The 2013 Bipartisan Recession

Gary North wrote an interesting, lengthy article in which he explains how “Boehner Has Obama by the Boondoggles.”

On January 1, 2013, federal taxes will go up – there is no way around it.   Both Boehner and Obama are sniffing around each other to see which way the wind blows.   Obama has, at least publicly, acknowledged that he “might be willing to compromise” a little to work out a deal with Republicans.  Boehner is making similar noises but has stated publicly that he will not accept any tax revision that places additional taxes on the rich.

North suggests that the only new tax that would generate enough revenue is the value-added tax – the dreaded VAT that Europe uses to extract money from everyone.  VAT is equal opportunity governmental theft.  Everyone that breathes will pay it.

For those not familiar with a VAT – it is in essence a national sales tax imposed on the value of a production at each state of production.   Supporters of limited government oppose the VAT because it makes it easier for money grubbing politicians to expand the size of government.   Socialists oppose it because it interferes with their destructive  wealth redistribution agenda.  You can read a 2005 VAT study here.

In truth, the only way to make a VAT economically palatable  would  be to repeal both corporate and personal income taxes.  But we would also have to  pass an amendment to the Constitution to prevent Congress from reinstating both taxes because without  a Constitutional Amendment to tie government’s hand, we’d end up with a VAT on top of the current tax structure, much like the European countries that adopted VAT back in the 60’s.

Unfortunately,  North believes that Republicans would probably favor a VAT  over any other kind of new tax because it is in essence – a flat tax.  Would Obama compromise or far-left liberals in the Senate agree?

The Value Added Tax would be a devastating tax on businesses, especially when you dump in all those pending  ObamaCare taxes – it would be a double death blow to jobs and the economy.

In this instance,  I prefer the gridlock.   The Bush tax cuts will go out of existence on January 1 and we will revert back to where we were in the final days of the Clinton administration.  Another advantage, depending on your political leaning,  of gridlock – there will be automatic spending cuts which unfortunately target the military.

There is no question that we are facing that “fiscal cliff.”  There is no question that the combination of increased taxes and reduced federal spending will produce a lot of unintended unpleasant consequences.  No one really knows what the effect of the cuts will be but it is clear that this is the right path and is crucial for  future economic growth.

According to North, there is no solution other than default on the unfunded liabilities.  Somebody is going to have his or her income reduced when the deficit in the general funds gets so large that interest rates will start going up.  Social Security,  Medicare and Medicaid are all running red ink and that red ink is currently being covered by payments from the Treasury.  Congress has no other choice but to raise revenue (taxes) or sell even more  Treasury debt to naive investors who think this ponzi scheme can go on forever.

North goes on to say that the recession of 2013 will be a bipartisan recession.  No longer can Obama blame Bush because the tax changes to take place on January 1 were already voted on by Democrats.

There is nothing that Congress can do to solve the problem of unfunded liabilities except by default.  It is all kabuki theater.  Somebody’s goose is going t0 get cooked.   And, from this time forward Republicans can point their fingers at the Democrats.

As soon as real tax pain is imposed on the American voters – as soon as unemployment edges up – as soon as the recession begins to wipe out pension funds, everyone’s eyes will turn to Washington.  Voters will be demanding that government do something which is funny considering that what we are facing is the result of what government has already done.

Obama can no longer blame Bush for the mess we’re in.  He can’t blame Clinton either for the tax system that was rammed down the throats of the Republican party in the mid 1990s when Democrats were in control.   This is the first time he will  have to stand up and face the music!

Romney should think his lucky starts he lost the election!


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