‘Fiscal cliffs’ vs. ‘austerity bombs’

The Washington Post's Ezra Klein regularly blogs on the “austerity crisis.” Read more about it at www.washingtonpost.com/blogs/wonkblog.

Conventional wisdom says that an apocalypse will occur if Congress fails to act to avoid going off the “fiscal cliff.” But this “cliff” is a self-imposed problem.

Despite the deficit and debt hawks’ cries, American debt is still a great investment. It sells so quickly that we’ve got historically low interest rates. Obviously, the people with the money to lend aren’t worried about the debt or deficit spending.

No, what we need to fear isn’t the fiscal cliff; it’s what Nobel Prize-winning economist Paul Krugman has called the “austerity bomb.” That’s what happens when, in the midst of a fragile recovery from the recession, we raise tax rates on wage earners and cut spending. That’s the austerity deal being sold by the Republican Party, even as members of their leadership signal a willingness to compromise—if, they note, “entitlement reform” is on the table.

This is a really, really bad idea. When you raise taxes on wage earners, they trim their household budgets, thus putting less money into the economy. When you cut spending, there’s less money being added to the economy by the government sector. In fact, what works on a recessionary economy is stimulus—and plenty of it.

And let’s be clear: What the Republicans mean when they say “entitlement reform” is altering Medicare and Social Security by raising the age at which taxpayers can collect benefits. This, plus reducing the benefits. Oh, not for Granny and Gramps; that would be political suicide. Instead, the plan is to eliminate these programs for younger workers—the under-55 crowd who don’t have as much political clout and who won’t be eligible for benefits for more than a decade anyway.

The goal of this entitlement reform is to gut the signature anti-poverty program of the 20th century and the first—incredibly popular—universal single-payer health-care system in the country. It ignores the amount of “entitlements” that subsidize our supposedly free market—oil subsidies, anyone?—while making sure that more American workers die in the harness and those that live long enough to retire remain impoverished.

Meanwhile, the top tier of income earners—notice that’s not wage earners, because the income doesn’t come from salary—get to avoid taxes on even larger amounts of money.

If the only way to get bipartisanship out of the Republican members of Congress is to talk entitlement reform, let’s talk. We can start with entitlements that could use some reform, like tax breaks and subsidies for fossil fuels and large agribusinesses.

And let’s remember that the proposal they’re offering amounts to continued tax breaks for the very wealthy and austerity for everyone else. That didn’t work when former Republican presidential candidate Mitt Romney was selling it. It shouldn’t work now. Don’t buy it.