Let’s be clear about what the “fiscal cliff” deal does and doesn’t do.
It permanently preserves the bulk of George W. Bush’s tax cuts for most Americans, but it does not offer desperately needed new incentives to revive a weak economy and jobless labor market.
On the contrary, the eleventh-hour compromise is marred by higher taxes that will hinder further growth, cost hundreds of thousands of jobs and make life even tougher for many Americans barely surviving paycheck to paycheck.
This deal, which elicited effusive praise from President Obama in the wee hours of New Year's Day, would increase the top income tax rate from 35 percent to nearly 40 percent on individuals and small businesses earning more than $400,000 and couples making more than $450,000. Tax credits will begin phasing out on lesser incomes, too, for individuals and small businesses earning more than $250,000, thus raising their taxes as well.
It also will hit investors, the people whose money helps build businesses and create jobs. Investment tax rates will rise from 15 percent to 20 percent on stock dividends and capital gains.
At a time when venture capital — the mother’s milk of a prosperous, job-creating economy — remains in short supply, this is no time to be raising taxes on it. If anything, we should be cutting the capital gains tax rate to unlock capital that has been sitting on the sidelines in order to spur stronger growth and jobs.
Throw in the temporary expiration of the 2 percent Social Security payroll tax cut for every worker (raising it to 6.2 percent), and the “result of the deal, would make for the largest increase in taxes in about half a century,” The Washington Post said Tuesday.
Yet there was Mr. Obama, just after the Senate vote of approval, saying that raising tax on investors, business and every American worker “is the right thing to do for our country.”
This isn’t good for either our country or our economy. These are among the worst things we could do at a time when the economy is barely growing at 2 percent and so many workers are struggling to find full-time employment.
Mr. Obama said this would help cut the budget deficit, which is on track for a $1 trillion-plus deficit for the fifth consecutive year. Nothing could be further from the truth.
Spending reductions were put off until early March by the agreement, but don’t hold your breath.
Mr. Obama’s new taxes will not produce the added revenue he expects, either. Instead, higher rates will weaken the economy to the point where tax revenue will fall further or at best remain flat, ensuring a line of record deficits as far as the eye can see.
Throughout the battle over the fiscal cliff, Mr. Obama rarely has talked about economic growth, nor has he dealt with it in any substantive or effective way in his policies over the past four years. For him, this is all about raising taxes on the wealthy, his obsessive, all-purpose cure for what ails us. The budget deficit? Raise taxes on the rich. The national debt? Raise taxes on the rich. A weak economy? Raise taxes on the rich. Unemployment? Raise taxes on the rich.
The economic evidence is clear that his politically driven class warfare and big-spending, soak-the-rich fiscal policies have failed on every count.
Consumer confidence has dropped sharply. Retail sales were weak in November and disappointing in December as well. Unemployment is still skirting 8 percent in the fifth year of Mr. Obama’s presidency with little relief in sight.