The dire predictions about what will happen when we go over the fiscal cliff on January 1st are almost certainly overblown. The markets may react badly but that’s a consequence we can tolerate.
The essential point is that the Bush tax cuts in their present form should be allowed to expire. Work can then begin on passing new ones that don’t benefit the wealthy. That means allowing top rates to resume the level they enjoyed before George W Bush became president. And for good measure we shouldn’t be in a rush to restore cuts to the unearned income tax rates that also were slashed under Bush. On the other hand, taxes should be cut on those earning less than $250,000 a year and, for good measure, the 2% payroll tax cut should be restored.
In the fiscal cliff negotiations, however, Democrats and the Obama administration confront not only GOP intransigence but also rank hypocrisy. For example, much is made of the need to reform (read cut) spending on, entitlements, particularly Medicaid and Medicare. In the case of the latter, however, Republicans have relentlessly attacked Democratic proposals to improve the program’s efficiency as rationing. Yet wringing efficiencies out of both programs is essential and, really, the only way to go since Democrats are never going to agree to turn Medicare’s benefit into a voucher, nor block grant Medicaid and allow states such as Texas to eviscerate medical coverage to America’s poorest.
Most important, however, is that the fight over entitlements misses the point. Both programs provide medical coverage to those Americans most vulnerable to illness in our society – the elderly and the poor. The private sector is incapable of doing the job; heck, without government support and regulation (Obamacare), the private insurance industry can’t even provide coverage to 40-50 million Americans who are neither poor nor old. A single-payer health care system would render both programs superfluous but that, unfortunately, is a pipedream.
So our “entitlements” provide a critical service that our society cannot do without, and we have no choice but to find a way to pay for them. We can do that in part by cutting other parts of the budget (bloated defense, intelligence and homeland security budgets are a good place to start). There is also plenty of scope for raising revenues. Some examples: In addition to allowing the Bush tax cuts on the wealthy to expire, we can raise rates on all unearned income to the top level paid by working Americans on their earned income and charge a surtax on millionaires as some have suggested. The corporate tax rate could be lowered to match those of our peers in the industrialized world but also changed to ensure that companies cannot use dodges, deductions and exemptions to avoid paying any taxes.
Republican dogma posits that the nation has a spending not a taxing problem. The fact is it’s more likely the other way around because for years we have refused to pay for the government services we have decided we cannot do without. To the extent we have a spending problem, however, it is that we blow too much money on protection against non-existent or overblown military and security threats while neglecting the needs of our poorest, and those things that will make us a stronger, better society in the long run: our schools, our institutions of research, our infrastructure, our environment and our people’s overall well-being.
We can only hope that a stroll down the self-created fiscal slope helps us, belatedly, to have an intelligent, substantive and searching discussion of these larger issues. But don’t hold your breath.