The crowd of Wall Street elites and DC losers want to use the fiscal cliff as a mechanism for further accelerating both privilege and poverty. They want to "reform" Social Security to diminish its benefits, just when the private retirement system is collapsing in its failure to provide pensions for retirees. They want to move the goal posts for Medicare, putting off coverage until Americans are even older, and some of us are dead, while we have just participated in a national referendum in support of the Affordable Care Act and extension of health coverage. They want to claim, highlight, and exaggerate the federal fiscal deficit, but they don't want to raise taxes to address it.
What should we do? Or rather, what should President Obama do? Our president holds almost all of the cards in this debate. Back in 2011, the newly empowered Tea Party Republicans wanted to make an issue of raising the federal debt ceiling. They didn't have to do this. It was pure political drama, geared to the Wall Street's mantra of cutting back public services. The Republicans finally caved in and voted to increase the debt ceiling. And they kicked their own can of nonsense down the road, so that if the Congress does not agree to cuts in services and increases in revenue by Dec. 31, 2012, then the Bush tax cuts would automatically expire, and across-the-board spending cuts would kick in.
And that is exactly what should happen. The rich would pay more taxes. Marginal tax rates would increase, so that married couples' income between $222,300 and $397,000 would be taxed at 36 percent instead of 33 percent, and income in excess of $397,000 would be taxed at 39.6 percent. The Bush estate tax giveaways to the sons and daughters of the wealthy would end. Taxation on long term capital gains, interest, and dividends -- all unearned income -- would rise from 15 percent to 20 percent. These taxes will be paid by the top 2.5 percent of Americans; they should pay their taxes, not shirk their responsibilities.
What else will happen? The FICA tax for Social Security will return to its level in 2009 -- 6.2 percent. This too is a good thing -- it sustains revenues for Social Security. Marginal taxes for incomes below $222,000 will also rise. For households in the middle of the income spectrum -- between $40,000 and $65,000 -- taxes would rise $17 a week.
The fiscal cliff would result in a quarter percent reduction in federal spending, split between domestic and war/defense expenditures. Social Security, Medicaid, federal pay (including military pay and pensions), and veterans' benefits are exempted from the spending cuts. Spending for federal agencies would be reduced through broad, shallow cuts. Not much of a cliff...
The world doesn't end on Dec. 31. If Congress does nothing, we start on Jan. 1 with a reset in revenue. We will have a newly re-elected President and a new Congress to determine how to create jobs, enable a stimulus targeted to the middle class, and run a federal government that can and will embrace its leading role in our economic recovery. As immediate measures, the president could insist on a tax cut on incomes below $150,000, a one-time immediate tax credit of $500 per worker, restoration of cuts in domestic programs such as student aid, food stamps, and federal unemployment insurance, an increase in the COLA for Social Security to take account of the expenditures of the elderly, and middle class recovery block grants to states. These block grants should fund new jobs to build a transportation infrastructure for the 21st century, and finance the hiring of teachers, community college professors, and health workers.
In November, Americans did not vote for reducing Social Security and Medicare, and increasing privilege. They did not vote for Wall Street. They did not vote for the inside-the-beltway elites. They did not vote for the fictitious fiscal cliff. They voted for a pathway for progress for all Americans. Articulating this pathway should be President Obama's affirmation of the electoral choices made in November. And it would pave the way for a real and accelerating economic recovery that brings jobs and hope to Americans.
John Burbank is the Executive Director of the Economic Opportunity Institute (www.eoionline.org). He can be reached via email at email@example.com.
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