Feature

Prepare for the Worst

We will soon suffer the death, or at least the crippling, of a thousand regulatory cuts.

By From the December 2012 - January 2013 issue

Send to Kindle

THE PUBLIC DEBATE over the “fiscal cliff,” the combination of automatic spending cuts and tax rate increases that our nation is about to careen into in 2013, started the same way Republicans always begin following an electoral setback: badly. John Boehner seemed to be negotiating with himself, and conservative pundit Bill Kristol suggested that raising taxes on millionaires “won’t kill the country,” as if that were the proper standard for fiscal policy.

When it comes to jobs—which are the most tangible outcome of government economic policy on actual human beings (remember us?)—the picture is grim. It is unlikely that any foreseeable solution to our short-term fiscal problems will be sufficient to spur the economic growth needed to return millions of unemployed Americans to work.

While the American entrepreneurial spirit will do its best to overcome a profligate government run by an economically ignorant president holding anti-liberty, anti-success, and therefore fundamentally anti-American motivations, the increased regulation passed under President Barack Obama will keep a wet blanket on growth, on business investment, and on our nation’s future.

The potential outcomes of the immediate fiscal cliff negotiations remain widely varied. The president and Senate Democrats have stated emphatically that they will not go along with any solution that does not raise the top marginal tax rate, though their target income threshhold remains unknown. John Boehner has seemed to say that he will not accept any increase in tax rates while suggesting that there are other ways to raise government revenue.

It remains to be seen whether Speaker Boehner has the backbone to stand up against a White House and media blitz demonizing House Republicans, who are the last remaining bulwark against Obama “fundamentally transforming” the United States into a European-style social welfare state. While this ugly metamorphosis is already substantially in place, it may be eventually reversible if House Republicans hold firm today, by at least refusing to give in on any tax rate increases without much larger and simultaneous cuts in spending.

Republican backbone is particularly in question in the face of pending sequestration cuts to our Defense Department budget, which gives the president, who neither likes nor understands the military despite his “I killed Osama” chest-pounding, substantial leverage over Republicans (who understand it better and perhaps like it, spending-wise, a bit too much).

TO BE SURE, THE ADDITION of a modicum of tax rate certainty—for capital gains and dividend taxes as much as for income taxes—even if at slightly higher rates, would give entrepreneurs a somewhat more solid foundation on which to consider building or expanding businesses.

But when the foundation is made of quicksand to begin with, “somewhat more solid” doesn’t get us to anything of substance. And so it will remain for the U.S. economy as long as the Obama administration’s regulatory juggernaut continues pushing out rules on everything from health care to coal-fired electricity generation to labor practices, every one of which is another gash in the ability of American businesses to operate efficiently, if they can afford to operate at all.

We will soon suffer the death, or at least the crippling, of a thousand regulatory cuts.

A 2011 report by investment bank UBS entitled “Great Suppression II” describes a “Revolt of the Employers” based more on regulation than on government debt levels, with high individual and corporate income tax rates piling on further dead weight.

A tsunami of further regulation that was being held back by the EPA, the Department of Health and Human Services (particularly aspects of Obamacare implementation), and other executive agencies is now being released following Barack Obama’s re-election. Strangely, knowing the regulations would be wildly unpopular with voters does not translate, in this administration, into considering them actually bad policy.

We are already seeing the beginning of Great Suppression III, with franchisees and restaurant chains like Papa John’s, Applebee’s, and Darden (which owns the Olive Garden, Red Lobster, and Longhorn Steakhouse chains, among others) announcing that they will hire fewer workers, cut the hours of the workers they have, and avoid building new restaurants to dodge the Obamacare cost bullet.

Auto parts manufacturer Dana Corp. announced layoffs in order to “offset increased costs that are placed on us through new laws and regulations,” noting specifically that Obamacare “is expected to cost Dana approximately $24 million over the next six years in additional U.S. health care expenses.” Medical device makers Welch Allyn, Boston Scientific, and Medtronic are among many in that industry laying off workers because of the remarkably ill-conceived medical device tax embedded in Obamacare.

The irony was probably lost on radical leftist heiress Pat Stryker when the company her grandfather founded, Stryker Corporation, announced that Obamacare will force it to fire 96 people in December. And that’s just the beginning: Another thousand Americans are likely to be filing unemployment claims in large part due to the impact of Obamacare on just this one company.

It would be a mistake to think of these outcomes as the result of a well-intentioned but poorly conceived economic policy implemented by politicians and bureaucrats who have the average American’s best interest at heart. This administration’s attention is not focused on the economic well-being of the majority of Americans, but rather on the well-being of union coffers. They don’t care how you feel as long as they can bathe in warm smug satisfaction of promoting “social justice” and “green energy” (although incinerating dollar bills would likely be a more efficient energy source).

The better a businessman you are, the better a business you have, the more you will be a target, the more you will be viewed by the government the way a leech views a vein on a hiker’s ankle. Unfortunately, you can’t just sprinkle salt on the IRS agent to make him shrivel up and go away. (Yes, that works well with leeches.)

AS WE TRUDGE THROUGH THE MUDDY debates over government spending and taxation, it bears keeping in mind the nature of our president, who believes in “spreading the wealth around” and raising taxes, even if it would not increase government revenue, “for purposes of fairness.”

Following his re-election, Barack Obama scheduled meetings with interest groups to discuss their perspectives on the fiscal cliff negotiations. It was not just symbolic, though the symbolism is important too, that he met first with labor bosses and progressive activists, and only later with CEOs.

Barack Obama is probably not telling the truth when he says he is focused on his job; after all, he will never run for office again and what little focus he has had for the last 18 months has all been directed toward fundraising—even the day after the murder of our ambassador in Libya. In other words, he is focused neither on keeping his job nor on doing it. But when he says he cares about your job, he is not speaking to you unless you are a union boss, an opponent of free enterprise, or a rent-seeking wind farm, solar panel, or “advanced battery” manufacturer.

The president’s inherently anti-business instincts will constitute the single biggest hurdle to a sensible fiscal cliff resolution, though he and his media lackeys will no doubt blame any disagreement on Republicans. Anyway, why shouldn’t they, politically speaking? After all, the public has already demonstrated itself sufficiently ignorant to accept Obama’s narcissistic blame-shifting. Election exit polls showed about half the nation still holds President Bush responsible for our economic troubles.

But beyond the fiscal cliff, Obama’s anti-business instincts will remain a large-caliber weapon aimed at the heart of our economy until this president is out of office. To the extent that the next four years are different from the past four, they are likely to be worse rather than better, as our economy is forced to swallow ever greater doses of Keynesian snake oil and hyper-regulation.

Some suggest hopefully that voters might shift the balance of power in the Senate in 2014. But optimism, at least for the economy, on that score is unfounded: Much or most of the Obama assault on business will be through the regulatory structure, not through legislation that already will not pass through a Republican-controlled House of Representatives.

While a fiscal cliff resolution that addresses mushrooming entitlement spending will be better for the economy than a deal that anticipates chimerical government revenue gains from soaking the “rich,” the whole spectacle reminds one of a magician waving his left hand, drawing your attention away from the card he’s slipping into his right sleeve.

SO WHAT IS TO BE DONE? As much as we want to urge on champions of liberty to fight for the economic and moral soul of this nation, and as much as we have men and women of courage willing to take on that fight, the best strategy for at least the next two years, and probably the entirety of Obama’s remaining term, is defense: plain and simple survival.

What has come before pales in comparison to the bloodletting about to be imposed by the hundreds of intrusive, expensive, economically crippling rules and regulations about to fall on our heads.

Businessmen and women know this. They will not be fooled by a fiscal cliff deal, especially one that cannot credibly claim to reduce our deficit and debt over the long term. They will not hire more full-time workers or substantially expand businesses. They will grow where they can, but will hire contractors and part-time workers who will not receive the benefits that employees currently expect (though those workers will nevertheless feel grateful to have any sort of job in the Obama economy).

As we muddle through the next four years, however, there are things we can and must do to prepare for a better future:

  • Take back a piece of the education system and, along with it, some of the media, so that we will have a less ignorant electorate.
  • Convince “establishment” and Tea Party Republicans alike that the quality of a candidate—first in character and intelligence, with electability close behind—is more important than the nth degree of philosophical purity.
  • Make the moral case for liberty, though without sounding as if we are moralizing. The Declaration of Independence is a fine place to start.
  • Prevent the left from successfully demanding that they be judged solely on the basis of their claimed intentions and without regard to the actual outcomes of their policies.
  • Adhere to many of the GOP’s conservative social values, but find a way to keep candidates from sounding irredeemably ignorant or intolerant. In particular, this means very slight moderation in the way abortion is discussed, but large moderation on issues of “gay rights” and civil unions.
  • Although it will be a narrow needle to thread, find an immigration policy that allows humane treatment of illegal immigrants who have lived here for nearly all their lives, but which still avoids the moral hazard created by outright amnesty.

Regarding the last two points, the GOP’s Achilles’ heel is not being too conservative, but rather being perceived as intolerant and bigoted. This must change or the majority of the Millennial generation—those currently under 30 years old, including those who might otherwise be conservative—will be lost by Republicans forever.

Despite the devastatingly disappointing results of November’s election, our nation is not lost. It is, however, closer to being lost than at any time since the Civil War. It will take wisdom, patience, and introspection by Republicans to save it.

It is this long-term view that we must take over the next four years, because even a reasonably good outcome in the fiscal cliff negotiations will not be enough to heal the economy in the face of an incessant assault by the Obama regulatory leviathan.

Like this Article

Print this Article

Print Article
About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.