Is it a fiscal cliff or a fiscal molehill?

The Grumpy Economist provides four thoughts about the current “fiscal cliff” debate in the US.

This first thought is about the claim that the fiscal cliff will force a recession on the American public:

How terrible will it be if we go over the cliff?

Bad, but for all the wrong reasons. If you, like me, didn’t think that “stimulus” from government spending raised GDP in the recession, you can’t complain that less government spending will cause a new recession now. The CBO’s projections of recession are entirely Keynesian. Pay them heed if you still think the key to prosperity is for the government to borrow money and blow it.

There are no “cuts” in sight anyway. “Cut” in Washington means “increase spending less than we previously said we would.” At worst a few programs will have to spend the same amount this year as last before spending increases resume.

It’s not even obvious that the “cuts” will happen. Will Congress really try to pay doctors 1/3 less? (Will doctors take any medicare patients if they do?) Or will they pass an “emergency” bill, exempting doctors just like Social Security? Sequestration has never actually been used.

His comments about “rich” people lobbying for higher taxes like Warren Buffett ?are funny, in that they point out Buffett’s?hypocrisy.

President Obama has been saying for four and a half years that he wants to raise taxes on “the rich,” and he means to do it. He wants to raise tax?rates?on the rich, for symbolic, social, political reasons as much as for anything in an economics textbook. Nothing else explains the Administration’s monomania on this point, especially given that it won’t make a dent in the deficit, the fact that it makes zero economic sense as a central policy to address our economic problems, and given the Administration’s?refusal to talk about reform — which would raise tax revenue and help economic growth — instead.

“The rich,” need to get with the program, like Warren Buffet. It remains open season for deductions, exclusions, special deals and loopholes. Notice Buffet never asks for removal of all the clever dodges he uses to pay less taxes, and nobody has mentioned that he might do so. Tax on unrealized capital gains anyone? Limit the exclusion of charitable donations, even to family foundations that employ family members to run them, from estate taxes? Boy, that would raise a lot of revenue from some truly “rich” people.

Quid pro quo here, though, rich people and the CEOs who recently visited the White House had better line up and support the Administration if they want their special deal, deduction, credit, Obamacare waiver, and no visits from the NLRB, EEOC, EPA, consumer financial protection bureau, and so on.

Headline tax rates only ever tell a small part of any tax?story? The left here likes to talk?about?how taxes are higher in Australia and the US…without looking at the plethora of deductions that are available. I would love it if we implemented Australia’s tax system here…the ability to front load the cost of your car and offset payments against taxation would see the instant raising of the average age of our car fleet…and a massive reduction in income tax collected.

[T]he fiscal cliff is just the beginning. This will be a long hard road, and my guess is that we will lurch from crisis to crisis, with patchwork last minute deals, for another decade. It doesn’t have to be so — the economic choices are clear. But given the size of the question at hand and how little anyone is talking about the real issues, it’s hard to see another way.

I think the deck is stacked towards the large-state camp. ?There were two theories: “Starve the beast” said, cut taxes and eventually the size of the state will have to shrink. “Vote the benefits” said, increase spending and regulation, and eventually taxes will have to be raised to try to pay for it all. The latter seems to be winning.

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