FacebookTwitterGoogle+RedditEmail

Fiscal (Cliff) Graffiti

by ALAN BARBER

The story of the fiscal cliff is a simple one. The basic idea is that more than $500 billion in new taxes take effect on January 1, 2013. These include the end of the Bush tax cuts ($220 billion), the end of the payroll tax cuts ($130 billion), and the end of the Alternative Minimum Tax and others ($130 billion). There is also the sequester—or cutting—of $110 billion in defense and non-defense spending. Those who warn of a fiscal cliff say that when taxes rise and government spending falls at the end of the year, the economy will be pushed back into recession. The problem is, the last part of the story is not true. There is no looming crisis coming on January 1 if we do not act now.

Higher taxes and less spending would slow the economy if left in place over the next year and could possibly lead to another recession. But that recession will not happen on January 1. The sequester applies to appropriations that may not be spent for years. The higher taxes will not affect every single paycheck at once on New Year’s Day. This recession story assumes these spending cuts and higher taxes remain in place all year and absolutely no one thinks that will be the case. If, instead, we reverse the tax increases and spending cuts 10 days after the start of the year, the economic impact will be minimal.

Interestingly, those who insist the loudest that we must act now, call for a “grand bargain” that would savage government spending, particularly Social Security and Medicare, in the name of reforming entitlements. They say it must be done because of our soaring deficits. However, the high deficits we see now are due to the recession. The budget deficit was actually only just over 1 percent of GDP in 2007 and was projected to remain near that level for several years before the Great Recession. There is no need to cut important social insurance programs right now that millions of Americans rely on and essentially voted to protect in November.

While long-term deficits are a concern, we don’t have to act by January 1. By negotiating a smart budget in the next few months, the president and Congress are much more likely to arrive at an agreement that fosters growth and perhaps deals with long-term healthcare costs, the main driver of future deficits. But to act now by cutting spending on vital programs might be just the push our fragile economy does not need.

Alan Barber is the domestic communications director of the Center for Economic and Policy Research.

This article originally appeared in Debate Club.

More articles by:

CounterPunch Magazine

minimag-edit

Weekend Edition
August 26, 2016
Friday - Sunday
Louisa Willcox
The Unbearable Killing of Yellowstone’s Grizzlies: 2015 Shatters Records for Bear Deaths
Paul Buhle
In the Shadow of the CIA: Liberalism’s Big Embarrassing Moment
Rob Urie
Crisis and Opportunity
Charles Pierson
Wedding Crashers Who Kill
Richard Moser
What is the Inside/Outside Strategy?
Dirk Bezemer – Michael Hudson
Finance is Not the Economy
Jeffrey St. Clair
Roaming Charges: Bernie’s Used Cars
Margaret Kimberley
Hillary and Colin: the War Criminal Charade
Patrick Cockburn
Turkey’s Foray into Syria: a Gamble in a Very Dangerous Game
Ishmael Reed
Birther Tries to Flim Flam Blacks  
Brian Terrell
What Makes a Hate Group?
Andrew Levine
How Donald Trump Can Still be a Hero: Force the Guardians of the Duopoly to Open Up the Debates
Howard Lisnoff
Trouble in Political Paradise
Terry Tempest Williams
Will Our National Parks Survive the Next 100 Years?
Ben Debney
The Swimsuit that Overthrew the State
Ashley Smith
Anti-imperialism and the Syrian Revolution
Andrew Stewart
Did Gore Throw the 2000 Election?
Vincent Navarro
Is the Nation State and Its Welfare State Dead? a Critique of Varoufakis
John Wight
Syria’s Kurds and the Wages of Treachery
Lawrence Davidson
The New Anti-Semitism: the Case of Joy Karega
Mateo Pimentel
The Affordable Care Act: A Litmus Test for American Capitalism?
Roger Annis
In Northern Syria, Turkey Opens New Front in its War Against the Kurds
David Swanson
ABC Shifts Blame from US Wars to Doctors Without Borders
Norman Pollack
American Exceptionalism: A Pernicious Doctrine
Ralph Nader
Readers Think, Thinkers Read
Julia Morris
The Mythologies of the Nauruan Refugee Nation
George Wuerthner
Caving to Ranchers: the Misguided Decision to Kill the Profanity Wolf Pack
Ann Garrison
Unworthy Victims: Houthis and Hutus
Julian Vigo
Britain’s Slavery Legacy
John Stanton
Brzezinski Vision for a Power Sharing World Stymied by Ignorant Americans Leaders, Citizens
Philip Doe
Colorado: 300 Days of Sunshine Annually, Yet There’s No Sunny Side of the Street
Joseph White
Homage to EP Thompson
Dan Bacher
The Big Corporate Money Behind Jerry Brown
Kollibri terre Sonnenblume
DNC Playing Dirty Tricks on WikiLeaks
Ron Jacobs
Education for Liberation
Jim Smith
Socialism Revived: In Spite of Bernie, Donald and Hillary
David Macaray
Organized Labor’s Inferiority Complex
David Cortright
Alternatives to Military Intervention in Syria
Binoy Kampmark
The Terrors of Free Speech: Australia’s Racial Discrimination Act
Cesar Chelala
Guantánamo’s Quagmire
Nyla Ali Khan
Hoping Against Hope in Kashmir
William Hughes
From Sam Spade to the Red Scare: Dashiell Hammett’s War Against Rightwing Creeps
Raouf Halaby
Dear Barack Obama, Please Keep it at 3 for 3
Charles R. Larson
Review: Paulina Chiziane’s “The First Wife: a Tale of Polygamy”
David Yearsley
The Widow Bach: Anna Magdalena Rediscovered
FacebookTwitterGoogle+RedditEmail