I already wrote about the fiscal cliff. On the news, the fiscal cliff is all they’re talking about. My father watches the Communism Channel (CNBC) all day, and they have him all excited about the fiscal cliff.
The fiscal cliff is a fake crisis. It’s an emergency created by politicians and the State. When they made the last compromise for taxes, the budget, and the debt ceiling, they put an unusual loophole in the law. If a compromise is not reached by the end of the year, then huge tax hikes and spending cuts take effect.
Hurricane Sandy was a real emergency. The “fiscal cliff” is a fake emergency. It’s an arbitrary deadline that politicians imposed on themselves.
The “fiscal cliff” actually refers to two separate laws. When the “Bush tax cuts” were extended last time, they expired at the end of this year. If Congress does not change the law again, there will be a huge tax increase.
When politicians cut taxes, they only make a temporary cut. That enables them to pass a new law a few years later, when the first law expires. With inflation and progressive tax rates, there’s a tax hike every year even if Congress does nothing. Inflation pushes people into higher tax brackets, even though salary increases and interest rates don’t keep pace with true inflation.
The “fiscal cliff” also refers to the debt ceiling compromise. When Congress last raised the debt limit, they didn’t reach a full budget compromise. The law said that if Congress doesn’t reach a deal, huge spending cuts take effect.
The “debt ceiling” is another arbitrary limit. In a paper monetary system, the national debt is just a number on a piece of paper. The Federal government can have an arbitrarily large deficit and debt. The only cost is inflation. The government can raise money through explicit taxes, or the indirect inflation tax.
The problem with the “debt ceiling” is that Congress authorizes spending at a certain rate. In a separate law, Congress authorizes borrowing to finance that spending. If Congress simultaneously passed a budget and raised the debt limit, it wouldn’t be a crisis.
There’s one simple point that illustrates how the fiscal cliff is a fake crisis. If Congress wanted to, they could change the law. It only takes a majority vote. The problem is that both sides are stubborn and refuse to compromise. It’s a game of chicken, much like the NHL labor negotiations. There’s no incentive for either side to make any concessions until the last minute.
The fiscal cliff gives the “news” something “exciting” to talk about. It’s a fake crisis and not a real crisis. By creating a law with an arbitrary deadline, that lets politicians seem important. That enables politicians to make deals as the deadline nears. I’m tired of hearing people talk about the “fiscal cliff” all the time, when it’s entirely a fake crisis.
When browsing my piwik, I found something interesting. Someone cited my original fiscal cliff post.