Back to normalcy…

..that is, if you believe that government expansion is normal. On Tuesday, the 111th Congress convenes with larger Democratic majorities in each body.

In an era where the bailout has become de rigueur in Washington, the toll to the taxpayer only remains to be seen – all we know is that the Beltway bureaucrats will have plenty of largesse to spread around without thought of where it’s coming from. Estimates of the budget deficit for the current fiscal year are necessarily guesses at this point, but most observers peg the shortfall north of $1 trillion. That comes in an era where our total federal budget just topped $3 trillion in the last year.

Eight days later, the Maryland General Assembly begins yet another session which labors under a somewhat different rule than their federal cousins have just a few miles to the west – they actually have to balance their budget. With a shortfall that seems to grow every time the state officials figure out the tally, the choice becomes which unpopular cuts need to be made. However, Democrats in Annapolis will make sure to quickly blame the outgoing Bush administration for their financial woes and not come to the slightly more obvious conclusion that raising taxes in a down economy tends to make a bad situation worse, and is some of the reason that their revenues have come up short of expectations. Don’t say we didn’t tell you so.

This after a holiday season which was terrible for most store chains and may have sounded the death knell for a number of retailers too heavily battered and weakened over the latter half of 2008. While a number of large merchandisers have made headlines with their demise or bankruptcy (such as Mervyn’s and Circuit City), less noticeable are a vast number of smaller outlets whose closing will collectively make a similar impact when they throw in the towel. In turn, this dumps more people out of work, putting stress on the unemployment insurance programs.

While the Obama Administration wishes to enlist workers to build infrastructure, the transfer of capital from what would essentially be either higher taxes or simply thin air (e.g. printing money) through the federal bureaucracy – who takes their pound of flesh – to those workers fortunate enough to receive the jobs at the inflated wages mandated by the Davis-Bacon Act (unless Republicans in Congress can somehow force through an exemption) can hardly have the same impact as leaving the money in the private sector.

We’ve already seen the damage higher taxes created in Maryland as revenues fell short of expectations. Unfortunately, those at the federal level don’t have to balance the budget nor do they have any restrictions on printing money. Looks like we’ll be back to the normal Washington snafu beginning next week.

Author: Michael

It's me from my laptop computer.

5 thoughts on “Back to normalcy…”

  1. I guess the economic crisis debate will sound somewhat like your global warming debate. Was it created by the regulation slashing humans of the Bush administration, or could it just be the effects of El Nino?

  2. Would that be the global warming debate where the overall Earth temperature has been slowly DECLINING over the last 10 years?

    I’ll grant to some degree your implicit blame of Bush 43 for the overall economic situation if you admit that a lot of what caused the housing bubble was ill-advised Democratic policy to force banks to make subprime mortgages. Once that policy was in place, that became the first domino to fall because the housing speculative bubble was unsustainable. (I came across an interesting op-ed that postulated the reason oil prices have become manageable was because Fedzilla was preoccupied with the banking industry, perhaps I’ll use it as a noontime post this week.)

    Now about Maryland. I’m looking at revenue expected; perhaps revenue did go up somewhat but certainly not to the degree the beancounters with rose-colored glasses in Annapolis had in mind. In theory, sales tax revenues should have gone up 20% with a corresponding sales tax increase but we all know there’s a little leakage because certain areas of the state lie next to areas with lower sales taxes. Same with cigarette taxes, and those who would fall under the increased income tax may have voted with their feet and moved away from Maryland. (Fortunately, they didn’t keep the “tech tax” or we’d have zero computer-related jobs in Maryland.)

    My side has always contended that lower taxes and decreasing red tape leads to prosperity – unfortunately we haven’t seen that combination unleashed since the days of Reagan.

  3. Financial institutions weren’t forced to make subprime mortgages. When the SEC expanded the leverage ratio from 15:1 to 40:1, banks had to reach deeper and deeper into the credit pool to consume the extra leverage. They did this by choice to maximize profits with the permission of the SEC. This was all done during eight years of a Republican administration overseeing the financial market regulators. The Madoff scandal is just one example of the lax oversight offered by Cox and company. They had been warned for years about problems like this, and they never followed up on them.

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