An Ugly Deal: 4 Reasons the Fiscal Cliff Deal Is Worse Than It Looks

[marmar]

Campaign for America's Future / By Robert Borosage

An Ugly Deal: 4 Reasons the Fiscal Cliff Deal Is Worse Than It Looks
No one should be fooled. This is an ugly deal, with foul implications for the coming months.

January 1, 2013 |


Early this morning, the Senate passed the fiscal cliff deal by 89-8, a margin virtually guaranteeing that it will survive in the House. The deal has some good parts. It lets the Bush tax cuts expire on the wealthy, raises the estate tax marginally and increases taxes on capital gains and dividends a bit. Unemployment benefits are extended for a year. Tax boosts for the low paid workers – the child tax credit, expanded earned income credit, refundable tuition tax credits – are extended, if only for five years. Social Security, Medicare and Medicaid are not touched.

But no one should be fooled. This is an ugly deal, with foul implications for the coming months.

1. Setting Up the Next Extortion

The most ominous part of the deal is what was left out. The deal makes no provision for lifting the debt ceiling. It postpones the sequester (automatic cuts in domestic and military spending) for only two months. It is a smaller deficit reduction package than that originally sought by the president. It therefore sets up the right-wing House zealots to hold the economy hostage once more, while demanding deep cuts in public services (known as cuts in domestic spending), backed by a media frenzy about deficits. And while Social Security, Medicare and Medicaid escaped unscathed in this deal, they will be the prime targets in the coming debate.

2. Hiking Taxes for Working Americans; A Million Jobs Lost

By allowing the payroll tax cut to expire, every working American gets a tax hike of 2% of their income (up to about $113,000 in income). A worker making $50,000 a year will pay an extra $1,000 in taxes. Payroll checks will be cut. Belts will have to be tightened even more. That will lower demand, producing job loss totaling up to an estimated million jobs. (Taxes on the wealthy go up also, but those have only marginal effects on jobs). ...............(more)

The complete piece is at: http://www.alternet.org/ugly-deal-4-reasons-fiscal-cliff-deal-worse-it-looks

[Skittles]

1. that next extortion is right around the corner

[mike_c]

2. notice a pattern here...?

The "solution" to each manufactured "crisis" sets up another crisis just down the road, which will require another "deal" later. This is shock doctrine capitalism at work, brought to us by both major parties in Congress. Of course, playing the game this way requires winners and losers during each cycle of crisis, and the republicans don't have a broad enough power base in Washington to impose that suffering on democrats, so they lose and the dems win. At least the latest round of theater.

But each time, the real winners are the wealthy, the corporations, the power elite. And each time we are prepared to lose a little more in the name of achieving a wholly unnecessary "deal."

[Last Stand]

8. bingo.

and each time they chip away more.

[Melinda]

14. Oh yeah -- preach it brother!! Should be its own OP!!

I'd K&R this alone if possible!! TY!!!

[TreasonousBastard]

3. Oh, bugger off with this nonsense...

and do something to change the system if you must do anything at all besides complain.

Nobody likes this deal but if it's done it's done so now get on your congresscritter's ass about the debt ceiling, Pentagon spending, and the other stuff coming up that will bring the real fight. The House might just want to hold more than 10 bucks a month from SS payments in 10 years as ransom to avoid not paying anyone when the gummint shuts down again.

Has the Post Office phony deficit been dealt with? Do we still buy much more crap and have unneeded bases open because every Congressional district has at least one business that sells stuff to the Pentagon? What's the drug war or Mexican border patrols cost now? Science and education funding drying up while literacy rates drop but they want money to put guns in schools?

Could go on for pages, but the point is to stop bullshitting about this deal and get to work on some real problems.

[alcibiades_mystery]

4. Yeesh

Reasons 1 and 3 are the same: based on narrative of supposed past caves and speculation about supposed future ones. Both short on anything other than a favored narrative of those who oppose the President.

Reason 2 is an odd addition, since many far to the left of the writer agree that the payroll "tax" cut (which is really a reduced contribution to FICA - i.e., a reduction of the Social Security Trust Fund should certainly have been allowed to sunset, and was a conservative idea and Trojan Horse in the first place. Moreover, the calculation is wrong: it was never a 2% cut on total taxable income (which wouldn't be the full $50,000 anyway), but from within the FICA calculation. A worker making $50,000 a year will lose approximately $15 a paycheck, or less than $400 a year, and that money will be going to strengthen Social Security. Amateurish objection.

Reason 4 is actually cogent, if abstract. Yes, we should be wary of making the debate about deficits rather than about jobs. I agree with the writer on that. The rest of it is the usual nonsense.

[marmar]

5. If you think Robert Borosage opposes the president, you don't read his pieces very often.

nt

[alcibiades_mystery]

6. I don't care who he is

His reasons are not very compelling, and Reason 2 is plain old incorrect.

[Doctor_J]

11. Damn, you're bringing facts here again

No fair! You just hate the president!

[former9thward]

15. The 2% cut was not a "conservative idea".

It was proposed by Obama as part of the stimulus and he wanted it extended for a third year but the idea got dropped.

[phleshdef]

7. #2 is a good thing and no true progressive interested in social security solvency would disagree.

[TheKentuckian]

9. Reason #2 is goofy. Reason #1 is legit enough to make the rest something to think about

This whole chain of events is absurd and willfully crafted and very fucked up but the payroll holiday should have never been enacted and had to go or we'd be building a hell of a mess trying to maintain or of course expand the safety net.

[Jim Lane]

13. His point in Reason #2 is that the deal will suck out aggregate demand from the economy.

According to the Keynesian economic theory that's accepted by economists who aren't right-wing ideologues, that drop in aggregate demand will have a contractionary effect, including widespread job loss. If you want to denounce this view, you'll find plenty of support among the Tea Party types but not among liberals, progressives, and the rest of the reality-based community.

I understand the concern about the specific stimulus method involved (the payroll tax holiday). At one time I agreed with that concern. I've changed my mind because I now see it as simply a pass-through. The net effect is that money goes from the general fund to individuals who pay FICA taxes, and Social Security has the same revenues and expenses as it otherwise would.

Certainly, if it went on too long, it would create confusion in people's minds about how Social Security is funded. It should be ended at some point, for that reason and because there are more effective stimulus measures available. Nevertheless, that doesn't mean that ending the holiday has no impact on the economy. It does have an impact -- a contractionary one. Anyone assessing the overall changes that now take effect must take that contractionary effect into account, as Borosage has properly done.

[Wounded Bear]

10. Pushing the debate 2 months down the road....

means it gets debated by a Senate and House with more Democrats in them, more people affected directly by the recent election.

[Doctor_J]

12. More Dems like in 2009-2010?

can't wait!

[4dsc]

16. Point #4 says a lot too

But this entire debate is wrong-headed. You can’t fix the debt without fixing the economy. And deficit reduction won’t fix the economy. The recovery is too slow and too skewed to put people back to work. Deficit reduction can only slow it further.

We should be pounding point home with the public because nothing is being done to create jobs with any of this fiscal cliff shit. Does anyone care in DC?

[hay rick]

17. Feeding the deficit distraction.

The biggest problem is how the issue is framed. Borosage nails it here:

We need to address inequality frontally. That requires much more than small marginal increases in taxes for millionaires. It includes raising the minimum wage, empowering workers to organize and bargain for a fair share of the profits they help to generate, limiting perverse CEO compensation schemes. It includes a financial transaction tax that might curb Wall Street gambling.

We need to continue health care reform, taking on the entrenched lobbies — the drug and insurance companies, the private hospital complexes — that drive up our medical costs. If we paid per capita what other industrial countries pay for health care, we’d project surpluses as far as the eye can see. We have to fix our broken health care system.

But Washington is talking about none of this. Instead the Congress and the President are going to continue to debate how much more to cut from public services as if that would fix the economy. That debate is likely to turn foul. Republicans use the debt ceiling to demand structural cuts in Social Security, Medicare and Medicaid. They’ll likely be willing to repeal or dilute the sequester as an incentive to focus on the core security programs. And they’ll be convinced that the president will fold once more.

Americans are struggling with mass unemployment, declining wages, increasing insecurity, Gilded Age inequality. Trimming the deficit addresses none of these, and is likely to slow growth, making things worse.

The great American fiscal cliff debate is a distraction from and a substitute for dealing with the much greater problems of mass unemployment , underemployment, declining wages, and extortionate health care costs. As Borosage points out, steps taken to address the deficit are likely to make these problems worse.