Right-wing media figures are urging Republicans to refuse to compromise on budget and taxes, action that would induce automatic government budget cuts and broad tax increases and herald another recession. But economists agree that a budget deal needs to include some tax increases, which would significantly raise revenue, and that more revenue must be part of a balanced solution to lowering the deficit.
Right-Wing Media Advise GOP Not To Compromise On Taxes Even If End Result Is A Recession
Sean Hannity: “If We Go Off The Fiscal Cliff, Go.” On his radio show, Fox News' Sean Hannity said that Republicans “were not elected to rubber stamp” President Obama's agenda, and so if Democrats won't accept a deal that Republicans offer, “if we go off the fiscal cliff, go, because Democrats are publically stating they want it.” He suggested that the subsequent recession would be blamed on Democrats and Obama, not the Republicans. [Premiere Radio Networks, The Sean Hannity Show, 11/28/12]
Angela McGlowan: “We Should Let President Obama Go Over The Cliff.” On Fox Business Lou Dobbs Tonight, Fox contributor Angela McGlowan said that she had been “optimistic” about the prospects for a budget deal, but that "[w]e should let President Obama go over the cliff." [Fox Business, Lou Dobbs Tonight, 11/29/12]
Michelle Fields: GOP Should “Of Course” Risk A Recession Rather Than Compromise On High-End Tax Raises. Frequent Fox guest and conservative pundit Michelle Fields told Fox host Neil Cavuto that Republicans have the stronger hand in negotiations over the budget because the president would receive the blame if a deal is not reached. Fields said: “Republicans are at an advantage right now. If these tax cuts expire, what's going to happen is we're going to enter into a new recession, and who is that going to hurt politically? That's going to hurt Obama because that's going to prevent him from achieving what he hopes to achieve in the second term.” After Cavuto asked if Republicans should “play with fire on this and risk” a recession, Fields responded: “Yeah, of course. I think they need to demand spending cuts. They're the ones who have the leverage.” [Fox News, Your World with Neil Cavuto, 11/28/12]
Wash. Post's Thiessen: “Going Over The Cliff Would Help The GOP.” Former George W. Bush speechwriter Marc Thiessen wrote an Op-Ed detailing several reasons why the GOP should allow the fiscal cliff to pass. He listed several Democratic policies that would be undermined by going over the cliff, including the child tax credit, payroll tax cut, earned income tax credit, and lower rates on lower income workers. He added that going over the cliff “would save Republicans from having to break their pledge not to raise taxes.” [The Washington Post, 11/19/12]
But Failure To Reach A Budget Deal Would Lead To A Recession
Federal Reserve Official Warned That Failure To Reach A Deal “Would Drive The U.S. Economy Into A Recession.” Federal Reserve Bank of New York president William Dudley reportedly stated that impending tax hikes and spending cuts “would drive the U.S. economy into recession” :
Continuing political gridlock in the fiscal cliff fight will hurt the U.S. economy, an influential Federal Reserve official said Thursday morning.
“Congress and the administration must address the fiscal cliff in a manner that creates a credible framework for long-term fiscal sustainability,” said William Dudley, president of the Federal Reserve Bank of New York, in a speech at Pace University in New York City.
“Failure to reach a credible [budget] agreement would suggest a degree of political dysfunction that would undermine U.S. economic leadership and could encourage global corporations and investors to take their business elsewhere,” he said, noting that economic leaders abroad “wonder whether our political system is capable of putting the national interest above partisan interests.”
Dudley warned that going over the so-called fiscal cliff, or letting a series of planned tax hikes and spending cuts take place on Jan. 1, “would drive the U.S. economy into recession.” He also noted that a protracted fight could damage the economy by hurting confidence. [Huffington Post, 11/29/12]
CBO: Budget Changes Will Lead Unemployment “To Rise To 9.1 Percent” By The End Of Next Year. The Congressional Budget Office found that the U.S. economy “will drop by 0.5 percent in 2013” if the “substantial changes to tax and spending policies [that] are scheduled to take effect in January 2013” actually take effect. CBO also found that “the contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent.” [Congressional Budget Office, 11/8/12]
Wash. Post: Failure To Reach A Budget Deal Would Hurt Economy “Quite A Lot.” In a Washington Post article on Wonkblog, economics editor Neil Irwin wrote that those who argue that it won't be very bad for the economy if Congress and the White House can't agree to a deal are misguided because this “seems like a naïve way of viewing the situation, one divorced from the real ways that markets and psychology interact with economic forces.” Irwin wrote:
Some would argue that it won't be very bad at all. That's the answer the normal analytical tools would offer. But this is one of those situations where the normal analytical tools might be leading people astray: There is every reason to think even a short exercise in cliff-diving would hurt quite a lot.
“I fear it could be much, much worse than those who blithely assert that it wouldn't be so bad,” said Michael Feroli, chief U.S. economist at J.P. Morgan Chase.
The economic impacts of any legislative debate are almost impossible to measure in real time. But the stock market renders its verdict every second of the trading day. If the talks are going off the rails in the final days of December, with no accord in sight, it may well be the markets, looking forward to the ill-effects to come, that provide a certain focus for recalcitrant lawmakers.
That is exactly what happened on Sept. 29, 2008, when the House of Representatives rejected the bank bailout bill known as the Troubled Asset Relief Program that the Bush administration was pushing. As the votes came across the screen on C-Span, the stock market began a stunning descent, and the Standard & Poor's 500 dropped almost 9 percent in one of its worst days ever. It would have taken weeks or even months to know how bad the damage to the real economy would be from a failure to rescue American banks.
That got the lawmakers' attention, and four days later they passed the bill with only modest changes. [The Washington Post, 11/13/12]
Economists Agree Revenue Must Be Part Of A Balanced Solution To Deficit
Former Bush Economic Adviser: “Both Tax Increases And Spending Cuts Are Required” To Lower Deficit. The Hill reported that N. Gregory Mankiw, chairman of President Bush's Council of Economic Advisers, believes “both tax increases and spending cuts are required” to lower the deficit:
America has both a spending problem and a revenue problem -- too much of the former and too little of the latter. Every serious student of the federal budget, right, left and center, agrees that any realistic solution requires a combination of spending cuts and revenue increases.
Democrats and Republicans on the Simpson-Bowles Commission knew that both revenue increases and spending cuts were necessary to deal effectively with our deficit problem.
N. Gregory Mankiw, the chairman of George Bush's Council of Economic Advisers, knows both tax increases and spending cuts are required. Indeed, Mankiw argues, “The distinction between spending and taxation is often murky and sometimes meaningless.” [The Hill, 6/28/11]
NY Times: Obama's Proposal To Allow Bush Tax Cuts To Expire For Wealthier Americans Would Raise $850 Billion In A Decade. The New York Times reported that “economists estimate that letting the cuts expire for people above that threshold would generate $850 billion over 10 years” :
President Obama, drawing a contrast with what he called Republican trickle-down economics, called on Monday for temporarily extending the Bush-era tax cuts for people making less than $250,000 while letting the taxes of the wealthiest go up.
A one-year extension for people making under $250,000 would cost the government $150 billion in revenue, the administration estimates, an amount that would be added to the deficit. In a point of comparison, economists estimate that letting the cuts expire for people above that threshold would generate $850 billion over 10 years. [The New York Times, 7/9/12]
Former Reagan OMB Official: “I Think The Biggest Problem Is Revenues.” In an interview with Talking Points Memo, David Stockman, a former Office of Management and Budget director under President Reagan, responded to Rep. Paul Ryan's budget plan and stated: “I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn't part of the solution. It's a measure of how far off the deep end Republicans have gone with this religious catechism about taxes.” [Talking Points Memo, 4/11/11]
Paul Krugman: “Government Spending Has Continued To Rise More Or Less On Its Pre-Crisis Trend” While “Revenue Has Plunged.” In an October 17, 2010, post on his New York Times blog, Nobel Prize-winning economist Paul Krugman wrote:
For all those commenters saying that we must have had a surge in government spending -- I mean, look at the deficit! -- a simple picture:
Government spending has continued to rise more or less on its pre-crisis trend. Revenue has plunged, because the economy is deeply depressed. [The New York Times, 10/17/10]
For more on what experts are saying about increasing government revenue as part of a deficit solution, click here.