We must protect the middle class! The cry has gone out from Washington in the wake of the failure of John Boehner to pass his Plan B budget plan. House Republicans -- whose votes are needed for any fiscal cliff resolution -- have gone home for the holiday, yet somehow that is supposed to leave the problem to the President and the Senate. I am not sure I understand that logic.
For some reason, people are expressing shock and surprise that House Republicans got their backs up and refused to go along. What else were they to do? Washington is a place where legislators vote their political interest. Republicans for a quarter century have declined to vote for taxes, to remain true to their pledge. Democrats have voted for wars in fear of being labeled unpatriotic, and voted to deregulate the financial system in pursuit of campaign cash. Who since Congresswoman Marjorie Margolies-Mezvinsky has fallen on her sword for the team or the nation? This is how the game is played, don't point the finger at Republicans.
But many in Washington should embrace the prospect of no resolution to the fiscal cliff prior to the end of the year. For their part, true conservative Republicans who believe in balanced budgets should be excited at the prospect of the expiration of the Bush tax cuts and the mandatory spending cuts, all due to arrive with the new year. A quick glimpse at the website of the non-partisan Congressional Budget Office illustrates the projected impact of allowing those schedule changes to take place, and the dire consequences of continuing down the business-as-usual path we are on.
On the other side of the aisle, liberal Democrats should be gleeful to finally achieve the sunset of tax cuts that they long despised, along with substantial cuts in military spending. Come the new year, they will have a more Democratic Congress and be in a stronger position to negotiate budget amendments to their liking.
There should, therefore, be a strong constituency for doing nothing.
Just imagine, if Washington would just do nothing, all the years and years of wrangling over the long slide of our nation toward fiscal calamity would be over. Overnight, we would achieve a degree of fiscal balance that most Americans must have come to believe is not possible.
And all it takes is for Congress to stay home and the president to embrace a new path forward.
Overnight, we would achieve a new and fiscally balanced baseline. If there is to be tax reform, it can be done in a balanced and patient manner. If spending levels are to be restored, those decisions can be made against a backdrop where for the first time in decades, spending reductions have been made in a fair manner.
Many have been quick to quote the Congressional Budget Office report that suggests that if the fiscal cliff is not avoided, GDP growth will be 0.5 percent lower and unemployment will increase at the end of 2013, and the nation risks a slide back into recession. But this selective citing of that report ignores the larger message that suggests that doing nothing will lead to far healthier growth in the ensuing years.
"If the fiscal tightening was removed and the policies that are currently in effect were kept in place indefinitely, a continued surge in federal debt during the rest of this decade and beyond would raise the risk of a fiscal crisis (in which the government would lose the ability to borrow money at affordable interest rates) and would eventually reduce the nation's output and income below what would occur if the fiscal tightening was allowed to take place as currently set by law."
The essential message of the CBO report is what any rational person would presume to be the case: We have become addicted to paying our way on borrowed money, and weaning ourselves off of that practice will involve some pain. The longer we wait, the more painful withdrawal will be.
Why do politicians and pundits ignore the CBO's larger message that we will all be better off if nothing is done? The urgent calls to protect the middle class mask the desire of many in Washington to have a bill at year end that can do many things for many interest groups. It is Christmas, and lobbyists are working overtime to get their piece of the Christmas tree legislation they seem coming to a vote before year end. Just as tax credits for low-income Americans were the lubricant that assured the passage of the Bush tax cuts a decade ago, this year tax relief for the middle class is the cover for a wide range of interests. Would people really be surprised to wake up in January to realize that the fiscal cliff legislation passed in the dead of some late December night actually made our situation worse?
Meanwhile, the facts about tax rates are simply ignored in the calls to protect the middle class from an encroaching government. Yet the facts suggest that every quintile of Americans has seen its total average federal tax rate and average individual income tax rate decline steadily over the past quater century. For the lowest quintile of Americans the average tax rate has declined 89 percent, for the second quintile the decline has been 52 percent, for the third quintile 38 percent, for the fourth quintile 26 percent, and for the top quintile 3 percent. Only the top 5 percent of Americans have seen their overall tax rate rise over time. And, as candidate Romney pointed out, in the case of federal income taxes alone, the bottom two quintiles of Americans have negative income tax rates (due to tax credits), while the middle quintile average income tax rate of 1.3 percent in 2009 represented a decline of 80 percent over the past quarter century.
For 30 years, tax cuts have been justified on the basis of an imperative that we "grow our way" to fiscal balance, and give Americans back their money. But the data simply don't support the argument that middle class Americans are over-taxed. Over the past decade, spending may have grown substantially, with military spending and entitlement spending leading the way, up 56 percent and 37 percent as a share of GDP. But American taxpayers are have not paid for that spending, as income tax revenues have declined by 25 percent as a share of GDP over that same timeframe. If there is a disconnect, it is the belief on the part of Americans -- nurtured by a self-serving political class -- that they are not getting what they pay for. The facts suggest quite the opposite, across the range of discretionary and entitlement programs, Americans are getting a lot, and paying less and less for it every year.
If the clock runs out midnight December 31st and there is no resolution to the fiscal cliff, the nation will have the opportunity to reset the terms of the fiscal debate in Washington. The Bush tax cuts will be behind us and the budget ground rules will have changed.
We are at a unique moment. If our leaders in Washington fail to act, they may solve a problem that has vexed our polity for years.