Marceline Piek- The Fiscal Cliff; Getting down to brass tacks

As the author of the article mentions, Republicans and Democrats have to find common ground on cutting spending to reduce America’s long-term deficit and to avoid the “fiscal cliff”. As we discussed in class this “fiscal cliff” means an automatic increase in taxes and spending cuts at the year’s end. Republicans have done most of the spending cuts so far and want something in return. Therefore, the Republicans say they want to fix the real problem by which they mean ‘the big three’: Social Security, Medicare and Medicaid-pensions and health care for the elderly and poor. Cutting on these entitlements makes the government spend less and therefore reduces the deficit. The Republicans fear that Obama’s government will finance the increase of cost for his new health care plan by raising taxes so that the affluent, rich people are paying for the poor and elderly people. They call it Obama’s “Robin Hood”-approach, which means providing support to the poor by stealing from the rich. The Republicans think it is better for an economy to have the lowest affordable level of tax payment so that people have more money to spend to stimulate the economy. 

The ‘big three’ are very important to the Democrats because they are crucial to Obama’s health-care plan, i.e. the government is responsible for the sick, poor and elderly people. This makes it unlikely that Obama is going to cut on these three entitlements. However, Obama did acknowledge that spending has to shrink. Therefore, he came up with some deficit deals to cut on discretionary spending like education, transport and research in 2011. Besides, Obama proposed two substantial concessions last year: to raise the age at which Americans become eligible for Medicare from 65 to 67, and to index Social Security benefits to a less-generous version of the consumer price index. It is calculated that these cuts will result in a reduction of governments spending of 225 billion dollar over a period of 10 years. 

It is expected that lobby groups for the elderly and the unions will oppose these cuts. According to Peter Orszag, Mr Obama’s first budget director, this is short-sighted and he thinks it’s a good idea to let Obama deal with the entitlements. By all means, it is sure that the re-elected Obama will not tolerate big changes to his health-care plan. The only question is if it is manageable to do so and still reduce the long-term deficit. One solution may be to increase Medicare premiums and make Social Security less generous for affluent people, a proposal that Obama already introduced. However, the question is if both parties will agree on this. The Republicans will certainly demand a ceiling, in return for borrowing money by the government in order to reduce money inflation. 

  

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