For all the noise over whether or how to avert the fiscal cliff by New Year's day, Tuesday's bipartisan deal — making permanent the Bush tax cuts for the middle class, but not for the wealthiest 2 percent of Americans — is disappointing in its reach.
It offered enough near-term certainty over taxes to buoy the stock market Wednesday, and it assured most Americans that their income taxes will not rise (though their payroll taxes will as the Social Security tax reverts from 4.2 percent to the normal 6.2 percent). Yet the terms to avoid the fiscal cliff's mandated spending cuts and tax hikes makes just a modest stab at reversing the thrust of the disastrous Bush tax cuts by restoring Clinton-era rates on the biggest earners.
The deal is disappointing because it doesn't begin to offset the cost -- an additional $4 trillion in new federal debt over the next decade -- of making permanent the Bush tax cuts for the 98 percent of Americans who comprise the nation's broad and uneven middle class. It should have done so by moving toward a so-called grand bargain to overhaul the tax code, and to eliminate the vast range of loopholes that let two-thirds of American corporations -- and usually the richest and biggest conglomerates -- escape paying most or all of the business taxes that Republicans claim are otherwise so onerous. But Tuesday's deal didn't attempt to address those larger issues.
The United States would be better served, and more able to begin paying down the rising federal debt, if business taxes were lower, but closed to the current gross leakage of so many loopholes. But tea party Republicans strenuously resisted such deal-making because it would necessarily raise some new tax revenue from corporate taxes to help reduce federal debt. Though they want to do the latter, they want only ordinary Americans to suffer, by cutbacks in Social Security, Medicare and Medicaid. They don't want businesses to pay any higher taxes at all.
So for all their lip service about reducing federal debt, Republicans have yet to cite, much less offer to close, any specific loopholes they might actually be willing to eliminate. President Obama, by contrast, has already put more than $1 trillion in spending cuts on the table. Republicans' continuing rigidity against balanced debt reduction, however, remains the biggest obstacle to deficit-and-debt reduction.
Their untenable focus remains wrongly fixed on starving government spending on programs that aid poor and middle-class Americans and that provide vital government services and infrastructure investments. They remain oblivious to the fact that corporate profits are at record highs, even as inflation-adjusted wages have diminished. And they ignore the fact that the current rate of tax revenue to support essential government services is at a 60-year low as a percentage of gross domestic product, due mainly to the Great Recession of 2007-2009, and the resulting fall-off in tax revenue. It is that fall-off, from more than 18 percent down to 16 percent of GDP, that has stoked federal debt -- not unfettered government spending.
Regardless, the Republicans' right wing is already girding for another round of attacks on government spending when the federal debt ceiling will again have to be raised in March. Though they have failed to reveal any specific cuts in tax loopholes, they already are warning that they will again demand cuts in Social Security, Medicare, Medicaid, food stamps and unemployment insurance, along with the regulatory agencies that they disdain.
It is the prospect of this sort of continuing, unproductive, self-wounding political battle that is so discouraging. President Obama rightly warned Tuesday that he will not allow the government to default on the spending that Congress has already approved. But that battle, unfortunately, remains to be fought.