Saturday May 18, 2013
Bill Annett Salem-News.com
(SASKATCHEWAN) - Apart from recalling the final scene in the Susan Sarandon screen gem "Thelma And Louise," where she drives her T-bird into the Grand Canyon, it's hard for most people to visualize The Fiscal Cliff, that cultural event due to yawn for all of us in January, scarcely following the dying strains of Auld Lang Syne and the sanitation department's mopping up Times Square. Although we've all known that it's been coming for the last decade, it's difficult to visualize because we're at variance as to what its effects will be and we're a little naive about how it happened.
The Curse of the Tax Cuts began early in the reign of Bush the Younger, in fact before the ink was dry on his first State of the Union homily. The Secretary of the Treasury was an ambitious guy called Paul O’Neill. (No relation to Tip, the Democratic centerpiece who played Tai-chi with Reagan.) Paul developed the plot plan and working drawings for a total refurbishing of the tax system, the magnitude of which was a little like rewriting the Constitution with one hundred times the Amendments.
O'Neill's objective, like that of all taxation students before and since, was briefer forms, fewer deductions, the scrubbing of a few thousand pages of text, simpler execution and reduced bureaucratic cost. His tax reform package was duly submitted to the Oval Office, but was destined to languish and wither into faded parchment in the in-basket.
The President, as it turned out, was anxious to stamp "Mission Accomplished," not on reforming the Tax Act, but rather on delivering something that he had been promising throughout the long campaign, and which has become in recent years part of every fifth-grader's vocabulary: the Bush Tax-Cuts. (BTC. Rhymes with Bankers' Trust Company, but much more lucrative.)
It happened like this: in 1999, George the Second, but perhaps not the Last, was smoking the rest of the Republican nomination field, although Steve Forbes, absenting himself from felicity and his editorial duties for a while, was proposing a 17 percent flat tax, which was a winner with the Old Guard righties. During a whistle stop in Des Moines, (In those days, Iowa was considered to be part of America) Bush allowed that one of his first acts in the white House would be to ax taxes for all Americans. That bon mot was picked up by the faithful ink-stained wretches nationally, and he was stuck with it. Accordingly, and accurately, his throw-away line was interpreted by an organization called Citizens For Tax Justice as amounting to $1.7 trillion over the following decade. And suddenly, Bush owned the whole enchilada, like a Brooks Brothers suit.
Successively, in both '01 and '03, his Administration reduced taxes. But even Bush realized that the substantial cuts he'd engineered would over time result in unsustainable deficits. But then he reasoned, or perhaps one of his brighter aides reminded him, that such would happen after a decade, at which time - because of the two-term limitation on each Presidency - some succeeding and unfortunate occupant of the White House would be stuck with the growing problem, while he, Bush II, would be immortalized in history as tax-saviour.
When the Congressional Budget Office, after involved projections, confirmed this to the Administration's satisfaction, the tax cuts were quickly adjusted so as to pertain only to the following ten years, after which they would expire. This arrangement, on paper, was the window-dressing that made the cuts acceptable, even though the Republican mainstream had no intention of eventually letting them lapse.
By this device, the Bush Administration during its first term was able to sell the tax-cut legislation to apply over a ten-year period, while avoiding the threat of eventual budget deficits.
No problema. Or so it seemed at the time. Because fiscal restraint and a strong economy had been inherited from the departing semi-disgraced Bubba, whose fooling around in the Oval Office wasn't replicated among his financial advisors. Clinton's team had provided the CBO with the confident forecast of a likely budget surplus of over $5 trillion by 2011.
“I'm here to tell you," said Bush II to a joint session of Congress, "that the American people have been overcharged, and, on their behalf, I’m asking for a refund.”
Preoccupied with the recent repudiation of all that Monica business by Bush's predecessor, Congress could only enthuse, led by Trent Lott, the Republican Senate Majority Leader, who didn't turn into a pillar of salt but rather, looking back with confidence, enthused over not only securing the Social Security surplus, but leaving the door open for future presidential generosity.
But other priorities appeared to be more important to the public than the Republican mantra of lower taxes. In 2001, it appeared that 37% of Americans preferred to use the budget surplus to fund Social Security and Medicare, 23% for domestic spending, and only 19% for a tax cut. So having already done the deal, it was a poor sell among the Dems. A reconciliation followed, just as the Democrats later in 2010 would squeak through the passage of the highly diluted health-care reform. Unfortunately, senate rules inveigh against bills passed by reconciliation to create deficits of more than ten years' duration. The 10-year expiration date went into effect.
While the Democrats accepted the deal with a nudge and a wink, the Republicans who ran the Budget Committee realized that the extension of the cuts could be wangled sometime down the road. Everybody moved on in that complicit Washington fashion, kicking the can down Pennsylvania Avenue as tomorrow's problem.
It didn't work out that way. By 2002, the economy had turned south, a war had been manufactured to defend our freedom or that of Halliburton, and surpluses were a thing of the past. Bush's government recorded a deficit of more than $150 billion, not counting Iraq. The White House renewed a campaign for more tax cuts, suggesting the characteristic Republican doctrine of stimulation to the economy by trickle down tax abatement.
Although the certainty of future deficits was not considered a problem ten years ago, their present-day Republican counterparts have tried to fix the problem by developing a corollary to the ten-year plan - a final solution for right now, when the deficits are coming home to roost. And that solution is simply to compensate for the ongoing cuts by reducing expenditure on "entitlements," which can be loosely translated to mean benefits to the middle class, not to mention the working poor, even if they're poor but not working.
Time marches on, and today Dubbelya's tax cuts are still with us - just like the Budget Office's ancient prophecy called it, adding something like $1.7 trillion per decade to the debt by continuing accretion. The interim decade of tax cuts has solidified into a subsidy and, like all subsidies, represents something painful to discontinue. Take the petroleum industry. Please.
While the populace is carried along like a bunch of lemmings waiting to take the fall, the politicians have coined the inaccurate but frightening expression "the fiscal cliff." It will happen when Bush's stop-gap deadline comes up, appropriately and unluckily in '13. As potential plummeting lemmings, most of us are pretending that this is a big surprise, just as we did over last year's tax-ceiling menopause. We're wondering about the extent of the turmoil if and when the additional tax bites in, with a huge reduction in public buying power, and whether Congress will scramble to install deeper federal spending freezes to compensate, even though everyone inside the Beltline has known since 2002 that this was brewing.
The Republican play book calls for digging in their heels on removing the cuts for the rich, confident that the Democrats will agree, for fear of losing the cuts for everybody else. The Democrats' strategy is to win a vote for extending the largesse for everybody, hopefully to be followed later by an exclusion of the breaks for the top 1%.
The feeling generally is that neither will prevail, and that further deadlock will land us all in the soup, or rather, to extend the tired metaphor, over the cliff.
Perhaps Obama, passing through Des Mones, can drop the suggestion that it would make sense to end the cuts for the rich and moderate them gradually for the rest of us, and balance the equation by reducing some of our more outlandish spending, such as defense, waste, wars and corporate-oriented largesse.
We lemmings are badly in need of some instruction - and guidance - by somebody other than Thelma and Louise. But don't bet your food stamps on it.
Bill Annett grew up a writing brat; his father, Ross Annett, at a time when Scott Fitzgerald and P.G. Wodehouse were regular contributors, wrote the longest series of short stories in the Saturday Evening Post's history, with the sole exception of the unsinkable Tugboat Annie.
At 18, Bill's first short story was included in the anthology “Canadian Short Stories.” Alarmed, his father enrolled Bill in law school in Manitoba to ensure his going straight. For a time, it worked, although Bill did an arabesque into an English major, followed, logically, by corporation finance, investment banking and business administration at NYU and the Wharton School. He added G.I. education in the Army's CID at Fort Dix, New Jersey during the Korean altercation.
He also contributed to The American Banker and Venture in New York, INC. in Boston, the International Mining Journal in London, Hong Kong Business, Financial Times and Financial Post in Toronto.
Bill has written six books, including a page-turner on mutual funds, a send-up on the securities industry, three corporate histories and a novel, the latter no doubt inspired by his current occupation in Daytona Beach as a law-abiding beach comber.
You can write to Bill Annett at this address: firstname.lastname@example.org