• With: Avik Roy, The Manhattan Institute

    This is a rush transcript from "On the Record," December 26, 2012. This copy may not be in its final form and may be updated.

    KIMBERLY GUILFOYLE, FOX NEWS GUEST HOST: The nation is on edge, everyone fearing a dive off the fiscal cliff -- well, almost everyone. One economist said we need to go over the cliff. Avik Roy is a senior fellow for the Manhattan Institute and he joins us. Thank you for being with us tonight.

    This is an interesting colleague. And one of my colleagues on "The Five" says go over the cliff. It's the only way we will rein in the reckless spending that has no regard for the Americans who are working very hard every day for the paychecks. And they are afraid. They are afraid the paycheck will be further dwindled away come next year when this electorate is unable to come to a responsible compromise.

    AVIK ROY, MANHATTAN INSTITUTE: I think that's totally right, Kimberly. In November we voted for Obama's supersized government. So what is the fiscal cliff? The fiscal cliff is the check. It's the tab after the buffet of all that spending.

    And so the irony is everyone in the beltway thinks it's so terrible we are going over the fiscal cliff because it's so irresponsible. Well, ironically it's the opposite. The whole point of the fiscal cliff is when the fiscal cliff is cleared and we jump over it, we are getting rid of all the accounting gimmicks, the temporary stings of things that allow Congress to pretend it's being fiscally responsible when it's not.

    What's going to happen after the fiscal cliff? A lot of taxes will go up but taxes will go up on everybody, not injure the guy around the tree that's paying for everything but everyone will have to pay. And then folks will realize the government we are voting for costs us money too.

    GUILFOYLE: That's the thing. If we don't go over the cliff and they don't reach a compromise, what will happen? They can't afford to keep spending like this. Won't spending have to go down by virtue after compromise not being reached?

    ROY: Spending will go down a little bit because of the sequester and defense spending, what you talked about on the show quite a bit. A big chunk of the deficit reduction comes from tax increases. Little the end of the unemployment benefits of that been going on for a while, the payroll tax holiday and the alternative minimum tax, which is going to grab more and more people.

    The point is you will have less subsidies for lower income people who are unemployed today and also higher tax on middle income Americans. It's not great. None of us want tax increases. But at the end of the day trillion dollars deficits are bad, too. Trillion dollars deficits every year as far as the eye can see, that's a tax on our kids, our grandchildren, on people who have saved their whole lives and done the responsible things. So trillion dollars deficits are a tax, too, and I think that's what we have to understand.

    GUILFOYLE: It's not good leadership to pass the buck, especially on future generations. They don't deserve to pay for our problems and irresponsibility.

    What do you think is the biggest problem with raising taxes on the wealthy, because it's so easy for the liberals to say raise the taxes on the rich, punish them?

    ROY: Well, the president likes to say the rich needs to pay their fair share for the tax burden of the United States. The funny thing is, actually if you look at all the developed countries in the world, the U.S. tax code is the most progressive in the entire developed world. The wealthiest Americans pay the largest share of the tax burden in the U.S., much more so than in European countries.

    So the Boehner plan b and the some of the things the president and the Democrats want to do, it would make that problem a lot worse. If wealthiest Americans pay that much more of the tax code than is normal for a developed country, what ends up happening? The middle class feels like they can have all this spending but not pay for it themselves. So I think going over the fiscal cliff, at least, we are all sharing in the responsibility of paying for the big government we seem to want.

    GUILFOYLE: And a lot of disappointment by Boehner's bill not being able to be passed in the house. We will see what happens in the next few days before 2013 hits us and probably hits us hard. Thank you so much for being with us.

    ROY: My pleasure, Kimberly, nice to see you.