All of the gnashing of teeth and wringing of hands about the need to avert the US “fiscal cliff” in January is dishonest. The truth is that the fiscal cliff began in 2001 when the then Republican-led Congress committed to funding two foreign wars in Afghanistan and then Iraq without cutting offsetting spending in other areas but while rolling out a series of time-limited tax cuts cited as necessary to revive the private sector from the 2001-02 recession.
These programs became known as the “Bush tax cuts” and specifically were implemented via the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The Bush tax cuts as originally agreed had sunset provisions that made them expire at the end of 2010. When this deadline approached however, whether to renew the lowered rates, and how, became the subject of extended political gridlock wherein the Democrats proposed an extension for only those earning less than $250,000 and the Republicans refused to agree to a rate increase for those earning more than $250,000. This stalemate resulted in a further two-year extension of lowered tax collection that was part of a larger tax and economic package, dubbed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In the meantime, and since 2001, government spending has continued apace while revenue collection has continued at the lowest levels in more than 50 years. This has resulted in the US government’s escalating reliance on debt issuance to fund its commitments.
Those who argue that the resumption of higher tax rates are disastrous, anti-growth and anti-America, are also succumbing to unsubstantiated hyperbole. Most developed countries including Canada have been paying tax rates at or above the US rates slated to resume in 2013. The US itself was collecting similar and even higher rates during its longest and most prosperous economic expansion in history from 1982 to 1999.
So the next time someone argues that tax cuts and current spending levels must be extended now “or else” the country will suffer dire financial consequences, let us not succumb to partisan nonsense. The crisis is already here and it has been well earned by both sides. For most it will never seem like a good time to cut spending and resume more responsible tax collection. The truth is that the time has come for adults to do both.