America Went Over the Fiscal Cliff Long Ago
By Alan Caruba, BQI Contributor
I doubt that President Obama will compromise with the House Republicans on anything that might be done to avoid the January 2nd “fiscal cliff” that kicks in with higher taxes for everyone.
Obama has made it clear that increasing the tax rates on “millionaires” is his goal and he made that clear throughout the campaign. The income that would be generated from the increased rates would generate enough money to run the nation for about a week or so at most. In politics perception often trumps reality. And those “millionaires” are mostly middle class folks earning $250,000 or more.
As Chris Cox and Bill Archer, two veterans of the House, chairman of key committees, now in the private sector, wrote in a November 26 Wall Street Journal commentary, “The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86 trillion, or 550% of GDP” (Gross Domestic Product, i.e., the total the U.S. earns from the sale of all goods and services annually).
We are so far passed the fiscal cliff that the U.S. is unlikely to be able to borrow its way out of this huge debt. Cox and Archer said that “Borrowing on this scale could collapse the capacity of global capital markets—and bankrupt not only the programs themselves but the entire federal government.”
“When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper in debt would require $8 trillion in tax collections annually.”
By adding $6 trillion in debt during his first term, it seems to me that Obama’s goal has been to bring the nation to financial ruin. He added more debt that all the combined presidents before him. He squandered billions on bailouts of General Motors and Chrysler, loans to “green” companies, and increases in programs like food stamps. He cut off new sources of income from the energy sector and, with them, the prospect of jobs that would be generated. At one point he advocated developing algae—pond scum—as a new source of energy.
The total amount of earnings from individuals and corporations is not sufficient to cover the debt and operating expenses of a federal government that has been steadily expanding since early in the last century. Cox and Archer noted that “all individuals filing tax returns in America and earning more than $66,193 per year have an adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had a total income for tax purposes of $1.6 trillion.”
That’s a total of $6.7 trillion available and we have more than $8 trillion per year in liabilities. The U.S. is borrowing $4 million a day to pay the interest owed on its debt and other liabilities.
The tax system of the U.S. was created in 1913 with the introduction of the income tax and hasn’t seriously been updated since 1986, just over a quarter century ago. As Mitt Romney told a fund-raiser during the campaign, 47% of Americans pay no income tax at all. He caught a lot of flack for telling the truth.
On Election Day, responding to exit polls, 63% of Americans said they were opposed to increasing taxes. Two years earlier when the midterm elections returned power to the Republicans in the House where the Constitution mandates that all spending bills must originate, a compromise resulted in the extension of the Bush tax cuts for two years. Even Obama said it would be a mistake to raise taxes during a bad economy. He doesn’t have to compromise now and he won’t.
I have no doubt that Obama will blame whatever occurs regarding the “fiscal cliff” on the Republicans, but a January 2011 article by Paul Bedard in US News and WorldReport spelled out a plan by the House GOP to eliminate $2.5 trillion in spending over the next ten years. It’s not that Republicans haven’t a plan. It’s that Obama’s plan is to raise everyone’s taxes and keep on spending.
As Grover Norquist, president of Americans for Tax Reform and an opponent of all tax increases, wrote in mid-November, “Obama’s present demand is that the top two marginal tax rates be increased to 39.6% plus the 3.8% Obamacare tax surcharge for a top rate of 43.4%. The death tax would also jump back to 55%, capital gains tax would jump from 15% to 23.8%, and the tax on dividends would increase from 15% to 39.6%”, more than double its present rate.
“If Obama follows through on his threat,” wrote Norquist, “and refuses to extend the Bush tax cuts, then there would be an automatic $500 billion tax increase beginning on January 1, 2013, that would total $5 trillion over a decade.”
In plain words, Americans who still have jobs, who have invested in the stock market, and who have any savings, will be impoverished within a decade, if not sooner. The middle class is already paying 50% of what they earn in income taxes, payroll taxes, state taxes, property taxes, and taxes on gas, telephone use, and other levies.
Obama has not talked of cutting government spending, relying on the automatic “sequestration” that would begin in January. His Secretary of Defense, Leon Panetta, called the effect on the U.S. military “catastrophic” though the cuts would reduce what Norquist calls “the Obama debt machine” and would in theory strengthen the economy.
I say “in theory”, but federal regulations in 2011 added more than $231 billion in regulatory costs to private businesses and state and local governments, adding up to 133 million hours of paperwork, according to the American Action Forum. Tons more regulations are in the pipeline, particularly from the Environmental Protection Agency. When you add in the 28 taxes hidden in Obamacare, it is clear that there will be precious little money left over for anything than the bare necessities of life.
Americans have been ill-served by their government, composed of those elected to exercise good judgment regarding the economy. It has been going on for a very long time and now the bill is coming due.
America is living in the greatest debt bubble the world has ever seen. I suspect most are completely unaware of it.
America went over the fiscal cliff decades ago and now is in free-fall. Life here and around the world is going to get very ugly.
© Alan Caruba, 2012