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Misreading the Fiscal Cliff
No one, including Republicans, is focusing on the right issues.


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Michael Tanner

We’ve been down this road before. Fans of Charles Schulz’s Peanuts know that every fall Lucy promises Charlie Brown that this time she really means it when she says that she will hold that football for him to kick. Yet, somehow, every time she finds a reason to pull that football away and Charlie Brown ends up flat on his back.

In 1982, Ronald Reagan agreed to raise taxes as part of a deal that promised $3 in spending cuts for every $1 in tax hikes. By the time Reagan left office, tax receipts had indeed risen by $290 billion. But not only had spending not been cut, it had actually risen by $318 billion, an increase in spending of $1.10 for every $1 in new taxes. The result was an even bigger budget deficit than the country had before the deal passed. Writing in his memoirs, Reagan called the tax-and-spending agreement one of the biggest domestic mistakes of his presidency, noting that “later the Democrats reneged on their pledge and we never got those cuts.”

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In 1990, President George H. W. Bush approached the football, famously breaking his “read my lips, no new taxes” pledge, and agreed to a deal that promised $2 in spending cuts for every $1 in taxes. As with Reagan, the tax hikes proved all too real, an almost $60 billion increase by 1992. But once again, not only did the spending cuts fail to materialize, spending actually increased by $128 billion, a $2.10 increase for every $1 in tax hikes. The deficit, of course, increased as well.

If that seems like distant history, the 2011 deal to increase the debt limit promised $1 trillion in spending cuts, even before the upcoming sequester. Instead, spending since then has increased by $132 billion. And both Republicans and Democrats are currently scrambling to avoid the sequester’s cuts as well.

The real issue is the size of government. As Milton Friedman used to point out, the real cost of government is what it spends, not whether that spending is paid for by debt or taxes. Spending more than we take in is demonstrably a bad thing. But raising taxes sufficiently to support an ever-growing government is not appreciably better. Consider this: Would we be better off with an unbalanced $1 trillion federal budget or a balanced $3.7 trillion one?

As noted above, federal spending is set to rise to 46 percent of GDP by 2050. When you add in state and local spending, government at all levels will be consuming more than 60 percent of everything produced in this country. We cannot long remain economically productive or personally free with a government of that size.

Any grand bargain, therefore, must include significant reductions in government spending. These cuts must be real, actual cuts, not just reductions in the rate of growth, and must occur now, not in the “out years.” They should include structural reforms to deal with the insolvency of Social Security and Medicare.

If we accept anything less, we may soon find ourselves longing for the days of the fiscal cliff.

— Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.



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