Fiscal Myths

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By now, everyone has heard the words fiscal cliff. It’s one of those terms coined by politicians that give a false impression on what it actually is, like the right to work laws or clean coal. The fiscal cliff refers to the economic consequences that might result from tax increases and spending cuts due to take effect on January 1st 2013.

The cliff comes from the result of a Supercommittee comprised of six Republicans and Democrats who failed to come up with a deal to reduce the US deficit following debt ceiling negotiations. Contrary to what some believe, thanks in part to what the term suggests, if the United States goes over the fiscal cliff, the country will not suddenly find itself crippled with more debt. Instead, the automatic tax increases and spending cuts will kick in and possibly lead to what many economists fear will be another recession.

What to do concerning the fiscal cliff has been debated well before the results of the presidential election last November. Barack Obama and Democrats have been calling for an increase in taxes on those making over $250 000 and a small stimulus to get the economy moving and to repair the country’s crumbling infrastructure. On the other side of the aisle, Republicans are standing firm against any type of tax increases preferring instead to reduce spending on social programs or what they call entitlements.

If there is no deal between the parties by the end of December, the Bush era tax cuts will expire. This will raise taxes on every American, not just the top 2% that Obama wants. It will also cut military spending by an insignificant amount and reduce unemployment benefits that could throw as many as two million would-be workers off the insurance program. Both parties stand to both win and lose.

The negotiations thus far have proven futile and painful to watch. President Obama who won re-election and a mandate to raise taxes on the richest Americans (who have been enjoying extremely low tax rates for thirty years) is still willing to give up too much to appease Republican law makers. His last offer to Republicans angered liberals across the country as he offered what amounts to cuts in social security after promising the insurance program wouldn’t be touched.

Republicans in the House of Representatives on the other hand, led by House Speaker John Boehner failed to pass Plan B. Boehner’s Plan B would have increased taxes on those earning over $1 000 000 and would have made cuts to food stamps, Medicaid and Obamacare. As it turned out, he couldn’t get his own caucus to back the plan, the extremist wing of the Republican Party, better known as the Tea Party, refused to let taxes rise period.

So here we are near the end of the road not unlike Thelma & Louise, if it were up to me I’d hold hands and keep driving. First of all, Obama seems preoccupied with the debt ceiling that will need to rise in the coming months. Not only is it how we got here in the first place, but he is willing to give up too much right now to see the debt ceiling raised and it’s not needed.

This brings me to another myth. The debt ceiling as some would have you believe is not a green light for the president to go on a spending spree. It is simply a congressional procedure that allows the country to pay its bills. Any additional spending must pass through Congress like any other bill and believe it or not, disallowing the country to pay its bills is against the constitution (see section 10).

The annual deficit which Obama has marginally reduced comes from his predecessor who gave out massive tax cuts and waged two wars, now Republicans want the poorest of Americans to make up for it. They will continue to hold the debt ceiling hostage throughout his second term unless Obama gives in to cuts on social programs. Personally I would like to see Obama take up the issue with the courts instead of getting pushed around constantly.

Getting back to my original point, Obama should have little fear of going over the fiscal cliff. Yes taxes will increase on everyone and people will lose their unemployment, but what is done on January 1st can be reversed on January 2nd. After taxes are increased on everyone, there is no reason why the Democrats can’t introduce a bill that cuts taxes on the poor and middle class. How bad do you think the Republicans would look if they rejected a law that cuts taxes (or extends unemployment)? 2014 isn’t that far away.

The fact is; going over the cliff in not nearly as bad as giving in to Republican intentions. There are so many ways to reduce the deficit other than cutting Social Security, Medicaid and food stamps, in other words on the backs of the poor and elderly. For starters, raise taxes on the wealthiest 2% to Clinton era levels. How about closing some of the 700 – 1000 military bases the United States has on foreign land or ending subsidies to big oil and farming companies.

In his second term Obama is going to have to learn how to stand up for the people that elected him. He has to stop giving in to those who would rather see him fail than help the American people or the those who look out for themselves and the wealthy interests that helped put them in office. If Obama caves on the fiscal cliff before his second term even begins, he won’t have many friends on either side of the political spectrum.

…Merry Christmas!

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