The fiscal cliff deal is only the beginning. When the Republicans want to hold the entire country hostage again in two months, we need to come out swinging. We have a more progressive Congress and an electoral mandate. The revenue we conceded in the fiscal cliff deal needs to be made up from the top 1%, in higher income tax rates, an increased estate tax, taxing dividend and capital gains as ordinary income, and a tax on financial transactions. The cuts should fall on the military, as well as on the subsidies to big oil and other profitable corporations. We also need a large stimulus to jump-start the economy and make investments in schools, libraries, hospitals and green energy. Below are some ideas I have on possible specifics.
1. My hope is that we will emerge from the entire process not only in a better place, but also with a situation that will allow continual improvement. One thing working in our favor is that the new Congress that will be sworn in on Thursday will not only be more Democratic than the present one, it will also be more progressive, with the addition of people like Elizabeth Warren and many of the other progressive legislators that were elected and with the absence of some of the nut jobs that retired or were defeated. The new Congress will have to keep its eye on the prize – less income inequality, a growing economy, and a strong labor movement to make sure that the prosperity is broadly shared.
2. That said, there was some good in the deal. Unemployment benefits are extended for a year. It should have been for more; wouldn’t it be nice if they were extended as long as the unemployment rate was over 5%. That way, this essential lifeline would not be a perennial bargaining chip.
3. There were no concessions on Social Security, Medicare or Medicaid. Our challenge is to make this hold. I don’t like the talk that Obama and Reid might agree to the chained CPI in return for a comprehensive deal. We won the election, and there should be no change to these signature Democratic programs. Of course, it would be good to get Medicare for All, or to increase the Social Security benefits, but that is for the new Congress to work on. Wouldn’t it be nice to take back the House in 2014 and actually make some of this happen?
4. The big one – income tax rates. They permanently went up, back to the Clinton rates, on incomes over $400,000 for individuals and $450,000 for couples. This is the top 1%. It should have been $200,000, $250,000, the top 2%. This is what Obama campaigned on. Looking to the future, I would like to see rates even higher on the top 0.1% – the one one-thousandth of the population that now brings in 11% of all income. How about 50% for them?
5. The 2% reduction in the Social Security tax is gone, meaning that nearly everyone’s after tax income will be reduced in 2013. I think this is good. Otherwise, in the long run Social Security would not have been on a sound financial footing, making it easier for Republicans to get rid of it in a future crisis. However, this should be offset with compensatory tax relief for low-income people. One good suggestion would be to double the Earned Income Tax Credit, a Clinton program that gives refunds to working people who do not earn a living wage. Of course, the Earned Income Tax Credit is really a government subsidy to Walmart and other low-wage companies and the long term answer is to make the minimum wage a living wage by indexing it to the cost of living. But in the meantime, these hard working and underpaid people should not have to suffer any more.
6. The estate tax has been permanently set at rates that are too low. The estate tax will now be 40% on any part of an estate over $5,000,000. If the Bush estate tax law had been allowed to expire, the rate would have been 55% on any part of the estate over $1,000,000. Politically, this should be an easy one. The estate tax, especially with a $5,000,000 exemption, only affects the richest of the rich, and it brings in significant revenue. Especially now, with levels of income inequality not seen in 100 years, we should push to raise this important tax. My suggestion would be to keep the rate at 40% on estates over $5,000,000, but to raise it to something much higher, like 65% on estates over something like $15,000,000.
7. Capital gains and dividend tax rates will go up from 15% to 20% for the top 1% ($400,000/$450,000). This is a step in the right direction, but it needs to go further. Capital gains and dividends should be taxed as ordinary income. Period. Most people who have this kind of income are wealthy, and can afford to pay the tax. Of course a few hundred dollar a year exemption would be nice for families that get interest on small savings accounts. Further, there should be a tax on financial transactions. This would raise significant revenue and start to reverse the astonishing trend that something like 40% of all profits today occur in the financial sector. Think about it. These are the Wall Street types that shuffle money and do not make a single product, teach a single child, or take care of a single sick or elderly person. And when they loot the economy, they expect the taxpayers to bail them out.
8. Other crucial issues were not resolved. Will there be stimulus money to jump-start the economy and help strapped states, cities and towns? How many of the “sequester” cuts will actually occur? This time around, President Obama needs to ask for what we need – a big enough stimulus, no cuts to human services programs that already have been cut way too much, and a hard look at which military cuts can be made without endangering the country – there are many. What happened to the peace dividend we should have seen when the Soviet Union collapsed? The President needs to remember that we won the election. The 2009 stimulus was too small, and responsible economists like Paul Krugman said so. We are fortunate to have a chance to redo this. After all, the Republicans created the deficit; their call for austerity to reduce it is pure hypocrisy. We have a new Congress with great people in it. We need to push them to do the right thing.