“Cliff” Notes: No Grand Bargain on the backs of the Working Class

BY:Art Perlo| December 11, 2012
“Cliff” Notes: No Grand Bargain on the backs of the Working Class
Report to CPUSA teleconference Dec. 4, 2012


We are facing a critical battle. The so-called fiscal cliff, and the possibility of a grand bargain to avoid it, can be a turning point.

A lot of good material is available, though it rarely penetrates the mainstream media.

What is the fiscal cliff?

As a result of legislation passed by Congress in 2011, a number of events are scheduled for January 1:

  • Ending Bush-era tax cuts and other tax breaks for the rich.
  • Ending so-called “middle class” tax cuts, including income and payroll tax
  • Ending federal unemployment benefits for long-term unemployed
  • Across-the-board discretionary spending cuts of $110B/year split between defense and non-defense spending.

Why is it called a cliff?

If nothing is done, the provisions of the 2011 legislation will result in a new recession. The tax increase on working families will mean cuts in consumer spending. The federal budget cuts, on top of the cuts already taking effect, will cause further suffering, and will impact on state and local governments. Along with the cuts in government spending, the reduced demands for goods and services will cause businesses to cut back and lay off workers, causing a further reduction in demand and lost tax revenue.

Is it an accurate term?


It’s not a cliff because that won’t happen all at once. It will take several months for the effects to gradually kick in. For that reason, the situation has been more accurately described as a slope than a cliff. This should strengthen the hand of the administration and anti-austerity forces.

But for the long-term unemployed, it is a human cliff. Two million jobless will lose benefits at the beginning of next year, and million more by April. (The “human cliff” metaphor comes from Sen. Sander Levin (D-MI), quoted in the Washington Post).

What’s a better term?

The legislation that goes into effect Jan. 1 has been better described as an austerity bomb.

Most economists agree that this is an austerity crisis — i.e., absent congressional action, $500B-$700B of government spending would be cut in 2013. These cuts in govt spending, whether direct payments for unemployment insurance or food stamps, or spending on goods and services, could trigger a new recession. But the so-called solutions, the grand bargains, focus “…more austerity… the conversation in Washington tends to focus exclusively on achieving deficit reduction — even though the economic threat we face in January is too much deficit reduction.” (Ezra Klein)

We should emphasize that last year’s budget deals have already led to severe cuts. For example, from an email from the AFGE, the union that represents federal govt workers:

The cliff is high and millions of retirees, survivors, and the disabled are being thrown over it right now…

Cuts to the Social Security Administration core budget – not benefits but the money that keeps the lights on and allows AFGE members to help recipients – are already impacting millions of Americans.

Applications and appeals are backlogged, eligibility reviews are being postponed indefinitely, and offices across the country are being shut down. Americans filing for retirement, survivor, and disability benefits are forced to stretch their savings while sometimes waiting years for their benefits or coverage.

Equally importantly, 9,000 SSA employees will be cut by next summer and tens of thousands are facing furloughs. With 10,000 new people eligible for Social Security each day, we simply can’t sacrifice these critical employees or the services they provide.

That’s just one measure of the human cost and the economic cost of the budget cuts that are imposed at every level of government.

What to do?

Even Republicans admit that austerity is bad — when talking about the effects of cutting the military budget. Republicans say — we can’t cut military because it would cost jobs. Duh. Guess what? Cutting infrastructure costs jobs. Cutting renewable energy credits costs jobs. Cutting medical and scientific research costs jobs. Cutting safety net programs costs jobs. Cutting unemployment benefits would cost 300K jobs. Cutting the postal service costs jobs. Failing to support state and local governments costs jobs of teachers, firefighters and other essential workers.

Republicans say everything they do — tax breaks for the rich, ending regulations, undermining health care — is to create jobs. But their program is even more austerity, which will result in even more lost jobs and a new recession. That is the lesson of US history in the Great Depression. But we don’t have to go back 80 years. In the current global capitalist crisis, Britain’s conservative government enacted an austerity policy. Their slow recovery stalled, and Britain fell into a double-dip recession. And in continental Europe, the ECB and dominant German banks have imposed severe austerity, especially on the people of Greece and Spain. As a result, not only have the economies of those countries crashed, with 25% unemployment rates, but most of Europe is falling into recession.

The Republicans, fronting for corporate interests, say that if we don’t cut the deficit, we will end up like Greece. Their cure is to impose an austerity package that will indeed make us like Greece — depression level unemployment, no future for youth, massive cuts in health, education and public services, steep cuts in wages and pensions.

There is an alternative. Deal with the real economic crisis — the lack of good jobs, and the depressed which makes poor use of our country’s vast human and productive capacity.

The Obama administration has at least a serious proposal. This reportedly includes:

  • End Bush tax breaks for the rich.
  • Continue “middle class tax cuts”
  • $50 billion stimulus package in FY13
  • No immediate new spending cuts
  • Extension of unemployment insurance: (cost: $30 billion)
  • Increase in the debt limit to avoid requiring Congress to vote to increase

Many progressives argue for more extensive revenue measures, including higher tax rates on multi-millionaires, closing more corporate and loopholes, and a financial transaction tax. Some also argue for a reversal of previous spending cuts, and a much more extensive stimulus package, including substantial aid to state and city governments. Unions, progressive and working class organizations are also unanimous that there should be no cuts to Social Security, Medicare or Medicaid.

Embodying many of these features, 44 members of Congress have introduced H.Res. 733, calling for (1) no cuts to Medicare, Medicaid, or Social Security, (2) increased tax rates on the rich and closing corporate loopholes, (3) significantly cutting defense spending and (4) strong levels of job-creating Federal investments in areas such as infrastructure and education. Progressive Caucus chair Keith Ellison says the progressives can only accept a deal that includes these features.

But — how do we pay for it? What about the deficit?

What deficit are you talking about? We have a real deficit of jobs — especially useful, productive jobs. We have a deficit of classroom teachers. A deficit of neighborhood health clinics and workers to staff them. A deficit of youth programs. A deficit of renewable energy. Any serious discussion of economic programs should address these deficits.

But OK. Let’s talk about the federal budget deficit.

There are three main contributors to the deficit.

  1. tax breaks for the rich — we deal with that by letting those tax breaks expire, and we should go further and close other loopholes enjoyed by the suer-rich and their giant corporations.
  2. the wars in Iraq and Afghanistan and the accompanying explosion in all military spending — we can deal with that by ending those wars and occupations around the world.
  3. The deficit really exploded with the economic crisis in 2008 and the continuing depression economy. This is the main reason for the current federal and state deficits and for deficit projections for the next several years! The depression has caused increased spending for unemployment insurance and other safety net program and, more important for the budget, it has caused a catastrophic drop in tax revenues for the federal, state and local governments.

The depressed economy — the biggest cause of the ongoing deficits, would be made even worse by austerity budgets and reduced spending. The solution is to spend more now, even though that temporarily increases the deficit. Of course, it matters what you spend money on. Spending on tax breaks for the rich creates relatively few jobs, and the increased sale of yachts, mansions and private jets does nothing for the nation’s environment or productivity. Spending on infrastructure, on energy, on protection from climate-related disasters creates more jobs and is doubly effective: it helps put people to work and revive the economy now, and it lays the basis for a stronger and more productive economy in the future.

Don’t look at it as government spending. Look at it as investment. This isn’t radical. It’s business 101. Suppose you own a small construction company that uses a pickup truck to bring supplies to building sites. The truck is old and keeps breaking down, resulting in idle workers, job delays and lost income. So you take advantage of low interest rates and borrow the money for a new truck — you make the payments out of the money saved on the job.

Robert Reich puts it like this:

If there was ever a time for America to borrow more in order to put our people back to work repairing our crumbling infrastructure and rebuilding our schools, it’s now.

Public investments that spur future job-growth and productivity shouldn’t even be included in measures of government spending to begin with. They’re justifiable as long as the return on those investments — a more educated and productive workforce, and a more efficient infrastructure, both generating more and better goods and services with fewer scarce resources — is higher than the cost of those investments.

In fact, we’d be nuts not to make these investments under these circumstances. No sane family equates spending on vacations with investing in their kids’ education. Yet that’s what we do in our federal budget.

We should remember why the so-called fiscal cliff is a crisis. It is not a deficit crisis. It is not a debt crisis. The crisis is that, starting January 1st, the government will spend too little, and will tax too much. That will reduce the deficit short-term, but will hurt tens of millions of families and will do immediate and long-term damage to the economy.

Right now, the federal government can borrow money at close to zero percent interest. Just ask those of us in the Northeast, after storm Sandy, about the need to put power lines underground, and for stronger defenses against flooding. We have construction workers idle, construction equipment sitting idle, and plenty of work that needs to be done. In New York and New Jersey alone, $80 billion worth of infrastructure repair and strengthening is needed. If the only obstacle is money, this should be a no brainer. Investing in America is the only way to overcome all the real deficits I talked about earlier. And it’s an essential part of putting the economy on a sound footing so that government finances can be brought into balance.

If it’s a no-brainer, how come it’s not happening?

The negotiations in Washington over the January 1 austerity bomb, AKA fiscal cliff, is not a reasoned, academic discussion of economic policy. It is not even a knock-down, drag out political fight about economic policy. This is open, naked class war.

The case for austerity is couched in terms of controlling the deficit. I have already discussed that this is itself counter-productive. The priority right now should be on productive investments in people, infrastructure and environment — even at the expense of a short-term increase in the deficit.

But let’s say you are convinced the deficit is a problem that must be addressed NOW NOW NOW. Then certainly you would support the Obama proposals. They don’t provide nearly enough investment, and they are very cautious in increased taxes on the super-rich and the Fortune 500 corporations. But like the Clinton administration in the 1990s, the Obama administration is serious about reducing the deficit — we would argue it has given too much credence to the deficit reduction goal. And some of the saner sections of Wall Street and the ruling class support the administration approach.

Then look at the proposals put forward by Republican leaders McConnell and Boehner. They avoid tax increases on the very rich, while calling for unspecified loophole-closing. They eliminate mandatory spending cuts, and replace them with unspecified cuts in discretionary spending, which has already been cut to historic lows as a share of GDP. Their proposals to raise Medicare retirement age and charge higher premiums and cut the Social Security COLA hurt seniors but provide only small savings. In total, the Republican plan offers only $800B in savings over 10 years, much of it unspecified.

So the Republican position has little to do with deficit reduction. As Paul Krugman says, “This is pathetic — and these people are definitely not serious.”

But of course, they are serious. Not about the deficit, but about their real goals. Their goals are exactly reflected in their proposals: preserve and extend tax breaks for the very rich and biggest corporations, undermine Social Security, Medicare and Medicaid, deepen cuts already made in vital programs for education, infrastructure, research, and every other useful government function. And they are anti-tax only when it comes to their wealthy corporate masters. They increase taxes on the working class. And their cuts to federal programs such as education and Medicaid, will force states and cities to cut services and/or raise taxes, which fall most heavily on the working class.

For more than thirty years, they have been shouting, “deficit, deficit,” then pursuing policies that increase the deficit, then using the deficit to attack popular programs that are essential for working people and effective government.

As Krugman says in another column, “The important thing to understand now is that while the election is over, the class war isn’t. The same people who bet big on Mr. Romney, and lost, are now trying to win by stealth — in the name of fiscal responsibility — the ground they failed to gain in an open election.”

This is not simply partisan politics. I don’t pretend to understand the thoughts and motives of congressional Republicans. But they faithfully represent the interests and the ideology of the most predatory sections of the ruling class — the Wall Street banksters, the vulture capitalists, most of the biggest off-shoring, tax-dodging, outsourcing, union-busting, global-warming, environment-trashing corporations.

For thirty years, they have generously funded academics, think tanks and front groups that have raised alarms about runaway deficits and the future bankruptcy of Social Security. Between their ability to lavishly reward academics and opinion-makers that echo their line, and direct ownership of the mainstream media, corporate forces have made deficits and debt the number one public issue, to the exclusion of the real issues facing the American people.

The latest incarnation is a group of top CEOs operating under the name “Fix the Debt.” One of the group is Lloyd Blankfein, CEO of Goldman Sachs. Goldman Sachs paid the largest SEC fine in history for fraudulently deceiving investors about mortgage-backed securities. “Deficit reduction” and the “fiscal cliff” are in the same tradition of fraud. These CEOs don’t really care about the deficit. What these CEOs really care about is bigger tax breaks – for themselves and their corporations. (parphrased from ourfuture.org blog.)

What about all these projections of zillion-dollar debts crippling our grandchildren, and legions of greedy old people living high on the Social Security hog at the expense of the few working-age Americans? The scare stories are even more fraudulent than those concerning the current federal deficit, though space does not permit elaboration in this article. The propaganda about leaving our grandchildren in debt obscures the real threats to our grandchildren — threats like global warming, decaying infrastructure, war, apartheid-like education and prison systems.

But in any case, the long-term funding of Social Security, Medicare or anything else have nothing to do with the immediate crisis, which is political, not economic. It is not necessary to solve problems that Social Security may or may not face 25 years from now, in order to agree on a simple resolution to the Jan 1. cut-off of unemployment benefits, payroll tax cuts, and government programs and services.


A minimum program to prevent widespread hardship, to begin moving the economy forward, to meet real pressing needs, and to create jobs would include:

  • Allow Bush tax cuts to expire for the richest 2%, as well as closing their individual and corporate loopholes.
  • Preserve tax cuts for the 98% including the payroll tax cut.
  • No cuts to Medicare, Medicaid, or Social Security,
  • Immediately renew the federal extended unemployment program and return it to the 99-week limit.
  • No cuts to domestic discretionary spending that meets real needs.
  • End wars and occupation in Iraq and Afghanistan, and reverse the last decade’s military buildup.
  • Promote economic growth with strong levels of job-creating Federal investments in infrastructure and education
  • Eliminate the unnecessary debt limit which has become a tool for economic sabotage

These or similar points are included in the programs being advanced by the AFL-CIO, progressive and human service organizations, peace and environmental groups, and rank-and-file activists who provided the energy that defeated the ultra right in last month’s elections. The common focus is on the first three points.


The outcome doesn’t depend on who is right or wrong. It depends on what side is stronger. The elections were a strong ratification of taxing the most wealthy and not cutting Social Security, Medicare and Medicaid. But big business, operating through the Republican leadership in Congress, wants to short stop the election mandate.

Large, visible, creative, public demands can have a decisive effect on the outcome. The degree of mass mobilization and organization can set the stage for the future battles throughout the next four years.

One of the most encouraging things about the November election was the mobilization around the Lame Duck session of Congress that began the morning after election day with a call by the AFL-CIO and other unions and progressive organizations resulting in actions that week in over two hundred cities, national call-in days to Congress, and visits to members of Congress by constituents. This mobilization is having an effect in the somewhat firmer position taken by the administration.

Take Action

The CPUSA supports these initiatives, and has issued a Call to Action: No Grand Bargain on the backs of Working People 

Building on the initial congressional visits and call-ins, actions were organized across the country on Monday, December 10. The first demands are: No tax breaks for the top two percent! No cuts to Social Security, Medicare and Medicaid!

In addition, a campaign is underway to get 218 members of Congress to sign a discharge petition that would require the House leadership to bring to the floor HR 15 The Middle Class Tax Cut Act. This act, already passed by the Senate, would extend the Bush tax cuts for the 98 percent.

The incredible organizing that resulted in the election victory must continue and expand to achieve priorities that say no to austerity and no to wars and put working people first. We need jobs not cuts.

PHOTO:   Some rights reserved by PaulSteinJC



    Art Perlo lives in New Haven, Conn., where he is active in labor and community struggles. He does research and writing on economic issues in Connecticut, including work with the Coaltion to End Child Poverty in Connecticut which helped pave the way for the movement for progressive tax reform in the state. He writes on national economic issues for the People's World, and is a member of the CPUSA Economic Commission.




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