Once again our government lives up to expectations. The so-called “fiscal cliff,” the designer disaster with tax hikes and spending cuts so fearsome the mere prospect would force our representatives to act sensibly, has failed. Acting sensibly was discarded as an option weeks ago. Instead, political expedience and mass covering of behinds ruled the day. Taxes were hiked for a few wealthy people, with no political consequences for the happy hikers other than the opportunity to claim a “victory for the middle class.” Large income tax cuts for nearly everybody, more than a decade old, were made permanent. That’s income tax. The biggest tax for many workers, the Social Security tax, just went up 50 percent with almost no comment. Deficits and debt soar on. Serious discussions of federal spending were put off, again.
I am put in mind of the television commercial early in the Obama re-election campaign, that said if Republican obstructionists would just let us raise taxes on the very wealthy, we could reduce deficits and pay down the federal debt in a planned and responsible manner. That was a great fib in the season of fibbing. The tax hikes on the wealthy just enacted with such great drama and praise, will raise about $620 billion in “new” revenue over a decade. When the federal government is spending around a trillion dollars more than it takes in, every year, that ranks just above the pee in the ocean category. In the way deficits are calculated, the “fiscal cliff” deal means they actually will rise by $4 trillion in a decade, because we middle income folks won’t be paying the taxes we used to pay, according to the Congressional Budget Office. That, I suppose, is the “victory” for the middle class. They will continue borrowing money for all the pension and health care benefits we didn’t pay for. The borrowers will justify it, saying they are busy stimulating the economy, and we’ll probably vote for them and that will be their bonus. They’ll tell us that very soon they can pay down the deficit in an orderly manner, and we’ll believe them.
Greg Mankiw, Harvard economist, put the issue in perspective in The New York Times Sunday. With the aging population and rising health care costs, the ratio of federal debt to gross domestic product “is projected to rise, substantially and without an end in sight.
“That can happen for a while, or even a long while, but not forever. At some point, investors at home and abroad will start questioning our ability to service our debts without creating steep inflation,” Mankiw wrote. “It’s hard to say precisely when this shift in investor sentiment will occur, and even whether it will strike in this president’s term or the next, but when it does, it won’t be pretty. The United States will find itself at the brink of an unprecedented financial crisis.”
Oh joy. An “unprecedented financial crisis” is due in “this president’s term or the next.” I hope not, but raising taxes on upper crusters without doing anything to reduce the payouts for Medicare, Medicaid and Social Security, is not going to head it off. Federal debt is now 75 percent of GDP, says the Congressional Budget Office. It will be at least 90 percent of GDP in a decade. By some projections it will be well over 100 percent. It will “continue to rise rapidly thereafter,” unless policy or tax rates change. “Federal debt cannot grow faster than the nation’s output indefinitely, and prolonged increases in debt relative to GDP can cause significant long-term damage to both the government’s finances and the broader economy,” the CBO said back in November.
The policy is to borrow and spend until we really run off the cliff. We will go broke — fully stimulated perhaps, but broke just the same. No one seems able to change that, the cliffs ahead notwithstanding.
Tracy Warner’s column appears Thursdays and Fridays. He can be reached at firstname.lastname@example.org or 665-1163.