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Wed Nov 21, 2012, 11:02 PM

The “Fiscal Cliff” Hoax [View all]

The scare of a so-called “Fiscal Cliff” is basically a trick created by right wing elites to get us to accept cuts to social safety net programs like Social Security, Medicaid and Medicare – as well as to extend the Bush tax cuts for the rich. If extending tax cuts for the rich doesn’t sound to you like a good way to reduce the federal deficit, you’re not alone. Yet despite the massive evidence to the contrary, and against the opinions of any decent economist not in the pockets of Wall Street, the right wing elite want us to believe that decreasing their taxes will create jobs, reduce the federal deficit and stimulate our economy.


The so-called “Fiscal Cliff”

So what exactly is the “fiscal cliff”? At the end of December 31, 2012, two things will happen if some sort of deal isn’t cut to prevent it. One is that the Bush tax cuts for the rich will expire, and the top marginal tax rate will go back to the 39.6% that it was during the Clinton administration. That in itself would go a long way towards reducing our federal deficit. And it would not reduce jobs or slow down job growth. During the Clinton Presidency our economy was much better, unemployment was much lower, and small businesses grew twice as fast as after the Bush tax cuts for the rich. And we then had a budget surplus.

Along with taxes on the rich going back up to Clinton era levels, there would also be a modest rise in taxes on the middle class. So how could that be rectified? Legislation has already been passed by the U.S. Senate to restore the middle class tax cuts in 2013, and President Obama has vowed to sign that into law if the House goes along with it. Would the House dare to refuse to do that? What would that do to their re-election chances?

The other thing that will happen after the end of this year if a deal isn’t cut first is that there will be various automatic cuts to domestic and military spending. Those consequences are not cut in stone, but rather are a Tea Party/GOP manufactured crisis. They demanded those future automatic cuts in the summer of 2011 in return for their agreeing to raise the debt ceiling so that our country could pay its debts and avoid crashing the economy. It was blackmail. Right wing zealots in Congress created this “crisis”, and they could just as easily un-create it by acquiescing to a reversal of the spending cuts they voted for in 2011.

This is what Nobel Prize-winning economist Paul Krugman had to say about the so-called “fiscal cliff”:

Contrary to the way it’s often portrayed, the looming prospect of spending cuts and tax increases isn’t a fiscal crisis. It is, instead, a political crisis brought on by the G.O.P.’s attempt to take the economy hostage. And just to be clear, the danger for next year is not that the deficit will be too large but that it will be too small, and hence plunge America back into recession.

And as for their motives:

It’s not just the fact that the deficit scolds have been wrong about everything so far. Recent events have also demonstrated clearly what was already apparent to careful observers: the deficit-scold movement was never really about the deficit. Instead, it was about using deficit fears to shred the social safety net. And letting that happen wouldn’t just be bad policy; it would be a betrayal of the Americans who just re-elected a health-reformer president and voted in some of the most progressive senators ever.


The real crisis

So why did Krugman say that the danger “is not that the deficit will be too large but that it will be too small”? Our federal deficit at this time is not all that much larger as a percentage of our GDP than it has been in the past, as you can see from this chart:



Our major problem at this time is our very weak economy and the joblessness that goes along with it. Economists have long known that this kind of problem is not solved by decreasing spending, but by increasing it on things that put people to work. It is exacerbated by the kind of severe income and wealth inequality that our country is now experiencing and that our right wing elites want to make even more severe. It is exacerbated by cuts to social safety net programs that our right wing elites want to privatize and destroy. Robert Borosage explains:

Virtually every aspect of this hysteria is wrong. The United States does not have a short-term deficit problem, and the fundamental long-term problem isn’t one of soaring debt; rather, it is the lack of a foundation for sustainable growth that includes working people…

Austerity is, paradoxically, likely to undermine the stated goal of deficit reduction. Cutting spending… in a weak economy destroys jobs and slows growth. The increased unemployment leads to declining tax revenue as well as increased demands on government services, all of which adds to the deficit. This is the famous “debt trap” recently experienced in much of Europe, where premature and harsh austerity drove many EU countries into recession…

Putting people back to work does more to reduce deficits than any other factor. That requires more federal spending now, preferably in areas vital to the economy, like modernizing our infrastructure and keeping teachers on the job. Once the economy is growing and people are working, the deficit will come down. Additional steps can be taken, if necessary…


What Americans do not want

Most Americans are against what the right wing elites are trying to force upon on with their “fiscal cliff” scare. They are against “requiring deep cuts in domestic programs without protecting programs for infants, poor children, schools and college aid” (75%); they are against “cutting discretionary spending, like education, child nutrition, worker training and disease control (72%); they are against cutting taxes for the rich and corporations (67%), and; they are against “reducing Social Security benefits by having them rise more slowly than the cost of living” (62%). And all this is despite the massive propaganda efforts of our right wing elites.


What we should do

Robert Borosage sums up the situation that we now face, and how we should address it:

The essential dynamic is that Democrats reward Republican intransigence with concessions. Republicans refuse to hike taxes, so to entice them, Democrats offer the crown jewels: Medicare and Social Security. Republicans still resist tax hikes, so the austerity crowd suggests “reform” that will in theory bring in more revenue while lowering tax rates (on the rich)….

The debate we should be having is about how to make the economy work for working people again, how to revive a broad middle class and make the American Dream more than a nostalgic fantasy….

A serious long-term commitment to rebuild America would renovate our infrastructure to withstand the extreme weather that is already upon us. It would break up the big banks and shackle finance so that it serves, rather than threatens, the real economy. Measures to transform corporate governance, curb excessive executive compensation, and empower
workers to organize and bargain collectively would help counter extreme inequality…

It would feature progressive tax reform, compelling the wealthy and corporations to pay their fair share. It would continue healthcare reform and guarantee affordable care as a right for every citizen, not a privilege allowed only to those who can afford it…

Reaching no deal is preferable to a bad one that cuts entitlements. Going over the so-called fiscal cliff is perilous, but probably preferable to a bargain under the terms currently in play. With no agreement, the Bush tax cuts would expire. In January the Senate would immediately push to revive the lower rates for everyone but the top 2 percent….

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