President Obama has made clear that he will not accept a deal to avoid the “fiscal cliff” that does not include tax rate increases for families making more than $250,000 annually. But just how much will this tax increase accomplish in terms of reducing deficits and putting the nation on the right fiscal track? As it turns out, not much.
For some perspective, think back to how Obama and Congress arrived at this point. In 2011, Congress created the so-called supercommittee to reduce the deficit as part of a deal to increase the debt ceiling and let the federal government borrow more money. But when it failed to agree on a sufficient amount in actual spending cuts, the supercommittee instead adopted notional spending cuts that are now set to take effect on New Year’s Day — the dreaded “sequestration.” These cuts come to $1.2 trillion over 10 years — about half a trillion each on defense and domestic spending, plus associated savings on debt service.
