The Fiscal Cliff Math Doesn’t Add Up.
Congress, by the narrowest of time pressures, reached an agreement to avoid going over the “fiscal cliff.” Had the House not approved earlier tonight the agreement reached between Senate Minority Leader Mitch McConnell and Vice President Biden, it would probably be too late for this Congress to act. It’s out of office by Thursday so the new Congress would have to start all over again.
It only resolved one problem – preventing the income tax rates from rising for most working Americans.
Working Americans will be shocked when their first 2013 paychecks are reduced by the 2% increase in social security withholding. Congress eliminated that tax savings for workers. A number of ObamaCare taxes also kick in.
The numbers otherwise don’t add up.
The estimated increase in tax revenues is $620 billion over 10 years accompanied by an equally problematic $15 billion reduction in expenditures.
These figures mean little in the way of deficit reduction. The biggest, and increasingly unsolvable fiscal cliff, is the debt of the federal government. The longer it goes unresolved, the deeper the hole, and the greater interest rates will rise.
President Obama increased the federal debt by over $5 trillion dollars in four years, with the annual deficits ranging from $1.1 trillion to $1.4 trillion, with no letup in sight.
The projected $620 billion in taxes, which will not be raised in fact because the wealthy will adjust their income streams, averages out to $62 billion annually - petty cash compared to the size of the annual deficits.
The historic purpose of the tax increases is to raise revenues so that the Democrats will have more money to spend. By way of example, only a short time before the Senate approved the package, it voted to appropriate $60.4 billion in emergency funds to cover Tropical Storm Sandy with most of the funding not being for emergency purposes, but rather for traditional pork barrel spending unrelated to the storm’s devastation.
President Obama believes in fairness and the redistribution of income. He believes in Keynes that government spending increases jobs.
Of course, conservative House Republicans are irate. The fiscal cliff bill does nothing to reduce government spending.
However, after Speaker Boehner’s good faith negotiations with President Obama went nowhere, the House ceded negotiations to the Senate. The House Republicans voluntarily took themselves out of the picture.
They also forfeited their anti-tax position when Speaker Boehner agreed to raise income tax rates.
The Senate majority Leader, Harry Reid, and the Senate Minority leader, Mitch McConnell, were equally unsuccessful in reaching an agreement. Senator McConnell then reached an agreement with Vice President Biden.
The final agreement was more favorable to the Republican position than might have been expected because the President possessed the leverage. Taxes would have gone up on all Americans paying income, dividend, capital gains, social security, Medicare or estate taxes without an agreement.
The political pain would be unbearable.
The House Republicans are hurting. They expect to exert their leverage on the next fiscal cliff – that of debt limit negotiations. There, the Republicans have the leverage. The cuts will be substantial.
The President already said he wants a balanced approach; that is, substantial tax increases in exchange for cuts.
The House will not give him additional taxes.
That math will add up.