Once again, we find ourselves in that all too familiar territory, having reached that old smelly can we’d previously kicked down the road. Each time we reach it, it smells just a little worse, and each time we kick it, it travels a shorter distance. The last time this can was kicked, our national leaders promised that we would end this self destructive game, once and for all, if we only looked the other way while they collectively shirked their responsibility. Wild cuts in spending are scheduled to take place, as well as an increase in tax rates that will take us back to those rates paid during the 1990’s. All in all, hysteria aside, this is something or nation needs, and would be an overall positive thing for our economy. The problem of course is that we’ll not see it, at least not in a lasting form.
What we will see, sometime in January would be my guess, will be an agreement whereby once again those tax rates will go up immediately, for increased spending today, followed by wildly optimistic cuts which will be scheduled to occur 8 to 10 years from now, but will never actually occur. It will be heralded as a bipartisan compromise that will save the taxpayers Trillions of dollars, even though the magic of base line budgeting will allow a net increase in spending to be reported to us poor saps as a, “cut.”
There are so many fallacies in this scenario, that unfortunately I believe whole heartedly will take place exactly as I’ve described, that I do not know where to begin. First, we are still waiting for the budget cuts agreed upon in the 1982 Ronald Reagan budget deal to actually happen. Maybe if we get those, I’ll be a believer. The problem is however, that we have had that particular dance more than a few times since 1982, with the GOP being promised to have spending reigned in at some agreed upon future date, while accepting an increase in taxation rates immediately, and then watching that agreed upon date come and go with nary a cut in anything. How many times will we agree to having Lucy Van Pelt hold the football for us before we get wise to the gag? My guess is that this year won’t be that year.
Tax rates are meaningless when discussing the concept of what our taxes are. Government spending is equal to taxation. If our tax rates deliver $1.1 Trillion less in revenue than what our government spends, we have not saved anything. Those taxes will merely be paid, by us, in some other form. After all, I have not seen anyone willing to make up this difference out of some form of benevolence. There is no Tooth Fairy, Santa Claus, or Genie being rubbed out of a lamp who will be taking up this slack. Listen to me when I tell you, accepting increases in the taxation rates should be acceptable, provided they are coupled with sharp decreases in spending on everything but defense which would start immediately. Since our real taxation is represented by what is spent, this would be the same thing as a tax cut, even if it won’t be labeled as such, and would have the same effect on our economy as a tax cut as well. Conversely, if I hold your tax rates the same, but force you to spend more for gasoline, groceries, or acne medication, you may very well perceive it as not having your taxes raised, but the effects on our wallet and our economy will be just as devastating.
Then there’s this little fallacy, which may be my favorite of all. The idea that raising tax rates, on any group, will increase federal revenues has been disproven throughout history, and was even called out as being foolish by Maynard Keynes himself. How many times must we pull out the Laffer Curve to combat this idiocy? Raising rates has not ever resulted in an increase in revenue, but sharp decreases have been the result instead. This has been the case, each and every time, in each and every society, anywhere or any time it has been tried. Conversely, decreases in tax rates has always resulted in large tangible increases in revenue raised. Not just once in a while, but anywhere, at any time in history, this has been the case. Yet here we are in 2012, and the political rhetoric is given to us with the same fallacious assumption, as if it were true, and as if it weren’t the opposite of every historical precedent that we can use as a reference throughout the entirety of recorded history.
With all of this in mind, please also realize, before you eviscerate John Boehner, that the Republicans control one half of one third of our Government. To be precise, the Republicans control the House only, and in the end, controlling only the Chamber of Congress known incidentally as the lower chamber is not a position of strength. There will be some capitulation that occurs in January or February on this entire budget deal. The question is, what will they hold out for. If you believe that keeping tax rates where they are is the big victory that we should seek, I would submit that you need to go back and read up on your economics lessons. Tax rates will be what they will be, but the true form of taxation that we really pay is entirely represented by a government’s spending. That’s the victory we should be seeking.
I am not saying that John Boehner and the House Republicans should not be held accountable for what happens next, only that they should be held accountable for the real prize, which is getting out of control spending under control. If they fail on that front, then let’s eviscerate them. After all, government spending is constitutionally within the House’s purview.