Fiscal cliff deal is good politics but bad policy

Kenneth Timmerman President, Foundation for Democracy in Iran
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With every bad political “compromise” rammed down the throats of screaming Republicans in the House, America gets closer to bankruptcy.

The CBO has scored Tuesday’s borrow-from-our-children-and-spend-it-now bill: it includes $1 of spending cuts for every $10 of tax increases. Given that fewer than 2% of American households will be directly affected by the tax rate hikes, it’s good politics. But it’s terrible policy, because it locks in four years of massive spending increases under Obama and congressional Democrats as the new budget baseline.

As a recent congressional candidate, I sympathize with the 85 Republicans who voted for this monstrosity — up to a point. Obama skillfully backed them into a corner: approve this tax hike on a small number of constituents, or face the ire of a majority of voters whose taxes would go up if Congress went over the fiscal cliff.

That’s why the right decision was to vote no, even at the risk of losing the next election.

Going over the fiscal cliff would have raised taxes on all Americans. We are told it would have forced the Pentagon to furlough up to 800,000 civilian employees, cut unemployment insurance, Medicare and Medicaid — and much more.

In other words, it would have caused real pain to a large number of people. But that may have been what Americans needed to wake up to the stark choices we’re facing.

We are on the verge of becoming like Greece. We are spending way beyond our means and instead of cutting spending, our elected officials, from President Obama on down, are hunting for accounting gimmicks to make it appear as if the numbers add up and we can continue just as before.

Until the Fed is compelled to raise interest rates, they may get away with it.

Last year, the federal government paid out $360 billion in interest payments on a federal debt that topped $16 trillion by the end of the fiscal year (Sept 30, 2012). That is roughly the same amount it paid in interest for FY 2005, when the debt was less than half today’s amount.

Imagine returning to 2005 interest rates. That would mean finding an additional $360 billion this year alone just to service the existing debt. That’s nearly half of all Social Security outlays for the year.

How long can the Fed hold interest rates at next to zero? Your guess is as good as mine. But I’m willing to bet the answer is: not forever. Probably not even through the end of 2013.

Compounding the bad policy of the fiscal cliff deal is Obama’s braggadocio comment that when the next debt ceiling negotiations come up, probably next month, he won’t budge.

“I will negotiate over many things,” he told a press conference on New Year’s Day. “I will not have another debate with this Congress over whether or not they should pay the bills they have already racked up through the laws they have passed.”

What Obama didn’t say, of course, is that he inherited a debt of $10 trillion, and through his own policies increased the debt by 60% in less than four years. How? By getting Senate Majority Leader Harry Reid to block any budget since the first (and only) Obama budget, passed in 2009, which expanded the size of government by more than 20%.

The real solution would have been to cut federal spending. That would have been the rational thing to do. When you are spending beyond your means and your second job still doesn’t help you to make ends meet, you reduce your spending.

But politics isn’t about doing what’s best for the country. It’s about doing what’s best for politicians, which is to play class warfare and build a permanent entitled class that will vastly outnumber those who produce wealth and will simply take more from the wealth-producers in order to finance their lives.

I salute the 151 Republicans who voted no on this bad bill. Some of them will undoubtedly be made to pay a political price for their votes. We need more men and women in Congress like them who are willing to point to the emperor and cry out that he stands naked.

Ken Timmerman was the Republican nominee for Congress in 2012 for Maryland’s 8th District.