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:
June 30, 2016
Richard Moser
Clinton and Trump, Fear and Fascism
Pepe Escobar
The Three Harpies are Back!
Ramzy Baroud
Searching for a ‘Responsible Adult’: ‘Is Brexit Good for Israel?’
Dave Lindorff
What is Bernie Up To?
Thomas Barker
Saving Labour From Blairism: the Dangers of Confining the Debate to Existing Members
Jan Oberg
Why is NATO So Irrational Today?
John Stauber
The Debate We Need: Gary Johnson vs Jill Stein
Steve Horn
Obama Administration Approved Over 1,500 Offshore Fracking Permits
Rob Hager
Supreme Court Legalizes Influence Peddling: McDonnell v. United States
Norman Pollack
Economic Nationalism vs. Globalization: Janus-Faced Monopoly Capital
Binoy Kampmark
Railroaded by the Supreme Court: the US Problem with Immigration
Howard Lisnoff
Of Kiddie Crusades and Disregarding the First Amendment in a Public Space
Vijay Prashad
Economic Liberalization Ignores India’s Rural Misery
Caroline Hurley
We Are All Syrians
June 29, 2016
Diana Johnstone
European Unification Divides Europeans: How Forcing People Together Tears Them Apart
Andrew Smolski
To My Less-Evilism Haters: A Rejoinder to Halle and Chomsky
Jeffrey St. Clair
Noam Chomsky, John Halle and a Confederacy of Lampreys: a Note on Lesser Evil Voting
David Rosen
Birth-Control Wars: Two Centuries of Struggle
Sheldon Richman
Brexit: What Kind of Dependence Now?
Yves Engler
“Canadian” Corporate Capitalism
Lawrence Davidson
Return to the Gilded Age: Paul Ryan’s Deregulated Dystopia
Priti Gulati Cox
All That Glitters is Feardom: Whatever Happens, Don’t Blame Jill Stein
Franklin Lamb
About the Accusation that Syrian and Russian Troops are Looting Palmyra
Binoy Kampmark
Texas, Abortion and the US Supreme Court
Anhvinh Doanvo
Justice Thomas’s Abortion Dissent Tolerates Discrimination
Victor Grossman
Brexit Pro and Con: the View From Germany
Manuel E. Yepe
Brazil: the Southern Giant Will Have to Fight
Rivera Sun
The Nonviolent History of American Independence
Adjoa Agyeiwaa
Is Western Aid Destroying Nigeria’s Future?
Jesse Jackson
What Clinton Should Learn From Brexit
Mel Gurtov
Is Brexit the End of the World?
June 28, 2016
Jonathan Cook
The Neoliberal Prison: Brexit Hysteria and the Liberal Mind
Paul Street
Bernie, Bakken, and Electoral Delusion: Letting Rich Guys Ruin Iowa and the World
Anthony DiMaggio
Fatally Flawed: the Bi-Partisan Travesty of American Health Care Reform
Mike King
The “Free State of Jones” in Trump’s America: Freedom Beyond White Imagination
Antonis Vradis
Stop Shedding Tears for the EU Monster: Brexit, the View From the Peloponnese
Omar Kassem
The End of the Atlantic Project: Slamming the Brakes on the Neoliberal Order
Binoy Kampmark
Brexit and the Neoliberal Revolt Against Jeremy Corbyn
Doug Johnson Hatlem
Alabama Democratic Primary Proves New York Times’ Nate Cohn Wrong about Exit Polling
Ruth Hopkins
Save Bear Butte: Mecca of the Lakota
Celestino Gusmao
Time to End Impunity for Suharto’’s Crimes in Indonesia and Timor-Leste
Thomas Knapp
SCOTUS: Amply Serving Law Enforcement’s Interests versus Society’s
Manuel E. Yepe
Capitalism is the Opposite of Democracy
Winslow Myers
Up Against the Wall
Chris Ernesto
Bernie’s “Political Revolution” = Vote for Clinton and the Neocons
FacebookTwitterGoogle+RedditEmail