tax Deductions and Loopholes, some, custom written by Congress which are available to many large Corporations in the United States. Returning to the pre-Bush (G. W. Bush) Era Tax Cuts for People earning in Excess of $ 250.000,00 is really not only a modest but also a sensible Solution and no credible Argument has been put forward that such a Move would result in the Loss of Jobs or Job Creation.
§ Restore Social Security, Medicare and related Social Costs to the pre Clinton Status Quo of ,,Trust Funds.’’ This will prevent future Presidents from claiming that they have ,,balanced the Budget’’ by shifting Funds around and raiding Funds which show large Surpluses (or even small Surpluses).
§ Remove the Social Security Tax Cap which currently stands at $110.000,00. Think about this for a Minute. More important than the Rate paid by Employees (currently lower than the Rate paid by the Employers, somebody forgot the ,,creating Jobs’’ Argument on that one by not reducing the Employers’ Contribution Rate) is that all the huge Earnings by Corporate Executives and Wall Street Bonus Recepients are exempt from Social Security Taxes; once they've paid the $ 110,000.00, the are home free.
§ Put Pressure on the Federal Reserve in general and Mr. Bernanke in particular to abandon ill advised Theories of ,,Quantitatve Easing’’ and what not by pouring Billions of Dollars into the Stock Market. This is simply irresponsible. The Stock Market is jittery at the Prospect of the Fiscal Cliff simply because it loves ,, Easy Money.’’ Even though the Stock Market has propelled to new Heights since the Start of the Fiscal Crisis (generously not referred to as a Depression but as a Deep Recession), this has had very little Impact, if any, on the Economy.
§ Abstain from huge Expenditures into Support Ventures
(,, Bailouts ’’) of large and even not so large Corporations such as AIG, General Motors, Solindra and others. Although AIG has technically repaid all of the Government Loans this does not account for Billions of Tax Breaks which AIG has received from the Government. Besides, much of AIG has now been sold to China. The General Motors Bailout is costing the Government Billions in Net Losses. Somebody said, ,,Give me $ 60 Billion and I can show you how I can make a Profit.’’ It would be good to consider, at least, the Opinion of some Experts who contend that it will not be possible for General Motors to succeed as a viable Entity.
There are other Issues and Areas to be addressed but we wanted to list just a few.
Additionally, however, another Warning regarding a great Disservice which the Federal Reserve and Mr. Bernanke are doing to the Budget. The Fed is keeping Interest Rates low, almost at Zero, to be exact. This helps Banks and Financial Institutions which are entitled to borrow directly from the Fed and then reap huge Profits in large, complex and sometimes questionable Financial Transactions. This does not help the Consumer, or even most Business Owners, who must pay a Bank or a Financial Institution nearly Ten Times, or more, in Interest, than what the Financial Institution needs to pay to acquire the Funds.
But there is a hidden Danger. The Fed cannot keep Interest Rates at such low Rates at Infinitum. Some Day, after Mr. Bernanke leaves (and he wants to leave soon), Interest Rates will have to, at best, inch or creep upwards and when that happens, the Cost of borrowing Money for the Federal Government will rocket astronomically. The Rate on Federal Borrowing may one Day be dictated by Markets and The Fed may not be in a Position to dictate what it will be. This has happened elsewhere, as we all know, only too well. In such an Event, the Impact of Debt Service, not to mention the Cost of new Borrowing on the Federal Government will be not a pleasant Thing, as it is today for Mr. Bernanke to play around with announcing what the Interest Rates will be and throwing Money around into the Financial Markets while he invents new Names, such as ,, Quantitative Easing’’ for Things which aren't really that new at all.
