We Built It Blog by Larry Jacob

When Western European countries began to establish settlements and colonies in North America they called it the “New World.” Eventually, the 13 original colonies became an independent country, the United States of America, and the rest, as they say, is history.

Now, over 500 years later, the New World is in danger of regressing into the New Europe, at least economically. For the past four years, America has been transitioning from a state based on initiative, risk-taking, free entertprise and self-reliance to one based on big government and entitlements. The transition has been so gradual that most Americans are not even cognizant of it. The most recent election results have accelerated the process. I fear that if it remains unchecked it will continue to accelerate until, like a snowball rolling downhill, it will become an unstoppable avalanche destroying everything in its path.

The signs are there if one wants to look:

1. We just re-elected a President who has espoused publicly the philosophy of wealth redistribution. He uses code words and phrases like requiring “those who can afford it” and the “rich” to pay their “fair share” and help the “needy.” Sounds reasonable and benign, but raising taxes in this manner penalizes achievers at the expense of non-achievers. Also, we’re not just talking about income taxes, but also taxes on capital gains, to help pay for medicare and Obamacare. Furthermore, as far as resolving our $16 trillion debt and huge annual deficits, these taxes are like putting a bandaid on cancer. The additional revenue only funds the government for a week or so; it doesn’t begin to resolve the broader problem. Don’t be surprised if we are told soon that more taxes on the wealthy are needed, perhaps, a return to the 90% marginal rate of the 1950’s or even a “wealth tax,” which some far left pundits have already proposed.

2. Many if not most Americans agree that we must cut spending in conjunction with raising taxes, but, of course, there is no consensus on which areas to cut. Everyone wants to cut someone else’s program. President Robin Hood and the Dems have vigorously opposed any meaningful spending cuts and have not proposed any spending cuts of their own. Nor will they unless they are forced to do so by the GOP as part of the debt ceiling negotiations. (In that event, they will probably claim the GOP is holding the economy “hostage” by holding up approval.)

3. The size of government has been increasing steadily. Nearly one-half of the population is now receiving some kind of government assistance. Some of this assistance, like social security and aid to the truly needy or disabled, is appropriate. But, entitlements have risen to record levels in both dollars and percentage of population. Every recipient can’t be “truly needy.”

4. The nation’s debt is over $16 trillion and increasing by the second. Try to wrap your mind around that number for a minute. Most people can’t conceive of a number that high, which is part of the problem.

CONCLUSION AND PREDICTION

O’s ultimate goal is for the government to take care of (that means control) its citizens’ life from “cradle to grave.” He doesn’t think or care about how we will pay for it. Folks, that philosophy, plus wealth redistribution, in a nutshell, is the Western European model I referred to earlier. That’s where we’re headed. What’s worse is that a majority of Americans seem to want it. They like the largesse of the government.

Is this majority, greedy, lazy, oblivious, or some combination of the three? This is not the America I grew up in. This is not the America of the last 300 years. The attitude seems to be “Why work for it when you can get it handed to you?” “He’s getting it, why shouldn’t I?” The problem is that “eventually, as Reverend “Wrong,” I mean Reverend Wright, said: “America’s chickens will come home to roost.”

Well, President Robin Hood, er Obama, got what he wanted. He managed to increase taxes without any corresponding spending cuts despite the fact that the understanding all along was to match tax increases with a roughly one-for-one reduction in spending. Furthermore, he has made it clear that he wants even further tax increases as a condition for any spending cuts. Yep. Now that he has been re-elected, the gloves are off. He has become emboldened and more feisty. Any doubts about his political intentions have been laid to rest. Let’s hope that our country’s economy will not be laid to rest as well over the next four years.

The President intends to push his wealth redistribution beliefs and policies as far as he can. At his core, he is still the Chicago community organizer. Simply put, he wants to take from the achievers and give to the non-achievers. (Yes, there are some people who are legitimately in need of government assistance, but I am not talking about them.) Our President has failed to understand that when you become the President of the United States you are the President of ALL the people, not just a segment of them.

The President believes big government should provide everything for everyone, cradle to grave. His economic model is the socialism practiced in Western European countries. He fails to see or chooses to ignore that that system has not worked. This is not opinion or speculation. It is empirical fact. Just look at Greece, Spain, Portugal, etal.

CONCLUSION AND PREDICTION

The President now talks about the need for even further tax increases and pays lip service to spending cuts. Everyone knows the three biggest expenses are debt service, entitlements and the military. Debt service cannot be cut; in fact when interest rates increase, as they inevitably will since they are at historical lows, debt service will increase. That leaves entitlements and/or the military. The President and the Dems will strongly resist any reductions in entitlements; in fact, they want to increase them. The GOP will likely resist any meaningful reductions in defense. So, it will be extremely difficult for our elected officials to agree on any significant reductions in the $16 trillion debt. In fact, we’ll be lucky if it doesn’t spiral out of control further.

Don’t be fooled by the recent surge in the stock market. That was a “relief rally” over the government reaching a deal. Apparently, a “half-assed” deal was viewed as being better than no deal. Eventually, the market will realize that the debt crisis was not solved, just deferred, and the gains will be reversed, or worse.

So, if you thought the fiscal cliff negotiations were difficult last week, just wait until the next one at the end of February when we will also have to deal with Congressional authorization to increase the debt ceiling. Once again, we will be subjected to more rhetoric, half-truths, finger-pointing, and lack of leadership by both the Congress and, especially, the President.

Happy New Year to all you “cliff danglers” out there. Do you feel any differently? Today, we woke up to a new year and a new economic reality. We have officially fallen over the “fiscal cliff,” … or have we?

That’s right; our government has done it again. Wasted months and months on rhetoric and political postering, waited until the last minute, scrambled around, put together a “half-assed” deal that the Senate passed in the wee hours of January 1 amid much fanfare and sent to the House for consideration. (Incidentally, what are the chances that any senator has actually read the bill he or she approved in such haste?) If the House approves the measure, not a sure thing, President Obama will sign it, and we will climb back over the “fiscal cliff,” conveniently, before the financial markets open tomorrow. Thus, we will have fallen over the “fiscal cliff,” but not really. If you are confused, don’t worry, so, apparently, are our elected officials. i

Among other provisions, the bill raises income tax rates and limits deductions on individuals earning over $400,000 and on households earning over $450,000. Additionally, it leaves the Bush middles class taxes rates in place and extends unemployment benefits for the long-term unemployed, which were due to expire. I have no problem with that, but I do have a problem with the fact that it defers any spending cuts for two months. That’s right. The government has done what it does best, what I predicted might happen. It deferred a difficult decision; it “kicked the can down the road” once again. It created another “fiscal cliff” in two months. Let the next Congress worry about it. For those of you who are not keeping score, the end of February just happens to be when the U. S. will need to have its debt ceiling limit raised, which has to be approved by Congress. Those negotiations should be fun!

PREDICTION AND CONCLUSION

Many conservative representatives have expressed displeasure with the bill, but I believe the likelihood is the House will pass it. Politically, they have been backed into a corner and have little choice. However, they will not be happy, and they will remember this. Consequently, they will be less prone to compromise prospectively. Therefore, this may prove to be a pyrrhic victory for the Dems.

Also, let’s not forget that the country does have a $16 trillion debt that still needs to be addressed by judicious, perspicacious spending cuts, not last minute backroom dealing. Debt reduction is essential for the long-term health of our economy. Unfortunately, based upon the track record of the Obama Administration and the current mood of the electorate I see little chance of that occurring in the near future.

Today is December 28, 2012. The fiscal cliff awaits us on January 1, 2013. A self-imposed, fixed and immutable deadline. To paraphrase the old military saying: “three more days, and we wake up.” What kind of America will we wake up to on January 1? No one knows, and few seem to care. In the past few weeks, most Americans have been going about their daily lives, pre-occuppied with the holiday season. The last thing they want to think about is some political wrangling over a “fiscal cliff,” most of them don’t understand and don’t see how it will affect them anyway. To some extent, that is understandable. But, unfortunately, the representatives we have elected to look out for our interests, to govern on our behalf, to be the voices of reason, to overcome their political differences and do the “right thing” for the good of the whole country rather than their respective self-serving narrow interests, have failed us utterly and irresponsibly. They are still, at this late date, engaged in rhetoric over reason.

The latest polls show that roughly 44% of Americans blame the Republicans for failure to resolve the impasse; roughly 33% blame the Democrats and the rest blame both parties. Of course, that is ludicrous. Those who have been following the issue closely realize that there is equal blame on both sides. Personally, I blame the leadership of BOTH parties, including President Obama and the Congressional leaders, who have failed to rein in their fringe elements on both the right and left so that common ground can be found for the good of the country as a whole.

CONCLUSION AND PREDICTION

Some of you may recall that I have published two previous blogs on this subject. On November 24 I posted “Deal or No Deal” in which I challenged our government representatives, including the President, to “step up” politically. (We see how well they responded to that challenge.) I predicted “rhetoric and fingerpointing” but no meaningful deal. On November 30 I posted “Will America Fall Off the Cliff?” in which I listed the major negative effects of a failure to reach a meaningful agreement. I predicted a last minute deal, but not a meaningful one. Unfortunately, it appears that both predictions were pretty close to the truth.

People take heed! It’s not just about tax rates. If we go off the fiscal cliff 90% of you will see a tax increase, including virtually everyone who pays income tax, works, sells property or, yes, dies. And, that does not include the Obamacare tax (Yes, it is a tax. The Supreme Court said so.) and the incalculable effects on our economy and credit rating.

When all is said and done, don’t be surprised if there is a much ballyhooed last minute, face-saving deal that technically avoids the fiscal cliff but yet fails to resolve the larger economic problems. One thing our government is good at is the old children’s game of “kick the can.”

Most of us are fortunate enough to live in a nice house in a nice community. We work really hard and sacrifice for that privilege But, are we really safe? We love our children more than life itself. We want to protect them. We don’t let them play outside unsupervised, lest some evil befall them. We send them to the best schools. We tell them: “Don’t talk to strangers.” We watch them carefully at the mall scrutinizing every stranger like he or she is evil incarnate. In short, as parents, we do the best we can. But, are they really, really safe? After yesterday’s horrific shooting spree, I think we know the answer. It was there all along, but we didn’t see it. We know that despite our best efforts the answer is NOT REALLY.

The sad reality is that evil is omnipresent in the world. There is not only external danger from, say, terrorists, but also internal danger from our own people. Time and again, we learn that “normal” appearing people from “normal” homes harbor some defect that makes them capable of heinous acts of violence that are beyond the comprehension of most of us.

The media has been calling Newtown, CT the second-most horrific shooting in American history after the Virginia Tech slayings. I maintain that, qualitatively, it is the worst, because most of the victims were young children aged 5 – 9 with their whole lives ahead of them. I’m reminded of that truism “you’re not supposed to bury your kids.” Imagine, for a minute the terror of a parent walking into that firehouse looking for his or her child not knowing whether that child is alive or dead. Imagine what would go through your mind for those horrifying seconds until you finally see your child alive and well and hug him or her tightly for all the world…or not. I, for one, can’t imagine, and I hope and pray I never have to.

In addition, I think we all find it disburbing that this incident is perpetuating a trend in which a disturbed person with a “beef” against other people, or society in general, obtains a weapon and shoots up a school, an office or a building to take out his frustrations. In recent years, this has happened more times than I care to recall – Columbine, OKC, Va Tech, to name a few. The question is, what do we do about it? What CAN we do about it?

CONCLUSION AND PREDICTION

Yesterday, everyone was shocked, stunned, horrified, angry; you pick the characterization. President Obama was moved to tears during his address. Predictably, there will be calls for stricter gun laws, or even gun control, and corresponding resistence from the NRA, hunting enthusiasts and such. We have seen this all before. Typically, nothing meaningful happens, and we forget and move on.

I would applaud stricter gun laws. We all know that the constitution guarantees us the right to bear arms, but, I fail to understand why any private citizen would need an automatic or semi-automatic weapon. I would also favor stricter penalties for any crime in which a gun was involved. Finally, we need better supervision over gun shows and internet sales. Let’s hope that this time there is action, not just rhetoric.

So far, two states, Washington and Colorado have passed laws legalizing the possession and use of marijuana.  In addition, several other states – including Alaska, Arizona, Hawaii, Maine, Massachussets, Minnesota, Montana, Nevada, New Hampshire, Rhode Island and Vermont – are seriously considering enacting similar laws in the near future.  Moreover, some states, such as California, permit the use of marijuana for “medicinal” purposes.  (It should be noted that Federal law still prohibits the possession, sale and use of marijuana, and Federal law trumps state law.  But, it is uncertain how zealously the liberal Obama administration will seek to overrride these states’ laws, particularly since many of its supporters are in favor of the aforementioned laws.)

Putting aside the argument over the propriety of the legalization of marijuana, there is one substantial unintended consequence.  That is the affect of its use on motorists who operate motor vehicles while under its influence, and, by extension, passengers and other motorists.  Studies have shown that marijuana and other drugs can impair a driver’s perception, cognition, reaction time, attentiveness, and coordination.  Furthermore, many marijuana users also use alcohol, which leads to a “double-down” deterioration of the above.

In Colorado and Washington as in most other states, the law regarding motorists driving under the influence of drugs is weak compared to to the laws regarding driving under the influence of alcohol.  DUI alcohol is universally a “per se” test.  If you are detained, your blood is tested, and your blood alcohol concentration (“BAC”) is greater than .08, bingo, you are considered to be DUI.  With respect to drugs, however, there is no agreement as to what constitutes impairment.  Only a handful of states have “per se” laws that make it illegal to drive when there is any detectable amount of a drug in the driver’s blood. In most states, the standard is much more difficult to prove.  In California, for example, prosecutors have to demonstrate that the driver with drugs in his blood was actually “impaired.”  This has been very difficult to prove.  Therefore, often, cases are dismissed or plead down to lesser offenses.

Conclusion and Prediction

Studies have shown that marijuana is the most common drug present in drug impaired drivers.  The trend toward legalization will only exacerbate the above-discussed problems, since many states appear to be rushing to pass marijuana legalization laws without having addressed the drug’s affect on motorists.  Lawmakers need to proceed more deliberately.  They should at least enact “per se” DUI drug laws with penalties that parallel DUI alcohol laws, and educate users and the general public as to the risks.  Unfortunately, I doubt that they will do so.

I have a huge financial problem.  My checkbook is severely overdrawn; my credit cards are maxed out; my credit rating is in the toilet.  Technically, I am bankrupt, only I don’t know it.  But, still, I want to spend, spend, spend.  I know I should curb my spending.  I know I can’t afford all the expenses I am incurring, but I can’t help myself.  What do I do?  What can I do?

But, wait, I don’t have to worry.  I am the United States Government.  I don’t have to repay my debt.  I can just keep on printing money.  Phew! To hell with the debt.  Let my children and grandchildren worry about it. 

Folks, that just about sums up most Americans’ current attitude.  Spend, spend, spend.  I don’t care as long as I get mine.  Be oblivious to the debt piling up.  Let someone else worry about repaying it.  maybe, we won’t ever repay it. I don’t care.  Not my problem.

“Tax the ‘rich.’  Let them take care of the debt.”  Polls show that’s the solution most Americans favor.  The only flaw in that solution is that even if the government were to raise the top tax rates to the levels proposed by Mr. Obama it would only make a very small dent in the debt.  There are simply not enough “rich” people.  We need to make meaningful cuts in spending as well, painful as that might be.

Conclusion

The sad fact of the matter is that we allow, or even encourage, the Federal government to conduct its affairs in a way that we would not dream of running our own personal affairs.  Most Americans have little or no conception of the problem, and many who do are too busy with their daily lives to make a big issue of it.  Wake up people!  If this massive debt continues to grow at the current rate it will soon threaten the very core of our economy, our very way of life!  Ignoring the matter is no longer an option.  Our representatives have been irresponsible to spend us into this mess, but we have also been irresponsible to allow, or even encourage, it.  We should be horrified!  Let’s stop it!  Let’s stop it now before it’s too late!!

As I predicted in previous blog postings, negotiations between President Obama and the Congress on how to avoid the so-called “fiscal cliff” have slowed to a grinding halt.  Here we are, with one month to go and no meaningful progress has been made.  Instead, each political party is positioning itself to blame the other party in the event of a failure to reach an agreement.  Even worse, none of the elected leaders, the President, the Speaker and the majority and minority leaders has demonstrated the strong leadership skills needed to convince the extremists in both parties to compromise enough in order to broker a deal everyone can live with.

Recently, House Speaker John Boehner said President Obama has yet to put forth a “serious” plan.  Democrats responded that the President had proposed an immediate $1.6 trillion tax increase aimed at the top 2% of Americans and $400 million of spending cuts.  These cuts were not specific and were to be determined “later.”  Republicans countered that that was “completely unbalanced and unrealistic.”  Details on the tax increases were not very specific either.  They included an increase in rates and/or a cap on itemized deductions on incomes of over $250,000, $500,000 or $1,000,000.  Dems have also floated the idea of a “Buffett tax,” which would be a 30% effective tax rate on adjusted gross income in excess of $1,000,000.  I find it mind-boggling that they are this far apart at this late stage.

As I have discussed in previous blog postings, falling off the “fiscal cliff” would have devasting economic consequences for virtually all Americnas – rich and poor, young and old, Republicans and Democrats.   Some of the major effects would be as follows:

1.  The Bush tax cuts would cease, resulting not only in higher tax rates across the board, but other tax hardships as well.

2.  Government services would be cut arbitrarily across the board without any analysis or logic.  This would include programs such as medicare, social security disability and homeland security.

3.  Millions of jobs would be lost (best estimate 3.4 million).

4.   The country would fall back into a recession.

5.   The stock market would fall sharply, severely damaging the wealth and income of all retirees and, indeed, anyone who has a 401k or IRA.

6.   The country’s debt would increase dramatically, and its credit rating would likely be lowered once again.

7.   The country’s standing as the world’s pre-eminent economic power would take a major hit.

8.   Political heads would roll.

I’m sure there would be others, but you get the picture.

Prediction and Conclusion

Unfortunately, my original prediction of stagnated negotiations and each side blaming the other side is coming true.  History tells us that in the end some kind of deal will be reached at the last minute.  After all, our government leaders may inept, but they are not irresponsible.  Furthermore, said deal will likely be an unsatisfactory halfway measure that will be more a stopgap than a realistic solution to our fiscal problem.  Also, don’t be surprised if the deal is actually a temporary fix with a proviso to re-address the issue in 2013.

The much discussed fiscal cliff looms on January 1, and the Congress and the President, are negotiating a deal with all deliberate slowness.  Will they reach an agreement in time, and will the agreement be meaningful?  One can only hope.

Essentially, if the Federal government takes no action the fiscal cliff mandates $7 trillion of tax increases and spending cuts over the next ten years.  The spending reductions would be across the board, in both defense and non-defense.  The tax increases would include, among other things, the expiration of the “Bush tax cuts” and the payroll tax holiday and advent of taxes relating to Obamacare.  Allowing these wholescale measures to be applied in this manner without thoughtful consideration would be grossly irresponsible, like using a hatchet to kill a fly.  No responsible person would be in favor of that, so it is incumbent upon Congress and the President to strike a deal.

There are three possible courses of action: (1) Do nothing and let the automatic measures take effect, which would be a disaster.  (2) Reach an agreement of some type that leaves some measures in place and replaces some others.  (3) Postpone action to some later date.   Looming over all of this, like a “Sword of Damocles” are the prospects of a Congressional approval to raise the debt ceiling, a credit downgrade, a double-dip recession, and/or a steep stock market decline.

Conclusion and Prediction

Now is the time for our elected officials to demonstrate some strong leadership, a quality that has been missing for the past several years.  Now is the time for each party’s leadership to reign in its fringe elements and negotiate a deal for the good of the country.  To use a sports analogy, it is the bottom of the ninth inning, and we need a big “hit.”  Time to step up to the plate Mr. President, Mr. Speaker, congressional leaders.

My prediction is there will be a lot of rhetoric and finger-pointing between now and the end of the year as each side blames the other for the country’s economic and fiscal problems and for the failure to reach an agreement.  Knowledgeable people will know, however, that the failure is on both sides of the aisle.

In the end, don’t be surprised if they concoct an inadequate makeshift deal just to get something done under the wire, or, even worse, pass a measure on December 31 to “stop the clock” while they continue to negotiate into January and beyond.  To that, I say to our elected officials: surprise us.

The Affordable Care Act, commonly known as “Obamacare,” is being praised by supporters as the signature domestic policy achievement of President Obama’s first term.  Indeed, it has some benefits, the foremost of which is that it extends healthcare coverage to everyone.  Its pros and cons have been debated endlessly, and I do not wish to repeat them here.

However, as I predicted in an earlier blog posting, there will be some unintended consequences to Obamacare, of which most people are unaware, which will have an adverse affect on most Americans.  Ironically, many of those most affected will be the very people who supported the law, in particular, and President Obama, in general.  Those would be the lower middle working class, African Americans, Hispanics, single women and young people.  As I said in another earlier blog, “Be careful what you wish for.”

The key date is January 1, 2014.  That is when Obamacare becomes fully effective.  Some of the adverse unintended consequences are as follows:

1.    Obamacare requires employers with 50 or more full time employees to provide those employees with the government-designed health plan or else pay a fine.  The problem is the cost of the insurance will likely add nearly $2.00/hour to the employer’s cost of each employee.  This is a significant additional expense for lower paid employees.  Therefore, employers may decide it is cheaper to either lay them off or, at least, cut their hours to part time status.  A preponderance of those affected will be people in the above-mentioned groups. For example, the CEO of Papa John’s Pizzas has already stated that the company is likely to reduce the hours of some employees.  Others will likely follow, particularly small businesses

2.  Companies may find it cost effective to outsource many functions utilizing agencies that specialize in providing temporary or part time employees.  These would be predominantly clerical, warehouse or stock room jobs. Workers of these agencies do not qualify for health benefits.

3.   A chain of Florida restaurants is considering adding a 5% surcharge to its customers’ bills to pay for Obamacare costs.  This is an interesting idea, a kind of “consumption tax,” that may catch on.  This would be a regressive tax that, once again, would affect Mr. Obama’s constituency disproportionally.

4.   Workers who lose their coverage will be required to purchase coverage.   Many would not be able to afford it.

5.   There will likely be cuts to Medicare funding to help pay for Obamacare.  If so, this will impact the quality of health care to seniors.  Hospitals and nursing homes may have to reduce personnel, further exacerbating this problem.

6.   Technically, the law empowers the Secretary of Health and Human Services to wield some influence over a doctor’s medical decisions, even if the patient is paying privately.  The many ramifications of this are obvious, none of them good.

7.   Finally, as I mentioned in another of my blogs, there will be tax increases to help pay for Obamacare, and not just on the wealthy as you may have been led to believe.  Perhaps, the most egregious is a 3.8% tax on the profit from the sale of any asset, including your home, business or stocks.

Prediction

1.   The 80% of Americans who already had health insurance will, in effect, be paying for the 20% who were previously not covered.  This payment will take the form of higher cost for health insurance, tax payments and/or lower quality of healthcare.  Thus, 80% of Americans will be worse off under Obamacare than they were before.  Eventually, they will figure that out.  At that point, the altruism of helping the disenfranchised 20% will fade.

2.   The medical profession will become less lucrative due to rising costs, such as malpractice insurance, resulting in a shortage of doctors in some locales and in some specialties.  Moreover, some top shelf doctors, who can get away with it, may cease accepting insurance, requiring payment upfront for services.  This trend has already begun.

3.  These unintended consequences will lead to disillusionment and displeasure with Obamacare and make it unpopular with most Americans.  As a result, it will become a major issue in the next election.