Long-Term Economy And National Debt Solution Not A Part of Modern American DNA (Guest Voice)
Long-Term Economy And National Debt Solution Not A Part of Modern American DNA
by Johnny Byrd
On Election Day last week I attended a tax seminar, one of many held this time of year, purposed to get me up to speed on the latest federal and state tax law changes and hot topics. One presenter devoted some time to the potential impacts of the election results on current and future tax policy and the resultant economic impacts to the fiscal future of our country. I discovered in the seminar that the Congressional Budget Office website (www.cbo.gov) is an excellent resource for evaluating the long-term financial impacts of alternative policy decisions, be it Obamacare, extension of the Bush era tax cuts, you name it. So, later at home I spent the entire evening perusing CBO budget scenarios on my laptop while election results slowly bled in on the television playing in the background. The evening’s frivolities came at the expense, among other things, of what would have been a much more interesting game of chess with my oldest son, which in hindsight I regret.
At the end of the seminar, and Election Day for that matter, I was left with more questions than answers—not about where we are going, as we are on a collision course with economic ruin—but about how we might avoid it.
I was looking for something to provide hope that we might endure and ultimately come out on top of the worst economic triple-whammy in US history: our longest, deepest recession, plus the most expensive, largely unsuccessful stimulus in history (save some of the state expenditure covered bailouts), plus the passage of unaffordably expensive healthcare reform (sorry, I don’t buy the CBO assessment that Obamacare will RAISE money over the next ten years), all packed into the span of less than the past two years.
I quickly determined that I was wrong; it’s not a triple-whammy at all. We are about to make it a quadruple-whammy of epic proportions by extending the Bush era tax cuts.
There is nothing like being in massive debt and throwing an extra $4 trillion in debt (via lost tax revenues) on the pile for good measure. That’s pretty close to the cost over the next ten years of extending the Bush tax cuts and dealing with AMT (that’s alternative minimum tax, for you non-tax nerds.) Consider that we are on the precipice of extending the Bush tax cuts for some or all Americans, but we likely wouldn’t be able to repeal Obamacare while Pres. Obama is in office—not near enough support exists to repeal it over the top of his veto power. In his mind, healthcare reform is his legacy. We just aren’t smart enough to understand his policies, but that’s another article…like I said, quadruple-whammy.
The CBO’s extended baseline scenario, the one assuming we adhere to current law (i.e.—no Bush tax cut extension), projects that the expiration of the Bush tax cuts creates “a significant increase in revenues” that “would offset much—though not all—of the rise in spending on health care programs and Social Security.” So, even if we let the Bush tax cuts expire, we still lose as the budget deficit and the national debt just get bigger.
How did we ever pass Obamacare? Whatever happened to the “pay-as-you-go” (PAYGO) statutory congressional provisions, where all revenue legislation must be revenue neutral over certain measuring periods? I found the answer to that one: after the success of pay-go in the 1990’s, during which at one point we had a four-year period of budget surpluses, there was fear of economic destabilization from, get this, paying down our national debt too quickly, so we let Pay-Go expire in 2001. The national debt doubled in the ensuing eight years.
Never fear, my fellow Americans, your Congress has been hard at work, realized the error of their ways, and, after passing Obamacare and the government stimulus, reinstated Pay-Go earlier this year, but with a few caveats (read exceptions). Pay-Go doesn’t apply to extending the Bush tax cuts, or to “emergency” legislation. Don’t ask–I haven’t mustered the courage to dig in and find how broadly the term “emergency” is defined for purposes of the exception. Let’s just leave it at this: with the republican tidal wave in the November elections, some form of extension of the Bush tax cuts is sure to pass.
Mind you, I am a fiscal conservative—I believe extending the Bush cuts will encourage investment, create jobs, stimulate business, and in the end create more federal income tax revenues that positively impact the national budget. The assumptions underlying these conclusions, and how you get there, are where any sane person gets lost. The devil is always in the details. I don’t have the foggiest idea how many jobs the Bush tax cuts created since their passage in 2001 and 2003. Neither does the CBO, the White House, or anyone else for what it’s worth. But what does it matter, I mean I am a republican—don’t I have to be “for” tax cuts and smaller government?
Sure, but I’m beginning to develop a new world view that as an American in the current times I need to always stand for fiscal responsibility first and foremost. But, why should I have to pay out of my pocket—that’s exactly what happens if we don’t extend the Bush tax cuts–for the failed policies of Obama? I didn’t vote for him. It’s a fair question. The answer is far bigger than the reality that Bush before him had a different, but just as horrible fiscal policy: don’t tax, just spend.
Here is the simple answer. Whether by action or inaction, I am responsible, and all adult Americans are responsible for the current economic and fiscal crisis. We are responsible for repeatedly voting for career politicians. Life (and the economy) is full of ups and downs, good times and bad times. It can’t always be good times. You can’t spend your way to prosperity. When you make bad decisions, you have to “pay the piper”.
The problem in Washington is that the piper never gets paid.
Last week’s new congressmen and women are most likely to follow the path laid before them of putting off dealing with the hardest issues and leaving the toughest decisions to those who will succeed them. I cite the immediate congressional discussion to rush to extend the Bush tax cuts as exhibit A. Where is the thoughtful discussion of the short and long-term impacts on our overall financial health? Trust me; there won’t be time for that—after all the tax cuts expire at the end of next month.
How can you expect someone who thinks in four or six year job intervals to embrace hardship now and the added specter of losing his job, over his self-preservation at the expense of someone else (you, me, and future generations) suffering for his decisions later? It is the established way of American politics, and I am here to tell you it is a path to ruin. We are at fault, as we have allowed Congress and the President to largely act in this manner for generations.
The problem is bigger than that—it’s the way of American politics because it was first the new American way. Over perhaps the past century our whole society has embraced a faster pace of life (e.g.—the rate of change in technology) fostering a “have to have it now” mentality about everything in life. Os Guiness opined on a microcosm of this when he wrote, “Television is biased against memory and history with its very pace and style—the ceaseless, breathless flow of the NOW renders viewers incapable of remembering.” As a nation our thirst for the “now” has rendered us incapable of remembering, much less understanding the old adage that a penny saved is a penny earned. Yet, we are not in need of bulldozing a new path to success in politics or anything else for that matter. Many things in life reveal the narrow way or path to success.
The night after the election I made my previous evening’s tunnel vision up to my oldest son of seven years with a four-hour chess marathon. We’ve been playing a lot of chess lately with me getting the better of it on nearly every occasion. He usually assumes a very defensive posture, as he hates to lose any of his non-pawn pieces, and it leads to his gradual, inevitable surrender. Play enough chess and you’ll eventually learn that sacrificing or giving your pieces in the board at certain times is a short-term cost required for long-term success. As soon as my son figures this out, I am done for.
Johnny Byrd is a tax CPA with 15 years of experience specializing in corporate and individual income taxes, transfer pricing, foreign taxes, and estate planning. Byrd earned a B.S. in Business Administration and Masters in Taxation from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. A resident of Franklin, TN, in addition to politics and writing, he enjoys golf, hunting, music, fantasy football, chess, and entertaining his five children and wife of 17 years, Gina.