Fiscal Cliff 2013: Time to Push Republicans Off the Fiscal Cliff

Speaker of the House John Boehner crowed at an August 2011 interview with CBS's Scott Pelley, "when you look at this final agreement that we came to with the white House, I got 98% of what I wanted. I'm pretty happy."

What Boehner was referring to is the "fiscal cliff." The economic Armageddon that will tip us and the entire world back into recession. Does this have to happen? Will it happen? Will it ruin the economy?

No it does not have to happen. All Boehner and the rest of the GOP House have to do is allow the Bush tax cuts to expire for those making more than $250,000 per year in earned income. 

When those tax cuts do expire that 2% of the population will see their marginal tax rate go from 36% to 39.8%. Yes this is what all the blustering is about. This is the same tax rate paid during the Clinton Administration. You remember the Clinton years balanced budgets, deficit reduction, welfare reform, no wars being fought and not being paid for. 

Then Bush took office and our long national nightmare of peace and prosperity ended. Now, the same folks who wrecked our economy see no reason why they should pay their fair share in cleaning up their mess. No, this tax increase is hardly what I would call a burden on those that have weathered the recent economic meltdown better than 98% of the population.

We could go back to the tax rates being paid during the Eisenhower administration. Then we had a marginal rate of 92% of earned income over $200,000 for a married couple. That is equivalent to $1.68 million of today's dollars after adjusting for inflation.

Or how about using the rates paid during the last liberal president we elected? The marginal rate in 1973 was 70% of earned income over $200,000 for a married couple. That is equivalent to $1 million dollars after adjusting for inflation.

Cutting taxes on the wealthy does not boost the economy. We have tried it. It doesn't work. It is time to do what has worked in the past; a progressive tax system that ensures fairness and allows us to pay the bills.

But will it happen? I think it will. The president cannot allow the GOP to hold our economy hostage. The only way to stop a bully is to not give in to his demands. The American people are behind the president. The GOP has demonstrated they are willing to risk the full faith and credit of the United States in a nonsensical political standoff. Going over the fiscal cliff doesn't even approach that level of irresponsibility.

Will it ruin the economy? It certainly won't make it better in the short term. The Government Accountability Office says the ranks of the unemployed will swell by 1-2 million people. But most of the "cuts" made under sequestration (the "fiscal cliff") are actually made by keeping discretionary spending at 2011 levels. In other words, the government will have to do in 2013 with the same amount of money they had in 2011.

The effect of these tax cuts is ruinous. The graphic below shows very simply that we have to eliminate some if not all of these tax cuts.

What will be the political fall out from doing nothing? The tax cuts expire; revenues increase by almost 20%. Middle class families would see their taxes go up by $400-$600 (remember the checks Bush had the Treasury Department send us?). Plus many of these same families would see an additional $2000-$4000 owed because the alternative minimum tax (AMT) is part of this mess.

Spending would be held to 2011 levels. This is viewed as a decrease because our population continues to increase and we still have some-but not much-inflation. Social Security, federal pensions and veteran's benefits are not part of the sequestration and will continue normally.

So taxes would go up for just about everybody and spending would go down. Spending by the government, and more importantly spending by the middle class, would go down. Historically, 70% of our economy is consumer spending (this is why Bush urged us to "go shopping" after 9-11).

Once those two things happen there will be a mad scramble in Washington to "fix" things. The first and easiest fix will be the AMT. Congress has been patching that for 10 years. They know how to do it and it will happen quickly and retroactively. The next thing that will happen will be a battle over tax cuts. Will the top 2% be included in a tax cut? Will taxes on capitol gains be affected? Will we have more tax brackets? Whatever happens-and something will; President Obama will sign the largest tax cut in history. Thus adding to his legacy and returning the House of Representatives to the control of the Democrats.

Congress will also have a historic opportunity to reauthorize funding to programs on a case-by-case basis. Defense spending will return to its bloated level. The military-industrial complex has jobs in just about every congressional district for a reason. As for the rest of government functions? Once we have a few more epidemics due to a poor regulatory environment, once people see their property insurance premiums double, once a few thousand people die from food poisoning and after Wall Street drives the economy off a real cliff again then we shall see a return to sane and safe government regulations. I just hope sanity is restored in my lifetime.