The Fiscal Cliff: Another Manufactured Crisis begins anew.

Hey, look over there! It's not the decisive re-election of Barack Obama we should be discussing, it's the fiscal cliff! - promoted by Bob_Neer

Seemingly minutes after the election ended, the media already began harping on talk over “the fiscal cliff.”

This is all surrounding the mandatory cuts that are set to kick in automatically, after the last ‘Grand Bargain’ talks failed, unless Congress rescinds the provision of automatic cuts beforehand (and/or makes different cuts — because, let’s all be honest, significant new revenue will not be on the table).

The Catfood Corps has been out in full force, with guys like former Governor Ed Randell all over the airwaves harping on how Democrats have to cut Social Security.

We’ve all been to this rodeo before. The very sensationalist description of the upcoming debate — naming it “the fiscal cliff” — screams of Manufactured Crisis.

Let this diary serve as a warning, if you haven’t connected the dots already. Be aware of it; don’t believe it; call it out and describe what’s really happening to all your friends, fast. Call your congressman or women, and your Senators, to demand they not touch Social Security.

We have to fight Manufactured Crises right from the very start, before they can take grip across the nation. If we do, the Manufactured Crisis will fail, laughably so.

Social Security has absolutely, positively nothing to do with the budget shortfalls or national debt — which is precisely why the corporate raiders keep calling their political raiders to go after it.

There’s so much money in the trust fund that these people are salivating over it, desperate to loot it. They want to take your money — that you’ve been paying into the system for your entire life — and add it to their profits, even if that’s by using the trust fund to keep funding more corporate loopholes and corporate welfare for the likes of Big Oil.

There’s no reason that the national debt has to be “solved,” in one fell swoop, during the lame duck session. The problem was created over the course of a decade, if not several; we can solve it, one step at a time, over the period of years.

By fostering a Manufactured Crisis, Congress isn’t trying to tackle a problem they honestly think must be solved before January 1st. They simply want to give themselves two full years to hope voters will forget the disasters they’d inflict on their constituents by carving away badly-needed funds from retirees on fixed incomes, doing the dirty deeds during the holiday season and after the elections, when they think no one is paying attention.

Moreover, they’re doing it now so they can place the blame from any of the draconian cuts on those Congresspeople who lost their seats or are retiring.

They want to pull one over us. Don’t let them.


My opinions are mine and mine alone. They do not represent any other group or organization.



15 Comments . Leave a comment below.
  1. No Deal is Better than a Truly BAD Deal

    Couldn’t agree more. Leave SS alone. Make the wealthy pay their fair share in taxes. Let Medicare negotiate with drug companies; and let’s reduce military spending … first by getting out of Afghanistan.

  2. Carry and wield a BIG STICK

    The voters spoke loud and clear about their preference: raise the taxes collected on the wealthy, end the preferential treatment for wheelers and dealers like Mitt Romney and friends.

    Here’s my proposed strategy:

    1. Let the Bush tax cuts expire, and let the temporary payroll tax cut expire.
    2. Put forward an equivalent tax cut for households with annual income under $150K/$250K (single/married).
    3. Restore funding for federal Extended Unemployment Compensation until employment is back to pre-crash levels.
    4. Raise the marginal rate on incomes over $150K/$250K to 70%
    5. Treat long-term capital gains in excess of $150K/$250K as ordinary income
    6. Raise actual corporate tax collections back to the share of total federal tax revenues they had in the pre-Reagan era (in 2010, corporations paid about 10% of total taxes. Prior to 1980, they paid more than 20%). Since corporations claim the same rights as people, they can pay taxes like people.
    7. Dramatically raise the federal estate/gift tax on estates in excess of some threshold ($10M?). Most voters have NO IDEA how skewed wealth is towards the top — raising wealth transfer taxes is the most effective way to normalize the excessive wealth concentration that is strangling the economy.
    8. Phase in, over a 5-10 year period, a removal of the current cap on payroll taxes.

    This graph shows the relative shares of federal income tax sources:

    Here is a graph showing the dramatic skewing of wealth transfer taxes towards the very wealthy:

    Changes to the estate tax affect only the already wealthy. Contrary to right-wing mythology, they affect only a tiny portion of businesses and farms. The relentless GOP calls to eliminate these wealth transfer taxes benefit ONLY the already wealthy. Raising those taxes affects ONLY the already wealthy. Finally, it should be noted that wealth transfer taxes are paid only by estates, and never by the recipients of those estates.

    • Response

      1. I do think that the House GOP must be made to actively reject something before this happens, to make sure the political pressure is there, rather than on the administration and Senate. There is a better chance of this now, than there was in 2011, yes, but it is not certain.

      2. This would be the plan for the GOP to reject, hopefully before Christmas.

      3. OK, but we should probably realize that this is going to take a long while.

      4. Same as Number 2. That marginal rate seems a little high to me, but that is just our different position on the spectrum talking.

      5. The reason capital gains are taxed differently is because the business is already taxed once, by the corporate income tax. If you scrapped the corporate income tax entirely, you could treat all capital gains as ordinary income. Given that my preferred policy has zero liklihood of ever happening, I would prefer to keep cap gains as they are, which would be different positions on the spectrum talking again.

      6. I would eliminate them entirely, as a distorting, over-complicated mess that gives too much opportunity for shenanigans. Everything a corporation makes can be taxed as salary, dividends, or capital gains, and all the same way. Preaching to an empty choir, here. Sigh.

      7. Yep.

      8. The dilemma here is that the payroll tax is highly regressive. In reality, it funds the government like every other tax, but in myth it funds the social security “trust fund.” If you abandon it outright, the fiction of the trust fund must be likewise abandoned. If it be raised, SS benefits go up as well, though who knows by what ratio. I posted yesterday on why I think it would be politically foolish for benefits to be independent of contributions. In any event, this would certainly help short-term, though as benefits would lag the revenue by quite a few years.

      9. Probably going to need spending cuts as well, eventually. Because cuts are probably a bad idea in the present climate, I would advocate baking them in to kick in 6-8 years from now, by which time the present recovery may have grown into a boom.

      I get that this is not a “crisis.” But it is perceived to be so by nearly 50% of the electorate, the HoR majority, and 48% or so of the Senate. Going to have to deal with it.

      • We should probably add a carbon tax

        I think a carbon tax should be in the mix, structured to put a floor on gas and oil prices (with suitable compensation for low-income households).

        • Trouble with a carbon tax...

          is that for lots of people, unless that revenue is used specifically for climate change initiatives, folks will be against it. Just another invented way for politicians to put their hands in my pocketbook, they’ll say.

          Now, if you want to tax carbon and use it to continue funding for the PTC which subsidizes wind and solar, go for it. Want to use it to also fund the nuclear subsidies? Meh, but sure. Want to use it to also subsidize weatherization and efficiency upgrades of homes? Boffo. Want to use it to beef up transmission lines to both get wind renewables from the Grain Belt to cities and to beef up reliability in storms? Youbetcha. Improve mass transit within a city, to the suburbs, or between cities? Biden would be proud.

          But use a carbon tax to deal with the deficit? Won’t have traction. Why enviro-related taxes have this additional requirement I don’t know, but they do seem to.

          • Sure

            I’d go for that. Alas, I’d put it with my elimination of separate rates for capital gains and elimination of the corporate income tax as ideas that make far too much economic sense to have any chance of enactment by politicians.

            Carbon tax probably has a better shot. Though speaks more to the long odds of my pipe dream plans than it does for the possibility of a carbon tax.

          • All of the above

            Use it to fund public transportation, weatherization and efficiency upgrades of both residential and commercial properties, transmission lines — yes, all of these (not nuclear).

            In addition, there must be a way to put a dollar figure on the reduction in defense department spending enabled by reducing or eliminating our dependence on imported petroleum. Similarly, there must be a way to estimate the reduction in costs from reducing and delaying climate change impacts.

      • I oon't find this compelling

        5. The reason capital gains are taxed differently is because the business is already taxed once, by the corporate income tax.

        As you point out yourself, the corporate income tax is prone to shenanigans. There are so many loopholes many companies are hardly paying much corporate income tax at all, no matter what the rates. So the double-taxation argument doesn’t sway me.

        When people invest, they do so knowing the company will have to pay corporate income taxes. They still expect to profit and, when they do, they shouldn’t be taxed lightly just because one of the assumptions implicit in their investment decision really exists.

        Anyway, it works the same way for regular people. I pay income tax at a pretty high rate and then, with what’s left, I pay sales tax on all kinds of things when I spend it. The feds and, more precisely, the state already took our their share before I ever saw the money, but I still pay sales tax and it never occurred to me that it’s objectionable.

        • Zen tax rate

          If a tax falls in the marketplace, but nobody pays, does it make any revenue?
          Many very profitable corporations pay no federal taxes:

          In November, the liberal lobbying group Citizens for Tax Justice stirred controversy with a report highlighting 280 so-called corporate tax-dodgers, highlighting companies they said were paying under the 35 percent federal income corporate tax rate. This week, the group revised its list with new data and said most of the companies that paid no taxes previously repeated that in 2011.

          The latest update estimates that all but four of the 30 Fortune 500 companies that paid an average negative federal income tax rate from 2008 to 2010 continued to do so for 2011.

          Of the four that paid some tax, only one paid as much as 4% (but less than 11%).
          Here is the Citizens for Tax Justice updated report (PDF).

          • I seem to recall

            that this organization, CTJ, spews pure propaganda, in that their big “corporations pay no income taxes” “study” accidentally forgets to account for how losses are carried forward, and just happened to start their study in the year of the crash, in order to make the numbers look good on Rachel Maddow.

            Pure BS, and unworthy of credence or attention.

            Not unlike pretending that the US jobs numbers at the last summer of the Bush administration are actually the numbers for the begiing of Obama’s.

  3. Great post, Ryan

    In terms of the immediate situation, what do you think of Krugman’s idea that Obama has to be truly willing to let the “fiscal cliff” scenario play out, or else fall victim to Boehner and McConnell’s blackmail once again? Also, I think Warren should be doing the tv shows making the case for ideas like those put forth by SomervilleTom above.

    • I'm with Krugman

      Most cliffs aren’t so steep you can’t climb down. We should absolutely go off the cliff if that’s what it takes to raise taxes on the wealthy. Then place the blame on the GOP and get a new tax cut for the 98%.

      RyansTake   @   Sat 10 Nov 7:52 PM
      • I'm with Krugman too, but

        Obama and the Dems must get the message out loud and clear on this. The public is on their side and need to know what’s going on.

        This is because, as centralmassdad has pointed out, tax bills must originate in the House. I don’t think that changes much, politically as long as the Dems let it be known that the Senate won’t pass, and Obama won’t sign, a bill that keeps the Bush tax rates for the top earners.

        Make it clear to the House what the Senate will pass, and what Obama will sign, and put the pressure on them to do it. Once they start hearing from their own people about taxes going up for the 98%, and the contractionary nature of simultaneous spending cuts and tax hikes as they further erode demand.

        By the way, where Krugman has been great in this situation is in pointing out that the “deficit hawks” are freaking out about the “fiscal cliff” because it cuts the deficit too much, not too little. This strongly indicates that growth depends on demand, even through deficit spending, not on “deficit reduction.”

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