A Few Thoughts on the Fiscal Cliff – Here’s My Prediction

I read the news for about an hour this morning, taking in everything I could read on the status of negotiations regarding the fiscal cliff. My up front disclaimer is that I’m chiefly concerned with theology and ethics, not government, but I really enjoy reading about policy. Nevertheless, as a Christian and a pastor my chief concern is that we live out our faith in Jesus Christ, and bear witness to the leaders of the nation in which we live – especially regarding God’s special concern for the poor and vulnerable . I have just a few disorganized thoughts on the fiscal cliff:

• Obama’s offer was this: $1.6 trillion in tax increases from wealthy Americans. $400 billion in spending cuts to go along with the $1 trillion dollars in spending cuts that Obama has already signed into law.
• Republicans are not happy. I think the best explanation I’ve read of the reason why they are so upset comes from Ezra Klein. He says that Obama learned a thing or two from his first term and this time the president is refusing to negotiate with himself. R’s are upset less at his actual proposal and more that the president didn’t absolutely botch this like he did nearly every early agenda item in his first term.
• Obama, meanwhile, is doing exactly what he ought to do: take his case to the people. It’s a winning issue for him, and a loser for congressional/senate R’s. An ABCNews poll says 66% of the country favors tax hikes on those who make more than $250,000 a year.
• I’ve seen an alarming lack of acknowledgement from both sides that defense spending is out of control. Just a very modest cutback in defense budgets – helped by the ending of 2 wars – would do more to stave off growing deficits than any cutting in social programs.
• It’s important to remember as we call them entitlements, that by and large those who are receiving benefits such as unemployment, social security, Medicare, Medicaid, and in many cases welfare have paid into those programs, sometimes for their entire adult life. We often erroneously call them “handouts,” but these are programs people have already paid into. My parents, now retired and living mostly on social security and the Kansas Public Employee Retirement System, paid into those two systems for 4.5 decades. It’s not a handout when they worked for that benefit and paid into it faithfully for years.
• NYTimes ran a huge 3 page story today on taxes. The headline is: “Complaints Aside, Most Face Lower Tax Burden Than in 1980.” The idea that the tax burden is growing out of control is fallacious.
•  The income disparity between rich and poor continues to be a huge concern for the society at large. According to U.S. News – the top 10 percent hold 75% of the wealth in our society, while the bottom 90% has only a quarter of the nation’s wealth. We have the greatest disproportion of wealth since the great depression. Income/Wealth inequality destabilizes societies and wrecks economies.
• From an article by Nicolas Kristoff: “Since the 1950s, the top federal income tax rate has fallen from 90 percent or more to 35 percent. Capital gains tax rates have been cut by more than half since the late 1970s. Financial tycoons now often pay a lower tax rate than their secretaries. All this has coincided with the decline of some public services and the emergence of staggering levels of inequality (granted, other factors are also at work) such that the top 1 percent of Americans now have greater collective net worth than the entire bottom 90 percent.
• The Republicans are still being held hostage by the far right wing of their party. According to this article by Chris Hayes, the Koch Brothers and Karl Rove are calling the shots.
• The solution is simple & has three parts: raise taxes, cut defense, cut spending.

1. Raise taxes on those making $250,000 or more by just a few percentage points. Raise taxes on those making upwards of $350,000 a year by a lot. Close every tax loophole possible for everyone in that 350K+ category. Most importantly, allow investment dividends to be taxed as ordinary income.
2. Cut defense spending by 2-4% over ten years.
3. Scale back spending by the federal government including spending for social programs, Medicare and Medicaid.

What’s going to happen? My prediction is that the two sides will not get this done before Jan. 1. They will take the country over the “cliff,” at which point everyone will figure out that it’s not really a cliff. Then they’ll do something retroactively after the new congress is sworn in. Either way it’s a plague on both of their houses. My 9 and 7 year old have more acumen for diplomacy than anyone on either side of the aisle on the hill.