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So-Called Fiscal Cliff Averted as Congress Begins New Fight over Spending on Social Welfare Programs

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After much drama, the “fiscal cliff” has come to an end — for now. We look at what is in the Senate deal approved by the House Tuesday night with economist Juliet Schor. The bill lays the groundwork for future battles between Democrats and Republicans over decisions on federal spending and debt, when much of the focus is expected to be on cuts to so-called entitlements. “The government needs to be spending to do the things the country needs,” Schor says. “So we need to be spending on shifting into a clean energy paradigm.” Schor is a professor of economics and sociology at Boston College and author of “True Wealth: How and Why Millions of Americans Are Creating a Time-Rich, Ecologically Light, Small-Scale, High-Satisfaction Economy.” [includes rush transcript]

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

NERMEEN SHAIKH: After much drama, the so-called fiscal cliff has come to an end—for now. Late Tuesday night, the Republican-led House voted to approve the deal. That came after the Democratic-led Senate voted early Tuesday to pass the measure. The move came nearly 24 hours after a decade’s worth of tax cuts expired with the stroke of the new year, technically raising taxes by more than $500 billion in 2013. Shortly after last night’s vote, President Obama described the deal.

PRESIDENT BARACK OBAMA: Under this law, more than 98 percent of Americans and 97 percent of small businesses will not see their income taxes go up. Millions of families will continue to receive tax credits to help raise their kids and send them to college. Companies will continue to receive tax credits for the research that they do, the investments they make, and the clean energy jobs that they create. And two million Americans who are out of work but out there looking, pounding the pavement every day, are going to continue to receive unemployment benefits as long as they’re actively looking for a job. But I think we all recognize this law is just one step in the broader effort to strengthen our economy and broaden opportunity for everybody. The fact is, the deficit is still too high, and we’re still investing too little in the things that we need for the economy to grow as fast as it should.

NERMEEN SHAIKH: The deal lays the groundwork for future battles between Democrats and Republicans over decisions on federal spending and debt. Obama told Congress he expected them to approve an increase in the nation’s borrowing authority in the coming months, as well as direct their attention to other issues that have fallen by the wayside during the fiscal cliffhanger.

PRESIDENT BARACK OBAMA: Today’s agreement enshrines, I think, a principle into law that will remain in place as long as I am president. The deficit needs to be reduced in a way that’s balanced. Everyone pays their fair share. Everyone does their part. That’s how our economy works best.

We can settle this debate, or at the very least not allow it to be so all-consuming all the time that it stops us from meeting a host of other challenges that we face—creating jobs, boosting incomes, fixing our infrastructure, fixing our immigration system, protecting our planet from the harmful effects of climate change, boosting domestic energy production, protecting our kids from the horrors of gun violence.

AMY GOODMAN: The New Year’s Day vote to approve the fiscal cliff deal was a reversal for House Republicans, who had opposed it for not cutting deeply enough into social programs. House Speaker John Boehner backed the deal, but many of his top lieutenants voted against it, including Majority Leader Eric Cantor. Some Democrats also opposed the deal. In the Senate, Iowa Democrat Tom Harkin was one of eight senators who voted against it.

SEN. TOM HARKIN: Now, I’m not saying that everything in this deal is bad. There are some good parts of this. But I repeat, I am concerned about this constant drift, bit by bit, deal by deal, toward more deficits, less job creation, more unfairness, less economic justice—a society where the gap grows wider between the few who have much and the many who have too little. So, Mr. President, for these reasons, I must in conscience vote no on this bill.

AMY GOODMAN: Despite passage of the deal, many in the U.S. will see a tax increase after the expiration of the payroll tax cut enacted in 2011. When we come back from break, we’ll be joined by Boston economist Juliet Schor. This is Democracy Now!,, The War and Peace Report. Back in a minute.


AMY GOODMAN: Our guest is Juliet Schor, economist, sociologist from Boston College, author of True Wealth: How and Why Millions of Americans Are Creating a Time-Rich, Ecologically Light, Small-Scale, High-Satisfaction Economy. The book was originally published under the title Plenitude: The New Economics of True Wealth.

Well, the New Year’s Day vote has taken place after much drama. The so-called fiscal cliff has come to an end, at least for now. On Tuesday night, the House voted to approve the Senate deal. Juliet Schor, your response?

JULIET SCHOR: It’s not a great deal. I think one of the big problems with it is that it asks the middle class and the poor to pay for deficits that they had no hand in creating. Seventy-seven percent of all households are going to be paying more on this deal, an average of $1,635 a year. So that’s the first point. It’s a deal that, as President Obama just said, asks everyone to pay. But that, in itself, I think is a problem, because it’s the top percent that has benefited from the tax cuts of the Bush era that drove the economy into recession and which is responsible for part of the deficit. And, of course, it’s, you know, a small segment of the political class, really, that dragged us into war in Iraq and Afghanistan, and that’s another big part of the deficit. So, the cost is falling on the wrong group, in my opinion.

NERMEEN SHAIKH: Juliet Schor, some critics have said that it would have been better to go off the fiscal cliff. First of all, was there a cliff? And would you agree with that criticism?

JULIET SCHOR: I do agree that it would have been better to go off the cliff, in large part because there really wasn’t a cliff. The term “fiscal cliff,” we have to remember, was coined by Ben Bernanke. And Bernanke didn’t want us to—didn’t want the country to get into this situation of higher taxes, and in large part, I think, because that would have made his job even harder, because the higher taxes would have slowed down the economy, and then there would have been even more pressure on the Fed to engage in monetary easing, quantitative easing, as it’s called, and the Fed really can’t do all that much more than it’s doing. I mean, it can do a bit more, but interest rates are at historic lows. And so, Bernanke didn’t want tax increases, so he was trying to control or affect what was going to be happening on the fiscal side.

But it was really much more of a ramp than a cliff, in the sense that the sequester cuts—we’re going to talk more about that, I’m sure—but the automatic cuts that were put in place with the deficit—or, the debt ceiling deal of the summer actually would come into play well into the year, and some of them even, you know, near the end of the year. So there was really—there is quite a bit of time on that. And the tax rate increases, I think very few people actually felt that there would be major income tax increases on 98 percent of the population. So that, to me, was always a bit of a red herring. If the Senate and the House came to a deal, you know, a month into the year rather than on the first day of the year, that would have been fine.

NERMEEN SHAIKH: Could you explain—you mentioned sequester cuts, Juliet Schor. What exactly are sequester cuts? And can you talk about the specific impact of the deal on Medicare and Medicaid?

JULIET SCHOR: Well, in the summer, when the fight over the debt ceiling happened, there was a small group of—from Congress that was supposed to come up with a deal on cutting the deficit before the end of the year, and they didn’t. And that was pretty predictable. So, what Congress did, and the president, is they sort of tied themselves to the mast and said, “OK, if we can’t come up with a deal, there are going to be automatic spending cuts of $1.25 trillion over 10 years that begin with January 2013.” And those spending cuts were divided equally between military—or what they call in the deal “security,” so that’s in addition to just DOD, also Homeland Security and other associated kinds of cuts—and non-military. And those did not—do not include Medicare, Social Security and benefits for veterans, but all other spending, federal spending, is in there, so Medicaid, farm aid, programs on the poor, energy programs, etc. And those cuts are 50-50 between those two areas.

Now, that’s a—that’s part of the kicking the can down the road that’s just happened, because they’ve agreed to put off those cuts for 60 days. And a big part of that sequestration deal, I think, is—a big part of what people are thinking about that is that it’s not going to happen. And the reason it’s not going to happen, I think, is mostly because no—very few in Congress have the spine to do what I think those of us on the progressive side of the aisle would like, and that is those major cuts in military and security spending.

AMY GOODMAN: I want to play a clip of President Obama speaking last night after the House voted to approve the debt deal.

PRESIDENT BARACK OBAMA: As I’ve demonstrated throughout the past several weeks, I am very open to compromise. I agree with Democrats and Republicans that the aging population and the rising cost of healthcare makes Medicare the biggest contributor to our deficit. I believe we’ve got to find ways to reform that program without hurting seniors, who count on it to survive. And I believe that there’s further unnecessary spending in government that we can eliminate. But we can’t simply cut our way to prosperity. Cutting spending has to go hand in hand with further reforms to our tax code, so that the wealthiest corporations and individuals can’t take advantage of loopholes and deductions that aren’t available to most Americans.

AMY GOODMAN: So this is going to be taken up in a few months. Juliet Schor, what is going to happen to Medicare, Medicaid, Social Security?

JULIET SCHOR: Well, it’s hard to say, but I think that, given that the president has already put these on the table, he’s already indicated a willingness to go to the chained CPI, meaning to change the way that inflation is calculated for benefits in the Social Security program, that it’s—I think it’s likely that Social Security and Medicare will be back on the table. And it’s unfortunate, because the Democrats negotiated quite a good deal with the sequester deal, because they are off the table. Social Security is not part of the problem of the deficit. It’s a fiscally solvent program. It’s solvent until 2030. We shouldn’t be talking about Social Security at all. Medicare, of course, is another story. But on the other hand, maybe we should be waiting to see what happens with the healthcare program and how that plays out in terms of costs, before we make dramatic changes to a program that people are, by and large, very satisfied with.

We need to be talking about other things, things that are not in the conversation right now and that—we also need to be talking about cutting those military expenditures a lot more. I think one of the reasons that the—my feeling is the Democrats are not going to get a good deal 60 days from now is that Republicans know they don’t have much of a spine for cutting military spending. But if they did, I think they could get a pretty good deal, or at least a much better deal than what it looks like they’re going to get right now.

NERMEEN SHAIKH: Republican Senator Lindsey Graham voted to approve the fiscal cliff deal, but just one day before the vote, he told Fox News Sunday he may vote no unless it included more cuts to Social Security benefits.

SEN. LINDSEY GRAHAM: I’m not going to raise the debt ceiling unless we get serious about keeping the country from becoming Greece saving Social Security and Medicare. So here’s what I would like: meaningful entitlement reform, not to turn Social Security into a private account, not to take a voucher approach to Medicare, adjust the age for Social Security, CPI changes and means testing, and look beyond a 10-year window. I cannot in good conscience raise the debt ceiling without addressing the long-term debt problems of this country, and I will not.

NERMEEN SHAIKH: That was Senator Lindsey Graham. Another Republican senator to vote yes on the fiscal cliff deal was John McCain of Arizona. Looking forward to the next round of debt talks, Senator McCain said Republicans would block another deal unless it includes major cuts to so-called entitlement programs. He was interviewed Monday by CNN’s Wolf Blitzer.

WOLF BLITZER: Are you going to use the raising of the debt ceiling in February or March, Senator McCain, as leverage to get what you want from the president?

SEN. JOHN McCAIN: I think there’s going to be a whole new field of battle when the debt ceiling rolls around. Most of us have pledged that we’re going to have to—before we vote again to raise the debt ceiling, even though it may be at great political cost, we’ve got to address spending. And that means entitlements. We’ve got to sit down together and get us back on a path. Look, we just added — what was it? — $2.1 trillion in the last increase in the debt ceiling, and no—and spending continues to go up. I think there’s going to be a pretty big showdown the next time around when we go to the debt [limit].

NERMEEN SHAIKH: Juliet Schor, that was Senator John McCain. Can you explain the significance of the Republican push to raise the retirement age? And how are people organizing around this?

JULIET SCHOR: Well, Republicans have been trying to cut, undermine, reduce, get rid of Social Security for decades and decades, and that is—it’s pretty much a constant. What’s, I think, troubling about the current period is that we also now have a president who has put pretty significant concessions and cuts to Social Security on the table, because he has not only offered the changes in the inflation adjustment, but he also has talked about raising the age of retirement, which is a terrible idea. So, this is—

AMY GOODMAN: Why is it a terrible idea?

JULIET SCHOR: This is a—well, because there are, you know, a lot of people in this country who need and want to retire at 65. And to make that change, for no reason—the Social Security is not in a fiscal crisis. It doesn’t have a fiscal problem. It’s not running out of money. It doesn’t contribute to the deficit. So, it’s a—it’s a total red herring in this debate. It’s—the Republicans are trying to chip away, piece by piece, at this. I mean, it’s particularly a bad idea for people who do physical labor, manual labor, because those two extra years are very difficult for people. So, I think that’s—we’ve got to look at this in terms of the fact that it’s really a fraud. The Republicans want to do this, not because of the deficit. The deficit is coming down. It’s coming down as a fraction of GDP. It is—it’s not caused by Social Security. It’s caused by the downturn, the Bush tax cuts and the wars. So that’s the first thing.

There’s no danger of the United States becoming Greece. That’s another fraudulent metaphor. The U.S. has no problem financing its deficit. The only problem it has financing its deficit is Republicans who threaten to hold up the debt ceiling. Spending will increase, because the size of the economy is increasing, so the size of federal spending will increase. But the Republicans are—are really—they’re back in the 19th century, basically. They’re not accepting that the 20th century happened. They’re not accepting the role of a modern welfare state. And, you know, I think, as Paul Krugman noted a little while ago—and, you know, it’s obvious to most economists—this is a good time to be running deficits, not just for the standard Keynesian reasons that the economy is weak and we still have a lot of people unemployed, but also because the cost of borrowing is so low. It’s historically low, so it’s a good time to borrow money, but to use that money to spend on the things that the country needs.

And this is, I think, one of the points that Obama made in one of the clips you just ran that I really agree with, which is that the government needs to be spending to do the things the country needs. So we need to be spending on shifting into a clean energy paradigm. We need—

NERMEEN SHAIKH: Well, on that note, Juliet Schor, very quickly—

JULIET SCHOR: —to be spending on affordable transport—

NERMEEN SHAIKH: Juliet Schor, we have 20 seconds, and very quickly, on that note, you’ve said that carbon tax was something that should have been included in this deal. Can you talk about the significance of that, very quickly, before we conclude?

JULIET SCHOR: Absolutely. The cliff we’re going over is the climate cliff. And a carbon tax, putting a tax on carbon, about $20 to $25 per pound of CO2, could raise about $125 billion. It’s an out-of-the-box solution in the sense that it gets us out of just the things that we’re talking about. It’s a revenue raiser that creates a lot of good things, more labor intensive jobs in the economy, helps us on climate. So I think that’s really where the Democrats need to be focusing for the next deal, not on cutting Social Security and other welfare entitlements.

AMY GOODMAN: Juliet Schor, we want to thank you so much for being with us, economist, sociologist from Boston College, author of True Wealth: How and Why Millions of Americans Are Creating a Time-Rich, Ecologically Light, Small-Scale, High-Satisfaction Economy. This is Democracy Now!,, The War and Peace Report. When we come back, we will talk about climate change with Christian Parenti and Bill McKibben, just chosen as Vermonter of the Year by Burlington Free Press. Stay with us.

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