Gerald Epstein is codirector of the Political Economy Research Institute (PERI) and Professor of Economics. He received his Ph.D. in economics from Princeton University. He has published widely on a variety of progressive economic policy issues, especially in the areas of central banking and international finance, and is the editor or co-editor of six volumes. Transcript
Paul Jay, Senior Editor, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore. And we’re now going to be joined by Gerry Epstein, who’s codirector and cofounder of the PERI institute in Amherst, Massachusetts. Thanks for joining us,Gerry.
Gerald epstein, Codirector, PERI: Thank you, Paul.
Jay: So the fiscal cliff deal—what do you make of it?
Epstein: Well, I think it’s a debacle on the part of the Obama administration and for progressives and for workers and for families. It’s a real disaster. First of all, the main point, I think, is that we shouldn’t be having to sit here talking about this; we should be talking about what are we going to do about the employment cliff or the climate-change cliff. But instead we’re talking about this fiscal cliff, which is a manufactured crisis. But now the way it’s being resolved is creating real harm.
Jay: And so in what way?
Epstein: Well, first of all, as Jon Weisman pointed out in The New York Times today, the Republicans and the wealthy should be having a second New Year’s celebration. That is, they’re making permanent, virtually, all of the Bush-era tax cuts. They’re absolving—they’re eliminating taxes permanently on most estates below $5 million, and they’re keeping the capital gains tax and dividend rate very low, 15 percent, for those earning less than $400,000 a year, and a modest increase up to 20 percent for more. So in a sense they’ve been trying the Bush-era tax cuts forever. And for working families, either their taxes are getting raised, the increase in the payroll tax by two percentage points, which is a disaster in and of itself, and any other kind of things that they’ve put in the bill for working families are temporary. Either they expire after one year, or they have to be reconsidered again after five years, whereas the wealthy tax decreases are permanent.
Jay: Now, one of the things the Obama administration’s pointing to as a victory is the extension of the unemployment benefits. Isn’t that worth something?
Epstein: Well, it’s not worth the billions of dollars that they gave away to the top—almost the top 1 percent, top 2 percent of households. It’s not worth, really, distorting the tax system for. Yes, there are some good things that happened, including the extension of the unemployment, the extension of some subsidies for students, and so forth. But what Obama has done is given away all of his leverage. So now what we have is a fight that’s—two fights that are going to be coming up—over the debt ceiling, and then over the budget in March. And Obama has very little leverage if he wants it, if he wants to use it. So the Republicans are—came away with a huge victory, and then they’re just going to keep coming back for more.
Jay: Now, the Obama administration, Democrats are saying, hold on, it really was our victory, ’cause we didn’t give in on any of the big cuts to the social safety net or Social Security or Medicare.
Epstein: Well, they haven’t so far, but the Republicans are going to be coming back for more. And the major corporations that were putting pressure—. Let’s face it. This was a corporate deal, a wealthy people’s deal. They were putting massive pressure on the Republicans, on Boehner and the others, to cut this deal. But now they’re going to shift sides and start pushing for all these entitlement cuts. So a big part of the equation that was in there fighting for some deal, the corporate interests, the business roundtable, the Chamber of Commerce, and so forth, they’re going to switch sides at this point.
Jay: Yeah, ’cause they didn’t want the paralysis going into the new year. On the other hand, now they want to go back to the cuts that they always wanted.
Epstein: That’s correct. And this deal with the increase in the payroll tax rates is going to be a drag on the economy, as Keynesian economists have been arguing for decades. Those kinds of tax increases will cut into spending much more than tax increases on the very wealthy. And some economists are estimating this will put a drag on economic growth by as much as one percentage point.
Jay: Now, President Obama is arguing he had no choice. What—do you think he had a choice?
Epstein: Well, I think—yes, I think a lot of people, Jamie Galbraith and many others, Krugman, argue that they should have gone over the cliff. Then Obama would have had a lot more leverage, and he could have picked and chosen what kinds of things that he wanted to put back on the table, and including raising of the debt ceiling. And he didn’t do that, and now it’s not at all clear where he’s going to get his leverage from. So, yes, he had a lot of choice, and he made, I think, the wrong decision.
Jay: Alright. Thanks for joining us, Gerry.
Epstein: Thank you.
Jay: And thank you for joining us on The Real News Network.