One of the main arguments against the president’s re-election has been his refusal to address the trillion-dollar deficits he has run up in his term in office. Most people assume he simply has no interest in balancing the budget. I disagree. I think the president knows exactly how he will balance the budget: through massive tax increases.
Truth be told, the president has tipped his hand from time to time. During the debt ceiling negotiations of last year, he pushed hard for a tax increase. He hasn’t talked about it much on the campaign trail, however (save for a tax increase on higher incomes that, even if it provides all the revenue he says it will, wouldn’t even bring the annual deficit below $1T). However, given his near complete refusal to discuss any reductions in spending – and the fact that nearly every other Democrat talks about “revenue” – the president will almost certainly interpret his re-election as a de facto endorsement of major tax hikes. The fact that he would no longer need to face the voters will only encourage him to enlarge the tax increase as much as possible.
The results will be devastating.
I’ve explained before why tax increases are not the fiscal salve that so many people think they are: they don’t provide the revenue that is projected, and that failure ruins any deficit reduction plans before the proposed spending cuts can take effect – thus leading to a new deficit plan with more tax hikes and bad revenue projections. Southern Europe is littered with nations that are reeling from tax-hike-exacerbated recessions, revenue targets missed, and bond markets turning up their noses.
That is what awaits America after a 2013 tax hike, whether its the expiration of the 2001/2003 tax cuts and/or new tax increases – if I were a betting man, I’d put my money on “and” over “or”. The first tax-hike/deficit-reduction deal was enacted in 1982; the fifth such plan was enacted in 1993. None of them succeeded; in fact that deficit grew after three of them (1982, 1984, and 1990).
Only one thing is worse than ignoring our record deficits, and that’s trying to fix them with tax increases. It won’t work, and it’s failure will further scare off bondholders, thus crippling us. That is the fate that awaits us if the president is re-elected.
Cross-posted to Bearing Drift