Monday November 19, 2012

The Telegram & Gazette of Worcester (Mass.), Nov. 16, 2012

President Obama used his first postelection press conference to issue a call for compromise, urging House Republicans to agree to let taxes rise on the wealthiest Americans, and join with him in seeking a compromise to keep the nation from plunging over a steep fiscal cliff.

That sounds fair enough, particularly in light of the Democrats’ electoral victories on Nov. 6. Whatever the size or strength of their mandate, conventional wisdom now holds that solving the nation’s financial woes will require three things: new revenue, cutting federal spending, and growing the economy.

That logic continues, Republicans who stand in the way are risking further political defeats two years from now.

But an examination of the numbers quickly shows that Obama’s call for higher taxes on the wealthy has very little impact on deficits.

On Tuesday, the day before Obama met the press anew, the Treasury Department released figures for October, the first month of federal fiscal 2013. They show that revenues increased by 13 percent over a year ago, but spending shot up 16.4 percent, producing a one-month deficit of $120 billion. On that pace, the nation will record a deficit of $1.44 trillion for fiscal 2013.

If Congress were to grant Obama’s long-expressed wish of repealing Bush-era tax cuts on Americans making over $250,000, economists say, it would produce $1.4 trillion over the next decade, or about $140 billion annually.

In other words, making the rich pay their "fair share" would cover last month’s deficit and a bit of November’s, but nothing more.

Of course, no change in tax policy occurs on paper or in isolation. Changes to tax rates affect how businesses behave, often in ways that cannot be foreseen. Every tax increase carries the risk of dampening entrepreneurship and investment, leading to slower growth and less tax revenue down the road.

So, while $140 billion is a lot of money, it doesn’t even begin to solve the long-term financial challenges the nation faces, and might well slow long-term growth, making those challenges all the steeper.

Obama’s obsession with making the rich pay more garners media attention, but it amounts to perhaps 10 percent of the solution, and maybe less if it discourages investment. Further, few have bothered to ask him where the rest of the money would come from to pay for the wealth of entitlements Washington provides, and the enormous bills that will come due as Obamacare and other initiatives take hold.

The only viable way to stem the nation’s flood of red ink remains a twofold approach: Enact serious, long-acting and sustainable reforms to entitlement programs, which are the chief drivers of our debts; and unshackle the nation’s private sector with tax rates that are fair, predictable and stable.

For all the hot air in Washington, neither Obama nor anyone in Congress is yet having that conversation.