Economics for the Earth Blog

Don't be afraid of the cliff

Posted Dec. 17, 2012 / Posted by: Erich Pica

Call it the fiscal cliff, the fiscal slope or an “austerity crisis,” but no matter the nomenclature, a battle is underway over the role of government in the U.S.: Should we take care of our own or should people be left to fend for themselves?

Our answer will reverberate for decades. Programs such as Medicare, Medicaid and Social Security, the social safety net that so many Americans depend on, are at risk. If government protection is eroded for those most in need, it is impossible to imagine the country coming together to avoid climate change or to deal with its impacts. The ability to maintain our social safety net depends on those who can afford it, the richest Americans, being asked to make a bigger contribution. We are not broke; in fact, we are the richest country in the world. The money is there for teachers, school lunches, and medicine for the sick. Letting the Bush tax giveaways for the wealthiest Americans fully expire would restore needed money to the treasury.

Americans made their choice in the election, and polling after afterwards confirmed it: we voted to protect Social Security and Medicare by having the rich pay their fair share.

President Obama has one giant piece of leverage available to make sure that the will of the people is served -- the Bush tax giveaways go away if he takes us over the cliff.

Make no mistake, the automatic cuts to non-defense programs triggered by the sequester would be bad for our country. The initial $1 trillion in cuts that were made last year under the Budget Control Act are already causing pain. The second round of cuts triggered by the sequestration would further decimate discretionary spending for vital programs, including programs that protect public health and the environment. However, it still would be better to go over the cliff now than to accept a deal that will lock us in a fiscal straightjacket for decades and result in the erosion of vital social safety nets.

As Chuck Marr from the Center on Budget and Policy Priorities told the Washington Post:

A much wiser course would be to let the Bush tax cuts sunset. You’d be locking in nearly $1 trillion in 10-year savings. And then one can start talking about reforming” deductions.

Many leading progressives have made this point. Nobel Prize-winning economist Paul Krugman, House Minority Leader Nancy Pelosi, Co-Chair of the House Progressive Caucus Raul Grijalva, and Co-Chair of last year’s deficit commission Senator Patty Murray have all said that it is better to go over the cliff than to accept a deal that extends the Bust tax cuts for the wealthiest Americans. Senator Murray put it simply in a recent speech when she vowed to “absolutely continue this debate into 2013, rather than lock in a long-term deal this year that throws middle class families under the bus.”

These are important voices in the debate, but the only person negotiating with House Speaker Boehner is President Obama. While the president has rightly insisted that the wealthiest Americans pay more, he continues to send signals that he is willing to compromise. This is leading to speculation about what compromise on the Bush tax rates will look like, as if the program cuts enacted under the Budget Control Act are not too much compromise already.

President Obama needs to stand strong and insist on the expiration of the full Bush tax cuts for income over $250,000. Just as importantly he cannot let the Republicans hold us hostage three months down the road; any deal must also increase the debt ceiling. The leverage is on the president’s side, since -- as Paul Krugman notes -- “no deal is better than a bad deal.”  If the Republicans refuse, he must have the courage to take us over the cliff -- it will be a bumpy ride, but it would leave us with the heart of our country still intact.

Photo credit: Francois Rejete, Flickr, Creative Commons

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