Sequestration Standoff Solution

Regular readers know that we here at AWildDuck have a love-hate relationship with the US president. We endorsed him in the November election, but we had some blunt and critical reservations. Of course, bluntness is our trademark style, but in this case, we explained a schism in ethos that reduces the effectiveness of the American president.

Mr. Obama rivals Bill Clinton in his command of foreign policy. He has an innate understanding of democracy, law and homeland security. He is an ethical man with good ideas about helping to elevate those who cannot help themselves. But he lacks a fundamental belief in free market economics. He is suspicious of wealth—and for some reason, he thinks that someone earning 100 times as much as another individual should pay far more than 100 times as much in taxes after you deduct basic living costs for both individuals. Although supporters refute the “socialist” label that is tossed from the right, it is not completely unjustified. Recall how Obama railed against corporate ‘fat cats’ who fly on corporate jets. Obama feels that it is not sufficient to build a safety net for the poor, he has a mission of doing it by soaking the rich.

No compromise: Obama wants higher taxes on high earners

Of course, the problem is that there is not enough wealth in the 1% to address the hole that we have dug. More importantly, he fails to accept the basic premise of capital in-centives. Did he miss a principle taught in every first-year economics class in the free world? Time for a refresher. If you slept through that class, here is the Cliff Notes version: If we punish individuals who build business, employ the middle class and already pay the lion’s share of taxes, then these individuals will build empires elsewhere.

So, since we really do like Mr. Obama, what is a Wild Duck to do?

In the build up to possible Sequestration (America’s newest fiscal cliff), we believe the solution is for Republicans to let the budget ax fall where it may. Don’t compromise on letting the White House legislate ever higher disproportionate tax tiers. That plan is not only divisive, it is a path of economic suicide. It can only lead to capital flight.

Today, in a Wall Street Journal editorial, John Boehner explains that the idea for automatic and across the board budget cuts originated with the White House, but we dispute that looming cuts were designed solely to force bipartisanship and scare legislators into crafting a more palatable plan. Nonsense! Sudden and drastic cuts are necessary to demonstrate to our creditors that we understand our obligations. We cannot continue to renege on debts and fleece our own grandchildren, by continuing to spend beyond our means.

As we go to press, sequestration is 10 days away. In a speech tonight (Feb 19, 2013), Mr. Obama stood before a gaggle of first responders, insisting that the indiscriminate cuts mandated by sequestration would result in layoff of thousands of safety personnel, teachers, airport security and flight controllers, and result in the cancellation of the Head Start program and urgently needed upgrades to an aircraft carrier.

Analysts say that Obama has the high ground. They say that if economic malaise ensues, Republican legislators will be held accountable. We agree. That’s because he is not only an ethical man, he is poised and articulate. And of course, as Republicans often complain, he is extending his campaign mode instead of offering to compromise with legislators.

So, with apologies to Jonathan Swift, we wish to proffer our own modest proposal. An idea on how Republicans can seize the high ground without giving in: We humbly suggest that Republicans announce a press conference immediately. “Hello, America…We understand that indiscriminate cuts would cripple the economy and penalize the needy. We will compromise. We cannot stand by and watch senseless cuts, and so we offer to work with the president on sensible cuts.” Since we cannot seem to agree on taxes, we will work hand-in-hand with the president to reduce the deficit by prioritizing the cuts that are mandated.

If sequestration targets indiscriminately, allow Obama to discriminate.

Indiscriminate cuts disastrous?  So, discriminate, Mr. Obama.

Of course, we are in the midst of a crisis, so we won’t limit our cuts to obvious waste. We will make the tough choices and target all those programs that the president never mentions in his popular stump speeches. Hmm-m-m. Where to start? How about you, Mr. President? Any ideas?

This position, will remind Americans that while the president points to the calamity that accompanies cuts to teachers, firefighters, air traffic controllers and battleships, he never cites the other end of his list. What programs can be eliminated or cut way back?. It’s easy to denounce pork and graft, but where will the real belt-tightening begin? Since the wealth of the 1% doesn’t amount to a hill of beans, this is a discussion that really needs to be vetted. And very soon.

Let’s be clear: We support President Obama. In most of his pursuits and methods, he has our admiration and endorsement. But it’s time that this Harvard Law student gain macro-economic perspective. We think that an offer to let the president take the lead in slashing the budget will turn the conversation and take the wind out of his argument that the deficit can be addressed by soaking the wealthy.

Try as he might, nothing the president can do will soak the wealthy. It is not realistic. It will only move the wealth out of the United States, along with the jobs, the technology, the Nobel Prizes and the economic gains that follow it.

As we go to press, it’s reassuring to see The Wall Street Journal agrees that mandated cuts driven by a firm deadline may not be a bad thing. But this is not exactly our point. In our opinion, they needn’t be across-the-board.

— Ellery Davies is editor of AWildDuck. Once in awhile,
he returns to his roots and becomes a political pundit.

4 thoughts on “Sequestration Standoff Solution

  1. Although it is logically possible to reconcile the two statements quoted below, about the magnitude of wealth of the 1% and the share of taxes they pay, I find it unreasonable to believe both. I believe the first and disbelieve the second.

    “Of course, the problem is that there is not enough wealth in the 1% to address the hole that we have dug.”

    “If we punish the individuals who build business, employ the middle class and already pay the lion’s share of taxes, then these individuals will build empires elsewhere.”

    This crying for the 1% is disgusting. They paid a 90% marginal tax rate during the ramp-up of the great American boom times after WWII. In my opinion, it is ridiculous to say that the 1% will respond to a higher tax rate by cutting jobs and downsizing businesses they own, thereby further reducing their own income. They will squeal like stuck pigs, but most will not cut off their nose to spite their face.

    Bruce

    • Greetings, Bruce.

      Instead of stating that the 1% pay the “lion’s share” (a statement that requires less rigorous defense when applied to the top 3~5%), I probably should have said [the 1%] pay an outrageously disproportionate share of taxes, and also make it possible for many others to enjoy an income and enhance national tax revenue even more.

      Regarding your assertion that cutting jobs and downsizing businesses amounts to “cutting off a nose to spite the face”, I did not claim that the wealthy would stop generating wealth by growing businesses, generating opportunity, and sourcing a rising tide around them. But it certainly won’t be in regions that legislate anti-incentives. In the age of information, economics and finances are more fluid, efficient and unforgiving than ever before. The businesses, profits, employment and very tangible trickle-down will shift like water across sand dunes. It will flow to wherever the fallout of their activities is welcome, and where it is not punished.

      The United States was once a beacon of smart money and good credit. But lately, its strategy for retaining talent and business is to hope that personal freedoms will trump a need for sensible economic policy. Obama is a great man. But he needs religion (speaking metaphorically). He must quickly come to the revelation that we don’t have a taxation problem. We have a spending and entitlement habit.

      I don’t know of Mitt Romney’s source for the unfortunate statement about 47% of voters dependent upon government handouts, but the sentiment that he expressed conveys a very serious truth. Each time we respond with generosity or payouts to any cause — even the most worthy — we must ask ourselves who will pay the bill and will they continue to do so in the future. What would we do without them?

  2. Ellery, I am glad you made the point about information-age fluidity, with the water on sand dunes analogy. I hadn’t really thought about that. But I am still unconvinced of a significant hit to our economy by instituting higher marginal income tax rates for the 1% (or the 3% or 6%). When I try to think of real-life examples, I still don’t get it.

    Example 1. A plastic surgeon has built her practice into several offices, a dozen doctors, 100 other employees. I just don’t see her responding to an increase in her personal income tax by closing an office or firing any staff. Presumably she already has a level of staffing which is needed to support her volume of business, and it would be counter to her own rationally calculated financial interests to make changes in those economic equations which she previously calculated. In other words, her decisions as a rational economic free agent have no rational connection with how much personal income tax she pays. If she decides to sell her business and move offshore personally, I don’t think that the local economy really loses much, even if she is a marginally better business operator than whoever replaces her. My personal opinion about the assertion that the top dogs are irreplacable, generally speaking, is that it is a crock of you-know-what.

    Example 2. The owner of a landscaping business was very successful, has 6 trucks, a local brand, dozens of employees. She can’t offshore the mowing of your lawn or the trimming of your trees.

    Example 3. Imagine a CEO or high-paid executive in some information-age enterprise which could decide to go off shore for a lot of its labor. This directly addresses your point, Ellery. I am still not getting the connection between an increase in their personal income tax and the business decisions they make.

    Finally, although it begins to digress from the points made in the original Sequestration post, I believe that the gap between the high earners and other is widening in our economy, and to a point where it actually harms the health of our economy. When you look at the long-term history of capitalism, and look at how each successive “top-dog” capitalist economy has reached that top position, the narrowing of that gap has always been part of the success story. I believe that the widening gap is a very fundamental threat to our dominant economic position in the world.

  3. When you use the word socialist in quotes, I am happy about what I perceive as the implicit recognition (by using quotes) of various problems with the use of that word in our public dialog.

    I see the blunt truth about socialism as this. Nearly all of us, even Sean Hannity and Rush Limbaugh as far as I have heard (although I admit that I mostly try my best not to hear from them), firmly believe in the employment of at least a little bit of socialism in our political economy. If I were wrong, the Republican Party would loudly advocate abandoning the principle that every child (no matter how poor her parents are) should receive a K-12 education paid for by some form of taxation. Either that, or they are not willing to admit to such beliefs.

    Blunt truth (short form):
    We are not debating whether or not to have socialism in America. We are only debating how much of it to have.

    The problem with recognizing the blunt truth:
    It would make it logically untenable for the Republicans to label the Democrats “socialist”. The Democrats don’t want to admit that anything they advocate is socialist.

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