Opinion

The Great Debate

Shared sacrifice – except for CEOs

The hypocrisy over deficits and calls for shared sacrifice can be illustrated with one simple statistic. According to the Institute for Policy Studies, 25 of the most-well-paid chief executives got higher compensation than their companies paid in federal taxes.  There’s a class war on, as Warren Buffett has noted, and his class is winning it.

The drive for austerity, with its attendant manufactured crises, carries with it a host of mini-outrages making this point. Americans learned after the fiscal cliff negotiations ended that the final agreement, ostensibly to pass “tax hikes for the wealthy,” extended huge corporate handouts. These included special breaks for NASCAR, help for Hollywood movie studios, $3 billion a year for General Electric, support for mining and railroad companies, and even a push for electric scooters.

Outrage over this story flamed everywhere, from the floor of the House of Representatives to cable news networks, including ESPN. The anger at these corporate subsidies was justified because breaks like these are a symbol of a budget process designed to shift money and power to people who already have too much of it.

The real story of the fiscal cliff negotiations, and the coming debt ceiling debate, are corporate tax cuts and the CEOs who love them. There are many corporations that don’t pay taxes. They then pass along some of that increased profit to their CEOs, who also shelter their income from the Internal Revenue Service. It’s a veritable circle of life.

As David Cay Johnston has shown recently in his excellent book, The Fine Print, the middle class is at a double disadvantage. One, we actually have to pay taxes every year on our income. Two, we have to deal with a frightening overly complex tax code.

The real fiscal cliff winner? Bush

“Tax relief is an achievement for families struggling to enter the middle class,” the president trumpeted, shortly after Congress, by sweeping bipartisan margins and after a bruising battle, had lowered taxes for almost all Americans.  “For hard-working lower income families, we have cut the bottom rate of federal income tax from 15 percent to 10 percent. We doubled the per-child tax credit to $1,000 and made it refundable. Tax relief is compassionate, and it is now on the way.”

Despite a furious counterattack from the opposition, the president had scored a major victory by securing lower tax rates for everyone in the middle class on down.

President Barack Obama last week after narrowly averting the fiscal cliff?  Nope, President George W. Bush in June 2001, signing the first set of his much-sought-after tax cuts. Perhaps the “compassionate” was a giveaway.

from The Great Debate UK:

Fiscal cliff deal is depressingly European

--Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.--

The deal to break the deadlock in the US looks awful, far worse than going over the cliff, which I suspect would have been a lot less damaging than is usually assumed.

The 1 January agreement was a compromise over the tax to be levied on high salaries, which is purely a political issue with little bearing on the critical economic issue of how to close the deficit, and otherwise simply takes the line of least resistance, avoiding the tax rise on middle incomes, extending benefits for the long-term unemployed and suspending the immediate cuts in defence spending which would have been enforced automatically in the absence of an agreement. Worst of all, it defers the really tough decisions on spending. In fact, given how easily America’s rich can avoid taxes, it is likely that the tax rise which the President has fought so hard to impose on them will generate nowhere near enough revenue to pay for the increased unemployment benefits agreed at the same time. In other words, far from being a first step towards dealing with America’s deficit, this is a step back which will only make things worse.

Post fiscal cliff: The fix is in

We’ve been trying to deal with the national debt in this country for 30 years now.  The fiscal cliff is just the latest failed gimmick.  We’ve had more failed gimmicks than professional wrestling.

Failed?  Yes, because the whole idea of the fiscal cliff was to force the federal government to put in place a long-term reduction of the national debt.  And look what happened.  Instead of reducing the national debt, the deal passed by Congress late Tuesday night will add $4 trillion to the deficit over the next 10 years, according to the nonpartisan Congressional Budget Office.

In the 1980s, we tried the Gramm-Rudman-Hollings law.  If the federal budget missed its deficit-reduction targets, the law triggered across-the-board spending cuts (“sequesters”).  Guess what?  It never happened.  Congress exempted 70 percent of the budget from sequestration.

Class war in the new Gilded Age

2012 was the first class-warfare election of our new Gilded Age. The first since the middle class has come to understand, in the words of new Senator-elect Elizabeth Warren (D-Mass.), that the “rules are rigged against it.” Business-as-usual may no longer be acceptable.

But Washington didn’t get the memo. Even as ballots were still being counted in Palm Beach, Florida, the two parties lurched into the fierce debate over the fiscal cliff, the noxious brew of automatic spending cuts and expiring tax cuts that would poison the recovery. The debate, a dismal sequel to the 2011 debt ceiling melodrama, focuses on deficits not jobs. Once more, Republicans are threatening to blow up the recovery unless Democrats make otherwise unacceptable concessions. Once more, President Barack Obama looks for a “grand bargain,” seeking bipartisan support for terms divorced from opinion outside the beltway. Once more, what Scott Galupo at The American Conservative called the “clown show” of the House Republican caucus blows itself up.

Republicans are the most clueless about this new reality. The election’s one clear mandate, confirmed in polls ever since, was for Obama’s oft-repeated pledge to let the Bush tax cuts expire on those earning more than $250,000. Yet, House Republicans stood staunch in defense of the very rich – refusing to pass their own speaker’s bill to extend the tax breaks on everyone except millionaires.

Fiscal cliff: D.C.’s Mayan apocalypse

We are careening toward Dec. 21, 2012, the date of the Mayan apocalypse, when the world is supposed to come to an end through a series of cataclysmic upheavals, according to assorted astrologers and mystics ‑ though not the Mayans themselves, who said it was merely the end of their calendar. We are also hurtling toward the Jan. 1 “fiscal cliff,” when the American economy could re-enter a devastating recession ‑ a man-made mini-apocalypse.

What has motivated people, across so many civilizations and centuries, to devise and believe in an apocalypse? Understanding this might help us address the ideological gridlock now propelling Republicans and Democrats toward this fiscal “end of days.”

There have always been groups who believe in a coming apocalypse, suggesting this is inherent in human nature. People who experience life as traumatic, devastating or chaotic are prone to project such nihilistic visions onto the world at large. Anxiety about one’s own death can also evoke a catastrophic apprehension about the end of the entire world.

Fiscal cliffhanger: Ignore the partisans

It is never acceptable for elected officials to put partisan politics and special-interest pledges ahead of their country. But when the stakes are great, as they are with the fiscal cliff negotiations, it is reprehensible.

People who talk about the political benefits of heading off the cliff need to have their heads examined. The blunt ax of massive spending cuts, along with huge across-the-board tax increases, would be irresponsible, possibly triggering another recession. It’s offensive for some Democrats and Republicans to suggest their party could “win” under this scenario, since the country and the American people would be sure losers.

Both parties say they want a deal. The key question is whether they will resist their respective wings, special-interest pressures and short-term political considerations to achieve one.

How Obama seized the narrative

Barack Obama may finally be defining himself as president. The question is: What took him so long to seize the narrative and find his character as “leader.”

Obama now has strong public support in the fiscal crisis faceoff. Even as the House Republicans scramble to find a way into the argument, the president has a tight grip on the storyline.

This is a big change from the fierce healthcare reform fight and the 2011 debt limit crisis. The chattering class then continually asserted that Obama had “lost control of the narrative.”

Can Congress pull back from the brink?

Americans want to see Congress and the president make a deal on the “fiscal cliff,” that noxious mix of expiring tax cuts and mandatory spending slashing due at year’s end. They just don’t think it will happen without a lot of pain, according to recent polls.

But if Washington leaders don’t reach an agreement, which looks more than possible, it will be for a good reason: Incentives are strongest for policymakers to act only after the cliff has come and gone ‑ and wreaked a great deal of havoc in the process.

So far, the fiscal cliff looks like the Y2K of 2012. It’s an eventuality that requires a great deal of preparation and occupies politicians and the chattering classes but which has yet to produce the visible scars of crushed 401(k) statements, widespread layoffs or television graphics about a plunging Dow.

The perils of cliff-diving

The fiscal cliff is a danger to the economy.  Some have argued that cliff diving is benign either because the cliff itself is an illusion – it is really a gentle slope – or because policymakers have the cartoon-like power to reverse going over the cliff without hitting the abyss.

Both arguments miss the key role that would be played by financial markets.  Cliff diving would have a significant impact on financial markets, impairing asset values, exacerbating credit stringency and amplifying the direct effects on the Main Street economy. These effects cannot be “unwound” by retroactively legislating away the fiscal cliff.

Taken at face value, the fiscal cliff is a large negative policy shock.  The tax increases are nearly $400 billion and the spending cuts about $145 billion.  The total, $540 billion is roughly 3 percent of gross domestic product.   For perspective, trend economic growth now appears to be less than 2 percent — but certainly nowhere close to 3 percent.

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