Washington politicians are scaremongering that if no deal is
reached between President Obama and congressional Republicans,
taxes will go up on all of us January 1, when Bush tax rates
expire. Nonsense. Most people have their taxes withheld gradually
during the year. The president has the authority to instruct the
U.S. Treasury to freeze withholding rates while the sides continue
to negotiate. The Congressional Budget Office confirms it. So,
don’t be a scrooge, Mr. President.
Obama is not the only one who deserves a lump of coal. So far,
neither the president, his Democratic ally Senate Majority Leader
Harry Reid, nor Republican adversary Speaker of the House John
Boehner has shown resolve to slow the nation’s out-of-control
spending on borrowed money. All are willing to raise the debt
ceiling again (the negotiation is only about how much and for how
long), continue the borrowing, and stuff the IOUs in our children’s
Christmas stockings.
To make matters worse, these politicians are cooking the books,
claiming to offset their borrowing with cuts in future spending,
knowing full well that those cuts are unlikely to ever happen.
Here’s how their creative book keeping got us to this fiscal
cliff.
In August 2011, when the federal debt hit the $14.3 trillion
legal limit, President Obama asked Congress to hike the limit by an
astounding $2.1 trillion, the largest increase in history. The
President wanted enough borrowing leeway to carry him through the
election. Sadly, Boehner and congressional Republicans relented.
They defended this capitulation by boasting that they got a dollar
of spending cuts for every dollar of debt ceiling hike. That was a
whopper.
The Budget Control Act of 2011 — the deal they struck with the
president — provided for only $21 billion in immediate cuts —
about a penny for every dollar of debt hike — plus about $900
billion in specified future cuts to occur mostly after 2016. That’s
so far in the future as to be meaningless because any future
Congress can undo them. History proves that is what almost always
happens.
Here’s the bigger outrage. To offset the rest of the debt hike,
the law provided for $1.2 trillion in automatic spending cuts over
ten years starting in fiscal 2013, unless Congress came up with a
better plan for reducing spending or borrowing in the meantime. To
incentivize Congress to work seriously on a plan, the automatic
spending cuts included some bitter medicine, such as a drastic 9.8%
cut in defense spending. Nevertheless, Congress did nothing, the
borrowed money is long gone, and the automatic spending cuts
(called “sequestration in Washington lingo) are scheduled to
start.
So, predictably, the politicians are backtracking. As the
Yuletide negotiations began, Obama offered only $400 billion in net
future spending cuts, now upped to $1.2 billion. But to cook the
books still more, he wants these spending reductions counted to
offset the next debt ceiling hike, not the one long past.
Sadly, Boehner has already indicated he is willing to raise tax
rates on millionaires, accede to another debt hike, and continue
the charade that spending reductions scheduled way out in future
years are really going to happen.
Obama, Boehner, and Reid — not exactly the three wise men
needed to put the nation on a firm fiscal path. No wonder credit
experts are pessimistic. Days after the August 2011 debt hike
agreement that led to our current fiscal cliff dilemma, Standard
& Poors rating agency stripped the U.S. of its AAA credit
rating for the first time in history. Now S&P’s top analyst,
John Chalmers, remains gloomy. “We think the events of the last
eighteen months validate our decision to lower the rating.” These
are not glad tidings for the U.S.
