The Cliff……

Now that the national elections have finally played out there is much talk about the financial cliff. That is the mandated 10% budget cuts and letting the Bush administration tax cuts expire. It seems most of the media treats this event as some sort of catastrophe but in my usual contrarian ways  I just don’t see it that way. Even though I am strongly a social progressive, I am also a fiscal conservative. So here is my take on this matter.

Given the partisanship in Washington today, and I don’t think contrary to some opinions that it will somehow disappear after the elections, I think the best way to deal with the Bush tax cuts is to let them expire on December 31.  Then if there is any consensus, and I’m pretty sure there will be, bring back the cuts for the middle class.  Given that all the Republicans have been to the altar of Grover Norquist I don’t see enough of the GOP coming around to tax increases. Since the taxes are automatically raised to pre-Bush levels that will be the easiest thing to happen. Then on January 1, 2013 everyone can get credit for lowering taxes on the middle class. Why fight battles we don’t have to. Let them expire and then put some back.

On the budget cuts, this is probably the best thing to happen when it comes to our military budgets which are half of the amount affected. We spend more yearly on our war machines than practically the rest of the world combined. We simply can’t continue to do that  given our ever-increasing deficits. President Obama stated during the campaigns that he wants to put in our resignation of being policemen of the world. If we do that we can very safely cut our military budgets by 10% next year and even another 10% for each of the next four or five years. Can you imagine the effect that would have on reducing our borrowing?

When it comes to the other budgets a 10% cut, while causing some hardships, would not be catastrophic. There are probably millions of families out there that due to job losses have faced much higher family budget cuts. Given all the waste that is almost endemic with government spending surely they can find ways to make the cuts. The budget cuts are similar to telling a family that we know you spent $100/week on groceries this year you will have to get by on $90/week next year. That is not a catastrophic reduction.

I know there are those out there that scream it will put us into another recession! But how do we stop our incessant borrowing if we don’t find ways to spend less? Ten percent is not a bad way to start.  If our economy depends on us constantly spending more than our income then is there no end in sight for our increasing deficits? We need to come to terms with this if we are ever going to put our economic house in order. We can’t just continue to buy things on credit just to keep the status quo.

I can agree that this is a fiscal cliff. It is the depth of it that I question.  Is it a six-foot cliff that might cause a few sprained ankles or a one hundred foot one?  Maybe we need a few sprained ankles in this situation.

But just being an ordinary guy what do I know.

10 thoughts on “The Cliff……

  1. My kids have both saved for it. They can always come visit if it lasts and they are both laid off. The VA stays intact, so most of my family is covered anyway. There are 30,000 soldiers at the fort across the street. I am pretty sure 3,000 would just head home. Then 6,000, then more. Since may came from rural areas- I am sure there will be loads of places for them to find jobs quickly. I know they cannot lay off private industry war workers because they have not received 60 working days notice– per federal law.

    My inheritance has been slowly dolled out – pretty much. Inheritance taxes go through the roof. My sister already laid off three workers prepping for the rise in health care costs. This is my brothers’ middle season. Real estate might actually be good since that is the new gold. My mother and other sister are retired and have good nest eggs. Anyway- social security is not touched. My nieces and nephews would have had babies whether they got the tax incentive or not. Seven babies between last May and May 2013. They know how to do things without the federal government .

    My students will just eat less— then the one meal a day they get at school. School may or may not be open if it lasts because 30% of our staff (and the lunch program) is paid for by federal programs and Dept. of Ed is heavy in the sequester. I think it is mandated that we have one adult per 30 students. We may be fine. Just put the aides and administrators in the classrooms. I taught 37 my first year and lived.
    KanCare has already migrated to the new system so students will still get medical care—of course my rural hospital has announced that they may have reduced services after Jan 1.
    FEMA for Sandy—well a 10% cut wouldn’t hurt those people I am sure.
    No skin off my nose…..

    Let it roll!
    Flat tax :>) That is what I hope comes out of this! Of course that will kill most businesses—but that does not really affect me.

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    1. Well Janette, it sounds like you are one of those doomsdayers who are predicting the end of the USA now that Mr. Obama has been re-elected. I am putting a note on my calendar to re-look at your predictions a year from now to see if any of them actually happen. I know every time the minimum wage is increased there are those who predict similar things and they never happen. I think you are giving the president way to much power over our economy. And I stand by the statement that 10% budget cuts are not the end of the world. I will also virtually guarantee that 98% of families will see no more than a 1% tax increase next year.

      If the only way businesses can stay afloat is for consumers to spend more than the earn then they need to do a paradigm shift in their operations as that is just not sustainable.

      I will see you a year from today to revisit this issue and I will go on record to predict that the country as a whole and almost all of its citizens will actually be better off than we are now.

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  2. I know that Congress holds the purse strings. I am ready to support my President in leading as I have in the past. I don’t know if his party will- but I am ready.
    My family has always been prepared. We have also looked to see how our community is prepared as well. I suspect you do the same. You must have some preparation if you are retired and still have money to travel.
    The cliff is not just 10 dollars less to eat with. It is not just defense. But then, now you know that.
    Looking forward to not paying any more taxes. Glad you have assured me that it will not happen.
    Maybe you are joking again.

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    1. Actually Janette, I have always lived by the statistic about reducing stock investments during Republican administrations and that has saved me a bundle. (If you want to live like a Republican vote like a Democrat)

      I was heavily invested in the telecommunication industry in 1983 but got out when Reagan deregulated it. I got out of stocks prior to the savings and loan bust in 1988 again due to Reagan’s deregulation. Being an IT guys I could see that the internet bubble was way overinflated at the beginning of the Bush administration. I was never heavily invested during the 2008 bust due to Bush’s lack of regulation of the banking industry. So I have managed to avoid many of those Republican downturns. (before you pull out the blow torch I am kind of pulling your chain about this but I did actually avoid them)

      I also am tuned to the saying that nothing is ever as good as you imagined or as bad as you fear. So, no I don’t pick the worst case scenario and then plan for it.

      As far as inheritance taxes go although I don’t have either, I would never leave big bucks to my heirs. I am just a person that believes that you must make your own way in the world so inherited wealth is a liability in today’s world. It just created a privileged class who think they can lord it over the rest of us.

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  3. We are truly between a rock and a hard place. If we do nothing we’re in trouble. But, if we cut 10% across the board all at once we risk sinking into deep recession. Can’t we do this in a gradual manner? Of course it’s really a game of sorts….Republicans will resisit raising taxes on the rich at almost any cost and Dems will resist cutting programs. We will feel pain regardless, there’s no getting around it. It’s really who can play the game best…consequences be damned. I am not a doomsdayer but I don’t think we can ever assume we will go back to the good old days. Let’s hope the policticians can return to the “middle” and give up on these extreme positions for the sake of us all. In the meantime, there’s not much point in us folks arguing amongst ourselves…might as well have a glass of wine and watch some non-reality TV! That’s my plan. Cheers!

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    1. I will let Jane speak for herself but I think she is saying, and I agree, that even if it does involve you there is no sense in worrying about it if you can’t change it.

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  4. Truth be told, I had the wine “before” I commented here! And I enjoyed the rest of the evening not worrying about the huge problems of the country. Is that a sin? I never said the deficit didn’t involve me, Janette. How could I??? Must you always be so critical? Please…don’t answer that.

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