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The Fiscal Cliff And The Keyser Soze Option

One story the guys told me, the story that I do believe was from his days in Turkey. There was a gang of Hungarians that wanted their own mob. They realized that to be in power you didn’t need guns, or money or even numbers. You just needed the will to do what the other guy wouldn’t. After a while they came into power and came after Soze. They say he was small time then, just running dope they say. They came to his home, in the afternoon, looking for his business. They find his wife and kids in the house and decide to wait for Soze. He comes home to find his wife raped and children screaming. The Hungarians knew he was tough and not to be trifled with. So they let him know they meant business. They tell him they want his territory, all his business. Soze looks over the faces of his family; then he shows these men of will what will really was. He tells [the last Hungarian] he rather see his family dead then live another day after this. He lets the last Hungarian go, waits until his wife and kids are in the ground and then he goes after the rest of the mob. He kills their kids, he kills their wives, their parents and their parents friends. He burns down the houses they live in, and the stores they work in, he kills people that owe them money. And like that…he’s gone. Underground, nobody’s ever seen him since, he becomes a myth…a spook story that parents tell their kinds at night: ‘Rat on your Pop and Keyser Soze will get you’. And nobody really believed… Do you believe in him Verbal? Keaton always said ‘I don’t believe in God but I’m afraid of him’. Well, I believe in God, and the only thing that scares me is Keyser Soze.

If you haven’t seen the movie Usual Suspects take some time to view this video beginning at 2:10 to get the mood for what follows

Movies often serve as a useful shorthand for how to address some of life’s issues. In the movie Usual Suspects, Keyser Soze is confronted with the fact that his wife and children would be an impediment in dealing with his business competitors. In a way the House GOP finds itself in the same position as Keyser Soze. Our home has been invaded. Our family despoiled. And we are facing a never ending series of ever increasing demands from the criminals who have abused us.

Sometimes the only way out of a dilemma is by clearing the table and starting again from scratch. At midnight on December 21, 2012 the United States will be faced with what is being called the “fiscal cliff.” In short this cliff is composed of several parts.

1. The payroll tax reduction passed in 2010 will end.
2. The temporary tax rates passed under President Bush will lapse.
3. Obamacare’s taxes will come due.
4. The Alternative Minimum Tax will expand to many more taxpayers.
5. Extended unemployment benefits will expire.
6. Some $78 billion in federal spending will be sequestered.
7. Medicare “doc fix” will expire.

There are several sets of sacred cattle here. The GOP is primarily interested in protecting the tax cuts and Defense spending. The Democrats are primarily interested in preserving the social spending and free stuff for their base. This time around the Democrats, in their never ending paean to class warfare, are insisting that the Bush Tax Rates for the wealthiest Americans be allowed to expire. The GOP should not negotiate on this. This will put the GOP in the position of only getting part of what it wants in exchange for giving the Democrats everything they want, in other words this is a textbook case of bipartisanship in Washington.

The GOP should take the position that the danger to our country comes from profligate spending and while reduced taxes are the correct policy we are not in the position to make that trade off. If necessary, the GOP should stand ready to walk away from negotiations and let events take their course. They should metaphorically shoot their wife and kids.

This is not without cost. Some have predicted that in the current weakened state the “fiscal cliff” could push the country into recession. The fact is that unless we get our fiscal house in order we are looking at what the economy will look like for decades. Pushing it into a recession that we will recover from is infinitely preferable to decades of stagnation.

The immediate impact with be an increase in taxes on everyone who has a job, several million people who had no tax liability under the current tax rates will be returned to the tax rolls, and about three million unemployed people will be dropped from unemployment insurance.Some of these outcomes are not bad. The extended unemployment benefits has had the perverse effect of keeping unemployment high. Removing people from the tax rolls has had the effect of reducing the number of people who pay taxes with deleterious impact on the social fabric.

There is no doubt that the sequestration would be painful but the problem it is to address is not getting better. While sequestration may be a blunt instrument, if that is what it takes to bring spending under control we should use whatever tool the other side will agree to. In this case the Democrats declined to act responsibly and enact cuts on a program-by-program basis because they were betting the GOP would not like Defense cuts. They eschewed the scalpel for the dull spoon. So be it.

For the next two years the only bulwark between America and what Obama would make America become is the House of Representatives and the narrow shoulders and rather limber backbone of Speaker John Boehner. The only chance we have is if the House Republicans begin to deal ruthlessly with this regime. The first step is to eliminate everything the caucus is attached to and pursue a few objectives with relentless focus. This starts with tossing the Bush Tax Cuts overboard deliberately in order to gain the freedom to deal with the spending problem.

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