Posted by Shyam Moondra
Rep. Eric Kantor (R-Va) and Sen. Jon Kyl (R-AZ), the two Republican members of the bipartisan deficit reduction group led by Vice President Joe Biden, walked out of the negotiations because of their unhappiness over Democrats' insistence on raising income taxes for the rich to supplement the spending cuts worth 1 trillion dollars that they had already identified and agreed to. Negotiations about tough issues invariably involve give-and-take. The Republicans' walking out of deliberations makes them look like a kid who throws tantrums when he is denied a candy. Their political theatrics don't sit well with the American people, who want the problem of budget deficit addressed in a serious and pragmatic way without any ideological constraints.
The arguments put forward by Republicans are deceptive and illogical and they fall short of constructive and cooperative effort that is required to resolve the serious budget issues. Below are some examples of how Republican positions are inconsistent with their stated goals.
Spending cuts vs. tax increases:
Republicans are saying that the huge budget deficit can be narrowed strictly based on cuts in government spending. They point out that any tax increases at a time when economy is still struggling would slowdown the recovery. Well, any economist would readily confirm that huge spending cuts would have just as devastating impact on economic recovery as tax increases would (Ben Bernanke, the FED Chairman, has said that precipitous spending cuts would harm the economy). The fact of the matter is that we can't come out of the big hole we have dug ourselves into without a balanced approach that relies on both spending cuts and tax increases. President Barack Obama has proposed that budget deficit be reduced by mixing spending cuts and tax increases in a 70-30% ratio that seems to be quite realistic and economically viable.
It's abundantly clear that budget deficit of trillions of dollars can't be reduced without sacrifices made by the people of all walks of life. That begs the question of fairness. Under the Republican plan, the low-income and middle-class people, especially the elderly and children, would bear the main brunt of spending cuts while the rich and powerful would be largely unscathed. The middle-class is the backbone of our economy, so it is illogical to suggest that by putting the onus of the cuts on the back of middle-class people would somehow help the economy. Also, Republicans are overstating the negative impact on the economy of any tax increase for millionaires and billionaires. President Bill Clinton increased taxes and cut spending to balance the budget and, as a result, we ended up with the most prosperous four years in the modern times.
The Republicans conveniently forget that a big chunk of the current budget deficit was caused by the income tax cuts given to millionaires and billionaires by President George W. Bush. Obama has proposed to not extend the Bush tax cuts for the rich when they expire next year. The Republicans call this a tax increase, when in fact it's reversing the previous tax cut. The rich people benefited the most under the Bush administration, so it seems fair that they give some of the gains back to help out in this time of national calamity.
Tax breaks for energy sector:
Under the heavy pressure from the lobbyists of the powerful oil companies, the U.S. Senate voted 35-61 against stripping big oil companies of $35 billion in tax-breaks over the next ten years. Republicans argue that if these tax breaks were eliminated, ultimately the consumers would pay more for their energy needs in the future. Again, this assertion by Republicans is unfounded and is deep rooted in their ideology to protect the interests of big businesses. The oil companies are expected to earn $145 billion this year, so the argument that losing $3.5 billion a year in tax subsidy would somehow harm the consumers is an overstatement. The budget deficit is too big and it would require sacrifices by everyone, including the super rich oil companies and other businesses that receive tax subsidies.
Corporate tax loop holes:
Recently, General Electric paid zero taxes, Google paid only 2% in taxes, and Goldman Sachs paid only 10% in taxes. Most companies, small and big, are now engaged in accounting gimmicks that allow them to transfer profits to tax havens in order to reduce their tax liabilities here in the U.S. When the corporate world doesn't pay its fair share of taxes, the tax burden falls more on the individuals, especially the middle-class people. The Republicans are vehemently opposed to Obama's suggestion to close these loop holes and increase tax revenues. Again, Republicans are on the wrong side of this issue.
Increasing debt ceiling:
Some Republicans, who are also Tea Partiers, are advocating that Republicans should not increase the debt ceiling and let the United States default on its debt obligations (Treasury Secretary Tim Geithner has said that if the Congress doesn't increase the debt limit by August 2, 2011, the nation will default). That may seem as a plausible negotiation tactic, but it's a dangerous game to play. The consequences of a U.S. default will be catastrophic; the stock markets will collapse worldwide, followed by prolonged severe recession that could increase the unemployment rate to the levels not seen since the 1930s. High unemployment rates would lead to political unrest throughout the world. Ironically, the asset deflation, which will ensue if the U.S. defaulted, will hurt the rich people the most, the very people that Republicans are currently trying to shield from a rather paltry tax increase.
The budget deficit and debt problems are real and they are huge. They must be addressed in a bi-partisan manner before the problems become intractable. If we let the problems fester, they will require more painful remedies and it will take longer to fix them. It's important that Republicans don't look at everything from their lens of ideology and find common ground with Democrats to get on with the process of putting our house in order. That means Republicans must accept some tax increases for the rich and they must agree to eliminate the tax subsidies to businesses and close the corporate tax loop holes. At the same time, Democrats must understand that we can't spend more than what we have, so it's imperative that spending is brought under control.
