Which ‘cliff’ should we be talking about?

By on November 18, 2012

A lot of workers in all the capitalist countries feel like they’ve fallen over a cliff. The ground under their feet has disappeared, along with their jobs, homes and plans for the future.

But that’s not what U.S. politicians mean when they warn about a “fiscal cliff.” They’re talking about some tax and spending measures that would automatically go into effect on Jan. 1, 2013, unless Congress passes a bill to reduce the budget deficit.

The right wing in particular uses this scary phrase in order to pressure the Obama administration to go along with budget cuts that are highly unpopular — such as cuts to Social Security, Medicare and Medicaid. On Nov. 11, Bob Woodward, the Washington Post reporter who broke the Watergate scandal, appeared on NBC-TV’s “Meet the Press” with a document confirming that the Obama administration’s “last offer” to the Republicans would cut spending for these programs. The GOP rejected the offer anyway — setting up the “fiscal cliff” scenario.

Social Security was signed into law in 1935, during the depths of the Depression and a time of working class radicalism. It was to be a separate trust fund, not to be touched for other government needs. Workers paid into it like a savings account, along with their employers, so that when they retired they would be guaranteed an income to live on. However, the federal government regularly borrows from the fund, replacing the cash with Treasury bonds, so that the health of the fund depends on whether the promised “full faith and credit” of the capitalist government is reliable.

That faith has been shaken. During the Bush administration, when military spending began to soar as hundreds of thousands of U.S. troops invaded Iraq and Afghanistan, the government’s budget deficit soared along with it.

Tax cuts for the rich, but not for workers

The deficit — and the federal debt — have risen not only because more money was going out, but also because less money has been coming in.

Back in the 1950s, when Dwight D. Eisenhower was president and the U.S. was in fierce competition with the Soviet Union, those in the top tax bracket — with incomes over $400,000 — were supposed to pay 92 percent of that in income taxes. Of course, they could afford lots of lawyers to find loopholes, but at least on paper that’s what they paid.

Today those in the top bracket, with incomes over $388,350, are required to pay only a 35 percent income tax. Obviously, this so-called marginal tax rate for the wealthy has dropped steadily over the years. There has been no corresponding decline in the marginal tax rate paid by ordinary workers, most of whom still pay between 15 and 25 percent before deductions.

If the government goes over the “fiscal cliff,” the tax rate on the wealthy will automatically rise to 39.6 percent. That’s nothing like the 92 percent tax of the 1950s, but it’s enough to make the rich cry bloody murder.

Capitalist economic crisis drives the deficit

The liberal bourgeois argument on what to do about the deficit centers around the issue of taxes. Liberals want to raise the top tax rate on the rich, which is now grotesquely low. But they don’t address an even bigger problem: the deepening capitalist economic crisis.

Government revenue, both in the form of income taxes and FICA, the Social Security/Medicare tax, is adversely affected when fewer people are working. As of this July, 17 percent of young people between 16 and 24 years of age couldn’t find jobs, according to Labor Department figures. This is an official average; in the oppressed Black and Latino/a communities, the jobless youth rate is much higher.

That means some 4 million young people who could have begun paying into FICA aren’t able to, and the businesses they would have worked for aren’t paying in either. This is true for older workers as well, who are being laid off in droves even as productivity rises. So as technology more and more replaces workers, the bosses’ contributions to Social Security and Medicare become an ever smaller cost of production and payments to the fund decline.

Also, as our Social Security benefits are calculated based on a lifetime of work, the jobless younger people not only have a bleak present but an even bleaker future, whether or not the fund remains solvent.

Other results of no budget agreement by Dec. 31 would be an across-the-board cut in all government spending, including for the Pentagon, and an end to federal extended unemployment benefits. While veterans’ benefits are on the table to be cut, which could affect many with medical disabilities, both imperialist parties vow to preserve the Pentagon’s war-fighting capacity, which is by far the most destructive and costliest in the world.

Robbing Social Security and bailing out banks

After the 2008 housing crisis morphed into a banking crisis, the Obama administration sank trillions of dollars into bailing out the banks. To blunt working-class anger and boost purchasing power, they also proposed, and Congress voted for, lowering the amount workers paid into Social Security from 6.2 percent to 4.2 percent, beginning in 2011 and extended in 2012. The “fiscal cliff” would bring the FICA tax back to 6.2 percent.

Lowering the deduction for FICA was presented as a 2 percent “tax cut,” but in fact it was robbing money from Social Security. A true tax cut could have been achieved by cutting the trillions spent on capitalist wars abroad and repression at home. But instead this phony “tax cut” just weakened the Social Security fund, giving ammunition to those demanding “reforms” that would lower benefits, further raise the retirement age and even open the door to privatization.

How big a compromise the Democratic Party will make on these issues is yet to be seen. Liberals are arguing that the reelection of Obama shows that the majority rejected the Republican drive to cut social programs while shifting even more wealth to the rich. That’s true.

But the election is over, and the ruling class is still the ruling class. Behind the scenes, they command both capitalist parties. And they aren’t letting up. They’re just figuring out their next step to rob the workers’ savings in a “legal” way and make it “bipartisan.” Many “cliffs” lie ahead, and they’re all a product of the rotting capitalist system — which is what really should be shoved over the cliff.

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