Fiscal Cliff Should Be About Cutting Government, Not Tax Fairness


By Charles Biderman


As we get ready for Thanksgiving, I have a great deal to be thankful for in my personal life. But as to the world, particularly the global economy, there does not appear to be much to look forward to as we approach year end.


Before I talk about our fiscal cliff, the rest of the world seems like bad news. It looks to me as if Iran is hell bent upon creating a war between Hamas and Israel that takes attention away from Persian nuclear weapon building. Greece and Spain are going no where fast. And Japan is now committed to destroying what is left of its economy by undertaking even more massive money printing.


Then there is the fiscal cliff nonsense. Am I alone is noticing that most of the media appears focused on taxes as a fairness issue, rather than how to cut bloated government spending. Today’s Wall Street Journal says without a deal taxes will go up by about $400 billion and spending will go down by all of $100 billion. So if spending cuts are only $100 billion – out of a $3.5 trillion budget – and taxes go up by $400 billion – compared with $2.4 trillion currently being collected – how is that about spending at all?


If we go off the so called cliff, government spending supposedly will get cut by a miniscule $100 billion. In other words, the cut in government spending that is supposedly first and foremost in all the fiscal cliff discussions will be less than 3% of a massively swollen budget. And to make that $100 billion cut even more of joke, in all likelihood the already committed to growth in entitlements will swamp any cut in spending.


So the so called fiscal cliff is not really about reducing government spending. No, without any deal, taxes will go up by at least $400 billion, an increase of about 17% on the $2.4 trillion in currently collected taxes. That $400 plus billion swamps the $200 to $250 billion current year over year growth in after tax income before inflation. That means that if we go over the cliff, it follows logically that we will be in a recession. Remember I define a recession as declining year over year after tax income, having nothing to do with government generated GDP BS numbers.


Even if there is some “deal”, and taxes only go up by $200 billion or half the cliff amount, that means the government will still confiscate virtually all of the increase in after tax income and certainly more than any after inflation gain in incomes. Given the slumping rest of the world and the slowdown in planned capital spending, it will be virtually impossible for the US to avoid a recession even if taxes only go up by $200 billion.


I keep harping on and wondering why there is no ongoing conversation about the quality and efficiency of government spending. As I said before, it seems to me the all of the media and market analysts, do not even ask why should we give more of our income to a government that uses $3 to $4 to provide $1 of actual services? The answer is that they are not focusing on, or aware of, of these real time numbers.


Am I alone in saying that fiscal cliff conversations focusing only on tax rates are hiding the real problem. Are those not talking about government spending as the major issue simply ignorant? It could be that in an economy where nobody cares about real time data, that reality is just not as important as feeling good about ourselves, whatever that means and implies.


Stopping the increase in government spending is the only one real solution to the fiscal cliff. A solution that focuses mainly on tax increases will end the fiscal cliff conversation, but will certainly not keep us from falling off the cliff. So without serious spending cuts, we will keep ignoring reality, hoping for a miracle and we will keep kicking the can down the road. At some point, of course, the can will become too heavy to kick.


Charles Biderman
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)


4 Responses to Fiscal Cliff Should Be About Cutting Government, Not Tax Fairness

  1. Ed Hamilton on November 22, 2012 at 12:16 am

    PLEASE stick the bubbles truth in people’s faces
    It IS the intellectually honest basis of how we got here!
    Let’s stand on the truth as we reckon future!

  2. Dave in Canada on November 22, 2012 at 5:08 am

    Government efficiency, now that’s an oxymoron. Local or federal, the money wasted is insane, here in Canada and just like all other countries. Sadly, the world is can kicking. Crazy times indeed.

  3. Ed_B on November 23, 2012 at 11:58 pm

    Governments have not discovered the real nature of the now infamous “can” that is being kicked to oblivion. The fact is, it is not a can at all. It is a hand grenade. After it has been kicked sufficiently, the pin that keeps it from exploding WILL drop out, allowing the grenade to go, BOOM! That is my analogy for incompetent government and their egregious monetary policy that WILL end in economic disaster for this nation.

    We have this policy strictly because government spending decisions are based on perceived need rather than on what resources are available. The American people need to tell their government that we can and will fund $2T worth of it and that if they desire more than that, they will simply have to make it more efficient at what it does in order to come up with the difference. This makes MUCH more sense than the pols telling us how much to fork over for their bloated programs. Notice that they never worry about how much WE can afford; that never seems to be an issue. The assumption is that we can ALWAYS afford to spend more. After all, Tax-Payer money IS an infinite resource, right?

    Any business person will tell you that their spending discussions always involve something like this: “OK, we have this amount of financial resources, so what is the best use we can have for this amount of money?”. Clearly, this is a better finance strategy than what the government drones continue to say… which is basically just “more, More, MORE!” without end.

  4. Bob Franklin on November 24, 2012 at 12:34 pm

    If we can’t cut traditional SS, defense, interest on debt,
    who in the “new majority” will allow meaningful cuts in the 250+ pages of federal aid and grants ?

Leave a Reply

Your email address will not be published. Required fields are marked *

Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

Biderman’s Practices of Success

I recently launched a new online course, Biderman's Practices of Success, on ( The key to the practice of success is to be fully present in the moment and to be totally engaged in the important areas of life, particularly when we do not want to be. Read More.

Mr. Charles Biderman is an associated person of Trim Tabs Asset Management, LLC, an SEC-registered investment adviser. All opinions expressed by Mr. Biderman on this website are solely those of Mr. Biderman and do not reflect the opinions of Trim Tabs Asset Management, LLC, Trim Tabs Investment Research, Inc., their affiliates (collectively, “Trim Tabs”), or any other associated persons of Trim Tabs. No part of Mr. Biderman’s compensation from Trim Tabs is related to opinions which he expresses on this website, elsewhere on the internet, or in any other medium.

You should not treat any opinion expressed by Mr. Biderman as a recommendation to make an investment in any company discussed or cited in any of his postings. Mr. Biderman’s opinions are based upon information he considers credible, but which does not constitute research by Trim Tabs. Neither Mr. Biderman nor Trim Tabs warrants the completeness or accuracy of the information upon which Mr. Biderman’s opinions are based.