Higher taxes won’t much improve US finances and would likely wreck the economy. But as fiscal cliff talks intensify, a small group of Republican senators are prepared to help President Obama make the rich pay more – facts notwithstanding. A better approach: Spur private-sector growth.
Pablo Martinez Monsivais/AP
College Park, Md.
Higher taxes won’t much improve Washington’s finances and would likely wreck the economy. But as fiscal cliff talks intensify, a small group of Republican senators are prepared to help President Obama make the rich pay more – the facts notwithstanding.
Federal deficits are out of control – averaging $1.3 trillion over the last four years – but those are not the product of reckless Bush administration policies that must now be reversed, as Democrats relentlessly argue.
In 2007, the last year before the financial crisis, the deficit was only $161 billion – with the Bush tax cuts and the prescription drug plan for seniors in place and the wars in Afghanistan and Iraq at full tilt.
The economy has achieved some recovery – GDP is up about $1.8 trillion from pre-recession levels. But tax revenues are down and spending in 2013 will be up a whopping $1 trillion from fiscal year 2007.
To accelerate recovery, Mr. Obama and Congress temporarily cut payroll taxes by two percentage points and enhanced some other credits and deductions in the tax code. Letting those expire on Jan. 1 would slice some $214 billion off the deficit.
Of the additional spending since the start of the financial crisis, only $360 billion was needed to accommodate inflation. More than $666 billion is new spending, originally promoted as “temporary” to deal with the recession, but now settling in to become permanent.
Merely letting the payroll tax reduction and other temporary provisions championed by Obama lapse on Jan. 1 and returning federal spending to pre-recession levels would erase nearly $900 billion from the deficit. The Bush tax cuts need not be touched, at least not to solve today’s deficits.