The Fiscal Cliff – Wish the Democrats Luck

Read this article twice.  The first time you will laugh and be shocked.  You may actually say to yourself, fun to read, we could never do that.  Read it again.  Tax increases area always real and immediate.  Spending decreases are always in the future. At a minimum this thinking should change our negotiating position and add some backbone to GOP leadership.


The “Fiscal Cliff” is not a cliff, it is a phrase that is being used to prepare the political battlefield to beat the GOP into unpalatable and unnecessary concessions. It is not only not a cliff, it isn’t even a speed bump. My recommendation is not about burning the house down to make the Democrats look bad. Though I can’t help but note that their constituency gets hit much harder if we walk away than does ours. It is about the long term health of the nation. As the CBO points out, the economy will be stronger in the long run if no agreement is reached. We should listen to their advice and walk away.

Sometimes the only way out of a dilemma is by clearing the table and starting again from scratch. At midnight on December 21, 2012 the United States will be faced with what is being called the “fiscal cliff.” In short this cliff is composed of several parts.

1. The payroll tax reduction passed in 2010 will end.
2. The temporary tax rates passed under President Bush will lapse.
3. Obamacare’s taxes will come due.
4. The Alternative Minimum Tax will expand to many more taxpayers.
5. Extended unemployment benefits will expire.
6. Some $78 billion in federal spending will be sequestered.
7. Medicare “doc fix” will expire.

There are several sets of sacred cattle here. The GOP is primarily interested in protecting the tax cuts and Defense spending. The Democrats are primarily interested in preserving the social spending and free stuff for their base. This time around the Democrats, in their never ending paean to class warfare, are insisting that the Bush Tax Rates for the wealthiest Americans be allowed to expire. The GOP should not negotiate on this. This will put the GOP in the position of only getting part of what it wants in exchange for giving the Democrats everything they want, in other words this is a textbook case of bipartisanship in Washington.

Let’s not fool ourselves here. The Democrats are interested in exactly two parts of this deal. First, they want to preserve the $78 billion in spending. Second, they would like to keep the extended unemployment benefits. They have no interests in curbing the taxation portion of the problem. We know they really don’t believe that tax rates have an impact on economic policy.

When one looks at this one sees some pain but nothing that couldn’t be sustained. Quite honestly, one lesson we should learn from this is to never, ever, ever again get talked into a temporary change in tax rates. That is lunacy because we’re going to end up giving away a lot of stuff in the future, and on a permanent basis, to preserve that which was supposed to be temporary.


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