Friday, 28 November 2014 / TRUTH-OUT.ORG

Embrace the Fiscal Cliff

Wednesday, 14 November 2012 09:15 By Simon Johnson, Moyers & Company | Op-Ed

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Fiscal Cliff.(Photo: Talk Radio News Service / Flickr)Watch out for the coming hysteria on the so-called “fiscal cliff.” In the post-election commentary, you will hear numerous voices – definitely on the right but also on the left – arguing that we could not possibly increase taxes this year or next, as this will push our economy back into recession. Do not believe them – this is just the latest disinformation put out by people who agree with Grover Norquist that the real goal of politics should always and everywhere be to reduce taxes and shrink the size of government. It is exactly such policies that have brought us to our current economic predicament.

In truth, President Obama now has a great opportunity to both help the economy and greatly mend our budget. How is this possible, given that the Democrats control the Senate (narrowly) but obviously not the House? The key point is that the Bush-era tax cuts expire at the end of this year – unless the House, Senate and President all agree to extend them. In effect, President Obama can veto that extension – irrespective of what John Boehner says or does.

The immediate effect on the economy of the full repeal of the Bush cuts would be more dramatic than the administration wants – and the president campaigned against rising taxes on the middle class. But once he has vetoed Bush cuts, President Obama can immediately propose a new set of tax cuts – the Obama tax cuts – to Congress. These would cut taxes for lower income Americans, for example by lowering payroll taxes (which should also encourage job creation). Would the House Republicans really vote against a tax cut for 100 million Americans?

These new tax cuts should be linked to the state of the economy – for example, they could phase out automatically as employment rises relative to population. This would both help the economy in the short-run and put our budget onto a much more sound footing for the coming decades.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Simon Johnson

Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, and a member of the CBO’s Panel of Economic Advisers. He is a co-founder of The Baseline Scenario.


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Embrace the Fiscal Cliff

Wednesday, 14 November 2012 09:15 By Simon Johnson, Moyers & Company | Op-Ed

Do you support Truthout's reporting and analysis? Click here to help us continue doing this work!

Fiscal Cliff.(Photo: Talk Radio News Service / Flickr)Watch out for the coming hysteria on the so-called “fiscal cliff.” In the post-election commentary, you will hear numerous voices – definitely on the right but also on the left – arguing that we could not possibly increase taxes this year or next, as this will push our economy back into recession. Do not believe them – this is just the latest disinformation put out by people who agree with Grover Norquist that the real goal of politics should always and everywhere be to reduce taxes and shrink the size of government. It is exactly such policies that have brought us to our current economic predicament.

In truth, President Obama now has a great opportunity to both help the economy and greatly mend our budget. How is this possible, given that the Democrats control the Senate (narrowly) but obviously not the House? The key point is that the Bush-era tax cuts expire at the end of this year – unless the House, Senate and President all agree to extend them. In effect, President Obama can veto that extension – irrespective of what John Boehner says or does.

The immediate effect on the economy of the full repeal of the Bush cuts would be more dramatic than the administration wants – and the president campaigned against rising taxes on the middle class. But once he has vetoed Bush cuts, President Obama can immediately propose a new set of tax cuts – the Obama tax cuts – to Congress. These would cut taxes for lower income Americans, for example by lowering payroll taxes (which should also encourage job creation). Would the House Republicans really vote against a tax cut for 100 million Americans?

These new tax cuts should be linked to the state of the economy – for example, they could phase out automatically as employment rises relative to population. This would both help the economy in the short-run and put our budget onto a much more sound footing for the coming decades.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Simon Johnson

Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, and a member of the CBO’s Panel of Economic Advisers. He is a co-founder of The Baseline Scenario.


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blog comments powered by Disqus