If it feels like we’ve been here before, it’s because we have.
The headlines sound familiar:
“John Boehner rejects Obama’s Grand Bargain” says one. “No Deal: Debt Ceiling Talks Between Obama, Boehner Break Down” says another.
They sound like something you read this week. They’re actually from the summer of 2011.
Now, while President Obama and Speaker Boehner negotiate plans to avert the fiscal cliff next year, the scene has begun to look not unlike one we’ve seen before.
During the summer of 2011, the White House and Congress took the nation to the very edge of financial crisis over raising the federal debt ceiling. The spending obligations of the federal government were at unprecedented levels (and they have only grown since). Tax revenues were hit hard by the recession. With only 60% of the government’s spending covered by tax revenues, Obama and Boehner dueled until finally coming to a last minute deal that raised the debt ceiling and punted any spending cuts down the road. As part of the deal, the debt ceiling was raised $2.1 trillion and a Congressional “supercommittee” would find $1.2 trillion in cuts over ten years.
Four days later, as a measure of “faith” in the deal, as well as in President Obama and the Congress, Standard & Poor’s downgraded the credit rating of the United States for the first time in our history.
Not surprisingly, no spending cuts have been found, to say nothing of the $1.2 trillion that were promised.
This month, a year and a bit later, we find ourselves in an eerily similar situation. Americans will wake up on January 2, 2013 to face a host of mandatory tax hikes and spending cuts. According to one source, national security spending could be cut 9.4%, while domestic spending, including Medicare and Headstart programs, could be cut 8.2%. According to the White House, a middle income family of four would see income taxes increase $2,000 a year.
I could use $2,000 more a year…but that doesn’t mean I think we should borrow from China so that my children can pay the extra taxes later.
In essence, this is the plan that the President is proposing, that and raising taxes on the wealthy. Contrary to the Democratic fantasy of tax hikes to levels circa 1958, when the highest income brackets’ were a confiscatory 91%, raising taxes on the wealthy will not bring in substantially more tax revenues, avert growing federal deficits, or reinvigorate an economy still struggling along.
Yes, says Peter Schiff in the Wall Street Journal: the top tax rates in the 1950s required much more than today’s top tax rate at 35%. But top taxpayers in 1958 provided only 27% of all taxes paid, while today’s top 3% of taxpayers are responsible for almost double that at 51% of tax revenues.
If that’s just not high enough, what tax rate will be? It’s always easier to raise taxes on “them” to pay for an entitlement “for you” than it is to reform spending practices for everyone.
And that reflects the modern reality, where fewer and fewer taxpayers are supporting the expanding responsibilities, and costs, of the federal government. In 1958, the bottom two-thirds of taxpayers paid 29.9% of all taxes, but today pay a far less load at only 6.7% of all taxes collected.
Without figuring out a way to spend less to prevent the federal debt from growing, raising the debt ceiling only puts off the inevitable: a debt load that will someday have to be paid off by higher taxes on everyone. Like a revolving credit card debt, whether you pay it off this month or next, the amount you owe does not decrease, but the interest will continue to accrue. And it has to be paid off eventually.
But this is what the White House plan does. It punts the problem of growing debt down the road, calls for an additional $1.6 trillion in taxes, and does not significantly cut back on spending.
Tax hikes and increased debt. Does it sound familiar? It should, because higher taxes and a higher debt ceiling is what Obama wanted in 2011, and it is the same thing that he’s demanding now.
It’s déjà vu all over again.
- Obama: Not Playing This Debt Ceiling Game Again (txwclp.org)
- Obama Risks All for Paltry ‘Victory’ (realclearpolitics.com)