Thursday, December 27, 2012

Falling Off The "Fiscal Cliff"

I'm really tired of hearing all of this "fiscal cliff" nonsense here in the United States. I try to avoid posting politics on this Blog, but this is really bugging me.
Man At Shoshone Point - Grand Canyon, Arizona
This is a real cliff.
The so-called "fiscal cliff" is made up to scare people into allowing politicians to rake them over the coals. The economy won't collapse on January 1, 2013. Yes, paying higher taxes won't help the economy to grow or help anyone's personal finances, but it won't cause a depression or even a significant recession (even though we are still in a recession).

But even if there is a fiscal cliff, what would cause it? 

Spending cuts? No! Spending cuts within our government or any other country's government has never caused an economic collapse. Ever. Just like spending less within a personal budget will never cause anyone to go bankrupt.

Actually, since the U.S. federal government is spending more than it is collecting (a lot more), cutting spending is the wise and responsible thing to do. If you, I, or any company were to spend more than what is earned, financial ruin would be inevitable. Eventually one runs out of credit and the bills come due. The federal government has little tricks to get away with this (like printing more money), but these tricks are always a short term gain and a long term loss.

As the saying goes: play now and pay later or pay now and play later. The federal government of the United States has been playing with our money for a long time now, and soon it will be time for this nation to pay. Sad. But it is because of our own choices.

Not to chase this rabbit trail too far, but as another saying goes: you reap what you sow. If we as a country sow poor fiscal choices, what do you think we will reap? Every choice we make has consequences. Sometimes good, sometimes bad, sometimes both, these consequences are assured and will determine our future.

Let's get this post back on track. What would cause a fiscal cliff? 

Tax hikes? Yes! Tax hikes have led this country and many other countries over ledges and cliffs many times in the past. But these taxes must be oppressive in order to do that. We are close to the point of oppressive taxes, but we are not there yet. These tax hikes that are coming in January will not bring us to that point (although it will bring us closer). The tax increases will take tax rates to just slightly higher than they were in the 1990's.

The current economy is weaker than it was in the 1990's, so it is less capable of absorbing these higher taxes. But it will still absorb them. These tax increases will certainly slow the economy down, but not a lot. It will be less like a fiscal cliff and more like a fiscal small-step-down. We will all survive and continue on.

What I find the most absurd about all of this is that the "solution" that many politicians and the news media have put forward to prevent us from going "over the cliff" is tax hikes! If tax increases are the problem, how can tax increases ever be the solution? It can't be the solution and it won't be the solution. This should make it clear to everyone that there is no such cliff and it is all made up to scare you.

But what about taxing just the rich? If you are not "rich" this may seem like a good answer, because it is someone else's money and they're probably cheats and live in the lap of luxury and have huge reserves and they probably wouldn't notice anyway. Two quick points: 1) the alternative minimum tax was meant for just the wealthiest, but now it effects the middle class and maybe even you, so you don't know if a "rich tax" will eventually hit you; and 2) when you tax the wealthy, they will (like anyone else) spend less, which will mean the businesses that they frequent will sell less, which means fewer raises for employees at those businesses or even fewer jobs, or, if the wealthy person is a business owner, they'll simply pass those taxes onto the customers by way of increases to the price of their goods or services. Taxing the rich will indirectly effect everyone's wallet.

I'm not saying that the rich shouldn't be taxed or taxed more, just that it is foolish to think that doing so is a fix-all or that it means everyone else gets a pass.

A real solution would be to leave taxes alone and get spending under control. The real problem--the long term problem--is spending. The federal government cannot continue to spend more than it takes in with taxes and expect everything to be ok. But the same people who believe that tax increases are the solution also do not want spending reductions. Wow.

The purpose for this rant is so that you won't be fearful of this so-called cliff. Not because we should go over, but because these politicians want you to be scared so they can have their way with you. Be smart, not scared. Let your representatives know what you think of all this.

My guess is that our federal government (who created this "cliff" in the first place) will lead us right over the ledge... and the fall will not be anywhere near as big as advertised. Unfortunately, I do not believe that the politicians will make the right choices, because doing the right thing doesn't seem to be of interest to many in Washington D.C.

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