Unless Congress and President Barack Obama can reach a compromise before Jan. 1 to avoid the fiscal cliff of $560 billion in mandatory tax increases and spending cuts, the economy will likely be sent into another avoidable and unnecessary recession. It is time for our political leaders to make tough decisions based on concrete and realistic budget figures in an effort to reduce our debt, instead of relying on unrealistic budget figures used for purely partisan purposes.
It’s weird how quickly politicians change their tones and rhetoric after an election. Many Republicans seemed unable to compromise on immigration reform and federal debt before the election, but afterward they appear to be ready for their first true attempt to compromise and work with Obama since he was elected in 2008.
Some Republicans, such as House Speaker John Boehner, R-Ohio, are not ready to compromise. A few days before the election, he told the National Journal, “I think it’s important that we avoid the fiscal cliff, but that doesn’t mean I’m interested in raising tax rates and killing jobs.”
Although since the election Boehner has opened up to the idea of revenue increases through a reform in the nation’s tax code, he has continued to oppose an increase in marginal tax rates, arguing it would harm job creation. His support for revenue increases would violate a pledge to oppose tax increases that was written by anti-tax crusader Grover Norquist, which most Republicans signed.
But some Republican congressmen, including Sen. Lindsey Graham, R- S.C., have openly admitted they would violate the pledge during this legislative session. On ABC’s “This Week,” Graham said, “I will violate the [anti-tax] pledge, long story short for the good of the country, only if Democrats will do entitlement reforms.”
Not all Republicans think raising tax rates should be taken off the table. Weekly Standard Editor Bill Kristol said on Fox News Sunday, “It won’t kill the country if Republicans raise taxes a little bit on millionaires. It really won’t, I don’t think.”
For the first time I can remember, I’m in agreement with Kristol. Raising marginal tax rates won’t destroy job creation, and in addition it will bring in more revenue to fix federal debt. Obama’s proposal would raise the current marginal tax rate of 35 percent to 39.6 percent, the tax rate that prevailed under President Bill Clinton.
Conservatives claim a higher marginal tax rate would destroy job creation, but the evidence proves the opposite. According to the Center on Budget and Policy Priorities, small business job growth under Clinton’s administration was twice the rate under the George W. Bush administration, even though Bush had lower marginal tax rates.
To fix the federal debt and avoid the fiscal cliff, it won’t be enough to simply raise the marginal tax rate. Congress needs to cut the bloated and wasteful military budget and implement a Wall Street financial transactions tax. The U.S. spends more on its military than any other country on Earth. In fact, according to The Huffington Post, the U.S. outspends its closest rival in military expenditures, China, at a rate of approximately six to one. Also, according to Mother Jones, the U.S. spends almost $250 billion annually to maintain bases and troops overseas, including “more than 1,000 military installations” outside the U.S. If Congress is serious about reducing the deficit, then it must make cuts to the military budget. There is no viable and responsible path toward fixing our national debt that doesn’t involve military spending cuts — it’s not mathematically possible.
Not only does Congress need to reduce current military spending rates — it must also implement a financial transactions tax. This idea is not new. It was first introduced by John Maynard Keynes in his magnum opus, The General Theory of Employment, Interest and Money, where he wrote that “A substantial [g]overnment transfer tax on all transactions might prove the most serviceable reform available” to reduce excessive financial speculation in the U.S. A financial transaction tax has been implemented by 29 different countries and has been endorsed by consumer advocate Ralph Nader, billionaires Warren Buffet and Mark Cuban and economists such as Paul Krugman, Joseph Stiglitz and Dean Baker. In an op-ed for the Guardian, Dean Baker wrote, “A modest [financial transactions] tax, which would be too small for normal investors to even notice, could easily raise more than $100 billion a year.”
Congress and the president must come to an agreement to avoid the fiscal cliff and address long-term debt. Raising marginal tax rates on the wealthiest in this country, reducing our military expenditures and implementing a financial transactions tax are only part of the solution. But if these three things are not included in a compromise to avoid the fiscal cliff, our political leaders will have shown they are not serious about fixing the looming problem presented by our long-term debt.
Aaron Loudenslager (email@example.com) is a first-year law student.