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Affluent Investor | April 28, 2017

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The Republican Fiscal Cave Is Much Worse Than The Fiscal Cliff

The fiscal cliff debacle showed conclusively that the GOP establishment is a completely ineffective guardian of our liberties against President Obama and the Washington ruling class. Forget fantasies about reversing the growth of the state, let alone stopping such growth; Boehner’s boys can’t even slow it down.

The fight over the debt ceiling is shaping up to be more of the same. This week, Obama announced that he is not going to negotiate over the debt ceiling. Republicans are in shock, but the rest of the country is in shock that the Republicans are in shock. What did they expect? They’ve caved in every time so far, which means that they will cave in the next time, and the President knows it.

The deal which Congress struck with the President in order to avoid the alleged horrors of the fiscal cliff is basically a fiscal cave, in which the opposition party caved in on pretty much every issue except one tiny detail about what the income threshold would be for the highest tax rate. The GOP almost broke its collective arm patting itself on the back, but the folks back at home intuitively sense that the Fiscal Cave is much worse than the fiscal cliff that it was designed to avoid.

For example, the fiscal cliff had built-in spending cuts; the cave has no spending cuts at all. I believe that an obsessive focus on deficit control is a distraction from the central problem, which is excessive government spending. But let us grant for the moment the premise around which the issue was framed: that deficit control is the main objective. The fiscal cliff package actually might have had some chance of diminishing deficits by raising taxes on the middle class, the only group big enough to materially affect tax revenues. But the fiscal cave will only worsen deficits by causing economic stagnation which is a long term deficit growth driver, while doing nothing about spending.

Even worse, the fiscal cave leaves us with an extremely progressive income tax. International groups such as the OECD had already pointed out that the U.S. already had what was probably the most steeply rising progressivity of tax rates of any modern nation. Even the New York Times ran an article expressing concern about the problem. But that was before the Fiscal Cave, which left the Bush tax cuts in effect for the lower and middle class, but raised them for the upper bracket, steepening the progressivity even further.

High progressivity is poison for growth because it kills the incentive for self-improvement. It institutionalizes envy in our tax code and places a punishing ceiling above the heads of people who otherwise would have been ready to make the move from upper middle class into affluence. Furthermore, it reveals the heart of our political class, who insisted on these changes with absolute unbendable firmness, while acknowledging that these tax hikes would bring in statistically negligible quantities of new revenues. Affluent investors, entrepreneurs and earners had one role and one role only to play in the recent fiscal fight – the role of target.

This is not just true in the United States. Indeed, most of the welfare states of the developed world have scapegoated the wealthy. Nations from the United Kingdom to Japan and everywhere in between have adopted some form of ‘austerity’ and raised taxes on the middle class, but more so on the wealthy. They have acknowledged that the tax hikes on the wealthy have been for ‘fairness’ or to ‘share the pain’, etc. But the U.S. isn’t calling upon the wealthy to share the income tax hike pain; they’ve demanded that they bear it alone.

In this way, Washington’s new plan differs from every austerity program I’ve ever seen, by turning our tax code, which already had the most punishing step-ups in rates for anyone trying to rise from middle class to upper class, into one with an extra dose of pain for the wealthy just for fun. This is a flashing neon sign for anyone who has eyes to see, and says “Wealthy Not Welcome.”

Could any sensible person believe that this is all over, that the War on the Wealthy was won by Obama & Co. at the Battle of Fiscal Cliff, and that they will accept their victory and go home? Can any sensible person believe that our Republican and ‘conservative’ establishment could protect the affluent class even if they wanted to? I for one, would like to see what would happen if they tried. I’d like to see what would happen if the GOP stood up, and without flinch or floundering, defended the morality of wealth creation and forthrightly decried the immorality of socialism in all its forms. They might lose; the country might reject the Party’s arguments, but America deserves a real choice explained in clear terms. If we give them truth straight up and they reject it, then it’s on them. But if we muffle it or fudge it or offer them an echo, not a choice, then it’s on us.

 

Article originally published on Forbes.com.

Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.

Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.

Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.

Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.

Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.

Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.

Jerry lives in Pennsylvania with his wife, Susan, and the youngest five of their seven children.

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