If the Dems got a backbone

by Linda Beale

If the Dems got a backbone

Yesterday I urged the Democrats to develop some backbone in response to the continuing right-wing extortion demands for military spending increases, tax cuts and entitlement program changes.
How should that backbone be used?  Not an easy question to answer and likely my answer will upset many economists and tax professionals.  So I propose that we consider going over the fiscal cliff.  What do readers think, and why?

Here’s the argument I think can be made.  Given that the “fiscal cliff” deal doesn’t require cuts to social welfare programs, it might be advisable to let the fiscal cliff occur.  Let the spending cuts go through and let the Bush tax cuts expire.  The result will be that we will have taken a much needed first stab at cutting back on the exorbitant military spending that provides rentier profits to the military-industrial complex.  And we will have moved the game back to “start” regarding the appropriate kinds of tax cuts to enact. 
But there are spending cuts that may not make sense (cuts to public employee pensions) and definitely some tax cuts (and programmatic stimulus) is needed to deal with the continuing slow economic growth.  What if the President and Democrats in Congress provided a clear and transparent plan for dealing with those issues by announcing–at the same time that they refuse to go along with the GOP extortion demands, that they will press for passage of a reinvigorated tax code and modified spending reduction plan.

In January, Congress can start with a clean slate and quickly enact [ah, I know, this is the weak point–can the highly partisan Congress change its ways?] a much more judicious (and limited) set of tax cuts targeted to those with incomes under $100,000 and to industrial policies that make sense for today rather than 100 years ago (such as continuing subsidies for alternative energy while finally ending the various subsidies for the extractive industries like gas and oil and coal).  That should be accompanied by additional reforms to the tax code to simplify it and eliminate unreasonable preferences that favor the rich.  Elimination of the preferential rate for capital gains should be the first priority (and carried interest should be treated as what it is–delayed payment of compensation).   Reform of the corporate and international tax provisions to eliminate the ability of multinationals dependent primarily on intellectual property to avoid taxation on their profits by transfers to offshore affiliates and similar problems in the tax code related to the globalization of business should be the second one.

Those tax policies would be enacted in tandem with appropriate spending policies:  it is what we want to spend our taxes on, after all, that should decide what our taxation policies are.  We know we need to raise money to repay debt, to build and maintain our long-neglected public infrastructure (highways, bridges, government buildings, high-speed passenger rail, etc.) and to fund needed research and education (NIH, NSF, Pell grants, etc.).   In particular, we need to address the infrastructure and other changes that are necessary to address climate change–both defending ourselves from its effects to the extent possible (surge protection for New York, for example) and regulating ourselves to reduce the amount of change.  We know we can and must reduce the demands of the military industrial complex through spending cuts.

What might Congress accomplish, if it would approach the budget of the United States from the perspective of considering what we should be doing to make this a better nation, a more prepared and educated people, and a more sustainable economy?

cross posted with ataxingmatter