The Fiscal Responsibility Debate, Continued…

In the past few months, we have had a number of lively posts by Pileus contributors and readers over the question of fiscal responsibility. Some of the posts were focused on the problem of long-term unfunded entitlements. Some revolved around the question of whether a revivified GOP would embrace fiscal responsibility. Most recently, there have been postings about the National Commission on Fiscal Responsibility and Reform.

Most students of public policy know that creating a bipartisan commission is a key indicator that no one is prepared to deal seriously with an issue (e.g., remember the Financial Crisis Commission? Its report—mandated by Congress as a means of informing the legislative debate is due December 15th).  But the rapidity with which the President and Congress threw the  National Commission on Fiscal Responsibility and Reform under the bus is somewhat stunning.

Within a week of the Commission’s report, the President and the GOP have struck a deal that would add another $900 billion to the national debt. The individual components are significant of course:

  • A two-year extension of the Bush tax cuts
  • A thirteen month extension of unemployment compensation
  • A temporary 2 percent cut in the payroll tax
  • The reintroduction of the estate tax (at 35%), albeit with an exemption for estates below $5 million.

The events of the past few days have led to a number of insights. First, it seems clear that President Obama—unlike his predecessor—does not mind negotiating with himself. Second, one may conclude there is now clear recognition that Obama has capitulated on a major point: whether tax cuts or spending are better means of stimulating a moribund economy.

The chief lesson: Regardless of partisan stripe, there is no concern whatsoever with long-term fiscal responsibility. Not only are members of both parties happy to add another $900 billion to the national debt, they are willing to do so by further endangering the financial footings of Social Security and Medicare via the payroll tax cuts.

Do we need another indicator of how seriously our legislator take the issue of fiscal responsibility? As Kenneth Vogel and Manu Raju report in Politico

Senate Majority Leader Harry Reid is trying to use the tax cut package President Barack Obama brokered with Republicans to legalize online poker…Already, the online poker proposal has exposed the Nevada Democrat to charges of flip-flopping on a controversial issue, as well as using his Senate leadership position to repay big casino interests that helped him win reelection in a hard-fought campaign against Republican Sharron Angle last month.

My prediction: the debate on fiscal responsibility and the long-term problem of unfunded entitlements—at least on Pileus—is not approaching closure.

Any thoughts on the Obama-GOP tax agreement and its fiscal implications?

 

4 thoughts on “The Fiscal Responsibility Debate, Continued…

  1. Keynes rules again – just the JFK version versus the FDR version? Of course, Keynes’ challenger, Milton Friedman, never saw a tax cut he did not like (for starve the beast reasons) but would argue that these types of tax cuts for countercyclical fiscal policy are wrongheaded.

  2. This agreement, to extend the Bush tax cuts plus increase unemployment benefits and cut payroll taxes, is just the most recently observed evidence that the political class is incapable of acting to effect fiscal balance. Our elected officials believe, or, perhaps, understand, that it is not in their career interest to legislate fiscal responsibility, i.e.; a balanced federal budget.

    I had the opportunity to read comments made by Alan Simpson, the Republican Chairman of the Commission, in which he noted that every one of the groups that testified before the Commission agreed with the principle that federal spending needed to be significantly reduced, but also made pains to note that their particular interest group deserved to not have their funding cut.

    The incentives for elected politicians are such that they will never reduce government spending in any meaningful way.

  3. I have to agree with Mr. Walsh. Our elected officials do not have the intestinal fortitude to take the necessary actions to get the nations’s fiscal house in order. Sometimes I think we are doomed.

  4. The problem is the Money System. Real money is gold and silver. What we have today is counterfeit money backed by Debt. The more “money”in circulation, the more debt. This Ponzi Scheme money system is unsustainable. Over the last 100 years the U.S. “dollar”has lost 97% of its value. Within the next few years the “money” will be worthless, then what? The Federal Reserve (it is neither Federal nor a Reserve) has managed to bankrupt the greatest economy in the history of the world and has also managed to transfer that nations wealth to the owners and stockholders of the Federal Reserve Bank. Talk of “balanced” budgets is Socialist,Keynesian gibberish. America is bankrupt as its citizens have given up their Liberty for a bit of Security with the taking on of chains as a reward. Instead of a Nation of proud,independent citizens America has become a Nation of Debt Serfs tightly holding on to their Social Security Cards.

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