Boehner gets over three trillion dollars in budget cuts.

Obama wants 400 billion dollars in new taxes.

Boehner walks away from the table.

Big money. High stakes. And the future of our economy hangs in the balance.  Too bad a lot of that is simply not true.  Let's take a look.

The first thing to understand is that these numbers represent an action lasting 10 years.

So three trillion dollars in budget cuts means $300 billion a year.  The total 2011 federal budget was 3.82 trillion dollars.  $300 billion is only 7.8% of that.  The federal deficit for that period is $1.48 trillion, so Boehner's "get" is effectively reducing the deficit to $1.18 trillion annually.

In 2011 there was $2.1 trillion in revenue, and approimately $950 billion of that was income taxes.  A $40 billion increase in that would be a 4.2% increase.  So the 35% top rate would increase to 36.47%  For every $100 in taxes, the increase would be $4.20.

If those tax increases would go toward just the deficit, they would pay only 2.7% of it.

And these figures are based on the notion that the federal budget was frozen for the next ten years. That is not likely, and since these cuts and taxes are in dollars and not percentages, the value of these numbers will decrease a inflation increases.  Using the modest GDP inflator, inflation over the last ten years was about 22%.  We could use that to project over the next ten years, and the $1.18 trillion annual deficit would be back up to $1.44 trillion annually, adding another $13 trillion to the national debt.  That is doubling today's debt!

So what is the big fight about?  You would think they were arguing about saving the economy but at best it is a band-aid.  And they are arguing about whether the band-aid should be a strip or a square one.  And as they fight about whether to stay in the fat or jump into the fire, the US credit rating hangs in the balance.  If that gets downgraded, these changes will me mean nothing.

And it is because the real solutions are scary.  If we were to balance the budget with budget cuts alone, it would me cutting $1.48 trillion in spending. That's 39%.  It is more than all discretionary spending, including defense.  It is more than all of Social Security, Unemployment, Welfare, and Medicaid combined. I don't think that those who believe we can cut our way out of this mess realize that.

Perhaps just higher taxes are the way to go.  Today individual taxpayers pay about $950 billion in income tax.  To pay for the $1.48 trillion shortfall, taxes would have to be raised 150%, we would be paying two and one half times the amount we collectively pay today.  If revenue from all sources were raised (totalling $2.17 trillion) taxpayers would still be looking at a 65% tax hike (but be warned, everything will be more expensive because everything from corporate tax to import tariffs will be raised as well.)  Sound like an attractive plan?

A long-term approach will necessarily involve cutting and increasing revenue.  And if we are serious, however it is done, it is going to hurt.

So let's go back to who and what is currently holding our economy hostage.  It will hardly make a dent in the overall issues facing us.  The fighting is not about a mountain, but a molehill. 

There are no fixes here, only political games.  Much ado about almost nothing.