The last-minute fiscal cliff compromise was a huge success. No, I haven’t gone mad. I’m just redefining “success.”
If “success” means extracting more money from the public, last week’s compromise was a giant win. It raised taxes on the very wealthy with a new top bracket, raised taxes on the somewhat-less-wealthy by limiting deductions and raised taxes on the working class by letting the payroll tax go back up.
If you define “success” as rewarding political cronies with tax breaks, the deal worked there, too. Everyone from windmill owners to Puerto Rican rum producers to electric motorcycle makers to Manhattan apartment builders got a piece of the action. All told, about $76 billion in well-targeted “temporary” tax breaks were extended another year.
If the “success” you hoped for involved doing anything about the government’s spending problem … well, you can’t have everything. According to the Congressional Budget Office, the bill Congress passed actually increases the deficit another $4 trillion over the next 10 years.
We would have been much better off just going over the cliff.
More drama is coming. In a few weeks, we’ll repeat the 2011 debt limit fiasco, the one that cost the U.S. government its AAA Standard & Poor’s credit rating. Other rating agencies like Moody’s gave us a second chance. I doubt we will get a third.
Republicans say they will use the debt limit to fight for spending cuts. I suppose there’s a first time for everything. But think about this for a minute. The reason we have so much debt is that Congress authorizes more spending than tax revenue. Republicans controlled one or both sides of the Capitol while it happened. They’ve had plenty of chances to cut spending. They didn’t.
For all practical purposes, Congress already increased the debt ceiling by repeatedly passing budgets they knew were in deficit. That’s what brought us here.
Here’s my prediction: Treasury bond investors will be paid, spending will not be reduced and the debt will keep piling up. With interest rates at historic low and other governments in even worse shape than ours, financing our deficit is not a problem … yet.
Politicians in both parties have kicked the can down the road for so long they apparently think the road never ends. They are incorrect. The road will end. The only question is when.
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