Let the Sequester Go Through

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Courtesy of Cartoonist Henry Payne at henrypayne.com

By Danny Zeng | February 28th, 2013

Only in Washington, New York Times, and academia will you hear the term “austerity” used to demagogue the current round of automatic spending cuts scheduled for this Friday, March 1st, which by the way, is the doing of the very congressional men and women who manufactured this crisis in the first place.  The media and the President have been staging daily segments to draw attention to the “crippling” effect of the so-called sequester (again wonkish jargon for “cuts”).

Now, is this bad policy? Absolutely. This was the unthinkable mechanism that Congress came up with to force deficit reduction back in 2011. What’s happening is the same people in Congress decided to play with fire then, burnt their fingers in the process, and now they are screaming for ice – or more like for Aloe Vera from the rich, depending on your view.

Average Americans who are mentally drained from the last congressional debacle over the fiscal cliff don’t seem to care as much this time, and I don’t blame them. Why should they invest time after time in the legislative dysfunction that is often self-induced? The President in recent days has pulled a classic play from his book by going on the air promoting a “balanced” approach of raising taxes on the rich while reducing spending cuts. This is a dishonest way to deal with this issue on several grounds.

  1. First of all, by now, when the President utters the word “balanced,” I perch my ears up to listen for specifics. The President is dubiously trying to sell his revenue hike as a “comprehensive tax reform” by closing tax loopholes on the wealthy– sure, but “comprehensive” would also mean lowering marginal rates for everyone to stimulate growth, which is not part of the President’s plan. His plan really comes down to more taxes on the rich on top of the already imposed taxes on the well-do from the fiscal cliff deal in January. Balanced much? Or class warfare?
  2. The actual sequester amounts to about 1-2.4% of the $3+ trillion federal budget, depending on if we use the Congressional Budget Office estimate of $44 billion effective cuts this year versus the often cited $85 billion. To put this into perspective, annual cost of attendance at UT Austin amounts to about $26,000.The “sequester” that would apply to an average student would amount to $260-600 annually; divide this number by 12 into monthly units, the cuts amount to $21.67-50. This would mean more spaghetti instead of salmon for dinners (which obviously threatens our nutritional outlook), loose-leaf versus hardcover textbooks (which obviously threatens our educational needs), jogging in the park for free instead of having a gym membership (which obviously undermines our health), or perhaps just working a few hours less (which obviously threatens job prospect). This is a crude analogy, but I think it is pertinent to the fact: the sequester, while it does have consequences, is a tiny, flexible component of our larger addiction to spending.
  3. The main drivers of our spending problem are still the Big Three – Medicare, Medicaid, Social Security, which together consume about 60% of our federal budget, and none of which will be touched under the President’s plan to replace sequestration. A truly “balanced” approach would put entitlement reforms on the table. The often-touted Simpson-Bowles definitely tackles entitlements in their effort to tackle our structural deficit.

For these reasons, Republicans are right to hold their feet to the ground against another one of the President’s tax-the-rich scheme. While the sequester could inflict some short-term pains, it will put us on a more sustainable long-term fiscal path toward growth and opportunities, along with genuine tax reform presumably later this year. The politics is difficult, but the choices are clear. Since our elected officials have so meticulously made the bed for this political theatrics, I suggest for them to just lay in it and ponder the concept of leadership. The fact is that the “super-committee” had failed, and Congress kicked the can further down the road in January. Now we are at the end of the road. Actions have consequences.  It’s about time that our country enters a fiscal awakening.

Who Blinked First? Politics of the Fiscal Cliff

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Courtesy of humanevents.com

The talk about the fiscal cliff has confused many, and I would like to bring some clarification to this issue to my peers.

The Basics: the reason for the “fiscal cliff” talk is that on January 1st, Bush tax cuts (2001, 2003) will expire and revert back to Clinton-era rates on a wide ranging of taxes i.e. personal income tax, dividends tax, capital gains tax, estate tax. in addition to literally thousands of middle class Americans getting hit with something called the Alternative Minimum Tax, which was originally designed to capture the rich who don’t pay their fair share. In addition, about $100 billion of domestic spending, including defense, will be cut as a provision of the Budget Control Act of 2011. The totality of this “cliff” amounts to a fiscal impact of $500-600 billion on the economy, which economists of all stripes predict nothing short of another recession in 2013 if this so happens.

What does this mean to President Obama? President Obama’s re-election was threatened by the poor economic performance of his first term. Even though this time around, he doesn’t need to worry about re-election, presidents in their second term often crave for a credible legacy. With that said, it is in President Obama’s best interest to ensure that economic recovery remains strong. Looking at it from this vantage point, the threat of another recession is undesirable for the President, who has other priorities – domestic and foreign – for his second term i.e. immigration reform, education, energy, Iran, Middle East overall, China. He doesn’t want to spare his political capital dealing with an ailing economy for much of his remaining tenure. Plus, the botched debt ceiling talk from last year tarnished his image as a negotiator-in-chief. His political reputation is also on the line. Since the White House knows its limited ability to force the hands of progressive liberals in Congress, it is willing to compromise with Boehner beyond the baseline laid out by Reid-Pelosi (which is why Obama moved the goal post to $400,000)

What does this mean to Democrats? With a recalcitrant Tea Party wing within the Republican ranks, especially the Republican-controlled House, there seldom will be opportunities for more tax hikes than this in the years to come. The President’s re-election provided us with cover. We can claim mandate on taxing the rich. This is a golden opportunity not to be missed. Since revenue bills have to originate from the House, so the Republicans really control the purse string at least in the near future (save anything dramatic there’s fat chance that Democrats will re-capture the House in 2014). “Saving” Medicare and Social Security are huge priorities for us. We certainly don’t want to be painted as balancing the nation’s finances on the backs of minorities and the poor (wink wink our most loyal supporters) – let’s save that honor for the GOP, who already built a brand as the “Party of No,” let’s dump all that on them and force their “extremism” out on entitlements – I mean human rights to basic dignity in this world.

What does this mean to Republicans? The polls show that the public trusts the President more on the fiscal cliff issue, especially when the President’s approval rating is at all all-time high. However, is a deal possible with the fiscal hawks who want more spending cuts? Also considering that most of them ran on a no-tax-increase platform back home? I know at the core of our conviction that we spend too much in this country. We are marching towards a deeper welfare state. If Republicans run the White House, we’d have entitlement reforms come spring but… The reality is that we have stuck our neck out for a deal – we proposed tax increases on those making more than $1 million and the President still said “no.” The President wants to play hardball because we forced his hands two years ago. He now has the leverage, and we have the short end of things. So help us God.

What does it mean to average, non-Washington folks like you and I? 

One camp would argue that going off the cliff is not so bad. The middle class will pay more taxes, and they will be more conscious of how much the country’s really spending. In the long run, what’s not to love? The other camp would say that going off the cliff will disproportionately affect middle class – higher taxes AND cuts to certain public benefits. Either way, it’s bad news for regular people. Congressional Budget Office projected that unemployment will tick up to 9% nothing gets done to avert the fiscal cliff.

In retrospect, if Boehner and Reps postured the former position (jump the cliff) and maintained a consistent no-tax-increase position, then Republicans may have had greater leverage throughout the talk. However, Boehner blinked first. Now the President and Dems have successfully gained the leverage point, especially after Boehner pulled off the vote on his own proposed plan due to lack of support. Just to be clear, both Reps and Dems wanted to extend middle class tax cuts. Why? In American politics, raising taxes on middle class will be the ticket for your Party to be in the minority, assuming you survive your next election. Another recession means higher unemployment, potentially setting back our economy for a few more years, and leading to more government benefits for the unemployed (as long as Democrats have power in Washington). Sadly though, our nation’s finances really won’t be that much better. We are fast approaching $17 trillion in debt, and we will still have hundreds of billions of deficit annually for the remaining years in the decade, even after passing President Obama’s tax raise on those making more than $250,000. Nothing save major tax and entitlement reforms will put our country’s fiscal house in order. The President said that he’d work on tax reform in 2013. We will see. Right now, Boehner had tossed back the political football to Reid and Obama as result of his failure to whip enough votes for “Plan B,” and in the Speaker’s own words, what comes next, “God Only Knows.”  

 

Danny Zeng