The Richmond Register

Viewpoints

December 16, 2012

Thoughts while peering over a ‘fiscal cliff’

FRANKFORT —  While peering over the fiscal cliff, I was reading some obscure polling which indicates a lot of people think if Congress and the President don’t reach a deal, the deficit will go up.

Actually, it’ll go down, although a lot of economists think the economy will go down with it.

So I thought it might be interesting to look at some other data. None of it is intended to persuade you one side is right the other is wrong.

Start with my favorite: Only one president ever paid off the national debt to zero – Andrew Jackson.

Polling indicates 60 percent of Americans think taxes should go up on the rich, but a plurality thinks that top rate should be 25 percent. The top rate is currently 35 percent and President Barack Obama wants to raise it to 39 percent. When John F. Kennedy was inaugurated, the top rate was 90 percent.

While the top rate is 35 percent, overall, the people in that bracket pay an effective rate of 19 percent (after deductions and through the capital gains tax of 15 percent and carried interest provisions).

Over the past 60 years, federal revenues and expenditures hovered at roughly 19 to 20 percent of GDP. Today revenues are at about 17 percent and expenditures at about 23.8 percent. (Don’t those numbers suggest an obvious compromise?)

Social Security does not contribute a single dollar to the federal deficit. In fact, it’s run a surplus every year but one since changes were made in the 1980s in a deal between President Ronald Reagan and House Speaker Tip O’Neill. The government borrows money from the Social Security Trust Fund to help finance its deficit.

Democrats say raising the top tax rates will have a significant impact on the budget deficit. Republicans say the proposed increases will fund the government for eight days. On the other hand, the federal government spends just under $11 billion every day (according to Congressional Budget Office), so the amount isn’t chump change. (Actually, the numbers of the two sides don’t add up, but that’s what they’re saying.)

Republicans say raising those tax rates will hurt job creation. Yet when Republicans cut the same tax rates in 2001 and 2003, job creation declined. When the rates proposed by Obama were in place during the Clinton years, 22 million jobs were created.

Eliminating foreign aid would have no noticeable impact on the deficit because it’s such a miniscule percentage of federal spending.

Increasing the debt limit has nothing to do with how much the government spends. That is set by spending measures previously approved by Congress. Failing to raise the debt limit is akin to failing to pay your monthly credit card bill. Government borrowing rates are at historic lows; some investors are actually paying a negative interest rate to buy inflation-protected bonds from the government.

The increased revenues sought by Obama are less than those in the Simpson-Bowles plan, and spending cuts sought by Speaker John Boehner are less than those in Simpson-Bowles. The Paul Ryan budget the Republican House passed last year would have added $6 trillion dollars to the deficit.

Republicans lost only four House seats in the election, but in total, more people voted for Democratic House candidates than for Republicans. (House elections are conducted by district, and Republicans won by narrower collective margins than Democrats.)

Republicans claim less spending will spur economic growth and jobs. But the same Republicans say cuts in defense spending contained in the sequester will damage economic growth and cost jobs.

There’s more – but that should be enough to persuade you that Obama and Boehner have very difficult jobs.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.

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