Gazeta Wyborcza, Poland
America Is Inexorably Moving
toward a Fiscal Cliff
By Mariusz Zawadzki
Translated By Jakub Pankowski
7 December 2012
Edited by Keturah Hetrick
Poland - Gazeta Wyborcza - Original Article (Polish)
America is inexorably moving toward a fiscal cliff and is planning to jump on Jan. 1 unless President Obama and Congress change course at the last minute. Nervousness shown by politicians in Washington, DC is a little surprising, as they were the ones who carefully planned the impressive leap into the cliff —many months ahead, in fact. At the end of 2010, President Barack Obama and Congress agreed to extend the Bush tax cuts, but only for two years. A year ago, when talks about reducing government debt failed, Obama and Congress decided to introduce drastic budgetary cuts, to begin automatically in 2013.
According to schedule, the first to fall off the cliff will be the army, the middle class and the economy. And they are going to pull America down.
Still likely, however, is a Plan B: Obama's historic agreement with the Republican majority to reverse America its suicidal direction, set long ago — some people believe that America has been on a suicidal path since the presidency of Franklin Delano Roosevelt in the 1930s. It is possible to clearly identify the culprits, and Roosevelt is certainly not the only one, but the consequences are clear and compelling: Of every dollar issued by the U.S. last year, 40 cents were borrowed. Public debt exceeded 16 trillion dollars, which is more than the country’s national income. Up to two-thirds of the U.S. budget is spent on treatment of the elderly and the poor, pensions and interest on the public debt. This portion is reserved automatically at the beginning of each year, before the congressmen and the president take the floor.
Another 20 percent of the budget goes to the military (last year, this figure was 700 billion dollars). America defense spending almost equals that of the rest of world combined. If a “historic agreement” is not reached, the defense spending will be cut automatically by more than a half trillion dollars over the next decade, beginning next year. Republicans, who agreed to these automatic cuts last year, lament that national security would be threatened. Secretary of Defense Leon Panetta claims that they are right.
Are they really? It is disputable. Next year, the U.S. spending on defense will be the same as it was last year. The scary-sounding half trillion in savings over ten years does not reduce the actual defense budget, as the cuts apply only to planned increases in spending.
The fiscal cliff therefore, means (for the army only) that they will not spend more. It is not really a tragedy that has never taken place in America's history. In the ‘90s, the defense budget did not grow but rather declined at a rate of one percent a year. It was only during the Bush era that it rocketed.
The alarm about American security is, therefore, somewhat exaggerated.
This is not the case with taxpayers, who will feel the fall over the fiscal cliff. After Bush’s tax cuts are ended, an average-earning American will pay two thousand dollars more in taxes next year. Many economists expect that consumption will decrease as a result. The economy will slow down, and the recession could hit back. Unemployment will rise from the current eight percent to nine.
Of course, most Americans still hope to evade the fiscal cliff because they believe that Obama and congressional Republicans, headed by John Boehner, will come up with an agreement. The president, who won re-election on Nov. 6, goes all or nothing and has announced that there will be no agreement without raising taxes for the wealthiest two percent of Americans. It is not only about abolishing tax cuts, which Republicans have already agreed to, but about increasing tax rates for the rich.
Mathematics tells us that budget cuts alone will not significantly reduce America’s debt, says Obama. The costs of getting out of debt should not fall only on the poorest, who benefit most from the budget. The rich have to give more to the state.
Most Republicans in Congress have signed a commitment that they will never raise taxes, even though taxes are at their lowest rates in more than 30 years. We all remember George H.W. Bush’s words during the 1988 election campaign, “Read my lips: no new taxes!” [http://www.time.com/time/specials/packages/article/0,28804,1859513_1859526_1859516,00.html] Then as president, he increased them. Despite brilliantly winning the Gulf War in 1992, he lost the election to Democratic challenger Bill Clinton.
Republicans, too, are also under great pressure. Not only did they lose the recent presidential election, but they were also considered to be the defenders of the privileged class. Polls indicate that if America jumps off the cliff, two-thirds of voters will blame them for it. Therefore, the most likely end to this story is that Republicans will yield, and the jump off the cliff will be canceled (at least for now).
CLICK HERE FOR