The 7% Solution

 

 

"I've learned it's always better to have a small percentage of a big success, than a hundred percent of nothing"

Art Linkletter

Relax folks. This article has nothing to do with the 1976 Sherlock Holmes film. As fun as it would be to write a review on this movie, it is not my intent. No, the "7% solution" is what the fiscal cliff negotiations seem to be coming down to.

This fiscal cliff negotiations should be huge. We are talking about our country spending more than $1T every year than we take in for revenue (taxes). In FY 13, which just started on October 1st of this year, our spending has really picked up. In fact, we are spending so much, so fast, if we continue at this rate, we should rack up a deficit this fiscal year close to $1.7T! It is so much money, most people cannot comprehend the staggering amount and end up tuning out. But it is there. Eating into our productivity, corroding our dollar, and then costing us billions in debt servicing.

As we approach the half way point in December, it seems all the discussions have centered around raising the tax rates on the top two percent. In other words, if we accept the offer on the table and raise the top rate 39.5%, it would solve only 7% of the problem. This is the new "7% solution". I have said before, if we could just take the politics out of this discussion and have it be a math issue, the "7% solution" would not be on the table. In budget negotiations of the past, the strategy was been lets raise the rates and we will have a future Congress address the cost cutting. It never happens. Some of the longer memories have taken over and the Republicans are not going to fall in the trap again.

So where do we go with the "7% solution"? Absolutely no place. It is a non-starter. First off, all the hyperbole about the "rich" not paying their "fair share" is a canard. For example, in 2009, the top 1% paid over 20% of all personal taxes collected. Effective next month, the top 20 percent will be hit with an average of $6,000 in new Obamacare taxes. The New York Times reports that 85 percent of the new levies will be footed by the top one percent of the tax payers.

We can only use the top tier as ATM machines for so long before they figure something else out. For example, they can leave. They can pick up their marbles and set up operations elsewhere where their capital is appreciated for what it can do for the host countries GNP. Or they can quit. They can shutter their doors, lay everyone off, and live off the fruits of their labor. There is no law that states the rich have to work and produce.

As long as the "7% solution" is the only solution being talked about, we will be having the same discussion going into the new year. If we go off the fiscal cliff, good. If some have to pay more, all should pay more. Truthfully, our budget mess is so large, so vast, it will take not only everyone's taxes going up, but also draconian cuts in entitlements, as well as lesser cuts in defense and discretionary.

There you have it. This is my take of the "7% solution". If you want to see a "7% solution" with real merit, go to Netfilx and rent the 1976 Sherlock Holmes movie.