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Obama’s fiscal ‘grand bargain’ is a great betrayal of America’s most vulnerable

Fiscal cliff. Grand bargain. Shared sacrifice. The buzzwords on Capitol Hill this December tell a dramatic story. The United States, hurtling toward an unavoidable economic disaster, can be saved only…

President Obama’s deficit reduction plan is likely to take a razor to the US social safety net. AAP

Fiscal cliff. Grand bargain. Shared sacrifice.

The buzzwords on Capitol Hill this December tell a dramatic story. The United States, hurtling toward an unavoidable economic disaster, can be saved only if Republicans and Democrats join hands to bring balanced austerity to the American people.

As Vice President Joe Biden would say: what a bunch of malarkey.

The fiscal cliff is a wholly unnecessary – and easily avoided – crisis. The grand bargain aims to fix deficits when unemployment, low consumer demand, and sluggish growth are America’s most pressing economic problems.

And that shared sacrifice? It falls almost entirely on economically vulnerable Americans: women, the poor, the aged, and the ailing middle class. In exchange for cutting programs for these groups, the wealthiest 2% of Americans (households earning more than $250,000 a year) would see their taxes return to Clinton-era levels. That is, the top marginal rate would rise from 35% to 39%.

It’s a bargain — a grand one indeed — if you’re a top-income earner. Since the recovery began in early 2009, business has been booming for the top 5%. And the closer you are to the top, the faster your income has grown. Since the recovery began the top 1% of Americans have captured 93% of income growth.

For everyone else: stagnation. In the past five years, the median household income in the United States fell to $50,054 from $55,198, continuing to tumble even during the first few years of the recovery.

The grand bargain threatens to make the situation worse. A columnist for the New York Observer called it “a prescription for hunting down every last remaining vestige of the middle class in this country and beating it to death with a stick.”

Strong language, but apt. Because when it comes to “shared sacrifice”, some groups sacrifice far more than others. Women, for example, will be hit hard by cuts to Medicare (health insurance for the aged) and non-defence discretionary spending. Because they live longer and earn less than men, women make up a greater proportion of Medicare recipients and have fewer resources to pay out-of-pocket for care.

Likewise, because they make up the majority of Americans living in poverty, women will be hobbled by cuts to non-defence discretionary spending. Labelling this part of the budget “discretionary” makes these programs sound frivolous, but for millions of Americans they are a vital defence against hunger, homelessness, and unemployment. Low-income housing assistance, nutrition assistance, job training, education, disaster assistance, home heating assistance – all come from the non-defence discretionary spending budget.

Moreover, this budget has long been a favourite target for politicians looking to make cuts without touching popular programs like Social Security and defence. In 1996, welfare reform gutted Aid to Families with Dependent Children, a vital program for children living in poverty. Prior to the reforms, 68% of families living in poverty received aid through the program. In 2010, the program reached only 27%.

In the first round of trillion-dollar cuts during 2011’s debt-ceiling crisis, President Obama boasted that the agreement he reached with Congress would “reduce non-defence discretionary spending to its lowest level since Dwight Eisenhower was President” in the 1950s.

Therein lies the problem. Like President Clinton before him, Obama touts cuts to the already tattered social safety net as a positive development. True, he has angled to save programs for the poorest Americans and has laid the foundation for broader health coverage. But in promoting the grand bargain, he demonstrates a willingness to sacrifice the social compact in order to solve the wrong problem.

Deficits simply aren’t the most pressing issue in America. Indeed, given the weak recovery, austerity measures would likely create a drag on the economy by suppressing consumer demand. Without unemployment benefits or food stamps or home-heating assistance, many Americans simply won’t be able to participate in the broader economy.

Yet this is not just an economic issue; it’s an ethical one. At a time when income inequality in America is at a 70-year high, when the poor and the middle class are losing ground, when 46.2 million Americans live below the poverty line, the grand bargain would force millions of Americans to choose between a heated house and a hot meal, between education and medication. Sacrifice, yes. But shared? Not remotely.

In his victory speech last month, Barack Obama declared that America’s greatness came from “the belief that while each of us will pursue our own individual dreams, we are an American family and we rise or fall together as one nation and as one people”. Such a belief only holds true if Americans refuse to exchange their social compact for the mess of pottage that is the “grand bargain”.

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20 Comments sorted by

  1. Michael Shand
    Michael Shand is a Friend of The Conversation.

    Software Tester

    Great Article, Excellant Analysis, one of the very few I have read that see the "Fiscal Cliff" for what it is - tax cuts that were meant to expire....expiring

    Of course there is a little more to it but not much, thank you for the article

  2. Felix MacNeill

    Environmental Manager

    Ah well, a rising tide lifts all boats...of course, if you don't actually have a boat, well...

  3. Denis White


    Denis White
    I agree, an exellent article. When Reagan adopted and promoted Milton Friedmann's mantra of free market capitalism he opened the doors for the corporate rape of global economies. Protectionism is out, but so are the mechanisims of control and here lies the fault with Friedmann's and the worlds current economic orthodoxy. It is the lack of sufficient regulatory control that has allowed the progressive undermining of the once rich western economies. Corporate exploitation of the comparative…

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  4. Bruce Waddell

    logged in via LinkedIn

    I liked the article too. Thank you. From this analysis it is difficult to imagine that stock exchanges are stagnating and in a paralysis waiting for the announcement. The lack of production, jobs, and downturn in retail is never their concern until dividend day.

  5. Tony P Grant


    SSDD...just variations with the statistics!

    Women...okay, but poverty is across all lines gender/age/disability..the feminist thing "divides us"!

    Yes along time since FDR, yet Americans have taken to "all you can eat" from those days of the great...can I say man? The citizens of the USA are their own worst enemy, I mean they put up with "open" fraud of their electoral system, this from a nation that fought the Brits, the nation of Lincoln?

    Where is the soul of these once grand folk?

    Nicole, yeah I agree but getting old and pissed off with "good people" fighting for many that don't give a "continental"!

    Keep up the good reads.

  6. Spiro Vlachos


    "In the past five years, the median household income in the United States fell to $50,054 from $55,198"

    Unfortunately, the majority of voters voted for Obama because they believed their problems were not as a result of his prosperity inhibiting policies. It was Obama that signed the stimulus bill and spent billions bailing out failed institutions that resulted in this problem. Some say he saved jobs. Yes, the jobs of executives that continued to receive massive bonuses, yet the unemployment rate climbed to 10%.

  7. Yoron Hamber


    Yes, It's not a happy read. Too much money situated outside the government, too much debt situated inside it. And those normally expected to pay it of getting poorer by the day. Because it's no rich mans wallet the government dip their fingers in when it comes to paying taxes etc, the game is set up so that the richer you become, the easier it will be to get around tax. There are all sort of legal constructions for lowering your taxable income, and your company, but very few for the middle class, and ? for the poor? None i guess, except possibly some sort of 'personal bankruptcy'

    46.2 million Americans you said? A strange American dream.

  8. Allan Lindh

    logged in via Facebook

    I sure do hate to disagree with such a nice crop of Aussies, being as I have always enjoyed very much drinking beer with Aussies, but the article is a bit too much over the top from the left hand side.
    Obama did not screw the poor by bailing out the banks, that really did have to be done, and we've already gotten most of the money back.
    Social Security does not have to, and will not be, cut in any significant way. Raising the retirement age a little, given how much longer we live, is just…

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    1. Chris Lee

      logged in via Facebook

      In reply to Allan Lindh

      Awesome, thanks for providing a realistic perspective. This article was way over the top for me

  9. Frank Moore


    The USA's chief problems go to what constitutes national integrity. They are chronically unable to control their borders and their subsequent population growth. Spreading the investment - reinvestment from governments over a spreading, bloating population, leading to a generational lack of confidence in government, government spending - the very idea of "Commonwealth".
    The quislings in the US body politic who supported Clinton's embrace of the PRC's unearned access to both the US's domestic market…

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  10. Denis White


    Allan "I sure do hate to disagree with such a nice crop of Aussies, being as I have always enjoyed very much drinking beer with Aussies, but the article is a bit too much over the top from the left hand side."

    Nicoles article nor the comments by the Aussies have little to do with the so called left or right they are purely objective within the limits of information available. Your comment sadly fails to address any one of them in any objective sense.

    Could it be that any comment unflatering…

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    1. R. Ambrose Raven


      In reply to Denis White

      Look no further than the cost, waste, criminal conduct, and incompetence of Homeland Security. Imperial America's Imperial and domestic repression budget is equal to the 19th largest economy in the world, roughly the size of Australia’s. In comparison, China - the country with the next largest military budget - spends around $136 billion.

      It accounts for one quarter of every dollar the U.S. government is projected to spend in 2013. "National security" spending is however to be protected from…

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  11. Baz M

    Law graduate & politics/markets analyst

    This is why I laugh when I hear right wing Republicans cry socialistttt about Obama. Half the American people wish he was a socialist. The US is truly a unique country, because any other nation in the world would consider Obama centre right wing. And Republicans don't get anymore right anywhere in a supposed democratic state. Well Netanyahu would challenge them but either way. The difference between a grand bargain and democrats getting there way is that the rich must either face very little sacrifice or even less sacrifice.

  12. Firozali A.Mulla


    06/12/2012 Once again our politicians and pundits are showing signs of financial Alzheimer's. They just can't remember that Wall Street's insatiable greed caused the Great Crash of 2008 -- not poor people buying homes, not the government's interference, not the auto-industry, not the debt. In a matter of months, 8 million American lost their jobs. Business and personal tax revenues plummeted, as expenditures rose to assist the unemployed. That's why deficits rose. Finance is the bloodstream of capitalist…

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  13. Firozali A.Mulla


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  14. Chris Lee

    logged in via Facebook

    What's with the fist bumps going on ehre? This article read like a greenpeace promo. I have no patience for right wing nutjobs, but this piece was pretty too left for my liking. This is just idealistic nonsense, focusing on an ideal world totally disregarding reality. The republican congress, the unpredecented number of filibusters, the lingering tentacles of GWB's legacy. These are all things Obama had to deal with. Maybe he isn't as progressive as we would have liked but he's doing a pretty good job overall, better than even Bill Clinton would ahve done.

    1. R. Ambrose Raven


      In reply to Chris Lee

      So, Chris, how do you square your right wing nutjob with the several dozen FACTS given in the article?

      This is just idealistic nonsense, focussing on an ideal world totally disregarding reality.Nicole is reporting the reality; you, Chris, are clearly saying that you have a right to suppress commentary that you don't like.

  15. Firozali A.Mulla


    07/12/2012The European Central Bank slashed its forecasts for the Eurozone economy on Thursday, showing a contraction next year was very likely before a return to growth in 2014. The ECB cut its estimate of gross domestic product (GDP) for next year to between a fall of 0.9 per cent and growth of just 0.3 per cent. The bank also cut its forecast marginally for 2012, giving a midpoint of -0.5 per cent compared to -0.4 per cent three months ago. It had previously forecast -0.4 per cent to 1.4 per cent…

    Read more
  16. Firozali A.Mulla


    Tax dodgers cost the coffers of EU governments as much as one trillion euros a year.That’s according to the European Commission, which says it is time to get tough on those who stash their money abroad.“One trillion euro that is what we are losing every year to tax evasion and avoidance in the EU. To break it down, we are talking about 2,000 euro per European citizen,” said Algirdas Semeta, commissioner for taxation.“The Commission recommends that members states use common criteria to identify and…

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  17. Firozali A.Mulla


    12/7/12 Some thing is wrong here ..Remember how George Osborne claimed on Wednesday that disabled people would be exempt from his benefits crackdown? Well, the Times splash this morning debunks that claim: "More than half a million disabled people will each lose up to £400 over the course of the next three years as part of the Government's raid on welfare. "Among those affected are almost 200,000 of the most severely disabled, despite a pledge by George Osborne to protect the vulnerable from cuts…

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