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The Fiscal Cliff for Fun and Profit

December 30th, 2012 - 1:11 pm

Laws are made by men, not gods — but you’d never guess that from the talk coming out of (and about) Washington these days.

Democrats behave as though the Clinton tax rates were carved into stone by lightning on Mount Sinai. Republicans want you to believe the same thing about the tax rates enacted just a few years later under President Bush. And the Fiscal Cliff? “Why, that’s a geological formation — an act of God if there ever was one. It’s not our fault if we’re going over it!”

Right. And I’m the Pope of Siam.

Here’s what neither side wants you to remember: No matter what the rates are, our income tax code is a mess. It’s corrupt. And it will never raise enough revenue to pay for all the government we’ve saddled ourselves with.

Those Clinton tax rates the Democrats are so fond of only ever raised about two-thirds of the revenue the Democrats promised us would be collected. And that was during a perfect storm of tax collection. The 1992 recession was short, sharp, and extremely beneficial to our national economy. It set loose a wave of creative destruction which helped set the stage for the information revolution later in the decade. A GOP Congress in 1994 guaranteed enough gridlock (and, briefly, enough spending restraint) to keep things humming even louder. The Y2K bug — remember that? — and the dot com bubble further juiced capital expenditures while filling the Treasury’s coffers with capital gains.

Even so, those magical Clinton tax rates never fulfilled the Democrats’ promises of 1993. I’m repeating this point because I want you to remember it.

Bush and the GOP cut tax rates twice, in 2001 and 2003. Despite the 9/11 attacks, the bursting of the dot com bubble, and a pretty serious recession, tax revenues eventually surpassed those collected under the Clinton tax code. Everything must have been rosy, right?

Wrong.

There are things the Republicans want you to forget, too. The GOP tried to keep things goosed by going on an unprecedented spending spree. At the Fed, Alan Greenspan was happy to play along by keeping interest rates unprecedentedly low. (Both precedents would be very quickly surpassed by the Democrats and Ben Bernanke.) And Clinton’s Community Reinvestment Act added to the fun, by sweeping us all up into a happy, happy housing bubble. Tax revenues guttered when the bubble popped, and have stayed there since. Obamanomics, which consists of standing on the economy’s throat while pounding its face with a moneybag, hasn’t helped.

What neither side wants you to remember is the damage they’ve done to the once-beautiful tax code bequeathed to us by Ronald Reagan and Tip O’Neill. It wasn’t perfect — the AMT and too many deductions remained — but it was a big step in the right direction. The right direction being, if you want to collect taxes, make them simple and make them cheap. After the Tax Reform Act, collections briefly and barely dipped, then soared.

But, as Glen Reynolds likes to say, that didn’t present enough opportunities for graft. Clinton and Bush loaded up the tax code with deductions and credits and loopholes and incentives and subsidies and all the rest, until the giant wheezing beast interferes with every economic decision, big or small.

Politicians love this crap — little men doling out big favors. So do Big Business and their K Street cronies — entrenched interests squeezing out competitors via the tax code, like a boa constrictor smothers its prey. The rest of us? We’re the ones getting squeezed.

So Obama and Boehner can negotiate right down to the wire whether rates will go up on those making $250,000, or on those making $500,000, or maybe it’s on those making $400,000. Or $402,223 and 18 cents, but only if they were born on even-numbered Wednesdays, otherwise it’s $402,223 and 19 cents. It’s all nonsense.

Our problems remain threefold:

1. The promised taxes will not be collected.

2. No level of taxation will ever pay for our unfunded entitlements.

3. The system has become irresponsible and corrupt.

And if you think that #3 might have something kind of causal relationship with #1 and #2, please treat yourself to a well-deserved cookie. You have the kind of simple and honest insight that is as foreign to Washington as a pulled pork sandwich is to a mosque.

There are a few in the GOP who are willing to talk honestly about our spending problem. Their reward for what amounted to idle talk was to lose seats in both houses of Congress, and the reelection of the Six Trillion Dollar Man to the White House. The Democrats have a plan to just tax and spend the crap out of shit until prosperity returns, then blame the Republicans when it doesn’t. The Democrats are — and this just goes to show how corrupt the system has become — the good guys.

And the rest of us? The inside of that boa constrictor is stating to look pretty good. At the very least, it’s certainly close.

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