Gun Politics

Ten days before Christmas last year, 20-year old Adam Lanza shot and killed his mother in their home before driving her car to the Sandy Hook Elementary School in Newtown, Connecticut where he fatally shot 20 children and six adult staff members. When first responders arrived at the school, Lanza committed suicide. The school shootings at Sandy Hook were the second deadliest in US history. Only the 2007 Virginia Tech killings by Seung-Hui Cho, a student in the university, injured more – 32 people killed and 17 wounded before killing himself.

When I heard the news about Sandy Hook, my heart grieved for the parents who lost children and for the families of the staff members. I’m a parent of four, now adult, children and I guarded them like a hawk when they were young. The age of the victims, the time of the year, and the scale of the tragedy is incomprehensible.

Still, when Obama used four children as props for his photo-op last week, spearheading his agenda for more gun restrictions, it bordered on repugnant exploitation. Its purpose was to posture for the anti-gun advocates in this country and show that he was a man of action. In the face of the Sandy Hook tragedy, he essentially said that he would by-pass the Constitutional due process of co-governing with Congress to issue 23 gun-related executive orders – something he didn’t feel compelled to do after the Aurora, Colorado theater shooting or the 2011 Gabby Gifford shooting in Tucson or the government Fast and Furious scandal about which I blogged last year. No, all of these events occurred before the 2012 election, which he wanted desperately to win. The firestorm following his April 2008 remark about bitter Pennsylvanians and mid-westerners who hold on to their guns and religion rather than defer to government-engineered solutions from all-wise Washington politicians taught then-Senator Obama a thing or two about guns and Americans – both Democrat and Republican gun owners.

On balance, Obama’s anti-gun performance on January 16 was all theater. He was introduced by Biden who spoke emotionally about the Sandy Hook shooting. During his comments, Biden recognized the staged presence of Colin Goddard, who was in the audience. Goddard was among the wounded in the Virginia Tech shooting. He was the target for four bullets from Seung-Hui Cho, the Tech shooter who used a handgun, I might add, not an assault rifle which Obama wants banned. After the Biden introduction, Obama took the podium and spoke, which included reading letters he’d received from the four children on stage with him, exhorting him to action. Not bad for kids aged 8 to 11. When I was their ages I didn’t have the insight their letters revealed. I’d be interested in learning how they gained it.

And then, as he stared phlegmatically at the invited audience, he intoned that “their [the letter writers’] voices should compel us to change.” While he recognized the gun-owning rights of citizens in a free society – rights he wants to curtail with his form of governing (or is he ruling?) – he dramatically said, “OK, let’s sign these orders.” I saw him sign his name two, possibly three times, not 23. The transcript of his teleprompter-aided speech says, “(The executive orders are signed)” but where are they? They are nowhere posted on the White House website. Do they even exist?

After high-fiving and hugging each child Obama promptly left the stage and the show was over. Thus far, the 25 executive orders may be MIA because the congressional GOP said they would be challenged in court if attempted. So the child-hugging charade was pure theater.

Two children not present for the White House staged performance were Donnie and Melinda Herman’s 9-year old twins whose mom put five of six .38 caliber bullets into Paul Slater, a recently released con with a bad-guy rap sheet. Slater had rung the doorbell of the Herman’s suburban Atlanta home several times before breaking in, believing the family was gone. Melinda retreated with her twins to a crawl space off of the master bedroom taking her husband’s revolver and a cell phone in order to call her husband for help who in turn called the police. Donnie told Melinda if the intruder opened the crawl space door to shoot – which she did missing once. Slater somehow managed to remain conscious and was able to run to his SUV, crashing it within a block. He will be a guest of the Georgia penal system for a long time if he survives his wounds. Despite past jeers and ridicule from the Left, Executive VP of the National Rifle Association, Wayne LaPierre, proved prescient in at least the Herman case when he said that “the only thing that stops a bad guy with a gun is a good guy with a gun,” except Slater had a crowbar instead of a gun.

As Obama exploited the Sandy Hook tragedy for his ends, pushing measures that he says will protect children in the future, I couldn’t help wonder why he wasn’t equally concerned about the $52,345.87 of national debt per child that his policies have incurred and the fact that he is further mortgaging their future at a rate of $3.83 billion per day. That the debt must be repaid by children now in elementary and secondary schools is far more certain than the reoccurrence of another school shooting.

I further wondered why his agenda didn’t include the movie violence created by his Hollywood buddies who contributed so generously to his two political campaigns. Killings and explosions in their films occur almost every minute. Why ignore movie violence? Because, for example, the blood-soaked B-movie "Django Unchained" returned $125 million to its Democrat contributing producers in the first three weeks. And here comes another “Die Hard” movie, as if we needed another, which no doubt is all special effects and no plot if the TV ads are any indication. Films, video games, and extreme experiences like these desensitize their consumers to violence and destruction. Along with his calls for reinstatement of the assault weapon ban, why not ban violent media content? Such a ban probably collides with the First Amendment, but Obama isn’t concerned about violating the Second Amendment with his gun restrictions.

Obama’s anti-gun agenda, entitled “Now is the Time,” would ban assault rifles, limit magazine capacity, require even more rigorous background checks and their compliance costs (including private gun sales), and require interstate and federal information sharing to learn where are all of the 350 million guns in this country and who are their owners. None of these measures would have prevented the Sandy Hook killings, the Aurora killings, the Tucson killings, which injured Gabby Gifford, nor would it have prevented any of the other horrific shootings that have occurred in this country – because those crimes weren’t committed by law-abiding citizens. No matter. That’s not the issue. Obama and his Attorney General Holder are openly opposed to the Second Amendment and have tried relentlessly to disarm America since first taking office.

During his Solomonic White House presentation, Obama said the “assault rifle” used in the Aurora shooting is designed “for the theater of war” which enabled the killer, James Holmes, to shoot so many people. Untrue. Holmes used three weapons in the shooting – a semi-automatic rifle that is unsuited for modern combat, a shotgun not used in war, and a semi-automatic pistol used only for personal security in a combat theater. Before the shooting, Holmes tossed two smoke grenades into the audience to create confusion before he started shooting. The guy was on a mission. I’m not defending Holmes’ act. I’m refuting Obama’s misleading explanation of it.

An automatic weapon is one which will continue to fire, like a machine gun, as long as the trigger is compressed. Their sale and purchase is illegal in this country. A semi-automatic weapon fires each time the trigger is pulled – like the ancient M-1 rifle of World War II vintage. They are legal and are used more for sport shooting than hunting.

But let’s be clear that the term “assault rifle” is intentionally used by the Left to conjure up emotional images of a weapon Rambo might use. There is no functional difference in an assault rifle and a hunting rifle. “Assault” relates to use rather than function and what the Left calls an assault rifle would never be used in military combat. Rifles with certain assault-like cosmetic features – pistol grips, folding stocks, flash suppressors – were once banned for their look rather than their functionality until the ban sensibly expired under its sunset provision in 2004 having had no effect on gun crimes. One percent of shooting crimes is committed with an “assault” rifle. Even while the ban was in effect, it didn’t prevent the Columbine Massacre in 1999, which was carried out with two shotguns, a carbine, a semi-automatic pistol, and improvised explosives.

All of the weapons Holmes used in the Aurora shootings were legally obtained. Holmes legally passed two background checks. Adam Lanza’s Sandy Hook shooting was unpreventable in a free society, including Connecticut, which has assault weapons laws that are among the strictest in the nation. Lanza never had a background check because he stole the guns he used from his mother who bought them legally and she passed a background check. The Virginia shooter also legally passed a background check. Obama’s tougher background checking wouldn’t have prevented these crimes. However, his measures would  include checking the background of the owner of a stolen weapon before returning it to him or her. So long Fourth Amendment.

Obama wants weapon clips limited to ten rounds. Melinda Herman had six rounds in her revolver, and even firing at point blank range, she missed once. What if Melinda Herman had missed five times or all six times?What if a second criminal had been in the house?

Apparently Obama thinks mass murderers commit their crimes only with assault rifles and a single magazine of ammunition. In fact they have carried multiple weapons and multiple ammunition clips with them. The Aurora and Sandy Hook killers had so many guns, they had to leave some in their cars. So we limit magazine clips to ten rounds. What’s to prevent a killer from reloading several such clips? One of the two Columbine shooters had thirteen 10-round magazines to reload the carbine he carried.

As Obama postured for the anti-gun lobby during his stage show, he told reporters, “If there is a step we can take that will save even one child from what happened in Newtown (Sandy Hook), we should take that step.” Okay, let’s train and arm two or three staff members in every school. There are 55 million students in 133,000 K-12 schools in the nation. If killers knew that possibly three people in every school had a gun, they’d likely pick another target. Obama’s solution? One thousand security officers in schools. Now if we can only figure out a way to get killers to go only to those schools … No. The Left is opposed to training and arming school staff as we did with airline pilots after 9/11. The Left wants to disarm people, not arm them.

The American people were behind him (in gun control), Obama claimed in his January 16 pontification. No they aren’t. A Rasmussen survey released last week showed that 57% thought the government should enforce the gun laws we have rather than pass more laws as Obama wants from Congress. Prior to making his recommendations to Obama, Biden interviewed experts in gun control, one of whom told him that 2010 data showed 77,000 identifiable people tried to get through the NICS system to illegally buy a gun. That’s a crime. How many of them have been prosecuted? Seventy. No interest from the government in improving the prosecution rates. Attorney General Holder said he didn’t have the time or people to be going after these violators. But he and his boss have time to restrict the gun rights of law-abiding citizens.

Full disclosure. I do not own a gun and have never owned a gun in my life. Moreover, I have two sons. One is currently a police officer and the other was a police officer before leaving to start a business that takes him into a mean part of our city. I worry about their safety even though they are constantly armed. Unlike Obama my sons and my family aren’t surrounded by armed security. Therefore by all rights I have more interest in seeing gun violence reduced, if not eliminated, than Obama does. But I want to see real solutions, not the penny ante solutions that Obama proposes.

Over the past three decades 543 people have been killed in 70 mass shootings – about 18 per year. Too many, but three times as many people die from lightning strikes annually. FBI statistics report 352 people were killed last year with rifles. In a nation of 311 million people, the chances of being killed with a rifle  therefore are about one in a million. In contrast, 33,000 people died in car crashes and 100,000 died from hospital medical errors – enough to fill four jumbo jets every week of the year. I cite these statistics to put gun deaths in perspective. Every death is significant whether due to guns or autos or tobacco use or medical mistakes. But if gun control was the answer to gun violence, why were more people (including children like Sandy Hook’s) killed in Chicago last year than the number of American soldiers killed in Afghanistan? Chicago and New York have some of the toughest gun laws in the nation and also have the highest crime and murder rates.

Several years ago, a city in Georgia required all its residents to own a gun. It was a silly unenforceable law, but home invasions and violent crimes decreased. A Harvard study showed that countries with high rates of gun ownership experienced fewer violent crimes than countries with low gun ownership. Norway has some of the strictest gun-control laws in the world, but that didn’t prevent the 2008 shooting spree by a lunatic who killed 69 children and attendees at a youth camp.

Rational criminals don’t do their mischief where victims may be armed. But most criminals aren’t rational. Look at Sandy Hook, Aurora, Tucson, Virginia Tech, Columbine, and mass shootings of similar ilk; the common thread is mental illness. Someone who is mentally ill and wants to kill someone will do it with guns, knives, rocks, fists, or a truck full of fertilizer as we’ve seen done by the demon-possessed Son of Sam, the Boston Strangler, John Wayne Gacy, Jeffrey Dahmer the cannibal, Aileen Wuornos, the Florida prostitute who killed seven men “who tried to rape her,” and the yet unidentified woman who pushed a stranger in front of a New York subway train last month as she talked to voices in her head.

The mental illnesses of many who kill were previously known or suspected by others. But five decades ago the courts made it almost impossible to institutionalize people and in fact released many who are a danger to themselves and innocent people. Many live on the streets; most are harmless, some aren’t. They should be on medication, which means putting them in a custodial environment. But the courts won’t allow it and our treatment facilitates lack the capacity. The US mental health system is totally dysfunctional. If we really want to solve the violence problem in this country, we’d start by solving that problem. Had society done so, the victims of Sandy Hook, Virginia Tech, Tucson, and Aurora would be alive today. But since the mentally ill have strong advocates in the courts, in Congress, and in public/private organizations that shield them from institutionalization and treatment, the next best way to prevent their demonic behavior from harming us is with a gun.

Obama has repeatedly shown a disregard for the Constitution. But the Second Amendment stands on a sound rationale.

The Founders of this country as well as its 18^th century citizens were a suspicious lot, especially suspicious of power entrusted to a central government. In order to get the Constitution ratified, the Bill of Rights with its ten amendments had to be added. In them, after writing the First Amendment that “Congress shall make no law” restricting freedom of speech and religion, our most fundamental freedom, the Founders next ordered that “…the right of the people to keep and bear arms, shall not be infringed” as the Second Constitutional Amendment. Why? Because they were students of governments going back to the ancient Greek democracies and they worried that when government loses its fear of the people, it will trample underfoot their freedom. Thus it was essential that the people be able to bear arms to defend themselves from their political leaders. The Founders were that concerned about the corrupting affect of power.

Look at the rights that they reserved after fretting about free speech, assembly, religion, and the right to bear arms.  The Fourth Amendment gave protection against search and seizure. The Fifth Amendment protects the right of due process and prevents double jeopardy. The Sixth Amendment guarantees trial by jury, and the Eighth prevents cruel and unusual punishment. These were the threats they believed required explicit prohibition to prevent future administrations from exploiting them.

Like the Founders, I believe government is the greatest threat to our liberty. Those in power would never succeed in stealing our liberty in one fell swoop. And that’s not government’s way. Instead it nibbles away at the edges, until one day we wake up to the fact that we aren’t really free anymore. That’s why Ronald Reagan warned,

Freedom is never more than one generation away from extinction. We didn’t pass it on to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free.

As a student of history, I don’t have to look far to find examples of what happens when citizens are stripped of the ability to defend themselves against their own government. Nazi Germany and Fascist Italy happened in my lifetime. Millions are buried in unmarked graves around the world who believed their government would reliably act in their interests. Always.

Do I trust our government, especially the federal government, and most particularly the Obama government, to reliably confine itself to a benign mender of roads, keeper of domestic peace, dispenser of welfare, and protector of our borders?

Not for a heartbeat.

How the “Cliff Deal” Was Done

As I argued in last week’s blog, this country is facing a life-threatening spending problem that has piled up a national debt exceeding the value of goods and services we produce annually. There is no painless way out of this mess. The American people’s addiction to government services will make it very difficult for self-serving politicians to ignore constituent whining, put their careers at risk, and do the right thing for the country not just their home districts and states. Since the core of the American addiction is entitlements it’s hard to be sanguine that this mess can be cleaned up before an economic Armageddon compels it.

Entitlement programs – Social Security, Medicare, Medicaid, Welfare and other entitlements – represent 62% of federal spending, programs. They have always been taken off the table in previous spending negotiations. Obviously no meaningful reduction in spending can happen without shrinking entitlements significantly. Add in defense spending (19%) and interest on the national debt (6%), and a total of 87% can’t be cut immediately or without shrieks and howls from citizens and their Washington representatives. Solutions exist, like privatizing all or part of Social Security, giving Medicare recipients greater choices and incentives to be wiser healthcare buyers, and allowing states more flexibility to manage Medicaid delivery. But these programs have strong advocates who are curiously less concerned with their unsustainability in the long term than with continuing them in their original and outdated incarnations.

Couple the impending entitlement spending train wreck with Obama’s my-way-or-the-highway negotiating style and it’s hard to see how the current congressional make-up and White House could agree on anything regardless of the consequences. The art of political negotiation must involve some degree of compromise so that a win/win outcome is possible even if neither side is particularly happy with it. In Obama’s world, only he is allowed to win. A Wall Street Journal op-ed this week summarized its writer’s interview with Speaker Boehner after the cliff deal was inked sans spending cuts. Boehner revealed that during his negotiations with Obama, at one point Boehner made an $800 billion new tax concession and asked Obama, "What am I getting?" Obama responded, "You don't get anything for it. I'm taking that anyway."

While negotiations were going on between Boehner and White House aides, Obama relentlessly demagogued Republicans in his speeches. He mocked their proposals for spending cuts, asserting that the country had no spending problem, as Republicans claimed, and that they were just trying to protect their rich friends from higher taxes. Boehner told Obama that “… we have a very serious spending problem,” to which Obama replied, "I'm getting tired of hearing you say that." Aside from his abrasive negotiating style, by denying that a spending problem exists, the man apparently believes in an alternate universe.

Obama’s remarkable lack of conciliation has won him no friends among Republican Senators and Representatives who see him as a partisan extremist. This is going to make any agreement in resolving our fiscal crisis almost impossible as long as he occupies the White House.

At some point during their Christmas negotiations it became apparent to Boehner that he couldn’t make a deal with Obama. The Maximum Leader’s round trip back from Hawaii cost taxpayers $3 million and all he contributed to the negotiations was to say “no” to every Boehner proposal. In hindsight everyone would have been better off if he’d stayed in Hawaii and had the final cliff deal FedEx’d for his signature. Negotiations with the White House were broken off when it became apparent that there would be no spending cuts.

Negotiating with Senate Majority Leader Reid wasn’t much different. As the clock wound down and the cliff approached, Boehner made repeated offers to Reid who, instead of responding promptly as the urgency of the situation demanded, often took 24 hours before sending a counter offer. Finally, Reid’s aides called Boehner’s aides to tell them Reid would not be sending a counter offer. Reid seemed to work harder at poisoning their relationship than reaching an agreement. After learning that Reid had given a Senate speech in which he called Boehner a dictator and other uncomplimentary terms, the Speaker became so frustrated that the next time he saw Reid at a White House meeting he told him to “go f--- yourself.”

Only when Minority Leader McConnell became concerned that going over the cliff could roil the US economy, if not the world’s, did he decide to contact Joe Biden directly and ask if he wanted to do a deal. The two veteran negotiators were able to hammer out an agreement in one day. The baby was ugly but McConnell was able to get all but eight Senate Republicans to vote for it. Reid sent the Senate bill to Boehner with a note that the House could make no changes to it. Most of the House Republicans balked at Reid’s take-it-or-leave-it decree and its absence of spending cuts. Only 85 Republicans voted for the Senate-crafted bill and were joined by 172 Democrats. The majority of Republicans – 150 of them – voted against the bill joined by 16 Democrats. Ryan and Boehner voted for the bill. House Majority Leader Eric Cantor voted against it. Over on the Senate side Marco Rubio voted against the bill setting up an interesting conflict between Ryan and Rubio – two likely Republican presidential contenders in 2016.

The House vote occurred two days before Boehner would stand for reelection as Speaker. His nominal opponent was Nancy Pelosi, but several Republicans were waiting in the wings to put their names forward if Boehner failed to get a first ballot win. He needed 214 votes, a simple majority, to win. He got 220 with 12 Republican defections for other candidates. It was originally thought that there would be 30 defections, which would have forced a second ballot. Pelosi got 192 votes. Boehner’s reelection was the closest first ballot win since Newt Gingrich’s close win in 1997 which followed his ethics wrist-slapping.

The passage of the “cliff” bill gave Obama bragging rights that he increased taxes on the rich. His original definition of “rich,” however, included couples making $250,000 or singles making $200,000. The deal that passed has thresholds for couples of $450,000 and $400,000 for singles. To that end, instead of increasing taxes on the “top 2%” as Obama had boasted his proposal would do, the deal he signed is in fact a tax increase on only the top 0.6%.

However, taxpayers will see their deductions capped beginning at the $250,000 and $200,000 thresholds which raise their effective tax rates. This stealth tax was accomplished by restoring the Personal Exemption Phase-out and the Pease provision, which expired in 2010. Obama resurrected it during negotiations for the tax increases. The personal exemption had been $3,800 per family member. Absent it, a married couple with two kids and a joint income above $250,000 will see an effective marginal tax increase of 4.4%. With four kids, that increases their marginal rate by 6%. Itemized deduction limitations add another 1% starting at the $200,000 and $250,000 thresholds.

Taxes on capital gains increased from 15% to 23.8% for individuals making more than $200,000 a year and couples earning more than $250,000, which includes the new 3.8% ObamaCare surtax on investment income. Capital gains haven’t been taxed this much since the first Clinton term. Taxes on dividends also increased from 15% to 23.8% for high earners, including the new 3.8% ObamaCare surtax on investment income.

Whereas Obama wanted an inheritance tax exemption of only $1 million, the exemption was increased to $5 million and indexed for inflation. However, the tax rate on inheritances above the exempted amount increased from 35% to 40%. Republicans wanted the inheritance tax – aka the “death tax” – eliminated. It is a hateful symbolic tax. Tax receipts from inheritance make up only a third of one percent of total tax receipts. People with potentially large estate tax liabilities avoid them through legal estate planning techniques so there is no economic argument for retaining the Estate Tax.

The Alternative Minimum Tax was created in 1969 because 155 high income households paid no income tax. At the time of its passage, the geniuses in Washington didn’t think to index it to inflation, thus in time this “class tax” became a “mass tax” as more middle class taxpayers were ensnared by it.  In recent years, Congress had to pass stop gap measures to set the threshold above middle class incomes. The cliff deal permanently patches the AMT and indexes it to inflation, rescuing 26 million taxpayers from it unless another temporary stop gap was passed this year. The AMT is the poster child for reforming the federal tax code.

The cliff deal didn’t extend the 2% payroll tax reduction that has been in place for the past two years. Therefore, despite Obama’s protestations that the middle class will not see tax increases, and that only the top 2% would see their taxes increased, the nonpartisan Tax Policy Center announced that 77% of taxpayers will be paying more taxes. Households earning between $40,000 and $50,000 will have an average tax increase of $580 and household incomes between $50,000 and $75,000 will average tax hikes of $820.

However, the cliff deal did extend unemployment benefits for another year, arguably reducing the incentive to aggressively look for work or accept a job whose pay is comparable to the unemployment benefit. Now, let me see if I’ve got this correct … we are going to reward unemployment and penalize employment (by increasing taxes 2%.)

Although it was not part of the cliff deal, the 2.3% medical device tax goes into effect this year. The rationale for ObamaCare was to bring down healthcare costs, but to pay for it medical devices are taxed, raising healthcare costs. By golly, I believe Obama really did discover an alternate universe!

Oh, and ObamaCare added 20 new taxes, so in combination with the “cliff taxes” 2013 should be an interesting year for the economy.

Negotiations over the debt ceiling, the deferred sequestration spending cuts, and getting a budget passed in the Senate loom in the near future. It’s hard to see how the Republicans can win any of these fights. Their leaders are inept if not cowardly. They can’t seem to muster the courage or competence to take their message to the people. If they fail to raise the debt ceiling and the government shuts down, they will get blamed, so why not get something for it – like budget passage by the Senate before agreeing to raise the ceiling? It ought to be easy to convince Americans that the country hasn’t had a budget since 2009 because Harry Reid won’t bring it to a vote, while the House Republicans have passed a budget every year since taking control.

Another tack would be to tie ceiling increases to entitlement reform – incrementally. The sequestration battle isn’t going to produce any sweeping spending cuts, certainly not in entitlements which are what must be reformed. Obama will just dig in his heels and let the automatic cuts occur as across the board cuts in domestic and defense spending, knowing that the Republicans will walk the plank to avoid defense cuts. So here’s the deal: conform Medicare eligibility to the Social Security retirement age which is 67 for people born after 1960 and Obama gets the equivalent of one month of spending in the debt ceiling increase. Raise the Social Security retirement age to 70 and the early retirement age from 62 to 67 over the next decade and he gets another month’s spending added to the debt ceiling. The price of another month is, for example, means-testing food stamps recipients, or block granting Medicaid to the states, or reducing unemployment benefits, or any of a long menu of quid pro quo spending reductions that get traded for offsetting incremental increases in the debt ceiling. Such a strategy is far more workable than haggling over sweeping spending reforms. It’s a message that can be taken to the people that they might understand: “We offered to raise the debt ceiling for X months’ worth of spending in return for Y and they turned us down.”

Obama will ask for more taxes in the coming negotiations. He saw Boehner’s near-death reelection, McConnell’s loss of eight in his caucus, and the almost two to one Republican vote against the McConnell-Biden bill. If he can continue getting the Republican leaders to buy into bad deals, he can divide and conquer their caucus and possibly regain the House majority in 2014. With Pelosi back in control, the last two years of his presidency would have smooth sailing as he completes his transformation of America into a welfare state.

Obama won Round One of the cliff deal. As he walked to Air Force One on New Year’s Day, he must have thought to himself, “Not a bad return for giving up a few days of my Hawaii vacation. And all I had to do was say ‘no’ repeatedly.”

Red Zone "Cliff" Politics

Nothing, it seems, is easier to roll than Republicans.

Ronald Reagan agreed in 1982 to increase taxes $1 for every $3 in reduced spending. Taxes went up but spending reductions never happened. In fact spending had increased by the time Reagan left office. His successor Bush 41 violated his famous promise to read his lips because there would be no new taxes. Seduced by Democrat pledges, he bought into a scam to reduce spending by $2 for every $1 tax increase. The taxes were real and the cuts weren’t – which cost him conservative votes for a second term.

The latest log-rolling happened last week when Speaker John Boehner brought a Senate-crafted bill to the floor of the House for a vote. Laughably named The American Tax Payer Relief Act and larded with spending goodies for Obama’s cronies, enough Republicans joined Democrats to pass the measure which reduced spending $1 for every $41 in increased taxes. In the first year the $40 billion in crony pork will consume two-thirds of the additional taxes and it will add $4 trillion in new spending over the next decade. The media-created “fiscal cliff” was averted, therefore, with almost no spending reductions in return for tax increases whose only contribution to solving the nation’s debt crisis is symbolic.

The economic problems that this country faces were caused the same way that the economic problems of Italy, Spain, Greece, and Japan – excessive spending. History has shown that regardless of the US marginal tax rate, tax receipts as a percent of GDP have fluctuated in a narrow range since World War II around 19.5% – a phenomenon named Hauser’s Law. Why? Because people who pay most of the taxes are well enough off that they can minimize or avoid having to pay their bills with taxable ordinary income. Ask Warren Buffett who brags about it.

Given the reality of Hauser’s Law, spending should also equal 19.5% of GDP to avoid deficits that pile up in the form of our national debt. Instead, spending increased during the first Obama administration from 21% to 24% of GDP, adding $5 trillion to the national debt, which now stands at $16.4 trillion. Budget deficits – spending in excess of tax receipts – are projected to increase that figure to over $20 trillion by the end of Obama’s second term unless something is done about spending.

The deal signed last week will transfer more than $600 billion from the private sector to government over the next ten years. Since it didn’t reduce spending, Obama’s lofty goal of reducing the national debt by $4 trillion can’t be achieved. That can got kicked down the road two more months when on March 1 sequestration will cause $110 billion in automatic across-the-board military and domestic spending cuts to happen unless Congress and Obama agree to a more sensible spending solution.

Moreover, on or before March 27 Congress must pass a budget – something the House has done but the Senate has blocked for three years. Without a budget Congress must again perform the continuing resolution kabuki dance, allowing government operations to continue at the level of the last budget that was approved by both chambers.

But before those two events – sometime in late February – the debt ceiling will have to be increased. It remains to be seen if this confrontation will resemble the ancient gladiatorial fights in the Roman coliseum or modern day professional wrestling. That depends on the Republican leaders, who can be rolled faster than a marijuana joint. Technically, however, the government has already exceeded the debt ceiling and between now and then can only legally borrow to replace maturing debt and must defer paying its bills.

The clash of the Titans – or midgets against Megatron, if you esteem you the Republican leadership as I do – was created in August 2011 when those debt ceiling and continuing resolution stare-downs occurred. During the more than 500 days since then, Obama’s ideological intransigence has prevented a resolution of the spending crisis. And during those 500 days over $2 trillion has been added to the national debt at a clip of about $4 billion per day.

With Obama’s reelection and the fact that Democrats gained seats in the Senate and House, Obama believed he got a mandate to raise taxes on the “rich” but not a mandate compelling spending cuts. A Pew poll released Monday showed that four out of five Americans disapproved of the way the Republican leadership handled the cliff crisis – a data point that will likely bear heavily on their willingness to take hostages in the next round of fighting, not to mention shooting them.

Looking back to the Clinton and Bush 43 administrations, the government borrowed an average of 7.5% of what it spent and government spending averaged 19.9% of the GDP. In the four years of the first Obama administration, the government borrowed an average of 37.2% of what it spent and government spending averaged 24.4% of GDP. This year, the Obama spending spree promises to continue an unbroken string of five years’ of trillion deficits. Deficits add to the national debt, which now exceeds the GDP – i.e. the value of all goods and services this country produces. That’s like having a credit card balance that exceeds your income. You’ll never pay it off unless you stop charging.

By increasing taxes on “the rich” Obama has made this situation worse. Like it or not “the rich” are the job creators. They have more discretionary income and spending it creates jobs. The investments they make create jobs. People with money can afford to take risks, which include losing that money, something people who aren’t “rich” can’t do. There are trillions of dollars sitting on the sidelines because of Obama’s anti-business, anti-rich rhetoric that, over the past four years, could have been creating consumer demand which in turn creates jobs.

Over almost any historic period the net new job growth in this country has been due to small business. Obama's claim that 97% of small business owners would be untouched by higher taxes is sheer folly. The 3% who will pay higher taxes on business profits, which are taxed as ordinary income, employ 54% of the total private workforce in the country.

Without net new jobs, a large percentage of our workforce, which grows every year, can’t be employed. The economy stagnates and the debt/GDP percentage grows, causing even slower growth. Obama is stuck on stupid when he talks about returning taxes to Clinton era levels. Under Obama we don’t have a Clinton era economy. We have a Carter era economy. Nobody wins with higher taxes, especially in this economy. Obama has chosen to ignore historic economic behavior – that what is rewarded (lower taxes on incomes and profits) gets produced in larger amounts (jobs and tax receipts.) What is penalized (higher taxes on incomes and profits) will be diminished, delayed, or diverted.

A case in point. Remember the famous luxury tax – one of the taxes that cost Bush 41 a second term? Ah, yes. The geniuses in Washington decided to tax yachts, planes, furs, jewelry – the toys only the rich buy. Think of all the money that would flow into government coffers … and the middle class would be unaffected. Well, the rich are rich, not dumb, and they stopped buying those highly-taxed goods, which not only cost Washington its expected tax windfall, but also cost the jobs of 330 high-end jewelers, 1,470 aircraft builders, and 7,600 boat builders, according to government number-crunchers. The unemployment benefits paid to those who lost jobs cost the government (that’s all of us) over $24 million, not to mention the loss of income taxes that would have been paid if these people hadn’t been thrown out of work by their government.

We can’t tax our way out of a spending problem. Even a 100% tax on the income of millionaires and billionaires is insufficient to cover the budget deficit, not to mention the trick of getting these people to work and hand over their entire income to the government. If the government could seize their entire wealth – all of their savings and investments – that would amount to about $11 trillion. The national debt is over $16 trillion. Democrats have tossed around the idea of nationalizing all private retirement accounts of all Americans and replacing them with a government-run retirement system. Argentina did it. It wrecked their economy. And it would wreck ours too assuming Obama could get around the constitutional problems.

We can’t grow our way out of a spending problem. The two are antithetical. The more money that is diverted out of the private sector and into the public sector, the more sluggish economic and job growth becomes, as Obama has so ably shown in the past four years with his historically high borrowing, historically high spending as a percentage of GDP, and historically high unemployment. Government cannot create jobs. Government cannot allocate capital efficiently. Keynesian economics is a fraud. Government is a drag on private enterprise, although admittedly a necessary evil. The best amount of government is the least amount of government needed to provide public services and national defense.

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The only real alternative to living on a fiscal cliff is to reduce spending. The primary objective in managing spending must be to eliminate the annual deficits as soon as possible thereby avoiding adding to our mounting debt. After eliminating deficits, spending must be further reduced to generate surpluses that can pay down the national debt. Neither of these goals can be achieved through taxation without wrecking the economy, which will make the debt problem worse.

Spending cuts won’t be easy. The present generation of Americans has become addicted to having government goodies that they don’t pay for in current taxes. Instead, they put them on the government credit card (the national debt) and hope the next generation and the unborn (and politically unrepresented) generations can pay for them. Otherwise, it’s not the current generations’ concern.

Politicians, more worried about their jobs than the problems they were elected to solve, will wring their hands and posture for their constituencies, convincing them that cuts deep enough to eliminate deficits and create surpluses are impossible. Well, if cuts can’t be made, get ready for the economy to crash and burn.

Never happen, you say? Well, worry about this as you go to sleep tonight.

The Federal Reserve is keeping interest rates at artificially low rates. Short term interest is almost zero. This keeps interest payments on the national debt low. It also penalizes savers and people who depend on interest for income, some of whom are pushed into welfare assistance. Low interest normally encourages business expansion, which is potentially inflationary, but our slow growth economy and historically high unemployment mitigates inflation risk. The world is an economic mess right now so there isn’t a lot of competition for capital, slowing down capital mobility and further keeping a lid on interest rates. While there are conflicts around the world, none are explosive, so capital markets are relatively stable. Most important, the credit rating agencies have let the US roam on a long leash, although they have been getting nervous watching Obama pile up debt.

The US is very fortunate to have all of these conditions occur concurrently.

With our debt situation in uncharted territory, any of these factors could change literally overnight causing a chain reaction leading to a rush for the doors. While China is the largest foreign buyer of US debt, the biggest owner of debt is the US – about one-third held by the Federal Reserve and the rest held by the public. Anything that would make US debt less attractive would increase the interest rate payable – assuming bonds could be sold at some price. It would also cause debt holders to dump bonds. That and other things that could push up interest rates would increase our deficit astronomically, depending on how high interest rose. Currently, interest payments are about 6% of government spending. Think of the impact of doubling or tripling interest rates.

Standard & Poor’s downgraded US debt in August 2011 when Congress failed to resolve that fiscal crisis. Moody's, another credit rating service, has warned that the January fiscal cliff resolution wasn’t sufficient. If Congress doesn’t get its deficit and debt management going in the right direction in the coming showdowns, it risks a downgrade by Moody’s. This would make US debt securities less attractive. It could also trigger a sell-off panic which would make financing the deficit and redeeming debt maturities very, very difficult. A US debt default could bring down the world economy.

How likely is a US debt dump and a stampede for the exits? The risk is real and every American should be worried about it happening. We’re in the red zone with all the warning lights blinking. But we can reduce that risk by getting spending under control.

I’ll talk about that in next week’s blog.