In a few days we’ll celebrate the holidays with gift exchanges, eggnog, Christmas light viewings, and perhaps a political argument with a family member or two. Given the current fiscal cliff negotiations, this argument may be more lively than normal. Don’t be unprepared when Uncle Bob says that we can fix the deficit by just raising the top tax rate or when Aunt Susan says they've already cut spending to the bone.
Show up to the dinner table with facts and calmly but confidently win the argument for fiscal responsibility. You’ll impress your father-in-law – and who knows, perhaps Aunt Susan will reconsider whether Rachel Maddow and Chris Matthews are so smart after all.
The two false arguments you are most likely to encounter are the claims that raising tax rates on upper income Americans will fix the budget crisis and make things "fair" and that spending has already been cut. Both arguments are blatantly false and with the key facts, you can prove it. Unfortunately, you can expect that Uncle Bob and Aunt Susan have some mixed-up ideas about what has caused our fiscal crisis – and you can’t entirely blame them. Thanks to the
gargantuan size of the federal budget and complex nature of our tax code, it’s easy for pundits to say just about anything and get away with it. That’s why we have to know the facts inside and out.
First, raising taxes simply won’t raise enough money to curb Washington’s seemingly limitless capacity for reckless spending. According to the Congressional Budget Office, President Obama’s proposal to raise taxes on “high earners” will raise $960 billion over ten years. The federal deficit has been over a trillion dollars for the past four years. That means President Obama’s proposed tax hike will barely cover the deficit for even one year. Simply put, no amount of taxation on American income will impact our debt if Washington continues to overspend.
Second, increasing tax rates has a direct negative impact on economic growth, resulting in a smaller tax base and lower net revenues. Even Christina Romer, former chair of President Obama’s Council of Economic Advisors, admitted in a recent paper that raising taxes drives down investment and economic output. The best way to grow total revenues is to expand the “size of the pie” – to create conditions in which more business owners can build thriving businesses, hire more workers, and pay taxes on growing profits.