It’s The Spending, Stupid

During weeks of post-election campaigning and economic debate in Washington the political-media establishment has simply ignored the the real cause of the government’s monstrous deficits and rapidly growing debt.

After years of refusing to deal with relentless growth in federal spending Congress and the President have dragged us to the Fiscal Cliff, a nickname for a series of laws that, preposterously, designate the Bush income tax rates that have been in effect since 2003 as “temporary,” with an expiration date of January 1, 2013, after which they all go up.

To avoid increases in every federal tax rate on January 1 Congress must pass and the President must sign new legislation by December 31.

So far President Obama has dominated the fiscal cliff story by holding campaign style events to present his position to the adoring media who have blessed it as smart, reasonable and popular.  He wants to allow the top two income tax brackets for single and married tax payers to go up as scheduled.  He wants new legislation enacted to keep the lower four brackets at their current “Bush” rates.  Apparently he would adjust the income thresholds for the 33% rate up to $250,000 for married taxpayers and $200,000 for single taxpayers.

His position on the marriage penalty, the child tax credit, capital gains and dividends isn’t clear.

Republicans oppose upper bracket tax increases, citing the faltering economy and high unemployment, and the fact that most upper bracket tax payers are the small businesses who have always created most of the new jobs in America.

The President speaks about Fiscal Cliff issues in catchy phrases designed not to inform, but to manipulate the perceptions of people who don’t have the time or inclination to research political and economic issues.  For example, on camera he chants his poll tested slogan, “balanced approach,” which he says would reduce deficits with a combination of tax hikes on upper income taxpayers and “responsible” spending cuts.  But at the same time he submits a “compromise offer” to House Republicans that calls for increased spending, which he calls “investments.”

A serious review of the deficit problem would begin by asking what taxpayers have gotten in exchange for a dramatically expanded federal government.  Are we Americans more prosperous now, with a much larger government that costs 156% more than it did a quarter century ago?

The political-media establishment functions as a cheering section for the President and seemingly has no interest in such fundamental questions.  But the answers can be found in some readily available economic indicators in the table to the left.

Every economic statistic is worse today than it was when government cost 156% less.   Yet the President and his supporters never look back, never question the wisdom of a relentlessly growing federal government.

Obama spent two years enacting a new government run health care regime.  It’s clear that a major reason unemployment remains so high is business reluctance to expand in the face of the higher costs and yet to be written new regulations associated with ObamaCare.

While the President claims current deficits were caused by the Iraq and Afghanistan wars, the truth is those operations never cost more than 5% of annual spending, and cost less in 2012 than anytime since 2003.

As the table shows, Defense, or military spending has gone down as a percentage of GDP and of total government spending. 

Most of the increase in the cost of government has been due to expanding entitlements which now consume two thirds of the federal budget.

When Obama’s aids are asked what spending he would be willing to reduce they answer that his ideas are incorporated into his annual budget proposal, sent to Congress last Spring.  But his budget plan calls for a 71% spending increase over the next eight years from $3.3 trillion in 2012 to $5.6 trillion in 2021.

Even some in the media are beginning to acknowledge the reality that there aren’t enough rich people and they don’t earn enough income for Obama’s top bracket tax hikes to matter.  For context, consider that the government ran a deficit of $120 billion in one month, October.  The Congressional Budget Office estimates Obama’s increase in top bracket rates would yield $82 billion in a whole year.

Back in 1992 James Carville, who was Bill Clinton’s campaign manager, made himself famous by hanging a banner in his office proclaiming “It’s the economy, stupid.”  We can only hope someone in Washington will defy the establishment with a new, common sense banner:

It’s the spending, stupid.

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