The Fiscal Cliff: Three Opportunities

by Bob Burnett, writer and retired Silicon Valley executive
Huffington Post
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What most Americans understand is that, unless Congress acts, their taxes will go up on January 1st. What is less well understood is that there also could be be a series of automatic spending cuts, “sequestrations,” totaling $1.2 trillion split between defense and domestic spending. Because of the likely dire consequences, most observers believe that President Obama and Congress will reach some accommodation.

During this process, progressives have three major opportunities:

1. Promote income equality: It’s widely believed that raising everyone’s taxes would inhibit the growth of U.S. GDP. However, many economists argue that increasing the tax rates of the richest 2 percent, those making over $250,000 per year, would have little impact on their behavior and would raise a huge amount of money. The top tax rate would revert to that of the Clinton era and increase from 35 to 39.6 percent. The White House estimates this change, plus increased taxes on investment income, would generate approximately $960 billion over the next decade. Progressives see this as one small step to address income inequality.

2. Attack Global Climate Change: To reach his objective of $1.6 billion in new revenues over ten years, President Obama is searching for $600 billion in additional revenue. Remedies he’s proposed include changing the rules for the inheritance tax and a new form of the Alternative Minimum Tax that imposes the “Buffett Rule:” all taxpayers making more than $1 million would pay a minimum 30 percent tax.

3. Reduce Defense Spending: In 2013, sequestration would cut $55 billion from the defense budget — roughly 11 percent. As one might expect, the Secretary of Defense and other pro-defense voices screamed that such a cut would be “a disaster for national defense.” Nonetheless, many Washington pundits doubt that there would be a dramatic impact. They point to reports of waste in defense spending and note that the U.S. is in the process of winding down two wars and defense expenditures — which have almost doubled since 2000 — should be expected to decline.