Washington, the media, and many economists are consumed by the looming fiscal cliff-a combination of tax increases and spending cuts that are set to occur on January 1. Many economists, Fed Chairman Ben Bernanke among them, predict that if we go over the fiscal cliff the country will go into recession.
I say let's do it!
In fact, we should take more action to cut the deficit than the fiscal cliff will accomplish. The fiscal cliff would reduce the current federal deficit by less than one-third, still larger than any deficit ever run by a president not named Barack Obama. The spending cuts would be only around $100 billion per year with tax increases being larger, in the $200-300 billion range.
Take the end of President Clinton's term as the point of comparison since the budget was balanced. Annual federal spending was $1.94 trillion, revenue was $2.10 trillion. Adjusting for inflation and population growth since the start of 2001, today's equivalents would be $2.77 trillion in spending and $3.00 trillion in revenue. That would be a nice budget surplus of $230 billion.
So where did it go? Was it the Bush tax cuts? The Obama stimulus? The recession? Yes, yes, and yes; but the blame is not shared equally.
Today the federal government is collecting $2.67 trillion in revenue ($330 billion short of the Clinton-equivalent) and is spending $3.76 trillion. Yes, that's right; we are spending $987 billion more than if we increased the last Clinton budget for inflation and population growth. It sure looks to me like spending is the main culprit.
The fiscal cliff would raise taxes by enough to replace much or all the missing revenue, but would only eliminate about 10 percent of the new spending. We need to get serious about spending cuts.
(Excerpt) Read more at realclearmarkets.com ...
