All the yakking about a fiscal cliff seems to fall somewhere between mistaken Mayan prophecies about Doomsday and hypersonic skydiving from space.
The lame-duck 112th Congress – hamstrung by Tea Party Republicans in the House and filibuster-happy Republicans in the Senate – is proposing to Democratic President Barack Obama that Social Security, Medicare and other social services be cut.
Meanwhile, the Economic Policy Institute has released a report with a solution: Cut the deficit by growing the economy.
In EPI’s report, “Navigating the Fiscal Obstacle Course,” analysts Josh Bivens and Andrew Fieldhouse recommend letting tax cuts for the rich expire on schedule and using half of the gains from those restored taxes for a stimulus and half for “longer-term deficit reduction.”
“This split is meant to conform to the political constraint that any stimulus be more than fully paid for,” they say. “Dedicating a greater share of savings to stimulus would do even more to create jobs, which should be the top policy priority.”
They say the idea adds 2 million jobs “without creating a new fiscal obstacle course for 2014. At the same time, this approach would reduce the 10-year budget deficit by $651 billion.”
If Congress doesn’t act, taxes will return to their previous levels, $55 billion in cuts to the Pentagon and to domestic programs would happen, Medicare reimbursements to doctors would drop, and long-term jobless benefit would stop.
If Congress forces a deal also affecting Social Security, Medicare and Medicaid, consequences in this state could adversely affect more than 2 million Illinoisans who receive monthly Social Security checks, according to the Social Security Administration, plus 1.7 million Illinoisans covered by Medicare and 2.6 million Illinoisans covered by Medicaid.
Obama won re-election on a platform of restoring taxes on the rich and protecting programs such as Social Security. He’s proposed returning to previous tax rates for the top 2%, stopping the fiscal-cliff cuts to the military and social programs, asking for more stimulus spending and investments in infrastructure, and helping homeowners refinance their homes. It also eliminates the debt-ceiling. However, Obama is suggesting $400 billion in cuts to entitlement programs to be negotiated next year.
Nevertheless, House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky) oppose that proposal, preferring to raise revenues by eliminating popular tax deductions like charitable giving and mortgages (which threaten the housing sector and philanthropy) – unless so-called entitlements like Social Security are cut.
A November survey by Hart Research shows 62% of us support addressing the budget deficit by increasing taxes on the rich; about 68% oppose cutting Medicare benefits or raising the eligibility age for Medicare, and 84% oppose reducing Social Security benefits.
EPI’s report seems to echo popular opinion. It calls for continuing emergency unemployment compensation through 2015 (which would boost real Gross Domestic Product and adding 539,000 jobs next year); providing $120 billion in fiscal relief to state governments through 2015 through block grants and increased federal Medicaid funds; investing $234 billion over 10 years in transportation infrastructure and in establishing an “infrastructure bank” (boosting “real GDP growth by 0.2 percentage points and increasing employment by 237,000 jobs in 2013”); funding $55 billion in school modernizations; and enacting a 2013 tax rebate to ease the impact of the expiration of the payroll tax cut on lower- and middle-income households.
Elsewhere, the nonpartisan Institute for America's Future said 350 prominent economists are asking Congress to avoid imposing austerity measures and instead boost government spending to stimulate the economy by improving infrastructure, clean-energy growth and schools.
Some, such as U.S. Rep. Peter Welch (D-Vt.) and U.S. Sen. Patty Murray (D-Wash.), suggest letting the fiscal cliff’s “sequestration” occur. Afterward, a reasonable compromise of tax cuts for 98% of Americans probably would be supported by a Capitol Hill majority.
Certainly, targeting Social Security confuses the debate. The deficit wasn’t caused by “entitlements” (for which people qualify, like veteran benefits), but by the financial crisis sparked by the popped housing bubble and the $16 billion TARP bailout, interest on the debt ($1.4 trillion), the loss of another $1.7 trillion from the Bush-era tax cuts (over the last three years, tax receipts as a share of the economy are the lowest since 1950), and two off-the-book wars ($1.3 trillion), all according to the Congressional Budget Office.
“Social Security has not added one penny to our deficit or our debt,” said U.S. Rep. Xavier Becerra (D-Calif.), who said blaming Social Security is like blaming bondholders for expecting to be repaid.
AFL-CIO president Richard Trumka added, “The people advocating for benefit cuts to Medicare, Medicaid and Social Security are the same folks who want to cut taxes for the richest 2%. We can’t afford to pay for any more tax breaks for those who need them the least.”
The EPI report is online: www.epi.org/publication/ib345-navigating-fiscal-obstacle-supporting-job-creation/
[Pictured: Chart on public opinion, courtesy Communications Workers of America (CWA)]
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