Friday, December 28, 2012

"Going Over The Cliff" Might Be A Good Thing

Veronique de Rugy makes the case for "going over the cliff". As she correctly points, that has its negative side in the form of higher marginal tax rates, something that is bad for growth, but nevertheless, it is long overdue for Americans to decide whether they want big government or not, instead of continuing the current policy of small government when it comes to taxation and big government when it comes to spending. In the long run, the current deficits that the combination of low taxes and high spending means is both unsound, harmful and unsustainable.

So ultimately, they 'll have to choose between either raising taxes (and that means higher taxes not just for the rich, but for the middle class as well) or cutting popular spending programmes or do a combination of these two. What the so-called "fiscal cliff" means is in fact doing that third option of both raising taxes and cutting spending to cut the current deficit of more than $1 trillion a year by half.

Not stopping it would therefore represent a great leap toward ending the current unsustainable and unsound build up of debt. The fact that the so-called debt ceiling (currently at $16.4 trillion, more than $2 trillion higher than 16 months ago) will be reached on the last day before "the cliff" could be viewed as a sign that the massive deficit reduction it means should be implemented, even though parts of it (the marginal tax rate increases) are bad for growth.