Monday, December 10, 2012

Insider: The Truth About the "Fiscal Cliff"

Robert Zoellick, a former Goldman Sachs partner, the former president of the World Bank, now a fellow at the Belfer Center at Harvard and at the Peterson Institute for International Economics and a possible gold bug,  speaks truth in a WSJ op-ed about the fiscal cliff, that any increase in taxes will stick, spending cuts (as phony as they are) will not.

I have found Zoellick to be the most grounded in solid finance and economics of all insiders and one who is not afraid to speak truth. Here he is in WSJ on the "fiscal cliff":
Since the election, PresidentObama has focused the debate about the fiscal cliff on taxes. This tactical political positioning is putting at risk the strategic objective of a pro-growth budget package to reduce U.S. debt. Unless the president pushes to slow the growth of spending, he will fail to strike a deal, undermine U.S. growth prospects and ultimately erode America's safety-net programs. The country's global standing would falter, too, because the president would not have led in demonstrating America's "governability."
Republicans resist tax increases for many reasons. But one concern is that "spending cuts" are not reductions from an existing budget in the way that families or businesses cut costs. Instead, a federal budget "cut" is achieved by lowering the rate of growth compared with some assumed increase. Another concern is that tax increases, once legislated, stay in effect, whereas the government has over the years overridden spending "cuts" in a variety of ways.

Here's Zoellick on President Obama's proposal:
 President Obama seems to be pushing two options. One is to achieve spending "savings" by double counting a trillion dollars over 10 years that has been already "cut," "returning" almost a trillion dollars the United States will not spend on wars, and then adding a large tax increase, supposed interest savings, and some token program cuts. His alternative is to go over the fiscal cliff—at least through the expiration of tax cuts this year, so he could start negotiations in 2013 with a big increase in revenue.
Here are a couple of the scariest out-of-control spending problems cited by Zoellick:
Social Security will also be at risk if an agreement fails to restrain the expansion of payments to people classified as disabled. In 2011, about 4.5% of Americans of working age were treated as disabled, allowing them to receive Social Security. In 1970, only 1.3% qualified. Lawyers now run TV ads soliciting business to move people from work to disability rolls, putting Social Security itself at risk.... 
 President Obama's signature health-care program faces the risk of being overwhelmed by its own costs if it does not align incentives on use with its purpose of expanding coverage. The Catastrophic Health Care program passed in the Reagan administration had to be repealed once citizens could see the increased costs charged transparently on tax returns. The confusion associated with ObamaCare's costs and taxes may give it more time, but the president and Congress should get ahead of the dangers. Providing subsidies to families of four with incomes up to $91,000 in 2011—with annual increases built in—offers just one example of a well-intentioned program that will not be affordable over time.

1 comment:

  1. doesn't matter.. dopes in gov and media will paint it another way.