I am glad we have a “fiscal cliff” to finally get some reduction in the future taxes both parties have been piling on with abandon the last few decades. When you have enormous spending beyond your income, as the USA has had the last few decades, cutting current taxes is just raising taxes on your grandchildren to pay for your spending. Shifting taxes to your grand children is not cutting taxes it is shifting them to future generations.
If you want to really cut taxes you must cut taxes and not pass on paying for your cuts to your kids. It seems pretty obvious those that advocating cutting current taxes the last few decades were only interested in living beyond their means today and foisting the responsibility to pay to their grandchildren. That is despicable behavior.
The fiscal cliff is an opportunity to return to a budget that has the generation doing the spending paying the taxes (last seen in the Clinton administration). The fiscal cliff outcome is going to be far from perfect. But the result will be a much more honorable outcome than foisting ever increasing taxes on future generations to pay for our current spending.
Obviously, if you reducing how much you are adding to your credit card balance each month and start paying your bills that means you don’t get to live off your future earnings today. So you will suffer today compared to continuing to tax the future to pay for your spending.
I hope the compromise results in spending cuts and an elimination of the Bush generation shifting taxes (cutting taxes on the the current wealthy without spending cuts – so just taxing the future to pay for tax cuts today). It is unlikely the fiscal cliff results in us actually paying for our spending (the best possible result is not an elimination of adding to the taxes future generations must pay but just a reduction in the level of tax increases we are imposing on the future every year).
Lots of little things should be done to save a few billion (maybe it could add up to $50 billion a year if we are very lucky). But the serious spending cuts have to come from reductions in military spending, reducing waste in the health care system and making social security more actuarially sensible (social security is not part of the fiscal cliff discussions though). Reducing tax breaks also has to happen, unless absolutely huge spending cuts can be found which is not at all likely.
The concept of the minimum tax rate (AMT – Alternative Minimum Tax) is fine (even good actually), but the implementation now is very poor. Every year they have to pass an exemption to avoid catching millions of actually middle class (say earning $50,000 a year) from being caught by poorly written law. I think they should rework this to be a policy that actually works instead of one they have to make exceptions for every year (they pass the law the current way to avoid paying for the policy they want – it is only waste in order for them to lie about the income level they are voting for).
I wouldn’t mind if the fiscal cliff results take affect without action. Then they can step in and make a few adjustments. Add some spending; reducing taxes on those making less than $100,000; possibly add some adjustments to reduce taxes on investment income (capital gains and dividends). A change to cap the mortgage deduction would make a great deal of sense. Helping people buy a modest house is fine. Taxpayers helping people buy mansions is silly. If we go this route things will be harder at first (and financial markets will get excited and talking heads will bather on and on) but we will get a better long term result. But we will still only be reducing the level of extra taxes we are adding onto future generations. I expect they will compromise before significant fiscal cliff affects take place (which is long after the fake “deadline”).
The debate is mainly about which special interests win (is military spending going to be reduced at all from the enormously high levels, are we going to stop wasting money on security theater, is social security policy going to acknowledge drastically longer life expectancy, are we going to continue the coddling of trust fund babies and hedge fund managers the current politicians have to voting for, how large of excessive health care costs will be tolerated…?) and how large the additional taxes we will pass along to the future will be.
No one is talking about paying for some of of the huge spending we did in the last few decades that we didn’t pay for. No one is even talking about paying for our own spending. Hopefully the fiscal cliff will result in a reduction of the amount of the taxes we are adding to the future every single year. Sadly we are likely to increase taxes on our grandchildren at a much higher rate than if we did nothing (the compromise is largely about who gets to benefit today at the expense of our grandchildren not actually paying for the spending we are going to do and have done the last few decades).
We also have failed to reform the health care system for decades. The costs in the US are double that of other rich countries with no better results. This results in hundreds of billions of dollars in costs to the government annually (health care for employees – including military, government retires, and medicare and medicare). These costs have to be reduced by getting the USA system so it is closer to the rest of the world. Even just getting to mediocre results would save hundreds of billions a year but seems unlikely given how extremely poorly we have done. Mainly this is due to those benefiting from the current massively overpriced system paying congresspeople to avoid any fixes that reduce their personal benefits from the current broken system.
The USA government is likely to foist a large cost on those holding USA government debt in order to reduce the amount of tax increases on future generations. This will take the form of inflation. This means holding USA government debt is risky and not very sensible in my opinion (if you do so use inflation protected bonds). Essentially investors today are betting they can time their investment to avoid the inflation that is nearly inevitable. Given the extremely low payments currently this is a very bad investment idea in my opinion.
The extent of the irresponsible spending and taxing-the-future has been so large that massive levels of inflation in the USA are possible in the coming decades. It is a significant risk to the economy created by those seeking to lower taxes the last few decades by increasing the tax on our grandchildren.
Related: The Long-Term USA Federal Budget Outlook – Economic Consequences Flow from Failing to Follow Real Capitalist Model and Living Beyond Our Means – Anti-Market Policies from Our Talking Head and Political Class – The USA Economy Needs to Reduce Personal and Government Debt – NY State Raises Pension Age to Save $48 Billion