Many American liberals and economic populists are on guard in the wake of the fiscal cliff deal between Congress and the President on taxes and revenue, because what Washington expects to negotiate in the next two months is cuts. With the “sequester” automatic Pentagon cuts postponed rather than canceled, we’re still operating in the framework of the Budget Control Act, which mandated $1.2 trillion in reduced projected government debt over ten years. The deal on revenue took care of half of that. The Washington understanding is that the other half will come from cuts.
The two most dangerous proposed cuts from the point of view of the long-term interests of the majority of Americans are the proposal to cut Social Security benefits forever by reducing the annual cost-of-living increase (“chained CPI”) and the proposal to cut Medicare benefits forever by raising the Medicare retirement age to 67, forcing more seniors onto the private insurance market. Many establishment Republicans want these cuts; many Wall Street Democrats want these cuts; the President has signaled his potential willingness to agree to these cuts as part of a “big deal.” Most liberal groups vehemently oppose these cuts, and the majority of Americans would never go along with these cuts – cutting benefits for working families for which they have already paid through their payroll taxes – if they have effective say.
Krugman speaks to The Commonwealth Club of California, in San Francisco. May 22, 2012. (Photo by Ed Ritger / flickr)
But two months from now, automatic cuts to Pentagon discretionary spending will again loom, tax increases will likely not be on the menu of negotiations, and Republicans may again try to wield the purported threat of default by saying that they won’t raise the debt ceiling without big cuts, including cutting Social Security and raising the Medicare retirement age.