“What is the ‘fiscal cliff’ and what should I do about it?” I asked myself as it became apparent the day after the election, and the media had turned for analogies from horse racing to geological formations, that this was to be the mantra of the next two months. Since I wanted to get to the bottom of the strange new phrase, I pulled the plug on NPR and the PBS News Hour and turned to the comparative clarity of print.
The “fiscal cliff,” I learned after a little research, refers to the sharp decrease in the deficit that is projected to occur when the tax increases and spending cuts mandated by the Budget Control Act, passed by Congress in 2011, go into effect on Jan. 1. The estimated 50-percent reduction in the deficit resulting from these measures is predicted to cause a recession in the early months of 2013.
A recession? On the heels of the worst economic downturn in 75 years, the legislators we elected to spur our economy back into productivity voted to enact a law the effects of which are likely to include another economic slump?
This misguided piece of legislation, a compromise worked out to resolve the debt-ceiling crisis a year-and-a-half ago, allows the Bush-era tax cuts to expire, increases the tax burden for middle- and lower-income families, and calls for across-the-board spending cuts to the defense department, domestic agencies and Cabinet departments if an alternative deficit-reduction plan is not enacted before the end of the year.
Clearly the purpose of this act, since it victimizes virtually everyone, is to hold a gun to the heads of legislators and force them to the bargaining table. The goal of this “grand bargain”? Eviscerate Social Security, Medicare and Medicaid and extend the Bush tax cuts. Win-win for Wall Street and the medical insurance industry.
I say, “No deal!” Since the fiscal cliff is largely the creation of our legislators, they, or their successors, can easily dismantle it by rescinding the more draconian portions of the Budget Control Act, either before or immediately after Jan. 1. No “grand bargain,” no dramatic decline in the deficit, no recession.
The obsessive focus on deficit reduction at a time when our economy is struggling to overcome the paralysis that has immobilized it since the housing bubble burst verges on the pathological. Austerity didn’t resuscitate Japan’s ailing economy in the ‘90s; it’s sending many European economies deeper into recession as you’re reading this; and it will destroy any chance America has of rebounding from the last four years.
Middle- and lower-income Americans, who have seen a steady erosion in their earning power, don’t have money to spend, while the top 1 percent, who pocketed 93 percent of the income growth in the first year following the recession, and whose incomes continue to soar, are sitting on their profits, stashing huge sums in offshore tax havens and contributing nothing to economic recovery.
Since the wheeler-dealers who created the housing bubble, and the financial collapse that followed it, are largely responsible for the size of the current deficit — it doubled between 2007 and 2009 — it seems appropriate that any fiscal solution to our current economic stagnation should start with them.
Recall also that these individuals “leveraged” more than $700 billion in taxpayer money following the meltdown, and since then Federal Reserve Chairman Ben Bernanke has, extremely quietly, continued to feed the financial sector with additional stimulus funds. Very little of this federal largesse has found its way into the economy.
We need to announce to the deficit hawks that we will accept nothing less than a massive jobs bill paid for by tax increases for the very wealthy. Rates between 45 percent and 55 percent have been suggested, the 55-percent rate being the one levied on millionaires during the 1950s when our economy was booming, and jobs were plentiful.
No, progressive taxation does not dampen the entrepreneurial spirit! In conjunction with elimination of the Bush tax cuts, a new 55-percent tax rate for the very wealthy would raise $2 trillion over 10 years, providing a continuous revenue stream for the stimulus spending our economy so desperately needs.
Sam Jenkins is a retired technical writer. He lives in Orono.