I am frankly one of those “rich” people whom Republicans steadfastly defend against higher taxes. Well, thanks a lot, fellas – that intransigence on taxes is actually costing me far more in my investment portfolio than any conceivable tax rise would cost me!
In a nutshell, by stonewalling any tax revenue increase, these short-sighted Republican zealots are ensuring American economic weakness for years to come. Again, that will cost me more on my investments than higher taxes might cost me. I’ve lost a ton of money already, in the last couple of weeks, because of this.
The GOP is right that, all else equal, higher taxes are a drag on the economy. But all else isn’t equal. An even bigger drag on the economy is the government’s inability to get a grip on deficits and debt. Increasing revenues is unavoidably part of the needed fix. Republicans are unrealistic to insist on solving the problem through spending cuts alone. Moreover, so long as they refuse to budge on their sacred cow of taxes, Democrats won’t budge on their own sacred cows of Social Security and health care entitlements, which is where any serious spending curbs will have to be found. Only by bending on taxes can Republicans actually achieve the spending cuts they claim to want.
Likewise, Democrats are living in a dreamworld if they imagine they can indefinitely preserve bloated social spending, with exploding costs as the population ages, while the economy remains weak in direct consequence of those exploding costs. Only by sensibly agreeing to trim entitlements now can they hope to avert a huge entitlement smash-up later.
In sum, both parties would better serve the interests of their constituencies if they made a serious “grand bargain” that would lay the foundation for a stronger economy. As Tom Friedman said in a recent column, just the announcement of real negotiations on that basis would send the Dow skyrocketing by 1223 points (which would pay for my increased tax bill for years to come).
In contrast, Paul Krugman believes the financial markets are saying, “We’re not worried about the deficit! We’re worried about the weak economy!” He’s wrong. What the markets have been saying lately is “We’re worried that failure to deal with the deficit will keep the economy weak!”
The markets fell after the recent deal because they realized it wouldn’t really cut deficits. It doesn’t enact spending cuts; it merely promises to do so. (Just like the phony promise to cut Medicare that enabled Obama to falsely claim his health care law would save money.)
Then there is the “super committee” of 12 tasked with agreeing another $1.2 trillion in deficit reduction (over 10 years), or else automatic draconian spending cuts will be triggered. So the Republicans have appointed to the committee 6 hard-line anti-taxers, and the Dems appointed 6 hard-line entitlement defenders. Does that mean they’ll fail to agree, triggering the automatic cuts? Ha ha, you still don’t get it. What it means is that either they’ll come up with yet another phony deal, or, if not, that Congress will wiggle out of the supposed automatic cuts (which would not take effect for another year).
Japan has suffered two decades of lost economic growth because its politicians would not bite any bullets. America is headed down the same path.
I think most U.S. politicians understand this. But they’re trapped by the system. The real fault lies with voters, who don’t understand. The problem in democracy is that voters get what they vote for. Republicans vote against higher taxes; Democrats to preserve entitlements; and in so doing, all are voting for America to become Japan.