With the economy just barely on a path to durable recovery, some very dumb fiscal chickens are coming home to roost on January 1 of next year. This grim coincidence is known as the Triple Witching Hour.
First, the legacy of last summer's ill-fated bipartisan fiscal bargain -- an automatic set of budget cuts totaling $1.2 trillion -- kicks in next January 1. Second, President Obama's temporary payroll tax cuts expire. And third -- this is a good witch -- all of President George W. Bush's tax cuts sunset.
Just for good measure, there is yet another witch. The temporary extension of the debt ceiling will also expire around the first of the year, giving the deficit hawks of both parties even more leverage.
The trouble is that all of this adds up to a massive fiscal contraction. If you want to snuff out a fragile recovery, there is no better way than to cut spending and otherwise shrink the federal deficit prematurely. If anything, the economy needs more public spending for at least a year or two to compensate for the hit to private purchasing power and the housing collapse.
The failed grand bargain of last summer was the result of the Republicans holding hostage the extension of authority to roll over the national debt. President Obama was very close to making a bargain that included cuts in Social Security and Medicare in exchange for some very modest tax increases. House Speaker John Boehner, mercifully, refused to take the deal. So the two parties agreed on automatic triggers.
Following the election, there will be tremendous pressure on Congress and the White House to re-open the deal. With a Republican president, the bargain could get even worse--smaller cuts in military spending, more cuts in domestic spending, and extension of the Bush tax cuts and other tax breaks.
If President Obama wins and brings a Democratic Congress with him, the Democrats should revisit not just the composition of the deal but the premise that we need big cuts in the deficit next year or two.
Interest rates have never been lower. This is the time for the Federal government to borrow a lot of money and to invest it in public improvements -- not as a one-shot but as a multi-year program that does not have to be instantly shovel-ready.
The trouble with using deficit-reduction and ten-year debt goals as a recovery strategy is that the future deficit is itself a function of the growth rate. Squeeze too tightly, and economic growth slows down. Even though you cut spending, the deficit actually widens. This is the real lesson of Greece.
Congress recently offered three paths that perfectly illustrate what to do and what not to do.
The Congressional Progressive Caucus put out a budget that increases public investment, raises the growth rate, and gets to budget balance after 2020 at a higher level of national output and with broader prosperity.
Among other good ideas, the CPC budget allows the Bush-era tax cuts to expire at the end of 2012, but extend marriage tax relief, tax credits and incentives for children, families, education -- and adds a public option for health insurance.
It also includes a millionaires' tax, and closes corporate tax loopholes. Instead of using the proceeds for short-run deficit reduction, the progressive caucus budget adds $1.45 trillion for job creation, education, clean energy and broadband infrastructure, housing, and R&D. With this approach, higher growth and broader prosperity reduces the deficit faster and more honestly than any of the deficit-hawk plans.
Meanwhile, Republican Rep. Paul Ryan offered a budget that cuts the deficit by a purported $3.3 trillion dollars over a decade -- except it doesn't. The cuts would eviscerate valued social spending by $5.3 trillion offset by a needless $2 trillion in lower taxes -- over the coming decade. But by abruptly targeting a deficit of $300 billion in just two years, down from it's current $1.2 trillion, the Ryan plan would guarantee slower growth -- and higher deficits.
And yet another bipartisan group buys the same wrongheaded premises of fiscal conservatism, but with a mix of tax increases and spending cuts not quite as bad as the Ryan plan. The plan, by Reps. Steve LaTourette (R-Ohio) and Jim Cooper (D-Tenn), roughly modeled on the proposal of the Bowles-Simpson Commission majority, includes cuts to social insurance but also $1.2 billion in tax increases, assuring that it would be voted down by the Republican House.
President Obama intermittently gives aid and comfort to the budget hawks. The administration's own budget for FY 2013 mostly protects current social outlay and kills the Bush tax cuts, but fails to provide enough spending to increase jobs. This is essentially what President Roosevelt, listening to the budget hawks of his own day, did in 1937, kicking the economy back into recession. It took the massive deficit spending of World War II to finally end the depression.
By all means, let the Bush tax cuts die. But we need to offset that abrupt contraction with a better form of stimulus. One good candidate would be emergency aid to state and local governments that are still cutting services and laying off public workers. Another good candidate would be a second round of public works spending at least as large as the Recovery Act of February 2009.
If the election gives us a form of divided government, the immense risk is that we end up with both Social Security cuts and excessive deficit reduction. If the Republicans sweep... well, let's not go there. But if Obama and the Democrats win, its time to reject the groupthink that has put deficit-reduction ahead of achieving a durable recovery and start investing in America and its people.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.
Robert L. Borosage: The Zombie Rises: The Return of Simpson-Bowles
Miles Mogulescu: Conservatives and Liberals Agree: Medicare for All Would Be Constitutional
So just get all these companies to start reinvesting their money in America and you can offset any stimulatory retraction that may occur due to the various budget contractions. A novel idea. Big American companies bloated with cash investing in America.
To assure continued growth, we must simplify the corporate tax codes. All loopholes need to be closed, rates need to be lowered and repatriation rates need to set and kept at a low rate like 5%.
We already are borrowing a lot of money.
Make the government smaller to save money = more unemployment and less disposable income and fewer services. And then there's the collateral effect of pushing more people out of health insurance = raising cost of care. Not to mention even more people ignoring simple health issues until they become bigger (more expensive) ones.
The Republicans love to talk about leaving a "debt" for the next generation.
The less you invest in infrastructure now, the costlier it will be for your grandkids to repair what's left of it. A massive infrastructure investment now will not [actually] leave your kids more debt - you'd be investing in assets/conservation/technology (and economic growth) that will benefit them - like OUR GRAND/PARENTS DID.
If you don't do it now while credit is cheap, you're leaving them a big old crumbling mess without the means to fix it.
The fact that the US (& Europe) is so divided has been a major setback for the global economy. Unless there's a Democratic sweep this November it will continue...
You honestly believe that what we need is MORE government spending and higher taxes for the "rich?"
It is time to face the reality that it is the RICH people in this country who create jobs not the government.
If you want rich people to create MORE jobs in America then you have to make it MORE attractive for them to do just that...
Raising their taxes in any way is NOT an answer...
Raising taxes causes unemployment...
Europe has way higher taxes then we do and they have the highest rate of unemployment that they've had in decades.
Their unemployment has always been higher than ours and high taxes are the reason...
And don't give me any of that baloney about "government jobs."
Anyone with half a brain knows that the only way the government can pay for those jobs is with higher taxes, selling debt or printing money and those "answers" only make things worse...
Once again look at Europe....
The only reason we are better off than them at all is because we have lower taxes....
The lower the taxes, the better off we will all be....
NOW....
Let's see if we can figure out a way to make job creation more attractive for the job creators here in America....
Threatening them with a higher tax burden in the interest of fairness is totally insane...
If you give Paris Hilton $20,000,000, probably one of her financial professionals will buy some credit default swaps or something. Paris won't buy any more cheeseburgers than she did before. No jobs will be created. You could give her any amount of money - $300,000,000,000 - and no jobs would be created. She wouldn't build any factories or buy any cheeseburgers. What her staff would do is buy more paper, which would only artificially inflate the value of paper investments.
But if you gave 2,000,000 Joe Normals $10 each, they all go buy cheeseburgers immediately. One of the companies Paris has stock in would immediately hire some people to flip those cheeseburgers. If enough people start buying cheeseburgers, Paris' financiers would start selling silly paper financial instruments and building burger joints. but does that make Paris a "job creator?" No. It's Joe Normal's $10.
I understand why High School educated people don't understand this. But believe me, the smart guys in the think tanks who want you to think that the rich are the job creators - they understand it perfectly well, and they are simply lying.
Here is how it works. Joe creates something that is valued by others. Wealth is created. He exchanges what he creates for thing created by Jim. Joe and Jim both have more of what they want. Wealth increases.
Jim has produced a surplus. He loans some of his goods to a stranger. The stranger now has enough goods to open a store and makes enough to return Jim's goods plus some extra.
Government gets involved
In an attempt to fix the economy politicians take stuff from Jim and give it to Joe. At best the economy breaks even, in reality government wastes some of the goods and the economy is poorer.
So go ahead and tell your story without money.
That is what it sounds like you're saying...
I myself own my own business and I promise you that raising my taxes will not cause me to hire yet another person... Quite the contrary...
As a matter of fact, If I could get a massive tax break I'd spend a whole lot more money on every aspect of my business including employing more people...
Is that clear enough?
What do rich people do with their money?
They invest it...
What do they invest it in?
Jobs...
A CEO of a corporation doesn't own the company, the stockholders do...
He takes his orders FROM the stockholders and if you RAISE the corporate tax then that too will come from the stockholders and certainly not from the CEO.
The CEO only pays tax on what HE earns...
If your plan includes raising the corporate tax rate then what you are doing is creating unemployment and taking money from the stock holders...
We need to LOWER all taxes across the board and massively cut government spending...
as informative your point of view is...and it is (to me)...
I almost wanna say, "No more band-aids.
Let the crap hit the fan. Let the tipping point be reached.
Let's call the 1%'s bluff - let the monopolies run wild - let the deregulated fall-out precipitate over us all."
...nothing would frighten the 1% more than the aftermath - where the predators become prey.
Right...