Posted on 11/19/2012 7:44:40 AM PST by Kaslin
In the summer of 2015, either one or both political parties will begin the search for their next presidential. By that time, the whole tenor of political positions will have sharply changed.
At least, we can only hope so.
Let's hope it doesn't come to that, but just in case, you need to be prepared.
Right now, we have a pretty clear read on the broadly-staked positions of the Democratic Party. Yet signs are emerging that we'll see a bruising battle for the heart and soul of the Republican Party. How it plays out will help shape what the U.S. government looks like in 3-4 years.
Make no mistake, the ascent of the tea party in 2010 followed by the Republican Party's defeat in the Presidential Election (along with key Senate races) in 2012 will likely set up a pitched intra-party battle in early 2013. Already, signs are emerging that more moderate members of the GOP have hinted at a willingness to compromise with their Democratic counterparts in addressing the coming "fiscal cliff" and longer-term budget repairs. Until now, almost every member of the GOP has voted in line with the party platformWhat it means If you buy into the logic that our budget deficits will have to be addressed and if you believe that bipartisan compromises will be the only way to achieve that, then we already know how some of this will likely play out...
| 1. Defense Spending |
 For example, defense spending is bound to shrink, though not nearly at the draconian rate that the current fiscal cliff scenario envisions. President Obama appears committed to increasing defense resources for the Asia/Pacific region, especially in terms of naval strength. By definition, this means a reduction in ground forces elsewhere, and a cutback in other forms of hardware. The Amex Defense Index seems to ignoring this looming change in defense spending. |
| 2. States begin to suffer (again) |
 Early in his term, President Obama sought to help out the 50 states, many of which were facing drastic revenue shortfalls. The salaries of teachers, police officers firefighters were temporarily supported by federal grants -- yet the notion of further support for states has become anathema. Even as states have started to plug budget gaps through widespread layoffs and slowly rebounding tax receipts, there's more pain on the horizon. Unless we see significant reworkings of public sector labor agreements, especially in the area of health care and pensions, then state-level finances will only worsen with time. In the absence of federal support, the culling of local and state labor forces is bound to continue. |
| 3. Obamacare's effect in full view |
 In terms of health care, the recent decision by the Supreme Court to uphold the key tenets of the Affordable Care Act is just a step in the process. Containing total health care spending while expanding coverage is a lofty goal, but many changes are likely to be made along the way until we get it right. This likely means even fewer dollars per patient when it comes to drugs, devices, home care services, hospital stays and other health care items. If you own the stocks of health care companies, then you need to figure out if they will be more useful or less useful in world where every cost comes under pressure. [For my take on this, read this article.] As this chart shows, Japan spends roughly half as much on healthcare as we do, yet arguably has superior outcomes (in areas like longevity and infant mortality). Though this chart is from 2009, little has changed since.
|
| 4. Deductions down, taxes up |
 Perhaps the biggest changes to come involve the tax code. Right now, many are focused on the possible extension or elimination of Bush-era tax cuts. It looks increasingly likely that taxes -- at least for the wealthiest Americans -- will be going up. Conservative economists such as Bruce Bartlett and David Stockman who have worked for past Republican Presidents now concede that prolonging our fiscal crisis by extending tax cuts on top earners starts to become detrimental for the economy, which greatly affects the "investment class." Yet even a return to the tax rates of the Clinton administration won't simply close out budget gaps -- even if government spending shrinks. That's why a wide range of tax deductions will eventually be on the chopping block. By eliminating deductions, politicians can essentially claim that they didn't raise tax rates. For example, it's hard to see how deductions for mortgage interest and charitable giving can survive any budget fix. These deductions may get preserved to an extent, but are likely to be trimmed to some degree. And we're not just talking about individual income taxes. Both parties have taken note of the fact that U.S. companies face some the highest tax rates in the developed world, and a drop in those rates could boost corporate effectiveness. To achieve that, both parties have expressed a willingness to trim tax deductions so that major corporations such as GE (NYSE: GE) no longer get away with an effective tax rate of 10% -- or less. In effect, the stated tax rate for all corporations may go down, but total tax receipts from corporations are likely to go up. |
| 5. National sales tax? |
 With a tax code larded up with deductions, the reality is that many Americans end up paying a lower tax rate than they realize. And although many members of the GOP are loathe to raise taxes, they would like to see a simplified tax code. However, the goal of reducing the overall tax rate to just a few basic categories may still end up expanding our budget mess. Yet some of these same legislators have suggested a reasonable fix: tax consumption. By adopting a national sales tax (known as a Value Added Tax or VAT in other countries), the government could raise revenue without hiking income taxes. Using FairTax.org's platform as an example, "every person living in the United States pays a 23% national sales tax on purchases of new goods and services. This rate is equal to the lowest current income tax bracket (15%) combined with employee payroll taxes (7.65%), both of which will be eliminated." That's a pretty stiff VAT rate -- even higher than what is seen across Europe, and would surely raise the hackles of any consumer-facing business. If we are to get a VAT, then it is likely to be closer to 5%, and other income taxes would stay in place (and not be eliminated as these folks suggest). Yet the appeal of a VAT is undeniable. Taxpayers would benefit from a less complex tax code, and the ability to cheat on taxes would be reduced. |
Grow our way out of it?
Both parties may have been dragging their feet in tackling these tough choices in hopes that economic growth would help save the day. After all, a rising economy in the 1990s helped bolster government tax receipts to the point where a chronic deficit briefly become a surplus. That's unlikely to happen these days for the very simple reason that the budget mess is partially responsible for the uncertain economic environment that is leading to tepid job creation.
Washington can't sit and wait for things to get better. The large budget deficits have been a concern for almost a decade now, and every year, the can has been kicked down the road. Yet it's impossible to see how this can last much longer. That's why we'll be talking about a different set of issues by 2015, when the next election season rolls around. By then, we'll have already been forced to make major changes -- which by definition mean higher taxes and a smaller government. That's a Solomonic solution that few will relish, but is nearly unavoidable.
Action to Take --> The concern isn't simply that taxes will go up for those that already feel over-taxed. Or that the government's support of a wide range of programs will sharply erode. Instead, it's the actual effect of a change in the tax-and-spending dynamic on the economy and stock market.
Though persistent budget deficits have many harmful effects on our future economic competitiveness, they provide a clear boost to the economy and the market in the short term. Think about it... A government that spends more than it takes in is adding liquidity to the economy. In recent years, we're talking about hundreds of billions of dollars of liquidity.
Yet a move to raise taxes and shrink spending does the opposite. It sucks money out of the economy. Of course, eliminating budget deficits simply moves the government into a neutral posture. But our total government debt is so high that this neutral posture may not last. Instead, the government will eventually be forced to reduce our massive debt, which means running a government surplus--which pulls money out of the economy. That was manageable in the late 1990s when the economy was on a robust plane of growth. But today's politicians -- nor the ones who will be pondering a run for the White House in 2015 -- will likely be operating in an environment of robust growth.
Did I miss how inflation figures into this?
Hey, don't blame me!
We have dug ourselves a hole from which there is no un-digging. If we had reasonably high rates of growth and employment, interest rates would rise and the cost of servicing the government's debt would bury us alive.
Another author that foolishly believes that the left actually cares about how much debt we get into.
I love the narrative forming that it’s conservatives who refuse to fix the budget and address the “fiscal cliff”...
lolz
Nobody is shocked,with Obama&Co it’s expected.
1. Our Debt and Deficit are not exploding because of Defense Spending - they are exploding because of Entitlements.
2. Obama and the Democrats have thrown Billions at state and local governments to pay off unions, while they have taken an ax to their own Federal employees.
When Pelosi was still Speaker, she called for a vote in Congress in August (which was not EVEN IN SESSION!) to spend over $40 Billion in yet another "Son of Stimulus" give-away to local governments so that they would not have to lay off teachers, administrators, police, etc or cut their salaries. At the same time, Obama froze all Federal salaries (3 years running, they are still frozen), froze all cost of living pay, froze all locality pay, and froze hiring. A few short months later, the DoD hemorrhaged jobs, with 16,000 Air Force civilians cut, and over 20,000 Army and Navy civilians who lost their jobs.
In short, Obama and the Democrats screwed employees that did work for them, while doling out Billions in borrowed money to local and state unions they bought off - but it is NOT the job of the Federal government and the taxpayer to fund. This article's laments the fact that state and local employees may have to start feeling a real pinch.
The left WANTS the economy to crash so they can remake it “closer to their hearts”.
However, they don’t want to accept the blame for the hardship this crash will cause.
Nothing like leaving out it is a homogeneous culture with little immigration, little or no out of wedlock births, no welfare state, with intact families and the eat darn near Macrobiotic. ( sarc / off )
The scary part is, people believe it.
This guy is on drugs. What he does not seem to understand is that Obama’s mission is to destroy the US economy so it can be replaced with Collectivism. So far he’s doing a damn fine job and I look for him to continue.
This guy is on drugs. What he does not seem to understand is that Obama’s mission is to destroy the US economy so it can be replaced with Collectivism. So far he’s doing a damn fine job and I look for him to continue.
This guy is on drugs. What he does not seem to understand is that Obama’s mission is to destroy the US economy so it can be replaced with Collectivism. So far he’s doing a damn fine job and I look for him to continue.
ya tell me what happens when interest rates hit 7%.
One prediction is guaranteed,it is going to be interesting.
“As this chart shows, Japan spends roughly half as much on healthcare as we do, yet arguably has superior outcomes (in areas like longevity and infant mortality). Though this chart is from 2009, little has changed since.”
Apples to Oranges. Japan would have little to no advantage over us in longevity if our crime, drug and violence infested minority underclass was not factored in. They also often live life little better than third worlders, with almost no regard to their health. I missed where Japan has 20 million Mexican citizens in their midst bringing in new diseases previously eradicated. I haven’t heard about Japanese crackheads. Which city is the Japanese “urban” Chicago, St Louis, Baltimore, Cayahoga County?
It skews every statistic like this used against us.
I can nearly guarantee, if you made a composite of the average Japanese citizen as far as education, literacy, and lack of criminal record,, and compared that to the similar demographic in America, their advantage would evaporate.
yep. In 4 more years, it will still be Bush’s fault. lol
We’ll all be in bread lines.
There is only one way to fiscal solvency. Eliminate all wellfare.
“That’s because our economy is unlikely to handle three more years of gridlock, which keeps us stuck in a phase of higher government spending and shrinking revenue.”
So should we stop resisting and simply facilitate higher government spending, and tax INCREASES? That’ll really stagger us. If a thief is pushing on my front door, and im pushing it closed, gridlock is my friend until i can gain an advantage.
There are way too many that don’t, won’t, can’t believe the malevolence of the left WRT America.
“That’s because our economy is unlikely to handle three more years of gridlock, which keeps us stuck in a phase of higher government spending and shrinking revenue.”
So should we stop resisting and simply facilitate higher government spending, and tax INCREASES? That’ll really stagger us. If a thief is pushing on my front door, and im pushing it closed, gridlock is my friend until i can gain an advantage.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
