Building an Economy that Works for Everyone

Let’s Go Over That Fiscal Cliff!

John Burbank, EOI Executive Director

John Burbank, EOI Executive Director

Hurray for the Republicans! They saved us from defeat by defeating themselves. Now President Obama holds all the cards. He should just hold onto them. What about the fiscal cliff? Indeed, what about it? It is a fiction of rhetoric, foisted on the American people by Wall Street and inside-the-beltway elites. Sort of like the Mayan end of the world, which didn’t happen today!

The elites want to use that fiction of the fiscal cliff as a mechanism for accelerating privilege and poverty. They want to “reform” Social Security to diminish its benefits, just when the private retirement system has collapsed in the delivery of retirement income. They want to move the goal posts for Medicare, putting off coverage until Americans are even older, and some of us are dead, just when we have participated in a national referendum in support of the Affordable Care Act and extension of health coverage. They want to claim, highlight, and exaggerate the federal fiscal deficit, but they don’t want to raise taxes to address it.

The fiscal cliff could be more aptly labeled a gentle uphill slope. On the other side of January 1st, new revenues will come into the federal government, after giving away trillions to the wealthy over the past 12 years. But, you may say, if the Congress does not agree to cuts in services and increases in revenue by December 31st, 2012, then the Bush tax cuts would automatically expire, and across-the-board spending cuts would kick in. That’s right – increases in revenue and cuts in services…..

And that is exactly what should happen. The rich would pay more taxes. Marginal tax rates would increase, so that married couples’ income between $222,300 to $397,000 would be taxed at 36 percent instead of the current 33 percent, and income in excess of $397,000 would be taxed at 39.6 percent instead of the current 35 percent. These rich people who have benefitted the most in our society; they should pay their taxes, not shirk their responsibilities. The Bush estate tax giveaways to the sons and daughters of the wealthy would end. Taxation on long term capital gains, interest, and dividends – all unearned income – would rise from 15% to 20%. These are good things for our society.

What else will happen? The FICA tax for Social Security will return to its level in 2009 – 6.2%. This too is a good thing – it sustains revenues for Social Security. Marginal taxes for incomes below $222,000 will also rise. For households in the middle of the income spectrum – between $40,000 and $65,000 – taxes would rise $17 a week.

The fiscal cliff would result in a quarter percent reduction in federal spending, split between domestic and war/defense expenditures. Social Security, Medicaid, federal pay (including military pay and pensions), and veterans’ benefits are exempted from the spending cuts. Spending for federal agencies and cabinet departments would be reduced through broad, shallow cuts. Not much of a cliff….

The world didn’t end today and won’t end on December 31st. If Congress does nothing, we begin on January 1st with a reset in revenue… back to the sensible taxation of the pre-Bush era. We will have a newly re-elected President and a new Congress to determine how to create jobs, enable a stimulus targeted to the middle class, and have a federal government that can and will embrace its leading role in our economic recovery.

As immediate measures, the President could insist on a tax cut on incomes below $100,000, a one-time immediate tax credit of $500 per FICA-paying household, restoration of cuts in domestic programs such as student aid, food stamps, and federal unemployment insurance, an increase in the COLA for Social Security to take account of the expenditures of the elderly, and middle class recovery block grants to states. These block grants should fund new jobs building the transportation infrastructure for the 21st century, and finance the hiring of teachers, community college professors, and health workers.

In November, Americans did not vote for reducing Social Security and Medicare, and increasing privilege. They did not vote for Wall Street. They did not vote for the inside-the-beltway elites. They voted for a pathway for progress for all Americans. They understood the role of the federal government in enabling that pathway. Articulating this pathway should be President Obama’s affirmation of the electoral choices made in November. And it would pave the way for a real and accelerating economic recovery that brings jobs and hope to Americans. So let’s hop into that zodiac and go over the fiscal cliff…it is more of a meandering stream than Niagara Falls. It leads back to the future, to an era of good jobs, low unemployment, and an economy that works for almost everyone. Remember those years?

From the Huffington Post

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