The Fiscal Cliff or "Hey Buddy Can You Spare a Dime?"

Mentally picture 4 or 5 dogs all pulling on a towel in different directions, this is Congress in action. The towel represents our budget. So when you come down to it, it’s not a very big towel. The consensus is, Congress needs a bigger towel. How we get there, is more taxes or print more dollars. Both do the job, but when you raise taxes, you can point to who raised them. But when you print dollars, you can’t blame Congress, that’s how the economy is, we live with inflation.

The real problem is that the benefits and entitlements take up almost the entire budget, and we have to borrow to pay the rest of the bills. The President doesn’t have to worry about reelection, but the Congress does; so none of the entitlements and benefits will be cut without a long drawn out fight. Whatever the compromise, it won’t even be close to enough to fix the existing problems of funding.

Figure that total tax collections next year, even with a tax the rich provision, will probably be far below this year’s totals. Remember we are not taxing rich people, only high wage earners. So a doctor making 250k, what does he do to limit tax liability? He forms a Limited Liability Corporation and pays himself about 60K a year and slaps the rest into a retirement fund. If you’re an oil company, forget American investments; drill where you get tax breaks.

State governments’ layoffs will start in the coming week (the election is over), government employees have to be given 90 days’ notice now. If you’re not part of the Police or Fire department, count on layoffs. The teachers will be thrown under the bus. The voting’s over; education is where the first cuts come.

Congress wants to raise taxes on the rich and lower them on the middle class. It sounds great if you’re pandering for votes trying to get reelected. Do we dare assume that rich people are incredibly stupid and will pay more? It’s probably the middle class that is incredibly stupid. They believe Congress has done something constructive by extending the same tax cut another 4 years that will expire time and time again. And of course it will forever be called the Bush tax cut. Realistically, Congress has to drastically reduce entitlements by 50% and/or most probably double everyone’s taxes. That wouldn’t be a bad thing in a robust economy, but in this economy, neither is an option. A legislative solution to our fiscal problems doesn’t exist with the current thinking in place. Entitlements will not be addressed.

As if things couldn’t get worse, Obamacare, will start cutting into many wage earner’s paychecks . The national work week has now been (unofficially) reduced to 32 hours (part time workers don’t qualify for health benefits). And those that paid some federal taxes working 40 hours will now pay none (working less hours). Of course where you once had 4 employees working 40 hours you will pick up one new worker when we go to 32 hours. Your hourly wage stays the same, your paycheck is smaller, your standard of living drops, and more people will be employed--oh goodie!

The real problem just becoming apparent, we are in a depression, greater than the Great Depression. We can’t tax our way out of it, and since we have already borrowed almost every dollar in the banks, it will be impossible to print more money without inflation. Bernie Madoff's problem wasn’t with the money he had in the bank; it was the money he needed to withdraw for redemptions (consumption). As long as everyone keeps their savings in this “FDIC insured piggy bank” there is no problem. The Governments problem starts when everyone wants to spend their saving at the same time. The reward of consumption (instant gratification) is presently a far better value than the saving rates offered by a bank of one percent interest, considering the current 6 percent inflation rate.

The fiscal cliff out there that everyone is referring to is the fact that we are broke. Our government is running out of people to borrow from. A sign from the great depression in a grocery store read, “In God We Trust, all others pay cash.” In 1933 you bought a box of apples and sold them on a street corner to make a living. Now, the government is proposing to buy the box of apples and . . . .—“it’s going to be ‘different’ this time around. “ The trouble is, nobody is sure what that means.



Copyright 2012 by Jim Brubaker