Image courtesy of Bill Day via bartcop.com.
According to the White House, congress, economists and media pundits, America's economy will fall off a "fiscal cliff" if a budget agreement between Democrats and Republicans is not reached by the end of the year. A closer look at the so-called fiscal cliff and the $631 defense bill that unanimously passed in the Senate yesterday puts the priorities of lawmakers into perspective.
Many media pundits claim the fiscal cliff metaphor was coined by Ben Bernanke, chairman of the Federal Reserve Bank (a private entity) on February 29, 2012 when he said: "Under current law, on January 1st, 2013, there is going to be a massive fiscal cliff of large spending cuts and tax increases." The truth is that the euphemism has been passed around Washington D.C. as early as 1957, as a result of a New York Times article regarding homeownership.
The current fiscal cliff refers to a budget deal passed in August of 2011 that would delay spending cuts and the expiration of tax cuts until the beginning of 2013. Supposedly, if the tax cuts are allowed to expire and the spending cuts are enacted, it will add to the current recession, amounting to a depression and America's economy will fall off of a metaphorical cliff. That is not entirely true, however, because it is speculation based on computer modeling and capricious assumptions that can change on an almost daily basis.
Most of the seemingly apocalyptic events that would occur if a deal is not reached by the end of the year are reversible within a time frame that would not affect the economy. For example, tax increases would not be felt until 2014 and could easily be reversed with targeted legislation in 2013. Any cuts in entitlement programs could be dealt with in a similar manner.
The compromise last year was a result of the inability of congressional lawmakers from both parties to agree on how to trim the national debt. As John Stewart put it, "There's an asteroid headed towards the Earth. We made it and fired it at ourselves, because otherwise we would never have done the hard work required to protect ourselves from asteroids." It took a self-proclaimed comedian like Stewart to aptly describe it, because in the U.S., talk of a fiscal cliff has no connection to the actual level of consciousness of most working people at this time.
The "asteroid" took years to make and lawmakers are finally getting around to dealing with it. Yet the solutions proposed thus far by either party do not address the problems that created the massive debt that this nation has to deal with.
Part of the proposal of Democrats to avert the fiscal cliff is to let the Bush tax cuts expire on the top 2 percent of income earners, which is a step in the right direction because loss of revenue accounts for a large portion of the debt that the federal government accumulated over the past 11 years. Lower and middle class Americans cannot afford any tax increases at this time, while tax rates for the wealthy are at their lowest in recent history even though the wealthiest Americans are making more money than ever.
Obama and the Democrats also propose $1.5 trillion in cuts in discretionary spending over the next ten years, which would also produce about $250 billion in savings on interest, for a total of $1.7 trillion. Two-fifths of the $1.5 trillion come from defense, while the other three-fifths come from reductions in domestic and international programs. These reductions will shrink non-defense discretionary spending to its lowest level on record as a share of GDP, with data going back to 1962, and 25 percent of that spending goes to helping low income people in America.
The Republican counter-proposal is to keep the Bush tax cuts in place for the top 2 percent income earners and force even deeper cuts in discretionary spending. The GOP plan mixes $800 billion in higher tax revenue with cuts to Medicare and a stingier cost-of-living adjustment for Social Security benefits, including a rise in the eligibility age for Medicare and reducing the inflation adjustment for Social Security benefits.
While the GOP proposal for spending cuts get no more specific than that, Erica Eichelberger writing for Mother Jones points out that Rep. Paul "62-percent-of-my-proposed-budget-cuts-come-from-poor-people-programs" Ryan will likely be leading the charge on the other side of the aisle. "He won't be able to chop up the safety net to his liking, but he and his fellow Republicans will do what they can."
Here are some social programs and their cost, considered to be "bargaining chips," that have not been taken off of the table by either party:
- Medicaid ($258 billion)
- Food Stamps ($78 billion in 2011)
- Supplemental Security Income ($47 billion)
- Unemployment benefits extension in 2013 ($40 billion)
- Pell Grants ($36 billion)
- Section 8 Housing Assistance ($19 billion)
- Job Training ($18 billion in 2009)
- Head Start ($7.9 billion)
- Low-Income Home Energy Assistance Program ($3.47 billion)
- Community Health Centers ($3.1 billion)
- Title 1 Education Grants ($322 million)
- Women, Infants, and Children, (WIC) ($7.2 million in 2011)
The total cost of these programs is roughly $511.5 billion. The beneficiaries are mostly low-income Americans, the elderly, children, students and the unemployed. Several economists, including Paul Krugman and Austin Frakt, have crunched the numbers and shown that raising the eligibility age for Medicare and reducing the inflation adjustment for Social Security benefits "would inflict some serious hardship [on many Americans] for very little money."
Yet the Senate yesterday passed the National Defense Authorization Act (NDAA), a $631 billion dollar defense bill that already included some cuts over previous years, with a unanimous vote of 98-0. This bill includes $88 billion for war-funding and is $17 billion more than the Obama administration requested. While the Senate bill still has to be reconciled with the House version that passed in May, the voting process was done speedily and with little debate in order to get the bill passed before the looming "fiscal cliff" negotiations.
In other words, while the Obama administration gets everything it wants and then some without a fight in congress regarding the military budget and war-spending, lawmakers are getting prepared to fight it out over the social programs that matter most to lower and middle class Americans in these trying economic times. That shows where the priorities of lawmakers in both parties lie.
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