All around the media the past few weeks (e.g. 'Expert Warns That 'Fiscal Cliff' Could be a Doozy', USAToday, May 21, p. 3B, 'Three Views of the Fiscal Cliff', WSJ, May 21, p. A15) we keep reading about an impending fiscal cliff which - to hear the nervous nabobs tell it - will send this country over an economic cliff from which it has scant chance to recover ......if politicos allow it.
Don't buy it for a freaking second! It is yet another ginned up meme to try and drive our political custodians into recklessly voting for extending tax cuts that ought to have been killed years ago! In other words, it is more piffle from the Neoliberal scum to cloud the issues and make Joe the Voter question reality.
What is this "fiscal clifff"? According to Nouriel Roubini, interviewed in the USAToday piece:
"Many things are expiring at year's end. All the tax cuts on income, on dividends, on capital gains. There's an expiration of the payroll tax cut. There is a reduction or expiration of transfer payments to state and local governments, to unemployment benefits. There is the expiration of infrastructure spending, and there are the automatic cuts on discretionary spending, which came about because we failed to reach an agreement for reducing the budget deficit.
The point is, all this expiring at year's end will leave a hole of $600 billion or about 4% of GDP and then we plunge into a nasty recession"
Hold strain, and back up. First, it's well to continue to grasp that the extended recessionary environment we've been in is known as a "balance sheet" recession. It arose because of too little spending and resulted in a low aggregate demand environment. The solution then begs for common sense which is to prop up as many spending inputs, while eliminating as many revenue holes as possible - since the spending (i.e. for infrastructure) can only be accommodated if the money is there. Same with providing extension of unemployment benefits, and also transfer payments to state and local governments. In effect, Roubini in his answer and definition ends up mixing chalk and cheese, by mixing needed spending intitiatives with dropping tax cuts.
How many times now must I go over this, so that even an economic egghead can grasp it? TAX CUTS DON"T WORK! They will not make the situation better, only worsen it! What we need is to kill all those tax cuts in tandem and use the revenues obtained for the spending.
I've been beating on this donkey since December, 2010 with my blog on killing the zombified Bush tax cuts once and for all:
http://brane-space.blogspot.com/2010/12/bushs-revenge-or-how-zombie-tax-cuts.html
But what have we seen? We've seen these god-damned Bush tax cuts almost acquire a life of their own, despite the fact they are wrecking this country! But don't take my word! Let's again examine the analysis of those tax cuts done by The Financial Times and published in its 9/15/10 issue (p. 24). According to analyst Richard Bernstein:
"Our own examination of U.S. non-residential investment indicate the reduction in capital gains tax rates failed to spur U.S. business investment and failed to improve U.S. economic competitiveness”
In other words, the FT’s findings were exactly opposite to what had been touted by the 2003 cuts’ cheerleaders (many of the same people who claim that extending the Bush cuts to the wealthiest now is critical for job formation). The findings' clarity also shows there's no justification for keeping any capital gains cuts.
The FT’s analysis continues:
“The 2000s- that is the period immediately following the Bush tax cuts – were the weakest decade in U.S. postwar history for real, non-residential capital investment. Not only were the 2000s by far the weakest period but the tax cuts did not even curtail the secular slowdown in the growth of business structures. Rather the slowdown accelerated to a full decline”
Get that? The "slowdown" accelerated to a full decline! So why in hell's bells are supposedly serious people still asking us to retain them? ANY of them! They all ought to go the way of the dodo! The middle class cuts, as well the ones for the wealtheist. Let's get this straight, one single hack out elimination of these zombie cuts will save us $3.7 trillion over ten years. Do that and most of the nitpicking deficit control arguments vanish! Most of the need for Simpson-Bowles bullshit also vanishes. (Again, nearly all these damned deficits were created by Bush programs: 1) $4 trillion spent on Iraq and Afghanistan with no tax increases to pay for these militarist adventures, and 2) Ten years of the Bush tax cuts which added some $2.7 trillion to the deficit)
This means the Bush tax cuts have outlived whatever usefulness they once had, which most of us can count on one finger. (The middle)
Meanwhile, the FT analysis observes that “during each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 percent and 7.4 percent a decade. During the 2000s it averaged a mere 1%."
For reference, the top marginal tax rate during the Bush years (for income tax) was reduced to 36% from the 39.5% during the 1990s Clinton Years. Over the 1950s and into the 1960s (until about 1964) the top marginal rate was at 91%, going down to 65% by the mid -60s. The low level of 39.5% wasn’t hit until Reagan arrived in 1980, and passed his tax cuts. (And we note here that the debt as a % of GDP rose to nearly 30% during the Reagan year, caused by his tax cuts in conjunction with military spending that amounted to nearly $2.2 trillion over his tenure)
What the FT analysis shows is that keeping any of the tax cuts is financially reckless and ignores key objective evidence staring us all in the face. I mean, what? Did the FT analysis not show anything? To those like Roubini it would appear the FT is treated more like some mythical fairy tale reader!
The conclusion of the FT analysis is stark and absolutely uncompromising (ibid.):
“The stated goal of cutting taxes to spur U.S. capital investment was not achieved.”
This led Bernstein to ask ‘Where did the benefits of the tax cuts go?’
The FT found: “an increasing proportion of the benefits of U.S. monetary and fiscal policy are leaking outside the U.S.”
The FT and Bernstein goes on to note that the tacit assumption of U.S. policy makers and taxpayers is that the U.S. is a “closed economic system” but in fact, it isn’t. Whatever consequences accrue can often be exploited in ways unseen. Indeed, the FT notes that the Bush tax cuts actually encouraged “capital flight from the U.S.”
(Part of this, of course, had to do with the weak dollar policy the Bush administration resorted to at the time. For those unaware, the Bushies dealt with the exploding trade deficits by allowing the dollar’s value to sink (it was debased more than 35% during the eight Bush years). Because the lower dollar value made U.S. goods-exports cheaper it enhanced U.S. trade activity and narrowed the import deficits. The problem is that it was done at great cost, spurring an investor run to stronger currencies (like the euro).
Is it too extreme now then, to finally assert that all those who propose retaining the Bush tax cuts are TRAITORS? What is a traitor, if not some person or clique that undermines his own country by providing necessary monetary resources to outside, foreign entities at the expense of his own nation.
On the other hand, by killing these tax cuts, we get the money to not only pay for much needed infrastructure repair, but also to extend unemployment benefits and even increase food stamps availability as well as reviving the money to support public health clinics which the repukes annihilated in their spending cut frenzy last year. Finally, the elimination of both the Bush tax cuts for all, and the elimination of the payroll tax cuts will render moot the "sequestration" mandate that arrived when the Rs took us all hostage in their debt ceiling treason. No longer will we be faced with the mandate to gut $600b from Medicare and $600 b from the military (though to all intents, I still believe the latter needs to be done!)
Bottom line: There is no "fiscal cliff" unless our vaunted leaders are ignorant enough to revive these stupid tax cuts! In that case, you can predict an endless spiral into fiscal oblivion from the instant they do. If they take issue with my arguments, I invite them to read on their own The Financial Times analysis which shows how utterly useless these Bush tax cuts are, and by extension the others (i.e.g capital gains).
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