The Sequester is Upon Us. What Do We Do Now?

Posted on March 1, 2013. Filed under: Obamacare, Politics, Taxes, Welfare | Tags: , , , |

Day one of the Sequester is here (and yes, I know it doesn’t “officially” go into effect until 9PM my time), and the world didn’t go hurtling into the sun. Comets and asteroids are not crashing into the earth, and we have not been invaded by aliens.

After days of doom and gloom all over the media, they have finally admitted that the world isn’t ending, despite the President’s propaganda to the contrary.

That’s right, I said propaganda. Obama and his team are some of the few true masters of propaganda. Whenever he wants to make his point, he trots out people to stand behind him. The other day, it was police and firemen. Last week, it was a ship construction yard. Before that, it was young children for his anti-gun crusade. And of course, there were the doctors who he gathered in the Rose Garden to push for his Obamacare, which caught Obama supporter and talking head Donna Brazile by surprise when her premiums suddenly jumped up.

Capt. Greg McWherter, of the Blue Angels during the Tuscaloosa Regional Air Show in TuscaloosaThe truth is, the Sequester is not impacting what we currently spend, it is impacting what the government wants to spend this year. Instead of telling the truth about it, the President, and the media are telling us that police and fire will be cut, head start will be cut, the FDA will be cut meaning fewer meat inspections and our health is now at risk. We’ll have to cut military personnel and can’t finish building aircraft carriers, let alone deploy them. There will be a shortage of TSA gropers, and delays at airports will be catastrophic, not to mention the number of air traffic controllers that will have to be axed. Government workers will have to take furlough days, for which the government employees unions are gearing up for battle. Illegal aliens that have been detained are released prior to the Sequester even taking effect! Even the Vice President will be forced to travel by train. Children will no longer receive their immunizations.

I heard on the radio this morning that flyovers at sporting events will be cancelled (at least until September when football season kicks back into gear), and the Blue Angels will be grounded.

I’ve mentioned to my wife repeatedly that I wondered how much money we could save by not having these flyovers at every single game. I know the pilots need seat time, but how much do we spend on fuel doing these flyovers?

Of course, the President maintains that he wants a balanced approachand by balanced, he means higher taxes. He maintains that we can’t cut our way to prosperity, but that simply isn’t true.

Bob Woodward took some flack this week from the White House for reporting that the Sequester idea did, indeed, originate from the White House. Barack Obama signed into law, not matter what those on the left try to say.

During the last two presidents, borrowing and spending has gotten out of control. Obama has added $6 Trillion, or 60% to the national debt during his term. That’s a true statement.

What conservatives like to ignore is that Bush went from a debt level of $5.6 Trillion under Clinton to a an $8.5 Trillion debt by the end of Fiscal Year 2006. That’s an increase of $2.8 Trillion, effectively a 50% increase to the debt. By the end of his term, the debt had increased to $10 Trillion, nearly doubling the national debt. Two wars and a depression.

But Bush had a Democrat controlled Congress in his last two years. However, he did sign all of those spending bills into law. He could have vetoed them. He could have vetoed the budgets, and told them to come up with something more realistic.

In his final year, the national debt exploded and doubled from $500 billion to $1 Trillion, in a vain attempt to stabilize the economy through government stimulus. 

DeficitDebtWhen Obama took office in 2009, he saw that government spending wasn’t doing the trick, so he, and his Democrat controlled Congress, nearly doubled the deficit and put even more spending into the economy. The deficit jumped to a record $1.8 Trillion in 2009.

The deficit started to come down in 2010 (the Democrats still controlled Congress at this point), but only dropped by about $200 billion. After the Republicans took the House in 2010, the deficit dropped to about $1.2 Trillion.

My point is not that the Republicans have really reigned in spending. They haven’t. They’ve been part of the problem. Looking at the graph, it shows that the debt has really skyrocketed in the new century. It reminds me of another chart.

nasdaqbubble

The chart to the left is the NASDAQ composite index. In the early 2000’s, the NASDAQ went completely crazy, forming the bubble that burst in March of 2000. The housing bubble did much the same thing before it collapsed. My point is that, referring to the chart above, debt cannot take off like it has been without forming a bubble, and it will eventually collapse and do a lot of damage to this nation.

nikkei225The NASDAQ looks very similar to the bubble that formed on the Japanese Nikkei 225 index back in the late 1980’s.

Government cannot, and should not do everything for us. The government is to provide for the general welfare. That does not mean to provide grants to study everything under the sun, from the effects of cow flatulence on global warming or the mating rituals of frogs. It does not mean guaranteeing loans of any and every kind. It does not mean give billions of dollars to foreign countries, like giving $60 million to Syrian rebels to train them. It does not mean flying drones over our heads to spy on us.

The past five years shows one thing very clearly. The government pouring more and more money into the “economy” does very little, despite what Keynesian (demand side) economics theory may say. It didn’t work during the Great Depression, and it isn’t happening now. I’ve shown in previous articles how economic growth during both Reagan’s and Clinton’s administration’s had more growth than we are experiencing now. The media, day after day, continually tries to convince us that the economy is recovering. Unemployment has stagnated around 8%, U-6 unemployment remains at over 14%. Wages are dropping, and as much as this administration likes to complain about this, that’s what happens when unemployment is high. Wages actually start to go up when unemployment is low, because companies have to make good offers to workers to attract the best workers. Right now, with unemployment being so high, workers are about a dime a dozen.

This “balanced” approach of raising taxes is going to backfire in the end. Conservatives believe that taxes are the be-all, end all. Liberals tend to believe that bigger government and more spending in the name of helping people is their sacred cow.

If strict gun control laws, aren’t working, it’s because they are not strict enough. If massive Federal spending is not stimulating the economy, then Federal spending is not high enough, and more must be poured into it, which means everyone’s taxes have to rise.

Conservatives forget that Reagan did more than lower taxes. he also massively deregulated, and that had a huge impact on the economy. The government today over-regulates, and it is stifling the economy. Obama had made it clear before his first election that he would bankrupt the coal energy sector, and that he would make everyone’s energy prices rise. I have heard it said time and again that the President has little control over the price of gas. Really?

Get rid of the regulation requiring refineries to mix 10 to 15% ethanol to their gas during every season except winter. Watch how quickly gas prices start to fall. The President could tell the EPA to get rid of that regulation.

The proponents of the flat tax believe that is the most fair system. Rand Paul is a big supporter of the flat tax and wants a 17% flat tax. However, this tax would hit the poor and low income workers the hardest. The only people the flat tax is good for are the wealthy. You know, Congress, the Bill O’Reilly types, the disembodied voices that come across the radio advocating for a flat tax.

The President wants to close loopholes for the wealthy. How about closing some loopholes for the poor as well? Closing some of these loopholes won’t raise their taxes. How about passing a law that says you can have the Earned Income Credit, the Child Care credit and all of that, but once your refund hits the amount of money that you put into the system, that’s all you get. For example, if you paid $2000 in Federal income taxes, the max you can get back is $2000, not $4500. That would also reduce the incentive to continue to have children. The tax system, as it exists today, is nothing more than a massive wealth redistribution scam.

Sales taxes are also unfair to the poor, in many cases forcing them out of certain markets for goods because they can’t afford the taxes. Medicare and Social Security are more a less a tax on youth. Money is taken from those who are younger in order to subsidize our seniors.

I’m not suggesting that we not help our seniors, but we need to incentivize saving and investing. Low interest rates are a double edged sword. On the one hand, the interest on mortgages and other loans is lower. However, the interest rates for saving money is virtually non-existent. We have no incentive to save our money, and the government likes it that way. It gives them more control over us.

Keynesian economists argues that saving is the enemy of a thriving economy, that government spending and debt drives the economy through hard times. However, the debt needs to be paid from time to time.

John Maynard Keynes argued, however, that the government spending should be spent on infrastructure, something today’s government has been loathe to do. Back in 2009, with the fiscal stimulus, there was a lot of money put aside for roadwork and repairing bridges, but none put aside for upgrading our power transmission lines. A lot of money was poured into green energy companies, many of whom failed.

There are a lot of cities going bankrupt, Detroit being at the head of that list. Why are they bankrupt? Are they not taking in enough, or spending too much?

This is the question of our time. The President, an obvious Keynesian economic subscriber, does not believe that we are spending too much. He has said so on multiple occasions. He believes that we aren’t taking in enough money, so he is demanding more as part of the sequester solution. The left points to Europe, Britain especially and says that austerity cuts don’t work. What they are failing to point out is that these nations have also raised taxes. Tax increases reduce consumer demand. Growth in January 2013 was an anemic 0.1%, as was the growth in the whole fourth quarter of 2012.

Radical departure time.

Let’s lower the top tier income tax rates to 25%. Lower the corporate income tax and capital gains tax to, let’s say 10%. After the economy starts to recover, raise these taxes by 2% a year, to a maximum of 20%.  Lower sales taxes. Raise interest rates slowly to, say, 7% or so to spur saving and investment, but to also combat inflation. Cap some of the deductions given in the tax code. Deregulate some of these industries that have been handcuffed by government over-regulation. That doesn’t mean that we should start letting factories dump toxic waste into our rivers, lakes and streams. That’s just silly.

Lat’s reduce government waste by consolidating overlapping programs and departments; stop giving so much money away in the form of grants; repeal Obamacare. The Federal budget will take an initial hit, but it will recover as new businesses are started, established businesses expand, and maybe, just maybe, large corporations start to bring jobs back to this country, and maybe the money they are hiding overseas to be taxed. The economy will start to lurch back to life.

This may sound dumb and counter intuitive to some people, but we’ve seen that the current approach isn’t working. It’s time to try something new.

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