What is the fiscal cliff?
An inflammatory term used by corporate elites to resist paying higher taxes and to allow them to keep offshoring jobs. Rather than prioritizing job creation and economic recovery as the road to long-term fiscal health, these advocates of austerity are using misguided hysteria about the federal debt level to further drive down the living standards of working people, the poor and the elderly. A more accurate term for the “fiscal cliff” would be “fiscal fake-out.”
So it doesn’t actually exist?
It exists–but it’s more like a gentle slope or “fiscal obstacle course” that needs to be negotiated in a way that shores up the incomes of working people and the poor and makes the rich and corporations pay their fair share in taxes–after they grabbed 90% of the income generated by the weak economic recovery.
No, really. What is it?
If no changes to the Budget Control Act of 2011 are made before January 1, 2013, the Bush tax cuts will expire (including those for the rich), as will the payroll tax cuts. Extended unemployment benefits will be ended, and an additional $110 billion in spending cuts will go into effect. Half of the cuts will be in defense and half in discretionary domestic programs, which fund anti-poverty programs and the federal regulatory agencies.
What would be the effect if the tax increases and spending cuts occurred all at once?
It’s unlikely that we’ll go over the “fiscal cliff” without any changes in the mandated tax increases and spending cuts. But if we did, there would be a drop in the budget deficit by $500 billion in 2013 and a corresponding damage to the economy due to this large drop in effective demand. A great deal depends on which programs sustain cuts, how soon these cuts take place and whether or not higher tax rates are imposed on the rich and corporations, but not the working class. Though critical anti-poverty programs are slated for massive cuts if there is no solution, the executive branch could delay the effects of the cuts and tax increases on working people until March 1 or so. Thus, the Obama administration should bargain tough and not rush into a bad bargain. The administration has leverage, as the Right doesn’t want to take blame for tax increases on the middle class and they desperately want to preserve defense spending.
Why are we hearing so much about the fiscal cliff at this time?
Basically because Wall Street, large corporations and other members of the 1% are hoping to stampede us into an agreement that would exempt them or their favored programs from any cuts or tax increases. They are also hoping to slide something by during the lame duck session and to once again induce President Obama into a “grand bargain” that would likely avoid defense cuts and hit ordinary Americans with measures like later retirement ages, cuts in the real value of Medicare and Medicaid benefits and the use of a new cost of living measurement for annual Social Security increases. All these “reforms” would cut existing benefit levels. Many anti- poverty advocates fear that the 1% are using the fiscal cliff to undermine Social Security by transforming it from a universal social program to a means-tested program with diminishing benefits for seniors.
Are there ways to avoid these effects? Don’t we have to reduce the debt and raise government funds?
Yes, but we have to be smart about it and be aware that government action to restore full employment and economic growth is the best way to achieve long-term debt reduction. As the fate of southern Europe demonstrates, you can’t cut your way out of a recession; and unless the cuts planned by “fiscal cliff” hysterics are avoided, working poor and single-parent families will be adversely affected, because the domestic cuts will come in Title I funding for low income schools, home heating assistance, WIC, extended unemployment benefits and the enhanced child care tax credit. We need to strengthen our regulatory agencies and invest in public job creation, not institute a vicious austerity program.
But if we’re protecting people through extension of these benefits, where will the money come from?
Good question. There are several obvious sources: a tax on financial transactions (a minimal 0.25% on trading in stocks and bonds) raising $250-500 billion dollars, ending the Bush tax cuts on incomes over $250,000, cutting waste in various weapons systems that are frequently unwanted by the military, abolishing corporate tax loopholes and removing tax provisions that encourage offshoring--the list is long. Basically, follow the money to where it has all been going–the wealthy, the banksters and corporate America.
Won’t it hinder the people who create jobs if we remove so many financial benefits that they currently receive?
Trickle-down economics--the idea that if the wealthy are doing great, so will the rest of us--has been discredited repeatedly. The truth is that workers are the real job creators. When workers have jobs and money to spend, they create demand, which leads to businesses hiring because they have a reason to expand and produce products for people. This is called the “virtuous circle;” it existed from 1945 until about 1973, when the conservative attacks began–on unions, workers, anyone who was not wealthy.
How does the fiscal cliff relate to the broader economic crisis?
Unrestrained capitalism transfers income and wealth from working people to the 1%; this process results in periodic asset bubbles and economic crises. We need to build a strong labor movement that restrains the voracious behavior of corporate elites and to reinstitute strong government regulation of the financial industry. But we can’t build an economy that works for all of us until we get corporate money out of politics and restore transparency in government.