Tax Break

Who said tax is boring?

Beating about the Bush tax cuts

Keep it simple

Keep it simple

I believe it was  John the Baptist  who coined the  phrase, “In the beginning  was the Word”. Whatever your creed, words have definitely had a pretty serious effect on the world from time immemorial. For me, the mere mention of the word “War”, in all its mono-syllabic, animal-like simplicity, is enough to strike fear into my cowardly heart. Some years ago, speaking at a conference about Investment in France –  in the presence of the French Ambassador and other dignitaries – I put paid to any ambitions I may have fostered to advise French nationals by telling an apocryphal Churchill story. Asked why he considered his 1940 speech, “We will fight them on the beaches….”   his most effective of the war, Churchill  is reputed to have explained that it was because, with one exception, his main vocabulary had been ancient Anglo-Saxon –  short and bold. That one exception – from Norman French – was “Surrender” . Nobody (and I mean,  n-o-b-o-d-y)  spoke to me at lunch.

It is interesting that two words uttered in an obscure speech nearly a year ago by an individual not normally known for his oratorical prowess,  managed to grip the entire American nation  in fear. While Joe  Public calmly went about his daily business ignoring the real nuclear threats coming out of Iran and North Korea, any mention of Ben Bernanke’s “Fiscal Cliff” would bring beads of sweat to his brow as he  imagined watching helplessly while his wife, children, home and SUV tipped over the edge of a mountain into the abyss.

As became apparent to all doubters last week, there never really was a Fiscal Cliff. The witching hour came and went on December 31 and it was only a full day later that the House of Representatives “pulled the country back from the brink” (spare me). It was a full day after THAT that President Obama, back at his “I’m as cool as a cucumber” vacation pad in Hawaii,  had it signed  into law by “autopen” with retroactive effect from the beginning of the year.  But we Old World people should remember that this is the land of Hanna Barbera where cartoon animals (an elephant and a donkey?) can go careering, horns locked, off a precipice and belatedly realizing their predicament, raise dust in the air as they do panic bicycle-riding motions with their feet regaining dry land. Ever the miserable rationalist, I prefer to think of  the blinded Duke of Gloucester in King Lear being deceived by his son into attempting suicide by jumping over a harmless bump, rather than the White Cliffs of Dover as he intended.

With the Fiscal Cliff  receding from view, we are being told that  all that happened was that “the can was kicked down the road”. Holdonasecond! Where did the  road come from? For the last year America has been hurtling towards a precipice across virgin green fields and rock formations, with the nation ending up dangling over the edge. Now, all of a sudden, there is a road. On the edge of a cliff?  No – there has simply been one of those sudden scene changes that typify Hollywood action movies and Washington speechwriters.

An open tin can with a dangerously serrated edge is now bumping down the stairs of the Capitol heading for the Mall, where it will roll happily along until it veers right two months from now at the Washington Monument and comes to rest on the White House lawn.  Then, with Washington required to negotiate deeply wounding spending cuts, the President and Congress will have to come up with something new and scary. How about  “The Great Mowing”? Frankly, they are more likely to go for something less consistent but more direct. “Washington Chainsaw Massacre”  is the sort of thing that should really give Ol’ Joe Public the willies.

If the branches of government still can’t find their common trunk, “the can will be kicked back  into the long grass” eventually reaching the end of the Mall at the foot of the Lincoln Memorial, where President, Senators and Representatives will be reminded that “Government is for the people”. If the greatest political speech in American history doesn’t do the trick, nothing will.

Tea Party Caucus

Tea Party Caucus

Meanwhile, the US is floating irreversibly up towards the “Debt Ceiling” – a rather gentle phrase that conjures up Nash terrace houses with high ceilings, Chippendale furniture and heavy scarlet curtains (not to mention scenes from Mary Poppins and Harry Potter). In reality, if the Tea Party Republicans lose all radio contact with Mission Control and vote not to increase the ceiling, that  really could plunge the entire planet into crisis overnight as the US starts to default on its liabilities.

On January 2, the Fiscal Cliff behind him and free to pursue the Republicans on the Debt Ceiling, President Obama released the safety catch on his mouth and turned it to semi-automatic: “We can’t not pay bills that we’ve already incurred”. Apart from being a candidate for unforgiveably worst line of 2013, it was a brilliantly awkward double negative that indiscriminately strafed  House Republicans. Unlike his predecessor, Obama normally manages to  place one word in front of another, and I am tempted to believe the sentence  construction was intentional.

Metaphor, idiom and daft constructs aside, it is  clear that both sides have got it wrong in this debate. Republican reluctance to raise more tax revenue in an acute deficit situation is barmy while Democrat insistence on raising tax rates only on the higher echelons (even before they agreed to a raised $400k threshold from the original $250k) will hardly scrape the protective coating off the deficit.

NASCAR got a tax break - increased depreciation. Understandable really

NASCAR got a tax break – increased depreciation. Understandable really

Meanwhile, there can be no way out of the current dire situation until President Obama decides which items of spending are really important to him and then takes an industrial lawn mower (or chainsaw) to the rest. The Republicans could well be right that – if they have no choice but to agree to higher taxation – rather than raise tax rates, Congress should do away with the countless deductions that render the headline tax rate irrelevant. Even the Act passed this week quietly included tax breaks thanks to all sorts of weird and wonderful lobbies. Essentially, the Internal Revenue Code needs to be thrown over a cliff.

The only serious question remaining is that of timing. Americans, having watched aghast at the austerity-induced implosion of the Euro zone, know that they need to balance the situation carefully. Paul Krugman, guru of the Neo-Keynesians, misses no opportunity to reject any quick fixes. But that does not imply  that there should not be a medium to long-term plan. Obama needs to show leadership – and leadership is not just fancy lines on the teleprompter. The recent election was totally negative as was the spat over the Fiscal Cliff. Time to think positive Mr Obama. “Yes, we can’t keep kicking the can down the road”.

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