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Borosage writes: "You can't fix the debt without fixing the economy. And deficit reduction won't fix the economy."

President Obama and House Speaker John Boehner. (photo: Saul Loeb/AFP/Getty Images)
President Obama and House Speaker John Boehner. (photo: Saul Loeb/AFP/Getty Images)

4 Reasons the Fiscal Cliff Is Worse Than It Looks

By Robert Borosage, Campaign for America's Future

02 January 13


arly this morning, the Senate passed the fiscal cliff deal by 89-8, a margin virtually guaranteeing that it will survive in the House. The deal has some good parts. It lets the Bush tax cuts expire on the wealthy, raises the estate tax marginally and increases taxes on capital gains and dividends a bit. Unemployment benefits are extended for a year. Tax boosts for the low paid workers – the child tax credit, expanded earned income credit, refundable tuition tax credits – are extended, if only for five years. Social Security, Medicare and Medicaid are not touched.

But no one should be fooled. This is an ugly deal, with foul implications for the coming months.

  1. Setting Up the Next Extortion
  2. The most ominous part of the deal is what was left out. The deal makes no provision for lifting the debt ceiling. It postpones the sequester (automatic cuts in domestic and military spending) for only two months. It is a smaller deficit reduction package than that originally sought by the president. It therefore sets up the right-wing House zealots to hold the economy hostage once more, while demanding deep cuts in public services (known as cuts in domestic spending), backed by a media frenzy about deficits. And while Social Security, Medicare and Medicaid escaped unscathed in this deal, they will be the prime targets in the coming debate.

  3. Hiking Taxes for Working Americans; A Million Jobs Lost
  4. By allowing the payroll tax cut to expire, every working American gets a tax hike of 2% of their income (up to about $113,000 in income). A worker making $50,000 a year will pay an extra $1,000 in taxes. Payroll checks will be cut. Belts will have to be tightened even more. That will lower demand, producing job loss totaling up to an estimated million jobs. (Taxes on the wealthy go up also, but those have only marginal effects on jobs).

  5. Compromising the Compromising President
  6. President Obama sensibly told Republicans that he would not sign any bill or agree to any deal that extended the Bush tax cuts on those making over $250,000. He had stumped on that across the country on this pledge and received a mandate from the voters. Polls showed the majority of Americans were with him. With all the Bush tax breaks due to expire, Republicans were faced with letting taxes go up on everyone just to defend tax breaks for the richest Americans. The President began the negotiations saying this was not negotiable. He could not have been in a stronger position.

    But he chose to compromise. The Bush tax cuts will be allowed to expire on couples making over $450,000. This costs about $150-200 billion in revenue over 10 years. The president argues he got the important extension of unemployment insurance and the working poor tax credits in return. But these could have been folded into a package after going over the cliff. And the cost to the president is significant. Once more Republicans have learned that obstruction works, that the president will always blink.

    The next extortion – the debt ceiling, automatic sequester – in the next eight weeks makes this a big deal. The President says sensibly that he will not negotiate over lifting the debt ceiling. Period. And now there is even less reason for the Republicans to believe him than before. This encourages extreme demands rather than discouraging them. This was the time to draw the line.

  7. Feeding the Deficit Distraction

The deal is already being denounced in the mainstream media as “too timid,” offering too little in deficit reduction. It guarantees the next eight weeks will be fixated on the debate about what to cut and how much to cut headed into the debt ceiling.

But this entire debate is wrong-headed. You can’t fix the debt without fixing the economy. And deficit reduction won’t fix the economy. The recovery is too slow and too skewed to put people back to work. Deficit reduction can only slow it further.

We need a big and bold debate about fundamental reforms needed to make this economy work for working people. That includes making big investments vital to our future at a time when we can borrow for virtually nothing – rebuilding and modernizing our decrepit infrastructure, funding R&D, doing at least the basics in education. We need to balance our trade, and revive manufacturing, beginning with capturing a leading role in the global move to clean energy.

We need to address inequality frontally. That requires much more than small marginal increases in taxes for millionaires. It includes raising the minimum wage, empowering workers to organize and bargain for a fair share of the profits they help to generate, limiting perverse CEO compensation schemes. It includes a financial transaction tax that might curb Wall Street gambling.

We need to continue health care reform, taking on the entrenched lobbies — the drug and insurance companies, the private hospital complexes — that drive up our medical costs. If we paid per capita what other industrial countries pay for health care, we’d project surpluses as far as the eye can see. We have to fix our broken health care system.

But Washington is talking about none of this. Instead the Congress and the President are going to continue to debate how much more to cut from public services as if that would fix the economy. That debate is likely to turn foul. Republicans use the debt ceiling to demand structural cuts in Social Security, Medicare and Medicaid. They’ll likely be willing to repeal or dilute the sequester as an incentive to focus on the core security programs. And they’ll be convinced that the president will fold once more.

Americans are struggling with mass unemployment, declining wages, increasing insecurity, Gilded Age inequality. Trimming the deficit addresses none of these, and is likely to slow growth, making things worse.

We’ve had an ugly debate leading to a wretched agreement. And that agreement only insures that the debate will get uglier. your social media marketing partner


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+46 # MidwestTom 2013-01-02 14:48
About two months ago I got three stitches at a rural hospital connected to a larger hospital chain. The cost was $972. A nurse cleaned the wound for five minutes, and the Doctor took about ten minutes to put the three stitches in my leg. Something is very wrong here. If it is insurance, we need to find out why?
+19 # mdhome 2013-01-02 15:13
I take it you paid out-of-pocket, if you had insurance, they would have paid about $350-.
+12 # MidwestTom 2013-01-02 15:45
That is what they billed my insurance.
+10 # mikecohen 2013-01-02 17:12
But what did your insurance pay?
+67 # ganymede 2013-01-02 14:53
We're all getting angrier and angrier about our wonderful President's inability to get tough with these recalcitrant reactionaries. If not now when? The vast majority of Americans want action now against these idiotic rightwingers whose treasonous actions benefit no one except one tenth of 1% of the population. Obama should read up on what FDR did from 1933-1936 before our anger boils over.
+25 # Vegan_Girl 2013-01-02 15:19
It is not a coincidence that he often praises Reagan. He WANTS austerity.
0 # David Heizer 2013-01-03 22:44
He's not an economist. I suspect he still buys into the household-budge t fallacy.
+28 # Jonathan Levy 2013-01-02 15:38
Obama is working with them and his/their corporate puppet masters and not for us. He doesn't need any history lessons.
0 # HowardMH 2013-01-03 10:01
If the Caver-In-Chief had some back bone and real leadership qualities it wouldn’t make any difference that he was Black. He is a total Wimp and wimps get walked all over by those with the guts to hold out for their convictions. When McConnell realized Reid was not going to cave in for what the Publicans wanted so they would not be blamed for the Total Disaster this country is now in, he called for Biden. Let’s see here – Biden works for the Caver-In-Chief, or if you prefer Obama the Wimp, who can’t negotiate his way out of a wet paper bag, so McConnell gets to save face. If you think this was a bad deal for the Dumb Dum’s wait about three months. The Dumb Dum’s have already played their ace and lost! The Bushie tax cuts that should have never, never, never been allowed to happen are now for all practical purposes permanent, and the Publicans got 98.5% of everything they wanted.
Just in case you need an example in math – hope this is comprehendible enough for the millions that do not even understand what a Trillion is. Boy walks into Ice Cream store, and orders a 3 scoop ice cream cone. Caver-In-Chief gives him the cone and says that will be $1.60 and the boy says no way I will pay 80 cents, so Caver-In-Chief says okkkkkkkkk 60 cents it is. Now Caver-In-Chief needs to get at least $1.10 for that ice cream cone to just pay the bills and that is why the US is going to be just like Greece in a very short time.
+25 # Jonathan Levy 2013-01-02 14:59
Obama and the republicans are one. There is no real debate over this in Washington as both work together for big corporate. Can we just get this and stop pretending Obama is fighting for us? He has a team of expert bargainers around him so he is not inept at bargaining. Actually he is a master at screwing us over to the maximum point possible while still maintaining the theater that he is working for us. Once we realize this we will have political power as a people.
+44 # Chick Dante 2013-01-02 15:10
Gore Vidal famously said, "We have only one political party with two right wings." Both wings represent their richest donors who want more benefits and less burdens. To obscure the outrageousness of this, the two right wings conspire to focus on reducing the debt and deficits implying that workers are slackers who should be punished for Their industrious contributions to the economy by accepting more of the tax burden and give up public assets through a combination of first debt and then austerity.
+30 # mdhome 2013-01-02 15:12
I am ashamed to have voted for Obama, BUT the alternative was a 100 times worse. When is he going to defend those who voted for him?
-8 # Jonathan Levy 2013-01-02 15:40
The alternative was the same, not 100 times worse. He will not defend those who voted for them because he is not their friend but rather working for the same puppet masters as the republicans.
+8 # willibus 2013-01-02 16:00
Does anyone know if this deal raises the Capital Gains tax? If not it really won't affect most of the wealthy.
+7 # ghostperson 2013-01-02 19:39
It does not. It only raises "income" tax not dividends/capit al gains.

That is where they all miss the boat. The Big Wigs structure their finances to avoid "income" for which the average tax rate was ca. 24%; meanwhile the BW's got 15% rates on capital gains.

Money is money.

It is argued that the Bigs create jobs with all these tax privileges they get--so where are those jobs under the hardshell, low-taxes on the rich policy that has been in effect for 10 years?

It's patter intended to delude low-information folks whether voters or not.
-33 # Robt Eagle 2013-01-02 16:05
The great and powerful Obama (Wizard of Oz style). Obama is taking this country down and fast. the poor will be poorer, the middle class will suffer even more as he grandizes himself, and the rich will suffer moderately as Obama is paying off those who supported him financially during his campaign. You voted his holiness back into office and gave him the mandate to screw with the suffer the consequences. As Obama gives away more and more to those who produce nothing, and those who drain the coffers of the treasury which have no coffers...the US will falter and be like a third world nation with hyper-inflation and then uncontrollable debt. China and the rest of the world will not lend us anything and the world economy will collapse. You voted for this lunatic, and you won handily by all accounts. Enjoy your victory and the loss you will bear as more and more harm comes to America by Obama's failing policies. You deserve no less.
+9 # propsguy 2013-01-02 22:02
if by "giving more and more to people who produce nothing" you mean handouts to bankers and CEOs, then i agree with you.

if you mean piddling help to working people who have been screwed over by bankers and CEOs, than you are dead wrong
+11 # tbcrawford 2013-01-02 16:25
Write to your representatives and let them know how you feel...find local substitutes for them--two years to draft new reps...Let local media know what's going on and demand coverage. Complain to advertisers...j ust don't think you've done your job is all you do is post complaints! Thanks...
+21 # ericlipps 2013-01-02 16:36
Eagle, with all due respect, put a sock in it. Obama's policies, by and large, are ones you'd be cheering wildly if they'd been enacted by a President McCain. That's why liberals are upset. You, on the other hand, seem upset primarily that a Democrat is in the whie House.
+1 # imaginethat 2013-01-02 16:58
I get crazy listening to everyone who has a complaint to charge it to President. I rather appreciate negotiating as opposed to heaping all the chips to my side of the table! Who is the bad guy? I'd like to read solutions to all the problems, not just passing the buck. Let's get thinkers with ideas that can be helpful and used. Wow.
+3 # SMoonz 2013-01-03 03:31
I have yet to see him negotiate. Plenty of solutions have been proposed by citizens. Those solutions have been sent to Senate, Congress and Obama. Most of them don't ignore us and so it continues.
+20 # Buddha 2013-01-02 17:07
I disagree with #2. This to me is the biggest failing of the Democrat Party, not being willing to change the narrative that some taxes are GOOD and we should be HAPPY to pay them because they directly fund the programs that are vital for the economic future of the poor and middle-class: Medicare and Social Security. By even placing payroll taxes on the altar of "able to be cut", it takes us away from that important narrative, that we all should be willing to PAY for benefits that directly help us. Other nations don't think this way. Ask a Swede why they pay some of the highest taxes in the world, and they will PROUDLY tick off how those taxes pay for cradle-to-grave health care, cheap education, infrastructure, etc.
+10 # Scott Galindez 2013-01-02 17:51
I agree...Do we want Social Security? If we do we have to pay for it. The Paypoll tax cuts of the last two years were stimulus and were never promised to be permanent. They were not part of the Bush tax cuts so were not part of the same negotiations.

I'm still waiting for someone to convince me that a one year extension of unemployment benefits, and income taxes not going up for everyone below $250,000 is a bad thing...sure the number is $450,000, but last time I checked people making below 250 are included in people below 450.

The big fight is about to come but Obama did get a tax hike on the rich without agreeing to any cuts.
+3 # Buddha 2013-01-02 22:16
The reason even $250K is a bad number, let alone the $450K that was settled on, is that we have now permanently "set" our tax revenues at...well, perhaps not the current ~15% of GDP because our economy is still going through the post-Great Recession deleveraging... but certainly below the historical average of 18% of GDP, or the 20% GDP that we were collecting before the Bush tax cuts. And given our dire need for infrastructure and R&D investments for future economic growth and competitiveness as well as the realities of our aging population, thinking that we can get on top of our budgets now is a pipe-dream. You already hear the narrative shift from the GOP, where they previously pretended the Bush tax cuts "paid for themselves"...b ut NOW that they are "permanent", they admit that it will be a huge revenue shortfall which, surprise surprise, demands savage spending cuts! Which, of course, was their entire point, defunding the government to accomplish the social engineering of ending Social Insurance and slashing the role of government in making those investments. The problem of course is that the savage spending cuts which are now "necessary" are going to be contractionary and lead to Depression, just as austerity spending cuts gave us the Great Depression from the financial collapse of 1929 and Europe's Depression following today's Great Recession.
+1 # letsfixit 2013-01-03 01:05
you cannot stay in an UNFUNDED war for twenty three years and wonder why we have debt. $275,000 annual to deploy and support one soldier- and try to recall how many for how long? (again twenty three years) Remember the Clinton DoD budgets were around $220 billion. Recall that during hey day after 911 with emergency MRAP construction at one million per vehicle the budgets with overseas contingency adds we were close to $800 billion.

Then deploy a force the size of the TSA? Then triple the border patrol? Again, unless we start doing some math about spending and less revenue and embrace what we created, which requires finding solutions it will only grow worse.
+2 # Cassandra2012 2013-01-03 14:02
Quoting Buddha:
I disagree with #2. This to me is the biggest failing of the Democrat Party, not being willing to change the narrative that some taxes are GOOD and we should be HAPPY to pay them because they directly fund the programs that are vital for the economic future of the poor and middle-class: Medicare and Social Security. By even placing payroll taxes on the altar of "able to be cut", it takes us away from that important narrative, that we all should be willing to PAY for benefits that directly help us. Other nations don't think this way. Ask a Swede why they pay some of the highest taxes in the world, and they will PROUDLY tick off how those taxes pay for cradle-to-grave health care, cheap education, infrastructure, etc.

Please -- 'DemocratIC' Party .... Using the noun 'Democrat' as an adjective is one of those Rovian put-down frameworks that objective people should avoid. It smacks of snarky hayseed, and is just downright rude.
-2 # seeuingoa 2013-01-02 17:08
Most of the people in this world that I don´t like: Wall Street, Politicians,
CEOs of big corporations, wear the same
outfit: white shirt, tie, pinstriped suit
and cufflings.

Bvadrr !

I far prefer female power, with miniskirt, high heels and big boobs,
or female power with long skirts, low heels, and no boobs.

When will we have "Pussy Riot" in the US?
-4 # seeuingoa 2013-01-02 17:17
Let´s have some obscene dancing by
a pussy power group of strong women, making a performance on the stairs of Capitol Hill.

We need a change, I am a man, but I am
tired of men, we need some pussy revolution ! Come on girls !

I am with you all the way.
+9 # ghostperson 2013-01-02 19:59
Agreed, divine white males have forfeited the right to run government.

All they do actually is rule and when they do run government, it is into the ground.

I have long thought that we need to send our mother's (exempting th 5% lunatic factor) to D.C. to straighten this mess out.

Mother's make the kids quit fighting, won't (except the M. Thatchers send their boys to war), work at stringing out the budget from payday to payday even managing to eek in a goodie now and then no matter how tight the budget is.

Mother's will also use their verbalization skills, which are superior to those of males (not a jibe, a fact) to communicate with each other and will attempt to work out a consenus if at all possible.

What have we got to loose except a confederacy of dunces?
0 # Cassandra2012 2013-01-03 14:07
kind of agree that some motherS might be better, but 'mothers' like Bachmann , Brewer et al would be a disaster, since their mother'S milk is probably filled with toxic melamine!
We would have a lot to LOSE, with loose cannons like those in DC.
+1 # cafetomo 2013-01-02 17:45
I'd pony up, if it fixed a thing. But this is over money spent. The hysteria is over who picks up the check.

You weren't invited to the table?
Too bad. So sad.

But expand the analogy more appropriately. You are not a guest at the table, but an owner of the establishment.

How are you with being stiffed again?
+3 # ConstitutionalSam 2013-01-02 20:35
Wow! This is some rather coarse discourse. With talk like this, I can appreciate the mass rush to buy assult rifles and other guns. I am beginning to think gun nuts are'nt any nuttier than the rest of us.
+11 # Susan1989 2013-01-02 21:04
I think that this entire budget thing is merely smoke and mirrors. What is really happening behind the scenes is that we are all losing our freedoms one at a time and we are not even noticing.
+2 # FDRva 2013-01-02 23:42
How about we start with re-imposing FDR's Glass-Steagall?

If President Obama is too much the Wall Street/Harvard man to agree to that, then let's not blame the dumb GOPers for the crisis--lets blame the dumb progressives who got conned by Wall Street's Obama.
+3 # FDRva 2013-01-02 23:52
Surely Dr Borosage and I agree that Obama is no FDR.

And that austerity never causes prosperity--reg ardless of whether the austerity was proposed by the pro-Wall Street Speaker Boehner or the pro-Wall Street President Obama.

Maybe Wall Street rigged the 'fiscal cliff' argument so they could loot the budget--and escape responsibility? ?
+1 # grouchy 2013-01-03 02:03
It's kinda like "nibble, nibble, nibble" until they have totally trashed their target.

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