WASHINGTON — William McGurn, the esteemed Wall Street Journal columnist and soon-to-be editor of the editorial page of the New York Post, has made an interesting observation about the fabulous Bush tax cuts that are about TO lapse. They amount to a substantial sum of money for a middle-class family. For the middle-class it will be a big deal if they disappear. The Bush tax cuts have been portrayed by President Barack Obama as a rich person’s tax cut, but now he is portraying them as a huge tax break for the middle class. Of a sudden he says do not let them lapse! Instead raise taxes on the wealthy!
The President has recently said, “A typical middle-class family of four would see its income taxes go up by $2,200. That’s $2,200 out of people’s pockets. That means less money for buying groceries, less money for filling prescriptions, less money for buying diapers.” Certainly we would all agree with the President that a $2,200 bite from a middle class income will hurt the middle class, a substantial swath of the American people. Thus he wants to take a bigger bite from the top two percent of income earners towards balancing the budget. That will, according to his plan, add up to seven percent of the deficit. Unfortunately it hardly puts a dent in his trillion-dollar problem, a trillion-dollar problem that will confront him every year of his second term. Moreover, it will almost certainly impede growth and job creation. What is to be done? Sacrifice the middle class or sacrifice the upper two percent?
The President is depicting the present fiscal problem as a tax-revenue problem. Rarely does he speak of spending. Yet it is clearly a spending problem. The federal government spends too much money, and under his plan it will spend even more. According to the Heritage Foundation’s studies, median income earnings have grown since 1970 by 24 percent. On the other hand federal spending since 1970 has grown by 287.5 percent. Put another way, the historic average of revenue is 18.1 percent of GDP, and the historic average of federal spending is 20.2 percent of GDP. Clearly the fiscal problem we face is a spending problem.
Back in the 1980s President Ronald Reagan was also confronted with a spending problem. His answer was to keep taxes down. It left the citizenry with more money in their pockets, which was good for savings and personal expenditure. Yet even more salutary, it did not leave much revenue for the federal government to spend.
As we approach the fiscal cliff we might bear this in mind, to wit, our problem is spending not taxing. People in Washington spend too much. People outside Washington — rich and poor — do not pay too little in taxes. Our solution is to take a ride off the fiscal cliff. At first the Congress might pay in terms of being held accountable by the public. Then as the months roll on the fiscal mess will be seen for what it is, the President’s lax budget. Possibly with taxes up and entitlements unchecked we will again enter into a recession, but it will be seen as the President’s recession.
Under these circumstances, perhaps President Obama will see that the soundest path to economic solvency is a growing economy, not a stagnant economy weighed down by burdensome taxes. There is no need to sacrifice anyone. Possibly the citizenry will put the pressure on him to lower taxes for all. Extend the much-maligned Bush taxes, and get serious about a growth agenda. Either that or we can have the Obama Recession.