Misreading the Fiscal Cliff | Michael D. Tanner | Cato Institute: Commentary

Misreading the Fiscal Cliff | Michael D. Tanner | Cato Institute: Commentary: "In fact, the president's proposed tax hike doesn't even cover the $2.6 trillion in spending increases that he has called for over the next ten years."

"Great Britain hiked its top tax rate from 40 to 50 percent in 2010 as part of a deficit-reduction package. The tax hike was supposed to raise an additional £2.4 billion in 2010–11, but actually brought in £5 billion less than was expected without the rate rise (Britain cut tax rates again in the 2012 budget)."

"President Obama claims that his plan includes spending cuts — in fact, $3 in spending cuts for every $1 in tax hikes. But he hasn't actually offered any details beyond smoke and mirrors. The president's plan, for example, includes $1 trillion in spending cuts that were already agreed to as part of the 2011 debt-ceiling deal, a neat exercise in double-counting. He also includes savings from not fighting a war in Iraq or Afghanistan after 2014, money that was never going to be spent in the first place. And, finally, he includes $634 billion in savings from not having to pay interest on the phantom spending he's cut. More realistic estimates suggest that the president is actually proposing almost $3 in tax hikes for every $1 in spending cuts.

Even those spending cuts are not real cuts, in the sense of less money being spent, but simply reductions in the baseline rate of increase. And while the president's proposed tax hikes would go into effect immediately, the spending cuts are pushed off into the dim and distant future. In fact, according to recent reports, the president actually wants new stimulus spending in the short term, to be followed by spending cuts once the economy has bounced back."

"But once again, not only did the spending cuts fail to materialize, spending actually increased"

"the 2011 deal to increase the debt limit promised $1 trillion in spending cuts, even before the upcoming sequester. Instead, spending since then has increased by $132 billion"