The $21+ TRILLION Question

Although the government shutdown and debt-ceiling brinksmanship has been averted (for now), the $21+ TRILLION question remains:  what are we going to do about the national debt?  Especially now that it is set to skyrocket even further into the stratosphere due to both massive tax cuts (mainly for the rich and mega-corporations) and spending increases, including on our already over-bloated and over-extended military.  It is now mathematically impossible to pay it off at this point.  So what is the solution, then?

Obviously, if we find ourselves in a hole (especially one as deep as this), the very first thing we should do is stop digging.   That is known as the First Law of Holes.  That means no more deficit spending for the foreseeable future, period. But unfortunately, that's a lot easier said than done. Taxes will have to go up and spending will have to go down--dramatically.   And that would do more harm than good at the levels it would need to be done.  There is really no way around that.

However, there actually is a painless (albeit unconventional) method of paying off the debt in one fell swoop.  Not just this year's deficit, but ALL of the cumulative $21 trillion of the debt. It's called the Noble Solution (named after its creator, Richard E. Noble) and does not involve any significant tax hikes or spending cuts. So what is it? It's something we never would have advocated just a few years ago:  printing (electronically creating) money out of thin air to pay it off all at once.  Alas, the genie is out of the bottle now, as the Feral Reserve has been creating money out of thin air for decades (including that recent whopping $16 trillion secret bailout of the banks, which eventually rose to nearly $30 trillion) so we might as well put this practice to productive use.  Money is really nothing more than an accounting entry nowadays, so let's make the entry and be done with it for good.

But wouldn't that lead to hyperinflation? Not if it is properly done with due diligence.  Noble points out that while creating money is undoubtedly inflationary, using it to pay off the debt (which is in Treasury bonds and is thus already part of the money supply) would be deflationary in that it would shrink the money supply by an equal amount. Thus, the two effects would cancel each other out, as paper (electronic data) would be exchanged for paper (data). Of course, we would have to bypass the Feral Reserve to avoid creating more debt in the process, such as #MintTheCoin. Or better yet, abolish or nationalize the FERAL Reserve entirely and return the power of money creation to its rightful owners, our elected representatives in Congress and the Department of the Treasury.  America would then be free and clear for the first time in history since Thomas Jefferson.

Of course, while doing it once may not be harmful, doing it regularly can be.  To make sure we never have to do this again, we must make sure the debt never, ever, reaches such stratospheric levels again, period.  In addition to nationalizing the Feral Reserve to make it a public national bank that creates interest-free currency, fiscal policy must be tightened after the Noble Solution is implemented and the debt is paid off.  We have already outlined in previous posts what must be done as far as taxes and spending are concerned.  Alternatively, or in addition to the above, there is also the legendary Warren Buffett's clever idea:  make a law that anytime the budget deficit exceeds 3% of GDP, all sitting members of Congress are ineligible for re-election, period.  Problem solved.

Of course, the longer-term drivers of future debt obligations are the programs that make up so-called "entitlement" spending, mainly Social Security, Medicare, and Medicaid.   But even here, there is less than meets the eye.  For Social Security, that can be resolved by 1) scrapping the wage cap on FICA taxes (or raising it to an arbitrarily high level like $1 million or $10 million), 2) indexing initial benefits to prices or median wages instead of average wages, and 3) very gradually raising the full retirement age to 70 for those born after 1980 or so.  In fact, if we did all those things plus a very slight 0.2% hike in the FICA tax, we could even expand Social Security (and perhaps briefly lower the retirement age a bit in the short term) while still keeping it solvent for the foreseeable future.  For Medicare and Medicaid, the only real long-term solution to their burgeoning fiscal woes is a truly universal single-payer healthcare system that can bend the cost curve downward by taking the profit out of healthcare and especially tackling the price-gouging of Big Pharma.  Any other proposed solutions are mere window-dressing at best.

Of course, Rodger Mitchell has an even better, more fundamental idea that makes it so the government would never need to borrow a single penny ever again, and it doesn't require raising taxes OR cutting spending.  Not only that, but it would guarantee that Social Security and Medicare, and any other program, would remain fully funded indefinitely as well without the use of FICA taxes (or any other tax for that matter).  The solution, in his exact words:

The best way is to eliminate the federal budget deficit and debt: Ending government borrowing. The government has the unlimited ability to create and spend money without borrowing. The process will be: 

1) Congress will create an account called "Money." 

2) Congress will determine how much money this account contains. The process will be similar to the way Congress now determines the debt ceiling. 

3) Federal agencies will write checks against this account according to budgets decided by Congress. If any federal agency needed additional funds, Congress would decide whether or not to allow this spending, in the same way that Congress votes for additional spending by the military et al. 

This would eliminate concerns about "our grandchildren paying for the federal debt." There would be no federal debt.

And as long as such money were created without any interest or related fees (as per Ellen Brown) such a solution would actually work.  Modern Monetary Theory indeed supports such an idea.  But before we can do that, of course, we must first have an independent Treasury and/or a public national bank in place of the privately-owned FERAL Reserve.  (And since he mentioned the debt ceiling, that is another thing we should really get rid of as well in the meantime, since it does far more harm than good.)

But the bottom line is that the debt must be defeated, and soon.  We simply cannot afford to continue kicking this can further down the road.  Otherwise we may very well go the way of the Romans.  The greatest tragedy of which being the fact that it was all 100% contrived and therefore 100% avoidable all along.

End This Depression NOW--For Real This Time!

The latest news shows that the Dow Jones recently reached a record high, and remains above 16,000.  Corporate profits are at a record high, and even the unemployment rate has FINALLY dropped to a 5-year low of less than 7%.  So by these numbers, some people seem to think that the recession is finally over for good.  Happy days are here again!  So cue the music, Maestro:

HALLLELUJAH!  HALLELUJAH!  HALLELUJAH, HALLELUJAH, HALL.....er, wait a minute.  Seriously?  This is the kind of thing that passes for "recovery" these days?  Please.  The majority of Americans would certainly NOT consider happy days to be here again!  Certainly not with sobering statistics like these:

• A real unemployment rate (U6) that is actually in the double-digits (13%), and not falling nearly quickly enough.  In fact, when long-term discouraged workers are included and added to U6, it reaches nearly 25%, and has actually risen since the phony "recovery" began in 2009.
• A labor force participation rate that has fallen to a 35-year low, reflecting (in part) those discouraged workers who simply gave up looking for a job.
• A poverty rate that remains stubbornly higher than in 2009, as evident in the record number of people on programs like SNAP (food stamps).
• Near-record levels of income and wealth inequality, approaching Gilded Age levels.  The top 1% controls nearly half of the nation's wealth, while the bottom 80% are left to fight over crumbs.
• Falling real wages, with a real minimum wage that is at least 30% lower than in the late 1960s despite a doubling of productivity.
• Cities declaring bankruptcy.  Detroit is the canary in the coal mine.
• Record levels of student loan debt ($1 trillion), combined with considerable unemployment and underemployment of college graduates.
• A national debt of over $17 trillion, and growing despite fairly harsh austerity measures.
• A real inflation rate that is nearly 10% when measured the way it was in 1980 and earlier.  Combined with the real unemployment rate, the real "misery index" would be a whopping 22-33.  Ouch!

So by just about any rational measure, we are still stuck in a pretty deep depression.   In fact, the progressive site Daily Kos coined a new term to describe it:  stagpression (a combination of stagnation and depression).  So why the huge disconnect between corporate profits and the stock market with the reality on the ground?  The answer is pretty simple.  Our government has been giving money, favors, and tax cuts to the rich and mega-corporations for years now, and what have the plutocrats done for us in return?  Sit on their massive cash, pay CEOs more, cannibalize their workforces, and buy back (i.e. manipulate) their own stock to paper over their declining sales.  And historically, what do they do if they get higher marginal tax rates?  Re-invest more in their own businesses and/or hire more workers.  Counterintuitive, yes, but it actually makes sense when you think about it.  As for "quantitative easing", the Feral Reserve has been printing trillions of dollars out of thin air, and nearly all of it goes to the big banks (i.e. the plutocrats) where it certainly does NOT trickle-down in any meaningful way.  To date, both fiscal and monetary policies have consisted of weak and inefficient half-measures, where the benefits accrue to the elites while the consequences (inflation, debt) accrue to the rest of us.  Thus, the rich get richer, the poor get poorer, and the middle class continues to shrink.  And the customers become too broke to buy anything, and the economy continues to stagnate or sink even further in a downward spiral.   No wonder our "recovery" has been so hollow!

So how can we break this vicious cycle for good, before the resulting bubble bursts leading to the next big crash?  The answer is really quite clear:  adopt the TSAP party platform ASAP.   But since it is unrealistic to expect either corporate party in the elephant/jackass duopoly to take up an entire platform that literally threatens their own interests, we have devised a list of the highest-priority measures to take before the inequality-fueled crash of 2016 happens:

1. Raise the top marginal tax rate to at least 50% (if not 70%) for incomes above $1 million, and simplify the tax code by removing loopholes geared towards the wealthy.
2. Reduce the corporate tax rate to 20-25%, remove all loopholes, and tax only retained earnings.
3. Reduce tax rates for the bottom 80% of Americans, and un-tax small businesses with earnings less than $100,000 per year.
4. Raise the minimum wage to at least $10/hour if not higher, and index it to inflation from now on.
5. Remove the "sequester" cuts ASAP, and sharply increase funding for infrastructure, education, green energy, and other crucial goals to put Americans back to work.

Of course, it would even better if the entire TSAP platform were adopted, but doing just these five things alone would probably be enough to, in the words of Paul Krugman, "end this depression now".  Because that's what this "recession" really is.  And ending it is long overdue--five years overdue to be precise.

But if we could do just one thing that could be done to end the stagpression quickly, it would be this:  replace "quantitative easing" (that really only benefits the rich) with direct payments of about $2000 per person or so to ALL Americans, yesterday.  It would take an Act of Congress to enable the Fed to do such a thing, but it would be well worth it.  Of course, followers of the TSAP know that we have long advocated a guaranteed basic income (citizen's dividend) for all Americans period with no strings attached, ideally funded via various kinds of tax revenue such as carbon taxes and financial transactions taxes.  But this alternative means to the same end would be the next best thing, at least temporarily until our other ideas get implemented.  And if it happens, the depression will be over and full employment restored within a year or two--provided it does not end abruptly without some of our other measures to replace it next year.  So what are we waiting for?

Deal or No Deal?

Looks like Congress finally passed a budget deal to get us through the next two years, just in time for the holidays.  The deal was made between Paul Ryan (R) and Patty Murray (D), and the compromise not only avoids another government shutdown in January, but it also alleviates some of the worst fears about austerity in the future.  Both sides grudgingly gave up a little bit of what they held dear in order to avoid larger sacrifices on their part, and even Bonehead himself went along with it.  As a result, the three most popular programs (Social Security, Medicare, and Medicaid) and Obamacare are no longer on the chopping block for now, and the most damaging sequester cuts are reversed (or at least made more flexible) for the 2014 fiscal year.  So, cue the music once again, Maestro:

HALLELUJAH!  HALLELUJAH!  HALLELUJAH, HALL.......err, wait a minute.  Seriously?  There is really nothing to be rejoicing about, since Congress merely did what they are normally supposed to do every year--pass a freaking budget on time to prevent a shutdown.  Furthermore, it's not like it's a particularly good deal either.  The budget includes cuts to military pensions, no extension of unemployment benefits, no reversal of November's food stamp cuts, and many remaining parts of the sequester--all to protect massive tax loopholes for the rich and mega-corporations, which remained untouched despite the need for new revenues.  And the looming debt ceiling showdown in February remains unaddressed, which the Repugnicans will most likely try to exploit once again when the time comes.  But all this is the logical consequence of negotiating a compromise between a right-wing extremist like Ryan and a moderate centrist Democrat like Murray--we end up splitting the difference and getting a deal that is, on balance, actually even further to the right of the status quo just to keep the ax away from our most crucial and popular social progams.  Long story short, Congress is still broken, and is clearly FAR from being fixed anytime soon.  So one more time, we will say it again to them:

"YOU'RE FIRED!!!"

Except for a very few of you (Elizabeth Warren, Bernie Sanders, Tammy Baldwin, and Alan Grayson), we will send ALL of you packing in 2014.  Goodbye, and good riddance!  Don't let the door hit you on the way out.

Simpson and Bowles Have Been Debunked

It's official.  The questionable study that was used to justify draconian austerity measures in several nations (including our own) and repeatedly cited as gospel by fiscal hawks like Simpson and Bowles has been debunked.   The shoddy Reinhart and Rogoff study was exposed by 28 year old grad student Thomas Herndon, who found that the authors had made a coding error in their Excel spreadsheet that they didn't bother to correct.  Correcting this error changed the results entirely, in a way that does NOT support the original specious claim that austerity is good for the economy.

But that did not stop Simpson and Bowles from continuing to promote ruthless austerity policies.  How ruthless you ask?  Well, there's a reason their commission was nicknamed the Catfood Commission, since that is what the most vulnerable Americans would end up having to eat if such policies come to fruition.   This time around, they are focusing even less on new revenues and more still on spending cuts, including raising the eligibility age for Medicare.  Note also how even in their first two plans they conspicuously took off the table the option of raising the top marginal tax rate even by a little.  Basically, everyone's ox gets gored except the ultra-rich of course.  Because apparently growth for the sake of growth is good no matter what the cost (not), and the Simpson-Bowles plan promotes growth (not).

The TSAP plan does indeed call for spending cuts along with new revenues, but we are careful to distinguish between wasteful and useful spending, and we are well aware that cutting too much too soon will seriously hurt the still-too-weak economy (as we have noted about the sequester).   We are also aware that raising taxes on the rich (even by a lot) will not significantly hurt the economy, while raising taxes on the bottom 90% (even by a little) can and will hurt the economy if it is done while the economy is still weak.  And we recognize that the jobs deficit is a much more urgent problem than the budget deficit, though both problems eventually need to be solved.

We must remember that the draconian, sequester-on-steroids cuts that Simpson and Bowles are calling for will inevitably lead to a massive number of workers losing their jobs, period.  So before we even think about going down that road, let's start by firing the now-discredited Simpson and Bowles before their policies send the rest of us packing.

UPDATE:  Looks like Europe is finally starting to abandon austerity, now that the damage it has done is crystal clear.   Also, in the USA the February jobs number was higher than originally thought, implying that it is actually the sequester, not the tax hikes that began in January, that is hurting us right now.  Congress really needs to answer the "clue phone," as it is ringing louder than ever.

The Sequester, Part Deux

The sequester has now been in place for over a month, and it is already beginning to do damage to our still fragile economy.  As we have noted in a previous post, the sequester is a bad idea overall and must be repealed or replaced ASAP.  Both its direct effects as well as the fear it has created is hampering what little recovery our economy has experienced, and the worst is yet to come.

President Obama has now unveiled his new budget for 2014, and there is good news and bad news.  The good news is that, if approved, the budget would stop the sequester, implement alternative spending cuts, raise taxes on the rich by closing loopholes, increase much-needed infrastructure spending, and still shrink the deficit.  The bad news is that, as a concession to Republicans, it would change the inflation indexing formula for Social Security and other programs in a way that would understate inflation, which would hurt the most vulnerable Americans unless other measures are taken specifically to protect them from such benefit cuts.  Although Obama says that he will find ways to protect the vulnerable, this change in indexing (the so-called "chained-CPI") would make him the first Democratic president to even consider making any significant cuts to Social Security in the entire program's 78-year history.  Unsurprisingly, the budget has angered many Democrats in Congress along with Republicans.

While it is good that Obama is serious about entitlement reform, there are far better ways to do it, which include raising or eliminating the wage cap on FICA taxes, indexing initial benefits to prices rather than wages, limiting benefits for the wealthiest retirees, and very gradually raising the full retirement age from 67 to 70 for future retirees born after 1960.  Even better still would be replacing FICA entirely with an alternative funding source, such as the Universal Exchange Tax, along with the other tweaks listed above.  As for Medicare and Medicaid, which are in far worse shape than Social Security, the best way (if not the only way) to effectively reform them would be to create a single-payer healthcare system similar to Canada and most of the rest of the civilized world.  But as long as we keep electing spineless Democrats and greedy Republicans, it is unlikely that any of these better alternatives will come to pass in the foreseeable future, and we will be left with a false choice between screwing "merely" one or two generations versus screwing several future generations.

Although Obama's budget clearly leaves much to be desired, it is still far better than the sequester, and it may be the only way for our incompetent Congress to be willing and able to stop it before it's too late.  The budget's flaws can be (hopefully) solved at some point in the not-too-distant future, while the sequester is already doing real damage right now and must be jettisoned at once. 

The Sequester: A Small, Dull Meat Cleaver

It looks like the sequester will go through, at least for a while, before Congress gets their act together (if they ever do).   Republicans refuse to budge on the issue of tax giveaways for the rich (which makes them responsible for any fallout the sequester may bring to the economy), and Democrats are simply not bold enough to do what really needs to be done.  But what exactly is the sequester, and why is it so bad for the economy?

First of all, the sequester consists of across-the-board, inflexible, automatic budget cuts as far as discretionary spending is concerned.  Half of the cuts will come from defense spending, and the other half from non-defense spending.  The size of the cuts (5% overall across the board each year for the next 10 years, 8.2% for defense) may not seem large, but the indiscriminate nature of these cuts won't just cut out the fat, but also bone and muscle as well.  If the doctor tells you that you need to lose weight, you wouldn't chop off one of your hands.  But that's exactly the kind of effect the sequester would have, and it won't be pretty.

Secondly, our economy is still very weak, and cutting too much too soon would likely push our economy back into recession.  The direct effect of these cuts would mean at least 750,000 public sector jobs would be lost this year alone, and the multiplier effect would mean that many private sector jobs would be eliminated as a result, making the total of jobs lost well over 1 million in 2013.  And we need that like we need a hole in the head.

Thirdly, many of the so-called "cuts" are not really cuts at all, but reductions in the growth of spending over time.  Thus, even if the sequester remains in effect for a whole decade, the net effect is that federal spending (and the national debt) will continue to grow significantly over the next decade.  But it would still do significant damage to the economy since these "cuts" are indiscriminate and inflexible.

Finally, although Congress clearly has a problem with spending like drunken sailors (regardless of who is in power), there are better alternatives to the sequester that would not only reduce but eliminate the deficit rather quickly.   The TSAP has repeatedly proposed better ways of balancing the budget and dealing with our massive national debt.  Right now, the deficit is really not our biggest problem, but it still must be dealt with.  And while our ideas will probably not come to fruition in today's Congress, the sequester is still one of the worst possible ways to deal with the deficit and any alternative must be put in place very soon.   For example, simply modifying the sequester to allow the heads of various agencies the flexibility to decide how to make their cuts (as long as the overall amount cut remains the same) would achieve the exact same effect on the deficit, but with far less collateral damage.  And Obama's plan to combine spending cuts with increased revenues (from removing various tax loopholes for the rich and corporations) is better still, though not quite as good as the TSAP's plan.

But it looks like the sequester will go through nonetheless, much to our chagrin.  The Republicans have rejected Obama's last offer for an alternative deficit-reduction plan, and in doing so they have revealed (yet again) that they really only care about the ultra-rich and mega-corporations.   Hopefully Congress will wise up before too much damage is done.

UPDATE:  The sequester has already begun as of noon on March 1.  While most of the impact will not be immediate (it will take at least several weeks to feel it), the pain will be real for those affected.  And millions of Americans will be affected in one way or another eventually.  But the silver lining is that Obama and the Democrats now have the upper hand should a belated deal be made in the days to come.  And the Republicans would get blamed for any fallout should a deal not be made in the near future.

If no deal is possible in the near future, the least-worst choice of all would be for Congress to simply repeal the sequester entirely with no strings attached.  Yes, they can do it if they want to, and at this point it is clearly in America's best interest to do so.  But they probably won't unless a critical mass of Americans credibly threatens to vote every single one of them out of office in 2014.

UPDATE II:  Looks like the sequester is already starting to kill jobs as of the first week of April, one month after the sequester began.  And the much-anticipated furloughs have officially begun.  But remember, the worst is yet to come if the sequester remains in effect.

Fiscal Cliff Averted--For Now

It's now official.  The so-called fiscal cliff that had nearly everyone (especially Republicans) nervous has been averted due to a bipartisan deal in Congress.  The deal contains the following provisions in a nutshell:  no income tax rate hikes for those making less than $400,000 per year (but the top marginal rate is hiked back to Clinton levels on those making above that threshold), various tax deductions are capped at $250,000, the so-called "Obamacare taxes" are left untouched (and thus go into effect), unemployment benefits are extended, spending cuts are postponed by two months, and the payroll tax (i.e. FICA) rates are raised back to pre-stimulus 2009 levels.  So although most Americans will see slightly smaller paychecks in 2013 (due to the 2% payroll tax hike), thanks to the deal there will not be a massive amount of aggregate demand sucked out of the economy, and there will most likely not be another recession as a result--at least for now.

However, the deal only addresses one side of the ledger--revenue and taxes.  The other, bigger side--government spending--will not even be touched until February at the earliest.  Just in time for when the debt ceiling needs to be raised again, most likely in March.  So we can expect another "cliffhanger" around that time, albeit a somewhat smaller one.  But I guess that's the price we pay for kicking the can even further down the road.

To the President and everyone in Congress:  Please listen to what the True Spirit of America Party has to say, at least about economic policy and the national debt.   Our nation's future depends on it.

Now, Back to that "Fiscal Cliff"

Deal or no deal?  That is the question that still hasn't been answered.

But remember, no deal is better than a bad deal.   Obama is still holding firm thus far in the face of the Repugnicans who want to slash our social safety net to give millionaires and billionaires more undeserved and unnecessary tax breaks.  And Boehner seems to be sweating bullets.  If no deal is reached, it will not lead to financial Armageddon like the right-wing plutocrats claim.  The so-called "fiscal cliff" is really not a cliff at all--it's more like a staircase.  The full effect of the tax hikes (which occur on next year's income) and automatic spending cuts (which are phased in over a period of a few months) will not be felt right away, which clearly gives Obama the upper hand especially after January 1, 2013.   No wonder Boehner and his ilk are so nervous.

Even more importantly, the budget deficit is actually NOT the biggest economic problem our nation is facing.  The more pressing issue, of course, is the jobs deficit--the whopping 9 million Americans that are still out of work at the end of 2012, five years after the recession officially began (December 2007) and over three years after the recession officially ended (June 2009).  We are clearly stuck in a vicious cycle of persistently high unemployment and inadequate consumer and aggregate demand (remember that one person's spending is another person's income and vice-versa).  Remember that 70% of our entire GDP is consumer spending, and 20% is government spending.  And cutting the budget deficit too much too soon (at least by traditional means) would only make the jobs deficit worse, and the relative lack of revenue from the still-struggling economy is one of the biggest drivers of the budget deficit.   Basically, any significant tax hikes on the bottom 90% of Americans and/or any significant cuts in non-defense spending would only hurt our economy and make our future deficits (and national debt) that much worse in the long run.  If it turns out that these hikes and cuts must be done, and that is a very big "if", then they must be postponed until our economy is back to normal (i.e. two consecutive quarters of 3% GDP growth or higher and less than 6% unemployment).  Congress, you have been warned, so don't drink the Repugnican Austerity Kool-Aid.

Now, About that "Fiscal Cliff".....

With President Obama's re-election already won, the next hurdle to face is the so-called "fiscal cliff", which is a set of tax hikes and spending cuts that will automatically occur on January 1, 2013 if no action is taken.  While such a thing would clearly reduce the deficit, the Congressional Budget Office predicts that it would also likely trigger another recession given the already weak economy.  Specifically, it would be the middle-class tax hikes and some of the spending cuts that would be the real problem, not the tax hikes on the rich.  However, if we don't address the deficit at all, then we're in financial trouble as well, at least in the long run.   And to top it off, the debt ceiling will have to be raised yet again in late January or early February.  Seems like we're stuck between the proverbial rock and a hard place, between the devil and the deep blue sea.

Not really, though.  As UC Berkeley professor Robert Reich so cleverly points out, the real problem is House Speaker John Boehner and the rest of the Repugnicans in Congress who are willing to play chicken with the economy.   They will apparently do anything to avoid even a modest tax hike on the top 1% of Americans, even if it means ruining our country's credit rating and/or crashing the economy.   Basically, everyone's ox would get gored except the ultra-rich if the Repugnicans had their way.

The best thing for Obama to do is to start out bold and aim high, rather than start out with a compromised position.  According to Robert Reich, this means the following:

1)  Raise taxes on the rich--by a LOT.  Enough so the average millionaire would pay an effective rate of about 55% after all deductions and credits, as it was 60 years ago.  (The top marginal rate would have to be at least 70%, and every dollar above the first million would have to be taxed at 50% or more)

2)  Create a 2% wealth tax on the net worth of the top 0.5% of Americans.

3)  Create a 0.5% financial transactions tax.

4)  Raise the capital gains tax to match the rate on ordinary income, and cap the mortgage interest deduction at $12,000 per year.

5)  Eliminate special tax preferences and subsidies for Big Oil, Big Pharma, Big Agro, Wall Street, and so-called "defense contractors."

6)  Last but not least, let the Bush tax cuts expire for incomes between $250,000 and $1 million.

Doing all of these things would reduce the deficit by $4 trillion over the next ten years (the same as what Simspon-Bowles proposed), but without cutting any vital programs or raising taxes on the middle class.  This is the crucial difference between what Professor Reich proposes and what the Repugnicans propose.  And it wouldn't crash the economy, as the best studies have shown.

While Professor Reich acknowledges that some sort of compromise is inevitable, he also notes that any such "grand bargain" to avoid the cliff must contain the following stipulation:  any sort of tax hike on the middle class and any sort of spending cut must only be permitted with a triggering mechanism of two consecutive quarters of 6% unemployment or lower and 3% GDP growth or higher.  This caveat would ensure that we really are out of the woods before sucking any significant amount of aggregate demand out of the economy, echoing Keynesian economic theory.  It is also very important to note that, unlike last time, progressives actually have the upper hand right now--so let's not squander it.  No deal is still better than a bad deal.

Of course, there are other ways of accomplishing a similar or even greater deficit reduction, as the TSAP has repeatedly proposed.   In fact our own proposals would eliminate not just the deficit, but the entire national debt as well.  But much of what we have proposed dovetails rather nicely with what Professor Reich suggests, and that is an excellent start.   What better time than now?