by Jack Rasmus
Jack Rasmus
The collapse of the Supercommittee’s effort to make a joint package of suggestions for deficit reduction proves conclusively that for Republicans and their corporate allies that deficit reduction is, and always has been, a secondary objective. The main objective is to protect and expand the Bush tax cuts.
From reports now leaking out it is apparent that Democrats on the Supercommittee had offered enormous cuts to Medicare and Medicaid amounting to a minimum of $ 500 billion over the coming decade. These cuts were in addition to the automated $ one.two trillion automated added deficit cuts negotiated as portion of final August’s Debt Ceiling Deal. That deal currently had authorized $ one trillion in investing-only cuts. So the Democrats’ offer you was the $ one.2 trillion automatic deficit cuts—all investing about equally divided between defense and non-defense cuts—plus another $ 500 billion in Medicare-Medicaid matched by one more roughly equal $ 500 billion in tax revenue increases.
The Republicans on the Supercommittee presented a different ‘mix’ of tax income and investing cuts. Their counter was $ 760 billion in Medicare-Medicaid cuts plus about $ 300 billion in tax income recovery. Even so, that tax revenue recovery was largely raised from rising taxes on the middle class, by lowering the mortgage interest deduction and other middle class tax breaks. In addition, the Republicans necessary a additional main tax break for the best personal income tax bracket and for the corporate income tax. The two at present are set at a 35% tax rate. Republicans proposed to minimize each to among 25%-28%. In other words, raise taxes on the middle class and give it to the wealthy and their companies. And make seniors, retirees and the poor spend $ 760 billion in Medicare-Medicaid advantage cuts.
What these maneuvers by the two parties exhibits is the following:
1st, Republican’s prime priority is shielding the Bush tax cuts. Individuals cuts cost the U.S. price range a minimum of $ two.9 trillion final decade. Yet another $ 450 billion in extensions 2010-12. And a projected $ two.two to $ two.seven trillion if extended for another decade. By proposing more tax cuts for the top income brackets and companies, it is clear Republicans aren’t all that concerned about the deficit and debt in reality. They are focused on guarding and additional cutting taxes for the wealthy and their companies. What’s new in their position, exposed by the Supercommittee’s machinations, is that they now propose that not only seniors and the poor pay much more for continuing (and expanding) individuals tax cuts, but that now the middle class will also have to pay for them with much more tax hikes.
Second, it is clear the Democrats carry on to be more than prepared to place Medicare-Medicaid on the chopping block. They proposed $ 500 billion cuts last June, in the secret negotiations amongst Vice-President, Joe Biden, that broke down. They repeated that supply in July as President Obama supplied the exact same as component of a ‘grand deal’ that also imploded. Obama subsequently supplied up front $ 320 billion in Medicare-Medicaid cuts final September 19 as an enticement to get Republicans to agree to his $ 447 billion third recovery strategy. And just a few weeks ago, the Democrats once more proposed $ 500 billion. In other words, the Democrats have repeatedly presented huge cuts in Medicare-Medicaid. They will likely continue to do so in the coming months.
Third, the sticking point amongst the two is not no matter whether Medicare-Medicaid will eventually be cut, but only when. Nor is the quantity of these cuts genuinely in query. It will be between $ 500 billion and $ one trillion when it happens—and it ultimately will take place.
Fourth, the actual bottleneck is the Bush tax cuts and Republican efforts to not only protect these cuts but extend them as effectively, even if now at the expense of the middle class.
What the breakdown of the Supercommittee’s efforts exhibits is that the Republicans calculated they would have a far better likelihood at extending the $ 2.two trillion Bush tax cuts for yet another decade by deferring the vote on their extension until finally subsequent fall, 2012, in the midst of the final months of the 2012 election campaign.
Republicans no doubt looked beyond November 23 and see several legislative ‘choke points’ that will allow them to extract far more investing cut concessions from the Democrats without having getting to give up on the Bush tax cuts. The initial of this kind of ‘choke points’ will come subsequent month, in December 2011.
There are four significant legislative bills that Democrats and Obama desperately want that will have to be made a decision by Congress ahead of the finish of 2011. The initial has currently been raised by Obama: carry on the 2% payroll tax deduction for employees another yr. That will price an additional $ 112 billion to the budget and deficit this coming year. A 2nd is an extension of unemployment advantages for millions of much more employees, whose benefits run out at yr end. That’s another $ 55 billion cost. The third is nevertheless one more yr ‘fix’ to the Substitute Minimum Tax, AMT, which impacts the upper middle class who earn more than $ 150,000 a year. That is one more $ 70 billion expense. The fourth is also yet another delay in the 29% cut in doctors’ fees for serving medicare sufferers. That is tens of billions far more expense to portion B medicare investing. We’re speaking here about at least yet another $ 250 billion. If these expenses are not passed, it will suggest a significant hit to GDP and the financial system in the very first quarter 2012, for an economic system already incredibly fragile and susceptible to a double dip early following yr. In fact, the Federal Reserve now predicts the likelihood of a double dip occurring in the US economic climate early subsequent yr is now higher than 50%.
The Republicans will particularly drive a hard bargain, and extract much more than a ‘pound of legislative flesh’, in exchange for agreeing to pass the extension of unemployment advantages and the payroll tax cuts for an additional year. They will demand more spending-only cuts, probably to include Medicare-Medicaid, and also most likely demand that the $ 450 billion in defense spending cuts mandated in the $ one.2 trillion automated deficit reduction are removed from the $ 1.two trillion. Obama will be tough pressed not to agree to eliminate the defense spending cuts if he wants his payroll tax cut and unemployment advantages extensions passed just before year finish 2011. Obama and the Democrats will be desperate in an election yr to have the unemployment benefits and payroll tax extended, as well as the AMT ‘fix’ which otherwise would impact the independent voters that he is courting heavily in the coming election. The Republicans know all this, and will push to extract cuts in spending at least equal to the $ 250 billion expense for these different measures coming up in December 2011.
Republicans may also get another chance in early 2012 to extract spending cuts without acquiring to touch their Bush tax cuts. According to final August’s debt ceiling deal, that lowered spending by $ one trillion immediately and the $ 1.2 trillion extra automatic cuts that will now go into effect, there would be no more want to raise the debt ceiling right up until soon after the November 2012 elections. That was the trade-off for the $ two.2 trillion in investing cuts that the Obama administration and Democrats in Congress agreed to: i.e. no much more debt ceiling crises in exchange for the $ 2.2 trillion in spending-only cuts. But the debt ceiling issue might still re-emerge prior to the elections, and possibly even as early as this spring 2012.
As component of the August 2011 deal the U.S. Treasury is authorized to raise another $ 400 billion or so this spring and boost the debt ceiling by that quantity. But if the financial system retreats in early 2012, as a lot of now more and more predict, that will imply much less federal tax revenues than initially projected and a larger price range deficit in 2012 than originally forecast. That could probably reintroduce the require to raise the debt ceiling again in mid-2012 even much more than projected final August. If this scenario unfolds, the Republicans will have but yet another ‘bite at the apple’ of deficit cutting. That’s in addition to the 4 expenses coming up next month costing $ 250 billion, for which Republicans will demand at least an equivalent spending cuts elsewhere to fund.
So seem for the concern of cutting Medicare-Medicaid to continue to be on the negotiating table despite the Supercommittee’s current breakdown. The Supercommittee may possibly fade away, but not the basic issues behind it. Those issues are the continuing weak US economic climate and its effect on deficits, the intense commitment by the Republicans, corporations, and the wealthiest 1% to defend their Bush tax cuts ‘at all costs’, and the repeated willingness of Obama and the Democrats to provide up Medicare-Medicaid as a bargaining chip.
The Republicans are in the favored bargaining position going forward. They will attempt to money in on some of Democrats’ repeated delivers to cut Medicare-Medicaid by $ 500 billion—first in exchange for agreeing to pass the $ 250 billion in bills in December and thereafter potentially in the spring must the debt ceiling issue raise its ugly head once again.
As the November 2012 election grows nearer, Democrats’ resolve not to extend the Bush tax cuts yet another decade will also undoubtedly weaken. Republicans count on chipping away at Medicare-Medicaid and other investing more than the coming yr, whilst bidding their time for the finest timing to extend the Bush tax cuts for one more decade.
It is no wonder, as a result, that the Republicans on the Supercommittee had been far more than prepared to permit the Supercommittee to implode. They can safeguard their tax cuts better, and extract spending cuts far more proficiently, by going at it piecemeal over the coming year.
Jack Rasmus Jack is the author of Epic Recession: Prelude to Worldwide Depression, Could 2010, and the forthcoming Obama’s Economic system: Recovery for the Few, February 2012, both published by Pluto Press and Palgrave-Macmillan. He is also writer of the just published 35pp. pamphlet, An Option System for Financial Recovery, which can be bought from his web site: www.kyklosproductions.com. His weblog is jackrasmus.com
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