Fiscal Cliff: Tax Hike Generates More Hot Air Than Pain

There are two things you should note about the “fiscal cliff” debate. 1. There’s an awful lot of hot air being generated for a paltry four or five point tax hike. 2. Republicans clearly are acknowledging that spending cuts, at least the ones they don’t like, will hurt the economy.

TAX HIKE

The tax hike proposed by President Obama and Democrats is actually the expiration of the Bush tax cuts for income over $250,000. Everyone (and that means everyone) will still receive a tax cut on income below that amount. The top rate would increase from 35% to 39.6%, the same rate during the Clinton administration. This is not a radical idea. It is not fiscally reckless. It will not hurt the economy. There is a lot of fuzzy math being used by conservatives to explain why the top rate should not go up, but the simple truth is that a 4.6 point increase of the top rate is not Armageddon.

Everything Republicans say about raising taxes on the top rate is at best unproven, at worst a flat out lie. There is a lot more historical evidence that a higher top rate has zero impact on economic growth.

SPENDING CUTS

Republicans say the federal deficit and the debt hurt the economy, and so that is the reason we must have “entitlement reform.” At the same time, they clearly show concern for the economic impact of the spending cuts that will automatically kick in next year. A large part of the automatic spending cuts are in defense, something many Republicans believe should never be cut (just as they believe taxes should never go up). But if Republicans believe the deficit and the debt are bad for the economy, then why not just let all the automatic spending cuts kick in?

Republicans want to have it both ways. They don’t want the spending cuts that they don’t like (cutting into defense contractor profits), but they are fine with the spending cuts they do like (affecting average Americans). The spending cuts that would likely hurt the economy the most are the cuts that directly affect average Americans, and these are the spending cuts Republicans like the most.

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