Fiscal Cliff? Not Really - But Republicans are on the Defensive

I watched Brit Hume on O'Reilly tonight and had to agree with his simple analysis of the so called fiscal cliff situation.  Obama is showing his native arrogance because he correctly assesses that he has the advantage in these negotiations.  Two bad things will happen that Republicans don't like, tax rates will increase and defense spending will be cut.  Only one thing will happen that Democrats don't like, Medicare will be cut, and Republicans will take the blame for it.  Further, the public is set to blame Republicans right now, because they can't get their act together on messaging.  Hume blames the MSM, but I think its time to quit doing that.  The MSM is an arm of the left, just get used to it; point it out occasionally, but deal with it.

What's to be done?  Boehner truly has a weak hand, he has to keep his members in line, and they are always worried about the next election.  My strategy would be to stall.  Keep passing short little extensions of the status quo and kicking the can down the road a bit.  Use the time to get the messaging better and trumpet what you are willing to do.  For example, phasing out deductions for the rich will raise revenue in a static analysis.  It eventually needs to be done in order to keep marginal rates low anyway.  So the Republicans need to tout how they are reformers of the status quo and are also putting revenu on the table.  If only, if only, the President would do something about spending.  Just give us a little more time to persuade him.

The fiscal cliff's worst impact will be to the economy over marginal tax rates.  I have looked at the military cuts, and they are mostly back loaded.  Some will immediately take effect and there will be a great hullabaloo, but I don't take them seriously, especially in the long term.  The regulatory cliff will probably be far worse for the economy.  Obama will unleash the EPA and the Labor department on American businesses soon.  With Europe tipping into recession, this will be a bad time for the economy.

Republicans need to avoid blame for this by being very careful about how they handle the fallout over the negotiations.  Obama clearly wants the negotiations to fail, to force the GOP's hand.  Stalling would seem to be the order of the day.

Glad to be back blogging again after a hiatus for a tough class.  I wrote a paper on cloud computing security that proved more difficult than expected.  I am no expert, but I think the opportunity exists for the government to safely use cloud computing.  However, I am concerned about how the government would implement security measures, and more importantly, monitor for security.  This is the direction the current administration intends to go, so it will be an interesting ride.

Why I Like Boehner's Plan - My Tea Party Perspective

Hero of the Republic?

John Boehner's plan to cut the deficit by $915 billion while raising the debt ceiling is going to underwhelm many tea party types. But I like it a lot. Here's why; Obama won't dare veto it, because that would be irresponsible, and more importantly, he would appear irresponsible. However, it will keep the issue alive into 2012 and continue to make the growing debt a campaign issue. As I have said before, the public needs to make a decision on our fiscal direction through elections.

The issue is sure loser for Obama. If he backs big tax increases to close the gap, he plays into the narrative that he is just a tax and spend liberal. However, if he gets serious about entitlement reform, he further alienates his base, whose energy he needs to overcome the younger and unaffiliated voters who are deserting him. Ending his Presidency has got to be a big priority. I am not advocating doing anything irresponsible to do so. Indeed an incremental approach to curtailing deficit spending is the only responsible thing to do, because in a republic, these issues deserve a full airing.

Further, Boehner's plan calls the Senate's bluff. HotAir is reporting that Senate Democrats have objected to his plan as "too short term." My response, tough, your party spent us into this mess, albeit with Republican help, are you really going to vote to shut down the government? The people of the United States will see who the irresponsible party really is.

Back to my original point. It has become clear that a second term for Barack Obama is the chief threat to the liberty and prosperity of our nation. He has shown no compunction about trampling the rights of citizens, expanding the reach of the federal government, and seeking ever more spending as a means of re-distributing wealth. Only his defeat for re-election will allow us to repeal the excesses of his term in office. His re-election will cement them.

We are engaged in a historic struggle over conflicting visions of the nature of our nation. On the left is the view that we are a mature country that needs an ever expanding social safety net as we slowly fade into oblivion as a great power. The opposite view, including most in the tea party movement, is that America is likely to be the greatest nation on earth for a long time, if we just get government out of the way and let people go to work solving our nation's economic and technical problems and that the social safety net's costs must be reduced.

Ignoring This Morning's Headlines on Debt Talks

Both the WSJ and the UT had headlines on the collapse of the debt ceiling talks. I'm glad that I have learned not to accept the headlines as the real news anymore. Temple of Mut has a great summary of how it has been Obama who sabotaged the talks by suddenly demanding more revenue out of the deal. HotAir provides similar analysis.

Bottom line, Obama is posturing because he is nervous that his base will be deeply disillusioned with the direction he was taking, and he needed an excuse to ask for more. In the end, both sides are still talking. Obama has more to lose than Boehner, because even if something disastrous happened, both sides will get blamed, even if the blame tilts more to Republicans. Boehner has a far better chance to still be Speaker in 2o13 than Obama is of being President that year, if a deal isn't reached. That Obama is pulling childish maneuvers is a sign that he is actually negotiating poorly. The joker in the deck is Reid. He is unlikely to be Senate Majority leader under any scenario. However, what gives him the best shot, might be a deal that takes a way Republican ability to nationalize Senate races next year. This is why I am pretty sure something will get done.

I think that we should take a moment to bask in the media blame of the tea party for this crisis. Two years ago, their seemed to be a consensus of Keynesian business as usual, just pile on more debt and spending to get out of the recession. In just two years our movement has completely changed the nature of the dialog about government. The size of spending cuts, not the amount of government growth are now the topic of debate. Reforming government pensions is on the table from sea to shining sea. (Sign the San Diego pension reform petition today at 10675 Scripps Poway Pkwy from 11-3.) Pretty good work for a movement with no official leaders, no official organizations, no political party, and not even an official ideologist.

John Boehner Leverage the Debt Limit

John Boehner went into the belly of the beast, figuratively speaking, telling Wall Street types what the GOP is demanding in exchange for raising the debt ceiling. The always left of center LATimes has the details.

Boehner told the Economic Club of New York that there would be no increase in the debt ceiling unless certain conditions were met. He demanded $2 in spending cuts for every $1 the debt ceiling was raised, specific spending reductions rather than targets, and no tax increases. That sounds like he's picking a fight with Democrats, not demonstrating fiscal responsibility.

Good for him. This is a fight that needs to be picked. The WSJ had a decent editorial take on the issue.

"It's true that allowing America to default would be irresponsible," Mr. Boehner told the New York Economic Club. "But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process."
. . .
The real question isn't whether the U.S. will meet its debt obligations but what the government will do to control its spending habits. Federal debt held by the public—the kind the government has to pay back—as a share of GDP has soared in the Obama years and is now near 70% and rising. No one knows when the world's creditors will lose their appetite for U.S. debt, but no nation should want to tempt fate.

Boehner continues to do a creditable job of keeping the focus on reducing government. I know he has come in for criticism for not cutting enough, but we are trending in the right direction.

Tax Breaks and Subsidies

John Boehner succumbed to demagoguery by the President on "tax breaks" for big oil companies. In a calculated political move, he said that the "oil depletion allowance" should be reviewed.

The Ohio Republican told "ABC World News" that the government is low on revenues and that oil companies "ought to be paying their fair share."

"We certainly ought to take a look at it," Boehner said. "We're at a time when the federal government's short on revenues. We need to control spending but we need to have revenues to keep the government moving."

Well, how's that for not getting outflanked on a populist issue.

So here's a reminder about the facts. The oil depletion allowance is a special form of a depletion allowance, applying to minerals, oil, gas and timber. From Answers.com:

In tax law, the deductions from gross income allowed investors in exhaustible commodities (such as minerals, oil, or gas) for the depletion of the deposits. The depletion allowance is intended as an incentive to stimulate investment in this high-risk industry, though critics argue that mineral deposits are valuable enough to justify high levels of investment even without tax incentives.

One might argue that the depletion of a resource is akin to the depreciation of capital equipment. I am not expert enough, to say for sure, but I know this, all depletion allowances should be treated identically, it strengthens the rule of law for it to be applied impartially. I guess that's the cue for the Congress to treat it as a political football.

With regards to the accounting question, the cost of purchasing the asset, be it mineral, oil or timber is an expense to business, the only question is whether it is a capital expense with long term depreciation/depletion or a standard expense. Looking for somebody at W.C. Varones to correct my thinking if I am wrong.

Finally, with regards to the price of oil and gasoline, the best thing politicians could do for the country is ignore it. It will come back down. If this has the feeling of deja vue, it's because it is.

From BwD in July 2008:

I am boldly predicting a large drop in the price of oil within the next three years, unless our government intervenes to make a mess of things. How can I be so sure? History and logic are on my side.

First, the logic. The high cost of petroleum energy induces all sorts of changes in behavior. First, on the demand side, consumers make billions of tiny changes in behavior to compensate for the higher costs. Some examples: Many people drive more gently, accelerating more slowly, driving a little slower. Nissan has found that putting a fuel efficiency gauge on cars increases efficiency by as much as 10% (source here). Car pooling increases. Another small example, our family has started to plan out little errands, grouping trips together that were previously separate. Also, we ditched the 8-cylinder gas guzzler, even though it was a good starter car for our sixteen year old.

On the supply side, two things happen. First, there tends to be an increase in production in those nations not under despotism. (I realize that Iran and Venezuela, for example, will probably not be increasing production, but others will.) Oil that was not profitable to extract at $60 per barrel is very attractive at $140. Maintenance and repairs on old equipment suddenly makes more sense. Second, alternative forms of energy become relatively more competitive and can be brought on line, increasing the overall supply of energy.

From this blog in November 2008.

Last July, on BwD, I predicted a large drop in the prices of crude oil and gasoline within three years. My caveat, of course was that the federal government was perfectly capable of screwing this up. KT has a great post, with pretty pictures, showing just how cheap gasoline is today. At the time, there was a lot of hot air about a temporary suspension of gasoline taxes, releasing the strategic petroleum reserve and windfall oil profits tax, because, by gum, SOMETHING had to be done! Fortunately, nobody got around to do anything and look at the result. (I filled up today for about $2.29/gallon and I saw $2.01/gallon gas in Memphis last week.)

This scenario is perfectly illustrative of the simultaneous difficulty and importance of making the case for less government. In the midst of a hotly contested election, the temptation of politicians to pander seems almost irresistible. But if the public has the awareness of the futility of repealing laws of economics, then such efforts would be laughed off the table.

Eliminating Obamacare Slush Funds - Now We're Talking

From Human Events:

Republicans are testing the waters through a series of votes Thursday in the subcommittee on five pieces of legislation that would defund the law and limit power by Health and Human Services Secretary Kathleen Sebelius to access a $17.5 billion slush fund. Now we're talking.

The discovery of these slush funds has been little reported upon or noted, even in conservative outlets, with some exceptions. It forms one of the biggest impediments to rolling back Obamacare in the current fiscal year. That the Republicans in the House of Representatives are taking aim at this abomination only increases my admiration for His Tanned Magnificence. Keep up the good work. Man-crush? Oh-yeah.

Meanwhile, Henry Waxman apparently didn't get the memo from the 2010 elections that blaming Bush is not a winning strategy:

“The deficit crisis we find ourselves in is a man-made crisis,” said Rep. Henry Waxman, (D.-Calif.). “In fact, it is a Republican-made crisis." Republicans countered that ObamaCare will cost 800,000 jobs, and that 2.4 million Americans are officially excused from participating in the plan, including the Service Employees International Union, because they say they can’t afford it.

Government Shut Down?

If there was any doubt that the tenor of the discussion in Washington regarding the budget and spending has changed, consider this:

The potential difficulty of their job became clear after Vice President Joseph R. Biden Jr., following an evening meeting with Senate Democrats, said negotiators had effectively settled on $33 billion in reductions from current spending, a substantial difference from the $61 billion endorsed by the House in February.

By keeping the pressure on, and not bowing to threats of taking the blame over a potential shut down, Speaker Boehner is making the progress needed. Further, he is positioning himself for next year's budget battle by learning what tactics are working. The negotiations currently in progress only affect the fiscal year that ends on September 30, so a much bigger fight looms over fiscal year 2012 spending.

Meanwhile, you know you are making the right enemies when Chuckie Schumer is conspiring against you.

Speaking to several Democratic colleagues Tuesday, Sen. Charles Schumer, the third-ranking Democrat in the Senate, said they should all use the word "extreme" when describing the budget cuts that Tea Party Republicans were seeking in the ongoing budget negotiations.

However, what is actually extreme is the unprecedented peacetime deficit racked up by this administration. Congratulations Tea Party.

Also, is there any better evidence that removing earmarks from the process has made it easier to get budget reductions? Since the House imposed an earmarks ban, the debate has only been about the size of the cuts, not a peep about raising spending. John Hitchcock explains why in the comments on a previous article. I do not recall in my lifetime such spirited debate about how much to cut government spending. I realize that spending has risen out of control in the first place, but the tenor of the discussion is heartening.

With regards to a government shut down, I don't think it will happen, because both sides are too uncertain about the outcome. Its like a game of high stakes poker, where shutting down the government is the equivalent of calling all in on two pair but your opponent is betting like he has a decent hand. You might win, but is it the smart move?

Obama on the Run - Dispatches Biden to Negotiate

The temporary spending measure pushed through was passed by the Senate on a 91-9 vote today, included $4 billion in spending cuts, one week after Harry Reid had rejected such a plan. Meanwhile, the President is appearing to concede that his weak budget plan to merely freeze spending is going nowhere.

Largely a spectator so far, President Barack Obama dispatched his vice president to initiate negotiations on a broader, longer-term spending bill and find "common ground" with GOP leaders determined to cut tens of billions of dollars more and undo much of his agenda. He conceded in advance that any deal on a government budget covering the next seven months will feature cuts . . . The upcoming talks, to be led by Vice President Joe Biden, promise to be far more difficult.

Meanwhile, earmarks have all but disappeared from the budget debate. This is a major victory for John Boehner and Tom Coburn, in my opinion. I wasn't previously aware that Boehner had made battling earmarks a cornerstone of his career. The absence of earmarks is making it easier to agree on spending cuts according to the linked article. Hooray! Here's why:

Top members of the Appropriations Committee might, for instance, grant a lawmaker’s request for a few million dollars for an important project back home. That lawmaker would then be obligated to support the entire multibillion-dollar bill despite possible reservations. Woe to the person who gets an earmark and then opposes the bill; chances for a future earmark would be somewhere between zero and none.

“You get millions for an earmark and end up voting for billions of dollars that you may oppose,” said Steve Ellis, a vice president at Taxpayers for Common Sense, a government watchdog group.

No wonder Coburn called earmarks the "gateway drug" to run away spending.

Small Progress on the Federal Budget

Not near what we wanted, which would be $60+ billion in cuts this fiscal year, but John Boehner got the Senate and Obama to blink by forcing $4 billion in cuts as the price for 10 more days funding of the federal government.

I am certain there will be complaints, but if we can get $4 billion in cuts every 10 days we are on a pace to exceed $70 billion for the rest of the year. The other great aspect of the debate is that it has the Democrats playing defense. Not a single new program is being offered, no new spending is being contemplated. The only question is how much can be cut. In the linked article, its clear that the Democrats are in disarray over how to handle the calls for budget cuts. They know it helps Republicans, but they can't bring themselves to sign up.

I think that American business would start investing and growing again if they could be assured that there would be no further tax increases and that the federal governments role would be stabilized. When you think of the Clinton and Reagan expansions, they were made possible due to a stabilization in the role of government, resulting in a predictable business climate. Clinton had help from Republican majorities, but when you think of the accomplishments of his administration, NAFTA, Welfare Reform, and a balanced budget, you would have thought we had elected a Republican to the White House.

I say, keep up the good work Speaker Boehner. $4 billion in cuts every ten days is the new gold standard.