President Obama and the Republicans who control the House of Representatives need to cut a deal to avoid running America off the so-called "fiscal cliff." Virtually all mainstream economists predict that if such a deal is not agreed upon, Americans can expect another recession, resulting in many lost jobs and rising unemployment. Clearly, another recession would be devastating, since we have yet to fully recover from the last one in 2008-2009.
The President has argued that any deal must include higher taxes for the wealthiest Americans, along with cuts to government spending. Republicans agree that the government needs to spend less in order to produce a more balanced budget, but they are reluctant to raise tax rates--even on America's millionaires and super-corporations.
Many people accuse the President of being a "socialist" for trying to "redistribute the wealth." They claim that "punishing" the rich for their success is "un-American." I strongly disagree with this view. The tax rates for the wealthy that Obama wants are the same tax rates that were in place in the 1990s, during the Clinton administration. These tax rates are pretty modest, compared to many European nations and even compared to the U.S. in the pre-Reagan years.
There is also convincing evidence that the vast inequality between the richest 1% and everyone else in America is bad for the economy as a whole. My students will be debating the arguments supporting this claim this week, as we discuss Joseph Stiglitz's article, "The 1 Percent's Problem", published earlier this year in Vanity Fair. Here is a video of an interview Stiglitz gave on this topic. And here is a video of Stiglitz on The Daily Show: