Why the Fiscal Cliff is Unavoidable
The Republicans refuse to raise taxes. The president and his party want to raise taxes only on those nasty, conniving, thieving rich people. Who’s in the right? Perhaps neither; maybe it’s all political sophistry. The following graph tells the tale:
The blue area in the graph represents federal government tax revenue as a percentage of GDP. The red area represents deficit spending in excess of those revenues as a percentage of GDP. The red and blue areas combined depict total federal spending as a percentage of GDP.
In the three decades prior to the Obamanomics era, total federal spending has hovered around ~20% of GDP, tax revenues have hovered around ~18.5% of GDP, and deficits have run at 1-2% of GDP. During the first four years of the Obama administration, the gap between federal revenues and spending has widened precipitously, resulting in trillion dollar deficits in each year of Obama’s first term. The projected portion of the graph (2013 and beyond) shows the deficit gap narrowing, but it assumes that we go over the fiscal cliff.
The GOP claims we have a spending problem. The graph makes that obvious. The Dems claim we have a revenue problem. The graph makes that equally obvious. The question is how to solve both problems simultaneously.
The GOP claims to much prefer solving the problem with pro-economic growth policies – simplify, flatten and streamline the tax code, reduce regulations, cede some economic control back to the private economy. Tax revenues as a percentage of GDP always shrink in an economic downturn; a healthy economy increases tax revenues. Pro-growth policies bend the revenue curve up and pull the spending/deficit curve down simultaneously. Unfortunately, the GOP was too inept to make this case in the past election, and they don’t have the votes to enact such an agenda. And in any event, such a plan involves placing a great deal of trust in the American people, something that gives any politician a case of the screaming willies. No wonder the Republican establishment is so wishy-washy about the whole thing.
To the extent that Obama even wants to solve the deficit problem (past performance indicates it’s not his highest priority), he wants to solve it while continuing to enact pro-government policies – larger government, increased government economic control, and expanded wealth redistribution. He doesn’t want to bend the spending curve down; he want’s to bend the revenue curve up. In Obama’s mind, raising taxes is the only surefire means to accomplish this goal.
Obama knows raising taxes only on the rich doesn’t do enough to bend the revenue curve upward. He needs more revenue; he needs to raise taxes on all economically productive citizens. Fortunately, the Budget Control Act of 2011, a.k.a. the fiscal cliff, signed into to law by the president himself, does exactly that. How convenient.
The only thing Obama lacks is a scapegoat, someone on whom to pin the blame for the higher taxes he desires. So why not pitch Boehner an unacceptable deal? For Obama, it’s win-win. Higher taxes (YAY!), pinned on the Republicans (double-YAY!).
How does Obama spell GOP?