Talk show hosts and other bloviators have spent hours giving their versions of the fiscal cliff.
In fewer than 750 words, I’ll explain the truth.
Taxes and the deficit are intertwined. If Congress can’t come up with a plan to solve those problems, the U.S. will jump into the abyss of a deeper recession than existed under the latter years of the Bush-Cheney administration.
Let’s first look at taxes.
The Bush tax cuts expire at the end of this year. The idea of the cuts was to spur the economy and give what is loosely called the “jobs creators” a slight push to hire more people.
But, the millionaire “jobs creators” held onto their money. They continued to downsize and outsource jobs, making even more money–which they used to buy whatever trinkets that rich people spend money on.
If Congress can’t agree on tax rates, beginning Jan. 1, 2013, every American will see a restoration of tax rates to a level that is about what they were before the Bush tax cuts. The lower- and middle-classes will be hit harder than the upper class.
President Obama, contrary to what the screaming harpies of the extreme Rightwing claim, doesn’t want to raise taxes. He wants the tax cuts to continue for 98 percent of all Americans–the ones making less than $250,000 a year. He wants to restore–note that word, restore, not raise–the tax liability for the richest 2 percent of Americans. The rate to the rich would still be below the rates they paid during most of the latter half of the 20th century. Even billionaires like Bill Gates and Warren Buffet agree that the rich need to be paying more.
The Republicans, knowing where their financial base is, demand that the tax cuts be extended to everyone. Their compromise was to allow the cuts to apply to everyone making $1 million a year or less. That would be net income, not gross income. Millionaires could still make $3 million a year if they can scam $2 million in deductions. Their rates would still be lower than almost any time since the income tax was first created in 1913.
The President countered with a $400,000 limit. That would include about 99 percent of all Americans. House Speaker John Boehner, however, found that a segment of his Republican party don’t want a compromise; they are determined to uphold some kind of a non-legal pledge to Grover Norquist that there would be no tax increases–ever–even if it is to restore, not raise, tax rates.
The second part of the problem is that of entitlements. The Republicans are willing to do some horse-trading. They won’t continue to hold 99 percent of Americans hostage if there are cuts in “entitlements” and programs that would significantly reduce the deficit. These entitlements benefit mostly the 99 percent. The Republicans even say they’ll consider closing some tax loopholes used extensively by the upper class. But, they won’t tell us what those loopholes are, even though the President has several times asked for specifics. Apparently, the Republicans believe releasing such information is classified, much like battle plans in Afghanistan or the number of toilet paper rolls the Pentagon buys.
The President has already compromised several times, but every time he makes a concession, the Republicans want even more. He has proposed an orderly reduction of the deficit by $1.6 trillion. Not good enough, say the dogma-driven Republicans. They want even more. And they want it now. They are aware that if the tax cuts expire all at once, the deficit immediately decreases, something that makes them drool in ecstasy. However, almost every economist of every political persuasion says a severe decrease in the deficit would lead the U.S. into an even worse recession than the one created by the Bush-Cheney administration.
Behind a wall of political gesturing, the Republicans are doing nothing, while blocking those who can do something. John Boehner now acknowledges he is blocked by party dogma and can’t control the Republican majority in the House who want the government to several cut entitlements while continuing all Bush tax cuts, even to millionaires who, not surprisingly, make up the majority of Congress. Their actions are driving America into fiscal cliff suicide.
The obstructionists in Congress need to realize this isn’t a deserted two-lane highway, and Americans don’t want the Republicans playing chicken with our nest eggs.
[Walter Brasch, a social issues columnist, has covered politics and government for four decades. His latest book is Before the First Snow: Stories from the Revolution.]
Succinct summary, but “financial abyss” is hyperbole. The worst that I’ve heard is a 3% drop in GDP and that’s not worth gutting the New Deal for. In fact, the scenario is 3% drop, then recovery. The only reason for the hysteria is the 1% who own the news media and most of Congress.
not to mention the fact that cutting military expenditure is a good thing in itself, and bring troops home from abroad would actually increase GDP slightly.
Most things in “the cliff” are actually a good thing from a Dem/progressive perspective – reduced inequality, higher tax revenues, reduced military expenditure, reduced borrowing, reduced corporate welfare, increased inheritance and capital taxes.
Old money hates its for all the same reasons – less inherited wealth, less lucrative government contracts, greater entitlements putting a floor on wages and reducing market share/profits for private insurers.
However the overall effect on GDP might be no more than to reduce growth from potential by perhaps 1% for a couple of years, not necessarily enough to drive the economy into recession, and not anything close to the Great Depression or Bush recession.
It is the GOP donor base who will scream the loudest, but they are often old money siting on its laurels and expecting an easy money – real entrepreneurs will take their place and grow the economy in the future. This is the old WASP elite screaming. It has little or nothing to do with the new America progressives should be building.
Lets not be bamboozled by conventional economics – as the author sadly is.
Crucial point:
This is painfully obvious by now. I don’t see democrats in congress and Obama making this point often enough. The other crucial point is the main reason why the wealthy are NOT investing in our country is simply because there is a lack of DEMAND for goods and services– and this is mostly due to the massive UNemployment and underemployment we have.
Let’s cut to the chase here: the constant drum-beating by wealthy class servants in congress (Boehner, McConnell, etc.) i.e. “tax cuts and fewer regulations will create jobs” is TOTAL bullcrap.
Tax rates were higher in the 1990’s under President Clinton, and 22 million jobs were created.
Currently, credible economists are predicting 1-1.5% GDP growth for 2013. that is pathetic.
As I’ve stated before here, there’s only ONE way to repair the financial dead-end we’re stuck in: the federal government must heavily invest in our nation’s infrastructure– and I’m talking about way more than the paltry $50 Billion Obama suggests in his budget.
The American Society of Engineers currently grades the condition of our infrastructure at “D” with “F” being fail. They recommend spending over $2 Trillion to get our infrastrcture to where it needs to be.
For every $1 Billion spent on infrastructure, 50,000 jobs are created. good paying, good benefits jobs for architects, engineers, construction workers, truck drivers, etc.
Do the math, figure the job growth if we were to spend the amount of money recommended to improve our nation’s infrastructure.
I don’t think anyone needs to explain the resultant growth in consumer spending for goods and services from the ripple effect from creating hundreds of thousands of infrastructure related jobs.
SOMEBODY has to goose our economy; clue: it’s not the wealthy class that’s going to do so.