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For $3 a day, we can avoid ‘fiscal cliff’

Published 11:00pm Wednesday, November 28, 2012

Talk of the “fiscal cliff” — America’s tax and spending mess set to come due on January 1, 2013 — has been dominating the airwaves since the re-election of President Obama. Much of the focus has been on raising taxes on the wealthy and eliminating deductions in the tax code. President Obama, for example, continues to insist on wealthy Americans paying more taxes; Warren Buffet wants the rich to pay a minimum 30 percent minimum tax; and Martin Feldstein of Harvard University called for capping tax deductions at 2 percent of a person’s adjusted gross income.

Through the lens of economic theory, Feldstein’s ideas make a lot more sense than Obama’s or Buffet’s. But, even Feldstein’s proposal is disappointing because it avoids the real elephant in the room: America’s spending binge. America’s federal government needs to spend a lot less, and our leaders aren’t focusing enough on cutting spending.

Politicians have avoided talk about spending cuts because cutting spending isn’t fun or easy. Any group set to be made worse off by cuts will dig in and resist cuts: Hit the military with cuts, and they will dig in and block them; eliminate the mortgage deduction and the real estate industry and homebuilders will, likewise, resist.

Rather than force key interest groups to swallow a bitter pill, politicians back off the cuts and hope they can solve the problem through tax reform, magical thinking, and a solid kick of the fiscal hand grenade down the road. Cowardice, re-election calculations, and a complete aversion to speaking truth about spending by legislators trump basic common sense and courage.

Courage and commitment to shared sacrifice, meanwhile, could get us out of our mess in a hurry. Here’s a starting point to consider: About 49 percent of Americans — around 150 million people — receive government benefits. President Obama would like to see about $1.6 trillion in combined new revenues or spending cuts in a bargain. If each of the 150 million people receiving government benefits, therefore, had a $10,366 cut applied to their benefits over a 10-year period, the fiscal cliff of 2012 would be averted. $10,000 sounds like a lot of money, but it’s just a $3 per day cut in benefits for 10 years for anyone collecting a government benefit.

Of course, like most ideas related to the fiscal cliff, the one I’m tossing out for illustrative purposes above doesn’t have a prayer at passing. But, it does help us understand just how small the problem could be if more courageous thinking by our political leaders were embraced. If we assume no other reforms whatsoever, the across the board cuts needed to remedy the fiscal cliff are just $3 per day.

If we make all current beneficiaries of government spending share in the cuts our starting point, rather than focus on groups like the reviled “1 percenters,” we’re a long ways down the road to averting the crisis. From our starting point of broad and shared sacrifice, some exceptions could then be granted to the deserving poor and others living below certain poverty standards and dependent on government payments. Even with a lot of exceptions, we’d be most of the way towards our end goal because the starting point of shared spending cuts was embraced. Instead, the game of politics will continue on; it’s a game where $1.6 trillion will be reached (we hope!) through a combination of hefty taxes on particular groups, absurd government accounting, and many more weeks of uncertainty and political theater.

*Scott Beaulier is Executive Director of the Manuel H. Johnson Center for Political Economy at Troy University.


  • Observer

    There are benefits, then there are benefits. When they speak of the 47 or 49 percent they are lumping in Social Security and government pensions along with medicaid, food stamps, free lunch, etc. But, there is a great difference. Those who receive medicare, social security and/or government pensions are on the receiving end of a contract into which they paid for a life-time. Those who receive medicaid, free lunch, housing subsidies, etc., are receiving money as a gift from the government (a bought vote or a reward for irresponsibility).

    I would gladly sacrifice $3 per day in cuts to welfare programs but not a penny reduction in benefits toward which people paid into the system for years.

    The tax cuts for the wealthy that Obama worries so much about only amount to a few percent – raising the highest rate from 25 to 28 percent (or something like that).

    The wealthy will simply find more shelters for their money and the result will be the same. Close the loopholes and money will stop flowing to college endowments, public television, charity hospitals etc. Loopholes are not always created to protect the wealthy – they are often created to encourage the wealthy to donate to “worthy” causes. When the tax advantage is taken away, the incentive to donate goes with it.

    Do away with welfare but provide tax incentives for the wealthy to donate to charity – the wealthy get their shelter, the poor get a chance and the taxpayers get a break. The difference would be that private charities would have the option of not supporting irresponsible or self-destructive lifestyles.

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