The way out

The proverbial can has been kicked down the road again. We have officially averted the so-called fiscal cliff by raising taxes. Any spending cuts in the deal are meaningless and will be forgotten when the next stimulus bill is proposed. The next “crisis” on the docket is raising the debt ceiling so we can continue this insanity unabated.

This was a bad experience for the Republicans, who seemed unable to articulate a clear fiscal vision for the country. Obama certainly controls the mainstream media spin, but the political opposition can do much better. The way out of this mess is not easy but involves 3 steps.

  1. Acknowledge the problem. This should be a no-brainer with a $16 trillion national debt and a trillion-plus added each year.  Many Americans actually believe that the income tax hike in the tax bill will produce enough revenue to make a difference (assuming that the net effect is positive). They believe in the gurus and magicians at the Fed who appear to keep the money flowing in the face of economy calamity. My guess is that a little less than half of us understand that something is seriously wrong. We need a strong majority in this camp before we can move to #2.
  2. Promote a radical tax overhaul until it passes. I like the Fair Tax option, but a flat tax is easier to achieve. The current approach is wrong in two key respects. (1) Economically, the current system is massively inefficient, requiring a huge federal bureaucracy to interpret and enforce, and billions in compliance costs for individuals and businesses. Instead of doing what is in our best economic interest, we make choices that minimize our tax burden. (2) Morally, the current tax maze exists to redistribute income and buy votes, all in the name of equality and social justice.
  3. Cut spending. Overspending is the real cause of the current crisis, but addressing it will be very difficult. As one example—setting the privatization argument aside for the time being—raising the eligibility age for Social Security benefits and modifying the system used (currently the CPI-W) to calculate annual increases would represent a move in the right direction. Declawing regulators is part of the solution as well. Government spending should be Constitutional, nothing more and nothing less.

Politically, the Republicans in Washington have given lip service to #1, but have failed to articulate a serious solution, #2 and #3. As a group, they seem content to talk about bipartisan negotiations designed to tweak the system rather than overhaul it. The problem is beyond tweaking, however, and many Americans don’t see the clear demarcation between Republican action and Obama’s rhetoric for a “balanced approach.” Whenever conservatives lack clarity, they lose.

The inconvenient truth is that the range of spending cuts required in #3 will be painful. Many Americans have become unnecessarily dependent on federal programs, and the majority of us receive indirect short-term benefits from Washington’s overspending. For example, expansions in WIC programs create business for grocers and food producers. Agricultural subsidies are inefficient, but certain good prices are lower as a result. Various housing programs create bubbles down the road, but can reduce today’s mortgage payment. I believe a majority of Americans—if properly informed—will be willing to accept the pain necessary to get our house in order, as long as the approach is sweeping, comprehensive, and makes a difference. The operative phrase here is “properly informed.” We have a lot of work ahead of us.

6 thoughts on “The way out

  1. The flat tax and the fair tax ideas have been around forever but very few republicans are talking about them. What do they stand for if they don’t strongly support a simple, fairer tax code? This could be a defining message for the republicans but they don’t want to go there.

  2. John Boehner was reelected speaker of the house so we’re in for a rough ride. Obama will stake out a position on the far left, Boehner will start in the middle, and they’ll negotiate from there.

  3. We won’t get a flat tax or a fair tax just more tax. Americans prefer big government but they are unwilling to pay for it. Democrats will ride this wave and they are in charge. Nothing substantial will happen regarding tax reform or spending cuts. The party in power will focus on getting back the House in 2014 and will paint the Republicans in the corner with immigration, gun control and other non fiscal matters. There is no conservative wing of their party to appease. Obama has accomplished. part of his agenda. He has the voters addicted to big government. But he needs more taxes to fund it or it could collapse on his second term. He can only cook the books so much. The Republicans must keep the House to at least slow things down. This is doable. There are only 15 Republican held districts that Obama won. And this is now Obama’s economy. His taxes, his spending, his healthcare, his deficit, his debt. There should be a message for Republicans in there somewhere.

  4. The Fiscal Cliff deal wasn’t all bad. They did restore $100 billion a year to Social Security and Medicare through payroll taxes. And the debate was worthwhile as it gets fiscal matters front and center. The upcoming debt ceiling fight will also be won by the President. He is right in that we must pay the bills that Congress has run up. What the Republicans should do is agree with that but hammer home the message that we were wrong in creating this spending spree. It must stop now. Give him his debt ceiling increase and at the same time promise the American people that Congress will approve no new spending. The buck stops here. Serious spending cuts cannot happen with a Democratic White House and Senate.

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