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The Fecal Cliff

Izvestia: "Tentative Accord Reached to Raise Taxes on Wealthy". Pravda: "Obama, Republicans reach deal on fiscal cliff; Senate vote expected tonight". Man, I'm experiencing this tremendous body hit, a huge relief from tension. Not. And maybe I'm too cynical...

... but when you compare the Eisenhower top rate (91%) with the piddling 39.6% in this "tentative accord," it all seems less exciting.

Especially when you know that the next move is cuts. Ezra Klein lays out the next rounds of kabuki*:

It would be going too far to say White House officials are thrilled with this package. But it looks pretty good to them. As they see it, it sets up a three-part deficit reduction process. Part one came in 2011, when they agreed to the Budget Control Act, which included more than a trillion dollars in discretionary spending cuts. Part two will be this deal, which is $600 billion — and maybe a bit more — in revenue. And part three is still to come, but any entitlement cuts that Republicans want will have to be matched by revenues generated through tax reform. If Republicans want $700 billion in further spending cuts and the White House insists on $700 billion in tax reform, they’ll end up with more revenue than in Obama’s final offer to House Speaker John Boehner.

But again, entitlement cuts and tax increases (especially on the rich*) are not commensurate:

A "sacrifice" where some give up luxuries and others give up necessities is in no way "shared." A marginal sacrifice for the rich is not commensurate to core sacrifices for the rest of us. But the tropes of official Washington carefully brush this reality away.

Riverdaughter has it right:

In case you were wondering, I’ve been in Pittsburgh visiting relatives and doing things that I’ll fill you in on later. I’ve been staying with a favorite aunt who doesn’t have time for the Internet and whose neighbors have put passwords on all their modems since the last time I was here.

Anyway, the anecdotal evidence suggests that the urgency of the fiscal cliff is not resonating here. People are bored with it. It’s not like Iraq where the Bushies scared everyone into thinking Saddam Hussein had WMDs that he could drop on us in 40 minutes. No, it’s like they really want mute the next TV pundit who is hyperventilating about his taxes going up in January. ...

So, there you go, TV pundits. You have created a crisis that instantly triggers bathroom breaks.

So, anyhow.... What I've been wondering about, though, is why now? Surely Obama's would have gotten "a better deal" if he waited 'til the new Congress? It could be, of course, that Obama's just a lousy negotiator (another Narrative of Democratic Weakness). However, if your goal is to help the Republican Party, then one thing you might to is arrange for the previous crop of Republicans to get blamed, so next year's crop can point to them and say "It was the other guys!" I don't think this is an especially good theory, but it's the only one I've been able to come up with. Readers?

NOTE * Or "mini-cliffs" as the National Journal puts it.

NOTE Adding, the tax deal also -- and I know this will surprise you -- fucks the working class and the poor:

But Obama is wrong: Taxes will rise on the middle class even if this deal passes, because it doesn’t include an extension of the payroll tax holiday. That means that the paychecks for more than 160 million Americans will be 2 percent smaller starting in January, as the payroll tax will jump from 4.2 percent to 6.2 percent. And a huge number of those hit will be middle class or working poor (Two-thirds of those in the bottom 20 percent would be affected by a payroll tax hike.).

Oh well. So much for aggregate demand.

Again, again, again, one reason why Democrats suck so very badly is that they defend programs when they should be defending households. All that matters to a poor schlub like me is the money in the coffee can in the middle of the kitchen table. If the Democrats take a bill out of that can by cutting Medicare, so I have to pay more for medicine, or they take a bill out by shrinking my take-home pay, it doesn't matter to me. Money is fungible! The only thing that matters is how much money there is in the coffee can.

Average: 5 (2 votes)


danps's picture
Submitted by danps on

a good deal of controversy on the left when the payroll tax cut happened because it's (ostensibly) funding Social Security. Reducing it could end up being a way to kneecap the program, so while less in the paycheck sucks, it may be just as well that this particular tax cut lapsed.

And anyway, we need to get away from the narrative of tax cuts as ways for people to get more money. Taxes fight fires. Taxes teach children. Taxes are how we promote the general welfare and provide for the common good. No one likes paying them, but it's how we fund those things. And a strongly progressive income tax is the most equitable way yet devised to fund those provisions.

Instead of looking to tax cuts for more money in the paycheck, we should be asking why workers are not able to successfully demand additional money from management. That is when the conversation gets interesting.

DCblogger's picture
Submitted by DCblogger on

taxes at the state level teach children and fight fires. taxes at the federal level are only for regulating the economy.

Submitted by lambert on

... what the payroll tax cut did.

Fortunately, now that the economy is roaring along again, it's time to cool it off by turning up the regulator. Oh, wait....

Submitted by hipparchia on

yes and no.

the payroll tax holiday pleased a lot of conservatives because it means, in their eyes, that social security will "go broke" even faster and therefore we have to cut it nownownow to save it!

tax cuts and tax holidays are not as stimulative as direct handouts of money, but i'm going to miss that extra $22 in my paycheck, so liberals of various stripes approved of it.

mmt tells us that taxes are not truly necessary to fund federal govt, and there are some mmt-ers out there in the world who put out that message as: taxes do not fund federal govt.

i've noticed that rich people tend to be in that second camp, with their [sometimes not so sotto voce] subtext appearing to be: therefore don't tax us rich people.

i'm personally in favor of coming right out and baldly stating: yes, we DO pay for public goods with taxpayer dollars, and if we run out of tax dollars then we can print more if needed.

but then you can also count me as an unrepentant redistributionist. i think we ought to have a top tax rate of 91% on everything over whatever the president's salary is.

Submitted by lambert on

We just don't. So it's not a matter of "running out." I'm not in favor of putting out a message that isn't true. We don't have the funding to maintain a structure of bullshit.

I do believe we should tax the rich heavily, for two reasons: (1) to prevent them from buying the government with their loose cash, and (2) to prevent the formation of an arisotocracy of inherited wealth.

I'm also not in favor of poor and working class people getting fucked over by having more dollars taken out of their paychecks, but that's more something I take pesonally.

Submitted by hipparchia on

I'm not in favor of putting out a message that isn't true.

agree with you on that, 100%.

arguably, we don't "fund" "anything" with "anything." fiat money is more of a social construct than it is a tangible "thing" but at the same time, levying taxes takes real resources away from people [or asks them to contribute some of their private resources towards the public good, depending on your pov]. ultimately, i don't see the "truth" as you state it as having any more "truth" than the rearrangement as i stated it, but that's a lengthy and nuanced conversation i don't feel like spending the time and energy on right at the moment.

Submitted by lambert on

... in social relations -- because where else could it be stored? -- lots of other pictures change to. (The gold bugs and the "hard currency" fetishists are concerned to deny this.)

I'm reading Arrighi's The Long Twentieth Century, which expresses this, er, truth. It's spectacularly good and I recommend it to everybody. Not to trash David Graeber, but a collection of flashing insights is one thing, and a collection of flashing insights organized and disciplined by scholarship is quite another.

okanogen's picture
Submitted by okanogen on

Although "a foolish consistency is the hobgoblin of little minds", sometimes hobgoblins are necessary. In this case, although it is technically true that, in theory, taxes at the federal level don't "pay" for federal spending, in practice, Social Security and other entitlement spending are being tied to taxes, and especially payroll taxes like Social Security withholding. I'm with danps, we should point out both realities, the practical political one as well as we try to gain traction explaining the theoretical (MMT) reality.

So, given that, on the whole I think it was a "good" deal on the payroll tax holiday, which I would have preferred replaced with a much more progressive income tax increase, or even better, increased capital gains tax increases, estate tax increases, and tax reform to close the loopholes that the rich use to become permanent aristocracy.

Like that is going to happen.....