Back to the Fiscal Cliff

You really have to wonder who is running this country.  No sane person (read President Obama and White House Staff) would not understand that in a few years, rising health care costs and an aging population will devastate the federal budget no matter how much taxes are increased.  Thus long-term spending on entitlements must be brought under control.  There are many reasonable ways to do this that will not damage the nation — reduce military procurement (as defense chiefs are ASKING), phase out social security and medicare benefits for those with very high incomes, adopt the same group bargaining for pharmaceutical and hospital costs in medicare that are already used for medicaid, reduce double-dipping (holdback a graduate portion of current pension payments until retirement for those who take another full-time job), and delay social security eligibility for those in occupations that qualify as low-stress and easier to maintain.  At the very least, we should set targets for reducing entitlements in the future to ensure that they do not swallow up public spending.

At the same time, no sane person (read the Republicans in Congress) would not understand that in order to meet the needs of an aging population, and to repair the infrastructure that has suffered decades of neglect and is holding back economic growth, and to sustain the kinds of public investments vital to improving future growth (education, basic research, support for innovative technologies), federal revenues will need to increase in the future.  There are many reasonable ways to do this that will not damage the nation.  Higher tax rates on top earners — at a time when incomes of those top earners are the highest in history, and when such rates are now being called acceptable by CEOs — will not have any affect on economic growth; indeed a new Congressional Budget Office study shows there is no correlation between rates on high earners and economic growth rates in the US in the last 65 years.  Bringing taxes on capital gains and ordinary income closer together will reduce economic distortions; reducing loopholes that no longer serve any purpose, such as the reduced capital gains rate on carried interest (do hedge fund managers still need special support to start their businesses?) will balance incentives for different kinds of productive activity; and making all income susceptible to the social security and self-employment tax will raise revenue and increase fairness (why stop at the ultra-regressive pattern of full taxation from the first dollar earned to the 106,000th, and then a zero tax rate on all income above that level?).

So let’s set some targets and adopt measures to reduce future spending, let’s set some targets and adopt some measures to increase future revenues, and get on to more important issues, like remedying the insidious effects of rising inequality, diminishing opportunity, growing poverty, a self-destructive immigration policy, and saving the environment from becoming a flooded marshy storm-driven drought-shattered overheated mess.

But no.  Our political leaders would rather posture and pout.   Republicans won’t hear of raising taxes without more spending cuts, despite the fact that their most vocal constituents want them to make a deal.  Democrats are salivating at the prospect that Republicans will drive us over the fiscal cliff, allowing Obama to introduce a bill in January to CUT TAXES on 98% of Americans back to Bush-era levels, with no concessions whatever to Republicans, and dare them to vote against a measure to cut taxes.  So Democrats have no incentive to bend at all, figuring that Republicans should cave in now rather than be embarrased into surrender early next year.

I still think it likely that we will get a miserable, unconstructive, kick-the-can down the road kind of compromise that will avoid the fiscal cliff without actually solving any of the readily solvable fiscal problems we face.  (We seem to want to emulate Europe, no matter how much we say otherwise).   How sad.  Were these leaders really worth the $6 billion spent on deciding who to elect?

About jackgoldstone

Hazel Professor of Public Policy at George Mason University
This entry was posted in U.S. Politics and tagged . Bookmark the permalink.

1 Response to Back to the Fiscal Cliff

  1. Les Proctor says:

    If we all got healthy we could save $1.5 trillion in wasted medical expenditures. We really need to reduce healthcare spending as a percentage of GDB–or we’re going to become a banana republic.

    Unfortunately, it’s just so typical that the fiscal-cliff negotiation is treating the symptoms of our ailment; we’re looking at overspending, not waste; at diabetes, obesity, heart disease, not poor nutrition; at symptoms, not causes.

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