As politicians, businessmen and ordinary citizens brace for spending cuts and tax hikes in the new year, a long-term Republican adviser says the U.S. should take the "fiscal cliff" plunge.
"Let the fiscal cliff happen and reduce the deficit very substantially as a consequence,"says Bruce Bartlett, author of The Benefit and Burden: Tax Reform--Why We Need It and What It Will Take. The combination of spending cuts and tax hikes will eventually strengthen the economy he says, citing CBO analysis.
In contrast, Republicans' refusal to raise taxes would hurt the economy in the long run, Bartlett argues.
Bartlett, a former advisor to Presidents Ronald Reagan and George H.W. Bush and Congressman Ron Paul, explains why the GOP tax pledge has harmful consequences for the economy. Government spending will rise over the coming decades as more baby boomers retire. But if tax revenues don't keep pace with spending, the federal government will be forced to increase borrowing, which will increase interest payments on the debt.
According to Bartlett, a GAO report projects that the Republican plan to keep revenues at just under 18% of GDP will cause interest on the debt to surge from 19.2% of the deficit this year to 62% in 2020.
Bartlett is not advocating big spending increases --- he'd rather trim spending-- but he says revenues must keep up with spending. Going over the fiscal cliff is a move in that direction because revenues would rise as the Bush-era tax cuts expire for everyone, not just the top 2%, at the same that spending is reduced.
"Revenues are too low rather than spending too high," he tells The Daily Ticker's Aaron Task.
Bartlett doesn't know if and when Republicans and Democrats will agree to fiscal cliff deal, but he predicts that any deal will not happen "before the absolute last possible minute." Stay tuned.
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