Investors.com posted an article today about what the deal reached on the fiscal cliff this week will actually accomplish. Not much.
The article states that the tax hikes will hurt the economy. Specifically:
Moody’s Analytics chief economist Mark Zandi says the higher taxes on the wealthy and the increase in payroll taxes will shave close to 1 point off GDP growth this year and result in 600,000 fewer new jobs.
Pantheon Macroeconomic Advisors chief economist Ian Shepherdson figures the deal will cut GDP by 1.5 points. And Gallup’s chief economist Dennis Jacobe says the deal has created a “higher probability of recession — just the opposite of what fixing the fiscal cliff was intended to do.”
The article also points out that the increased taxes will not actually help shrink the deficit. Included in the article is the following chart:
Any answer to the debt crisis must include cuts in government spending in order to work. Americans are waiting for the President to propose a plan to shrink government. If President Obama fails to do that, he will lose the support of the public. If he does propose a plan for smaller government, he will lose the support of his party (and a large part of the Republican establishment).
Tax hikes don’t necessarily raise the money that those who pass them think they will. For instance:
The article concludes that because President Obama has added more brackets to the tax code, it will be harder to reform. I’m not sure that is an accident.
At any rate, we survived a Congress-created crisis and are about to face another one (the debt ceiling). It would be nice to believe that there are enough grown-ups in Congress to create a long-term solution to our overspending, rather than to simply put a band-aid on a broken arm.