MatthewMaynard.net

… he said in his best Ross Perot impersonation voice.

• Tax Dispute Stalls Debt Talks: “… House Majority Leader Eric Cantor (R., Va.) said he was backing out of the talks for now because the group had reached an impasse over the question of whether tax increases should be included in the deal.”
• Geithner: Taxes on ‘Small Business’ Must Rise So Government Doesn’t ‘Shrink’: “Treasury Secretary Timothy Geithner told the House Small Business Committee on Wednesday that the Obama administration believes taxes on small business must increase so the administration does not have to “shrink the overall size of government programs.””
• Leader Cantor: House to Consider Balanced Budget Amendment: “… One option to ensure that we begin to get our fiscal house in order is a balanced budget amendment to the Constitution, and I expect to schedule such a measure for the House to consider during the week of July 25th.”

The reason they want to increase spending is because in Keynesian Economics, Government spending is part of the GDP. If you raise the government spending component, you raise total GDP, and if you spend enough, you overcome losses in the private sector. The problem is that all that money must come from somewhere, and it eventually comes from us, usually in the form of inflation, occasionally in the form of taxes, but always in the form of debt. When they just print the money, we pay through inflation. When they issue debt, we pay for it by passing the bill on to our kids.

The monkeywrench in the equation is tax rates. Since we’re on the upper half of the Laffer Curve, the government gets less revenue when they raise tax rates, and more revenue when they lower it. Politicians say they want to be fiscally responsible and raise taxes when they raise spending, but what they do is raise tax rates instead of revenues. In the end, we’re the ones who get screwed – on the high end, because the rich businesses lose capital to pay employees, and on the low end, because employees lose employers who can no longer afford to pay for them.

So from the politician’s point of view, they can’t cut back government, because that would lower GDP, and they can’t lower taxes, because that would increase the deficit! OH NO! WHAT TO DO, WHAT TO DO!!!

Simple: cut government. Yes, this will harm GDP. I know, and I don’t care. Keynesian Economics is flawed, so any Keynesian yardstick measures the wrong things anyway. If you lower the size of government and reduce the GDP, it will hurt, but if your accounting is honest (not a given in this day and age) the private sector will recover faster and the GDP will revive.

But they won’t do that, so Turbo Timmy will get his way at first, then those precious small businesses will go under, then outside forces will cause the government to shrink.

That’s not the pretty scenario, folks, but it is the realistic one. Better batten down the hatches.