Monday, December 31, 2012

Balance? We're nowhere near it! Lower Spending!

When you're in the situation pictured below, you take some boxes off the cart. You don't go get a bigger donkey!  Cutting spending is like removing some boxes, of course. Increasing taxes resembles getting a larger donkey, and also has a suspicious resemblance to getting more of our present government.

So the question is Balance? Taxing versus spending balance? We're so far from that, it makes a mockery of the word. While others debate 3 dollars of spending cuts for 1 dollar of tax increases, I think it should be somewhere above 10 dollars of spending cuts for each dollar of tax increases. That's if it's not all spending cuts, pure and simple. Government spending simply needs to be a smaller percentage of GDP. As Speaker Boehner's recent spending chart showed, spending is the problem, not taxation.

The problem with the taxation side is that we're taxed enough already. Yes, that spells TEA, as in TEA party. The meaning of the phrase "TEA party" has evolved quite a bit since it first emerged. It's had a lot of help in that evolution from people who neither like nor understand what it stands for.

By what measure are we taxed enough already? A good measure is whether the level at which entities in the economy are taxed, cause them to alter their behavior significantly to avoid taxes. Of course, rational economic actors will alter their behavior at any level of taxation, from a little to the truly crippling. That's the foundation of the saying "tax anything and you'll get less of it!" But above significant behavioral changes, markets get so distorted that people's wealth is reduced and overall economic performance suffers.

Back to balance. I'm with CNBC's Rick Santelli on balance. For another illustration see his videos using watermellons and a pea as props to illustrate how little Congress is dealing with the spending side of this "balance".