Terminally Stupid GOP Swan Dives over "The Fiscal Cliff"

Created on Wednesday, 28 November 2012 14:06
Written by Ax D. WhiteMan
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The GOP has once again maneuvered itself into an un-winnable position. They have now brilliantly bought into the framing of the "fiscal cliff" argument as:

"Tax the Rich"

vs.

"Cuts in Social Security, Medicare/Medicaid"

Of course the GOP has taken the side of opposing "tax increases on the rich," but will consider them IF they get some cuts in entitlement spending. Could there be a more certain way to lose the House Majority?

At this point the GOP must realize that its unlikely to hold the House in 2014.

They're positioning to be the loser no matter what happens. If they give in to tax increases, they lose their base - and catch undying flack from the media for the "draconian cuts" in entitlements.  In that scenario, they may not get a single vote in 2014.

Conversely, if they hold firm and EVERY tax rate increases; the economy will slow, revenues will decrease, deficit will increase; and they'll again be designated as the culprit that was willing to trash the economy and the military in an effort to "protect the rich."

What's the solution?

They simply must decouple the two issues. They ARE two issues. No cut in entitlement will enhance the revenue to the Government. No increase in taxes will alter the spending habits of Government, or reduce entitlement liabilities.

The GOP must discuss revenue in terms of the Laffer Curve. That is, that there exists an "optimal" level of taxation above or below which tax revenue will decrease. There is significant evidence that we are at, or near the optimal tax rate. We need to face the reality that the "Tax Engine" is close to "red lined," and that we aren't going to see much net revenue gain by moving taxes in either direction.  The evidence for this is that the massive tax increase by Bill Clinton RAISED revenue, and the subsequent tax cut by George Bush also RAISED revenue. Though the theoretical "optimal tax rate" is always a moving target; its logical to conclude that we are very close to "optimal."

The GOP should be identifying fundamental tax structures that allow companies like Google, GE, and others to pay almost nothing in taxes, while oil and gas producers operate as virtual public utilities. In any case the revenue will only be increased with economic growth.  The GOP must refute the idea that there is a Governmental magic bullet that will increase growth. There is not. Growth is driven by private innovation and production. Government can do much to diminish private innovation - but the most it can do to increase it is to "stop diminishing it."  An old economics professor of mine described this as trying to "push with a string." 

Admittedly, its difficult to make a public policy of "doing less harm;" - but that's what needs to be done to grow the economy and increase government revenue.

In terms of spending, they need to attack the bloated annual budget that was caused by the failed "stimulus" spending before attacking entitlements. They should highlight that the cause of this huge deficit was a single massive "stimulus" bill that has been permanently embedded into this Administrations "Non-Budget". The stimulus bill was supposed to pay for itself by stimulating growth, it didn't. Now we're faced with having to pay for it. While permanent structural balance requires addressing entitlements, short term attention should be placed on excessive spending that began in 09, and continued despite no approved budget since then.

Entitlements can be addressed at a later date.

The only way the GOP can salvage anything from this ugly situation that originated with the idiotic agreement reached on the debt ceiling, is to hold the line on tax increases and decouple the ridiculous position of trading tax increases for entitlement cuts.