Bank Robbers and Middle-Class Tax Hikes

When asked why he robbed banks, William "Willie" Sutton allegedly replied "because that's where the money is." The story, however, is false.

Although he stole an estimated $2 million over his forty-year career, Sutton denied ever saying that. A journalist made it up. His life was quite interesting though, including a stint of commercials for MasterCard, after his parole in 1969.

For further reading, please see some amusing Willie Sutton commentary on Snopes.

For the connection between bank robbery and middle class tax hikes, please consider Congress Dawdles on America's Unsustainable Path by Bloomberg writer Caroline Baum.

Economist Herbert Stein once said, "If something cannot go on forever, it will stop." We're still waiting. As Congress debates yet another short-term continuing resolution to avert a federal government shutdown down on Oct. 1, a grand bargain isn't even on the agenda. The debate that relates to the budget is over the automatic spending cuts to discretionary programs implemented in March. Spending on everything except health-care programs, Social Security and interest on the debt is on track shrink to 7 percent of GDP -- the smallest share since the late 1930s -- from a 40-year average of 11 percent, Elmendorf said. The number of people eligible for Social Security will rise by a third in the next 10 years. 

Neither party wants to face reality: Middle-class taxes will have to go up because that's where the revenue is.

The Third Rail

The problem is Republicans refuse to cut defense spending, and Democrats refuse to cut entitlements. Little else matters except scrapping entire programs and neither Democrats nor Republicans seem willing.

Touching social security is considered to be the "third rail" by both parties. In case you do not understand the term, the "third rail" on Chicago's elevated "L" line (and no doubt other electric lines) is the hot one. Touch it and you will be electrocuted.

Republicans had a wonderful chance right before the last presidential election to hold Obama to his pledge to make "tough choices". Instead, they wasted the opportunity with absurd bluffs on shutting down the government.

The only reason we see trivial reductions in increases (not actual cuts), is because of sequestration. Even then, Republicans objected to miniscule cutbacks in the rate of increases in military spending.

Congress vs. Willie Sutton

This brings us back to the beginning. What can't go on won't, but "we're still waiting". Yet, I see no reason to believe Republicans will give in on defense cuts and no reason to believe Democrats will cut entitlements.

So, if the setup is truly unsustainable, what's it going to be? The answer is middle class tax hikes, because "that's where the money is".

Willie Sutton was honest in his denial. Don't expect the same from Congress or state legislatures, especially Democratic strongholds like California and Illinois.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com