The Cliff Circus Was Just a Warm-Up

If you think you can relax now because in the end Washington will find a fix, you are living in a mushroom cave. Take it from an old guy who has watched the changes in our government, and how Washington works, over far too many decades. This is really a massive crisis and total lack of presidential leadership. Just because we got a goodie with the leasehold rules, don’t think we won anything when the real issue is the macro issues that will have far worse detrimental impact due to not dealing with the deficit. Over time, interest rates will rise too far as the US is viewed as a greater risk for not dealing with its fiscal issues. The Fed will not be able to offset the fiscal disaster much longer without creating a monetary disaster somewhere in the future. The economy will continue to underperform. That is far worse than a little tax extender for leaseholds. The reality is all they did was raise income taxes on the few who actually pay income taxes, raise payroll taxes on the middle class-which they needed to be raised, and increased spending. The claim of $600 billion of new revenue is no different than the accuracy of appraisals. They use false assumptions for a 10 year projected cash flow and the accuracy has no relationship to reality. Never in history anywhere in the world has raising tax rates on the successful ever raised the projected revenue.  Smart people, who are the ones who pay these higher rates, find perfectly legal ways to reduce the hit through trusts, deferrals or whatever their tax advisor creates. Or they move as we see in France. Obamacare has buried in it several additional new taxes of which 3.8% cap gains is just a piece. Now that Obama and the Democrats won the political war, they are already saying now we need more taxes through limiting deductions. You can count on more tax increases, and it will hit you in forecasting returns. Carried interests is in the target area, as are other deducts that we all assume. Then there is new spending coming for more wind and solar even though the real solution is more fracking to get at cheap gas which is not subsidized by taxpayers like wind and solar. In the end, the last circus is just a warm up for the real battle over spending. Harry Reid and Pelosi, along with Obama, have already started to pound on the 47% to convince them that the Republicans only want to harm the seniors, students, handicapped, and anyone else who are getters not payers. I have Medicare. I had two knee operations, MRI’s and other procedures. I paid ZERO for any of it. That is ridiculous. If going to the doctor costs me nothing, then if I wanted, I could go everyday for free, so many old people do just that. Fee for service is stupid. It just wastes hundreds of billions.  If they can’t even agree to chain CPI and raising the age of entitlement the way Reagan did, then it seems hopeless to think there is going to be any control of the massive deficits. It is now, or the pain later will really harm the economy. There will be no money for anything. The reality is none of these fixes harm anyone, and they save these programs, and the country for our children, and many of you. Interest rates would be normalized and the economy would boom. Everyone would win.

Washington love to talk about 10 year projections and numbers, but reality is in 12 years, not 10, the entitlement programs go broke. Twelve years goes quick. When Harry Reid says there is no need to touch Social Security now because it is fine, you wonder if he has a brain defect, or is just so old he can’t get his brain to function any longer. Boehner was right to tell him to F off, and it was clear even McConnell could not get anywhere with Harry. If they do not do at least $3 trillion of spending and entitlement cuts, the country is screwed. Bowles has made it very clear that $3 trillion of spending cuts is bare bones minimum, and just a start to try to stabilize the deficit. I seriously doubt they will come anywhere close to that number.