posted by King Minos in Money / Career

Liberals: Save U.S. With Taxes!

November 14, 2012

During last week’s elections, voters across the country opted to raise taxes to help their cities, counties and school districts

Oh, dear! It will not work, guys ....!!

This timely AP story kinda-sorta mirrors PBO's stance on fiscal issues in relation to dismantling the ticking "fiscal cliff" bomb. Unfortunately, the King believes the fiscal bomb will explode regardless of how we tamper with the device.

BUT, "higher taxes" -- even a punitive wealth tax -- will contract the U.S. economy in almost exactly the same way equal spending cuts would do;

NOT ONLY THAT, but higher taxes, themselves, do not address unsustainable growth in government programs and institutions;

When Americans have less to spend, they will spend less; then, when spending declines due to higher taxes, this will reduce demand for consumer goods and services and cause the economy to shrink!

STILL, as a counter-point to the dated "no tax increase" relic from the faux Reagan supply-side years, the liberal stance is indeed a step in the right direction! This is because in budget negotiations they will discover, again, that the system cannot EVER be fixed unless strong leaders are willing to critically examine spending and make it more effective! In a sense, this can kicked down the road got here because "we" (Republicans and Democrats) refused to wisely steward over the public purse; we refused to make the hard choices!

It is then, too, a rude counter-point to the traditional democratic message that government needs to spend more, not less! And it weighs against notions about what government ought do to help the "less fortunate" and against the modern feeling of American leaders that there was always enough financial capital (either from new taxes or borrowed from abroad) to "do what really needed doing!" (And to win the political capital available when forcing such a budget-busting but citizenry-pleasing -- or special interest group pleasing -- "feel good" and "be good" political fix through the legislature!)

The elephant in the room, however, is the stupendous rise in government revenues and spending -- at local; state; and federal levels -- associated with the now deflated housing boom and period of "Great Moderation;" absent another bubble, it's fairly impossible to see how revenues and spending can re-ascend to those levels! The alternative, obviously, means spending and revenues must decline form many years; this also means the economy must contract, and that growth will be much slower.

Then, in addition to a more progressive, but not punitive, revenue reform, the liberals are ALSO required to tighten their belts and get by with many fewer dollars going to government programs! Private citizens, similarly, are required to produce more than they consume; and to do so long enough to effectively "pay back" the proceeds from the vast borrowing programs seen at the federal, state, and local levels over a period of many years!

FINALLY, and perhaps the revenge-against-the-revenge, remains the fact that effective remedies on fiscal issues will necessarily cause the U.S. economy to contract and enter recession; it is the necessary "tough love" sort of thing you heard about and kind of expected from Team Romney!

And, now, PBO will get credit for putting more Americans out of work, shrinking government, and proposing stiff new taxes for ALL Americans!

Such a program is not unlike the "austerity" programs now in Europe and may, similarly, create the seeds of political destruction for the ruling political elite.

Once over the "fiscal cliff," the ride is bound to be breath-taking like a real roller-coaster ride on say a machine with a reputation for jumping the track and wreaking indiscriminate death and destruction even to nearby spectators! If Europe and Greece and the other 'special case" debtors are the model, then we should expect all that and more! If for instance, sovereign debt is just a little like a powder keg, then finally lighting the fuse on the U.S. store of securities ought to generate a global spectacle of "shock and awe" probably never seen before in all of financial history.

STILL, it was inevitable given the debts and unsustainable institutions and programs.

After WWII, General Marshal at Truman's urging cooked-up a rescue package for a war scarred and starving Europe; this time we get to bail ourselves not out of a situation generated by expending resources to prevent conquest by murderous enemies; but simply because we as a people and our representatives thought we were above it all, and could borrow such sums with impunity!

The Great Depression was thought to be partly a result of WWI; this time, we have only our selves as the enemy; and our stupidity to thank!

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