The Fiscal Cliff Deal: Country-Helping Compromise or Crap Sandwich?

You've now undoubtedly heard that the House of Representatives has voted in favor of the Senate's version of the Fiscal Cliff bill (officially titled the American Taxpayer Relief Act of 2012). President Obama is expected to sign it soon. To see the pdf of the bill, go here: http://i2.cdn.turner.com/cnn/2013/images/01/01/american.taxpayer.relief.act.pdf

So what do you think? Is this good for the country? Did one side win? Did one side lose? What about the process?

My opinion:

First, I want to address the process. This might sound odd to some, but in my opinion, the process is the biggest winner here... to some extent. Our bicameral legislature was established to do exactly what the Congress just did: Debate, delegate, argue, and move slowly towards a compromise. While the Fiscal Cliff negotiation process was "oversensationalized" by the media, (albeit, a heavily-slanted media that used this opportunity to push an agenda), it went precisely as our Forefathers envisioned. Our legislative body, the Congress, was designed to be slow. It was designed this way to ensure tyrannical, quick, dictator-like laws were difficult to enact. Our Forefathers believed that if laws were passed quickly, they would not be passed properly. If it was possible for a bill to become law in quick fashion, without debate (which is a representation of the people spread around this country), why not just have one man or woman, namely, a king or queen, simply implement laws? I addressed this previously, and I do believe wholeheartedly in the concept of legislative compromise:

Speaker Boehner's Letter and Fiscal Cliff Proposal

This post is an add-on to our ongoing Fiscal Cliff debate taking place here: http://loudmouthelephant.blogspot.com/2012/11/open-forum-fiscal-cliff-friday.html

Yesterday, the Speaker of the House, John Boehner, sent a letter to President Obama outlining the GOP's proposal to avoid going over the impending "Fiscal Cliff." This single issue, in my opinion, is the most important issue in our current socio-political-economic environment. Dollars and cents aside, I believe the handling of this issue, from the "kick-the-can-down-the-road-until-after-the-election" proposition to the notion of "compromise" or general lack thereof, highlights the broken nature of our federal government. From the divide in the halls of Congress to the split nature of our debates in social media, this single issue is driving a wedge through the nation. Regardless of how this will be resolved, the handling of this problem will surely set a precedent, unfortunately, for the handling of similar, ideologically-divided issues for years to come.

A key "x-factor" in this arena seems to be the lack of "good" information. The media, an unchecked faction who's supposedly charged with passing information to the people, seems to be subjective rather than objective. It's often said that the media leans to the left, and in this year alone, it doesn't seem ashamed to show it. With respect to the Fiscal Cliff, many examples have emerged (here are a few from Newsbusters - whom I respect because they back their claims with video, audio, links, and transcripts: ABC, Piers, Diane Sawyer, Wolf to show a few) that show the media is shamelessly taking sides without offering a balanced set of inquiries or interviews to anyone on the right. This leads to an American public that is grossly misinformed about the facts of our dire situation.

A "Quick and Dirty" Look at Obama's Tax The Rich Plan

I couldn't resist. I saw the following article and I just had to write about it: http://money.cnn.com/2012/11/14/news/economy/obama-taxes-deficit/index.html?hpt=hp_t3

Yes, I know that in the post-2012 election era, this blog will naturally pivot to more philosophical writings, but some economic analyses will come up here and there. This is an example of one of these economic analyses.

As many readers of this blog know, rarely would I conduct an analysis on a simple article such as the one listed above. Usually, as seen in this previous analysis, I prefer digging deeper and analyzing primary-source data... usually involving IRS data tables, OMB information, or anything of the like. Since this is a simple analysis of the second-hand information discussed in an article, it is officially a "quick and dirty" look. :-)

A Quick Thought About the CBO's $1.1 Trillion Budget Deficit Prediction

Yes, you read the headline correctly. The Congressional Budget Office has predicted that the final budget deficit, the amount by which the government spends more than it takes in for a year, will close the 2012 fiscal year at about $1.1 trillion (see it here: http://www.cbo.gov/publication/43539). The government will have spent $3.8 trillion while taking in revenues of $2.7 trillion. And yes, I must through this out there, taxing the rich more will not change the $1.1 trillion deficit. See those numbers here: http://loudmouthelephant.blogspot.com/2012/03/tax-rich-obama-class-warfarecampaign.html

This post isn't scientific; it's just some thoughts about these numbers. Think about this:

Revenues vs. Spending: Our Take

As we have said since the beginning of this blog, we take positions (albeit, conservative ones), and we tend to back them. This is what we stand for. We stand by opposing views that are backed over agreeing views that are not.

Allow us to try to shed some light on the revenues vs. spending issue we continually see discussed on various blogs and mainstream media news sites. Again, these are our views and our interpretations of the data. As always, the comments section is open for civil debate.

First, we believe that the current financial crisis (skyrocketing federal deficits and the increase in the national debt, and yes, we know the difference between deficits and debts) is the result of out of control government spending as opposed to those that think it's the result of lagging revenues. Secondly, we also believe that, in spite of what the mainstream media tries to brainwash readers with, the Bush-era tax cuts were a boon to government revenues. We must note that this is not an analysis of who or what party or president caused the problems; it is merely a review of which part of the federal budget, in our view, contributes most to deficits and debt. Our primary source of data is the Office of Management and Budget Summary of Receipts, Outlays and Surpluses or Deficits Table located here: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist01z1.xls

This report can be found on the OMB website located here: http://www.whitehouse.gov/omb/budget/Historicals/ 

First, the data. We have selected federal budgets from 2001-2010, and the projected budgets for 2011 and 2012:

We are going to highlight selected years in the data:

1. 2004-2007 - We chose this set because 2004 was the first full year of the "Bush-era" tax cuts. It is also the first 4-year period in which these tax cuts were "seasoned," and their effects had made their way through the economy. We close the set at 2007 because this is the beginning of the recession and revenues tail off (though not to pre-recession levels) due to various circumstances which are not considered "normal" economic conditions (high unemployment, reduced corporate profits, etc.). The recession was not caused by the Bush-era tax cuts, and the economy was side-swiped by other exogenous forces. 

2. 2008-2011 - We chose this set because this was the era of increased government spending. Expenditures during these 4 years skyrocketed and, in our opinion, have contributed most to the mammoth yearly deficits our country is now experiencing. Unlike revenues, which are the result of economic conditions, expenditures are outlays that are the direct result of government officials' decisions and are made independent of economic circumstances. This is why we tend to discount revenues during this period while we take a look at government expenditures. To us, the story told by revenues during this period is not as significant as the story told by expenditures.

Notice the time period from 2004-2007. The yearly increase in government revenue was at its highest rate, and the change relative to base year 2001 was extraordinary.  Now take a look at expenditures in 2008. From 2001 to 2007, government expenditures increased by only 60%. From 2008 until 2011, in less than half the time, they went from 60% to 100% of 2001 levels. Prior to 2008, the greatest increase in yearly government expenditures was 7.95%. In 2008, it was 9.3%. In 2009, it was 17.94% year over year.

These figures might be easier to understand on a simple graph.

During the green period (the period highlighting the Bush-era tax cuts), revenues increased at a rate greater than the increase in government spending. The gap between the two was actually shrinking. The Bush-era tax cuts, as you can see on the graph, yielded the greatest increase in government revenues during the entire 12 year study period. 

During the red period (the period of increased government spending, ignoring revenues), government spending skyrocketed. When compared to revenues during this period, expenditures increased at a rate that exceeded the deceleration in revenues. Outlays increased 29% from 2007 to 2009 alone. Notice the gap between revenues and spending in 2010 and 2011. This is the yearly deficit, which, if left unbalanced (which it is) then gets rolled into the national debt. 

Let's look at another graph.

This graph supports the information presented in the previous graph. During the era of Bush-era tax cuts (yes, we know they are still in effect, but government revenues are greatly affected during recessions and therefore looking at revenues under these conditions would not be statistically sound), government revenues had its greatest year-over-year increase. As stated in the analysis of the previous graph, the rate of increase in revenues exceeded the rate of increase in government expenditures. During the red period, government spending increase at astounding levels year-over-year. 

This final graph is the most telling.

The first thing we noticed: Government revenues, since the first full year of the Bush-era tax cuts, never dipped below pre-tax cut levels. The tax cuts have always maintained a net positive revenue stream relative to the time before they were enacted.

The second thing we noticed: Government spending, especially since 2008, has been, in our opinion, out of control. In 10 years, the government has doubled its outlays. Perhaps, if the recession did not hit, looking at the rate of increase in revenues from 2004 to 2007, revenues might have kept pace (after all, as previously stated, revenues were growing faster than expenditures since the Bush-era tax cuts).

What does this all mean to us? Simply: the government spends too much. If a regular citizen started earning less money, he or she would naturally start to spend less. If not, they would certainly fall into bankruptcy. Adjusting its spending is not a corrective action our government seems to take in a similar situation. When the government started to earn less (no, the government does not have as much control over its revenues via taxes as people like to think), it should have started to spend less. Unfortunately, as the data shows, it actually did the opposite and started to spend more.

What should the government do? Duh, spend less! The government can easily cut trillions of dollars in unnecessary spending. There is no amount of tax increases that can keep up with this out of control spending anyway, and the only way for the government to bring its budget into balance is by living within its means. Empires fall because they go bankrupt, and, if the United States doesn't take heed, it will end up going down that long road to ruin as well.

Looking forward to your comments. Thank you.

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