At the same time, there is no possible way to tax our way out of this debt. As much as President Obama wants to keep talking about taxing the rich, there isn’t enough money there to solve our fiscal problems. In 2010, millionaires and billionaires in America earned $840 billion. At these levels, even confiscating all of their income would not cover the post-fiscal-cliff-deal 2013 budget deficit, leaving a shortfall of almost $100 billion. If you wanted to go after the debt, you would have to confiscate their entire wealth, estimated at roughly $11 trillion according to the Census Bureau, and you would still fall short of paying off the feds’ credit card. Of course you could only do this once, and you would very likely wreck the economy in the process.
In 2008, the Congressional Budget Office estimated that in order to simply pay for then-projected spending, we would have to raise both the corporate tax rate and the top individual tax rate to 88 percent, raise the rate for middle-income workers to 63 percent, and raise the rate for low-income Americans to 25 percent. Given the explosion of spending in the last four years, those rates would have to be even higher today.
Does anyone this side of Paul Krugman believe we can sustain taxes at that level?
That means the only real solution must be on the spending side of the equation. Yet, we must recognize that there is no easy or painless way to cut spending to the degree it needs to be cut. For example, foreign aid amounts to just one percent of federal spending. Federal subsidies to Planned Parenthood and the Corporation for Public Broadcasting amount to a combined two one-hundredths of a percent. Indeed, all domestic discretionary spending this year, after adjusting for the fiscal cliff deal, will total just $628 billion. You could abolish all of it and you would still have a deficit this year of more than $312 billion.
Domestic discretionary spending amounts to 18 percent of all federal spending. Interest on the debt amounts to another 6 percent, but that is essentially untouchable. This leaves defense (19 percent) and entitlement programs, notably Social Security, Medicare, and Medicaid, which consume 46 percent of federal spending. (Another 11 percent goes to other entitlements, homeland security, and a few additional categories.)
That is why it is so disappointing that Republicans are working to undo the sequester for defense spending, while President Obama is keeping entitlement reform off the table. Frankly, there is no way to balance the budget or reduce the debt if 71 percent of the budget (defense plus entitlements plus interest payments) is uncuttable.
Unfortunately, we have been here before. In 2011, we had a fight over the Continuing Resolution funding the government. After a near government shutdown, Congress and the president promised to do something about the deficit and overspending. A few months later, we had a crisis over the debt ceiling. Congress and the president promised to do something about the deficit and overspending. Two weeks ago, we almost fell off the fiscal cliff. Congress and the president promised to do something about the deficit and overspending.
Does anyone see a pattern here?
We are not going to tax our way out of debt. We are not going to grow our way out of debt. And we are not going to get out of debt by trimming “fraud, waste, and abuse.” It’s time to face the fiscal facts.
— 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.