The Deeper Budget Picture, Again in 2013

In 2012, the fiscal cliff with its toxic brew of tax, debt, spending, Obamacare, and flood of new regulations drew well-reasoned arguments and partisan hissing matches.  We can expect that pattern of scuffles to continue in 2013.  At times, we were held back from fisticuffs by our culture of peaceful conflict resolution and respect for the constitutional rights of fellow Americans.  We may be called upon to protect each other – political friend or foe, without advance notice.  Recent experience demonstrates how quickly we will pull together when threatened from outside.  There is also wide agreement that we have a duty to help those in truly dire need. 

Fueling the current political scuffles are a handful of themes outlined below.  The themes provide motivation for a person’s choice of position on a related topic.  How people react to these themes depends on their ideological bias.    

The income gap between rich & poor.  Since the 1970s, income of the lowest quintile of Americans has grown at a slower rate than the income of the top quintile.  Some believe that steeply progressive tax and other forms of redistribution are justified to fix this gap.  Others favor more effective education and teaching of self-reliance as a better remedy.

The cost of the public’s debt.  Federal, municipal, and state debt grew rapidly over the past decade.  At the federal level, military actions, stimulus funds, Medicare, Medicaid, Social Security, unemployment insurance and food stamps have created chronic budget gaps (no budget passed in last 4 years).  The Federal Reserve printed money and held down T-bill yields.  When it’s no longer in our global trading partners interest to accept Treasury “IOUs,” T-bill yields and/or inflation will rise — pushing interest payments on public debt to trillion dollar levels, and forcing difficult funding choices among politicians’ favorite spending programs.  State and municipal debt to revenue ratios vary.  Some borrowed more than they can repay, and some find interest payments a challenge.  While the federal government has no duty to backstop these spendthrifts, it will be tempted to use taxpayer funds to do so — for electioneering reasons.  Some favor fixing the budget gaps mostly with taxes and some favor aggressive spending cuts.  A balanced budget with minimal tax drag on growth is the rational goal. 

Innovation & entrepreneurship.  Intense innovation and entrepreneurship are expected to provide the best mix of economic growth and jobs, primarily through the small business segment.  Innovation depends upon a rich vein of advanced graduates in science, technology, engineering, and mathematics.  How best to (even whether to) motivate businesses and prospective STEM graduates depends on a person’s ideology.

Adjust the scale of government’s autonomous power.  This theme is straightforwardly a partisan call.  Some trust government to do the right thing efficiently.  Others prefer the private sector to gauge market forces and invest accordingly. 

As we watch the political news from Washington unfold in 2013, we will recognize these themes repeatedly as factors in the combatant’s motivations.    

Alan Daley is a retired businessman living in Florida and following public policy from a consumer’s perspective.

 

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