Pushing America over the fiscal cliff
Last Tuesday, Barack Obama was re-elected president by winning both the Electoral College and the popular vote at 50 percent. But before his supporters get overly ebullient, they should keep in mind that on a bell curve, half of the curve is below average.
However, on Friday the celebratory parties were cut short by one killer of a hangover. That's when most of the country (50.6 percent to be precise) woke up to learn about the "fiscal cliff" the country is facing. This did not come as a shock to most Romney supporters, but after Tuesday's drubbing, not much would.
As a brief review, "fiscal cliff" is the term used to describe the expiration of the Bush-era tax cuts, automatic federal spending cuts and a significant reduction of the federal deficit that is set to go into effect at the end of 2012. In other words, taxes will increase, federal spending will decrease and there will be a sudden reduction to the deficit.
One may ask: what does this mean for the country? According to the Congressional Budget Office, the net effect of the fiscal cliff is a short-term recession. Unfortunately, the long-term effect is not certain. On paper, the recession would be short lived and America would soon be in a better fiscal situation with a greatly reduced federal deficit and lowered federal spending. However, since economics is comprised not only of financial models but also human behavior, it is equally as likely that the short-term recession could turn into something far worse, such as a long recession or even a depression.
Therefore, officials in Washington are clamoring that something needs to be done. Republicans and Democrats are trying to outdo each other in pointing the blame and offering solutions to forestall the fiscal plunge. Both parties are stating that the situation requires a bipartisan solution; they just don't want to give in to the other major party to achieve it.
This was the backdrop for President Obama's economic speech last Friday, in which he laid out his plan to avoid falling over the fiscal cliff. Not surprisingly, he called for bipartisan cooperation to achieve a solution. Equally unsurprisingly, that solution had to include raising taxes on the wealthiest Americans, which is defined as anyone who makes $250,000 or more per year.
While raising taxes on the wealthy is a progressive mantra that Republicans are increasingly buying into, it is not a solution to any fiscal problem. Though pitched as raising taxes on "those who can most afford it," in reality it is really raising taxes on those who already pay the most; according to the Tax Policy Center, only 54 percent of Americans actually pay Federal income tax. Thus, while the call is for the wealthy to pay "their fair share," in reality they are already paying their fair share and the share of the 99 percent as well.
Secondly, there are at least two ethical issues involved in singling out a group of people based solely on their income. One is the implication that the wealthy are indebted to the rest of America for their wealth and therefore are obligated to return it via Washington. The second ethical issue is more subtle: by alienating individuals, including most small business owners, and labeling them "wealthy," the door is open to envy and an "eat the rich" mentality. This mentality does not foster unity in America but only further divides us.
Lastly, raising taxes on the wealthy will have a stifling effect on those who desire to better themselves. Why should anyone strive to make more money when they will be forced to give more of it back to the government? Would it not be easier to accept mediocrity rather than to work hard to achieve more? The answer for many will be "Yes."
Elected officials are working to avoid the fiscal cliff that faces this country at year's end. To some, including the president, this is a perfect opportunity to push the progressive agenda of raising taxes on the wealthy and make them pay their "fair share." The long term effect of such a move will be detrimental to America and runs counter to our basic economic freedom. Obama's proposal will not help avert the cliff; it will actually push us over it.