Monday, November 21, 2011
Stock market futures are down a lot this morning because of news that the "Supercommittee" charged with reaching a Congressional compromise on taxes and spending has failed.
Curiously, if you believe in the Congressional Budget Office's "static model" -- and that is the device used in Washington for these discussions -- there are substantial deficit reductions already baked in. The "Bush" tax cuts are expiring on January 1, 2013, and the automatic cuts will disproportionately hit defense spending -- a traditional target of Democrats -- without any Congressional vote. All of that adds up to $7.1 trillion in deficit reduction over the next ten years, a substantial reduction that would put the United States in a much better position than its current trajectory.
Then why don't the markets like the result? There are at least three reasons.
First, one has to believe the CBO's static model. Only politicians and journalists are so fey. Or disingenuous. Most of us believe that massive new taxes in 2013 with no corresponding reform will do a lot of damage to economic growth in the next few years. The impact of that increase would have been muted if it were coupled with a huge reduction in future tax liability (by reforming entitlements), but there is no such relief in sight.
Second, one has to believe that Congress never enacts another incremental spending bill without cutting something equivalent. Those of us on the right look at all the incremental revenue in 2013 (the massive baked in tax increase minus the economic impact of the tax increase) and expect that politicians of both parties will find a way to buy votes with it.
Third, the failure of Supercommittee reminds everybody how freaking hideous our political class has become.
It is extremely frustrating.
What I find even more frustrating is that President Obama goes on a world tour every time something tough needs to get done. He was in Hawaii when the debt ceiling debacle happened, Marthas Vineyard when the budget fight erupted, and now in this instance he was in Bali, Australia and, yes, Hawaii again when the committee was running down the clock.
Worse yet, Chris Matthews says he doesn't ever talk to his own party politicians, not from Congress or statehouses, and he hasn't EVER met with the super committee. Matthews makes him out to be a "loner", which, when added to all the talk a month or so back about the President being "clinically depressed" is very worrisome.
How about a goddam beer summit? How about pulling people in a room and knocking heads?
The truth is he doesn't give a damn. About the country, I mean. And, that's a whole 'nuther level of frustrating.
The Supercommittee was doomed to fail over the political divide. It was just a statagem to get past the debt ceiling issue. By creating an extra-constitutional legislative body, the Establishment isolated the Tea Partiers in Congress. It's important for wise elder statesmen like John Kerry to have outsized influence on momentous issues.
When the Supercommittee does fail we'll have cuts in entitlements and cuts in defense. Don't forget that the Bush tax cuts are already set to expire, so that these increased taxes are already baked into the official budget numbers that still show genormous deficits until the end of time.
Obama and the Democrats will use this as a setup for the 2012 election. It could work. "Critical spending is being cut, deficits are exploding and it's all because the Republicans refuse to make the rich pay just a little bit more." This is Community Organizing 101 -- crisis first, then agitate. Obama will hope to gain with the Medicare/Medicaid crowd, divide Republicans over the Hawk vote, and say it's all because the 1% refuse to pay their fair share.
What's troubling is the willingness of many (MSM included) to buy into this. The federal budget is so far out of whack that you could double the personal income tax on everyone and still not close the gap. You won't fix this by hosing the rich, most of whom don't show a lot of W-2 ordinary income. You will hose your local physician, etc, etc. -- there aren't enough of them by the way, and there'll be fewer still.
The reality of this is being masked by the Fed's machinations. But it's unsustainable.
Obama's being away once again is no accident. I suspect he mapped out his calendar a long time ago.
You could see this coming three years ago. It's revolution through the Tax Code. Our federal government will either get bigger or smaller. What we have now is unfinanceable.
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Ignoramus, you are correct - but there is a little further to go. Obama and his campaigners had this gamed out last summer.
Of course the Supercommittee failed, it was supposed to fail, for the reasons you illustrated.
The Republicans mistakenly thought this was about solving a budget problem with bi-partisan agreement.
It was about getting power. That is what the ideological Left (Obama, Kerry and the others) are about.
Getting power, keeping power. They could care less about resolving any budget crisis. As Rahm Emmanuel so thoughtfully said in 2009, "don't let a crisis go to waste".
And there will be more crisis in the future for Obama to extract more power from.