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As January 1 approaches the corporate-funded deficit hawks are getting hysterical. They are spreading fear about a “fiscal cliff” when $600 billion in tax increases and spending cuts kick in. While it is possible that taking that much money out of the economy at one time could cause the economy to contract, any tax cuts can be extended retroactively and spending cuts can be restored before the end of the fiscal year to soften the landing. In short, there is no cliff.

One of the front groups spreading the alarm is Fix the Debt, an organization that includes the CEOs of many of the country’s largest corporations. Their story is that we have to show we are “serious” about reducing our budget deficits by cutting entitlements or else the financial markets will panic. Why don’t they suggest cutting corporate welfare and subsidies instead? They’re usually estimated at a trillion dollars per year.

If we can’t afford Medicare and Social Security how could we have afforded the Romney/Ryan plan: more personal tax cuts, lower corporate taxes and an end to capital gains taxes, the estate tax, the AMT and taxes on dividends and interest?  

If the current hysteria were really about the debt, 231 House Republicans would not have passed Paul Ryan’s budget last year, which would have added $6 trillion to the debt over the next decade.

One of the reasons the GOP has lost the popular vote in five of the last six elections is their continued attack on the social safety net. A December McClatchy poll showed that even Republican voters are against cutting Medicare spending by 68-26%; they oppose cutting Medicaid by 61-33%.

Republicans have manufactured a story about tax cuts for “job creators,” but at least three recent studies (by the Congressional Research Service, by Georgetown Law professor John L. Buckley, and by the New York Times) show that reductions in the top tax rates greatly increase income inequality but produce little saving, investment, or productivity growth. In reality, most jobs are created by middle class entrepreneurs who start new companies, not the superrich.

The same people also peddle the zombie “supply-side” claim that tax cuts pay for themselves, as well, a myth that has been completely debunked. The CBO attributes 48 percent of the deficit since 2001 to Bush’s tax cuts. We saw how Bush’s No-CEOs-Left-Behind policies created huge deficits but no jobs.

The New York Times reported last year that if all of the Bush tax cuts expired as scheduled at the end of 2012, future deficits would be cut by about half. Much of the rest of the deficit/debt is a result of the two longest – and unpaid wars -- in our history, the unfunded Prescription Drug program and the drop in revenue collection due to the Bush recession.

So how can we close the financial gap? The IRS estimates that individual and small business tax avoidance costs us $450 billion every year, and corporate tax avoidance another $250 billion to $500 billion. Further, the annual cost of offshore tax abuses is estimated as $337 to $500 billion according to The Tax Justice Network. We need more effective laws and better enforcement.

The Congressional Research Service estimates that raising taxes above $250K, as Obama has proposed, could produce $950 billion over a decade, that lifting the capital gains tax would raise $533 billion, and limiting deductions could produce $165 billion.  A carbon tax could produce $1.2 trillion over 10 years.

By most calculations, the U.S. spends more on national security than the rest of the world combined and twice as much (inflation-adjusted) as under Eisenhower when we had a Cold War adversary. Our bloated, permanent war economy needs downsizing.

There are other options: Bush’s prescription drug law explicitly prohibits Medicare from negotiating discounts with drug companies, a gift to Big Pharma. Negotiating volume discounts, as the VA does, would save $300 billion over a decade.

According to The Center for Economic and Policy Research and the Political Economy Research Institute, a financial transaction tax – a “Robin Hood tax” -- of one-tenth of one percent on derivatives could raise $170-$350 billion annually, while dampening financial speculation.

Social Security could be made solvent for the foreseeable future by removing the $110,000 earnings cap for contributions.

So whatever the corporatist lobby claims, the deficit hysteria is not about balancing the budget but about manipulating the debt story to demand cuts to the social safety net, leaving more money to redistribute upward to the GOP’s wealthy supporters.

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Comment Preferences

  •  Excellent, Reality-Based Diary! (2+ / 0-)
    Recommended by:
    OooSillyMe, Ralphdog

    Great read.  Relief to see a progressive diarist who's not been taken in by White House and Congressional self-induced and self-generated deficit hysteria.

  •  Remind me again: (7+ / 0-)
    ...any tax cuts can be extended retroactively and spending cuts can be restored before the end of the fiscal year to soften the landing.
    What is the mechanism for this?

    I sure hope it has nothing to do with the House of Representatives, because that's certainly a non-starter.



    Folks, they are "war rations."
    Can we please refer to food stamps by their proper name?

    by Pluto on Mon Dec 24, 2012 at 12:10:55 PM PST

  •  Well, if we didn't want this... (0+ / 0-)

    We shouldn't have elected the Rmoney tax plan!

    Oh wait...

    We didn't.

    /snark

    I don't blame Christians. I blame Stupid. Which sadly is a much more popular religion these days.

    by detroitmechworks on Mon Dec 24, 2012 at 12:14:18 PM PST

  •  The deficit hysteria (2+ / 0-)
    Recommended by:
    seancdaug, Garrett

    is about more than "manipulating the debt story to demand cuts to the social safety net," though that's certainly part of the equation.  Look, I agree with most everything in your diary but facts and common sense don't matter when you're dealing with a GOP demonstrably not based in reality and lacking all sense, common or otherwise.  I don't know if I'd call the crisis "fake," but it's certainly a political and fiscal concoction that is entirely unnecessary.

    Things work out best for those who make the best of the way things work out.

    by winsock on Mon Dec 24, 2012 at 12:23:46 PM PST

  •  The reasoning that got us here is fake (4+ / 0-)

    but the sequestration part of the fiscal cliff is not an imaginary problem. It's going to cause real harm to real people, and to our economy, if not addressed. Not necessarily on January 2 (though there are some immediate repercussions even that early), but it's not something we can just ignore. It's the product of a stupid, short-sighted, and flat-out insane political and economic policy foisted on us by the GOP and the corporatocracy, but the impact has the potential to be very real.

  •  Basically correct (0+ / 0-)

    except for a few hundred thousand people (scientists, the unemployed, etc) who will then be w/o visible means of financial support.

    Yup, other than that, it's all good!  Yay!!

  •  According to HuffPo's Ryan Grim, " . . . Few (0+ / 0-)

    Significant Changes for January, Despite Cliff Hype."  

    . . . the agencies responsible for implementing those changes, including the IRS and the Pentagon, are well aware that congressional and White House negotiators will most likely come to some sort of deal within weeks or months -- and so they are planning to carry on as usual, according to a broad review of private and public government plans.

    In other words, there will be no cliff. There won't even be a slope. Congress and the president can have their public and private dramas, but the government officials responsible for carrying out their eventual orders have seen this movie before, and they know how it ends.  

  •  memes yet to be memed standing by (0+ / 0-)

    Fiscal Cliff had to've been coined on the 6th martini...

    What others might be waiting in the wings? It's the stuff of a shaggy dog comedy skit. But I'm not laughing...

    Remember right before Nov 6 the media chanting that the election outcome was RAZOR TIGHT ~wtf?

    The FISCAL CLIFF was the final act of W's 8 year screw-job.

    1-O SSS Conscientious Objector to War 1972. Democrat. BA English.

    by Fulgour on Mon Dec 24, 2012 at 08:41:58 PM PST

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