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The Deficit Reduction Trap

December 5, 2010

On June 27, 2010 “The Deficit Reduction Trap” was published in the Yorktown Patriot. This updated versions is being published as a warning to those in Congress who want to raise taxes, not cut spending.

In 1984, Cong. Newt Gingrich called Sen. Bob Dole, a “tax collector for the welfare state.” That phrase resonated with the Republican faithful and ultimately led to GOP control of the House of Representatives.

The “Contract for America” was the culmination of years of labor by Supply-side advocates who argued that dropping tax rates would lead to economic growth. The Supply-side movement had its day and now the U.S. faces budget deficits—and Obama Administration’s regulatory policies—that threaten to destabilize the American economy, reduce employment and increase inflation to levels that led to the collapse of the Weimar Republic and launched Adolph Hitler’s murderous career.

The logical and moral response is to call for higher taxes to reduce the deficit. A moral appeal to live within our budget will be very attractive to those who will control the U.S. House of Representatives in 2011 and the U.S. Senate after the presidential election of 2012. But, that would be a disaster that literally would reaffirm that the GOP is the Party of “tax collectors.”

In that context, it is important to keep in mind that Entitlements contribute the most to the enormous deficits that promise to destroy the American economy, and, with Senator-Elect Marco Rubio, it is necessary for younger Americans to vote their economic interests. It is not in the interest of 30-somethings to vote for politicians whose policies will assure that withholding for Medicare and Social Security is never returned to them in benefits when they retire. It is necessary to look at federal tuition assistance (direct student loans and Pell Grants), Medicare, Social Security and begin to cut back benefits by 5% a year for five years. If not 5% a year, then 2% a year over ten years.

It is also necessary to conduct a review of American foreign policy which has been in decline since the election of President Jimmy Carter and reevaluate the value of NATO, the United Nations, and, of course, our military engagement in Iraq and Afghanistan. We have no new strategic foreign policies to guide American interests through the shoals of international politics and reliance on old partnerships like NATO will simply fight the last war—not the future wars with which we must contend.

On top of that it is necessary to engage the American people in a discussion about the limits of government.

A state of mind has been created that appears to encourage normal American citizens to believe that the federal government can and should do everything and anything. If there is a hurricane, an earthquake, in addition to saving lives Americans apparently believe it is the proper role of government to make things right by rebuilding what was destroyed. Well, there is no obligation of the federal government to rebuild all those homes that have been built on waterfront in the past forty years and all those homes built on the San Andreas Fault. Nor is it the responsibility of the federal government to guarantee corporate pension plans of defunct corporations or to subsidize all the mortgages guaranteed by Fannie Mae and Freddie Mac. Cut them loose and let the mortgages die a natural death.

But, for the sake of future generations and those currently unemployed–do not raise taxes to reduce the federal deficit!

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