The Federal Budget Cliff-Hanger, the Sequel

We’ve asked our staff to help us unpack the complex justice issues that we’re working on. Using our General Synod pronouncements as the basis for these reflections, we hope to provide insights into the issues you care about that are rooted in our shared faith, and can inform your advocacy efforts. This month, Edie Rasell, our Minister for Economic Justice, breaks down the impact of the fiscal cliff negotiations and the challenges to come as we work for a faithful federal budget.

The Federal Budget Cliff-hanger, the Sequel

On January 1, Congress averted the economy’s slide over the fiscal cliff just as we reached the edge. But the country is not yet out of danger. Congress will face a series of other cliff hangers in the weeks ahead. Our involvement might help ensure the good luck continues.  

The fiscal cliff was the name given to the looming recession that experts predicted for 2013 if massive spending cuts and tax increases had gone forward as planned. These spending cuts and tax increase would have reduced the deficit by nearly half. Fortunately Congress decided to reduce the deficit by a smaller amount: to allow only some taxes to rise (as tax breaks were ended) and to postpone most major spending cuts for two months to allow alternatives to be considered. So the crisis was avoided. But two big questions were left on the table:

• What, if any, spending should be reduced?
• What other changes in the tax code are needed?

In addition, the federal government has reached the limit on its authority to borrow. So in the next few weeks, Congress will also need to raise the debt ceiling.

As people of faith, we know the federal budget is a moral document that unambiguously reveals – in dollars and cents – our nation’s priorities and concerns. So as Congress and the nation debate these issues, let us seek three outcomes.

Debt ceiling. The debt ceiling must be raised. If Congress wants to limit the debt, it must raise revenue and reduce spending. Raising the debt ceiling, or not, has no impact on either of these. But if the limit is not raised, the United States will go into default with unknown consequences. We must raise the debt ceiling and allow continued borrowing to cover the deficit already authorized by Congress.

Spending.  In order to care for and provide opportunities to all our people, Congress must continue to fully fund the safety net and core government functions. What can be cut is military spending which has been rising rapidly, up by over 50% in the past decade. At the same time, spending on the safety net and core government functions – like environmental protections, education, the federal courts, energy programs, and public health – have either risen more slowly or been cut. Congress must not cut these further. The much-discussed, across-the-board cuts to military spending (the “sequester”) that were being considered would just reduce military spending to its 2007 level, a time when the U.S. was actively fighting two wars which are now ending, and an amount 40% higher than on 9/11. Experts say the Pentagon can absorb these cuts without negatively impacting national security and they should go forward. (See reports from the Center for American Progress, Center for International Policy, and the Commonwealth Institute.)

Taxes. In the fiscal cliff deal, Congress raised taxes primarily on the top 1% to 2% of households. These tax increases were relatively modest, as was warranted given the fragile economy. But more revenue is needed. At this time when profits are high and corporations are sitting on billions in cash, Congress needs to raise corporate tax rates and close abusive loopholes. Over recent decades, taxes paid by corporations have declined from 4.0% of national income in 1965 to 2.5% in 2008. In other major industrialized countries, corporate tax rates are typically lower but actual taxes paid are higher, averaging 3.0% of national income. In the U.S., corporate tax breaks and loopholes cost hundreds of billions of dollars each year, slow economic growth, and encourage the export of jobs. Corporate tax reform is needed.

The nation’s priorities continue to be job creation and an end to the economic downturn. These should be priorities for Congress as well. For now, deficit reduction must be modest and achieved through cuts to military spending and tax increases on corporations. The United States is a very wealthy country. If Congress exercises wise stewardship we can move toward a more caring society that values all people. Let’s make it so.