- - Tuesday, January 8, 2013

As a professional investment manager, I have spent the last few days debating how to proceed after the “fiscal cliff” deal. As a young, middle class American who cares deeply about the future of this country, I’ve already reached my conclusions. This was a horrendous deal that allowed federal politicians to consolidate their own power, while doing absolutely nothing to solve America’s long-term budgetary woes.

The fiscal cliff deal reportedly will include $41 in tax increases for every $1 in spending cuts — a lopsided ratio if there ever were one. The bulk of those tax increases hit the middle class directly, including an expiration of the payroll tax cut. The federal government just got a bit fatter, while the average American’s bank account will be forced to go on a diet.

There’s a simple, but extremely flawed premise that underlined the entire cliff debate: Federal spending cuts harm the poor and middle class. This is the real mistruth that must be countered. The idea that the federal government redistributes wealth from the rich to the poor is the most brazenly stupid idea of our era. 

A larger, more centralized state results in more corruption, more cronyism, a weaker middle class, weaker economic growth and greater poverty. There’s a considerable bit of empirical and historical evidence backing this up, and it’s the reason why the U.S. Constitution places so many checks on centralized power. Until liberty-minded Americans start addressing this flawed “income redistribution” premise, we will continue to see negative results.  

A larger federal government means that power is taken away from middle class consumers and put into the hands of a small cadre of federal politicians and their big-money backers. More federal spending means that entrepreneurs and small business owners have less capital to expand their businesses and hire more people. We must realize that our federal tax dollars are being spent halfway across the globe, with drone strikes and military invasions that kill innocent civilians and do very little to create “freedom” or improve our safety. We must show why “tax increases on the wealthy” harm the middle class even more than the rich. Unless we do that, the American people will continue to be fleeced under this flawed “Robin Hood” ideology. 

While the tax increases in the cliff deal are harmful, the bigger insult of the deal was a complete failure to address our long-term spending problems. Our budgetary future is cloudy primarily due to the skyrocketing costs associated with entitlement programs: Medicare, Medicaid and Social Security. Add to that our massive military spending, which is five times greater than China’s (the second biggest spender) and now uses almost 5 percent of our economy. We could raise taxes on the wealthy to 100 percent and it still wouldn’t cover the costs of these burdens, even assuming there were no adverse consequences. Yet, the fiscal cliff deal addressed none of our major spending problems. 

Indeed, the projected annual budget deficit barely budged with the deal. It falls from around $1.1 trillion down to maybe $900 billion to $1 trillion. In a best-case scenario, this deal will create a mere 18 percent annual reduction in the federal budget deficit (that’s deficit, not debt), which has ranged between 8 percent and 10 percent of GDP for most of the Obama administration. Even that 18 percent reduction is unlikely for the long term, since the bigger issue is the rapidly increasing costs in the entitlements, which will actually expand even more in 2014, as Obamacare becomes further implemented. 

It’s time we start to counter this idea that the federal government can play Robin Hood. The federal government redistributes money from the small business owner and middle income consumer and gives it to the ultra-wealthy monopolist, while throwing a few scraps out arbitrarily to least productive members of society, under the guise of “helping the poor.” If anything, the federal government is a reverse-Robin Hood, and that’s why the middle class is struggling. Higher taxes only exacerbate the issue. 

As concerned Americans, we should want what’s best for this country; the cliff deal is an abomination. Liberty-minded Americans must make a more vigilant case for why we need more decentralized power and a return to Constitutionalism. We must vigorously expose the lunacy of federal “Robin Hood” experiments. Until we begin to control the discourse on these issues, we will be forced to watch a political train wreck unfold before us. 

Jake Huneycutt is an investment manager in Atlanta.

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