Tags: Reich | fiscal | cliff | rich

Robert Reich: Fiscal Cliff Deal Must Involve Tax Hikes on the Rich

Friday, 09 Nov 2012 08:09 AM

Any solution that will successfully steer the economy way from the fast-approaching fiscal cliff will have to involve tax hikes on the wealthy to ensure lasting economic health, said Robert Reich, former Labor Secretary under President Bill Clinton.

At the end of this year, the Bush-era tax cuts and other benefits are scheduled to expire at the same time cuts to government spending are scheduled to kick in, a combination known as a fiscal cliff that could send the country sliding into a recession next year if left unchecked by Congress.

Taxes remain a sticking point, with Democrats arguing that tax breaks need to expire for the wealthy to help narrow deficits, while Republicans are calling for tax cuts for all.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

The middle class, Reich argues, cannot endure tax hikes, therefore the wealthy must dole out more to the IRS if the economy is to see longer-term fiscal health.

Growth must take priority over reducing deficits, at least for now.

“The President needs to make it clear to the public that the only way we can achieve a better economy is through a larger and more buoyant middle class. If we continue lurching toward widening inequality and ever more concentrated income and wealth at the top, the vast middle class — as well as all those who aspire to join it — won’t have the purchasing power to grow the economy and create more jobs,” Reich wrote on his blog.

“That’s why taxes must be increased on the wealthy, and the proceeds used to reduce the deficit over the long term, extend and enlarge the Earned Income Tax Credit (a wage subsidy for lower-income workers) and invest in education.”

While the debate is surrounding the nation’s fiscal health, the true challenge lies in getting the economy to grow again and create jobs, which in itself will help narrow deficits by adding more taxpaying citizens to the nation’s work force.

That means policymakers must resist calls to narrow deficits in ways that threaten growth.

“The deficit is a problem only in proportion to the overall size of the economy. If the economy grows faster than its current 2 percent annualized rate, the deficit shrinks in proportion. Tax receipts grow, and the deficit becomes more manageable,” Reich wrote.

“But if economic growth slows — as it will, if taxes are raised on the middle class and if government spending is reduced when unemployment is still high — the deficit becomes larger in proportion. That’s the austerity trap Europe finds itself in. We don’t want to go there.”

Meanwhile, common ground is also hard to find when it comes to cuts to government spending, other experts say.

Anyone can publicly call for slashing discretionary spending, but when it comes to deciding where, complications arise.

“That sounds OK until you start to look at what’s there,” Philip Joyce, a professor at the University of Maryland School of Public Policy who spent five years with the Congressional Budget Office, told Bloomberg.

“You’re talking Commerce, you’re talking [the National Oceanic and Atmospheric Administration], the weather service, the Economic Development Administration,” Joyce added.

“They do real things.”

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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