Three "Doomsday Card" Monty
Question: Which came first, the chicken or the egg?
Answer: The tax increase.
Okay, so I’ll admit it isn’t funny. And when I say it isn’t funny I mean it isn’t funny. It’s actually pretty scary.
We currently have a shortage of available jobs and a shortage of available credit. We have a shortage of homebuyers and a shortage of car buyers. We have a shortage of disposable consumer income and a shortage of sustainable consumer confidence. The only thing we have an abundance of is dire predictions of doom if the nation’s taxpayers don’t pony up additional funds to pay for additional spending.
But just where is all this additional money supposed to come from and what impact will it have on the economy?
In California the state is about to vote on Proposition 1A which will increase the state’s taxpayer funded coffers by an additional $16 billion. In Illinois the newly appointed Governor Quinn is proposing a state income tax increase of 50% to help offset the projected budget deficit of $12 billion. Reports of Quinn’s ominous projections state he is playing the “doomsday” card as part of his fiscal forecast. The governor even joked about legislators having to house dangerous criminals if the tax hike fails because there will not be enough revenue to keep them locked up.
In just about every state of the union state and local legislators are playing the same game of three “doomsday card” monty and parsing their words carefully so as to ease the stark reality of their intent.
In Illinois House Majority Leader Barbara Flynn Currie (D-Chicago) said of Governors Quinn’s 50% tax hike “He’s right that we’re going to have to make very significant cuts if we don’t find new sources of revenue.” Read carefully the use of the term “new sources of revenue’. What Currie is actually saying without saying it is that the legislature will be going to the same well they have always gone to in order to draw an increase in spending cash, the taxpayers. There is nothing even remotely new about that source.
In California, San Francisco Representative and U.S. Speaker of the House Nancy Pelosi is urging voters to pass the unprecedented tax and spend Proposition 1A with the slogan “Proposition 1A is right on time”. This is right out of the Obama “Change we can believe in” and “We are the ones we have been waiting for” playbook. They sound heady and inspiring but it means nothing.
I’ll let you in on a little secret; the reality of tax hikes is that they cost the taxpayer’s money. An additional $16 billion in California and an additional $12 billion in Illinois means $28 billion of spending cash no longer available to spend by the taxpayers. It becomes a vicious circle with no answers and no end, thus the earlier chicken and egg reference. The less taxpayers have to spend the less they buy. The less they buy the fewer people needed to produce or sell the products they would have bought. The fewer people needed the bigger the layoffs at the producers and the sellers. The bigger the layoffs the more government services needed to meet the needs of those laid off. The more government services needed the greater the need for a tax increase and it starts all over again.
The economy is in a precarious position. It is strong enough to recover if it is left to its own devices. But if government continues to diminish disposable and non-disposable income from the average taxpayer through increased taxes this recession has the ability to grow into a full blown depression.
To be sure, Democrats will be lining up at the podium to pass blame on the previous Bush administration. Very little will be discussed about the frivolity of the trillions of dollars in non-stimulating stimulus money already spent. The only exception will be to announce that we need to spend more and tax more if we hope to survive. This same mantra will then pass down to the state level and the whole thing gets repeated again.
The number one rule of economics is that you simply can’t spend your way out of debt. The number one rule of politics is that Democrats will keep on trying.
