The Fiscal Slope

It really isn't a cliff; most people don't pay taxes in January; Congress will have time to fix things after the first of the year and has often written tax and spending bills that are retroactive.

One of the advantages of delay is that a "tax increase" on Dec. 31st, i.e. not extending Bush tax cuts, becomes an opportunity for "tax cuts" on January 1st. The Obama/Democratic program of maintaining the lower tax rates for the middle class, becomes "tax cuts" in January. The higher rates, for those with incomes over $250,000, does not become a tax increase: it would simply remain as part of the agreement reached between Congress and the President, as part of the bargain to cut the deficit and debt. The Republican House agreed to this as the fall-back position for cutting the deficit.

This whole "cut the deficit" mania came from the Tea Party caucus in the House: it's miss-timed. The Great Recession has driven most of the current deficit by stimulus and aid to people in distress, and collecting less revenue because fewer people are working.

The whole mechanism of government spending more in a recession in order to ameliorate misery, despite revenue shortfalls, was an innovation of the New Deal. It's not surprising that reactionary Republicans want to repeal the practice.

Consider what would have happened if we'd adopted the balanced budget amendment long advocated by "fiscal conservatives": as revenue went down in the financial collapse of 2008, government would have been required either to raise taxes on those still working, and/or to cut expenditures--on food stamps, schools and everything else, even Defense. The result would have been an ever deeper, broader and self-reinforcing hole in the economy and mass misery. Today we'd still be in a deep depression with no way to dig ourselves out. We'd be in worse shape than Europe.

Once we've spent enough to create jobs (and hopefully to restructure the economy), then is the time to raise taxes on those who currently can't afford it, or to find other ways to balance the books: now is not that time; the economy is still too fragile and too many people are still out of work.

However, to avoid the so-called cliff, to begin to reduce the deficits in ways the nation can afford, raising taxes on high income earners makes sense. They do not "create jobs," from their rising incomes. The corporations they own will hire when there is demand for the goods and services they produce. Not before. High-income earners have garnered almost all the increased wealth since the start of the Great Recession: they are largely sitting on it, or investing it elsewhere.

The Republican insistence on lower tax rates for the wealthy is like the Roman Senate in 476 refusing to raise their taxes to pay the Ostrogoth palace guard. That action precipitated the "fall of Rome."