Do you want to know what the fiscal fight is really about?

by Kent on December 31, 2012

This is a non-partisan article about what the fiscal cliff fight is really about. It is a philosophical battle, but if you read the newspapers and watch TV news, you will not get this story. Believe you me, I have watched and read many commentaries and opinions about this, but no one has yet to boil it down to one article–so I will take a shot at it. In addition, since this is a financial blog, I will try to render a non-political opinion about what this means to your personal finances. Since readers from both sides of the political spectrum read this, I will try not to take sides.

First of all, we have an economic crisis in the United States of America.  Real unemployment is about 15%, not the less than 10% that you read about. Secondly, government spending both today and into the future exceeds income or revenue (mainly taxes). The budget deficit exceeds $1 trillion per year, and the total federal deficit is almost $16.5 trillion.  Manufacturing is down, growth of our gross domestic product is lack-luster, and we are headed to long term double- and, who knows, maybe triple-dip recession. Yes, housing is gaining strength, some industries are doing quite well, and there are other reasons to be optimistic, but a strong argument can be made that we are headed to economic disaster because our federal balance sheet is a disaster.

Coming through a recession, we have a lot of people with their hands out wanting financial help. With high unemployment we have people on unemployment benefits. With an aging population we have a large, increasing number of people on Social Security, Medicare, and Medicaid. With low incomes coming out of the recession we have a large percentage of people not paying Federal income tax. We have have a large number of people without health insurance or under-insured (who should be provided for). We have a large percentage of people on food assistance, income assistance either in the form of weekly benefit or an annual bonus check called the Earned Income Tax Credit.  These are a lot of open hands, some very well justified that need help, I agree, but none-the-less, at the end of the day a lot of open hands with no long term plan to pay for helping them.

Even if we aren’t paying Federal income tax, we pay a lot of our income out to sales tax, payroll tax (Social Security, Unemployment Insurance, Medicare and Medicaid), gas tax, real estate tax, toll roads, corporate tax that we pay in increased cost of goods, to mention a few. So the poor and low income do pay tax; the point here is that government–federal, state, city and local–has high revenues.

The Left’s Viewpoint: To meet the financial needs of our country, such as entitlement programs, the tax plan that President Obama wants congress to pass would increase income or revenue through increase in taxes on the rich and modest cutbacks in spending but not on entitlement programs, and in some instances Obama wants to increase expenditures, for example  by extending unemployment benefits.  Class warfare seems to be used as a motivator: “The rich and big business caused the economic crisis, therefore we want to take from them to help everyone out and fix our economy.” A few of them definitely did contribute to the recession, but really, can we tax our way of this mess?

The Right’s Viewpoint:  To meet the financial needs of the country, reduce spending (including entitlements) and move towards a balanced budget, keep taxes low for everyone and leave more wealth in the hands of the wealthy and businesses, who create jobs and expand the economy. Really, can we not increase taxes some with spending so high. Okay they say, but reduce spending first.

The 113th Congress of 201 Democrats and 234 Republicans in the House of Representatives don’t want to budge on these issues because it is coming down to these philosophical differences. If the House can pass something agreeable, then the Senate’s 54 Democrats and  45 Republicans will approve it and send it to Obama for his signature.

The philosophy on the left says: We want to be more like a European style social democracy, with high taxes and a high level of social programs. It puts faith in the government to care for the people in a fair and just way. Society weilds power from 3 entities: government, people, and business. Therefore this style of government seeks a shift to have more power than people and business. The hope here seems to be that government will maintain the freedom and welfare of the majority of people. Government is self seeking, so those in power don’t always care for people well. I am not saying if you are on the left you totally believe all of this, but this is seems to be what they are saying.

The philosophy on the right says, we want to maintain more freedom for business and people, and the answer to economic problems is better financial management and business growth (which will in turn generate more taxes). The hope is that business and capitalism, hard work and self determinism, good personal financial management (spending saving and investing) will, in the long run, pay for entitlement needs, not taxes and government programs- it doesn’t always do that well, but that’s its hope. The right believes in entitlement programs, but seeks a balance. The people on the right are not heartless, since well researched analysis validates that conservatives give much more money to non-profit entities benefiting the poor than those on the left.  I am not saying if you are on the right you totally believe all of this, but this is what seems to be they are saying.

What is the Christian viewpoint, since I am writing this in a Christian personal finance blog? Evangelicals, protestants and Catholics are in both camps, so I don’t think it would be fair or possible for me to make the final determination on that one. But what I do believe is that perhaps one side doesn’t exclusively have the only answer–both can actually be right and wrong in part. Compromise doesn’t mean giving up one’s philosophy, but agreeing to work together on a balanced approach with some give and take. I think the Christian way is a balanced approach that takes care of needy, preserves freedom by not shifting too much power to government and business, has modest taxes, AND something that neither party seems to be mentioning much, encourages new business startups and growth. A rising economy alleviates many of the financial problems struggling economies face.

A good president and majority and minority leaders are ones that support compromise, work together, and bring both sides together. This battle is frustrating, but actually it makes good political theater. Will one philosophy win out here, or will we end up with a good compromise and the best part of both parties will help everyone, not just those on the right and left?

Conclusion: The longer we take to answer questions of budgets, taxes and deficits, the longer our economy will languish. The more it languishes the greater the toll to average people’s personal finances. A government that manages money well, taxes fairly, takes care of the poor, secures freedom and encourages business growth by working together will be one that leads us to prosperity.

 

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