Earlier this year, Nobel Prize-winning economist Peter Diamond stated, "Washington is acting like we have a debt crisis and an unemployment problem, when the opposite is true: We have a debt problem and an unemployment crisis."
Diamond's observation runs counter to the postelection conventional wisdom.
If nothing is done, on Jan. 1 a series of tax hikes and deep spending cuts will be enacted, totaling roughly $500 billion. This "fiscal cliff" is the latest pending disaster that threatens to keep our elected officials paralyzed in the seemingly permanent state of reactionary politics.
Over the next five weeks, taxpayers, businesses, defense contractors, local governments and social-service organizations nationwide will sit on pins and needles, while Congress and President Barack Obama, in their best Nero-like manner, act so that the economy avoids plunging back into recession.
A key portion of the debate centers on whether the Bush-era tax cuts will be allowed to expire on the nation's highest earners. Allowing the tax cuts to expire on the wealthy is the well-documented preference of the president and congressional Democrats.
This plan makes limited sense if one holds to the narrative of a debt crisis and an unemployment problem.
Even if the president is successful, the tax increase on the wealthy addresses neither the debt crisis nor the debt problem in any meaningful way; and we still have the issue of
But if we work backward, the issues primarily responsible for bringing us to the present fiscal point were the Bush-era tax cuts of 2001 and 2003, along with two wars placed largely on the government credit card.
With the expiration date on the two wars in sight, why not let all of the Bush-era tax cuts expire, so that everyone has skin in the game? Let us simply go back to paying the rates during the Clinton era -- everyone.
I recognize my proposal has two glaring problems -- one tangible, the other not. The intangible problem lies in the fact that it is always easier to support policies that apply pain to someone else.
Though no policy garners support like those put on others, seldom do such policies effectively address the intended issue.
The tangible problem is that raising taxes on the middle class could slow the economy. But couldn't a gradual rate increase on the middle class offset this problem?
The 2001 tax cuts were on the demand side based on the Keynesian theory that public consumption spurs economic activity. Government puts money in people's hands, as a temporary measure, so that they'll spend it.
Any stimulating impact from the 2001 tax cuts has long since dissipated. The same holds true for the supply-side tax cuts of 2003.
Economic stimulus such as tax cuts, loans and hiring subsidies should be directed toward small business, those that employ 100 or less. In the short term, any stimulus will increase the deficit, but nothing addresses the long-term debt problem like robust employment.
Letting the tax cuts expire on everyone may sound unacceptable until one factors the so-called closing tax loopholes under consideration include mortgage deductions and paying taxes on health care premiums. Limiting such tax policies that also have a social benefit are detrimental to the nation's long-term interests.
Contact Byron Williams at 510-208-6417 or email@example.com.