In Charles Dickens’ “A Christmas Carol” Scrooge, the wealthy miser, is given a view of his future: one in which he dies a lonely, miserable death, but told that he has the power to change his future.
The nonpartisan Congressional Budget Office is warning that the U.S. could slump into another recession in 2013 if the very things that Republicans are causing take place – the Bush tax cuts expire and the federal government is forced to slash spending.
But the CBO offers an alternative scenario.
But like the credit default crisis, the fiscal cliff is entirely of Congress’ making.
The pattern was set early in President Obama’s term by Republicans, and reached a climax last summer, after a strong first quarter economy was fueling optimism that recovery was at last at hand.
Republicans pushed the U.S. to the brink of defaulting on its debt for the first time in history – in essence wiping away the foundation principle “full faith and credit of the US.”
The result of that brinksmanship was a downgrade in the U.S. credit rating, which cost us $1.3 billion more in interest payments – money that could have gone to investing in infrastructure and putting construction workers and others back to work.
Instead, the Republican brinksmanship added a full point to the unemployment rate, keeping it above 8 percent, which Romney/Ryan now tout as being a key reason to give Obama his pink slip.
Republicans did the same in blocking spending to the states so that they could keep teachers, firefighters and police on the job. While private employers have added something like 4 million jobs – adding jobs each month when the economy was shedding 850,000 jobs a month at the end of Bush’s term – states and localities have thrown nearly 1 million people out of their jobs. You would think Republicans would cheer “smaller government” but they fault Obama’s economic policies, instead.
But what is Romney’s position? We have enough teachers, enough police and firefighters.
President Obama has asked Congress to pass a tax credit for small businesses that hire workers or raise the wages of current workers. No go by the Republican-led House.
President Obama has pressed Congress to extend the tax cuts to every American on the first $250,000 of taxable income, leaving the Clinton-era tax rate on taxable income over $250,000, but the Republicans have said no. You remember the Clinton era tax rates? That’s when the U.S. economy created 23 million jobs, there was near-employment, and a budget surplus.
But that was before the Bush tax cuts which benefitted the wealthiest 1 percent almost exclusively, exacerbated the gap between rich and poor (the wealthiest 1 percent control more wealth than the bottom 50 percent of all Americans), before two wars costing $2 trillion that Bush put on the national credit card (that is, the debt), and before the Medicare Part D that Bush chose not to pay for, either. The result added $5 trillion to the national debt.
Republicans, led by Paul Ryan and Eric Cantor in the House refused to accept President Obama’s “Grand Bargain,” which would have cut spending (including making adjustments to Medicare and Social Security) and restored the Clinton-era tax rates to the top 2 percent of Americans. It would have paid down the national debt (now at $15 trillion) and reduced the budget deficit (now at over $1 trillion).
A majority of Americans feel the U.S. is on the “wrong track” but the pollsters don’t ask them who they fault for that.
But when you ask Americans what they want from government, they want what Obama would be giving.
Obama’s economic policies have restored manufacturing to the U.S. (the Republicans are fighting him on eliminating tax credits for companies that off-shore jobs while giving tax credits to companies that establish manufacturing here); expanded US exports; created partnerships to revitalize communities such as Detroit, Chester, Pa.; Cleveland, Ohio; Fresno, Calif; Memphis, Tenn.; and New Orleans, La., and spurred private businesses to hire veterans and military family members.
The most controversial of his reforms, the Affordable Health Care Act, also has economic benefit – Americans were losing their health insurance at the rate of 20,000 a day; fewer than half of employers even provided subsidized health insurance. This was devastating financially. The Affordable Care Act will reduce spending by $1 trillion (not increase it, as Romney/Ryan falsely claim), while saving money by offering preventive services so that medical conditions do not become more serious and costly.
The federal grants for health clinics have also spurred jobs creation in health care. And why is that bad?
But just as Republicans twisted the results of S&P downgrade of U.S. treasuries last year, they have twisted the CBO dire warning of what would happen if the U.S. does fall over the fiscal cliff.
The fiscal cliff was entirely of Republicans’ making.
The fiscal cliff represents the smack up to the economy as the Bush tax cuts expire and mandatory government spending cuts, because of Sequestration (remember, the Republicans refused to accept a Grand Bargain, so agreed to Sequestration in exchange for raising the debt ceiling and not shutting down the government).
But sequestration would require mandatory spending cuts equally between defense (military contractors) and the social safety net (food stamps, Medicaid, Medicare, education).
Republicans have it in their power to pull back from the fiscal cliff, but are freaked out because Democrats are employing the same brinksmanship as they did – only without the irreversible consequences.
That’s because Democrats know that after January 1, 2013, when all the Bush tax cuts expire, they can vote to cut taxes for taxable incomes up to $250,000- just as Obama is proposing now.
And once they do that, there would not be the need for Sequestration.
Because of the uncertainty in which scenario takes place, the nonpartisan Congressional Budget Office offered two different scenarios:
What Policy Changes Are Scheduled to Take Effect in January 2013?
Among the policy changes that are due to occur in January under current law, the following will have the largest impact on the budget and the economy:
A host of significant provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 111-312) are set to expire, including provisions that extended reductions in tax rates and expansions of tax credits and deductions originally enacted in 2001, 2003, or 2009. (Provisions designed to limit the reach of the alternative minimum tax, or AMT, expired on December 31, 2011.)
Sharp reductions in Medicare’s payment rates for physicians’ services are scheduled to take effect.
Automatic enforcement procedures established by the Budget Control Act of 2011 (P.L. 112-25) to restrain discretionary and mandatory spending are set to go into effect.
Extensions of emergency unemployment benefits and a reduction of 2 percentage points in the payroll tax for Social Security are scheduled to expire.
What Is the Budget and Economic Outlook for 2013?
CBO’s Baseline: Taking into account the policy changes listed above and others contained in current law, under CBO’s baseline projections:
The deficit will shrink to an estimated $641 billion in fiscal year 2013 (or 4.0 percent of GDP), almost $500 billion less than the shortfall in 2012.
Such fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession, with real GDP declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013.
Because of the large amount of unused resources in the economy and other factors, the rate of inflation (as measured by the personal consumption expenditures, or PCE, price index) will remain low in 2013. In addition, interest rates on Treasury securities are expected to be very low next year.
An Alternative Fiscal Scenario: To illustrate the consequences of possible changes to current law, CBO has produced projections under an alternative fiscal scenario that incorporates the following assumptions: that all expiring tax provisions are extended indefinitely (except the payroll tax reduction in effect in calendar years 2011 and 2012); that the AMT is indexed for inflation after 2011; that Medicare’s payment rates for physicians’ services are held constant at their current level; and that the automatic spending reductions required by the Budget Control Act, which are set to take effect in January 2013, do not occur (although the law’s original caps on discretionary appropriations are assumed to remain in place).
That set of alternative policies would lead to budgetary and economic outcomes that would differ significantly, both in the near term and in later years, from those in CBO’s baseline:
In 2013, the deficit would total $1.0 trillion, almost $400 billion (or 2.5 percent of GDP) more than the deficit projected to occur under current law.
The economy would be stronger in 2013: Real GDP would grow by 1.7 percent between the fourth quarter of 2012 and the fourth quarter of 2013, and the unemployment rate would be about 8 percent by the end of 2013, CBO projects.
Actually, there is a third scenario that CBO has not calculated: if Obama is reelected and Democrats retake the House and remain in control of the Senate, we will see a commonsense approach to tax policy – restoring the historically low tax rates on income up to $250,000, a move to tax reform that eliminates tax incentives for companies that off-shore and out-source jobs and income, investment in infrastructure, clean energy and energy independence, investments in education and health care; sensible reforms to Medicare, Medicaid, greater efficiency in government spending. We will see rehiring of teachers and other vital public workers, a resurgence in the housing market and a drop in unemployment rate to around 6 percent.
In reaction to the CBO report, White House Press Secretary Jay Carney stated, “Today’s Congressional Budget Office report only reinforces the urgent need for House Republicans to follow the Senate’s lead and pass a bill that gives middle class families the confidence that they won’t see their taxes go up at the beginning of next year. 114 million Americans deserve that guarantee.
“But instead of doing the right thing, Republicans in Washington have chosen to double down on the same failed policies that led to the economic crisis in the first place. They’re willing to hold the middle class hostage unless we also give massive new tax cuts to millionaires and billionaires – tax cuts we can’t afford that would do nothing to strengthen the economy.
“Congress also needs to act right now to prevent arbitrary spending cuts that would hurt military families, seniors on Medicare, and children who deserve a quality education. It’s time to replace these cuts with balanced deficit reduction that asks the wealthiest Americans and largest corporations to go back to the tax rates they were paying under Bill Clinton – back when our economy created 23 million new jobs and a record surplus. But first, Republicans in Washington should do the right thing and pass a bill that extends tax cuts for 98 percent of Americans and 97 percent of small businesses. There’s no reason to wait.”
