Added To The Fiscal Cliff…

The Washington Post reported on Wednesday (notice that it was not reported before the election) that President Obama may pass a carbon tax in order to cut the deficit.

The article reports:

A tax starting at $20 a metric ton of carbon dioxide equivalent and rising at about 6 percent a year could raise $154 billion by 2021, Nick Robins, an analyst at the bank in London, said today in an e-mailed research note, citing Congressional Research Service estimates. “Applied to the Congressional Budget Office’s 2012 baseline, this would halve the fiscal deficit by 2022,” Robins said.

The article further reports:

The tax would not necessarily add to the economy’s total tax burden, according to Elliot Diringer, executive vice president of the research group. Such a tax may free up space for reductions in company taxes that dissuade employment, for example, Diringer said in an interview from Arlington.

“We have lots of need for new revenue to address our challenges,” which include priorities for conservatives such as extending tax cuts, avoiding deep defense cuts, reducing the corporate tax rate, reforming tax territoriality, and deficit reduction, the group said today in an e-mailed statement.

There are more than a few problems with this idea. Someone is going to have to pay this tax. If corporations pay it, the price of whatever they produce goes up, and the already beleaguered consumer pays higher prices. If the average American pays the tax, the standard of living in America, which has already fallen in the past four years, falls lower. This is an ideal way to create more poverty in America. Also, note the comment that ‘we have lots of need for new revenue.’ There is no recognition of the fact that we are overspending. In order for the American economy to thrive, government spending needs to be about 18 or 19 percent of the gross domestic product (GDP). The problem with the Obama Administration is that their goal is to make it closer to 25 percent. That difference is largely responsible for the increases in the deficit under the Obama Administration. posted a chart showing the growth of government spending in relationship to the GDP. Please follow the link to see the chart.

Until we decrease spending to below 20 percent of the gross domestic product, the economy will not grow. We also need to remember that if interest rates go up (which they eventually will), our interest payments will be the biggest part of our budget. You can’t run a country on a maxed-out credit card.

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