Saturday, November 17, 2012

Fiscal Cliff Negotiations-Day One

     Friday was the first day of the Fiscal Cliff negotiations between President Obama and Congressional leaders in the House and Senate. The two sides came into the meeting with Republican leadership in the House and Senate wanting to cut spending and raise revenues without hurting small business. The President and Democrat leadership from the House and Senate wanted to continue the class warfare they have been waging for the last four years. The President and Congressional leadership from his party understand that raising rates on the top wage earners will snag over a million small businesses that file as individuals. This will cause more unemployment and add more pain to an economy that is already on life support. It also will not catch the millionaires who are not paying taxes now, the only way to do this is through the Republican plan of reforming the tax code. But raising rates on the top earners is the most transparent way for the President and his party to show the faithful that they are punishing the rich for, well, being rich.
     Both sides exited the meeting on Friday afternoon saying that it was constructive and that a "framework" for a deal was reached, whatever that means. The President, as he always does in public, seemed cooperative and willing to compromise. But with negotiations of this kind, it's more important what is said behind closed doors, which is why I think the Fiscal Cliff show should have been public. There is no national security issues or classified information being discussed, it's all about the math. I assume that the President didn't want a repeat of the health care meeting held early in his first term, when Paul Ryan made him look unprepared and foolish.
     I expect a deal that will include no real cuts in spending, but reductions in the rate of growth. The Federal budget hasn't been cut, in any meaningful way, since President Reagan. Any "cuts" since then have simply been smaller increases in the growth of the budget than previously planned, and this reduction is then characterized as a cut. This is why the Federal budget increases every year without fail. As for the tax side of the deal, I would expect that the Republicans will cave on higher rates, even if it is in the form of allowing the Alternative Minimum Tax to snag more taxpayers, which in essence will harm the middle class. Any increase in tax revenue that doesn't come from tax reform, will hurt the struggling economy and lead to more unemployment. I heard someone say recently that higher taxes don't keep the rich from being rich, they prevent the non-rich from becoming rich. This concept is the basis for Democrat power, because the last thing they want or need politically is a nation of self-reliant rich people.

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