Americans are rightly concerned about going over the fiscal cliff. But they got their eyes on the wrong cliff. The Little Cliff that is in the news is man-made, a mixture of spending cuts and tax hikes intended to be so onerous that Washington politicians would have to “do something” meaningful to reduce the national debt.
But the Big Cliff is the debt itself – now over 16 trillion and counting – and the economic catastrophe that awaits if we can’t decisively change our ways. How we handle the Little Cliff will say a lot about our prospects of turning into Greece.
It doesn’t look too good so far. President Obama’s proposal is centered on raising tax rates on the rich, the signature issue of his campaign. He has repeatedly emphasized that he will veto any proposal that doesn’t include tax rate increases on the wealthy. He’s very clear that he’s not talking about simply raising revenue or even about other ways of getting more funding from the wealthy, such as limiting their deductions.
The explanation for this strange obsession must be psychiatric, because it surely isn’t economic. Income tax rate hikes are widely acknowledged as the most economically damaging way to raise revenue, since they discourage productivity directly. They wouldn’t do much to avoid the Big Cliff either, since rate hikes never boost revenue as much as projected.
Obama might want to ponder the recent experience in Great Britain. In 2010, 16,000 taxpayers reported annual incomes of over 1 million pounds. Then-Prime Minister Gordon Brown, faced with economic problems similar to our own, raised the top rate on these filers to 50 percent. According to Newsmax.com, just 6,000 taxpayers subsequently reported income over 1 million pounds and the treasury actually lost 7 billion pounds ($11 billion) before new Prime Minister Cameron reversed the rate hikes.
Undeterred, the president proposes $1.6 trillion in tax hikes, as well as an actual increase in stimulus spending! Furthermore he’s demanding that all future decisions on debt limit expansions be delegated to … himself. Now there’s a power grab that would make Egyptian President Morsi proud.
Finally, the president proposes some spending “reductions” that couldn’t pass the laugh test. He wants to cut $800 billion in medical spending with no change in eligibility or covered services. He credits another $800 million in savings from not fighting in Afghanistan. (What about Vietnam? Shouldn’t we book some “savings” from not fighting there?)
He even added back $1.2 trillion in spending cuts from last year’s budget deal. He’s obviously not interested in touching entitlements. His goal is the opposite: to gain more revenues to spend on a bigger federal government.
The president’s proposals are unlikely to prevail intact. Even his own party would balk. But he’s working with the wrong order of magnitude for the Big Cliff. Even if you’re willing to accept all his assumptions and projections, the $1.6 trillion in new tax revenue would occur over 10 years. But we’re racking up $1.2 trillion in debt every year. Even with his unduly optimistic projections, we still have over $10 trillion to resolve before we break even for the decade.
Unfortunately, Speaker Boehner and the Republicans seem to have lost the messaging contest (again). They haven’t sufficiently emphasized that restoring GDP growth to pre-Obama levels is the only way to solve our debt dilemma. So their economic growth proposals get mangled by the media into “protecting their wealthy friends.”
Taxing the rich is popular. Reforming entitlements is not. That’s for another time and someone else.
So the Republicans are in a weak position, as Obama well knows. They have limited options at this point unless Obama becomes more amenable, which is unlikely. They can capitulate on Obama’s major points and hope that at least he will be blamed for the disastrous consequences that are certain if he prevails or they can just go over the Little Cliff. They’ll get blamed in the short-term, of course, but at least we’ll make a little progress toward avoiding the Big Cliff. Not a happy decision.
East Valley resident Tom Patterson (pattersontomc@cox.net) is a retired physician and former state senator.
Arizona Willie posted at 2:42 pm on Mon, Dec 17, 2012.
VofReason, taxes on corporations were MUCH higher in the 60's ... why didn't they run to Japan / China then?
When taxes are higher on rich people it leaves them a little less money to spend on their yachts so they have an incentive to start more businesses or expand in order to make more money total and have more left after taxes.
Just like if a regular person gets hit with say a big car repair bill and their up to their eyeballs in debt. What do they do? Get a second job ... they work more to make up the loss from the car repair bill and get it paid.
The economy was roaring right along in the 60's - 70's when we had much higher tax rates on the wealthy. Then they paid Congressmen to write tax laws that actually paid them to take their factories offshore.
Ever since Reagan got the first big tax cuts for the wealthy, the wealthy have been getting richer and richer and the economy has been going down down down down.
The Republicans kept promising that tax cuts for the wealthy would create more jobs.
THEY LIED.
VofReason posted at 1:21 pm on Mon, Dec 17, 2012.
Just so we are clear, we all are aware that both Democrats and Republicans in Washington are mostly millionaires- right. So the Democrats that call millionaires evil are also hypocrites. I am still waiting for someone to explain to me why rich people will invest more money into businesses (ala hiring etc) when they have a dis incentive for doing so with higher taxes. Even if you believe they also do so when taxes are "low". I will agree that rich people by definition are generally smarter than poor people in the way that they will react appropriately to reduce their tax bill whatever it becomes. You think business was running away from the US before, wait until you turn the screws on rich business owners.
downtownresident posted at 12:10 pm on Mon, Dec 17, 2012.
chatmandu002 ,
What a crock.
Arizona Willie posted at 9:02 am on Mon, Dec 17, 2012.
Here is proof of how stoopid Republicans think the people are.
This " author " says: " He credits another $800 million in savings from not fighting in Afghanistan. (What about Vietnam? Shouldn’t we book some “savings” from not fighting there? "
Since we haven't been in a war in Vietnam for 40 years and haven't had any troops there in a similar time -- savings from ending that war were spent long long ago.
Vietnam has NOTHING to do with the present day debt.
It is a spurious argument. Totally worthless.
And ignorant too.
However, going over the " fiscal cliff " IS the best thing we could do as far as paying on the National Debt.
The Bush tax cuts were TEMPORARY but the Republicans act like they have a devine right enshrined in the Constitution for any tax cut to be permanent even though it was passed as a temporary measure.
MAN UP PAY UP FOR BUSH'S FOLLIES.
bubba posted at 1:40 pm on Sun, Dec 16, 2012.
Cheney to Treasury: “Deficits don’t matter”
Former Treasury Secretary Paul O’Neill was told “deficits don’t matter” when he warned of a looming fiscal crisis.
O’Neill, fired in a shakeup of Bush’s economic team in December 2002, raised objections to a new round of tax cuts and said the president balked at his more aggressive plan to combat corporate crime after a string of accounting scandals because of opposition from “the corporate crowd,” a key constituency.
O’Neill said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. “You know, Paul, Reagan proved deficits don’t matter,” he said, according to excerpts. Cheney continued: “We won the midterms (congressional elections). This is our due.” A month later, Cheney told the Treasury secretary he was fired.
chatmandu002 posted at 11:50 am on Sun, Dec 16, 2012.
Tom,
From the other comments listed here, you are wrong and the liberal/progressive/socialists are correct according to them. To the liberal/progressive/socialist crowd deficit and debt mean nothing. To them confiscation of wealth from the rich is the only solution to save us from the fiscal and economic cliff. According to the liberal/progressive/socialists the rich are greedy and horrible people even though they are following the rules. The 47% that pay no federal income tax are victims of this greed and terrible treatment.
The liberal/progressive/socialists want to continue the free ride on someone else's money. It's funny how someone making $200K is now considered a millionaire and a part of the greedy rich. I wonder when their money is gone will the new millionaire start at $100K.
How long will it take before the liberal/progressive/socialists become the comrade/citizens of the Socialist States of America because it sure looks like it's headed that way.
downtownresident posted at 11:20 am on Sun, Dec 16, 2012.
bubba,
I've resigned myself to a life of semi-poverty. The tax advantage that the millionaires have is insurmountable for me. Nobody cares if I live or die, since I am not on anybodies access/contributors list.
bubba posted at 7:11 am on Sun, Dec 16, 2012.
downtownresident...I agree. The top 1% is doing to this country what Bain Capital did to the companies they acquired. Load it with debt, fleece the taxpayers then bail, putting the wealth they stole into Cayman banks and out of this economy. Estimates of $21-$32 TRILLION have been taken out of this economy by these "Job Creators".
This nation has been slow to realize and react to this fleecing, and the Tea Party has been a leading distraction to it. Grass roots has proven to be astro-turf, (Koch Bros.)
Mesa Mom posted at 6:26 am on Sun, Dec 16, 2012.
Are you kidding?! Are you ACTUALLY quoting 'Newsmax'?! Why not just quote the next 3 year old you encounter? (No offense to 3 year olds.) No one (except Newsmax readers) is buying your bag of bologna! We actually made that mistake once before when America elected a knucklehead named Bush. Oh, yeah, THAT guy! A few years later we're a little more educated having gone to the School of Hard Knocks. We're not buying that same garbage again, you see. So, Senator, maybe YOU should just take your ancient, outdated opinions and all the money you have left from all those good years, and take a nice Christmas vacation until it's all over. Leave others to the work that you only write opinions about today!
Dale Whiting posted at 10:43 pm on Sat, Dec 15, 2012.
Tom,
Your piece posted just before 3 pm [Saturday] and by 10:30 pm it's five votes to none! You loose. No one buys what you are selling, not a one!
downtownresident posted at 7:43 pm on Sat, Dec 15, 2012.
bubba ,
My biggest fear is that the radical right will push us over the cliff and then trigger billions of dollars of debt, shutting programs down and laying off people.
When the richest Americans got their last tax cut, no jobs were created. They sat on the cash and didn't expand anything, but the cash on hand.
Rich posted at 7:41 pm on Sat, Dec 15, 2012.
Raising taxes on the rich is largely show time, the government hasn't got the talent necessary to actually do it when the rich have access to international banking and accountants who become millionaires taking the tax increase and pocketing their percentage for beating it. 47% don't pay or take. That is the problem. A minimum tax taken from them solves your problem, playing with better equipped opponents for pennies doesn't. Face it, they're rich because they are smarter and better than the people we elect. Obama is just diddling you, I think he's smart enough not to be diddling himself, but who knows? The problem isn't the people who already pay most of the bill, it's the high percentage of those who don't and who take.
OldGuy61 posted at 5:41 pm on Sat, Dec 15, 2012.
This is just more of the party line from another Republican. The disparity between the top 1% (NO, not 2%) and the rest of our citizenry has been widening exponentially for over 40 years. No other working economy on the planet has been able to sustain such an imbalance. Since before the Reagan years, it has been shown that there is absolutely no truth to the "trickle down" theory. Republicans (along with their rich friends) just want to make us believe this nonsense so that they can widen this gap even more. They may hire a few more workers, but at the same time they are doing away with the unions and getting workers at 2-for-one rates. That does nothing to help our economy. It only helps the rich get richer on the backs of the middle class. I just cannot understand how rational people can believe this stuff.
bubba posted at 5:24 pm on Sat, Dec 15, 2012.
My biggedt fear of going over the cliff is that the top tax rate payers will have to pay more. If that happens they may not create jobs and just take all their money out of the economy and put it in foreign banks...........Oh wait........Never mind.