I think Howard Dean spilled the beans for the Democrats when he explained why he is not afraid of the fiscal cliff. He said, “The truth is, everybody needs to pay more taxes, not just the rich.” Which means, if misguided John Boehner strikes a deal to avoid the fiscal cliff, he will have to sell the soul of the Republican party to do so.
In retrospect, the Republicans should never have accepted the terminology, “fiscal cliff.” This is why it would have been helpful for the misguided John Boehner to have waited until Obama said something on the matter before starting to make offers. And it really isn’t a cliff, it’s more like a pothole. A year from now, everything will have evened out, and it won’t have made all that much difference what was done in January 2013.
The real fiscal cliff is what the country faces if the government continues this spending spree. It’s several years down the road. (Read about this from David Walker, from August 2011). For what we are spending now, we are borrowing 40 cents on the dollar, and our pace of debt accumulation is accelerating. We know that Medicare and Social Security are headed for bankruptcy.
You see, there’s a limit to how much revenue the government can receive from taxes. Take the extreme to illustrate the principle: If the government taxed 100% of income, how much revenue would it take in? Answer: Zero, or close to it. Because if you couldn’t keep what you earned, no one would earn anything. Oh, a few would still earn money, but not many. Back that off now to a 90% tax rate. At that rate, the desire to work would be severely depressed, but they would take in something. Where is the balance point where the percentage of taxation gives the maximum return? I suspect it is somewhere near the 28% level established by Reagan. The reason I suspect that is because when he cut taxes to that level, the revenue to the government actually increased. In 1985, before his tax cuts, the inflation-adjusted receipts of the Federal Government were 1.25 trillion. In 1986, the Reagan tax cuts reduced the top marginal rate to 28%. In 1989, inflation-adjusted receipts rose to 1.5 trillion.
When you start feeding the beast of greed in the population, inculcating the notion that people can live off the welfare state, the moocher class then keeps growing and the producer class keeps shrinking. As the moocher class demands more and more, the whole system collapses on itself as it has in Greece. And that is the true fiscal cliff that lies in our future, unless we change course.
Why can’t the misguided John Boehner make these arguments effectively? I think it’s because he doesn’t really believe them, or at least doesn’t believe them passionately. I think his objective is to appear to be the tax-fighting warrior, but truly he loves his position and wants to be the deal-maker.
So here is what the misguided Speaker should do. Or maybe I should say, here is what his replacement should do, because if he doesn’t have the passion, he’s not going to be able to pull it off:
1. Stand your ground. Once he gave in to the idea of raising taxes on the rich by eliminating deductions, he ceded the point and his arguments become weak. No new taxes, that should be the position, at least the starting position.
2. Call the Democrats out for what they really want – they want to raise taxes on everyone. They are the ones who are holding tax cuts hostage, and they are doing it to satisfy their lust for class warfare.
3. Clarify the language. January is a fiscal pothole. The true fiscal cliff is several years down the road. The only way to avoid it is to rein in spending.
4. Keep making the point that raising taxes will depress the economy and probably reduce the revenues to the government, not increase them.
Oh, I can dream I guess.
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