Vol. 19, No. 4,884 - The American Reporter - December 19, 2013




by Randolph T. Holhut
Chief of AR Correspondents
Dummerston, Vt.
January 17, 2013
On Native Ground
THE DEBT CEILING TWO-STEP: WANNA DANCE?

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DUMMERSTON, Vt. -- Now that the so-called fiscal cliff - a crisis that was manufactured by the least productive, least popular Congress in history - has been temporarily averted, what actually got accomplished?

  • Families earning more than $450,000 a year are going to see a modest increase in their income taxes, from 35 percent to the 39.5 percent level of the Clinton years.
  • Taxes on capital gains and dividend taxes for families in that income group will rise from 15 percent to the Clinton era-level of 20 percent.
  • The estate tax will be set at 40 percent for families in that income group, with a $5 million exemption that is indexed to inflation.
  • The Alternative Minimum Tax got permanently patched to avert automatic tax increases on middle class taxpayers.
  • The Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit - three important tax credits for lower-income Americans - were extended for five years.
  • Scheduled reimbursement cuts to doctors under Medicare were postponed for one year, as were cuts to long-term unemployment benefits.
  • A temporary nine-month extension to the Farm Bill, necessary because Republicans failed to pass one last fall, that will avert a collapse of the current federal milk price support system and a doubling of retail milk prices;
  • And a two-month delay in automatic spending cuts.

It wasn't the best compromise that could have been made by President Obama and the Democrats, but in dealing with a Republican party full of extremists that refuses to govern and is willing to destroy the economy to achieve its policy goals, this is about the best that could be achieved.

The problem is that there could've been much more in this bill had Obama been willing to fight for it, and the meager victories won in this round could be wiped away two months from now.

To get Republican support, Democrats accepted a two-month delay in the spending cuts mandated by the Budget Control Act - they wanted a delay of a year. Doing so sets up a renegotiation of those cuts right at the time the nation's debt ceiling needs to be raised.

Republicans have been clear about their intention to take the economy hostage, as they did in 2011 during the last debt ceiling vote, to force cuts in spending for Social Security, Medicare and Medicaid. Two months from now, even with a slightly better Congress, we will have an even worse fight on our hands.

There are other big flaws in this legislation, starting with the reality that every working American will see a 2 percent tax increase as a result of allowing the payroll tax cut to expire.

While wage-earners liked seeing the extra money in their paychecks, payroll tax cut extension was a political orphan. Democrats didn't like it because it cut revenue needed to ensure the future solvency of Social Security. Republicans didn't like it because it was a successful tax cut for working Americans that Obama got credit for.

There was no attempt by Obama and the Democrats to insist that the end of the payroll tax cut be offset with an equivalent tax break, like reinstating the Making Work Pay tax cut that was part of the 2009 stimulus bill and that was was repealed by Republicans in 2011 in favor of the payroll tax cut.

As a result, there will be less money in people's pay envelopes, which will lead to reduced consumer spending, which in turn will lead to job losses and further economic troubles for working Americans. Meanwhile, this deal continues to preserve some $200 billion in tax loopholes and special treatment for corporations such as Disney, Goldman Sachs, and NASCAR.

Compromising on the Bush tax cuts was another big mistake. Obama and the Democrats successfully campaigned in 2012 on the repeal of the Bush tax cuts for people earning more than $250,000. The President said this was non-negotiable - until he bargained it away to preserve extended unemployment benefits and tax breaks for the working poor.

Given the position he was in - forcing the Republicans to defend raising taxes on everyone to save the tax breaks for the richest Americans - Obama should have stood firm. Instead, he set the stage for the next big compromise - bargaining away Social Security and Medicare in exchange for raising the debt ceiling.

That's what infuriates me. The federal deficit is not the biggest problem facing America. Instead, it's an economy that is not creating jobs and whose benefits are flowing towards the most well-off at the expense of everyone else.

You can't deal with the deficit until you deal with the economy. And dealing with the economy means that the government needs to spend more money to rebuild and modernize public infrastructure. It needs to spend more on education and health care, and more on research and development on new technologies.

Austerity never made a country financially stronger, and austerity in a time of high unemployment, declining wages, and increased economic uncertainty is madness. But that's what's being pushed by Republicans in the name of deficit reduction.

That leads to a lie almost as big as the "fiscal cliff" itself - that Republicans care about deficit reduction. They don't. If they did, they would have accepted Obama's original offer.

Remember that at this time 12 years ago, as Gov. George W. Bush was set to enter the White House, that President Clinton left him with a budget surplus. The federal debt was on pace to be paid off in 10 years.

What happened? Tax cuts for the rich, huge increases in military spending, and waging two wars off the budget books turned the Clinton-era surplus into trillions of dollars of Bush-era debt.

Logically, if you are concerned about deficits, then you would be in favor of undoing the Bush policies that got us to where we are now. Instead, we have politicians still advocating "starve the beast" policies so government can get out of the way of the wealthy and powerful.

Remember this in the coming weeks, as Republicans start the debt ceiling negotiations.

AR Chief of Correspondents Randolph T. Holhut has been a journalist in New England for more than 30 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at randyholhut@yahoo.com.

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