The Washington Post: The Fiscal Cliff

The first day having gone over the fiscal cliff has proved anticlimactic. All the tax cuts expired and government spending reversed, but then the fiscal-deal presents itself to undo any whiff of austerity. Of course this was expected as both democrats and republicans have agreed that it's much easier to ameliorate a terrible situation out of their control than to actively change the status quo against the wishes of their constituents. Our legislatures are some shrewd, sly folks, who think a lot about reelection. Then who's thinking about economic sustainability and societal stability? Well hopefully somebody.

The Washington Post article below was one of the more comprehensive articles I have found on the fiscal cliff. Essentially America is heading towards an unmanageable federal deficit -  greater than 90% our nation's GDP. I am no expert on debt, but my understanding of this economic principle is that it's all fine and good to spend borrowed money if you're spending it on something that's going to give a return greater than the interest on your debt. Otherwise you are stuck with a lot of debt you can't repay and then investors (Japan, China etc.) will reclaim your property as their own. Of course I don't think that's necessarily plausible as Japan has a ton of debt itself, and international financial markets are all intertwined. But the bottom line is that we're borrowing at a rate that outpaces our financial growth.

On what do we spend this borrowed money? Healthcare! Specifically healthcare for the poor and elderly in the form of payments to doctors and hospitals. Social Security! Unemployment! I suppose the idea is to keep people healthy, safe, and solvent so they can continue being functioning members of society. It would be interesting to conduct a study on what percentage of each dollar spent on social programs actually improves our country's economic productivity. My suspicion is that it's significantly less than we'd like to admit.

The fiscal deal seems like a weak compromise that doesn't do much for the deficit.. The tax cuts will continue for all income under $450,000 (top earner tax rate from 35% to 39.5%, and rise on capital gains tax from 15% to 20%), unemployed and elderly people will continue receiving governmental support. They will delay figuring out the healthcare fiasco for a later date.

Proposals I would support:
1) Graded tax increases based on income level
2) Studying which social programs are effective, and cutting off those that aren't working. Social security and healthcare reform, which inevitably will result in decreased social security payments and rationing of health services. Welfare reform.
3) Focus on job creation (continue unemployment payments? corporate tax breaks? defense contracting?)

The Fiscal Cliff