December 2012 Issue
November 20, 2012

Expect economic crisis if Congress fails to act

Author: Darryl McGrath
Source: NYSUT United
Caption: NYSUT Executive Vice President Andy Pallotta is interviewed following a press conference calling on Congress to preserve important programs and let tax cuts on the wealthiest Americans expire. Photo by El-Wise Noisette.

If labor's all-out effort to help President Obama win re-election felt like an exhilarating race to the finish line, the next major hurdle facing a vast majority of Americans could feel more like slamming on the brakes to avoid driving over the edge.

That's because the clock is ticking on the so-called "Fiscal Cliff," a looming Jan. 1 deadline for across-the-board tax hikes and spending cuts that will hit just about every category of Americans, starting with pre-K-12 school children, to college students, working adults, people with disabilities and retirees.

No one will be spared from mandatory cuts in federally funded programs and services that stem from a Congressional budget deal last summer that built in automatic cuts and tax hikes as an incentive for reducing the national debt.

Congress needs to agree on how to cut $1.2 trillion by Dec. 31 to prevent across-the-board cuts from kicking in with the new year. Estimates by the Congressional Budget Office and various fiscal policy watchdog groups for the amount of the cuts vary, because the number of people who could potentially be affected changes with shifts in demand for services. Most estimates predict that affected programs and services, which could be thousands across the nation that rely on federal funding, could be cut by 8 percent to 9 percent.

The typical household's federal taxes would rise by anywhere from $2,000 to $3,500. Social services provided by non-profits, as well as Medicare and Medicaid, which provide health care and other services to retirees and people with disabilities, would face deep cuts.

The country's steady but still-fragile economic recovery could also be at risk, with the very real threat of another recession. The Congressional Budget Office has predicted that the mandated reductions would cause the gross domestic product to decline by an extraordinary 4 percentage points, while unemployment would rise by almost a full percentage point. That's about a million jobs.

Union members, including NYSUT members, stand to be especially hard hit. For starters, at least $4.5 billion would be cut from the U.S. Department of Education and early education budgets, including Head Start. In New York, cuts to education funding would amount to almost $250 million. At the K-12 level, the cuts will slice deep into the Title I and Title II grant programs. Some 400,000 college students stand to see their tuition costs rise and their financial aid options tighten "This is money for high-need schools, special education and programs like Head Start," said NYSUT Executive Vice President Andy Pallotta. "That could cost New Yorkers almost 4,000 education jobs. Higher education college affordability programs would be cut as well, and faculty researchers would suffer if cuts are made to the National Institutes of Health and the National Science Foundation."

The State University of New York is still suffering from the effects of nearly $700 million in state budget cuts over a four-year period and a no-growth budget this year, said Phil Smith, president of United University Professions, which represents 35,000 academic and professional faculty at SUNY.

"If federal spending is sharply reduced, New York and other states would be faced with a staggering fiscal shortfall, which would trigger more spending cuts on public higher education. We must not allow politicians to balance the budget on the backs of our students," he said.

Smith said it is imperative that Congress and the president work together to forge an agreement that safeguards public higher education.

"Having an educated workforce is critical for our nation in order to compete with other countries," Smith said. "We can't risk making college unaffordable for millions of students by allowing tuition and student loan rates to mushroom."

NYSUT has joined a coalition of labor and fiscal equity groups in New York, including New Yorkers for Fiscal Fairness, to urge the state's congressional delegation to take a strong, activist role in resolving the budget crisis before the deadline. Pallotta recently joined other members of the coalition for a news conference at the state capitol that stressed the need for action.

"Education and other critical programs cannot continue to bear the brunt of deficit reduction," he said. "The choice is stark: Congress can protect students and their education, or it can continue to coddle the wealthiest 2 percent and corporations that ship jobs overseas."

National labor leaders recently met with President Obama to press the case for tax relief for middle-class families while asking the wealthiest Americans to pay more. The meeting included Dennis Van Roeckel, president of the National Education Association; AFL-CIO President Richard Trumka; Mary Kay Henry, president of the Service Employees International Union; and Lee Saunders of the American Federation of State, County and Municipal Employees.

NYSUT's national affiliates — the American Federation of Teachers, NEA and the AFL-CIO — also have joined with nearly 150 labor and social justice organizations to call on the president and Congress to focus on job creation; to oppose benefits cuts for Social Security, Medicare and Medicaid; and to oppose any extension of the Bush tax cuts for the wealthiest Americans.

What will happen if, despite the best efforts of labor and its constituencies, the president and Congress do not reach an agreement? Two NYSUT members, both economics professors, say labor would have to draw on its successful efforts on behalf of the president's re-election to help shape what will really be a start-from-scratch approach to taxing Americans at various income levels.

Even if the deadline passes, most Americans will not see a sudden, dramatic change to their paychecks or taxes, said Howard Chernick, an economics professor at Hunter College and a member of the Professional Staff Congress, which represents faculty and staff at the City University of New York. But as the president and Congress negotiate, people should watch what direction the tax revisions take.

"I think Obama is going to get his way, because he's in a position of strength right now," Chernick said.

The Dec. 31 deadline to get a budget deficit deal in place might pass without an agreement between Congress and the president, said Michael Zweig, an economics professor at Stony Brook University and a UUP member. "People's first paychecks would be smaller, but Congress can make any tax cut retroactive, so people could get that money back," Zweig said. "What people should be concerned about are the priorities that Congress sets. We need to make sure the wealthy pay significantly more taxes."