The Fiscal Cliff: No Room for Compromise

A recent Pew poll found that Americans have a lot of opinions on something they hardly understand: the “fiscal cliff.”

 “Most Americans feel like they have only a dim understanding of what might happen if the automatic spending cuts and tax increase go into effect,” says the poll report. “Just 28% say they understand the consequences very well….”

To me, that means that 72% of the population (surveyed) doesn’t comprehend either the depth of the United States’ debt, or the seriousness of it.

Other polls in the last 6 weeks have explored whether the Republicans or Democrats, or Congress or the President, or whatever other combination of nouns would be “more to blame” if the US went over the “fiscal cliff.” Reading between the lines, I don’t think it’s much of a stretch to substitute “Republicans” with “spending cuts” and “Democrats” with “raising taxes.”

There is absolutely no sane way to “compromise” between spending cuts and tax increases. Let me hit the salient points as I see them:

1. A dollar raised in taxes is finite. It can be spent once, and it’s gone.  And an increased tax rate will directly lead to “the rich” changing habits, closing businesses, or even moving to avoid the new rates, so any projection in what a tax hike will bring in over any period of years is seriously over calculated.
2. A dollar in cut expenses—particularly in entitlements—will have a positively compounded effect on future budgets.  Cutting a program or department obligation means that every year the budget and the deficit will benefit from not having to pay/come up with that dollar again. Without even factoring in inflation or interest or anything fancy, it should be obvious that over 10 years, a cut dollar of spending will have 10x the impact of one dollar of tax money raised and spent today.
3. All the taxes from all the rich will operate the government for some great, extended period of time like…. Maybe 8 days.   There won’t be any meaningful impact if we “tax the rich”, which brings me to my next point.
4. The difference between millions, billions, and trillions.

One million is 1,000,000. This makes Average Joe a Rich Guy.

One billion is 1,000,000,000. Usually various spending cuts and “revenue increases” are measured here.

One trillion is 1,000,000,000,000.  And the US Debt is currently upwards of $16 trillion.

I would like to tell you where the deficit falls (the yearly shortfall of budget obligations to money in the bank) but the US government hasn’t had a budget in a couple years now, so I can’t.

There are several great illustrations out there right now, such as all the Facebook-type illustrations about the piddly amounts politicians promise to cut spending would be like an average family cutting a few cents or dollars out of their budgets.  Reportedly up to three-fourths of the new taxes proposed by the president will reportedly go to NEW programs, I’m wondering if the “cuts” will actually turn out to be more debt.

Or if you’re more of a visual person, check out these “economic infographics” for various video representations of the debt, deficit, and fiscal cliff.

But even if the other 72% of the population did get a good grasp of the above, the willingness to embrace and accept the deep, drastic, and immediately-needed cuts to government programs is another question altogether.  And none of the spending cuts proposed to date will even come close to making the sort of impact we need to see.

I think the US is in deep, deep financial trouble whether or not we go over any short-term cliff…..