cosmoscon

I’ve been saying since October that it was in the best interest of our country for this Fiscal Cliff thing to happen.  No compromises, no back room deals, no voting present, etc.  Just let it happen.

I’ll show how going over the Fiscal Cliff is not only the lesser of all the other evils that can come out of these negotiations but how toggling this option will give the best chance to insure we have enough Conservatives in Congress to pick up the pieces once the inevitable collapse happens.

But first, let’s review what it will mean to go over the Fiscal Cliff.

What Is It?

Both CNN Money and The Heritage Foundation have great summaries of the Fiscal Cliff and I’ll use pieces of those articles to give you an overview.  Many may not know this but the This Fiscal Cliff was a bill passed by Congress and signed by Obama in August of 2011 and is called the Budget Control Act.

Here is what will happen if we go over the cliff.

1)      Tax Increases across the board:

“Seven different categories of tax policy expire on January 1, causing a $494 billion tax increase in just one year. This is uncharted territory: Never has there been such a steep tax increase in a single year.”

“Most of this massive tax increase stems from the expiration of the 2001 and 2003 tax cuts implemented under President George W. Bush. There is also the payroll tax cut, the alternative minimum tax patch, and a host of other policies that expire at year’s end. In addition, five of the 18 tax increases built into Obamacare are scheduled to go into effect. Families will bear the brunt of this tax increase among American households, with an average increase of over $4,100 in taxes.”

And there are more tax increases:

Income tax rates: Rise to 15%, 28%, 31%, 36% and 39.6%, up from 10%, 15%, 25%, 28%, 33% and 35%.

Capital gains rate: Rises to 20% from 15% for most filers.

Qualified dividend rate: Rises to one’s top income tax rate, up from 15% for most filers.

Child tax credit: Falls to $500 per child from $1,000. The refundable portion also reduced.

American Opportunity Tax Credit: Expires. The lesser value HOPE tax credit for college tuition is reinstated. Several smaller education tax benefits also expire.

Earned Income Tax Credit: Expansion of eligibility for the credit expires.

Marriage penalty relief: Expires. Effectively that means a low- or middle-income two-earner couple will owe more to the IRS than they would if they were single making the same income.

Estate tax: Parameters revert to pre-2001 levels. The exemption level falls to $1 million from $5 million; and the top tax rate on taxable estates rises to 55%, up from 35%.

Well, that will suck but you know what?  The pain needs to be shared by all of the US for voting for the same regime that caused this pitiful recovery, our credit downgrade and our debt to surpass our GDP.  Tough times will be on the horizon for sure but sometimes you need to be taught a lesson the hard way.

2)      Sequestration:

“The Budget Control Act of 2011 (BCA), a product of last summer’s debt-ceiling deal, increased the debt limit by $2.1 trillion in exchange for spending cuts. The BCA first established caps on discretionary spending to accomplish $900 billion in savings over 10 years and then tasked a “super committee” with finding at least $1.2 trillion more in savings. The super committee’s failure to reach agreement triggered sequestration—automatic budget cuts—totaling $1.2 trillion (including interest savings) over nine years. Sequestration cuts begin on January 2, 2013.”

“The Department of Defense would bear the greatest burden—49.5 percent of total cuts in 2013—even though it accounts for only 16.8 percent of total spending. About $55 billion of those cuts will hit in January 2013.”

But non-Defense spending will be cut by the same amount:

“$55 billion will be cut from projected levels of nondefense spending, which includes things like education, food inspections and air travel safety. Budget experts estimate the cuts will result in at least an 8% cut to programs, projects and activities.”

It sucks that we have to cut the Defense Budget in these uncertain times but if that means we cut the rest of the Federal budget across the board then so be it.  If this is the only way we can get spending cuts then we should take it.

3)      The Doc Fix:

“Medicare is set for another crisis point come December 31, when Congress’s latest “doc fix” agreement expires. As part of the Balanced Budget Act of 1997, Congress adopted the Sustainable Growth Rate (SGR) formula to pay doctors for treating Medicare patients. The SGR’s formula led Congress to choose between paying doctors less and patching together short-term fixes to keep reimbursing doctors.”

“Unless Congress patches together another doc fix agreement before December 31, physicians will see a 27 percent decrease in pay, a situation that will make it unaffordable for many doctors to continue accepting Medicare patients. This could leave millions of seniors without care.”

Medicare needs to be reformed and our representatives in Washington have resisted the adult conversations required to reform this out of control entitlement program.  This sounds harsh but maybe after we have our citizens unable to obtain proper medical care due to doctors exiting the Medicare program we’ll have the motivation to have these talks.

4)      Unemployment Benefits Reduced:

“The federal extension expires. That means workers who lose their jobs after July 1, 2012, will only receive up to 26 weeks in state unemployment benefits, down from as many as 99 weeks in state and federal benefits that had been available until recently. “

“By one estimate, more than 2 million claimants will lose their benefits by January.”

Extended Unemployment benefits have caused the Unemployment rate to remain high as more people opted for government handouts as opposed to taking a sub optimal job and once we go over the Fiscal Cliff, those people will be forced to find jobs.

In Summary, going over the Fiscal Cliff will involve tax increases for almost every American and budget cuts that will also affect most Americans.  It’s going to be painful and will most certainly plunge us into another Recession if not a Depression.  There will be tough times ahead for all of us for sure if we go over the Fiscal Cliff but it is what we must do.

Why We Should Go Over It

There are only three scenarios that can play out in these negotiations and all of them are bad for our country so I’m advocating the one that will do the most to convince Americans that Team Obama and his Keynesian ways are destructive for our country and (this is key) will leave enough Republicans in Congress to pick up the pieces and lead us to a true recovery.

The “Give Obama Everything he wants” scenario states that the Republicans in the House and Senate should give up this battle in an attempt to win the war.  They will vote ‘present’ for any Obama proposal and then watch the country fall into a Greece style austerity nightmare and Depression.  While I like this option and even suggested something similar in 2011 when Obama proposed his Jobs Bill, this scenario would be political suicide for many Conservative Congressmen who were elected to be the fire wall for these Leftist policies.  Many seats in the House and Senate might be lost to Democrats (or RINOS) and there would be nothing to stop the total destruction of the United States in the coming years.

Obama has made it clear that raising tax rates on the wealthy must be a component of the Fiscal Cliff negotiations so another scenario to avoid the Fiscal Cliff calls for Republicans giving in to this Obama demand.  Again, we could take the approach to try and spin this as giving Obama what he wants and then blaming all bad economic data on him but the water carrying media wouldn’t allow that.  Any further stagnation in economic growth will be blamed on Republicans for not doing enough to raise tax revenue on the wealthy and making the rich pay their “fair share.”  Even though it is obvious that the wealthy already pay more than their fair share, the 2012 elections showed that the American public isn’t interested in math and data.  They’ll believe the never ending campaign memes of Team Obama and still blame those Republicans and their Capitalism loving ways.

As with the 1^st scenario, this 2^nd option would cause many Conservatives in Congress to lose their seat because they failed to follow through on their pledge to reduce taxes and cut spending.  We’d lose too many seats in Congress if Republicans bowed to Obama’s concessions and there would be nobody left to bring us back from the brink once the Depression hit.

So the only other option is to go over the Fiscal Cliff.  True, Obama and the obliging 4^th Estate will still find a way to blame Republicans but this is going to happen no matter what.  It’s up to us and our Conservative leaders to remind the American public that the Fiscal Cliff, aka Budget Control Act, was approved by BOTH parties in Congress and signed by Obama.  It meets Obama’s requirements of a bi-partisan, balanced approach so he has nothing to complain about.  This is what Obama wants and we should remind the American people of this fact.

Going over the Fiscal Cliff will at least allow Conservatives in Congress political cover in coming elections since they performed their role as a firewall by taking the least destructive option on the Fiscal Cliff.

The use of Government scare tactics to get more of our hard earned money in the name of ‘preventing a catastrophe’ is not new.  Even in recent history we have TARP/2009 Stimulus and now, before we’ve even settled the Fiscal Cliff, we have a new cliff called the Dairy Cliff.

Yes, It’s cliffs all the way down.  All the way down to Greece.

We passed the point of painless solutions years ago.  It will have to get a whole lot worse before it gets better so resign yourself to that fact and make preparations.

Let. It. Burn.

The Leftists will not give up on one of their election winning memes – ‘The Rich need to pay their fair share’ – and I’m getting tired of this lunacy.

Blogger and Twitter superstar @IowaHawkBlog has shown how taking all the profits from wealthy people and corporations won’t solve our debt problem.

I’ve taken a couple of cracks at this from other angles here and here but I think I’ve stumbled on a simple rebuttal to this Leftist meme and it can be summarized with three numbers –> 3-25-50.

Looking at the 2009 IRS tax results (the latest official results I can find), you’ll notice something interesting and I’ve highlighted a portion of the IRS spreadsheet below (yellow line and red fields are the focus).

Those making $200,000 or more per year:

1)      Represented just 2.8% of all income tax filers,

2)      Accounted for 25.8% of the total Adjusted Gross Income (AGI) reported on Income tax returns and

3)      Paid 50.2% of all Federal income taxes.

So rounding off, we can say that 3% of all income tax filers accounted for 25% of all AGI and paid 50% of all federal income taxes!

If that isn’t an example of paying their fair share, I don’t know what is!

Next time you hear a Leftist spouting this meme hit them with 3-25-50!

In my youth I was a Science Fiction buff and couldn’t get enough of the likes of Asimov, Forward, Niven, Clarke and Heinlein but it wasn’t until recently that I came across a wonderful quote by Robert Heinlein that sums up the condition in the United States perfectly.

I have read some of Heinlein’s novels, “Stranger in a Strange Land”, “The Cat Who Walks Through Walls”, “The Number of the Beast” and “The Moon is a Harsh Mistress” but I had missed the novel “Time Enough For Love” in which this quote originates:

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as “bad luck.”

There is another acronym that Heinlein used in the novel “The Moon is a Harsh Mistress” that is also relevant to the US electorate – TANSTAAFL which stands for “There ain’t no such thing as a free lunch.”

Now we have 4 more years of the Obama/Reid regime, Obamacare is here to stay and the Takers are driving the Makers out of society so in a few years even Leftist will learn that TANSTAAFL.

For several decades China has seen incredible GDP growth and the US has seen jobs shipped to the rising super power.  This has prompted serious talk of China overtaking the US as the largest economy and talk of retribution, via crackdowns on their currency manipulation, has been touted by every Presidential candidate during this period.

I have always believed that while China was an economic threat to the US in the short term, we had nothing to worry about in the long term as long as we stuck to Free Market Capitalism.  The Knowledge Based Economy would force low tech, low pay manufacturing jobs to China but the US would maintain high tech, high pay manufacturing jobs and the all important Research and Development jobs in startups and incubators around the world.  Eventually, as the US retooled for this new economy, there would be room for both countries to flourish in the world economy and the US would maintain their #1 economy.

But there are reports coming out of China now that their economic/political model may be crumbling under its own weight sooner than I had thought.

GDP Growth Slowed

China’s GDP growth rate is dropping.

“China’s economy grew 7.4% in the third quarter compared to the previous year, the National Bureau of Statistics said Wednesday, marking a deceleration from an 7.6% growth rate in the prior quarter.”

“China’s economy has grown at an average of around 10% a year for the past three decades, allowing the country to rocket past international competition to become the world’s second largest economy. Along the way, China’s markets have opened to the rest of the world, trade has increased dramatically and many of China’s citizens have joined an emerging middle class.”

I’ll admit that while growth is slowing in China, it’s not panic time and the US and most of the other countries of the world would kill for GDP growth rates that China is seeing.  This chart shows GDP growth of China compared to the US:

China and US GDP chart

If you are interested in diving deeper into China’s GDP numbers over the past 30 years, click on the links below:

A great graph showing the world economies over the past 2000 years

What is behind China’s GDP growth rate?  The answer may surprise you.  Hint – It’s not exports.

Growth too fast to be sustained by crumbling infrastructure

China looks more impressive from across the Pacific than it does inside the country as this NPR article points out.

“I’m not as optimistic as many people in the Western world think about China,” says Xu Dingbo, associate dean of the China Europe International Business School in Beijing.”

“If you want to be the world leader, I think China is far from ready,” adds Wang Jianmao, his fellow business school professor.”

“Andy Xie, a Shanghai-based economist, is even more downbeat.”

“The efficiency is going down,” he says. “Corruption is widespread. So I think this is the crossroads for China.”

The days are over where China was thought of as the de facto choice for low cost manufacturing and now there is competition from other Asian countries.   Furthermore, their infrastructure is showing signs of collapsing under the weight of super fast growth.

“The government has helped boost economic growth by spending a fortune on infrastructure. Much of it is needed, but sometimes money is poorly spent or siphoned off. Since 2011, eight bridges have collapsed around the country, according to China’s state-run media. Most analysts blame government corruption.”

The NPR story goes on to explain how a bridge, that had $8 million in government money allocated, has needed major repairs after only 2 years and it turns out that only about $3 million actually went to construction costs.  This type of corruption is typical of Socialistic style economies and we should not be surprised by this.  Remember the US’s “Shovel Ready Jobs” of the 2009 Stimulus?

It’s also getting difficult for private, small businesses to get loans.

“China’s state-owned banks often fund these projects. But if you are a small or midsized private business — the kind that produces most of the jobs in China — getting a bank loan is very tough.”

And the rate of return on state sponsored investments is terrible.

“But economist Xu says many state firms are woefully inefficient.”

“You see lots of nice buildings, highways, beautiful cities like Beijing and Shanghai,” says Xu, “but if you look at the real financial numbers of many Chinese companies, the picture is very bad. It’s horrible.”

“Xu says the largest 102 state-owned companies had an average return based on assets of about 3.5 percent.”

“For nearly half of the assets in China, the rate of return is less than depositing money in a bank,” he says. “That means we are wasting lots of resources in China now.”

This is not a description of an economic/political climate that is conducive to future economic growth.  By now the Private sector should be booming (from all that government stimulus) but that isn’t happening and the growth from the Public sector is worse than letting the money sit in a bank and draw interest.  Low GDP growth numbers are on the horizon.

Social Instability

This is the biggest reason I have never feared China in the long term – Eventually the people will revolt and Freedom, that innate characteristic that is present in all humans, will win out.

China provides us with a contemporary example of how futile it is to think that large governments can control their citizens’ feelings, desires and moods.   This NPR story details how China has an official policy called ‘Stability Maintenance’ that seeks to maintain order and how this policy has created the exact opposite of its intentions.

“In China, government critics call it “the era of stability maintenance.” It’s their label for the government’s policy over the past decade of prizing internal stability above all else, no matter the cost.”

“Beijing this year is spending $111 billion on its domestic security budget, which covers the police, state security, militia, courts and jails. This is now higher than its publicly disclosed military expenditure.”

I suggest you read the whole article because it is a frightening account of what happens when an oppressive government tries to ‘keep the peace’ through actions that limits freedom.  The tools employed by China are legion and involve wire taps, directives from state security agents, suppressing dissent (by paying people to not protest or rewarding citizens for ratting out other protesters), beating children and a media that reports lies.

This quote, at the end of the NPR story, says it all:

“And so the paradox: The more stability is “maintained,” the less stable the country becomes.”

This is true of peoples’ freedom and also the Free Market, the more a government tries to maintain stability by circumventing the natural process, the more instability is produced.

This reminds me of Quinn’s 1^st Law:

“Liberalism always generates the exact opposite of its stated intent.”

This is why I do not fear China.  But I do fear, in a very real sense, that the US will turn into China and after the last election, I’m not so sure we aren’t already on that path.