2

How to avoid the 'fiscal cliff'

Commentator Robert Reich says lawmakers need to apply the brakes on automatic spending cuts and tax increases set to go into effect at the end of the year or risk pulling us into another recession.

We now know austerity economics is bad for weak economies facing large budget deficits. Much of Europe is in recession because of budget cuts demanded by Germany. And as Europe's economies shrink, lower tax revenues there will force their debt loads proportionally higher, making a bad situation worse.

The way to avoid this austerity trap is to get growth and jobs back first, and only then tackle budget deficits.

The U.S. hasn't yet fallen into that trap, but it could soon. We could slid into a new recession early next year if the Bush tax cuts end as scheduled on January 1, and if more than $100 billion is automatically cut from federal spending, as required by Congress's failure last August to reach a budget deal.

Predictably, Capitol Hill is deadlocked. Democrats refuse to extend the Bush tax cuts for higher earners and Republicans refuse to delay the budget cuts.

If recent history is any guide, a deal will be struck at the last moment -- during a lame-duck Congress, sometime in late December. And it will only be to remove the January 1 trigger. Keep everything else as it is, the Bush tax cuts as well as current spending, and kick the can down the road into 2013 and beyond.

Which means no plan for reducing the budget deficit.

I've got a better idea -- a different kind of trigger. Instead of a specific date, make it the rate of growth and employment we should reach before embarking on deficit reduction.

Say 3 percent growth and 5 percent unemployment. At that point the Bush tax cuts automatically expire, the wealthy pay a higher rate, and $2 trillion in spending cuts begin.

This way we avoid the austerity trap that Europe has fallen into. And we get on with the long-term job of taming the budget deficit when the economy is healthy enough to do so.

About the author

Robert Reich is chancellor's professor of public policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
Log in to post2 Comments

I'm actually glad that you finally mentioned numbers. I like listening to your commentaries, but what I have found lacking in the past have been numbers. Because quite honestly, without numbers to define "better" (as in 'we can cut spending when things are better'), no one will ever risk changing anything.
I would prefer perhaps 1% growth, and 7% unemployment, but it's still refreshing to see some actual numbers.

In my opinion, the real fiscal cliff is the debt being accumulated by run away spending and debt caused by excessive taxcuts. We cannot drive an economy through wasteful government spending. We have been driving the economy with debt and government spending for 30 years... yes, too much is going to too few people and that is a problem, but the solution is not to have trillion dollar a year military budgets and hundreds of billions in money going to people who are "disabled".. because they don't want to work. It has become too easy to claim a disability.. and when too few people are working and too few people are keeping most of the money, we have bigger problems than government spending can fix..

Solutions:

1. replace food stamps with vouchers for basic food items.

2. Stop full disability for people who are physically able to work.. having a stopped up nose is not worthy of disability. Disability pays better than the old welfare system.. so people moved to it after "welfare as we know it" was "reformed" .. new system that pays better and anyone can get on it by claiming mental problems..

3. PTSD is something which people work with every day.. it is not typically a full disability item.. it is a way to not work anymore and live off the work of others. If anything it should have a couple of year limit.. the gravy train needs to stop... .. it is far too easy.

4. Leave SS alone... It is a good program that has fully paid for itself.. no where near broke.. keep the govt fingers off my security blanket.. and anyone that wants to raise the age limit should be flogged for attempted theft.

5. Medicare... should be expanded to cover all but with a smaller coverage.. major medical + a couple of doc visits a year for everyone.. full coverage for seniors... the current healthcare system is pathetic.. better than other countries only if you have $$$$$ and travel time. Insurance can be purchased to cover the rest for younger workers needs . get the burden of health insurance off of employers..

6. tax trade from third world countries.. the junk coming from multinationals to our country caused a disruption to our taxbase.. they should be taxed accordingly.. cheap junk from the undeveloped countries has caused trillions in debt.. and has undermined the taxbase. People are under the false assumption that our forefathers were for free trade etc.. nothing could be further from the truth.. We need to put our country first... The race to the bottom needs to be stopped. Fair trade is wonderful.. trade involving cheap labor & MNC's is wrecking the economy.. not everyone is going to get a degree..

not everyone is equally capable of going to school.. not even if everyone had a full free ride.. reality is more than half the population comes out of HS with no real chance of success in college... can we just write off half to three quarters of the poipulation to work low wages? If 1/4 have degrees... is that enough to drive an economy where the manual labor is paid 10$ an hour..and how do those jobs support govt jobs making 25-30 an hour or more ?

7. stop the purchase of government influence.. lobbyists and lobbying is corrupt... taking golf trips with lobbyists is corrupt... going to dinners, trips etc is unethical and corrupt... hiring buddies to govt positions regardless of qualifications is corrupt..

8 set pay of the house of rep to the median US wage.

9 eliminate lifelong pensions for senate and house .. Americans no longer have pensions..

10 set govt payscale to median payscale of an american.. postal workers, school teachers etc now have more pay and benefits than most americans.. our pay and benefits for govt workers is upside down... they will vote for what helps most americans if they have some skin in the game..

11. end double dipping for govt workers and demand copays etc for healthcare like everyone else has to pay...

12 get rid of 20 year retirements for military.. why on earth can anyone retire at 40 when they never even saw combat... with lifetime medical as well? really?? As part of this.. time in a combat zone should count as double time towards retirement.... 30 years = retirement.. the military is now the republican method of buying votes.. keep a large military and they all vote for those that will keep the gravy train rolling.. . But the young enlisted are also .. Cannon fodder for large multinational corporations .. the military appears to be defending access to cheap labor and oil.. enter a country.. .. turn it into a haven for cheap labor..

13 end the bush taxcuts.. we couldn't afford them then.. nor now.. the economy will do better when the country can sustain itself... what we have now is an economy full of hot air.. also drop that silly payroll taxcut.. we have trillion a year deficits.. these sorts of things are detrimental to the longterm health of the country.

Our country is going to need bold leadership to retain its dominant role.. the country will soon be unable to economically support its trillion a year military.. so whats next?

With Generous Support From...