Augmented by some amusing cartoons, I’ve already warned that the hysteria about the fiscal cliff is basically a ploy by the politicians to extract more revenue to finance bigger government.
Elaborating on this concern, I wrote a column for today’s New York Daily News. I started with a description of the three issues that are getting lumped together.
…we face the threat of higher tax rates for some or all taxpayers on Jan. 1. …there’s also a possibility of a “sequester” — automatic budget cuts that also are scheduled to take place on Jan. 1. And politicians have been spending so much money that we’re about to bump up against the nation’s debt limit. So it’s likely that all these issues will get joined as President Obama and congressional leaders attempt to negotiate a deal.
I then outlined what might happen if the 2001 and 2003 tax cuts expire.
The higher tax rate portion of the fiscal cliff exists because 2001 and 2003 tax cuts are scheduled to expire at the end of the year. All taxpayers would see more of their earnings confiscated by the IRS beginning in January if Washington fails to act. All tax brackets would increase, taxes on dividends and capital gains would rise… The total yearly hike would be in the range of $400 billion. This could have profound implications, both because of immediate reductions in take-home pay and the negative long-run impact of economic stagnation.
And I explained how the problem should be solved, but warned that the biggest stumbling block is President Obama’s fixation on class-warfare tax policy.
Many are worried about these potential changes, with Congressional Budget Director Doug Elmendorf warning that Americans should expect a “significant recession” and the loss of some 2 million jobs. From my point of view, all the tax cuts should be made permanent. The bad news, to me, is that Obama wants to raise rates on investors, entrepreneurs, small business owners and other “rich” taxpayers. The sequester should be replaced by a more targeted set of fiscal reforms to restrain the growth of the entitlement state. Finally, the debt limit should be raised in exchange for a workable and enforceable cap on government spending.
I originally included an explanation of why the CBO estimate is flawed because of Keynesian methodology, but those sentences fell victim to space constraints. Nonetheless, it’s worth noting that even folks on the left think big tax hikes aren’t a good idea (though they’re perfectly happy to have a series of small tax hikes that get you to the same Greek destination).
But set that aside. Is there any chance of seeing my solution adopted? Well, there’s no chance of a spending cap. The sequester will be stopped, but it won’t be replaced by better reforms.
The great unknown is what will happen on the tax side. I fear GOPers will surrender, even though they won the very same battle back in 2010 when they didn’t even control the House and had fewer seats in the Senate.
[…] That being said, I’m not overly optimistic that Obama’s divisive proposal can be stopped, largely because I don’t think Republicans will take my advice on how to win this fight. […]
I have a fiscal cliff solution.
The democrats tell, tax the rich. The republicans tell, don’t tax the rich, they have no more money, to create jobs. And only 25% of richs, create really the jobs, they are entrepreneurs.
The solution is : tax the richs, and exempt the entrepreneurs.
You have tax income from 75% of richs.
The entrepreneur have more money, to invest inside them company, and create jobs.
And the others richs are stimulate to create US jobs.
Is the triple action measure…
Richard Gauthier
[…] That being said, I’m not overly optimistic that Obama’s divisive proposal can be stopped, largely because I don’t think Republicans will take my advice on how to win this fight. […]
[…] That being said, I’m not overly optimistic that Obama’s divisive proposal can be stopped, largely because I don’t think Republicans will take my advice on how to win this fight. […]
Obama really does believe that the federal government should step in almost anytime it can to help. It reminds me of Ronald Reagan’s quip about “I am from the government and I am ready to help.” Then you better run for the hills!!
[…] The Simple Solution to the Fiscal Cliff […]
[…] my essay, let me briefly elaborate by stating that the fiscal cliff is not the right outcome. As I explained in a column for the New York Daily News, the best option would be to keep the sequester and make all the tax cuts […]
[…] my essay, let me briefly elaborate by stating that the fiscal cliff is not the right outcome. As I explained in a column for the New York Daily News, the best option would be to keep the sequester and make all the tax cuts […]
First of all, trickledown economics don’t work. Dan, apparently you haven’t read the new study by the non-partisan Congressional Research Service blocked by Republicans, which shows that the top rate drop hasn’t stimulated the economy. Let the top rate of 35% go to 39.6%. We cannot cut our way to prosperity. We need a balance approach. Seriously, supply-side/trickledown economists are very few and far between. We know Reaganomics of Reagan and H.W. Bush QUADRUPLED the national debt.Republican tax policies explode the national debt.
[…] The Simple Solution to the Fiscal Cliff […]
Would like to know what you think about the approaching “fiscal cliff” and whether you believe it really is the potential catastrophe everyone claims it to be. What’s so bad about the sequester? How else are you going to get significant spending cuts?
Personnally the cliff looks better than the alternatives, and I am greatly effected by it.