There are roughly six weeks left before the expiration of the Bush tax cuts and the start of sequestration. In those six weeks, Congress has a whole lot of work to do to put the country on a more responsible fiscal path.
A responsible fiscal path not only entails tackling the deficit and reducing our debt to a manageable level, but also taking a balanced approach while doing so. A balanced approach gives us a better chance of working on our fiscal troubles while avoiding harm to our recovering economy and to families who have fallen on hard times.
Below are some of the dos and don’ts of a balanced approach to the fiscal slope. Congress, this is for you:
(Although in the past we have used the term “fiscal cliff,” we feel that “fiscal slope” is a more accurate description of what may await us if Congress fails to act by the end of the year. The impacts of sequestration and the expiration of tax cuts won’t be felt all at once and the economy would not plunge into another recession on Jan. 2, 2013. The new Congress – to be sworn-in this January – will be under tremendous pressure to act as quickly as possible, and even though we’ll still have a divided government, the dynamics will be different in January. So we shouldn’t assume that if Congress fails to act in December it won’t be able to do so in January.)
- Do include new and fair sources of revenue, such as raising the capital gains tax rate. If new revenue is not part of the package, it will be very difficult to avoid big cuts to programs like Medicaid and food stamps and to funding for state and local governments that provide critical investments in areas such as education and clean water.
- Don’t pass a budget that throws more people into poverty or widens income inequality. High earners should pay their fair share, and for that to happen the tax cuts that were enacted in 2001 and 2003—and affect only incomes greater than $250,000—should expire as scheduled. It costs $1 trillion over 10 years to continue them.
- Do extend and make permanent improvements to the Earned Income Tax Credit and the Child Tax Credit. These tax credits help working families—earning under $50,000—make ends meet and lift them out of poverty. The EITC and CTC help many military families, single parents trying to raise a family on minimum wage, and other hard-working households.
- Don’t subject low-income mandatory programs to additional budget cuts. Programs such as food stamps and Medicaid serve as a lifesaver to many seniors, people with disabilities and children whose household have limited resources to pay for basic needs.
- Similarly, do avoid deeper cuts in non-discretionary funding—more than a third of which is used for low-income programs and grants to state and local governments. In 2011, the total 10-year budget for these programs (which funds programs such as Meals on Wheels) was already cut to historically low levels.
- Finally, don’t go along with efforts to radically restructure Medicaid, such as making it a block grant, imposing a per capita cap, or other proposals that would shift costs to states or beneficiaries. Changing Medicaid’s funding structure will hurt not only many Michigan households, but also state and local governments.
— Yannet Lathrop