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Fiscal cliff

The 'fiscal cliff' facade: It's about the spending, stupid

Wednesday, December 19, 2012 by: J. D. Heyes
Tags: fiscal cliff, government spending, national debt

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(NaturalNews) Americans have been inundated with news coverage about the so-called looming "fiscal cliff," a series of automatic spending cuts and tax increases mandated by law that are about to take place on Jan. 1, if Congress and President Obama do nothing to stop them, which looks increasingly likely.

We've been told that allowing the government to plunge off the fiscal cliff will be economically devastating - that our nation will sink into another crippling recession that could last years.

Republicans, Democrats and the president have spent months pointing fingers at each other, with no one taking responsibility for the fact that the cuts and tax increases are the result of rare bipartisan legislation - the Budget Control Act of 2011 - that Congress passed and Obama signed into law. The mainstream media has breathlessly covered every second of it, hyping it shamelessly and keeping the issue at the top of each daily news cycle. They quote one side, then the other, then the other - but report little more than superficial talking points.

What's the real issue?

Yes, the "debate" over the impending fiscal cliff has been great political theater, to be sure. But that's all it is - political posturing and theater.

The mandated spending cuts and expected tax hikes are likely to put a damper on an already struggling economy, to be sure. But even if Congress and the president do nothing and allow the cliff to be breached and taxes go up - as they are expected to anyway, in addition to the expiration of the Bush-era cuts - the country's debt will still continue to grow.

And that's the real issue.

The U.S. government has a debt problem because it has a spending problem - not a revenue collection problem.

Experts generally agree on why there is debt: funding two overseas wars, tax cuts that weren't offset by higher revenues due to the recession, excessive stimulus spending, to name a few. But the nation did not incur its debt overnight; it was a long time coming. It took of a lot of excess spending to get where we are today.

Tax hikes are not the only answer

Currently, the U.S. Treasury collects about $2.5 trillion annually from an economy that generates more than $15 trillion in gross domestic product. But the federal government spends roughly $1 trillion more than it takes in, so it must borrow the extra money. In fact, according to the most recent figures, the government borrows 46 cents of every dollar it spends.

Part of our fiscal problem could certainly be addressed with tax hikes - over and above those raised from the expiration of the Bush-era tax cuts set to expire Dec. 30 - by broadening the current tax base, as NASDAQ CEO Robert Greifeld suggests (but not necessarily to the working poor).

But what would lawmakers and presidents do with even more money? Would they use it to pay down our existing $16-plus trillion debt, or would they use it to expand government spending even further, in essence using the federal treasury to buy votes and influence by offering Americans more and more government largess?

Many lawmakers and experts think the latter, which brings us back to the real issue of the so-called fiscal cliff - our government has a spending problem, not a revenue problem.

"I look at it this way. When someone has a drug and alcohol problem, the last thing they need is more drugs and more alcohol...when someone in your family has a spending problem, the answer is not to give them more money to spend," Rep. Randy Neugebauer, R-Texas, told KFYO. "And the debate has been about giving the government that spends too much more money. And really what the debate should be about and focused on is this spending issue."

Dr. Burton Abrams, a professor of economics at the University of Delaware and a research fellow at the Independent Institute, said this reading of the "fiscal cliff" budget cuts is that some are real, not the phony kind of cuts that lawmakers generally say they are implementing but which are really just smaller spending increases.

Nevertheless, he said, the dominant culture in Washington remains spending, not cutting.

'The problem is more severe than anyone will acknowledge'

"Spending on transfer programs are out of control. Keynesians seem to believe that public debt carries with it no burden. Some are continuing to recommend even more spending to boost the economy," he told Natural News.

He thinks the country would be better off tumbling over the cliff.

"I'm one of the few economists who think the fiscal cliff is a better alternative than the likely compromise that will come out of Washington," he said, adding that the Congressional Budget Office "estimates that the resulting recessionary effects will be relatively short lasting and not dramatic."

He says if no deal is reached and the automatic tax increases and spending cuts kick in, the economic results will be minimal and short-lived. He thinks unemployment might edge up about two percent, but for only about a year or so.

"The debt problem is more severe than nearly anyone will acknowledge. Our current public debt will act as a drag on economic growth going forward," said Abrams. "Adding still more public debt, which is almost certain, will worsen things. Entitlement programs such as Medicare, Obamacare and Social Security are projected to rise substantially in the years ahead."





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