December 30th, 2012

Going Over the Cliff Is the Only Way to Save the Government

Economics & Politics

Everyone is confused about the Fiscal Cliffhanger. Obama is struggling to make a deal to prolong most of the Bush-era tax cuts. The Republicans are holding back. Yet if a deal is reached, the federal government and the long-term purpose of the Democratic Party are both likely to be ruined for years to come. If the deal fails, the Democratic Party can at long last return to what should be its core purpose: using government to promote the public wellbeing.

The main point is this. If no deal is reached, the Bush tax cuts end. We would return roughly to the tax schedule of the end of the 1990s, when the macro-economy performed reasonably well and the budget was near balance. Federal government revenues would rise by around 2.5 percent of GDP per year compared with the current tax schedule. According to the CBO, the federal tax system would collect 20-21 percent of GDP in the second half of this decade. This is a bare minimum of what’s needed for effective government.

Read full article at the Huffington Post

 

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