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Reich writes: "Obama's only real bargaining leverage comes from the fact that when the Bush tax cuts expire at the end of December, America's wealthiest will take the biggest hit."

Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)


Bungee-Jumping Over the Fiscal Cliff

By Robert Reich, Robert Reich's Blog

29 November 12

 

hat's the best way to pressure Republicans into agreeing to extend the Bush tax cuts for the middle class while ending them for the wealthy?

The President evidently believes it's to scare average Americans about how much additional taxes they'll pay if the Bush tax cuts expire on schedule at the end of the year. He plans to barnstorm around the country, sounding the alarm.

The White House has even set up a new Twitter hashtag: "My2K," referring to the extra $2,200 in taxes the average family will pay if all the Bush cuts expire. Earlier this week the Council of Economic Advisers published a report detailing the awful consequences of going over the so-called "fiscal cliff."

But isn't this fear-mongering likely to buttress Republican arguments that the Bush tax cuts should be extended for everyone - including the rich? Republicans will say (as they have a thousand times before) that the rich are the "job creators," so we should tackle the budget deficit by cutting spending rather than raising anyone's taxes.

Obama's only real bargaining leverage comes from the fact that when the Bush tax cuts expire at the end of December, America's wealthiest will take the biggest hit. The highest marginal income tax rate will rise from 35 to 39.6 percent (for joint filers), and the capital gains rate from 15 to 20 percent.

This will happen automatically if nothing is done between now and then to change course. It's the default if Republicans won't agree to anything else. It's Obama's trump card.

So rather than stoking middle-class fears about the cliff, the White House ought to be doing the opposite - reassuring most Americans they can survive the fall. To utilize his trump card effectively, Obama needs to convince Republicans that the middle class is willing to jump.

And the middle class can jump fearlessly if the White House and Democrats enact legislation that reinstates the Bush tax cuts for the middle class as of January 1.

The legislation would operate like a bungee cord - snapping the middle class back from the abyss of paying an extra $2,200 in taxes next year, even as the wealthy go over the cliff.

This bungee-cord legislation could be introduced early next year, but there's no reason not to introduce it sooner - even now. And challenge Republicans to vote on it as we get nearer and nearer the precipice.

This would give the President's "My2K" campaign the focus it needs - directly pressuring Republicans to support tax cuts for the middle class and not for the wealthy.

If Republicans won't agree, they still face the cliff's automatic tax increases on the rich. But they're also revealed as shills for the rich - ready and willing to push the middle class over the edge in pursuit of even more wealth for their patrons.



Robert B. Reich, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage." He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

 

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+10 # Tje_Chiwara 2012-11-29 10:07
I believe the legislation was already intoduced . . . and I think that's what Obama's trying to get passed with his My2K pressure . . . or am I missing something?
 
 
+27 # Barkingcarpet 2012-11-29 10:26
Bah. The only folks bungee jumping are us, WE, the People. Out to lunch, and asleep on the job.

Why do WE go along with the nonsense?
Endless wars, Fukushima spewing still, environmental collapse all around us, as we hop in turn the keys, and drive on buy, shopping for disposable crap we don't really need, with money we do not have, at the expense of Nature and our future, which we do not own.

Sharpen our pitchforks and demand change. Support a livable world with every waking $, and quit being mindless consumers and hungry ghosts, ripe for the opportunistic politicians, and corporate thugs.

$ and profit just don't mean much. Where is the love most of us profess?
 
 
+16 # cordleycoit 2012-11-29 11:05
As I have pointed out Reich is the one guy in the world of economics who seems equipped to save the flounder capitalists from themselves. Why should something as flawed and dangerous be resuscitated time and again. Why not strike out looking to replace the whole mess?
 
 
+6 # cordleycoit 2012-11-29 11:07
As I have pointed out Reich is the one guy in the world of economics who seems equipped to save the floundering capitalists from themselves. Why should something as flawed and dangerous be resuscitated time and again. Why not strike out looking to replace the whole mess?
 
 
+32 # LeeBlack 2012-11-29 11:22
That money in the hands of the wealthy create jobs has been disproved in the last 10 years. If that were true we wouldn't have the unemployment and underemployment we now have since they have been raking it in for those 10 years. They might have created a few jobs for those who build yachts but they haven't invested in companies and jobs.

As Warren Buffett said the other night on the Daily Show, "If I come to you with a million dollar investment idea are you going to refuse because you may pay 10% more in taxes?"
 
 
+13 # PGreen 2012-11-29 11:29
Reich is correct; it appears that Obama's strategy is stupid. But the president is not a stupid man.
I speculate that the president has adopted it because he is concerned that the wealthy understand that he, Obama, has tried to get a bargain from the Republicans. Viewed in this light, it would appear that the president is willing to accept a compromise that he need not-- to perhaps accept lower taxes increases on the wealthy and some entitlement cuts in exchange for a continuing middle class tax cut. If adopted, such a result would bolster the support of the wealthy, many of whom contribute to Democrats as well as Republicans. Such a strategy would make Obama appear properly centrist, as the establishment defines the term, and certainly not the loose cannon of a populist (as they see it) that some of his campaign rhetoric suggested.
The president may be speaking to a different audience than Reich thinks.
If the president lets the tax cuts expire-- or even sooner, as Reich suggests-- he could then propose a middle-class tax cut, perhaps accompanied by less stringent reductions in certain entitlements. As Reich says, this puts the onus on the Republicans to clearly oppose the public interest, even to vote against a tax cut. (Gasp!) It should then be relatively easy to paint them with the brush of "shills for the rich."
The questions: "What does Obama really want here, and what is he concerned with?"
 
 
+1 # brux 2012-11-29 13:52
Propose - NOTHING ... the President proposed stuff and Congress just ignores it. The only power he has is in not signing the extension of the Bush tax cuts.

I suspect that what the President has to contend with now is political burnout. The voters are so burned out from the campaign that they just want a break and instead of hounding Obama are leaving it in his hands trusting him, but he is going to do what he did last time - more status quo BS!
 
 
0 # PGreen 2012-12-01 22:50
The part of the Bush tax cut that is GOOD is the tax cut for the middle class, who deserve it far more than the wealthy. (I believe that Middle-class incomes are defined as below $250,000, though it might be lower.) Rather than renew the entire Bush tax plan as it is, Obama should let it expire and then introduce a NEW tax cut plan that only cuts taxes for the middle-class. The higher taxes on the wealthy would then remain.
If they voted against this NEW plan (a tax cut) the Rs would have some explaining to do to their middle-class conservative constituents.
He could then work on restoring the necessary entitlements to their current levels and cutting wasteful military spending.
 
 
+5 # spexx1 2012-11-29 11:33
I thought I heard on NPR that besides raising the capital gains rate from 15% to 20%, the Cliff agreement would also include taxing dividends - now also at 15% - as regular income. That should be scaring the very rich more than the Bush tax cut repeal. Is that true or was it something being proposed?
 
 
0 # PGreen 2012-11-29 13:30
Yes. As I understand it the dividend rate will go from 15% to 39.5% on January 1rst. I agree that it probably scares WS et all more than the rise in taxes on earned income. It should also be noted as David Callahan reports in Huffington Post, that "401(k) income isn't touched by these higher taxes and, overall, most Americans don't receive taxable dividends."
http://www.huffingtonpost.com/david-callahan/tax-those-dividends_b_2211652.html
 
 
+13 # firefly 2012-11-29 11:38
Why not remove the $$ from the budget by 1) cutting Defense spending, 2)removing the insane level of airport security, which is more stringent than most courtrooms, and 3)stop funding GE agricultural research.
 
 
+3 # PGreen 2012-11-29 13:35
Since we now spend more than the rest of the world combined on military expenditures, we could probably cut it in half without any loss of security. However, we might need to put the money into other industries such as infrastructure and environmental repairs, and to enact a conversion program to avoid job loss. It is doable.
 
 
-8 # dbriz 2012-11-29 12:02
The dirty little secret no one in DC wants known is this: there is only one solution to our national debt problem.

It isn't to be found in any "grand bargain" or going over the "fiscal cliff". These terms are merely farce posing as melodrama to entertain the public into thinking the pols are "doing something".

The numbers are simply too staggering to contemplate any combination of tax increases and budget cuts that could solve the problem.

Kicking the can down the road is probably going to happen but be assured it will provide little if any short term relief and long term will make things worse, much worse.

The only viable solution is debt default. Sooner would be much better for all of us but DC being DC, don't expect reality to bite anytime soon.

We postpone the inevitable at our peril.
 
 
-1 # brux 2012-11-29 13:48
You're probably right, there is no way other than default because the most wealthy and powerful people in the country are lending the govenrment money instead of paying their taxes. Until that is not the case a default will not matter. Also, to spare political discontinuity something has to be worked out before any default. I suspect this will take another 20-40 years because the people in power intend to remain in power, for better or worse.
 
 
+1 # dbriz 2012-11-29 15:26
brux your scenario is partially true.

The "rich" aren't paying a fair share. But...even if we taxed them at 100% we won't be anywhere near out of the woods.

You are also unfortunately, correct about the "power" people dragging this out to maintain their power.

They will do so by debasing our currency(de facto, a default that protects them and hurts the rest of us) and protecting Wall Street and international banking interests. As well as finding more and better wars to keep the populace occupied on other matters.

This why we (the middle class little guys) would be better off if we simply declare default now and move on.

The world won't end. It's been done elsewhere. We would actually benefit from a reset where small banks and businesses would be better able to shed bad investments and begin to grow the economy again.

It wouldn't be pain free but the much of the pain would be where it rightfully belongs, on the big banks, FED and Wall Street.
 
 
-1 # brux 2012-11-29 17:09
> But...even if we taxed them at 100% we won't be anywhere near out of the woods.


You are not so familiar with Reich's writings, he says we need a surtax on the very rich, one time - like that is going to happen.

In Joe Stiglitz's last book he said that the rich have gotten so rich we can very well pay the tax deficits by taxing them ... that used to not be true,

We are not going to default, the whole would is like this and we are what's holding it as together as it is, mostly militarily, that is how its always been.

maybe no pain for you for lots of poor people will riot, die, starve or get sick. there will be a lot of crime and disorder, that cannot happen.
 
 
+1 # brux 2012-11-29 13:38
> But isn't this fear-mongering likely to buttress Republican arguments that the Bush tax cuts should be extended for everyone - including the rich?

That could be the point .... I have no idea what Obama really wants to happen, in fact I suspect it is just more of his covert Republicanism showing.

What do we do with a country where the average person is so stupid they do not understand how taxes work, what progressive or regressive means, who gets what deductions ... our people are frighteningly ignorant so we get people trying to manipulate them in cold calculated ways that are against their better interests.
 
 
0 # AMLLLLL 2012-11-29 14:30
Robert, I came up with the same conclusion, and responded bluntly to an email questionnaire from the White House. He plays right into the hands of the GOP, that guy. If he somehow pulls this off, I would be enchanted to apologize for jumping the gun.
 
 
+2 # hoodwinkednomore 2012-11-29 15:32
TAX THE RICH!! What are the rest of us afraid of?
 
 
+1 # cafetomo 2012-11-29 15:44
Been down the bottom o' your cliff a coons' age, already. Makes no nevermind to us, you all wanna go an jump. Most folk got no more than a skip and hop to the bottom anyways. Hell, it might or not get better, but it couldn't get no worse for most.
 
 
0 # ericlipps 2012-11-29 16:45
Debt default would be worse than useless. It would destroy the creditworthines s of the U.S. government overnight, and any debt incurred thereafter simply could not be financed. The United States would be officially bankrupt. As things stand, while we need to get our house in order, we CAN’T go bankrupt, since our debt is denominated in our own currency and we can always print more; our danger is inflation instead, and so far at least, that problem seems not to be on the horizon.

Of course, if other countries started demanding that we pay our bills in their money, that could be a problem—but even China knows the risks of pushing the United States over the financial cliff.
 
 
+1 # robcarter.vn 2012-11-29 19:28
That's why the Dems let it be writ that way years ago. And that's exactly why Obi-baby shouldn't back down on a single demand now, as many in his party suggest that that fall as it be, then a week later move for relief to Middle class on better terms and let any Republicans oppose that and they will find themseolves with even less Votes than they got this time the 47% will drop to 27% in a day with an angry middle class. But an angri YIP class would see the 47% drop to 45% only and you suggest the $1bn the GOP drop in campaign finance next time matters? Well that extra $1bn+ still didn't give them the extran 7% Vote they needed to topple Obi and certainly not the 30% extra electoral vote they lost.
 
 
+1 # Dave45 2012-11-29 23:41
As big a fan of Mr. Reich's writing and approach to politics as I am, his view of Mr. Obama here seems overly optimistic, especially after four years of wrenching disappointments and election to a lame-duck term. Many may disagree with me on this, but, on the basis of the president's last four years, I fear that the problem may not be his inability to find an appropriate strategy to use against the Republicans, but rather that, in actuality, he doesn't want to fight them on this because he basically agrees with them on their enthusiasm for an austerity budget. Mr. Obama's grasp of economics has always seemed tenuous at best, the reason perhaps behind his all too uncritical admiration of Wall Street darling Tim Geithner. There are many more qualified and capable people available in the area of fiscal policy than we've seen in the White House in the last four years. Following the departure of Geithner, it would be nice to see a little "change we could believe in" but I am not holding my breath.
 
 
+1 # PGreen 2012-11-30 07:50
Quoting Dave45:
As big a fan of Mr. Reich's writing and approach to politics as I am, his view of Mr. Obama here seems overly optimistic, especially after four years of wrenching disappointments and election to a lame-duck term. Many may disagree with me on this, but, on the basis of the president's last four years, I fear that the problem may not be his inability to find an appropriate strategy to use against the Republicans, but rather that, in actuality, he doesn't want to fight them on this because he basically agrees with them on their enthusiasm for an austerity budget. Mr. Obama's grasp of economics has always seemed tenuous at best, the reason perhaps behind his all too uncritical admiration of Wall Street darling Tim Geithner. There are many more qualified and capable people available in the area of fiscal policy than we've seen in the White House in the last four years. Following the departure of Geithner, it would be nice to see a little "change we could believe in" but I am not holding my breath.

Nice post. I agree with your skepticism, and find Geithner to be, "a shill for Wall Street," (as Reich might say, providing he agreed.) I hope the president does better in his 2nd term. Foreign policy and civil liberties are important areas to watch, (as well as the financial arena,) for in them Obama is not constrained much by the necessity of Republican compromise.
 

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