Guess What They Are Not Cutting In The Fiscal Cliff...

http://www.zerohedge.com/news/2012-11-15/guess-what-they-are-not-cutting-fiscal-cliff

As we've discussed before, US government spending falls into three categories.

1. Discretionary spending is what we normally think of as 'government.' It funds everything from the military to Homeland Security to the national parks.
2. Mandatory spending covers all the major entitlement programs like Social Security and Medicare.
3. Then there's interest on the debt, which is so large they had to make it a special category.

The latter two categories are spent automatically, just like your mortgage payment that gets sucked out of the bank account before you have a chance to spend it. The only thing Congress has a say over is Discretionary Spending. Hence the name.

But here's the problem-- the US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest. In Fiscal Year 2011, for example, the US government spent $176 billion MORE on debt interest and mandatory spending than they generated in tax revenue. 

In Fiscal Year 2012, which just ended 6 weeks ago, that shortfall increased to $251 billion. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion. 

This is why the Fiscal Cliff is irrelevant. The automatic cuts that are going to take place don't even begin to address the actual problem; they're cutting $110 billion from the discretionary budget... yet only $16.9 billion from the mandatory budget. 

Given that the entire problem is with mandatory spending, slashing the discretionary budget is pointless. It's as if the US economy is a speeding train heading towards a ravine at 200 mph, and the conductors are arguing about whether they should slow down to 150 or 175.

Oh, and there's just one more problem.

The government thinks that they will collect a few hundred billion dollars more in tax revenue when all of these new taxes kick in. Again, wishful thinking.

In the six+ decades since the end of World War II, tax rates in the US have been all over the board. Yet during this time, the US government has only managed to collect roughly 17.7% of GDP in tax revenue.

Conclusion? Increasing taxes won't increase their total tax revenue. Politicians have tried this for decades. It doesn't work. The only way to increase tax revenue is for the economy to grow... and higher tax rates do not pave this path to prosperity. 

Ron Paul was spot on. Economic ignorance abounds. And all the Talking Heads in the mainstream media blathering away about the Fiscal Cliff are only reinforcing his premise. 

Bottom line-- the Fiscal Cliff doesn't matter. The US passed the point of no return a long time ago.