Saturday, December 24, 2011

From The Payroll Tax Cut to the Pipeline Project ... Political "Sincerity" Abounds

An old joke says that the key to success is sincerity. And that if you can fake that, you can fake anything.

Now that the "sincere" payroll tax cut "fight for the middle class" is over for at least another few weeks, let's review the likelihood of approval of the job creating and energy providing Keystone XL pipeline project in 2012.

A Payroll Tax Deal puts the entire saga together in this manner:

"The latest exercise in Washington burlesque ended yesterday, when House Republicans agreed to pass the Senate's two-month payroll tax holiday extension and the Democrats who run the Senate agreed to appoint negotiators to work out a year-long extension. The best you can say about this political melodrama is that it's over.

President Obama will take a victory lap, and he played his hand well if cynically. The two-percentage-point payroll tax holiday has done nothing to lift the economy this year, and it won't matter in 2012. As Milton Friedman taught us, temporary tax changes don't lead to permanent changes in consumer, taxpayer or business behavior.

The only potential job creator in the Senate bill is the plank requiring Mr. Obama to make a decision in 60 days on the Keystone XL pipeline. And he might ruin that by killing the pipeline to please his rich green supporters who think you can power a modern economy with windmills, solar cells and switchgrass. But at least now he'll have to decide before the election, and if Mr. Obama kills the pipeline he might doom a Democratic Senator or two.

The only purpose of this tax holiday was political, and the House Republican mistake was falling into the President's trap. They let him pose as a tax-cutter while they put on their pointy accountant hats and talked about "the Social Security trust fund," as if such a thing contains real money. The better strategy was to extend the payroll holiday, get something in return, and then talk about how Mr. Obama wants to push the economy off his multiple tax-increase cliff in 2013.

Republicans do need to fight for their priorities, but it helps to pick the right fights. They should return in 2012 ready to make their differences clear on taxes, health care, regulation, and how to grow an economy."

What's ahead in 2012? Well, let's first discuss the Keystone XL pipeline project and what I believe may be President Obama's most "sincere" move in 2012, assuming he wants to win re-election, which he does.

My intuition suggests that he'll somehow find a way to approve the Keystone XL project before the 2012 presidential election, thereby lending credence to the developing democratic narrative that job creation and energy independence will serve as cornerstones of the second Obama administration's ongoing fight for the American middle class.

In other words, by supporting the pipeline project, President Obama will become a "sincere" bipartisan tax cutter, job grower and energy provider working tirelessly on behalf of America's middle class.

If that's the way it goes, can't you just hear the Republicans screaming or crying for the next several years? They will have once again snatched defeat from the jaws of victory.

Not let's look briefly at some inconvenient facts--aka the reality of all this political "sincerity."

Beginning in January, 60 million Social Security recipients will start receiving a 3.6% increase in benefit payments. At the same time, those 160 million workers who pay the non-borrowed part of those benefits will be paying reduced payroll taxes for the second consecutive year. To make up the shorttfall, we'll need to borrow more money as a nation. Some of that increased national debt will come from China.

And how will that additional borrowed money be spent? Well, we'll spend part of it on Chinese imports. To the extent we do that, we will have exchanged the money borrowed from the Chinese for consumer products made in China.

Of course, that will help increase Chinese based middle class employment. Meanwhile, we'll still owe the full amount of the money borrowed and used to make all those incremental U.S. middle class purchases.

That means that our ever expanding American middle class welfare society will continue on its merry way to greater dependence on debt owed to China and other countries.

To put all this in straightforward Bastiat terms, the unseen part of the U.S. political story is that the funds for all the aforementioned middle class help will be coming from China. We simply don't have our own money to spend.

However, don't expect our political leadership to even mention those unseen and uncomfortable facts. That wouldn't please the middle class-er-voting public nor would it help the politicians' election prospects.

But we can at least count on one sure thing: throughout 2012 all of our "sincere" American politicians will be busily fighting for the votes of both the middle class and older social security recipient voters.

As for those down-the-road-in-the-future middle class American taxpayers twenty, thirty or even forty years from now, my sincere view is that they may have really big problems paying for all this "unseen" 2012 middle class welfare based "sincerity."

Thanks. Bob.

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