“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Tuesday, June 28, 2011

The Debt Limit Talks

For me, the best line of the entire debt limit situation came last week when former Senator, now presidential candidate Rick Santorum, replied to a question from Glenn Beck about the Biden-led talks, to paraphrase,

'If Joe Biden's involved, then you know they're going to fail.'

I notice that all of the CNBC coverage involves earnest-sounding liberal Democrats claiming,

'There has to be compromise. Sure, we'll cut spending. But the Republicans refuse to raise revenues. They have to agree to more taxes- it's only fair.'


How about this- the Democrats and Republicans have been spending far above the long-term federal tax/GDP rate of 18% for decades. No matter what the tax rates, only about 18% of GDP will find its way to federal coffers.

The only real issue now remaining, as global investors begin to doubt America's government's ability to ever live within its means, is to cut spending.

Wasting time on tax hikes or new taxes will only distort and affect consumer behavior to once more lower tax collections to 18% of GDP.

Democrats don't seem to be able, or want to, acknowledge that tax policy is not arithmetic in a static environment, but government policy which provokes changes in consumer and investor behaviors which lower tax collections back to a surprisingly stable long-term rate of 18% of GDP.

Are the Congressional Democrats- and Wonderboy- really so blind and stupid as to not understand this?

I think some are, and the others are simply choosing not to acknowledge, hoping to just keep raising taxes at every opportunity. The liberal mainstream media backs this play by pretending that 'it's only fair' to raise taxes if spending is being cut, ignoring decades of spending excess by both parties. It's a very Russian negotiating tactic- what's yours is on the table, but what's mine is not, ergo, grudgingly giving way on spending cuts, but only if taxes are raised.

Personally, I am at the point where I am okay with no debt limit raise if the Democrats don't agree to spending cuts in excess of the raise within the next year or two.

Economist John B. Taylor offered an excellent compromise solution on Tom Keene's noontime Bloomberg program yesterday. Taylor suggested that Republicans extract half of the $6-7T in required spending cuts this time around, then go for the remaining $3T next year, with no tax hikes ever mentioned.

Sounds good to me.

No comments: