Fiscal cliff shenanigans

For Your Consideration

Alan CheahDecember 5, 2012 

Here we go again. I was looking forward to a longer reprieve but such is the way of American politics.

In December 2010, Democrats proposed extending unemployment benefits which was set to expire on Jan. 1, 2011. This would have affected 2.8 million Americans. The Senate GOP opposed it unless the Bush tax cuts were extended (Search 'Unemployment benefits: not until Bush tax cuts pass, says GOP'). Obama signed the Bush tax cut extension for another two years so the unemployed middle class can feed their families, pay utilities, rent/mortgage and live with some dignity.

Critics say that Republicans are putting the interests of the very rich ahead of the middle class. Opponents say that isn't fair because the tax cuts were for everyone. Sure but a disproportionate amount went to the rich. If this isn't convincing enough that GOP is the party of the rich, let's examine what is happening now.

Bush tax cuts will expire in 2013. Obama has proposed extending the Bush tax cuts for the middle class right now. This would help 98% of the population. House Republicans won't allow a vote to come to the floor. Just like they held the middle class hostage on unemployment benefits, they are again doing it with tax cuts for the middle class. In other words, unless the rich get theirs the middle class won't get a plug nickel.

Now the GOP wants to fold this issue into the fiscal cliff debate to further confuse and mislead voters. This tactic was practiced in the presidential election. Voters, even in the swing states, saw through it then. Perhaps they will see through it now.

The fiscal cliff debate hangs on the premise that the debt is unsustainable and should not be passed on to future generations. How ironic it is that Republicans have misled so many to believe they are the party of fiscal conservatism.

Reagan tripled the national debt. H.W. Bush doubled it. Clinton reduced it. G.W. Bush doubled it. There isn't any argument that the debt is reaching dangerous levels and we shouldn't pass it on to our children. However, there is huge argument on how we do it.

Let's look at tax cuts. Republicans believe in the trickle-down theory where tax cuts to the rich creates jobs and wealth trickles down to the rest of us. How's that trickle-down thing working for you? The non-partisan Congressional Research Service said there is no correlation between tax cuts for the top 2% and economic growth. So why did the GOP Senate have the report removed from its website? Search article in Forbes, "Non-Partisan Congressional Tax Report Debunks Core Conservative Economic Theory - GOP Suppresses Study."

On the other hand, tax cuts to the middle-class in a weak economy do create jobs and economic growth. This is exactly what Obama is proposing and the GOP is rejecting.

So how do tax cuts only to the middle-class and working poor create jobs and economic growth? The key is that they spend whatever tax cuts they receive and the economic principle of the 'multiplier effect.'

Simply stated, the multiplier effect says that for every $1 injected into the economy, it generates an additional $5 of income. A more detailed explanation can be found at economicsonline.co.uk/Managing_the_economy/The_multiplier_effect.html.

When the middle class get their cuts, they spend it. Spending money means injecting money into the economy. That is exactly why cutting spending, what Republicans call austerity and are proposing, is exactly the wrong thing to do in a depressed economy. If you are skeptical about the multiplier effect and need real world evidence, look at the plummeting economies of England, Spain and Greece which have adopted Republican austerity. Then look at FDR's spending which lifted us out of the Great Depression.

The GOP says Social Security and Medicare costs are a problem. They want to cut Social Security benefits and voucherize Medicare. This only hurts seniors. Consider this -- One third of Medicare expenditures are spent on the last year of life. Allowing the government to negotiate lower drug prices like the VA would save $14 billion a year. Raising the social security income cap beyond $106,800 goes a long way. Fiscal cliff solved. Why won't the GOP support this? Simple -- protect the rich.

So who's looking out for you?

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