(FOX) Negotiations to avert the Fiscal Cliff offer great political drama, but they won’t solve Washington’s budget woes and may cast the nation into another recession or worse.
The Budget Act of 2011 requires the president and Congress to agree on a nine-year $1.2 trillion deficit reduction program, or cuts in annual defense and non-entitlement outlays each equal to 54.7 billion trigger on January 1. Simultaneously, the Bush Tax cuts, the 2 percentage point payroll tax holiday, and other assorted programs expire.
Altogether, $136 billion in annual spending reductions and $532 billion in additional taxes could trigger cataclysmic consequences for the economy. Unemployment would rocket past 15 percent, state government finances would collapse, homeowners would default on mortgages, and hundreds of banks would fail.
To avoid calamity, President Obama and House Republicans will likely agree to raise taxes on high income Americans by $100 to $150 billion and curb spending by an equal amount. However, those efforts will prove too little, and yet, the economy may still skid into recession—depriving the federal government of tax revenues and further pushing up the budget gap.
The federal deficit exceeds $1 trillion dollars—up from $161 billion in 2007, the last year before the financial collapse. Spending is up some $1 trillion, as outlays for and other entitlements have increased by an amount equal to the entire 2013 defense budget.
By the end of the decade, runaway entitlement spending will require shutting down the military or crippling many other domestic spending programs to head off ballooning deficits.
With Americans living longer, the only reasonable solution is to raise the Social Security retirement age to 70, and pattern US health care reforms after other national systems that better contain costs.
The Germans and Dutch spend one-third less on health care than the United States, because their governments more aggressively regulate prices, better ration care, and spend less on law suits.
Democrats, hamstrung by unions, are loath to require Americans to work longer, and are too beholden to tort lawyers and the medical establishment for campaign support—hence, ObamaCare just throws more money into a broken system.
Republicans refuse to admit more competition—we already have plenty of it among providers, drug and device manufacturers and insurance companies—won’t adequately slow rocketing health care costs.
Over the next decade, without a significantly higher retirement age, effective price controls in health care and torts reform, federal spending and the national debt will jet into the stratosphere. Mounting interest payments, investor reluctance to buy US Treasurys, and consequent draconian cuts in spending will thrust the United States into the crisis now gripping Greece and Spain.
More immediately, even modest tax increases and spending cuts threaten a second recession, because President Obama and Congress failed to address dysfunctions that created the bubble and bust of the 2000s and make the economy perilously dependent on deficit spending.
From 2001 to 2005, the trade deficit doubled to more than $700 billion, thanks to subsidized imports from China, restrictions on US sales into the Middle Kingdom and rising oil prices. This resulting loss of demand for US-made goods and services should have instigated a recession; however, Chinese and Middle East oil exporters stepped up purchases of US securities, and those helped finance questionable mortgages, car loans and credit card debt. Americans spent more than they earned and the boom continued into 2007. When homeowners and other borrowers could no longer service their debts, defaults and bankruptcies resulted and the economy crashed.
A huge trade deficit with China and on oil continues, but now the federal government is doing the extra spending and borrowing for us. If budget negotiations slice $200 to $300 billion off the deficit, as is likely, GDP will contract $350 to 500 billion and unemployment will rise above 10 percent.
President Obama and House Republicans indicate no interest in genuinely confronting Beijing to force a more equitable trading relationship with the Middle Kingdom.
Slashing oil imports requires the President to permit more drilling in the Gulf, off the Atlantic and Pacific coasts and in Alaska, and for Republicans to embrace alternative energy sources and more aggressive conservation measures.
Neither seems likely.
All told, absent major changes in trade and energy policies to boost domestic demand and growth, budget deficit reduction is not possible without another long, hard recession. And absent genuine deficit reduction, the country is headed for economic chaos by the end of the decade.
Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. Follow him on Twitter @PMorici1
I wouldn’t be so confident. It was GE who practically got Obama elected through MSNBC… but maybe he’s ready to stab an ally in the back.
The Council on American-Islamic Relations has lost its nonprofit status, according to the Internal Revenue Service.June 23, 2011
CAIR was named an unindicted co-conspirator in a landmark terrorism financing trial in Texas. Some Islamic charities facing federal investigations have been advised by attorneys not to file IRS paperwork for legal reasons, but there is no evidence that CAIR is currently the target of a federal probe. via politico.com
|Washington Post so called blog sez that:
Buddhist Hell via J TAYLOR
Most U.S. and foreign corporations doing business in the United States avoid paying any federal income taxes, despite trillions of dollars worth of sales, a government study released on Tuesday said.
More than half of foreign companies and about 42 percent of U.S. companies paid no U.S. income taxes for two or more years in that period, the report said. via reuters.com
the way Google does it is called the Double Irish to Ireland and Holland. Corporations don’t get taxed… only the middle class does.. (the middle class that provides 95% of jobs in the United States and are technically called millionaires). Ever wonder why GE financed MSNBC before they let go to Comcast or why most media companies have no worries about taxes. if you are in the media your main interest is in defying eminent domain and getting friendly with government who makes those decisions. Honest corporate executives unlike Bill Gates who is a fraud and a liar know that taxation does not effect them… especially if the majority of the revenue is from advertising or if they are practically the government already… aka Time Warner… Time Warner… hmm Time Magazine? CNN? hello? wake up LIBERALS!
The problem with guys like Dennis Kucinich and Ron Paul… (who are really one and the same internationalist agenda… one for corporatist internationalism and the other for socialist internationalism) is that it doesn’t matter what they say. They hurt the reputation of the average American and they don’t represent local interests. The modern debate over government is based on offering Americans a choice between two minority monopolies of power. Government controlled corporations or corporate controlled government. Two extremes, both of which monopolize power in the hands of a small number of powerful and influential people. And deprive ordinary citizens of their rights. Because a tyranny of the minority is still a tyranny– regardless of what its guise is. And either corporate controlled government or government controlled corporations mean a totalitarian state serving the interests of a small group. The only debate is over which small group will benefit the most from the oppression of the majority. The debate between government controlled corporations and corporate controlled government is mostly irrelevant. Because we have both.
Google’s income shifting — involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.
Here is the deal. He’s an adult. Everyone else is children because we think our taxes are too high. So the new rule is any large corporation that proportionately financed Obama in the last election and this guy… is going to be taxed. Everyone else is free to watch this guy make a new sign.