I took part today in a nine-person debate on the fiscal cliff for U.S. News & World Report. We were all asked, “Is Going Over the ‘Fiscal Cliff’ Necessarily the Worst Outcome?”
Readers are allowed to vote up or down on each presentation, so I’ll be curious about the outcome.
Here are some of the key excerpts from my contribution to the debate, including a defense of the sequester and a very important point at the end about the Laffer Curve.
America actually will fall off two fiscal cliffs in January, but only one of them is bad. The good fiscal cliff is the so-called sequester, which is the inside-the-beltway term for automatic spending cuts. …anything that restrains the growing burden of government spending is a good idea, so a small step is better than nothing. The bad fiscal cliff is the automatic tax hike, which exists because the 2001 and 2003 tax cuts are scheduled to expire at the end of the year. This means higher tax rates for all taxpayers, as well as increased double taxation of dividends and capital gains. …that fiscal cliff would be bad news, it’s not the worst possible outcome. President Barack Obama has proposed a class-warfare plan that would repeal the sequester and maintain—and exacerbate—the tax hikes on the so-called rich. …But it gets worse. Obama wants to double the size of the soak-the-rich tax hikes, thus maximizing the potential harm to job creation. In other words, not just the automatic tax increases, but then additional tax hikes on top of that—all designed to penalize success and innovation. If Obama prevails, he’ll be rewarded for dogmatism, but he won’t find a pot of gold at the end of the class-war rainbow. Successful taxpayers will adjust their behavior in ways that reduce taxable income, which means the government won’t get much money even though it will impose a lot of damage.
Since I had only limited space for my essay, let me briefly elaborate by stating that the fiscal cliff is not the right outcome. As I explained in a column for the New York Daily News, the best option would be to keep the sequester and make all the tax cuts permanent.
But if I have to choose between the maximum destructiveness of Obama’s approach and the routine nastiness of the fiscal cliff, then I’ll take the latter.
By the way, if my subtle hint from above wasn’t sufficiently blunt, I’ll close by emphasizing that your support would be most welcome and highly appreciated. So don’t be bashful about going to this link and voting your conscience (unless, of course, you’re a statist, in which case you should keep reading this blog until you’ve cast out that demon).