Politicians in Washington have spent the better part of the past two months advancing a myth that is undermining one of the most important public policy debates in recent memory. It's a myth that is coming at the expense of solutions based on common sense that could return us to balance and fiscal stability.
Twenty-six years ago, President Reagan implemented significant tax reforms that lowered the individual income tax rate, limited deductions and brought equality to tax rates across all levels. Before that reform, there had been 15 different marginal tax rates reaching levels as high as 50 percent for top brackets. By the time Reagan left office, the number of brackets had been reduced to two: 15 percent and 28 percent.
In 1993, President Clinton raised the top two income rates to 36 percent and 39.6 percent while also raising the corporate tax rate, increasing the taxable portion of Social Security benefits and increasing income taxable for Medicare. This is what has become known as the "Clinton tax rates."
In 2001, President George W. Bush changed the rate from 39.6 percent to 35 percent, lowered the capital gains and dividend income rates, and expanded credits and deductions such as the Child Tax Credit and the Earned Income Tax Credit.
So much time and energy is being spent advancing the myth that raising taxes is the best way to avoid falling off the so-called "fiscal cliff."
If you raised taxes on the top income bracket, you would generate around $1 trillion over 10 years. The past four years under President Obama have resulted in trillion-dollar deficits each year. At this rate, in 10 years we're looking at $10 trillion in new debt. At best, the "tax-the-rich" proposal is just a 10 percent solution.
Let's take this tax-more, spend-more approach to the extreme. If you return everyone to the Clinton-era tax rates, you're still left with a 10-year, $2.3 trillion deficit, and that's assuming everything stays as it is right now, and Washington breaks its trend of spending more every year. (Even if we go over the fiscal cliff and return to Clinton-era tax rates, we're still left with at least a $2.3 trillion deficit over the next 10 years.) The bottom line is this: Under no proposed scenario does raising taxes eliminate the deficit and return us to a balanced budget. The problem is government spending.
This fixation with tax increases is doing a huge disservice to the American people because it ignores the real crisis: government spending. By now, you know all too well that government spends more than it takes in. The federal government is spending more per household than ever before. Since 1965, spending per household has grown by 152 percent.
Conveniently omitted from the current fiscal-cliff discussions is the reality that for individuals earning more than $200,000 a year, their taxes already are going up in 2013, courtesy of Obamacare, which includes a new 1 percent tax on persons making more than $200,000 a year as well as an additional 3.8 percent tax on capital gains, investment income and certain home sales. These two new taxes will generate $317.7 billion over a 10-year period, or $31 billion a year -- covering just a fraction of the current $1.1 trillion deficit for fiscal 2012 alone.
Do you know what some in Washington will say 10 years from now, when the problem hasn't gone away? They'll say, "We need to tax more." Why isn't the solution ever about spending less?
Some in Washington aren't interested in the truth. They aren't interested in facts. They aren't interested in solving the problem. For them, that's bad for business. It's much easier for them to keep kicking the can down the road and using our fiscal decline to essentially "cry wolf" and raise your taxes. When will it ever stop?
I can guarantee you this: It won't stop here, it won't stop with just the "1 percent" or the "2 percent." There will never be enough to satisfy this insatiable appetite to spend more.
That's what's really at stake right now.
The other side tries to boil this down into a seven-second sound bite about taxing the rich and people paying their fair share. In 2009, the top 10 percent of earners in the United States already paid more than 70 percent of federal income taxes.
This isn't about fairness and unfairness. It's about taxing and spending, and the federal government has spent enough.