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Dean Baker: The Biggest Myth in Obama-GOP Spending Showdown is the “Fiscal Cliff” Itself

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As negotiations continue between the White House and House Speaker John Boehner, leading economist Dean Baker joins us to discuss the myths about the so-called fiscal cliff. With little more than two weeks before the deadline, President Obama insists on an immediate increase in the top two income-tax rates as a condition for further negotiations on changes to spending and entitlement programs. But Boehner said Washington’s “spending problem” is the biggest roadblock to reaching a deal and has urged the White House to identify more spending cuts. “This idea that, somehow, if we don’t get a deal by the end of the year we’re going to see the economy collapse, go into a recession, really that’s just totally dishonest,” says Baker, the co-director of the Center for Economic and Policy Research. “The basis for this is that we don’t have a deal all year. And the fact that you don’t have a deal December 31st does not mean you don’t get a deal by December 31st, 2013.” [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: Juan, before we go on, congratulations on this day. December 14th, 1987, you went to the New York Daily News, celebrating 25 years today as a columnist with the paper.

JUAN GONZÁLEZ: Yeah, it’s hard to believe. I figured after the first few years I’d be gone. I was actually fired in 1990 as part of the—when the Tribune Company owned the paper and fired all the unionized employees at the time and hired replacement workers. But we—

AMY GOODMAN: And you led the strike.

JUAN GONZÁLEZ: We persevered in a strike there that lasted six months. And, of course, the—not only was the publisher who fired us gone, but later so was the owner, the Tribune Company, which is now a bankrupt news organization. And luckily, the Daily News is still around, and somehow, I’m still around there working at the paper and producing columns, yes.

AMY GOODMAN: Well, I look forward to reading a spread on you in Sunday’s paper of the New York Daily News. And we’ll link to it at

JUAN GONZÁLEZ: Yeah, well, let’s get on to more important stuff here.

President Obama met for a third time with House Speaker John Boehner on Thursday in an attempt to discuss ways to avert the so-called fiscal cliff. The White House and congressional Republicans are hoping to strike a spending deal before a round of tax hikes and spending cuts take effect in January. The White House and Republicans continue to express public criticism of each other amidst the ongoing behind-the-scenes talks. This is White House spokesperson Jay Carney.

JAY CARNEY: The process continues. There are clear obstacles here, the principal one being the rather amazing insistence, given the road we’ve traveled these past several years, given the degree to which this was debated, the degree—the degree to which independent economists back up the president’s position, we still have this insistence that we’re not going to do anything that doesn’t include tax cuts for the wealthy from the Republicans. And that’s just—that’s just not acceptable to the president.

JUAN GONZÁLEZ: With little more than two weeks before the deadline, President Obama insists on an immediate increase in the top two income-tax rates as a condition for further negotiations on changes to spending and entitlement programs. But House Speaker Boehner said Washington’s, quote, “spending problem” was the biggest roadblock to reaching a deal, and he has urged the White House to identify more spending cuts.

HOUSE SPEAKER JOHN BOEHNER: Washington has a spending problem that can’t be fixed with tax increases alone. The right answers is to start cutting spending, addressing our debt, and the paving the way for a long-term economic growth. Unfortunately, the White House is so unserious about cutting spending that it appears willing to slow walk any agreement and walk our economy right up to the fiscal cliff.

AMY GOODMAN: Well, to talk more about the debates around the so-called fiscal cliff, we go to Washington, D.C., to speak with Dean Baker, economist and co-director of the Center for Economic and Policy Research.

Dean, welcome to Democracy Now! Talk about the myths around the fiscal cliff.

DEAN BAKER: Well, there’s an endless number of myths, but the first and foremost is that we face any sort of cliff. You know, you’ve had this effort, certainly in Washington, to hype this December 31st deadline. Basically, if we miss that deadline, nothing happens. You know, you come to January 1st, we’ll be subject to higher tax withholding rates. Not a lot of us are going to get paid January 1st. If there’s a deal worked out somewhere in the first, second week of January, we’ll probably never see anything extra deducted from our paycheck, and even if we do, we’ll get it back in the second paycheck. I mean, no one wants to see money deducted out of their paycheck, but, you know, if you’re going to get it back in the second check—I mean, I know that will be a hardship for some people, but the impact on the economy will be pretty much minimal.

And on the spending side, President Obama controls—has enormous control over the pace of spending. And if there’s a deal outlined that—you know, outline of a deal that he sees with Congress, he’ll just keep spending in accordance with that deal. So this idea that, somehow, if we don’t get a deal by the end of the year, you know, we’re going to see the economy collapse, go into a recession, really that’s just totally dishonest. And I’ve seen that said I don’t know how many times. And it’s based—the basis for this is that we don’t have a deal all year. And the fact that you don’t have a deal December 31st does not mean you don’t get a deal by December 31st, 2013. And I think everyone knows that.

JUAN GONZÁLEZ: Well, Dean, on Thursday, Republican Senator Jim DeMint of South Carolina, who just announced his retirement, predicted President Obama would win the debate on the budget cut crisis.

SEN. JIM DEMINT: The president campaigned on raising taxes and getting rid of the Bush-era tax cuts, and he’s going to get his wish, I believe. We’re going to be raising taxes not just on the top, top earners; everyone’s going to pay more taxes next year in this country. And I think that’s what the president wants. But we’ve doubled the size of this government and doubled spending over the last 10 years. This year, tax revenues at current tax rates will probably be at historic highs. And if you look at the facts, we don’t need more revenue; we just need to stop the spending.

JUAN GONZÁLEZ: That was Senator DeMint speaking to CBS. And DeMint, of course, is a vocal leader of the tea party movement who recently announced his retirement for the Senate four years before the end of his term, and he’ll become the head of the Heritage Foundation.

DEAN BAKER: Well, a couple points on that. First off, I mean, you know, President Obama has been very clear. Obviously he does not want to raise taxes on everyone. I mean, you know, if Congress were to propose tomorrow that—exactly what President Obama had asked for, that they extend lower tax rates, the Bush-era tax rates, on the bottom 98 percent, he’ll sign that in a second. He said that a thousand times. If they don’t believe it, why don’t they pass that and challenge him?

The second point that everyone should understand, the only reason we have large deficits today is because the economy collapsed. So you have people like Senator DeMint running around, “It’s a spending problem, blah blah.” They just have to look at the numbers. We did not have a spending problem. We haven’t gone on some huge spending spree. The Congressional Budget Office projected that the deficits through 2009, '10, ’11, ’12, they are projected to be about 1.5 percent of GDP. We know how long you can run deficits of 1.5 percent GDP; we could say it exactly: forever. The debt-to-GDP ratio is falling. The reason why the deficit ballooned was very simple: The housing bubble burst; that crashed the economy. Right now the deficits are supporting the economy. People are yelling about the big deficits. Maybe they know this, maybe they don't. What they want is slower economic growth and higher unemployment, because you could love the private sector to death, but you aren’t going to see more demand come out of the private sector just because you love it. So, the reality is, the deficit is supporting the economy right now because the private sector has collapsed.

AMY GOODMAN: Earlier this month—

DEAN BAKER: People may not like that, but that’s the reality.

AMY GOODMAN: Tim—Dean, earlier this month, Treasury Secretary Timothy Geithner said the Obama administration is prepared to see the U.S. go over the looming so-called fiscal cliff rather than cave to Republican demands for a continued tax break for the wealthiest Americans. Geithner made the statement in an interview with CNBC’s Steve Liesman.

STEVE LIESMAN: I want to understand the administration’s position when it comes to raising taxes on the wealthy, those making more than $250,000. If Republicans do not agree to that, is the administration prepared to go over the fiscal cliff?

TREASURY SECRETARY TIMOTHY GEITHNER: Oh, absolutely. Again, we see there’s no prospect to an agreement that doesn’t involve those rates going up on the top 2 percent of the wealthiest Americans. Remember, it’s only 2 percent.

AMY GOODMAN: That was Timothy Geithner. Dean Baker, how important it is—is it to raise taxes on people who make over $250,000 a year? And how far is the Obama administration willing to go in taking on Medicare and Social Security, in cutting it?

DEAN BAKER: Well, the first part of the question, I think, is an easy one. Somewhere—we don’t need it this year, we don’t need it next year, but we are going to need more revenue. And if you don’t get it from the top 2 percent, you’re looking to get it from everyone else. And, you know, that just seems kind of commonsense. These have been the big winners in the economy over the last three decades, in fact the only winners pretty much in the economy over the last three decades. So it’s, to my mind, just commonsense. And this was what the election was over, you know, so there shouldn’t be much debate about it at this point.

In terms of Social Security and Medicare, you know, President Obama has indicated in the past he was willing to make cuts to these programs. To my mind, you know, you look at the data, you look at the situation of our seniors, most of them are just scraping by. Median income for someone over age 65 is about $19,800. It’s pretty hard to say that these people are living high. And the reality, you keep hearing this talk about, you know, the cost of these programs exploding. Social Security actually rises very little over the next two, three, four decades, or really the rest of the century. The whole story is Medicare, Medicaid, and that’s a healthcare story. We already pay more than twice as much per person for our healthcare as people in other wealthy countries—Germany, Canada, whoever you want to throw in that mix. We have to fix our healthcare system. If we fixed our healthcare system—and we have the data to show this—we don’t have a budget problem. So, if people want to talk about healthcare, absolutely, we have to fix the healthcare system, we have to constrain our costs. But that’s not a Medicare, Medicaid problem; that’s our private healthcare system.

AMY GOODMAN: How do you fix it?

DEAN BAKER: If that’s constrained, we’re fine.

AMY GOODMAN: How do you fix it?

DEAN BAKER: Well, you know, we had an opportunity with the Affordable Care Act. There are some cost controls. I’m hoping that those will be helpful. We’ve actually seen a sharp slowdown in healthcare cost growth the last few years. That may or may not be maintained. I mean, I would love to have seen us move towards a universal Medicare system. I mean, we have the model up in Canada, other countries as well, where they have costs that are about half ours and, by many outcome measures, they actually do better. Very hard to do politically, obviously, but, you know, the question is: How do we move from here to there? I mean, one of the things I’ve thrown out—originally as a joke, but I actually think it’s a good proposal—suppose we let our seniors, our Medicare beneficiaries, buy into the healthcare system of other countries and split the savings. You know, they could put thousands of dollars a year in their pocket, government would save thousands of dollars a year, and looks like everyone comes out ahead in that story.

JUAN GONZÁLEZ: Dean, I’d like to ask you about some of the negotiations that are going on which are rarely talked about in terms of specifics. But President Obama did say over the last few days in one interview that he is willing to consider the possibility of raising the age of eligibility for Medicare from 65 to 67. I’d like to ask you whether you think that that’s already him making a major step back in terms of defending these social programs. But I’d also like to ask you about the payroll tax. For the last two years, most Americans have only been paying 4 percent into their Social Security payroll tax, and that’s due to expire January 1. So, is there any discussion about what’s going to happen with that? Because that would mean an automatic increase of—or at least a reduction in the pay of most Americans when they go back to the 6 percent that they’ve been normally paying.

DEAN BAKER: Well, starting with the Medicare issue, yeah, I mean, I think going to 67 would be a major step in the wrong direction. We know that would substantially raise the costs for these people, people who are 65, 66. They have very expensive health insurance on average. Not all of them are sickly, but, you know, many of them do have bad health conditions. And the private sector does not work well for older Americans. That’s why we created Medicare in the first place. So, I think it’s a very, very backward step, and I have heard reports that they’ve moved away from that position, because obviously they are getting a lot of pressure. It’s just a really bad policy and, you know, frankly, very bad politics. That’s what all the polls show.

In terms of the issue about raising—you know, ending the payroll tax holiday, I regretted that that was ever tied to Social Security. We could have given the exact same tax cut—if we wanted to give a 2 percent—2 percent of wages up to the first $110,000, we could have done that and had no link to Social Security. I just wish we had done that. We do need the stimulus. The economy is very weak. And again—this is the point I was making earlier—the private sector is not generating the demand. You know, I can go into that in detail, but the point is very simple: It’s not generating demand. And as much as, you know, the Republicans like to yell about the job creators, this and that and that, no businessperson in their right mind goes out and creates jobs because they see the government is laying off workers. That doesn’t make any sense. So, at the moment, we do need additional stimulus. I’d hate to see that payroll tax cut expire without something else to offset that, because there’s no doubt, it would be a drag on the economy.

AMY GOODMAN: Dean Baker, why don’t Republicans consider the huge military expenditures for the military, big government? Salon — according to Salon, the Pentagon runs a staggering 234 golf courses around the world at a cost that’s undisclosed. The Washington Post says the Pentagon also spends half-a-billion dollars annually on marching bands. What about the Pentagon?

DEAN BAKER: Well, you know, I think this whole debate over big government has always been silly, because it’s not about big government. It’s about who your friends are. And in this case, you know, the friends of the Republicans are defense military contractors, so they don’t want to see them cut. I mean, you know, this whole notion of big government, small government—one side’s for one, one side’s for the other—it’s literally nonsense.

I’ll just give you, you know, one very simple example. We spend somewhere close to $300 billion a year on prescription drugs, because the government gives drug companies patent monopolies. I’d get arrested, you know, if I tried to produce, you know, Pfizer’s drugs. They have a patent monopoly. They get to charge whatever they want. If you didn’t have those monopolies, we’d spend about a 10th as much, somewhere around $30 billion. So that difference is close to $250 billion a year. That’s not entered on the budget, but the government is requiring us to spend extra money for drugs. That’s really big government, but the Republicans never, ever talk about that, because the pharmaceutical industry are big contributors. So we aren’t arguing about big government or small government; we’re arguing about who gets the money.

AMY GOODMAN: Dean Baker, we want to thank you very much for being with us, economist and co-director of the Center for Economic and Policy Research.

This is Democracy Now! When we come back, we’re going to be joined by former FCC Commissioner Michael Copps on new policies being pushed through by the Federal Communications Commission. Then we’ll be joined by peacemakers who have just returned from Afghanistan. Stay with us.

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