- - Wednesday, January 2, 2013

Not until after the clock ran out on 2012 did the Senate cobble together a “fiscal cliff” deal that finally passed the House late on Jan. 1, in a 257-167 vote. This deal amounts to a kind of “bungee cord” that has snapped us back to the top edge of the cliff again. That we should get a deal instead of a solution should come as no surprise. The entire process has been focused on the wrong problem all along.

The president, the House speaker, the Senate majority and minority leaders and, for that matter, Mitt Romney all have done the nation a major disservice by focusing almost exclusively on taxes for the top 1 percent or 2 percent of income earners for the past six months or so. Speaker John A. Boehner tried to talk about cutting spending, but the other side and its obsequious media are deaf to the subject. Democrats and Republicans alike have argued tenaciously that raising taxes on the rich, or not, is the heart of the problem. It’s not. The problem is overspending, not insufficient revenue from taxes.

Overspending is not hard to define, nor is it hard for the average citizen to grasp. Overspending simply means spending more than one takes in. It was deceitful for the president to imply that his tax-the-rich plan would fix the problem. It won’t. It’s deceitful now to suggest that any last-minute deal can somehow avert the principal disaster. It can’t, and it won’t. It’s time to stop looking for a deal and to start looking for a solution. “Cut, Cap and Balance” was a solution. If that had passed last summer, we wouldn’t be here. The House should have stood firm then and forced the Senate’s hand and then the president’s. Of course, the House-passed bill would have been weakened to get it through the Senate and signed by the president, but at least we’d be dealing with the right problem. We’d be on a path to lower deficits and fiscal sanity. We might have avoided a credit-rating cut. Moreover, we’d be talking about which sort of federal balanced-budget amendment would stand a chance to be ratified by 38 states.

Have many of us forgotten that the fiscal cliff came about as a result of the failure to come to an agreement on deficit reduction? Have we likewise forgotten the official name of what came to be known as the supercommittee? It was known formally as the Congressional Joint Select Committee on Deficit Reduction. The Budget Control Act of 2011 wasn’t primarily about tax rates — it was about reducing the deficit. So let’s begin our clear-eyed new-year analysis of where we stand with a re-examination of the deficit that the act was supposed to address.


The deficit for fiscal 2013 is estimated by the Congressional Budget Office to exceed $1 trillion once again — for the fifth consecutive year. Mr. Obama persuaded Congress to raise taxes to pre-2001 levels for every individual tax filer making more than $400,000 and joint filers making more than $450,000. How much extra revenue will that produce? About $60 billion. That’s just 6 percent of the $1 trillion annual deficit. Making a 6 percent dent in a problem that threatens the future worldwide economic leadership of the United States is not much of a solution.

How much would income tax rates need to rise to close the gap? The number is so large that, in a sense, we’d never get there. It would require a tax increase on every taxpayer of more than 65 percent. We’d never get there because such a tax increase would tank the economy and cause incomes and the taxes on them to fall far short of the levels necessary to produce the projected revenue increase. Note that this is an increase greater than 65 percent on all taxpayers — low-, middle- and upper-income earners, plus corporations and others.

Here’s the rough calculation that leads to that 65 percent tax increase figure: The federal government borrows more than 40 cents out of every dollar. To get to a balanced budget without cutting expenditures and by raising taxes alone would thus require about a 67 percent increase to get from a 60 percent revenue level to a 100 percent revenue level.

We truly cannot get there — or even halfway there — by raising taxes. Rapid economic growth, coupled with real, substantive expenditure cuts, is the only practical route to reducing the deficit.

If you focus on the wrong problem, you’re almost always going to wind up with the wrong solution. Revenues are not the problem, and focusing on revenues in the face of a trillion-dollar deficit will lead to the wrong solution. The only way we’re going to get out of the unsustainable fiscal mess we are in is to focus on reducing spending and stimulating growth. The economy will not grow when a massive tax increase is imposed. Growth requires low taxes. Low taxes require smaller government. We’ve forgotten the most basic principles in economics, and until we re-embrace them, we should look at short-term fixes as worse than no fix, because they give an illusion of progress that is the polar opposite of their real effect. The looming debt-ceiling debate that’s next on the calendar may be exactly what we need to turn our focus to the real problem of overspending. Bring it on.

Colin Hanna is president of Let Freedom Ring.