Why is the "Fiscal Cliff" So Difficult?

Politicians and the media have gotten together to make us believe that we are about to fall off a financial mountain if the President and Congress can not come together on some terribly difficult decisions to save our economy from  certain ruin.

We are reminded that by year’s end, the Bush tax cuts put in as a temporary measure to lower rates to historic lows for a few years to grow the economy, will expire.  The plan didn’t work and led to high unemployment and enormous deficits and debt.

We are asked to believe that if we return tax rates to 2001 levels, mainly affecting the financial top 2% of families, our economy might collapse.  Letting these temporary cuts expire would raise about $230 billion in annual revenue.

We are also being made aware that the temporary one year cuts in FICA deductions  of 2% for up to $110,000 in earned income will also reach their end.

We are then asked to believe that if the Bush tax cuts are allowed to expire and we raise an additional $230 billion in revenue, sequestration would automatically kick in reducing defense and discretionary spending cuts by $110 billion.  This would be true only if the additional revenues had not been found.  But by letting the Bush tax cuts, they would have been found. So sequestration would not occur if the Bush tax cuts expired.

But what if the sequestration did occur?  Half the cuts would come from defense.  So almost $55 billion out of more than $1 trillion in annual defense spending would be cut and that by reducing the annual increase.  This “cut” or reduction in future spending would be a 5% reduction of the current spending level and would mean that future increases would be smaller.  Can defense afford to lose 5% of its budget?  I think so.

The other $55 would come out of discretionary spending.  This part of our budget costs about $750 billion a year.  Cutting its growth by $55 billion would mean a 7.5% reduction that should come from eliminating waste and fraud and perhaps eliminating, reducing or combining programs and functions to maximize efficiency and effectiveness.  Would that be so bad?

So what is the real fear?  As FDR said, it is of the fear itself.  If the mainstream media can continue to misinform the public of the possible effects of these budgetary changes, then the population will become frightened and change their behavior, especially their economic behavior.  They might shop less and cause employers to lay off workers who in turn will have less to spend and cause the economy to once again decline.

But if it were possible to analyze the entire situation with all the available information, the public might decide that this is not such a calamity and might actually be a good thing.

As I have said before, I believe that the ultimate solution to the revenue side of our nation’s budget equation, is to scrap the federal income tax code with all its deductions, credits and special circumstances all intended to motivate economic behavior.  It should be replaced by a simple standard deduction for individuals and couples and a few tax brackets counting all sources of income at their face value. The $200 plus billion additional revenue from this new system would reduce the deficit while also making funding available to address specific economic needs like housing, health care, education, nutrition and environmental protection when and where needed. 

I also believe that we would be best served economically and well as militarily if we dramatically reduced our global military footprint.  The money we spend on defense could be in this country so that the money is recirculated in our economy instead being lost in another.

And there is so much waste in government.  Surely tens of billions of wasteful, unnecessary spending could be eliminated.

But what should we do now that negotiations have broken down? Contrary to media and politicians’ accounts, we don’t have to settle this by the end of the year.

The spending cuts can and will be delayed and families will see approximately $5 to $8 a day less in net income.  The extension of unemployment benefits will expire affecting two million former workers who have already gotten a year of benefits.

I predict that what will happen is all Bush tax cuts will end and then the Congress will vote to cut taxes for the middle class minus some of the credits.  Long term unemployment will be extended for a period and the payroll tax cut of 2% will finally end meaning the average worker will pay about $2 a day more for their future Social Security and Medicare benefits which in their first year will equal more than all the payments the worker has ever made.

And the economy will rebound.

Then, in two years when the Republicans lose their majority in the House, the Congress can vote to close all the personal and corporate loopholes and develop a truly fair and simple federal income tax code.

The fiscal cliff is all hype as is the Republican party.

What's the Republican Party To Do Now?

The November elections are now finally over.  The Democrats won.  They won because they represent a larger share of this country and are for the issues the majority agrees with.  The Republicans have been on the wrong side of most important issues in recent years.

The Republican, long known as the party of big business but also of representing all those Americans who root for the top dog rather than the underdog, has become the white, Christian  older man’s party and there are fewer of these folk nowadays.

The Republican party has been against allowing abortion for any reason, against birth control to avoid abortions, against gay sex and unions, against labor unions and not in favor of giving amnesty to people here illegally.  They say they want to reduce deficits by cutting programs but they focus on Social Security and Medicare, two programs that have had nothing to do with our current budget deficit.  They want to end the Affordable Care Act which would give 30 million Americans health care that they had not been able to afford while actually reducing federal expenditures. And even though defense accounts for one trillion in costs each year increasing more than any part of our budget, the Republicans do not want it reduced, many want it increased. They do not want to end the temporary budget cuts put in by their party as a way of reducing annual deficits even though they didn’t work and raised our deficit.

The problem for the Republicans is that most Americans are not white, Christian men.  Most Americans are not rooting for the top dog to pull even further ahead of the pack, but are feeling sympathy for the growing number of American underdogs - the minorities, the disabled, the low wage workers, the unemployed, the poor and the people in need of medical attention that they can not afford.  Most Americans are in favor of the Affordable Care Act as they learn more about its many benefits.  The Republicans in the House have tried 33 times to eliminate it and have spent $50 million in the process.

While most Americans believe that  families in the top 2% should pay the rates they were paying before 2001, Republicans have resisted efforts with an almost self righteous certitude.

So now that it appears clear that the people are no longer on their side, what can the Republican party do in order to be viable in the future?

First they have to give up on making abortion illegal or making birth control more difficult to obtain.  While no one thinks that abortion is good, no one considers having one a life’s goal, some people are forced to rely on it for relief.  If the child will have a major birth defect or if the mother could be disabled or could actually die from childbirth or in the cases of rape and incest, it becomes necessary to have an abortion.  Whatever can be done to reduce the number or need for abortions should be done through education and counseling to teach our young to wait to have children until married; to teach our older adults to not have children past certain ages thus reducing the chances of birth defects and medical problems for the mother; and to find ways to reduce the incidence of rape and incest. Republicans could support all such initiatives.

They have to give up their fight against gay rights.  Homosexuality is not a sin and is a natural part of the human experience.  People do not choose to be gay and still have a right to enjoy a loving, romantic relationship.  Jesus stood up for a prostitute and would surely have come to the defense of a gay person who was mistreated by others.  Republicans could push for more discretion for all romantic Americans.  Sex should be a very private matter. And so should religion. 

They must stop being the anti-union party and become one that wants to make better contracts with unions, perhaps convincing management and labor that there always is a happy middle ground that should be found for everyone’s best interest. The influence of unions has decreased in recent years and their demands have been fairly reasonable.  Changes in the relationship can be made by mutual agreement for everyone’s sake.

Republicans must also realize that tax increases for the rich and decreases in military spending are necessary and would only strengthen our country.  It does not serve our country to have the rich get only richer while the rest stay the same or lose their financial footing.  We need a healthy middle class to fill needed positions and to consume the goods and services the wealthy are offering.

We spend more on defense than the next five largest economies combined do.  We have forces and bases all over the world keeping no one safe and sending more of our dollars overseas where they no longer can circulate in our own economy.  We no longer need to be the first responder to any of the world’s emergency calls for help. The countries we rescue end up either resenting us or becoming dependent upon our continued largesse.

So what can the Republican stand for in the future?

They could start a campaign to end waste and fraud in government programs including our foreign and military aid.  They could urge all agencies to submit zero based budgets that justify each program and its staffing as though for the first time.  Once their budget is established, each government department should be on an MBO system to identify program goals, objectives and measures to ensure that it is clear what is expected and what has been accomplished.  Agencies that can be should be eliminated, reduced or combined with other agencies to maximize efficiency and effectiveness.

They could develop inducements to get American businesses to bring their manufacturing back to America.  Apple, H&P, Ralph Lauren, AOL. United Airlines, General Electric and all the other large corporations could do better making their products that go to American families, here in America creating jobs and customers at the same time.

They could push for a new, simple and fair federal income tax code.  They could lower marginal tax rates by eliminating all itemized deductions for individuals and families while providing higher standard deductions.  The self employed and business deductions would be limited to actual costs with no special allowances or loopholes.  They would broaden the tax base so that we don’t have 47% of the families paying no taxes and by eliminating itemized deductions they would ensure that the high earners pay an appropriate amount of tax.  They could insist that all sources of income be counted at their full face value meaning that Social Security benefits, dividends, interest, unemployment insurance payments, capital gains and earned income can be combined and the total then can be taxed at the appropriate marginal tax rates.

They could agree to reducing our troop strength and closing many of our foreign bases, but insist that we increase significantly our special forces and our drone technology. They could push for ending programs like the Blue Angels.

They could push for immigration reform recommending temporary permits for those here without documentation as long as they avoid criminal activity, but no path to citizenship.  They could try to change our immigration criteria to be for skilled emigres rather than relatives of current citizens and legal residents.  They could try for a guest worker program to allow migrant farm workers to come and go freely.

They could recommend reducing government costs by discontinuing the penny and nickel, cancelling Saturday mail delivery and eliminating all government travel reimbursements for training or conferences.

In education, they could push for a reconsideration of school curricula and college entrance requirements to ensure that our students are learning what they need to succeed in higher education and in their adult lives.  It may be that most high school students don’t need calculus or even much algebra or chemistry but could use more classes in the social sciences and in life skills.  They could be encouraging corporate participation in community college funding and training as well as contributing to local K-12 programs to develop a better-educated applicant pool in the future.

And finally, that can and must disassociate themselves from the likes of Fox “news” and disruptive personalities like Rush, Sean, Karl, Dick, and Sarah.   The brand does not need further tarnishing with deceit.  And John McCain must finally swallow his very bitter pill and retire to a life of luxury in his desert oasis.

Then maybe the Republican party can have a future other than that of the Repugnacan party that we have grown so sick of.