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4 Ways to Leap the “Fiscal Cliff” to a Better U.S.A.

Sarah van Gelder looks beyond the hype about the deficit and finds four ways to balance the books while protecting our health and financial security.

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Feeling panicked about the so-called “fiscal cliff?” Don’t be. At worst, if would be more of a “ramp” than a cliff, since effects would be spread out over time.

More importantly, the crisis atmosphere is a fabrication created by Congress. The cuts in spending and the end to tax breaks were intended to be so unacceptable that members of Congress would be forced to reach agreement to lower the deficit, which was considered, at least by some, to be at crisis levels.

Artificial or not, the outcome of this fiscal showdown could set policy for years to come. Times of crisis—even ones that are fabricated—open the door to changes that would be politically impossible in calmer settings, as author Naomi Klein has pointed out in her work on disaster capitalism.

We are told, for example, that we can’t afford full Social Security benefits, even though Social Security is entirely self-funded and not a contributor to the federal budget deficit. We are told Medicare must be cut, even though it is by far the least expensive means of providing health care coverage.

These cuts would increase poverty and further undermine the stability of the middle class 

It’s not hard to see who would benefit from these cuts. Without Social Security, our retirement money would be poured into Wall Street accounts, which would profit investment bankers and financiers, but put savings at risk. And if eligibility for Medicare is moved from age 65 to age 67, more of the elderly would be forced to rely on expensive for-profit health insurance companies for coverage.

Fortunately, lowering living standards for ordinary people is not a necessary sacrifice, as the proponents of “entitlement cuts” would have us believe. Instead, these cuts would increase poverty and further undermine the stability of the middle class. And with less money to spend, there would be less money in circulation to maintain the economy’s already weak momentum.

So how could we cut long-term deficits while also improving the standard of living of ordinary people? The answer, it turns out, involves a combination of familiar ideas and new ones.

1. Reduce the waste and overspending in the military budget

We could be cut $440 billion from the military over 10 years without harming our security, according to a report by the Institute of Policy Studies. The Center for American Progress placed that number even higher, at $487 billion.

There are few threats facing the United States today—at least few that hundreds of billions in military spending can protect us from. Instead, we need massive investments in a transition to a clean-energy economy that will protect against climate change—which poses a real threat to our security. And we need spending that creates jobs; every $1 million spent on the military creates about eight jobs, but the same amount spent on home weatherization creates 12 jobs, and the $1 million spent on education creates 15 jobs.

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In a recent New York Times column, Reagan administration Assistant Secretary of Defense Lawrence J. Korb puts the scale of U.S. military spending in a global context: “Even with sequestration-size cuts, we would still account for more than 40 percent of the world’s defense spending, and our allies would account for about half of the rest.”

And he shows that there is room to cut billions of dollars of waste. “Over the past decade, the Pentagon squandered $46 billion on weapons it later canceled, and let half its procurement programs balloon beyond their original budgets.”

A majority of Americans support cutting the military budget, as well: 54 percent of Republicans, 76 percent of Democrats, and 71 percent of Independents, according to the Chicago Council’s 2012 biennial survey of public opinion . The 68 percent overall who favor defense cuts is up 10 points since 2010.

2. Cut subsidies for climate-polluting energy corporations

Those companies now receive about $4 billion in subsidies each year, although they are among the largest and most powerful corporations in the world. Taxpayer money should not be spent supporting a form of energy that is destabilizing the climate. CNN developed a list of these subsidies and how they can be cut.

3. Get more tax revenue from those who can afford it

The best place to start is by recovering some of the billions in tax cuts given to the wealthiest 1 percent and large corporations, and by creating some carefully crafted new taxes.

The share of federal revenue contributed by corporations fell from 27.6 percent in the 1950s to just 10.4 percent in the 2000s. 

The Forbes richest 400 individuals have assets worth $1.7 trillion—more than five times the $300 billion they owned in 1992, according to Warren Buffett. That’s partly because they kept $1.3 trillion dollars they would have paid without the Bush tax cuts. Meanwhile, the share of federal revenue contributed by corporations fell from 27.6 percent in the 1950s to just 10.4 percent in the 2000s, according to the Congressional Progressive Caucus.

New York Times columnist Paul Krugman agrees that the wealthy can pay more. In the 1950s, he points out, the top marginal tax rate was over 90 percent—and that was under a Republican administration. “The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent.”

With the 400 wealthiest individuals paying an effective tax rate of about 18 percent, according to the National Economic Council , there is lots of room for tax increases on the wealthy that would result in a fairer tax system.

4. Use these smart revenue ideas to create multiple benefits.

In addition to these familiar cuts and revenues, creative new ways of generating tax income are coming in from around the world and at home. Here are three we should do right away:

  • We should tax carbon—an idea that is gaining widespread support as a means to address the climate crisis. Doing so would tap market forces to free us from dependence on fossil fuels and make renewable sources of energy and energy-efficiency investments more cost competitive. An equal rebate to every American can offset the immediate burden of the tax, while providing an incentive for each household to shift to climate-friendly energy sources and to get efficient with energy use.
  • We should enact a financial transaction tax, as 10 European countries are doing. This tax would help cool the speculative fever of Wall Street, hit the highest income earners, and help reduce the deficit.
  • And we should eliminate the cap on wages subject to Social Security contributions. Doing so would keep the Social Security Trust Fund solvent for the next 75 years without any need to reduce benefits or raise retirement age.

What do Americans think of these ideas? Here’s an indication:

According to a recent poll conducted by Princeton Survey Researcher Associates just one in five Americans supports cuts to Social Security and Medicare. Just one in three supports cuts in Medicaid.

But two out of three support cuts in military spending. And, 60 percent support raising taxes on those with incomes over $250,000 a year, according to an ABC News/Washington Post poll from late November.

Ask the American people, and you will find no patience for using an artificial “fiscal cliff” to push through cuts that will harm ordinary people and extend tax breaks for the wealthiest Americans. The subject was thoroughly debated during the election. The argument should be over.


Sarah van Gelder wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Sarah is YES! Magazine's co-founder and executive editor.

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