Late Friday afternoon, December 28, President Obama held a press conference reporting on the status of negotiations on the so-called ‘Fiscal Cliff’. Having met with House and Senate Democrat and Republican leaders earlier the same day, in his press conference Obama reported both sides had made progress during the day toward an eventual deal. Senate leaders Reid and McConnell were in fact working on an agreement as he spoke, Obama noted.
Whatever Senate leaders Reid and McConnell may work out will almost certainly come to a Senate vote by December 31st. Less certain is whether the House of Representatives will allow a vote on the same Senate package to be taken by then as well. An ominous indication of what the details of the Senate version might be were hinted by Obama during his press conference, as he indicated the deal would require “the wealthiest to pay a little more” and that spending would be cut “in a responsible way”. Watch for an emphasis on ‘little’ with regard to taxes, and on ‘responsible’ meaning major spending cuts.
Should the House balk at voting on the forthcoming Senate proposal, Obama noted he was prepared to have Senate Democrat leader, Harry Reid, introduce a second bill, the outlines of which he, Obama, suggested before the Xmas holidays. That alternative bill would reintroduce the tax cuts for the 98% earning less than $250k a year, pass an extension of unemployment insurance, as well as other unspecified economic growth measures.
The first package being developed this weekend in the Senate by Reid-McConnell will not come up for a vote in the Senate until Monday, December 31. The House will then either vote it up as well or refuse to vote. If the latter, then the Obama-Reid backup proposal will likely come up for a vote on it on January 2 or 3. At that point, the Bush tax cuts will have expired officially. That means the vote on the tax cuts for the 98% will be a vote to reintroduce and pass the 98% tax cuts. House radicals who might refuse to vote on the Senate’s initial December 31 proposal—in which tax cuts for the wealthiest 2% aren’t extended—might then find themselves in the difficult position of NOT voting for reintroducing tax cuts for the 98%. This possibility will almost certainly force the House radicals to vote for the Senate’s first version on the 31st, especially if that Senate version includes major cuts in spending for social security, Medicare, Medicaid and the like, and ‘smoke and mirrors’ tax revenue hikes on the 2%. In short, the House radicals now find themselves ‘boxed in’, as Obama doubles down on them.
Metaphorically, they have jumped out of Boehner’s ‘Plan B’ frying pan proposal of last week, onto the hot stove of Obama’s double down proposal announced today. Watching them ‘hot step it’ to an eventual deal may prove entertaining.
As this writer has predicted since November, a deal will be concluded between the two wings of the ruling party of Corporate America. That deal will come in three stages: the first a partial settlement to get through the January 1, 2013 artificial deadline to show the ‘markets’ (e.g. Investors, speculators and corporate America) that a deal is being hammered out, albeit in stages. The second stage negotiations will commence immediately after next week on additional items, continuing through February to March 2013. And a final third stage will come later this year, involving a major revision of the US tax code that will result in big corporate tax rate cuts.
AN ALTERNATIVE ‘ONE TAX’ SOLUTION
While this ‘dance’ of negotiations plays out over the next week, readers should consider that the entire ‘Fiscal Cliff’ charade could be resolved with one program, one proposal involving taxation on the wealthiest 1% of US households—i.e. those whose average annual income is about $1.5 million and whose effective and actual income tax rate today is not the nominal 35% but in fact only about 22.5%.
The very wealthy 1% actual income tax rate has never been the 35% top rate. In 1980 that top rate was 70% but the actual effective rate they paid was only 45%. Similarly, today the reported top rate is 35% but the actual rate on average 22.5%. Some hedge fund managers making billions a year actually pay less than 10%.
University of California professor, Emmanual Saez, and his colleagues, Thomas Picketty and Stefanie Stantcheva, a few months in the third quarter 2012 issue of ‘Tax Justice Focus’, estimated that by simply making the wealthiest 1% pay the same effective, actual tax rate they paid in 1980 (45%) it would raise an additional $405 billion a year in tax revenue. Over a decade, that’s more than $4 trillion—which is coincidentally the amount identified as necessary to reduce the deficit over the coming decade by all the parties, Democrat and Republican, as the deficit cutting target amount. Since the Simpson-Bowles report of November 2010, the target has always been $4 trillion.
Thus, one simply tax measure would solve the entire fiscal cliff issue, generate the $4 trillion in deficit reduction, allow all the other tax cuts in question to continue, and require no cuts whatsoever in social security, Medicare, Medicaid or anything else.
Professors Saez and others estimated this $405 billion on an assumption of a GDP of $15 trillion in 2011. Today’s $16.5 trillion GDP means this one tax measure would now raise more than $450 billion a year. The 45% tax on the richest 1% amounts to a 2.7% increase in government tax revenue as a percent of GDP. If you think that is too much, consider that federal tax revenues as a percent of GDP was 20.6% in 2000 before George W. Bush began his investor-corporate tax cuts in 2001. That 20% had been the average for a number of years. But after Bush’s two recessions, his $3.4 trillion in tax cuts, his wars, runaway health care costs, and the historic weak recovery of the US economy under Obama since 2008, federal tax revenue as a percent of GDP had fallen to 14.4% from the 20.6% of only a decade or so ago. So taxing the 1% at the 1980 effective rate raises tax revenue as a share of GDP by 2.7%, to about 17%. Taxes can and should be raised on Corporate America as well, to get back to the 20%.
But don’t count on the latter, since Obama has promised throughout the election campaign to cut corporate tax rates from the current 35% to 28%. And don’t be surprised by the major spending reductions that will come out of current fiscal cliff negotiations, in the next few days and continuing throughout this year. Fiscal Cliff is only a cover phrase for what amounts to ‘Austerity American Style’.
The problem with the US deficit and debt is not a spending program problem. It has always been overwhelmingly a tax cut for the rich and corporations problem. And it can be resolved with one program and proposal to ‘make the millionaires pay 45%’. It’s that simple.
Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn
Dear Truthout Community,
If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.
We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.
Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.
There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.
Last week, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?
It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.
We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.
We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.
Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment. We are presently looking for 500 new monthly donors in the next 10 days.
We’re with you. Let’s do all we can to move forward together.
With love, rage, and solidarity,
Maya, Negin, Saima, and Ziggy