The Fiscal Cliff Deal is Only the Beginning

 

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.



Discuss

9 Comments . Leave a comment below.
  1. Several of these are particularly important

    Item 6, an increase in the estate and gift tax, is crucial. If the floor is to be $5M, then the rate should be closer to 60-75%. The desire to avoid a permanent “landed” class — and the host of social and economic issues that come with it — has been part of the “American Dream” pretty much since America’s inception. It’s bad enough that our wealth concentration is already at Gilded Era levels. We compound the ill effects of this embarrassingly large wealth concentration by creating an “American aristocracy” who enjoy great wealth literally from birth while HALF of America is a paycheck away from abject poverty.

    In item 5, I think the right answer is to phase out the ceiling on payroll tax deductions. This solves the actuarial and cash-flow problem in the out-years, and puts the system on a sustainable footing.

    Item 7, taxing capital gains and dividend income as “ordinary” income, is similarly needed to restore spending power to consumers. The best way to grow business, especially SMALL business, is to pry cash away from wealthy families who hoard it and put it INTO the hands of entrepreneurs and consumers who seek to live their lives working for themselves or their neighbors rather than multi-national conglomerates. The population that will be hit by such an increase is a tiny share of the overall nation — households that are already so wealthy that the interest on that wealth is a significant amount of income.

    I’m actually ok with the income tax rates and brackets as they are. The primary effect of steeply graduated income tax rates is to increase the barrier that separates the truly wealthy from the rest of us. Income is different from wealth, and the truly wealthy (who are the source of our current devastatingly bad economy) are, by and large, not affected by income taxes.

  2. How do we get it passed?

    I agree with essentially everything you’ve posted. But I don’t see how, after this deal, we get any of it. The best-case scenario I can see is that we get the debt ceiling raised, and a new budget, without chained CPI and cuts to Medicare and more discretionary spending. This possibility is supported by Obama’s reported pledge not to allow more debt-ceiling hostage taking, but not by his history.

    To your points:

    1. Thanks to the gerrymandered House, I see this Congress as better than the last one, but not by much. In the House, I’m not sure we can count on Pelosi delivering her 200 votes as one and Boehner coming up with 18 GOP votes for sanity. In the Senate, SomervilleTom’s post about the filibuster is spot on. Without reforming the current mess, nothing good will get done even with Liz and 55 Democrats. If we couldn’t get card check in 2009, I have little hope now.

    2. Yes, there was good in the deal, including but not limited to UI extension. But to get that, Obama essentially forewent half the revenue increase he would have had with no deal. On Daily Kos some Obama fans are proclaiming the era of hostage-taking over. I don’t know how you can look at this deal and say that.

    3. I’m also glad there were no cuts to these programs in the deal. But Obama and Reid both have spoken about putting them on the table again. All you need to know about the Dems holding the line on this was in the performances of Ed Rendell and Joe (2010-progressive-hero-only-by-default) Sestak on the talk shows. They said Dems would need to raise the Medicare age (cruel and stupid) and take chained CPI to get any more revenue out of this Congress. Pelosi said chained CPI was “strengthening Social Security.” My hope is Obama forces the GOP to go on record as wanting the cuts, then says no. I’m not holding my breath since the man’s been advocating SS cuts for a decade now.

    4. Agree with you about $250-450K range. Also agree with Tom about keeping lower Bush rates on lower earners. As with the EITC issue (see point 5), these low rates partially offset the private sector’s failure to pay decent wages. Income tax action should be at the top, as you say. At least 45% on taxable income over a million, or even two million. Don’t see it happening unless (1) filibuster is reformed; (2) GOP jumps the shark and Dems hold the Senate/take the House in 2014 despite gerrymandering.

    5. Agree with all of it. I never liked undermining S.S. to get a whiff of stimulus in 2010. Also agree the EITC is a safety valve to mask the fact the private sector is not providing jobs with sufficient wages for people to make it. I knew, in the 90s, the GOP eventually would demonize the “moochers” as Romney did with his 47% comments. Hint: if they made enough to pay taxes and survive, they’d be paying taxes.

    6.-7. Agree with you entirely, and with SomervilleTom that this is where the action really is, along with carried interest. For a few hours on January 1, the law was much closer to this than in the deal. Having bargained it away to keep some stuff we already had, I don’t see how we get this anytime soon. This is my real issue with the deal. Revenues need to be a certain % of GDP to keep programs afloat. Right now revenues are too low, Reagan and Bush II did in fact “starve the beast.” The deal makes them higher, but still too low. And, again, I don’t know when/how you fix that. This was the best chance and it’s gone.

    8. You ask “Will there be stimulus?” In the short term we need stimulus desperately. I don’t see how on earth we get it. As you rightly point out, the payroll tax going back up is anti-stimulus. Nowhere in the deal was there any additional stimulus, just extension of what we already had and avoidance/delay of some austerity. And this was a deal where Obama/Dems held most of the cards. I’m not sure where you see the reset button on this. In my view, the fight on stimulus (and with it Obama’s whole Presidency) was partially won, but mostly lost, in early 2009.

    • The question of how you get it done...

      is not a static question. Even Republicans change in response to public pressure. They lost this election big, and if they keep obstructing and we play our cards right, we will get the House back in 2014, in spite of gerrymandering. We have to ask for what is needed, and if the Republicans obstruct it, we make a political issue out of it, in terms that people can understand. How many jobs were not created? What important infrastructure projects were not funded? How many teachers, firefighters and police were laid off or not hired? How much more money would these various taxes on the 1% bring in? How often has the military budget been raised in peacetime? These are all winning issues, if we are willing to make them. They can sway public opinion, as seen by this last election. Harry Truman won re-election in 1948 by complaining about the “do-nothing” Congress that refused to pass his bills. But we have to stand for something, and absolutely refuse to go backwards – no cuts to Social Security, Medicare and Medicaid. Have a plan for going forward as soon as we have the votes – either the votes of frightened Republicans or the votes of new Democrats in the House in 2014. Unfortunately, too often the problem is that too many elected Democratic officials do not believe in these issues. Too often, I have said that we need better Democrats as well as more Democrats. But if we keep pushing, I think we’ll get those too.

      • I agree with you

        I’ve been hoping for a 1948 Harry Truman for a long time. As you say, too many elected Democrats are not on the same page. Even if they were, the media treats everything as even, at best. They’re so in thrall to the Fix the Debt crowd it’s hard to see the message getting through.

        GOP just says, “We have a huge deficit and need to get serious about cutting spending.” The media repeats it as gospel. Doesn’t matter that they don’t really care about the deficit. Doesn’t matter that they caused the deficit. Doesn’t matter that they could fix the deficit just as well by raising taxes on the top to levels still below historical rates.

        GOP says, “deficit’s huge, have to cut spending since the people are taxed enough.” And enough of the people, feeling strapped because their wages are stagnant over 30 years, think that sounds right. I hope the GOP goes nuts, looks insane by threatening default, etc., and gets it ass handed to it in 2014. In the interim, Dems need to politicize all this. The president, in particular, has the bully pulpit. What I’ve heard from him so far is “We need to cut entitlements and reach a Grand Bargain. It must be good since folks on the left don’t like it.”

        • Cutting spending EXPLODES the debt!

          There is ample evidence, both historical (Japan 1990s, US 1937) and current (UK, today) that cutting spending causes national debt to EXPLODE, because the resulting contraction of the economy kills tax revenues MUCH faster than it accumulates any savings.

          I’m not sure why the mainstream media won’t even REPORT this fact. Since it won’t, it falls on the rest of us to accomplish the feat.

          On a related note, has anybody noticed that Japan has been suffering through deflation? If you think the US economy is in tough shape today, pray that we never have to live through a deflationary period. It will make 2008 look like a walk in the park.

          • The IMF just said so today

            A Euro and a half in lost economic output for every Euro of austerity cutting. They predicted half a Euro, why I don’t know, and were off by a factor of three. Krugman could have told them before they started, and he did.

            Why does the media not present such basic economics? The truly cynical explanation is that media conglomerates are owned and run by super-wealthy people who don’t have a problem with an economic order tilted toward them. The less cynical, but still sad, explanation, is that they’re just not that smart about economics. You’ll see some people (Ezra Klein, etc.) say this kind of thing. The rest of them just intuitively accept an argument that (1) we have big deficits and a growing debt; (2) that means spending’s out of control.

            I’m working my way through Sidney Blumenthal’s book about the Clinton years. I’ve seen some clear parallels, when I’m not throwing it across the room for its fawning over the “Third Way” that has us on the road to ruin (did you know Clinton had “completed” what Bobby Kennedy starting in his 1968 run to bring us all together and promote progressive politics?).

            I digress. Blumenthal, who spent 30 years as a working journalist, talked about the pack mentality of the DC press corps, speaking largely with one voice in clear contradiction of actual facts on issue after issue. It’s a sad state of affairs. They did it in the 90s, they did it in the 00s (Iraq buildup), they’re doing it now with the Fix the Debt garbage. It took until Obama’s second month for people to pivot to the Almighty Deficit. To the point that I posted that WaPo graphic calling the Fiscal Cliff, which was an austerity threat, as part of our “debt crisis.”

            • Speaking of Ezra Klein

              He’s filling in for Lawrence O’Donnell and making your points right now. Stimulus. Stimulus. Stimulus. In this time of low rates on T-bills. We’re 9 million jobs below par and ten years away from from full employment without any further negative shocks. He points out that, if the GOP provokes default, borrowing costs will soar. Maybe they really want that, to starve the beast all the more.

              He said the deal just reached was contractionary, not stimulative, and doesn’t do much about ration of debt-to-GDP. As economic policy it fails badly.

            • Don't forget Climate Change

              The horrific mainstream media “coverage” of the Climate Change “debate” is another canonical example of the “pack mentality” of the press corps (not just in DC, either). There is no scientific debate, yet large numbers of Americans think so because, like the fiscal cliff, the mainstream media simply lies to us.

              By the way, I don’t accept your speculation that the super-wealthy are “not that smart about economics”. There is nothing the super-wealthy care about so much as MONEY. If particular super-wealthy individuals are not themselves very smart about economics, they pay ENORMOUS sums to professionals who ARE very smart about economics.

              This is just more class warfare, pure and simple. The media participate in the deceptions because they are quite literally owned by those who benefit from the many lies.

              • I meant

                that the rank-and-file reporters are not that smart about economics. Which I think they aren’t.

                The media oligarchs themselves might have a different definition of good economics from the rest of us. They might mind less a “bad” macroeconomic policy that screws 99% but under which they do fine.

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Tue 23 Sep 10:23 PM