The Truth About What’s Coming Along With Our Attempts to Avoid “The Fiscal Cliff”

There’s a GREAT, albeit FRIGHTENING article in today’s (Friday, November 23^rd, 2012) Wall Street Journal, written by by Holman Jenkins. It's titled None Dare Call It Default (http://professional.wsj.com/article/SB10001424127887324352004578136931848743300.html?_nocache=1353809241142&user=welcome&mg=id-wsj&mg=reno64-wsj)

This is a MUST READ, especially for ALL current and future Civil Servants (cops, firefighters, teachers, etc.) because it clearly explains what “entitlement reform” will mean to YOU and I.

Many public sector workers (especially state and city workers) don’t believe such “entitlement reforms” will impact us much at all, perhaps some cuts in Social Security, some reductions in Medicare, or at the least some increased costs, BUT few accept the very painful reality that more and MORE local Municipalities (states & cities) will be forced into bankruptcy to escape the pension obligations they over-promised to public sector workers!

Jenkins starts out by explaining what the “fiscal cliff” IS and isn’t; “America's fiscal cliff is an artificial crisis. We have no trouble borrowing in the short term. But at some point the market will demand evidence that long-term balance is being restored. President Obama said in his first post-election press conference that he doesn't want any proposals that "sock it to the middle class." He knows better. A long-term socking is exactly what's coming to the middle class, which must pay for the benefits it consumes.”

Then noting that a few years back a 50% federal tax hike would continue to fund BOTH our current AND future entitlement expenditures, but that, “Today, a 50% tax increase would be needed just to meet the government's current spending, never mind its future obligations.”

He then notes that, “One way or another, then, entitlements will be cut. Don't call it default. The correct term is entitlement reform.”

Jenkins wryly notes, “You saw this day coming and saved for your own retirement... Taxpayers accept the risk of future tax hikes that may make the decision to save seem foolish in retrospect.”

Now THIS is the part of “entitlement reform” that will undoubtedly impact public sector workers – the “money shot”; “According to economists Robert Novy-Marx and Josh Rauh, state and local taxes would have to increase by $1,385 per household immediately to make good the pension promises to state and local workers, including firefighters and cops. That's not going to happen given all the other demands on taxpayers. Default, in this case, is the proper word for cities and states using bankruptcy to repudiate their pension obligations.”

Did you get that last part?

The cost per household (nearly $1400/year above the other increases to fund Obamacare, Medicare, Social Security, etc.), is NOT going to happen!

Jenkins is only the FIRST to honestly note that cities and states will be left with ONLY ONE option related to deal with these over-extended pension promises – Municipal DEFAULT, or "bankruptcy," which will able them to “repudiate their pension obligations.”

As for the “free lunch” of “Obamacare,” again, Jenkins tells the stark truth that NO politician will; “Under the Paul Ryan plan, the affluent would pay more. Under the Obama plan, the affluent would flee Medicare to escape the waiting lists, shortages and deteriorating quality as Washington economizes by ratcheting down reimbursements to doctors and hospitals. Don't call either default. You don't have a legally enforceable right to the free care you imagined you were promised.”

Jenkins adds, “Don't go running to a judge when this doesn't pan out. The courts do not overrule changes in government policy just because citizens find their promised free lunch isn't forthcoming. Nor will it be fruitful to appeal to politicians' sense of "fairness." Politicians can be relied on to do what will get them re-elected. And, believe it or not, that is the good news.

“If politicians weren't eager to be re-elected, the trust necessary to be an investor would vanish altogether.”

The only thing I disagree with that seems implied here is that things might have been different under Romney/Ryan.

But how could they have been?

The fiscal realities were going to be the same, the “fiscal cliff” would STILL be looming. Romney/Ryan offered Americans a bitter pill, one that was highlighted by the likes of Scott Walker in Wisconsin.

NOW, Democrats are going to eagerly sign onto policies that will deliver EVERYTHING that Holman predicts, but try and blame it all on the miserly Republicans “driving a hard debt deal.”

The plain truth IS that we’re all in for some unprecedented pain and a future of paying much more and getting back much less in “entitlements.”

JMK