The above video by Bill Whittle from 2011 illustrates how deep in the hole we are when it comes to annual deficits. The idea of the Obama administration that the Bush tax cuts must expire for “the rich” earning over 250K (In Chicago that would be a cop and his schoolteacher wife.) has everything to do with politics and almost nothing to do with deficit reduction. Here is why.
If you abolished all of the Bush tax cuts for “the rich” earning over 250K a year, and assuming they did not come up with ways to legally avoid the additional tax by deferring income, the Treasury, further making the rash assumption that increasing taxes does not have any negative impact on the economy, would receive about 70 billion dollars in additional taxes, according to the Congressional Budget Office. This year our deficit is approximately 1.1 trillion dollars. If we eliminate the Bush tax cuts for all taxpayers, the increase in taxes would be about 370 billion, according to the CBO, assuming, rashly, that increasing taxes on the middle class would not have a negative impact on the economy and swell the ranks of people qualifying for “freebies” from Uncle Sucker.
If the economy does slide into recession, which I think might be an optimistic view of what lies in store for us, we might very well view the 2012 deficit of 1.1 trillion dollars as being the highpoint of the frugality of the Obama administration. We can’t tax our way out of our fiscal mess. What we must do is slash federal spending to the bone. What will happen I suspect is that the fiscal cliff will be avoided through taxes increasing on “the rich”, that will produce revenue that amounts to a rounding error in today’s federal budget, with completely illusory spending cuts. In short, the can will be kicked down the road. Unfortunately for the nation, the end of the road is almost here.