From the very beginning this “fiscal cliff” crisis was a sham. All throughout the past four years, Democrats and Republicans, but mostly Republicans, screamed about the importance of balancing the budget and embracing austerity. Well, doing nothing and allowing us to “go over the cliff” would have done exactly that. It would have balanced the budget in a relatively fair way by taking a little bit from everyone. Bloated defense spending would have been dramatically reduced, but so would spending on health care. Taxes on the wealthy would have increased, but the middle class and poor would have had to contribute as well, and that’s exactly why Washington was so panicked. Because God forbid the wealthy elite, Wall Street financiers that make their money off of capital gains and dividends, and profiteers of the war machine share in any of the pain. That’s not why they spent millions of dollars buying Congress.
Now, just to be clear, I don’t think we should be trying to balance the budget right now. The economy is still very fragile, and we need to maintain current levels of federal deficit spending, and pro middle and working-class tax policies to avoid slowed growth. The shock to the system from the trillions in immediate austerity would have not only brought growth to a halt, but possibly led to another recession. However, what we saw with the deal that just passed was the worst of all worlds.
The pro-growth payroll tax cut was allowed to expire, which means $1,000 less in the pockets of average Americans this year, which means less money for consumers to buy things and fuel future hiring. The refusal to even consider extending the policy baffled economists given the already crippling lack of demand in the American economy. That one provision alone is expected to reduce GDP growth by 0.5% this year. Meanwhile, there were billions of dollars in corporate subsidies and giveaways to companies like Disney, Goldman Sachs, and NASCAR inexplicably included as part of this deal that do nothing for growth, and only succeed in robbing taxpayers blind. But the biggest coup of all for the plutocrat class in this country was the deal to tax dividends at only 20%. If the Bush tax cuts had been allowed to expire the rate would have gone back up to 39.6%, which is where it was under Bill Clinton in the 90s when the economy was booming.
According to a group of bipartisan economists the compromise reached yesterday will slow economic growth by anywhere from 2-4% this year. Berkeley economics professor Brad DeLong thinks the deal will cut GDP growth by 1.75%, while a productive deal could have actually increased short-term growth by 1%, and Mark Zandi, Chief Economist for Moody’s and former top economic adviser to John McCain’s presidential campaign, sees 600,000 fewer jobs in 2013 because of what Congress and the president just did.
Bottom line: This Congress made the conscious decision to cut a deal to sacrifice economic growth and job creation, so that they could continue to reward their wealthy campaign contributors. They made the cynical calculation that they need the money they receive from special interests more than they need your votes, and they should pay severely for it in the next election.