Don’t Fear the Fiscal Cliff

Don’t Fear the Fiscal Cliff
January 1, 2013

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

Despite the lies, spin, and spun lies pouring from the mouths of nearly everyone involved in the “fiscal cliff” negotiations or speaking for those who are involved in them, some people see the truth.

Bloomberg columnist Caroline Baum, for instance, recently wrote:

“Even someone following the budget negotiations closely might be surprised to learn that there are no real cuts on the table in the way normal people think of them. That goes for Republican proposals, too. For example, households may decide to reduce their holiday spending this year from $750 to $500 and forgo the summer family vacation because times are tough. Those are spending cuts. 

“Washington is the only place where a cut isn’t a cut. Instead, so-called spending cuts are reductions in the growth rate of outlays as prescribed under current law. Nothing is cut.”

She is right, of course. House Speaker John Boehner was willing to offer $1 trillion of tax increases on high-income earners over the next 10 years in exchange for zero dollars of spending cuts.

If a government that was going to spend 8 percent more instead spends 6 percent more, it has not cut spending. It has raised spending by 6 percent. Only in the minds of those who have been warped by government, which means the minds of nearly all those who hold political power, is going from spending 8 percent more to 6 percent more a reduction in spending.

Rebellion in the Republican ranks of Congress has ended Boehner’s attempted giveaway for now. The rebels recognize the problem is spending.

The federal government is spending nearly $3.6 trillion this year. That’s virtually double the spending level when George W. Bush became president in 2001. Michael Tanner of the Cato Institute recently pointed out if spending since 2000 had increased at the rate of inflation plus population growth, this year's spending would have been less than $2.7 trillion. There’d be a budget deficit of $241 billion instead of more than $1 trillion.

The federal government’s baseline budget 10 years out calls for $5.5 trillion of spending, and that’s assuming Congress and the President actually allow the $1.2 trillion of spending “cuts” called for in the fiscal cliff.

Spending cuts? When spending would rise from $3.6 trillion to $5.5 trillion? Right.

People are worried the country actually might go over the fiscal cliff, worried that the cliff’s real tax hikes and pretend spending cuts will hit January 1. Don’t worry about it. Embrace it.

It’s long past time Americans face the true costs of government. No more receiving government services now to be paid for by other people years from now.

Many factors can affect an economy, and correlation is not necessarily causality. But there’s no disputing this: During the eight years of the Clinton administration, which had a much better economy than we’ve had since George W. Bush took office, tax rates were a bit higher but spending was much lower. It rose 32 percent under Clinton and 83 percent under Bush.

“The most significant problem with the Bush tax cuts was that they were not matched with spending cuts. In fact, Washington went on a historic spending binge: From 2001 to 2009, federal spending leapt from 18.2 to 25.2 percent of GDP. This was the largest such increase in any eight-year period since World War II,” write Matthew Mitchell and Andrea Castillo of the Mercatus Center at George Mason University in their recent paper, "What Went Wrong With the Bush Tax Cuts."

If government spending boosts an economy, it should have soared under Bush. Instead it tanked. And it hasn’t recovered despite the continued spending.

The budget deficit this year is $1.1 trillion. I say raise taxes $1.1 trillion now. Immediately. On everyone.

In this way Americans would see the truth of the costs of the government services they demand. And maybe, faced with that truth, they’ll start demanding less.

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)