What 'No Deal' on Obama's Tax Deal Really Means

by: Karl Denninger

So the members of the Democrat Caucus have refused to go along with Obama's "arm-twisting" deal on taxes. No word on exactly what their objection is, but I can guess it's all "tax cuts for the rich = unacceptable."

What I'm quite sure isn't unacceptable is running up the tab for the payroll tax "holiday" (which will not produce one new job, since it's all on the "employee" side, and employers can't deduct-and-expose, remember?), nor are they objecting to expanding the deficit with more unemployment welfare, even though we know empirically that this adds, not subtracts, the number of people who are actually employed.

The real problem is found in both the tax code and in the tariff code, along with the spending side.

We could easily balance the budget tomorrow. Repeal the 16th Amendment and impose "The Fair Tax." That instantly reduces the corporate- and personal-tax rate to zero. Tax is assessed on the first retail sale, but not on resale -- of anything. With the corporate-tax rate being zero, every multinational corporation in the world would "re-home" right here, right now, and bring with them several million jobs. All those people would spend money, of course, so there would be an immediate and positive impact on the economy.

Also on the horizon is a nascent plan to force public sector unions under the bus in the new Congress, along with a refusal to fund any sort of bailout for California and Illinois (in particular). This is a good thing in the intermediate term, but you can bet there will be lots of wailing and gnashing of teeth in the short term. These public-sector unions and employees have brought this one on themselves with double-dipping, cramming coming into retirement and similar abuses -- all of which are serious and all of which are unsustainable.

Their utter refusal to deal with this and demand that they be allowed to continue that sort of abuse of the public as an entitlement is both brain-dead and will lead to "adjustment" -- and not likely in a way they're going to like either. Public outrage, when this is highlighted by the Republicans -- and it will be -- is likely to be extreme ... maybe even to the level of vigilantism, especially while so many are unemployed.

But I've never met a public-sector employee who understands this, or thinks there's a damn thing wrong with raping the taxpayer. Witness what has happened in New Jersey of late.

I fully expect the market to throw some sort of hissy fit on the possible tax implications here shortly; indeed, it may have started this morning, in that we've lost basically a full percentage point from where we were in the early morning hours.

That's likely to cause the Democrats and Republicans to try to find some "compromise" on the tax issue that leads to even more rape of the budget. After all, cutting spending never enters these people's minds.

Watch the bond market, folks. Today it's mostly flat, after being on a tear the last few days. The real question becomes this: At what point does the nation's credit card come back as "declined"? And will either political party (much less both) do anything constructive before that event occurs, and the correction in overspending that must come is forced upon us -- in a very disorderly fashion?