Bill Knight - December 20
10:49 am
Wed December 19, 2012

The Fiscal Cliff and Cuts to Popular Programs

All the yakking about a fiscal cliff seems to fall somewhere between mistaken Mayan prophecies about Doomsday and hypersonic skydiving from space.

Bill Knight
Bill Knight

The lame-duck 112th Congress – hamstrung by Tea Party Republicans in the House and filibuster-happy Republicans in the Senate – is proposing to Democratic President Barack Obama that Social Security, Medicare and other social services be cut. Meanwhile, the Economic Policy Institute has released a report with a solution: Cut the deficit by growing the economy.

In EPI’s report, “Navigating the Fiscal Obstacle Course,” analysts Josh Bivens and Andrew Fieldhouse recommend letting tax cuts for the rich expire on schedule and using half of the gains from those restored taxes for a stimulus and half for “longer-term deficit reduction.”

They say, “This split is meant to conform to the political constraint that any stimulus be more than fully paid for. Dedicating a greater share of savings to stimulus would do even more to create jobs, which should be the top policy priority.

“[The idea adds 2 million jobs] without creating a new fiscal obstacle course for 2014,” they continue. “At the same time, this approach would reduce the 10-year budget deficit by $651 billion.”

If Congress doesn’t act, taxes will return to their previous levels, $55 billion in cuts to the Pentagon and to domestic programs would happen, Medicare reimbursements to doctors would drop, and long-term jobless benefit would stop. If Congress forces a deal also affecting Social Security, Medicare and Medicaid, consequences in this state could adversely affect more than 2 million Illinoisans who receive monthly Social Security checks, according to the Social Security Administration, plus 1.7 million Illinoisans covered by Medicare and 2.6 million Illinoisans covered by Medicaid.

Obama won re-election on a platform of restoring taxes on the rich and protecting programs such as Social Security. He’s proposed returning to previous tax rates for the top 2%, stopping the fiscal-cliff cuts to the military and social programs, asking for more stimulus spending and investments in infrastructure, helping homeowners refinance their homes, and eliminating the debt-ceiling. However, even Obama is suggesting $400 billion in cuts to entitlement programs to be negotiated next year.

Nevertheless, House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky) prefer to raise revenues by eliminating popular tax deductions like charitable giving and mortgages (which threaten housing and philanthropy) – unless so-called entitlements like Social Security are cut.

A November survey by Hart Research shows 62% of us support addressing the budget deficit by increasing taxes on the rich; about 68% oppose cutting Medicare benefits or raising the eligibility age for Medicare, and 84% oppose reducing Social Security benefits.

EPI’s report seems to echo popular opinion. It calls for continuing emergency unemployment compensation through this year; providing $120 billion in fiscal relief to state governments through 2015; investing $234 billion over 10 years in transportation infrastructure; funding $55 billion in school modernizations; and enacting a 2013 tax rebate to ease the expiration of the payroll tax cut on lower- and middle-income families.

Some, such as U.S. Rep. Peter Welch,a Vermont Democrat, and U.S. Sen. Patty Murray, a Washington Democrat, suggest letting the fiscal cliff’s “sequestration” occur. Afterward, a reasonable compromise of tax cuts for 98% of Americans probably would be supported by a Capitol Hill majority.

Certainly, targeting Social Security confuses the debate. The deficit wasn’t caused by “entitlements” (for which people qualify, like veteran benefits), but by the financial crisis sparked by the popped housing bubble and the $16 billion TARP bailout, plus interest on the $1.4 trillion debt, the loss of another $1.7 trillion from the Bush-era tax cuts, and two off-the-book wars ($1.3 trillion), the Congressional Budget Office says.

U.S. Rep. Xavier Becerra, a California Democrat, said, “Social Security has not added one penny to our deficit or our debt.”

AFL-CIO president Richard Trumka added, “The people advocating for benefit cuts to Medicare, Medicaid and Social Security are the same folks who want to cut taxes for the richest 2%. We can’t afford to pay for any more tax breaks for those who need them the least.”

The opinions expressed are not necessarily those of Tri States Public Radio or Western Illinois University. Bill Knight’s newspaper columns are archived at billknightcolumn.blogspot.com