It won’t be easy for President Obama to do big things in his second term, with Congress still divided. Yet one legacy-caliber goal is easily within reach: Obama can restore fiscal balance without deep spending cuts by doing, well, nothing. By simply letting the Bush tax cuts expire at the end of this year, for everyone, and vetoing all future tax cuts, the president would leave office in four years with America’s fiscal house largely in order while ensuring a strong federal government for years to come.
Economists predict that allowing the U.S. to go over the “fiscal cliff” would produce a mild recession, and they are probably right. But with signs pointing to a slow yet steady recovery, that downturn would likely be short-lived and worth the longer term gain of achieving fiscal stability without taking a meat clever to key government programs.
Obama promised on the campaign trail that he wouldn’t raise taxes on the middle class and implied that repealing the Bush tax cuts for the wealthy would yield enough revenue. In fact, more than three-quarters of all revenue lost by the U.S. Treasury because of the Bush tax cuts is due to cuts that benefit households making under $250,000, according to the Congressional Budget Office. Simple math suggests that as long as the vast majority of earners are paying the lowest tax rates in half a century, it will be hard to tame the deficit without deep spending cuts.
Forcing such spending reductions, of course, was a key goal of the Bush tax cuts – which stand as the crown jewel accomplishment of small-government conservatives over the past two decades. If Obama lets the bulk of these tax cuts stand in his second term, he will grant a permanent victory to that movement and its agenda of steadily downsizing a range of federal programs.
To be sure, middle-class families are struggling, and higher taxes would be painful. Yet those Americans further down the economic ladder – the bottom 30 percent of households – are hurting far worse. If taxes on the middle class don’t go up, government spending for this group will face an unprecedented squeeze.