As President Obama gets closer to making his deal with the Republicans on the budget, the most important thing to keep in mind is that the fiscal cliff is an artificially contrived trap. Were it not for the two Bush wars and the two Bush tax cuts and the House Republican games of brinksmanship with the routine extension of the debt ceiling, there would be no "fiscal cliff."
Rather, there would be a normal, relatively short-term increase in the deficit resulting from a deep recession and the drop in government revenues that it produces. When the economy recovered, the deficit would return to sustainable levels. In the meantime, these deficits are necessary and useful to maintain public spending as a tonic to the economy.
In addition, there are two entirely extraneous questions that do not belong in this debate -- whether Social Security requires any long-term adjustment to assure its solvency, and if so, what kind; and how to restrain the long-term growth in Medicare spending.
In fact, if we get can get back to full employment, there is no Social Security crisis, because Social Security is financed by taxes on payrolls. In the Clinton era, when we had full employment, the crisis kept receding. If we want a little extra insurance, we can lift the cap on income subject to payroll taxes.
Medicare spending is a long-term problem that requires major structural reforms. Reducing benefits or raising the eligibility age in the heat of an artificially contrived fiscal crisis is the wrong way to proceed. Obama's Affordable Care Act will keep Medicare at roughly its present level of spending relative to GDP -- too high, but not an imminent catastrophe.
The strategy of the right-wing has been to blur these several distinct issues into a single grand fiscal crisis, the better to reduce government spending and especially to cut Social Security and Medicare. The right-wing, in this case, is a two-headed beast. The Republican right-wing is mainly interested in defending tax cuts for the rich and reducing social spending generally, while the deficit hawks of the center-right want to achieve budget balance and weaken Social Security and Medicare. And since Social Security and Medicare are phenomenally popular, so much the better for the Republicans if they can trick the Democrats into sharing responsibility for the deed.
A further piece of mischief is the premise that we somehow need a 10-year budget deal that reduces the projected deficit by something like $4 to $5 trillion. We don't. What we need is an economic recovery. If we get a recovery with something close to full employment, the deficit naturally comes down as revenues to and current levels of public spending are entirely sustainable -- especially if we go back to the pre-Bush tax levels on the wealthy.
So if we limit the debate to the real subject at hand -- namely how to avoid a massive fiscal contraction next year when all the Bush tax cuts expire, President Obama holds a very strong hand. He has made it clear that he will not tolerate extending the Bush tax cuts for the top 2 percent at a cost of cutting back valued government outlays for everyone else. But he does want to extend the lower tax rates for the bottom 98 percent.
This puts the Republicans in the position of allowing everyone's taxes to increase in order to preserve the cuts for the top two percent. Not a happy position politically. And Obama has said he is willing to play hardball -- let the economy go "over the cliff" of a general increase in rates in order to force the Republicans to back down.
The Republicans have been tying themselves in knots in order to find other sources of additional revenue to plug the budget gap so that they can keep their pledge to Grover Norquist never to increase tax rates. (Funny how the Norquist pledge is a one-way ratchet. Republicans can vote to cut tax rates on the premise that the economy needs the temporary stimulus, but then if they vote to restore the old rates they are in violation of the pledge. You can see where this leads.)
But there is just not enough money for this budget deal unless a rate hike on the rich is part of the package. Restoring the pre-Bush tax rates on the top 2 percent would raise about $1.2 trillion over a decade. Raising capital gains rates to those of ordinary income and closing other loopholes that benefited mainly the wealthy would raise at most less than another trillion.
Even with those tax hikes, Obama and the Republicans would be more than $2 trillion short of the stated goal of cutting the deficit by at least $4 trillion over a decade.
And there is where the deeper mischief of the $4 trillion goal and its relation to Social Security and Medicare comes in. Neither party wants significant budget cuts in the next year or two, when the recovery is too fragile to stand even a smaller fiscal contraction. So the Republicans, Obama and the Democratic budget hawks like Erskine Bowles and retiring Budget Committee chairman Senator Kent Conrad all want to "back-load" the spending cuts -- have them bite late in this decade.
It just happens that Social Security and Medicare cuts fill that bill perfectly. Cut social insurance several years from now, and you delay the political outcry until Obama has left office. You also delay the fiscal impact, and you leave room for a bit of other government spending.
But cutting Social Security and Medicare for the sake of an arbitrary and needless budgetary reduction of $4 trillion and as a "solution" to an entirely contrived fiscal crisis is bad policy. It is bad economic policy and worse social policy. And for Democrats, it is dumb politics. If Republicans want to be the ones to attack America's two most valued social programs, Obama should let them go right ahead -- until they march off their own fiscal cliff.
And if the president is too determined to get a deal to appreciate what a strong hand he has, then it is up Democrats in Congress and the progressive community outside Washington to make sure that Obama doesn't follow Republicans off their cliff.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.
I think Medicare would come much more under control if large companies could be induced to pay their employees a living wage and not have to rely on Medicaid for their health needs. I completely agree that tying these two issues to the budget talks is disingenuous. I see it as an attempt by the republicans to force the President into something he promised America he would not do. His chief adviser, David Poluffe is a "political" adviser and they should not play politics with this decision.
"I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God."
The part that concerns me with regard to the Norquist pledge is "without any mental reservation or purpose of evasion" because unlike the Congressional Oath, Norquist's is non-binding, other than the political pressures brought to bear upon someone who doesn't sign it. The Norquist pledge doesn't apply to anything other than political self-preservation, so it's invalid. Besides, who the hell does he think he is anyway, demanding allegiance, God? Oh wait -- he just might...
If you want to know what the real argument is, read Thomas Sowell's "'Trickle Down' Theory and 'Tax Cuts for the Rich'".
They seem to believe they can keep the public in a dither over any contrived bogyman and continue on their merry destructive path.
The last time Democrats made a deal with republicans was when Bill Clinton gave republicans the NAFTA they dreamed of and we lost all our middle class jobs over the next ten years.
Democrats would be wise not to deal with republicans...especially THIS batch of teapublicans!
Every time Democrats make a deal with republicans American working people come out worse off.
The author has put it in very digestible terms - the "fiscal myth" equals a robbery on a grand scale. The fiscal cliff is the economic shock doctrine. Our corrupt leaders wave their hands and call for panic so they can get us to agree that we need to be scr3wed royally to save the country, all while taking their bribes, and getting REALLY paid when they leave office.
Whenever you hear "fiscal cliff," know that you are about to be robbed of thousands of dollars, and that those dollars will flow up to the corporate oligarchs who have bought our government.
So basically in this guys mind, the Democrats had NOTHING to do with contributing to this problem. Only Republicans. He ignores the obvious glaring financial faults that are SS and Medicare, of which ANYONE who can add can see is in trouble. And believes that this $16T plus debt and multi Trillion annual deficit spending is a CONTRIVED crisis??? Unbelievable! And Liberals are supposed to be the "smart ones"???
SS is not in any immediate trouble. It is solvent for 20 years out, and can be fixed easily. The fiscal myth is a way to ROB SS and the money you have paid into it for years.
And yes, these fiscal decisions are arbitrary - like putting two wars and a donut hole on a credit card, while cutting taxes. Then it was done with the Shock Doctrine. The new version of that is the "fiscal cliff." It is all BS propaganda by those at the top who are robbing us blind.