“Fiscal cliff” talks to open with a call for a $1.6 trillion tax hike
During a press conference yesterday afternoon, President Barack Obama laid out some of his terms on the so-called “fiscal cliff,” making it known that he wouldn’t accept a deal with House Republicans that didn’t raise tax rates on higher-income earners. Before the press conference even took place, the White House had rejected House Speaker John Boehner’s initial offer and The Hill noted that Obama would come to the table asking Congress for “$1.6 in new revenues by targeting the wealthy and corporations.”
Boehner, who has said that the talks with the White House are “going to take awhile,” has already said that House Republicans aren’t willing to raise tax rates, which could bring the talks to an impass. During the press conference, Obama said, “I’m open to compromise and I’m open to new ideas.” But, as noted, Obama has already turned away one offer for increased revenues and isn’t likely to budge much from his position.
James Pethokoukis noted that Obama’s tax plan, which supposedly brings a “balanced approach” to the deficit, isn’t balanced (emphasis mine):
[O]nce you begin to dig into the numbers, the plan doesn’t look balanced at all. As the bipartisan Committee for a Responsible Federal Budget noted back then:
The Administration claims that the plan would save about $4.4 trillion in total (including interest savings, war savings, and the costs of the jobs proposals). However … counting the war savings is counting a policy that is already in place and is thus a gimmick to be avoided. Taking out the war savings and savings from the discretionary cuts in the Budget Control Act leads to total savings of less than $2 trillion.
Of the supposed savings, then, $1.6 trillion comes from tax hikes and $577 billion comes from spending cuts, not counting saved interest. So 73% of the savings comes from taxes, 27% from spending cuts. That’s $3 of tax hikes for every $1 of spending cuts.
Even if you include interest savings, 60% of the debt reduction comes from tax hikes. Obama is making the exact mistake Europe is making by employing a tax-hike heavy version of fiscal austerity. Indeed, a 2010 analysis by AEI scholars found that successful fiscal consolidations are heavy on spending cuts, light on tax hikes. Even Bill Clinton’s debt reduction plan was 2-1 in favor of spending cuts. The Obama plan is dangerously unbalanced, especially given the weak economic recovery.
Of course, Obama doesn’t really want to make the spending cuts necessary to reduce the deficit because that would require a measure of fiscal responsibility. So raising taxes is the only real step he’s willing to take. In an economy that’s still struggling to keep pace, that is going to have a negative affect.