The solution to the solution is no solution.
For every $41 in tax increases, there will be $1 in the reduction of spending, fiscal year to fiscal year. A 41-to-1 ratio does not solve the deficit problem.
In August 2011, the federal government agreed to impose on itself a minor series of cost-cutting programs, called sequestration. This was in the range of $109 billion in reductions in the growth of government spending. It also agreed to let the Bush tax cuts die.
Well, the sequestration proved too painful. And the Bush tax cuts have been given new life.
The total net swing in revenues/spending will be $600 billion, we are told. But this is Orwellian newspeak. There is also the addition of this qualifying phrase: “over the next ten years.” The net swing is $60 billion a year.
Add to this an asterisk: “Most of the improvement will take place after Obama leaves office.”
Meanwhile, the deficit is in the range of $1 trillion a year.
Look down the road a dozen years, or to put it in Washington’s terms, three presidential elections. Entitlement — read “welfare state” — programs will absorb 100% of all federal revenue.
They won’t, of course. There will still be plenty of Pentagon spending. This statistic means that there will be cuts in entitlement spending.
No one in Washington is willing to face this today. This is the real meaning of the vote to avoid the fiscal cliff. It is the policy of kick the can.
This is hailed by the media as a triumph of bipartisanship. Stock market investors will rejoice.
This raises a question. What will be the trigger event that forces the government to stop kicking the can and start cutting entitlement spending? No one knows. But the numbers do not lie. That trigger event will occur.
What is needed today? According to the International Monetary Fund, a 35% increase in all taxes, plus a 35% cut in all benefits.
This of course is pie-in-the-sky Keynesianism. Any such increase in taxes will trigger a recession. Welfare spending will rise. Revenues will fall. The government will slide down the bad side of Laffer’s curve.
This is all theory, of course. The government will not allow us to test this IMF theory. It did not allow us to test even a glimmer of such a theory.
Economists stay silent at the margin. There is no wall of support among economists in favor of driving over the fiscal cliff. The very phrase — Bernanke’s — is shrouded in doom. “Don’t drive over it!” So, they didn’t.
They will borrow more money. The Federal Reserve will create more money. The day of reckoning will be postponed again. The can has been kicked.
The statisticians know what the killer is: Medicare. It is the biggest welfare program of all. The Urban Institute estimates that the average American will pay about $109,000 into Medicare. He will collect $343,000. What a deal! And because there were token payments into it, the recipients deny that this is a quarter million dollars of welfare. No, sir, “we paid for it.” No, they didn’t. They voted for it.
On the sidelines, the self-declared realists shout a warning: “We are burdening our children and grandchildren with this intolerable burden.”
Let me modify Herb Stein’s law: “Things that are intolerable have a tendency to be abandoned.”
Our children and grandchildren will not tolerate 100% of the federal budget being devoted to welfare. They will revolt.
The spending cuts that should have been made today will be made within three presidential election cycles. Before, even.
The Democrats have pledged today not to make such cuts. They will change their stance within three presidential election cycles.
The Republican moderates are also pledged to this. They will change their tune within three presidential election cycles.
When everyone in Congress sounds like Ron Paul, those of us who sound like him today will see our ideological ship come in.
The cuts will be made. Be prepared.