‘Fiscal Cliff’ a Fake Crisis

If all the Bush tax cuts expired as scheduled at the end of 2012, future deficits would be cut by about half. Much of the rest of the deficit/debt is a result of the two longest and unpaid wars in our history, the unfunded prescription drug program and the drop in revenue collection due to the Bush recession.

By Tom Maertens
The Free Press, Mankato, MN
December 23, 2012

It’s hype intended to push cuts to social safety net and more money to the wealthy

As January 1 approaches the corporate-funded deficit hawks are getting hysterical. They are spreading fear about a “fiscal cliff” when $600 billion in tax increases and spending cuts kick in. While it is possible that taking that much money out of the economy at one time could cause the economy to contract, any tax cuts can be extended retroactively and spending cuts can be restored before the end of the fiscal year to soften the landing.

In short, there is no cliff.

One of the front groups spreading the alarm is Fix the Debt, an organization that includes the CEOs of many of the country’s largest corporations. Their story is that we have to show we are “serious” about reducing our budget deficits by cutting entitlements or else the financial markets will panic. Why don’t they suggest cutting corporate welfare and subsidies instead? They’re usually estimated at a trillion dollars per year.

If we can’t afford Medicare and Social Security how could we have afforded the Romney/Ryan plan: more personal tax cuts, lower corporate taxes and an end to capital gains taxes, the estate tax, the AMT and taxes on dividends and interest?

If the current hysteria were really about the debt, 231 House Republicans would not have passed Paul Ryan’s budget last year, which would have added $6 trillion to the debt over the next decade.

One of the reasons the GOP has lost the popular vote in five of the last six elections is their continued attack on the social safety net. A December McClatchy poll showed that even Republican voters are against cutting Medicare spending by 68-26%; they oppose cutting Medicaid by 61-33%.

Republicans have manufactured a story about tax cuts for “job creators,” but at least three recent studies (by the Congressional Research Service, by Georgetown Law professor John L. Buckley, and by the New York Times) show that reductions in the top tax rates greatly increase income inequality but produce little saving, investment, or productivity growth. In reality, most jobs are created by middle class entrepreneurs who start new companies, not the superrich.

The same people also peddle the zombie “supply-side” claim that tax cuts pay for themselves, as well, a myth that has been completely debunked. The CBO attributes 48 percent of the deficit since 2001 to Bush’s tax cuts. We saw how Bush’s No-CEOs-Left-Behind policies created huge deficits but no jobs.

The New York Times reported last year that if all of the Bush tax cuts expired as scheduled at the end of 2012, future deficits would be cut by about half. Much of the rest of the deficit/debt is a result of the two longest – and unpaid wars -- in our history, the unfunded Prescription Drug program and the drop in revenue collection due to the Bush recession.

So how can we close the financial gap? The IRS estimates that individual and small business tax avoidance costs us $450 billion every year, and corporate tax avoidance another $250 billion to $500 billion. Further, the annual cost of offshore tax abuses is estimated as $337 to $500 billion according to the Tax Justice Network. We need more effective laws and better enforcement.

The Congressional Research Service estimates that raising taxes above $250K, as Obama has proposed, could produce $950 billion over a decade, that lifting the capital gains tax would raise $533 billion, and limiting deductions could produce $165 billion. A carbon tax could produce $1.2 trillion over 10 years.

By most calculations, the U.S. spends more on national security than the rest of the world combined and twice as much (inflation-adjusted) as under Eisenhower when we had a Cold War adversary. Our bloated, permanent war economy needs downsizing.

There are other options: Bush’s prescription drug law explicitly prohibits Medicare from negotiating discounts with drug companies, a gift to Big Pharma. Negotiating volume discounts, as the VA does, would save $300 billion over a decade.

According to the Center for Economic and Policy Research and the Political Economy Research Institute, a financial transaction tax – a “Robin Hood tax” -- of one-tenth of one percent on derivatives could raise $170-$350 billion annually, while dampening financial speculation.

Social Security could be made solvent for the foreseeable future by removing the $110,000 earnings cap for contributions.

So whatever the corporatist lobby claims, the deficit hysteria is not about balancing the budget but about manipulating the debt story to demand cuts to the social safety net, leaving more money to redistribute upward to the GOP’s wealthy supporters.

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Tom Maertens is a retired Foreign Service office who served in Ethiopia, Colombia, the USSR, Panama, Austria, and Russia. He also was National Security Council director for nonproliferation and homeland defense under Presidents Bill Clinton and George W. Bush, and deputy coordinator for counterterrorism in the State Department during and after 9/11.