Fiscal Cliff Or GOP Nonsense ?

(The cartoon above is by Stuart Carlson at carlsontoons.com.)

The Republicans spent hundreds of millions of dollars spreading lies about how the economy will crater if President Obama was re-elected. It didn't work. The president was re-elected, and Republican numbers in both the House and Senate were reduced (although the GOP was able to hang on to a majority in the House). But evidently they didn't get the message the voters sent, because they are still trying to sell the same old doom and gloom prospect of disaster if the president doesn't do what they want.

This time it's the "fiscal cliff" they are trying to scare people with. They now claim that if certain things happen at the end of this year, things that they agreed to, the country will immediately plunge off the end of an economic cliff and wind up in worse shape than at the height of the Bush recession. That is crap. Here's what they are talking about:

Sequestration Cuts 
Both parties agreed last year to these cuts in the event that the "Super Committee" failed to agree on a plan to reduce the deficit. The super committee failed, and now these cuts are to begin next year. The only thing that can stop them is action by Congress and presidential approval of that action. What this is, is an across the board cut of all federal government discretionary spending -- including cuts to social programs, cuts to environmental programs, and cuts to the military. The GOP is actually happy with most of these cuts.

The exception is military spending cuts -- which the Pentagon Brass says would not hurt national defense nor military readiness. But the GOP doesn't care what the military says. They want to increase military spending anyway (to pay off their corporate donors in the military-industrial complex) -- and they want to do this in spite of the U.S. already spending nearly half of all the world's military spending (and more than the next 15 biggest-spending countries added together).

I am not happy about the cuts to social programs. That is money that gets spent every month boosting the economy and its money that helps hurting Americans. But I can grudgingly accept it, as long as it is accompanied by the military budget cuts. The military budget actually needs to be cut a lot more than what is going to happen (if no action is taken). But these cuts are better than nothing. The president and Democrats need to stand firm and make sure military cuts are made if social program cuts are made.

Bush Tax Cuts
The Bush tax cuts, most of which was enjoyed by the rich, are set to expire at the end of this year. The president wants to extend them for everyone making less than $250,000 a year -- and the Senate Democrats have already passed a bill that would do that. But the House Republicans are refusing to pass that bill. They want the rich to be included in any new extension of tax cuts. They are trying to make it sound like it would be an economic and job-costing disaster to not renew the tax cuts for the rich. That's nonsense. All it would do is return the richest Americans to the tax rates they had in the Clinton administration (which was a good economic time in this country).

The Republicans are in the weakest position here. The tax cuts will expire if nothing is done -- and they are the ones blocking extending tax cuts for over 95% of Americans. All the president (and the Democrats) have to do is nothing. If the GOP doesn't pass the Democratic bill, the cuts will expire. Then the Democrats can re-introduce their bill to cut taxes for the bottom 95% of Americans in the new session of Congress. If the Republicans continue to block it, they will be the ones to incur the wrath of the American electorate.

Making things even harder for the GOP is the fact that a substantial majority of people are in favor of the Democrat's bill, and know it will help to reduce the deficit (something the Republicans say they want). Continuing to block the tax cut for most Americans will just make the Republicans look like they have sold out to the rich, and are not really interested in cutting the deficit.

Payroll Tax Cuts
The payroll tax cuts, which reduced them from about 6% to about 4%, will also expire at the end of this year. Personally, I never thought these small tax cuts made much sense (although they probably did cause a small bump in economic activity at a time it was needed). These payroll taxes go to fund Social Security and Medicare. The politicians, especially the Republicans, keep telling us that Social Security and Medicare are in financial trouble. If that's true, then it makes no sense to continue the payroll tax cut.

The truth is that Social Security could be adequately funded far into the future by doing a couple of small things. The first is to let these tax cuts expire. The second is to raise or remove the cap on income subject to these taxes. Medicare is a little tougher problem, but that could be handled too if the government would do some sensible things -- like allowing Medicare to negotiate drug prices and instituting price controls over the rise in medical costs (which is rising far faster than the rate of inflation).

Fiscal Cliff?
Will the nation be immediately plunged into a deeper recession if nothing is done? Not at all. While there could be a small dip in GDP, it is unlikely that the country would be thrown into recession. Even it started to look bad it would be a gradual process, and there would be time to take action.

It is time for the president and the Democrats to play the same kind of political hardball the Republicans have been playing for the last four years. They should refuse to give an inch on tax cuts for the rich and cuts to the military -- even if they have to let all of the above things go ahead and happen at the end of the year. The Republicans may be trying to talk tough and scare Americans, but they have no leverage -- and if they refuse to compromise they will just further damage their already weakened party.