Calling all Americans: we face an "austerity crisis" not a fiscal "cliff”

by Linda Beale

Calling all Americans: we face an “austerity crisis” not a fiscal “cliff”; we need a piecemeal solution, not a “grand bargain”

Keynesian economic theory is the only theory that has gotten much of what’s gone on in the last few decades correct, but of course the GOP market fundamentalists, in reliance on the unrealistic assumptions of most freshwater economics, still claim that all we need to do is starve the beast more, cut taxes and regulations more and economic growth will take off and take care of every problem imaginable.  In the process of trying to enact their ever-more-absurd vision of how to legislate a good economy, the GOP is prepared, once again, to be the obstructionist party of “no”, with Boehner saying no tax rate increases, Ryan claiming that Obama’s reelection (with exit polls showing majority support for tax increases on the wealthiest Americans) does not signify a mandate to increase taxes on the wealthiest Americans, and the GOP generally pushing for benefit cuts to Medicaid, Medicare and Social Security –irrelevant to the deficit and actively harmful to the livelihoods of millions of Americans and hence to the economy –as the solution of choice to the horror (in their view) of cutting military expenditures or raising taxes on the rich.

There may finally be some light at the end of the long, corporatist, Koch-funded, Norquist-induced “big sleep” in which too many Americans were lulled into thinking that taxes were all bad, spending was all bad unless on military, and the GOP greed-is-good; let-the-rich-keep-getting-even-richer philosophy was okay.  Alex Seitz-Wald even asks “Is it game over for Grover Norquist?”, (Nov. 14, 2012).  Seitz-Wald reports that Norquist has only 217 no-tax pledgers in the new House and an all-time low of only 39 in the Senate, and contrasts that with 238 House members and 41 Senators last year.  Id.  Thousands of Norquist’s political arm Americans for Tax Reform were spent on two GOP pledge signers–Ricky Gill and Lee Anderson–who were ultimately defeated.  Some who signed the pledge, such as MN Chip Cravaack (who lost) recognized too late that giving away your responsibility to think was an act of political suicide.  Even Senators Graham and McCain have suggested that the time of adhering to a no-taxes-ever pledge has passed, and Jeb Bush, the family’s current presidential aspirant, says he doesn’t believe in “outsourc[ing] your principles and convictions to people.”  Id.  Even Boehner, after all, has admitted he could support limiting deductions as a way to get more taxes from the rich, even if he won’t yet say he will agree to tax rate increases.

Robert Reich notes that the apparent GOP willingness to allow some tax increases through “base broadening” should be looked at squarely for what it really is–not generally a way to ensure that the rich pay more and that the poor and middle class continue to get appropriate breaks on their taxes to avoid a renewed recession.  See Robert Reich, So much for ‘grand bargains’, (Nov. 14, 2012).

‘Broadening the base’ has nothing whatever to do with the rich paying more.  That’s because a lot of tax credits and deductions help the middle class and the poor.  If we end the Earned INcome Tax Credit, for example, some of the poorest Americans weill end up sacrificing.  That tab was $63 billion last year.  Or if the ‘loophole’ is tax-free employee health care, or the home mortgage tax deduction, or tax-deferred 401k accounts, most of the added tax revenues will come out of the pockets of the middle class.  So when Republicans talk about ‘broadening the base’, watch your wallets. Id.

Instead of cutting these types of loopholes that are beneficial to the middle and lower income classes, Reich suggests that Congress take aim definitively at the lairs of tax loopholes for the rich.
If Republicans won’t budge on raising tax rates but insist on broadening the base, Democrats should take aim at the biggest tax loophole of all for America’s wealthy: the preference for capital gains.  Id.
Krugman in his blog, An Austerity Bomb (Nov. 14, 2012) argues that we’ve again allowed the extremists on the right to set the tone of the dialogue by letting them label the current situation.  We aren’t facing a “fiscal cliff”, he notes, but rather an “austerity bomb”.

[The term ‘fiscal cliff’ implies] “a problem of excessive deficits when it’s actually about the risk that the deficit will be too small; also and relatedly, the fiscal cliff stuff enables a bait and switch in which people say ‘so, this means that we need to enact Bowles-Simpson and raise the retirement age?’ which have nothing at all to do with it.  Id.