Time to Take Our Medicine – We MUST Go Over the Fiscal Cliff!

One of the biggest problems I have with any discussion regarding the federal budget – revenues (primarily taxes) and expenditures – is the reliance on 10 year numbers. While the 10 year budget impact numbers are quite large and startling, they are irrelevant to gaining any understanding of the problem – or if in fact, the problem is being addressed. Why is this? There are two key factors which make any of the numbers outside of the current or next fiscal year completely irrelevant.

  1. Any law passed by Congress is subject to amendment or repeal.
  2. A future Congress is not bound by prior decisions and can make changes to the law prospectively.

Given this ability for Congress to change taxes and expenditure in the future, the only budget numbers that are relevant to the current decision are the ones that impact the current fiscal year (and maybe FY14 because we are well into FY13).

So what is the impact of the “Fiscal Cliff” on the FY13 Federal budget. According to the CBO report “Economic Effects of Reducing the Fiscal Restraint that is Scheduled to Occur in 2013” (May 2012), here are the numbers:


The outcome of the election is clear – voters agreed that we must raise taxes. Unfortunately, there is no agreement as to who will have their taxes raised. Lacking an agreement, it makes sense to go back to where we started with the Clinton Administration tax rates that everyone seems so enamored with. The Obama payroll tax cuts were supposed to be temporary – let them expire. And the rest of the tax increases in the chart above – they represent the will of the Congress (which in form and substance was essentially reelected) – let the voters will be done.

As to the reduction in expenditures due to “sequestration” and other items – the dire warnings of the “apocalypse crowd” are way off base. Let see if I have this straight. In FY2012, the total federal expenditures amounted to $3.6 trillion (with a T). The expenditure reductions amount to a 3% actual cut in spending. Oh the HORROR of such irresponsibility! Women, children and minorities hardest hit! As wrong as the “apocalypse crowd” is – so is the “redistribution crowd”.

Will all of this have an impact on economic growth? The CBO estimates that it will reduce GDP by $47 billion. I would suggest that this is a pittance in comparison to the impact of all the new regulations that are going into effect (see EPA, Interior Department, Obamacare, etc.). If we can accept the impact of massive regulation on the GDP, then we can easily digest another $47 billion.

As I noted above – let the “fiscal cliff” happen. If we don’t like the outcome, our incredibly responsible Congress and President will quickly change course to correct any problems. Their historical record on this is clear for all to see.

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