The Fiscal Cliff Deal and the ‘Safety Net’

The deal doesn’t include any explicit cuts to the social insurance or safety net programs that are dear to Democrats’ hearts. But somehow the party of Franklin Roosevelt and Lyndon Johnson forgot that spending has to be paid for.

The ability of the federal government to protect its citizens against the risks of old age and disability is determined by its tax revenue. Yes, the government can get by for a decade or two by running deficits and financing them through the bond market. But we will not be able to pay for increasing Social Security, Medicare, and Medicaid outlays solely with borrowed money forever. In the long run, these programs can only be sustained in their current form if we pay the taxes necessary to sustain them.

The primary purpose of the Bush tax cuts was to defund the federal government. Because they were the Bush tax cuts, they did so in a way that overwhelmingly favored the rich, notably by cutting taxes on investment income and on estates. But their more important effect was to slash tax revenues and increase deficits.

President Bush didn’t have votes to make his tax cuts permanent. So now President Obama solved that problem for him. Yes, Obama has made the overall package somewhat more progressive, by restoring late Clinton-era tax rates for the very, very rich. (What else do you call households that make more than $450,000 per year, after exemptions and deductions?) But while the Bush tax cuts would have cost the federal government $4.5 trillion over the next decade, the Obama tax cuts of 2013 will instead cost the government $3.6 trillion. (Both figures exclude associated interest costs.) In other words, the tax “increases” on the rich are only restoring 20 percent of the government revenues that Bush took away.

Most importantly, those tax cuts are now permanent. This isn’t just a temporary stimulus measure; this is for keeps. And given the current political dynamic, where concern about the national debt has been translated by conservative Republicans into a prohibition against tax increases, raising taxes will be virtually impossible in the foreseeable future.

Choosen excerpts by Job Market Monitor from 

via Goodbye, Medicare: How the Fiscal-Cliff Deal Endangers U.S. Entitlements – Business – The Atlantic.