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Understanding the Fiscal Cliff (in 2 Minutes 30 Seconds)

Democrats, here are eight principles to guide you in the coming showdown over the fiscal cliff:

ONE: HOLD YOUR GROUND. The wealthy have to pay their fair share of taxes. That’s what the election was all about, and we won. It’s only fair they pay more. They’re taking home record share of national income and wealth, and have lowest effective tax rate in living memory.

TWO: NO DEAL IS BETTER THAN A BAD DEAL. You’re in a strong bargaining position. If you do nothing, the Bush tax cuts automatically expire in January, and we go back to rates during Clinton administration. Which isn’t such a bad thing. As I recall we had a pretty good economy during the Clinton years.

THREE: MAKE REPUBLICANS VOTE ON EXTENDING THE TAX CUTS JUST FOR THE MIDDLE CLASS. After all the Bush tax cuts expire, have Republicans vote on an extending the Bush tax cut just for the middle-class. If they refuse and try to hold those tax cuts hostage to tax cuts for the wealthy, it will show whose side they’re on. They’ll pay the price in 2014.

FOUR: DEMAND HIGHER TAX RATES ON WEALTHY, NOT JUST LIMITS ON DEDUCTIONS. Don’t fall for Republican offers to limit some tax deductions on the wealthy. Demand we go back to higher tax rates on the wealthy and eliminate their unfair tax loopholes, so they truly start paying their fair share.

FIVE: DON’T CUT SAFETY NETS. Don’t sacrifice Medicare or Social Security, or programs for the poor. Americans depend on these safety nets and can’t afford any benefit cuts.

SIX: DON’T CUT INVESTMENTS IN OUR FUTURE PRODUCTIVITY. Education, basic R&D, and infrastructure aren’t spending; they’re investments in our future prosperity. If the return on these investments is greater than the cost, they ought to be made, period.

SEVEN: CUT SPENDING ON MILITARY AND CORPORATE WELFARE. You want to cut, cut spending on the military — which now exceeds the military spending of the next 13 largest military spenders in the world combined. And cut corporate welfare — support to agribusiness, oil and gas, Big Pharma, big insurance, and Wall Street.

EIGHT: PUT JOBS BEFORE DEFICIT REDUCTION. Finally, Don’t cut the budget deficit as long as unemployment remains high. Otherwise you’ll cause the economy to contract, making the deficit even larger in proportion. That’s the austerity trap Europe has fallen into. We need to create American prosperity, not European austerity.

Remember: Jobs come first.

This piece is cross-posted from Robert Reich.org with permission.

3 Responses to “Understanding the Fiscal Cliff (in 2 Minutes 30 Seconds)”

AndrewMGarlandDecember 5th, 2012 at 12:52 am

TWO: "If you do nothing, we go back to the Clinton tax rates. We had a pretty good economy during the Clinton years."

Yes, let's raise taxes on everyone, and re-experience the boom of the Clinton years. Except, higher taxes don't produce prosperity. What would the mechanism be?

Actually, the economy improved because Clinton restricted the growth of government spending, and reluctantly agreed to a later tax cut pushed by Republicans.

FOUR: "Demand higher tax rates on the wealthy. Make them pay their fair share."

OK, what is the secret number for the highest tax rate, the percentage of extra income which is "fair". No one seems willing to set that limit. Is it 100% under particular circumstances?

FIVE: "Don't cut the safety nets."

OK, then the middle class will have to pay for government's promises on Social Security and Medicare.
7/11/2012 – Bloomberg by Laurence Kotlikoff [edited]
=== ===
In fact, the Social Security system is desperately broke.

The proof is buried deep in the trustees’ own 2012 report in a complex table IV.B6. The system’s actuaries prepare the report’s tables. It is a long-run balance sheet for Social Security. It shows that the system’s $88.9 trillion in liabilities exceed its $68.4 trillion in assets by $20.5 trillion.
=== ===

The required increase in taxes is about $200 billion per year, increasing in future years. The proposed tax increase on the wealthy is supposed to return $80 billion, but will probably yield less. The remaining $120 billion would have to come from the middle class.

So, certainly, don't cut the safety nets. Everyone working should be proud to pay up, and then make their children pay up for their own retirement.

SIX: "Don't cut investments in our future productivity."

- Government is encouraging students to graduate with $100,000 in education loans, with no big jobs waiting.
- Government has wasted money chasing a "green" future. Think $500 million lost on Solyndra, as an example.
- Government has invested in the future by building thousands of sidewalks to nowhere.
- Basic R&D which pays off is run by private industry.
- Government encourages green energy projects which will supposedly pay back their investment in 20 years. That return of "greater than the cost" is not enough to live on. Think of a bank account that pays back $5 on your balance of $1,000 after 20 years. Industry typically earns 10% per year on invested capital.

SEVEN: "Cut spending on military and corporate welfare."
Yes, the military could use a review, if those congressmen of both parties would give up their military pork. Incidentally, Big Pharma is one of the big winners under ObamaCare, which guarantees more customers, subsidies, and higher profits for them.

EIGHT: "Don’t cut the budget deficit as long as unemployment remains high."

False Austerity
5/23/12 WSJ – David Malpass
=== ===
Economics has often ignored the critical distinction between austerity for the government and government-imposed austerity on the private sector. In the former, governments which are over-budget sell assets, restrain their hiring, and limit their mission to essentials. That's growth-oriented austerity.

In the private-sector version of austerity, governments impose new taxes and mandates on the private sector while maintaining their own personnel, salaries and pensions. That's the antigrowth version of austerity prevalent in Europe's austerity programs.

Many economic models, including the U.S. Congress's budget scoring system and Keynesian stimulus, ignore national debt levels and disregard whether spending decisions are made by the private sector or the government.

This creates the absurd result that an economy in which the government spends and invests increasing amounts, even 100% of GDP, has the same projected growth rate as an economy where the government spends and taxes less.
=== ===

PhoebeAnnSharpDecember 11th, 2012 at 7:52 am

" It’s only fair they pay more. They’re taking home record share of national income and wealth, and have lowest effective tax rate in living memory."

What's even more relevant, IMHO, is that the entire economic and political system is heavily biased toward the wealthy. We have choices. It's significantly easier for us to live, borrow, invest, and grow our wealth than it is for the 97%. We may have earned it only after years of hard work, or through years of cheating and theft, but it's only fair that we contribute more to the country (and the 97%) that make this possible.

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