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Thursday, April 15, 2010

Palin: Style Over Substance

Sarah Palin was in Boston on 4/14 leading the Tea Partiers in another pep rally just one mile from the site of the original event in 1773 and like the original, it was more about protest than ideas.  Palin is making a new living simply attacking President Obama.  Here it was the usual list of sins: the stimulus; health care; student loans; and the proposed financial regulatory reform. But of course her emphasis was on her usual applause lines, "We need to cut taxes!"  and "We need to drill baby drill, not stall baby stall; you betcha!"
     If Palin is seriously contemplating a future presidential candidacy, at some point she is going to have to offer a more in depth analysis and some actual proposals.  Her sarcasm and chronic cutieisms, might excite the hard core Obama haters but they won't attract the independent voters who are necessary for electoral success on the national level.  Her "drill" chant is somewhat outdated now that Obama has announced new federal leases for off shore drilling but her "cut taxes" demand needs to be discussed in the context of the current and near future federal deficit/debt situation.  Coincidentally, also on 4/14 Federal Reserve Chairman Ben Bernake was explaining the problem and its urgency. Unless a combination of spending cuts and revenue increases (tax hikes) are passed, Bernake sees the federal deficit at 4% of the Gross Domestic Product (GDP) which is currently over 14 trillion dollars. But by the end of 2020 he warns the deficit will be 9% of GDP and the federal debt, the accumulated annual deficits, will equal 100% of GDP.  This debt, which must be refinanced periodically through the issuance of govt. bonds will generate an interest obligation of $one trillion dollars annually.  This is unsustainable, and will cause hyper inflation as faith in the dollar declines and bond holders require extremely high interest rates to take the risks involved.  This is a Greece like scenario on a monumental scale.
     Do Palin and the other tax hawks who want to "cut taxes" really believe that the Congress is going to make the massive spending cuts necessary to deal with the deficit/debt?  Roughly 3/4 of the federal budget is politically untouchable because it involves entitlement programs (Social Security; MediCare etc.) and defense spending.  That doesn't leave much for cutting and certainly not enough to deal with the huge numbers Chairman Bernake has described.  Ironically, the tax hawks are also the deficit hawks so they will have some tough choices to make if they want to compete for political power in 2010 and 2012.  Unfortunately, tax hikes are almost inevitable since massive spending cuts are essentially politically impossible and the deficit/debt problem won't wait. Tax hikes will probably come in the form of new taxes rather than increases in tax rates.  The newest tax subject for discussion is some form of Value Added Tax (VAT) a form of federal sales tax which is common in the European Union.  This will be a hot topic, but probably not until after the 2012 presidential election. 

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