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Special Report
Good Day for a Fiscal Cliff Hanging
A lot of Washington types are betting their careers on tax increases.
It seems like everyone is piling on my college friend Grover because they can’t wait to abandon the tax pledge not to raise taxes that he sponsors, and that they took so gleefully when they were unknowns trying to break into politics.
It seems that way because any time any Republican does it he is lionized all over the Democrat party-controlled press. But Grover is right that it is just the usual handful of malcontent sell outs who always in their hearts think we (conservatives and Republicans) are wrong, in the celebrated phraseology of the late Joe Sobran.
Hence there he is, Sen. Lindsey Graham (R-SC), telling Democrat operatives on ABC’s This Week, “The only pledge we should be making to each other is to avoid becoming Greece. And Republicans should put revenues on the table.” He follows another frequent sellout Sen. Saxby Chambliss (R-GA), who also told the Democrat party press, “I care more about my country than I do about a 20 year old pledge.” Both Graham and Chambliss are up in 2014, and I am certain Graham is already trying on suits to join the K Street lobbyist crowd in 2015. If he is really as smart as he thinks he is, as I will explain below.
It was Bill Kristol of the Weekly Standard who rang the alarm bell that it was time for the rats to start to flee what he sees as a sinking ship, saying, “The leadership of the Republican Party and the leadership of the conservative movement has to pull back, let people float new ideas. Let’s have a serious debate. Don’t scream and yell if one person says ‘You know what? It won’t kill the country if we raise taxes a little bit on millionaires.’ It really won’t, I don’t think.” Raising taxes is what passes for a new idea at the Weekly Standard?
So let’s have Bill Kristol’s serious debate. Let’s talk about the fiscal cliff, ask why would we want to raise tax rates on job creators, and offer some actual new ideas.
The Fiscal Cliff and the Coming Crash of
2013
The rhetoric has already lost sight of what the
term “fiscal cliff” describes. The talk in the Washington media is
increasingly as if the “fiscal cliff” is all about the deficit, and
the point is a tax-increasing budget deal to close the deficit. But
the fiscal cliff refers to the economy falling off the
cliff due to the fiscal policies of comprehensive tax rate
increases and spending cuts (for Keynesians) already enacted into
law to go into effect on January 1. We are not going to avoid
that fiscal cliff by the Republicans caving in to those tax rate
increases!!!! Eric Cantor call your office.
This column has been warning about the fiscal cliff impact on the economy for almost two years now. That was the point of my 2011 Encounter Broadside monograph, Obama and the Crash of 2013. Now even the Washington Establishment has awakened to the danger, but you heard it here first.
But let’s be clear about exactly what the threat is, though we have explained it here before. Going into effect on January 1 are increases in the tax rates for virtually every major federal tax. That is primarily because the tax increases of Obamacare go into effect, and the Bush tax cuts expire, which President Obama refuses to renew for the nation’s job creators, investors, and successful small businesses (the English translation of “the rich”).
As a result, the top two federal income tax rates will jump by nearly 20%, the capital gains tax rate will soar by nearly 60%, the income tax rate on dividends will nearly triple, the Medicare payroll tax rate will explode by 62% for these disfavored taxpayers, and the death tax will rise from the grave with a 50% rate increase.
That is all on top of the corporate income tax, now featuring a top marginal rate of nearly 40% on average, counting state income taxes. That is now the highest in the world under President Obama, except for the socialist one party state of Cameroon. Even Communist China and Vladimir Putin’s Russia have lower marginal corporate income tax rates, as do the social welfare states of the European Union, mostly at 25% or less.
American business is uncompetitive with this tax disadvantage. But under President Obama, no relief is in sight. Instead he continually barnstorms the country calling for still more tax increases. His Buffett Rule would raise the capital gains tax rate by 100% instead of nearly 60%. Now he is talking about a carbon tax, which would be in direct violation of his campaign promises not to raise taxes on the middle class “in any form.”
Piled on top of these sweeping tax rate increases is the new avalanche of regulatory costs the Obama Administration is also preparing to dump on the economy next year. In addition to the assault on the coal industry, EPA and Interior are now preparing for totally unnecessary federal regulation of breakthrough oil and gas fracking, which had provided hope for salvation of the dying American economy. That will all end up sharply increasing energy costs for American industry, just when low natural gas prices indicated a possible new dawn for American manufacturing. The final shutdown of the Keystone Pipeline and other restrictions on oil production, and the Fed’s long-term declining dollar, are going to mean more rising gas prices at the pump.
Over the next two years, the implementation of Obamacare will mean soaring health care costs for American business besides, if not outright chaos in the health care and insurance industries. Dodd-Frank and other assaults on American finance will constrain the essential business and consumer credit essential to any recovery.
Meanwhile, the Fed with its record low interest rates for a record period of time, and wanton fabrication of new money, is laying the groundwork for renewed, deadly, inflation/recession business cycles.
This is all why renewed recession next year is now so likely. But where is the leadership in Washington for renewed growth? These darkening, gathering clouds provide plenty of opportunities for Republicans to take the lead on growth, rather than falling in line as foot soldiers in Obama’s war on the American economy.
About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
Letter to the Editor View all comments (33) | Leave a comment
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Bill Hussein O'Stalin| 11.28.12 @ 6:43AM
Incredibly, the best argument for not eliminating the Bush tax cuts would be to point out that the greatest beneficiary of those cuts was Obama himself. According to this article from Forbes, the Obama administration netted 815 billion in additional revenues, most rolling in from the upper incomes.
That's the Republican best argument. The facts:
http://www.forbes.com/sites/be.....increased/
Compare this outcome to the first three years of the Obama Presidency where the cumulative deficit was over ten times as high at $4.35 trillion (almost twice the cumulative deficits of the previous 16 years of the combined Clinton and Bush Presidencies). This is despite the fact that tax revenues in the first three years of the Obama Presidency were $815 billion greater than tax revenues during the first three years of the Bush Presidency.
The second, and more critical conclusion from Table 1 is that the next four years of the Bush Presidency after the 2003 reduction in tax rates saw a 44% increase in Federal tax revenues from $1.782 trillion to $2.568 trillion. That’s correct – a 44% increase in revenues after the so-called “tax break for the wealthy.”
Pecos Pete| 11.28.12 @ 7:57AM
Congress is stuck on stupid. Taxes will be increased regardless of the negative economic impact. The nation's economy will plunge into recession and then into depression. There is no reason for anyone to believe otherwise.
Suzyqpie| 11.28.12 @ 7:58AM
Mr Ferrara you write as if the goal of the 0bama admin is growth, prosperity, and wealth creation. Nothing in the first term that Pres 0bama did would suggest that those were the goals. The first term goal was looting the US Treasury. That goal was fairly effectively achieved. Term 2 goal will be looting the wealth held by individuals. They will never be able to keep their profligate hands off our 401Ks. I respectfully suggest that future articles counsel us on how best to prevent that. Thank you.
c. j. acworth| 11.28.12 @ 8:34AM
"I respectfully suggest that future articles counsel us on how best to prevent that."
Ms. pie; May I ask, what experience do you have with firearms?
Robert| 11.28.12 @ 8:54AM
C.J., not even a shotgun will stop the feds from taking your 401k. They don't come to your door and demand your money at the point of a gun. It will happen like obamacare...overnight on a weekend by legislative fiat. You will awaken to learn you can't redeem your 401 anymore. Obama owns it and he ain't giving it back! He is studying how Fernandez, Argentina's female caudillo, did it and you can bet your bank account he will do it here.
Counsel? Liquidate now or borrow out all of it! Take the tax hit now while it's relatively cheap. After Jan 1st, obama will get you coming and going!
c. j. acworth| 11.28.12 @ 9:25AM
Robert;
In the interest of brevity I made a quick off-hand comment. Allow me to elaborate. You are , of course correct about Govt. confiscation of assets held as electrons in a computer. That is why I am not making an IRA contribution this year, if ever again. From now on it's freeze-dried food and ammunition for me. The food properly stored will keep for 25 years, which is probably longer than I have left anyway. Sure it's comparatively expensive, but it may be dirt cheap compared to what a serving will cost 10 years from now when Helicopter Ben and his buddies at the Fed get through trashing the dollar. THAT is how I expect our overlords in DC to rob us, by inflation, not outright confiscation. As for the ammo, well, I may not be able to hold out long against the Feds, but the unprepared Sheeple who try to take my Saratoga Farms Chili Mac will get a dose of lead or two. At least I'll go out with my teeth in someone's throat. Cheers.
Suzyqpie| 11.29.12 @ 7:48AM
Robert, do you not think that there are any Democrats that would stand against 0bama in defense of private property rights?
spike59| 11.30.12 @ 6:23AM
Democrats...stand against ObaMao??????
not bloody likely
Von Mises Jr| 11.28.12 @ 8:11AM
While all that Peter Ferrara says is true, I believe that we will not simply see the status quo with simply lower growth and lower tax revenue to the Treasury.
The problem is that the Bond Vigilantes and Stock Market Investors will trigger convulsions throughout the markets long before we see these gradual declines in economic statistics.
In 2008 when Chucky "Cheese" Schumer triggered the Sub-prime collapse with the IndyMac scare, the market fell from about 14K to 6,500. Fannie and Freddie may need as much as $363B through end of 2013. Without a bailout, the housing market will decline and foreclosures skyrocket.
Remember that the Downgrade of the US happened after the Congress agreed to raise the Debt Ceiling. Since then, Bond Sales seem to be struggling while Ben "The Bank" Bernanke is belting out $40B per month with QE3.
As markets tank, company's revenues decline due to lower disposable income, and layoffs accelerate; we will have turmoil, not a steady decline in GDP and revenues.
This is what jackasses like Krystal, Graham, McLame and Chablis Chambliss need to communicate. If these jackasses don't want the Republican Party, Capitalism and them to get the blame, they need to explain what these policies will do before it all shits the bed.
Oldefarte| 11.28.12 @ 4:00PM
True true and more true! It's not a question of IF but WHEN. 1/1/13 will signify the end of our world as we know it. Once again though it's not so much the Rs but instead the STUPIDITY of Americans who stepped in it on 11/4/08 and then proceeded to wipe it on the carpet, the tablecloth and the bed on 11/6/12. Forrest Gump was correct!!!!!!!!!!!!!!
Kwan| 11.28.12 @ 9:33AM
It would seem that as Kristol, Graham, Chambliss, and a few other spaghetti spine Republicans are chomping at the bit to raise the white flag of surrender and give-in to Obama's call to raise taxes on the rich, -the people that create actual jobs in the private sector- they might need a lesson in spine stiffening from a true American hero namely General Anthony McAuliffe. General McAuliffe commanded the 101st Airborne Division troops defending Bastogne, Belgium during the Battle of the Bulge in WWII. In December 1944 the town of Bastogne became encircled by German Army Artillery and Armored Forces. The German Commander sent General McAuliffe a letter informing him that he had two hours to surrender or face annihilation. General McAuliffe's reply was rather brief and to the point. It was as follows:
To the German Commander.
NUTS!
The American Commander
Isn't it time to face-up to the reality that if we keep surrendering to the left's demands, that annihilation of the country will be the ultimate result.
Whig| 11.28.12 @ 10:04AM
Kristol, Graham, Chambliss, and others are primarily concerned with sequestration cuts on national defense. Kristol for his interventionist foreign policy beliefs and Graham/Chambliss for defense related pork benefiting their constituencies.
Let's face it. The days of the U.S. being able to afford a global deployment of land armies is shrinking. We will have a much smaller military in the future if for no other facts than retiree benefits are consuming a larger and larger part of the Pentagon's budget.
At this point, we should focus on maintaining continental defense of the U.S. instead of involvement in various third world brushfires in countries in Asia and Africa. Our core interest is the defense of America and protection of the sea lanes for open trade.
TLP| 11.28.12 @ 10:54AM
I agree with Whiggy.
Let him raise his taxes on the rich. He's gonna do it, anyway. I, too, am thinking g about the Decimation of the Military. (although, I'm pretty sure that will come, no matter what else gets done)
The People Voted this Ccksckr in. Now, they must be Punished. This will never end, until our Cities are in Flames because everyone that Voted for this Son of a Wh*r* is Hungry, and can't afford to buy food.
That's how it always starts.
That's how it always ends, as well.
Oldefarte| 11.28.12 @ 4:03PM
That "always ends" hasn't ever been previously witnessed before.......start building that ARK!!!!!!!!!
Occam's Tool| 11.28.12 @ 4:45PM
TLP: The following quote by the Bard of Baltimore says it all:
"Democracy is the theory that the common people know what they want, and deserve to get it good and hard. "
A Little Book in C major (1916) ; later published in A Mencken Crestomathy (1949).
Let's go off the cliff, and let the guys making under 35K in Blue States see their taxes go up GOOD AND HARD.
TLP| 11.28.12 @ 4:55PM
Now you've gone and done it.
When Purp reads "Get it, Good and Hard"?
I don't even want to think about it.
KennesawJack| 11.28.12 @ 8:31PM
Tim, we gotta have a real heart to heart with OT. First it's Mermaid Man, now Get it, Good and Hard? Purp will never leave this site with this kind of bait being strewn all over the place.
Russel| 11.28.12 @ 9:32PM
pERp . Look Occ , or whoever says so , we have a REPUBLIC , not democracy . How many time must this be said over . We have the capacity to secede and it will happen .
Robert| 11.28.12 @ 10:33AM
Annihilation of the US is the Left's aim. Most won't admit it, but that is their ultimate goal. Obama is their ticket to the Utopian dream and he will not be allowed to fail. That is why he got away with stealing the election. The next four years will complete the mission of transforming the US into a secular totalitarian state. There will be no more free elections in the US. It is hardly worth calling the one this month "free." It was stolen before the polls opened on 11/6.
Datsun 2000 Mark| 11.28.12 @ 10:41AM
Peter,
It seems Republicans have a choice: Make obama successful by opposing his horrible policies, or go along with obama and hurt the country and share in the blame game.
I say let this grand experiment in Keynesian econ go forward...for a period of 2 years. I obama wants to tax the Rich....put a bill under his nose that taxes everyone over $250 million. The super rich are all liberal so why not...then obama can reject what he has been preaching or sign it and own the outcome which will be another recession anyway.
Appleby| 11.28.12 @ 10:47AM
People like my youngest sister echo the character in Atlas Shrugged who finally turned Hank Reardon into a rseident of Galt's Gulch: "Oh, they'll think of something," she says. "They always whine about how this will destroy business but they always think of something."
Our only true defence lies in this time not thinking of something.
rjh| 11.28.12 @ 11:32AM
obama et al are preying on the ignorance and economic illiteracy of our countrymen. Based on the result of the November election, my guess is that they will prevail. We are screwed.
William L. Gensert| 11.28.12 @ 11:54AM
Mr. Ferrara, I agree 100%, with you on everything.
But...
We are at war and we are losing -- and losing badly.
Conservatives have lost the battle of the narrative. Obama was brilliant when he said his biggest mistake was failing to tell America a story. He lulled his opposition into somnambulance, and giddy ecstasy over the conceit that conservatives were controlling the message.
America, by reelecting the worst President in modern times has shown itself to be an addict.
Everyone knows that addicts need to hit rock bottom before they can get better.
Americans need to suffer before they let go of socialistic dreams.
I never met a tax I liked, but let the President raise taxes on the most productive and destroy the economy. For sure, many will not survive, but after the death and destruction, maybe rationalism will prevail and we can put Barack Obama and his disastrous policies behind us.
Obama’s politics of bitterness and envy just won an election. Perhaps the failure of his policies based on the same can save a nation.
http://www.americanthinker.com/william_l_gensert/
TLP| 11.28.12 @ 4:57PM
FEAR is the Greatest Motivator.
But you obviously already understand this, don't you?
BShep| 11.28.12 @ 1:25PM
Two quick points.
First, we are not ABOUT to go over the fiscal cliff. We are like cartoon characters already falling off the cliff who are fighting about who has to hold the anvil. We are on the way to the bottom. Now the politicians can pretend to prepare for the landing.
Second, sequestration, out of a 2013 Federal budget of 3,800 billion (3.8 trillion) a cut of 120 billion (about 3%) is not the end of the world, an end to the deficit or even a good start. Even with the cut the total budget will STILL be larger than the 2012 budget. Stop letting the pundits, politicians, MSM and even The American Spectator lie to you about this. Be very careful when amounts are thrown about. They all love to interchange deficits, debt and 10 year amounts without rhyme or reason. Sequestration will not kill poor and old people and it will not kill our defense.
When gas prices hover in the $15 to $20 a gallon range and inflation rates are so bad that companies will be able to make more money by holding on to their inventories rather than selling them, the food riots will begin. Sometime around the summer of 2014 is my estimate. Until then invest in the metals; gold, silver and lead.
Godspeed.
Pecos Pete| 11.28.12 @ 2:43PM
BShep: Also invest in booze. Great for bartering.
Longdrycreek-TX Panhandle | 11.28.12 @ 4:28PM
The dark clouds of 2013 come without warning. Darkness gathers and the party ends before midnight.
The Old America of my childhood and youth will be a good memory to hold and celebrate as the barbarians loot what is left.
Run Jamie Dimon for treasury, Susan Rice for State, and a few other suckers who aspire to public service. Perhaps Buffet can be the joker in the deck of Obama cards.
Ronsch| 11.28.12 @ 5:00PM
What the heck, .gov will just continue to print more monopoly money, just like they have with all the BS "Q1-Q3" to "help."
chasrome| 11.28.12 @ 8:49PM
Oh come on! This is all by design. NO ONE (let alone the 'Tax Collectors for the Welfare State') are going to fix any of this. They don't want to - get it?
When income tax revenues decline what will be the next act? A value added tax - which the Tax Foundation calculator tells me will amount to one-half of my current income. Add in the carbon tax and . . . Welcome to the new Weimar Republic.
The only satisfaction for any of us opposed to this is that the voters and other supporters of this regime will suffer the most.
spike59| 11.30.12 @ 6:29AM
would someone please tell me what the administration and the dems in the house and senate would do differently if they were TRYING to destroy the nation?
Santiago| 11.28.12 @ 9:22PM
Get out while you still can. FATCA's implementation has been delayed to January 1st, 2014, so you still have a window of time.
NH Conservative| 11.29.12 @ 7:45AM
Why don't they do this, Peter? Because the Republican establishment is part of the problem not part of the solution! Kristol is simply a Democrat in drag. In his heart of hearts he wishes he never left, for in truth he never has.
spike59| 11.30.12 @ 6:27AM
i'm beginning to think that the only way the American people are going to 'get it' is if we just let ObaMao and Co do what they will, at least till 2014, and let the public experience the 'hot stove!' moment that will come with following 'Progressive governance'...