It turns out we’ve only witnessed the first act of Washington’s “fiscal cliff” kabuki. Our elected leaders simultaneously avoided the “fiscal cliff” of their own creation, and set up even more “fiscal cliffs” to come.
Yes, as The Grio’s Perry Bacon Jr. pointed out, at first glace there were some “good things” things in this deal, on which the White House can claim “victory.”
Moving off of his desired numbers on taxes allowed the president to get billions of dollars in programs for the working poor and unemployed Americans that Republicans would only agree to as part of a larger compromise. The deal includes $30 billion to help Americans who have been unemployed for longer than six months, as well about $120 billion spread over five years to keep in place increased child tax credits for low-income families with children and those paying for college that were in the 2009 stimulus and scheduled to expire.
While cuts may come later, there are actually almost no new spending reductions in this agreement. (The cuts from the 2011 debt ceiling negotiation will still eventually occur.) Obama successfully fought a Republican push to include Medicare or Social Security reductions in this deal.
Most importantly, almost every Republican senator and more than a third of House Republicans voted to raise taxes. Yes, Obama has proposed this years, but Republicans have opposed any increase ON ANYONE for two decades. Obama not only forced them to take a tax increase now, but is promising more during the rest of his tenure to balance the national budget.
Still, it’s way to early to start counting the bullets we’ve dodged.
First, the middle- and working classes, and the working poor are already taking a hit in this deal. The failure to extend the payroll tax cut means an increase in taxes for the middle- and working-class, and the working poor. As Jared Bernstein pointed out, families earning $50,000 a just got about a $1,000 increase. Break that down into months, and it comes to about $83.00 less in take-home pay each month.
That amount might be low enough that some people (i.e., single, childless, etc.) might even notice it. But a nearly $100 reduction in take-home pay is a deep cut for middle-class, working-class and low income families who are barely getting by. Ultimately, we’ll all pay.
By allowing the payroll tax cut to expire, every working American gets a tax hike of 2% of their income (up to about $113,000 in income). A worker making $50,000 a year will pay an extra $1,000 in taxes. Payroll checks will be cut. Belts will have to be tightened even more. That will lower demand, producing job loss totaling up to an estimated million jobs. (Taxes on the wealthy go up also, but those have only marginal effects on jobs).
Second, seeing as Washington is going to take another shot at middle-class, working-class, and low income families.
Thanks to what Robert Borosage called an “ugly deal,” we’ll be right back where we’ve been since Congress constructed this most recent “fiscal cliff.” And while we can breath a sigh of relief that many of us weren’t throw off that “cliff,” the deal-o’-the-moment leaves many middle- and working-class Americans, the working poor, and people of color already dangling over the the looming abyss of the next one.
This is an ugly deal, with foul implications for the coming months.
1. Setting Up the Next Extortion
The most ominous part of the deal is what was left out. The deal makes no provision for lifting the debt ceiling. It postpones the sequester (automatic cuts in domestic and military spending) for only two months. It is a smaller deficit reduction package than that originally sought by the president. It therefore sets up the right-wing House zealots to hold the economy hostage once more, while demanding deep cuts in public services (known as cuts in domestic spending), backed by a media frenzy about deficits. And while Social Security, Medicare and Medicaid escaped unscathed in this deal, they will be the prime targets in the coming debate.
Thanks to a “fiscal cliff” deal that’s already hurtling towards its expiration date, that means conservatives and corporate interests not only won a $3.6 trillion tax cut for people almost no one could call “middle class” with a straight face, and a tax increase for the real middle class, but they will also get another shot at the programs they’ve always hated.
That means 2013 Washington will rehash most of the worst economic ideas of 2012, instead of focusing on jobs, infrastructure, and real economic recovery. That’s why some Democrats opposed the deal, as Sen. Tom Harkin (D, Iowa) explained in an NPR interview.
CORNISH: And yet you voted no. Why?
HARKIN: Well, I voted no because of three basic reasons. One, it does not address the number one priority that we have in this country. And the number one priority is creating good jobs and putting people back to work. It’s like, ever since the election, we forgot that we still had well over 7 percent unemployed in this country. So the thing that’s holding back our economy is the fact that people aren’t working.
CORNISH: And the other two reasons?
HARKIN: The second reason, it doesn’t generate enough revenue that’s needed to invest in the things like infrastructure, education, job retraining, research and development that will get the engine going again. And the third reason is because it’s so discriminatory. All of the tax benefits that go to rich people and the high-income earners are made permanent. The tax benefits that we Democrats put in in 2009 to help modest-income people, those are made temporary. To me, that just stands logic on its head.
You should make the things that help modest-income earners permanent and the things that help high-income earners temporary. Vice President Biden and everyone in their speech, I think, kept referring to 400,000 as middle class. Well, if you’re making $400,000, you’re in the top 1 percent of income earners in America. So have we defined the new middle class as people making $400,000 a year?
Don’t forget, it wasn’t that long ago that President Obama came very close to caving in on Social Security, by offering to cut Social Security via the “chained CPI,” in the name of reaching a compromise with a notoriously uncompromising House GOP. House Minority Leader Nancy Pelosi tried to tell us that it wasn’t really a cut to Social Security benefits. Meanwhile some Democrats tried to give the president a pass, and progressive leaders spoke out against a cut to Social Security benefits that would hit African-Americans and Latinos hardest.
As my colleagues have shown, the “chained” cost-of-living adjustment for Social Security being discussed between President Obama and House Speaker John Boehner is a cut to benefits. The AARP Public Policy Institute’s report, Social Security: A Key Retirement Income Source for Older Minorities, helps us to think about how this cut might affect different racial groups.
Nearly one-in-five (18.7 percent) of the Hispanic elderly lives in poverty. For African Americans, the rate is one-in-six (17.1 percent) (Figure A). A cut to Social Security benefits runs the risk of significantly increasing these rates.
Latinos and blacks tend to have lower lifetime earnings and this fact results in lower levels of Social Security income. But it is also the case that these groups have less wealth and therefore depend on Social Security more. Figure B shows that roughly one-in-four Latino (25.4 percent) and black (26.3 percent) Social Security beneficiaries rely on Social Security for 100 percent of their income. For these individuals, Social Security cuts will hurt the most.
Third, this is where our changing electoral demographics come into play. Peo0le of color — African-Americans, Latinos, Asian Americans, etc. — are becoming an increasingly important voting block. That spells trouble for politicians who cut social programs in the name of austerity and fake “fiscal cliffs.”
In the debate over the so-called fiscal cliff, many in the media have missed something critical that both parties must understand: People of color, whose votes are increasingly crucial, believe in the positive role of government. They don’t want domestic social programs cut.
According to the Census Bureau, people of color will be America’s new majority by the year 2043. African-Americans, Asians and Latinos already outnumber whites in several states and play a growing role in presidential swing states. Neither party can ignore them.
… Neither party will win voters of color by preserving tax cuts for the wealthy while slashing Medicare and other vital programs
That’s not exactly what Rep. Jim Moran (D, Va. 8) meant when he told his fellow Democrats, “We have to look back on this night and regret it, notwithstanding the fact that 95% of us will vote for it.”
But Democrats would do well to remember Rep. Moran’s words. The next “fiscal cliff” they’ve created for themselves, and all those to follow, will give conservatives a chance to drive a potentially permanent wedge between Democratic party and its base. Democrats will need to stand on their convictions, or run the risk of alienating some of its most loyal supporters.