Turn on cable news and you hear Democrats and an ever increasing chorus of Republicans cheer about our need to raise “revenue”. Revenue usually refers to income or earnings, the profit or proceeds from the sale of good or services or one’s labor. It does not often refer to taxes or levies. Yet there go the politicians claiming their entitlement to an ever increasing slice of the proceeds of our work as their reward. Language aside, it seems instructive to ask, what do they really need the money for? Maybe we really do need to pony up for the good of the country. Maybe all we need is a few of those “rich” fellas to kick in a little more.
It turns out that “one time” ‘we have do this since we face the worst economic crisis since the great depression’ “stimulus” is the new federal baseline. In other words, our government has been spending the equivalent of a trillion dollar “stimulus” every year since Barack Obama took office. While it is no surprise our government has been running trillion+ dollar deficits year after year after year, by endorsing the idea that our government needs to collect more “revenue” to pay for this increased spending, politicians are endorsing the belief that we need to continue spending at this increased rate!
Some Republican politicians have suggested that “it’s time to rip the Band-Aid off and reach a deal.” Other Republican pundits have decried that it “won’t kill the country if we raise taxes a little bit on millionaires.” In fact, raising taxes on the “rich” as Obama has suggested would fund the federal government for a grand total of 8 days at current spending levels. While raising taxes on the “rich” may not “kill the country,” it will not help it much either. What it might do however, is “kill” the Republican Party which will lose its mantle as the party of low taxes and limited government. Further, it will immunize President Obama and Congressional Democrats from blame when the 8 days of new government funding does little to balance the budget or improve the economy.
Though promising voters they would not vote to raise their taxes, some Republican politicians have suggested “the world has changed” from the time they signed their pledge. Yet, some have remarked that “if politicians won’t keep their word when they sign their names, what use is what they say when they don’t?” The pledge is not a promise politicians made to some “purist” who runs an advocacy group, the pledge is a promise politicians made to the constituents who elected them. That is the fidelity that is being broken when politicians go back on their word.
Where can we begin making serious spending cuts? I challenge GOP lawmakers to read the House Republican Study Committee’s Spending Reduction Act of 2011. It lays out $2.5 trillion in cuts to federal programs most taxpayers have never heard of. This is without even discussing cuts to so-called entitlement programs which conservatives understand need to be reformed.
Rather than increase income tax rates, some Republicans have proposed curtailing deductions on mortgage interest, state and local taxes, and charitable contributions. Ignoring the semantics that eliminating a deduction on which a taxpayer relies is the functional equivalent of raising his income tax rate, decreasing the deduction taxpayers are allowed for mortgage interest will further depress housing prices in an already depressed housing market. Reducing the ability of taxpayers to deduct state and local taxes will amount to double taxation as some of those taxes are taxes on income. Reducing or eliminating the deduction for charitable contributions will result in considerably less holiday cheer for many charitable institutions.
Throughout the year, Tea Partiers traveled to Wisconsin to help a governor survive a recall election in a state that they do not live in. They traveled to Texas in the sweltering summer sun helping to ensure we “extremists” had representation in DC. Many more traveled to Ohio and Virginia because we appreciate that all elections are important as the votes of every politician effect us all. We know who is up for re-election in two years. We are watching and we are coming!
The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.
The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.
Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, “If you look at the markets, they’re practically falling over themselves to lend money to the federal government.” Sadly, that’s no longer accurate.