Published January 7, 2013 | By Socialist Action
By USMAN KHAN YUSUFZAI
New Year’s Day has come and gone; the impending
“fiscal cliff” disaster that so occupied the fears of politicos and businessmen
throughout the country has, at the 11th hour, been averted by heroic
deal-making by Republican and Democratic legislators. They made some
“tough decisions” in the face of the (manufactured) crisis that was facing the
country. And they passed a bill that managed to both not solve any of the debt
problems that led to the mess in the first place (in fact, the deal will increase
the budget deficit) and to set the stage for further assaults on social
programs and working people in general in the very near future.
The deal, known as the American Taxpayer Relief Act
of 2012, is obviously focused mostly on the tax revenue side of the budget
equation. It has a number of provisions, of which the most important are:
Permanency of the Bush Tax Cuts: The
income tax cuts signed into law by President Bush in 2001 were one of the three
major factors (the other two being the recession and the expansion of
health-care costs) leading to the explosion of U.S. public debt that caused
this entire mess in the first place. The bill made these tax cuts permanent for
everyone except those earning over $400,000 a year, or only about 1% of
taxpayers.
The Congressional Budget Office (CBO) projects
that, as a result, the budget deficit will increase by $4 trillion over
the next 10 years, relative to the case where all of the Bush tax cuts had
expired this year, as originally scheduled. That shortfall means—you guessed
it—another fight down the line over which social programs should be cut (and
those cuts will be deep). The estate tax was also raised to its
Clinton-era levels.
The Expiration of the Payroll Tax Cut: A
payroll-tax holiday was enacted in 2010 as part of a fiscal stimulus program to
assist recovery from the recession, dropping the rate to 4.2% from 6.2%. That
means that anybody earning a paycheck will, despite the rhetoric about “not
raising taxes on middle-class families,” see an increase of an average of a thousand
dollars on their tax bill this year. And, since the payroll tax is a flat tax
capped at $106,800, the increase disproportionately affects those workers
earning the least; someone earning $500,000,000 a year pays the same amount of
payroll tax, $2,274, as someone earning $150,000. And, of course, a two percent
tax increase will hurt a family living on $30,000 a year a lot more than one
earning $150,000.
Taken along with the Bush tax cuts being made
permanent, we can begin to see an outline of the beneficiaries of tax policy in
the United States. What we have is a major tax increase on all working people,
while those earning higher incomes see no increase in their income tax, and a
slight increase in payroll tax (which does not rise proportionally to income
because of the cap).
There is, of course, a minor bone thrown in, in the
form of a marginal tax increase on small numbers of the very rich, but this
does nothing to impact the debt or improve the lives of working people. And
although the payroll tax funds Social Security, there is no reason that a
society as wealthy and productive as ours needs to squeeze the lives of its
workers to fund their barebones survival in old age; in addition, with social
programs being on the table for debt negotiation talks later this year, look
for enterprising politicians to talk about raiding the Social Security fund to
make up for the general deficit.
Annual Minimum Tax (AMT) and Tax Deduction Limits: The
bill chained the AMT to inflation, effectively limiting it only to high wage
earners, and created limits on tax deductions for individuals earning more than
$250,000 per year. Although these policies are designed primarily to affect the
rich, the overall impact is likely to be minor.
Tax Extenders: “Tax extenders” are a
bundle of various tax credits and subsidies that go entirely to corporate
recipients, ranging from NASCAR to Goldman Sachs, ostensibly for research and
development. But they include protection for a type of off-shore financing, tax
credits for building “entertainment complexes,” and other things that should be
financed by the corporations themselves, like basic worker safety and
maintenance, but are shunted off to the taxpayer. So, while the bill passes
what amounts to a massive tax hike on the working class, it works hard to
protect the Democrats’ and the Republicans’ primary constituency, the
corporations, from, well, … actually having to produce anything.
Extension of Unemployment Benefits, Earned Income
Tax Credit, and the Child Tax Credit: So far, so good.
Emergency unemployment benefits were set to expire
on Dec. 31, but they were extended for another year. The Earned Income Tax
Credit (EITC) and Child Tax Credit, extremely beneficial to working families,
were protected from this round, although the deficit madness is just getting
into gear.
There are a few other provisions in the bill as
well, like the prevention of pay cuts to Medicare doctors and the temporary
resolution to the so-called “milk cliff,” and a pay freeze for members of
Congress. The most critical parts of the bill are the massive tax hike for
working people and the fact that the fiscal cliff has not been averted.
That is correct; the permanent changes to the Bush tax cuts, the permanent
expiration of the Payroll Tax Holiday, the year-long extension of sweetheart
corporate subsidies, were all done to push back the deadline for sequestration
until March 1, by which time if a suitable solution to the debt “crisis”
hasn’t been found, the cuts to defense and non-defense discretionary spending will
proceed as normal.
The bill did nothing to provide for a Fiscal Year
2013 budget (FY 2013 started in October 2012, so the government has been
operating under a “continuing resolution,” a stop-gap that continues the
previous year’s funding levels on an emergency basis). And finally, before
sequestration is set to occur in March, we will hit the debt ceiling again near
the end of February.
Upon the bill’s passing, the usual suspects came
out of the woodwork to defend it as the best compromise an embattled president
could muster:
“[A]nd on the principle of the thing, you could say
that Democrats held their ground on the essentials—no cuts in benefits—while
Republicans have just voted for a tax increase for the first time in decades,”
says Paul Krugman of the deal, while Ezra Klein is busy, as usual, spinning the
deal as another victory on President Obama’s inevitable road to progressive
utopia. To be sure, there are some things that appear good in the bill, and
some things that appear to be a reasonable compromise.
The real indicator, however, is the way that the
fiscal cliff deal sets the stage for the upcoming fight on the debt ceiling.
Revenues are a done deal; the changes in revenue structure are permanent, at
least through the end of the year, and we will not hear much more about raising
taxes (since we just did!). Despite being one of the major drivers of debt
expansion, the Democrats will defend PPACA to the death, and the Republicans
are certainly not going to fight for the one solution that will solve the
problem of spiraling health costs,—i.e., nationalized health care—so we can
expect that health care (aside from Medicare and Medicaid) will not be part of
the discussion.
What’s left? We have the tax increases; the only
thing left to talk about is what to cut and how much—austerity, American-style.
You can bet that Congress will be gunning for Social Security, Medicaid,
education, and the whole sweep of social programs that help ordinary Americans;
both sides have indicated a willingness to go after Social Security and
Medicare, programs that were taboo to even talk about in the context of cuts
(Obama’s 2012 budget proposal already attempted to include a higher age
eligibility for Medicare and reduced benefits).
So watch for February. It looks like, in order to
solve the crisis of capitalist production, both the Republicans and Democrats
are looking to throw working Americans to the wolves.
Photo: Tony Savino / Socialist Action
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