Fox News botched its explanation of the so-called "fiscal cliff" to shield high-income earners from an increase in tax cuts and falsely claimed that preventing a tax increase on 98 percent of taxpayers would not contribute to alleviating the problem. In reality, extending tax cuts to the majority of Americans would help reduce consumer uncertainty, which would contribute to short-term economic growth.
Appearing on Fox & Friends, Fox personality Eric Bolling explained that if the so-called fiscal cliff is not averted, "514 billion dollars of new taxes will hit America on January 1, 2013." Hosts Brian Kilmeade and Steve Doocy then claimed that President Obama's plan to raise taxes on the highest 2 percent of income earners would fall short of solving "half the fiscal cliff," as Obama had suggested in his November 14 press conference. From Fox & Friends:
In the segment, Doocy claims and Bolling agrees that since raising taxes on the highest income earners would only raise $80 billion dollars in revenue, it would fail to solve "half the fiscal cliff."
But their argument, which matches a figure of revenue against a figure of tax increases, is deeply flawed. The $514 billion figure Bolling cites is an estimate of the increased tax burden -- not a revenue shortfall -- scheduled to take effect in 2013. In fact, the rise in taxes would undoubtedly increase revenue. Instead, he falsely suggests the $514 billion would increase the deficit and is inadequately covered for by the $80 billion in revenue from raising taxes on the wealthy. Claiming that $80 billion in additional revenue falls short of solving "half" of the $514 billion in tax increases is misguided, as both measures move in the same direction of increasing revenue.
Furthermore, Doocy's claim that Obama falsely said raising taxes would solve "half the fiscal cliff" from a revenue standpoint misrepresents Obama's actual comments. From his November 14 press conference:
OBAMA: And so the most important step we can take right now, and, I think, the foundation for a deal that helps the economy, creates jobs, gives consumers certainty, which means gives businesses confidence that they're going to have consumers during the holiday season, is if we right away say 98 percent of Americans are not going to see their taxes go up; 97 percent of small businesses are not going to see their taxes go up.
If we get that in place, we are actually removing half of the fiscal cliff. Half of the danger to our economy is removed by that single step.
Obama is referring specifically to the policy uncertainty caused by the so-called fiscal cliff, not the impact on federal revenue. Indeed, uncertainty is a real concern and creates a damaging economic effect, with consumer uncertainty perhaps having the greatest impact. According to David Brodwin of the American Sustainable Business Council:
Finally, uncertainty does matter--a lot--when it comes to consumer spending, even though it has nothing to do with whether small businesses hire. If a consumer is worried about layoffs at their work place, they cut back on their spending. If a consumer has inadequate insurance, they cut back on their spending. If a consumer is worried about how they'll afford college, they cut back on their spending.
All this time we've been worried about the wrong kind of uncertainty. We can forget about the uncertainty created by a small bump in the top-bracket tax rates. We need to address the demand-destroying uncertainty that still afflicts far too many ordinary Americans. Once we fix that, demand will return and jobs will follow. [U.S. News, 11/5/2012]
Since current law will impose both spending cuts and tax increases, agreeing to extend tax cuts on the majority of Americans would go a long way in removing the consumer side of the tax uncertainty "half" of the fiscal cliff.
Removing this uncertainty would restore confidence among consumers and allow them to have sound expectations regarding their taxes. Robertson Williams, a senior fellow at the Tax Policy Center, warned consumers that, without knowing what tax bills to expect in the coming year, they should not "spend every penny in [their paychecks] this side of New Years," which could negatively affect economic growth in the short-term.