In Deep Water: The American Fiscal Cliff

Greetings all!

This post marks a special moment for my blog; this is my 50^th post. I’m glad to see it has come so far since the beginning. This week, I expand upon the topic of the American fiscal cliff, which seems to be the only thing being spoken about in political spheres here these days. I will explain the situation at hand in the easiest terms I can manage, and offer my solution to our looming problem. This week’s quote comes from Friedrich Engels, a man who helped to write the Communist Manifesto and was very much a founder of organized communist ideology alongside Karl Marx.

Onto the topic at hand, the fiscal cliff is not something to be taken lightly. Unfortunately, the most people seem to understand is that Congress and the president are not acting fast enough to solve the issue. While this is true, it ignores the situation at hand. The “fiscal cliff,” in itself, is actually not too hard to sum up. It is a series of drastic spending cuts and tax increases that will take effect in the new year if Congress and the president do not act quickly enough. However, it is not quite so simple as to be explained in one sentence. For those that would like an easy way to look at this through a graphic form, I direct you to the Washington Post, which published a fairly good tool for finding information about the topic. For those that haven’t picked it up by now, the fiscal cliff is very serious for America. If we go over the cliff, we risk taking on the same pattern of suffering that austerity-laden European nations have fallen in to.

This is mostly because the fiscal cliff is, itself, an austerity package. By combining spending cuts and tax increases on everyone, we will be signing off on a renewed recession. Austerity has been proven as a harmful measure for European countries; we are sure to have troubles if we take on the same policies. First come the cuts; drastic in size, these cuts will very much reduce the burden of American domestic spending. However, the cost is impressive. The defense cuts alone are draconian; even I don’t know if our military could handle it. A large chunk of American jobs depend on the military, and likely won’t survive these cuts. I have long been a critic of American militarism and heightened spending on our defense. And while I would like to see cuts over time, this is too much too quickly. I am not defending our horrid foreign policies; I am defending our domestic employment. Cutting this amount of funding and jobs all at once will leave many people unemployed. It gets even worse when you realize that unemployment benefits are being cut as well, so these newly jobless military workers won’t have much to rely on. Pile that onto an economy sure to be shrinking and we’re looking at a significant amount of people who won’t have jobs for a long time. We should be cutting the military down over time; we need to encourage our government to tear away the military-industrial complex and get rid of our hostile, activist foreign policy. Yet this is not the way it should be done. We should not change this at a huge cost to ourselves.

And these defense cuts are not the only ones planned to take effect. There are sweeping cuts set to take place across most all government agencies, severely damaging public sector jobs where wages have already been stagnant for years. Significant damages will come in the form of cuts to public benefits, such as unemployment and Medicare/Medicaid. The American right has long pressed for cuts to entitlements, but even modern Republicans claim the fiscal cliff must be avoided. When we see this occurring, we should realize how bad things are likely to get. While we will not experience a major recession the likes of which some nations have faced, we will experience a sharp drop in GDP that our populace is not ready for.

However, the real stabs in the back from the fiscal cliff are the tax increases. Strictly speaking, taxes are not truly being raised in many forms by the cliff. Many tax cuts of the past will be expiring, thereby raising overall rates for all Americans in the process. First, the payroll tax cut will expire. This one will be quite the harsh punishment; the payroll tax cut affects all Americans earning a wage, and it isn’t by a small amount. I’d like to see this cut expire for the top wage earners and eventually all wage earners; it shouldn't have existed in the first place. However, letting it go for absolutely everyone at the same time ensures a detrimental effect on the amount common people are paying. Even the lowest wage earners will pay an extra $120 on their annual taxes; this seems like little, but to those under the poverty line it is sharp and unbearable. The expiration of cuts from the 2009 stimulus package will also overwhelmingly harm the lowest wage earners. The largest percentage of their new payments will come from these cuts, unsurprisingly. The expiration of tax cuts and limits on the estate tax will push holes deeper into most all Americans pockets, especially the top wage earners. And then come the expiration of tax extenders and the alternative minimum tax patch, both of which will sting businesses significantly. The last taxes come from the new healthcare laws, of which are not much concern except to the highest wage earners. Combined, these expirations of cuts will have a drastic and destabilizing effect on all Americans. This will be especially bad for those lower and middle class workers that lose their jobs, as a recession economy with few unemployment benefits is not the best place to look for work.

And now, we come to answer the question: what to do? There are a few options at our disposal. The first would be to just go over the cliff, and deal with the economic crap fest we are sure to endure. It would certainly be damaging to our economy; we would be plunged into uncertainty, our joblessness would jump high, and it would mean another recovery would be necessary once more. However, in the end, the deficit would be reduced by huge amounts, solving our so-called debt problems fairly efficiently. Let me state this now: we cannot allow this to happen. A government is not meant to run like a business; debts and deficits should be expected at some points, as they are necessary to keep the country running on business as usual. Without public spending, our country does not have much to go on, and we are already part of a culture where cutting jobs for a quick buck is common. If we allow ourselves on this path, we only contribute to the inequality America has become well known for. Let’s not make ourselves even less equal if we’re given the chance.

The second option would be a grand compromise. It’s a big stretch, but if Congress and the president can work out a large deal which covers how we are to cut spending and raise taxes evenly, we can avoid the cliff. While this would be great, I urge you not to get your hopes up. Our legislative branch has proven to be quite dysfunctional these past years; don’t think that will change because of a crisis. Oh, I’m certain that some work is being done. But I seriously doubt we’ll have something perfect by the time the bell tolls on our economy.

The final option would be some form of imperfect compromise, where either the left or the right gets a larger share of what it wants in order to stave off fiscal disaster. If the right gets what it wants, much of our deficit reduction will come from spending cuts that very much target low and middle income Americans at the expense of America’s wealthiest citizens. If the left gets what it wants, the richest Americans will be taxed somewhat more strongly in order to pay down the deficit. However, either way this happens the side that loses out will still get some of what it desires. The right will get some cuts to domestic spending no matter what; the Democratic Party has shown to be far too willing to negotiate on this for us to expect otherwise. The left will get some tax raises on the wealthy no matter what as well; the Republican Party may be stubborn, but in the end they can’t risk a new recession just for some bogus principles.

My hope is that the majority of our deficit reduction comes in the form of tax increases on the wealthy, while cuts are left as small by comparison. My reasoning why is quite obvious; I’m a communist for a reason. The wealthy have more money to give without suffering. This is fact. Therefore, we must ask that they give more to stabilize our economy. They may gripe about losing money they could invest, but the reality is that those taxes are used for public investments. And when taxes are raised, higher wage-earners are incentivized to hire more workers and increase business in order to make up for the tax shortfall on income. I would hope that anyone can see my logic behind this.

That is all for this week, and as always I encourage constructive comments right here on the site. I am also available for contact at my email (zerospintop@live.com), as well as my Facebook, Twitter, DeviantArt, and Steam accounts. I’d like to one last time remind everyone that, the next time I post something here, the URL will have been changed and the blog name will also be changed. This is just a warning to readers; if you’d like to find this site in the future, it will be found by searching for my new name, KnoFear. I’d like to also introduce a co-author on the site, popov89. He is a good friend of mine, and likely will contribute his own work to this site in due time. Good night, and this is KnoFear, signing off.