Thursday, December 9, 2010

Third Rail? Katrina Blows Obama's Cover - Untold Cost of Tax Deal (Pay Now or Monstrously Later?) Farewell Social Security!!!

Either the anti-Social Security conservatives have played a better game of chess than the President, or this is the outcome he wants. But it doesn't matter in the end whether he's been outplayed, or is playing one of those "three-dimensional chess games" . . . in this case, with seniors as pawns. It's a lousy move either way.

And you thought these folks weren't clever? And you thought that who owned the media didn't concern you or have dire consequences for your ability to live? Just follow the yellow-brick road.

In a period of mass unemployment, the result of failed conservative economics, we get in return a largely conservative recovery package built around tax cuts. No public investment to create jobs. No aid to states and localities to save the jobs of teachers and police. No investment in new energy to keep us from defaulting in the race to capture a slot in the green industrial evolution.

Instead, a 100% write off of all business investment over the next year, the vast bulk of which will go to investment that would have been made anyway, adding nothing to the economy. . . . The White House defends the deal as “strategery.” In their calculation, it is better for the president to be “reasonable” and get things done, than to fight and draw lines.

Really? Then why freeze federal pay for two years, an utterly symbolic gesture, meant to sound the call to retreat? (The message is that austerity starts now, which is inane with unemployment at mass levels, that federal employees are overpaid, which is simply wrong, and that workers must sacrifice, when in fact workers have been losing ground for decades.)

The question is what comes next? With people suffering across the country, the president convened a deficit commission, not a jobs commission. After bowing to Republican demands for lucre for the richest 2% of Americans, in a package that costs about $700 billion over the next decade (not counting extending the Bush tax cuts for the bottom 98%), will the president now tell Americans in his State of the Union address that Social Security benefits must be cut, the retirement age hiked, Medicare cut, core investments in education and environment slashed in order to address deficits run up by foolish wars abroad and irresponsible tax cuts at home? Will he follow that by announcing that the Afghanistan review has determined that we’ll be there until 2014 at the very least?

I'm so deeply disappointed in Obama right now that it's hard to remember the good things his administration has been responsible for. Right. I can't remember a single one right now in the face of his latest $700,000,000 (that's Billion!) plus giveaway to the rich who control everything in this country already (and perhaps even him). He seems to believe in "negotiation from weakness," which is a talent I had neglected to notice that he possessed when I supported him during that astonishingly dynamic election campaign of 2008. Would that I had.

It's almost as if he thinks that after negotiating away all the truly progressive planks that the Dems would rally behind, he'll gain favor with the voting populace for being the only one willing to compromise with the opposition. Talk about needing some 1000-year-old historian to see the greatness in that move. And then there's the latest scare story about how "not adopting" the bill that Obama has crafted with the Rethugs will ensure a double dip recession. I guess it's good to be reminded that some small part of the country has recovered from the first dip and are worried about a second. Katrina (not the hurricane, the volcano of intellect) speaks for me and many others about what seems to be Obama's Disastrous Path. (Emphasis marks are added and some editing inserted - Ed.)

Ronald Reagan famously quipped that the Democratic Party left him before he left the party. Like many progressive supporters of Barack Obama, I'm beginning to have the same feeling about this president.

Consider what we've seen since the shellacking Democrats took in the fall elections.

On Afghanistan, the administration has intimated that the 2011 pullout date is "inoperable," with the White House talking 2014 and Gen. David H. Petraeus suggesting decades of occupation. On bipartisanship, the president seems to think that cooperation requires self-abasement. He apologized to the obstructionist Republican leadership for not reaching out, a gesture reciprocated with another poke in the eye. He chose to meet with the hyper-partisan Chamber of Commerce after it ran one of the most dishonest independent campaigns in memory. He appears to be courting Roger Altman, a former investment banker, for his economic team, leavening the Goldman Sachs flavor of his administration with a salty Lehman Brothers veteran.

On the economy, the president has abandoned what Americans are focused on - jobs - to embrace what the Beltway elites care about - deficits. His freeze of federal workers' pay, of more symbolic than deficit-reducing value, only reinforced right-wing tripe: that federal employees are overpaid; that overspending is our problem, as opposed to inane tax cuts for the top end; that we should impose austerity now, instead of working to get the economy going.

Now the not-so-subtle retreats are turning into a rout. The president is touting a NAFTA-like corporate trade deal with South Korea. He appears to be headed toward supporting cuts in Social Security and Medicare and irresponsible reductions in domestic investment. And he's on the verge of kowtowing to Republican bluster and cutting a deal to extend George W. Bush's tax cuts for the rich in exchange (one hopes) for extending unemployment insurance and possibly getting a vote on the New START treaty.

This is political self-immolation. Blue-collar workers abandoned Democrats in large numbers in the fall; wait until they learn what the trade deal means for them. Seniors went south, probably because of Republican lies about cuts in Medicare; wait until anyone over 40 who's lost their savings hears about Alan Simpson's plan to take it to the "greedy geezers." The $60 billion each year in Bush tax cuts for the richest Americans could pay for universal preschool for America's children, or tuition and board for half of America's college students.

The stakes are much higher than the distant election. The president has suggested unconvincingly that he'd prefer to be a successful one-term president than a two-term president who didn't get anything done. But there are other alternatives. If the president continues on his current course, we're looking at a failed one-term presidency that the nation cannot afford.

Forget about electoral mandates or campaign promises. This president has a historic mandate. Just as Abraham Lincoln had to lead the nation from slavery and Franklin Roosevelt from the Depression, this president must lead the nation from the calamitous failures of three decades of conservative dominance. This requires beginning to reverse the perverse tax policies that have contributed to gilded-age inequality and starved the government of resources needed for vital investments.

This demands correcting destabilizing global imbalances, laying a new foundation for reviving American manufacturing and shackling financial speculation. It means ensuring the United States leads rather than lags in the green industrial revolution. And it requires unwinding the self-destructive military adventures abroad. The president must strengthen America's basic social contract in a global economy, not weaken it.

This daunting project is not a matter of ambition or appetite - or even unconscious Kenyan socialism. It is the necessary function of a progressive president elected in the wake of calamitous conservative misrule. Every entrenched corporate and financial interest stands in the way; it is easier to take a less confrontational path. President Bill Clinton, for example, found it convenient to join in the conservative project of corporately defined trade, financial deregulation and social welfare constriction. From NAFTA to the repeal of welfare and the failure of labor law reform, to deregulating derivatives and repealing Glass-Steagall, he got his agenda wrong. He was seduced far more by Wall Street's Robert Rubin than by Monica Lewinsky.

Now Obama faces the same challenge. This isn't about conventional politics. This is simply about the fate and future of our country. This president has a clear and imperative historic mandate. If he shirks it, he risks more than failing to get reelected. He risks a failed presidency.

Robert Borosage tells us about The Untold Cost of the Tax Deal, and it is staggering (emphasis marks added - Ed.).

The White House is peddling its tax-cut deal as a needed stimulus plan, a boost to the economy that will create jobs and generate growth. This new-found concern for jobs is laudable, if startling from a White House that has been hawking deficit reduction for months – with a three-year freeze on domestic discretionary spending announced last year, the president’s deficit commission rolling out its austerity plan two weeks ago, the president announcing a federal pay freeze last week. You can get worse whiplash following this president’s economic message than watching a tennis match up close.

So now the White House is in full court press – the president, vice president, Larry Summers, David Axelrod – selling the deal as a vital plan to create jobs and get the economy going. Goldman Sachs, we’re told, has changed its growth estimates.

But, in fact, this is far more a deal to keep the economy from slowing than to get it going. The White House is over-promising once more, making the same mistake it made in the original recovery act - underestimating the scope of the crisis, and hyping the plan to address it.

Take a close look at the deal. Basically, it is an agreement to keep tax rates at the same level – for the very rich to the middle class (the poor fare worse). The Bush tax rates are extended. The expanded Earned Income Tax Credit and child tax credit is extended. Unemployment insurance is extended. Dividends and capital gains keep their special rate. The alternative minimum tax remains limited. None of these add a boost to the economy; they simply avoid constricting the economy. (Sadly, the only people facing higher taxes are families making less than $40,000 or individuals making less than $20,000, who will lose refunds they received from the President’s Make Work Pay refundable tax credit that wasn’t part of the deal).

Three elements are new. The unconscionable estate tax deform offers an average million bucks or so in extra tax breaks to the heirs of the wealthiest few thousand families in America – but even if there is an epidemic that lays waste to the elderly rich, it will have no effect on jobs.

The president’s team is touting the corporate tax break that allows companies to write off investments completely in the next year. But its effect on jobs is likely to be very limited. Companies are sitting on trillions in cash; they aren’t investing because they don’t have customers, not because they don’t have money. Worse, the larger companies are using much of their investment to build plants abroad where markets are growing. Unless carefully drafted, the measure will end up subsidizing them to ship jobs abroad.

The third measure is the payroll tax cut for employees. The administration touts this as “progressive” since it reduces the employees’ share of the payroll tax that applies to only the first $106,800 of income. But of course, those who make more get a greater tax break than those who make less – someone making the six-figure maximum will get a break about $2,100, a $50,000-a-year earner will get less than half that.

This is likely to help the economy. It will come as a small increase in take-home pay, more likely than a lump-sum refund to be spent rather than saved. However, the break totals $120 billion for one year in a nearly $15 trillion economy. We’ve got more than 20 million people in need of full-time work. States and localities are looking at another round of layoffs. Home values aren’t recovering, and Americans have only begun to dig themselves out of excessive debt. Just as the George Bush tax-break stimulus passed in early 2008, this boost will come and go without much notice. The increased consumer spending it generates may provide insulation from another downturn, but it is a long way from the jobs agenda we need – or from providing the elixir the White House is touting.

Worse, the plan is all tax cuts. This not only has the White House embracing the conservative theme that tax cuts stimulate the economy and create jobs; it abandons the centerpiece of the president’s reform agenda: the need to invest in areas vital to our future – education, infrastructure, innovation – to generate jobs in the short term even as we build a new foundation for the economy going forward.

The president gave a powerful speech in North Carolina last week laying out this agenda. It was lost in the brouhaha over tax cuts. And next year, if the president repeats the case, he’ll face a Republican majority in the House pledged to slash $100 billion – 20 percent -- out of domestic spending next year having already given away the store in tax cuts.

Liberals are up in arms about the unconscionable tax breaks lavished once more on the very wealthy while most Americans are still struggling. The president argues, forcefully, that that was the necessary price of an agreement that will boost the economy. But an untold price of the deal is that the White House is bolstering the conservative tax cut mantra in selling it, even as it weakens the president’s own vital case for the need to invest in America.

Richard (RJ) Eskow speaks for me and many others at Campaign for America's Future. And makes you realize once again that if you have a plan to join this country's rich demographic, you better get on it quickly as the MSM Faux Mox Media is now planning it's next middle-class assault.

You know what they always say: Pay now or pay later. Middle-class Americans may pay very dearly for the president's tax deal, and at the stage of life when they can least afford it. By providing a temporary cut in the payroll taxes that fund Social Security, this deal starts the nation down a slippery slope that could lead to permanent benefits cuts for the middle class and even more wealth for the rich.

In other words, Obama's "payroll tax holiday" could send the financial safety of America's seniors on a permanent vacation.

The embattled president lashed out at his critics at today's press conference. (Well, not all his critics. Just the ones in his own party. That seems to be the pattern lately.) He sneered at those who, he said, just want to "be able to feel good about ourselves and sanctimonious about how pure our intentions are."

"Purity" is a strange word for opinions that are strongly held by seven out of ten Americans, including most Republicans, independents, and even Tea Partiers. They're against cutting Social Security, and would rather raise taxes on the wealthy instead. This deal moves in the opposite direction by keeping taxes down for the rich and strengthening the hand of those who want to cut Social Security. The president's track record on this issue isn't reassuring, either. While he's attacked GOP privatization schemes, he has also carefully phrased his "defenses" of Social Security with qualifiers like the one about "protecting Social Security as a reliable income source" (a statement which avoids addressing benefit levels.)

It was Barack Obama who promoted an off-balance set of priorities that made deficits the center of attention, at a time when the official unemployment rate is 9.8% (and the unofficial rate is much higher). It was Barack Obama who formed a deficit commission and then gave it explicit authority to address Social Security (which doesn't affect the deficit). And it was Barack Obama who appointed two longtime Social Security slashers to co-chair it (along with an economist who has made cutting benefits her life's mission).

The president may resent the widespread lack of trust from members of his own party. But their distrust doesn't mean they're "sanctimonious" or "purist." It means that he's done very little to earn anyone's trust on this issue. Instead, he's given people every reason to doubt his willingness to protect Social Security.

Obama described his disaffected base as impractical people who only want "the satisfaction of having a purist position and no victories for the American people." But that assumes that this deal is a "victory for the American people." Yes, he won an extension of unemployment benefits. But when good liberal economists on the presidential payroll struggle to describe it as "a plan that's all about jobs," the gentlest thing one can say is that they're overstating the case. When it comes to jobs then, as Dean Baker succinctly says, the plan is "not trivial, but it's an order of magnitude less than what we should be looking for."

Worse, whatever gains working Americans might see under this plan is likely to cost them far more in the long run. It's not just that the $120 billion cost of the "payroll tax holiday" could be used more effectively in other ways. And it's not just that it could be distributed in a way that doesn't give yet another break to the wealthy. (Obama's economists keep repeating that this plan will save $1,000 next year for a family making $50,000, and that's true. But it will save more than twice as much ($2,136) for a family making $106,800, the current maximum for the FICA tax. And it will save $2,136 for a family making a million dollars. And $2,136 for a family making ten million. And $2,136 for a family making a hundred million...)

Those are serious flaws. But the biggest problem with the "payroll tax holiday" is the way it undermines Social Security.

The long game

It's no accident that the "payroll tax holiday" was first proposed by sworn enemies of retirement benefits on the deficit commission. We should be asking ourselves: When tax breaks can be designed in so many different ways, why did they choose this way? Why single out the only source of Social Security's funding? Could it be part of a long-term game plan?

Let's play out a likely scenario if this deal is enacted:

The 2% tax holiday expires in 2012, an election year. Meanwhile the government debt will have increased by $120 billion, the amount that will be paid into Social Security to cover the cost of this "holiday." Bear in mind: Never before in Social Security's 75-year history has it taken any funds from the overall Treasury. It's forbidden by law from adding to the deficit. That's why it has its own trust fund, which currently holds a surplus of $2.6 trillion. That's money the Federal government has borrowed, and which it's morally (and legally) obligated to pay back so we can receive our retirement benefits.

Flash-forward to 2012: The "holiday" is set to end. Republicans aren't likely to acknowledge that this was a temporary program, any more than they did with the Bush cuts. Any attempt to let the 2% cut expire will be spun as an "Obama tax hike" on the middle class. In order to believe this "holiday" is really temporary, you have to believe that Obama and other Democrats will be willing to take that kind of heat, under enormous pressure in an election year. Any takers?

Extending this 2% cut would gut Social Security's finances forever. But whatever happens, look at what Social Security's enemies will have accomplished:

The "lockbox" principle between Social Security and the overall budget will have been erased forever. A relatively small infusion of cash into the trust fund will be the poison pill that erases the "trust fund" principle.

Once the program has contributed to the deficit, it's no longer separately funded.

The enemies of Social Security will have painted a bull's eye on its only source of funding. People will see it as a "new tax" - in a year when the economy's not expected to have fully recovered.

They'll be in a position to argue, once again, that "America can't afford" to provide financial security for middle-class seniors.

What's more, would-be cutters like Maya McGuineas and Alan Simpson have made it clear that they'd love to get their hands on the $2.6 trillion in Social Security's Trust Fund to use it for other purposes (like covering the debt that was run up by tax cuts for the wealthy and a couple of wars). This will give them their chance.

How do you think all of this is going to play out? My guess is that the 2% cut will be extended for even the richest Americans. After all, 94% of the working public would see their payroll tax go from 4.2% back up to 6.2%. Can't you see the campaign ads now? "Democrats want to increase your payroll taxes by fifty percent!"

The pressure to cut Social Security benefits will be greater than ever.

That will also give the slashers their chance to welsh on the promissory notes to the trust fund. They might even be able to do away with Social Security's separate accounts altogether. In the meantime, this deal will have ended the program's 75-year history as a program that working Americans, along with their employers, fund for their own future use.

That's why Social Security isn't just another government program, and it's why lower- and middle-income people support it so strongly : You pay into Social Security while you work, and then you collect from it when you retire. Its benefits aren't just another item on the Federal balance sheet, and payroll taxes aren't just another tax. By design, Social Security is a secure way for people to provide for their own future. This deal could end that forever.

Either the anti-Social Security conservatives have played a better game of chess than the President, or this is the outcome he wants. But it doesn't matter in the end whether he's been outplayed, or is playing one of those "three dimensional chess games"... in this case, with seniors as pawns. It's a lousy move either way.

Compromises should move us forward, not backward. As Nancy Altman pointed out, a permanent 2% cut would double the projected 75-year shortfall in Social Security, while lifting the payroll tax cap would eliminate that shortfall. The first option would benefit rich people and the second would help the middle class.

Which option will be chosen in 2012 if this deal takes effect? Ladies and gentlemen, the betting windows are now open . . . .

The president said this in today's press conference: "In order to get stuff done, we're going to compromise. This is why FDR, when he started Social Security, it only affected widows and orphans. You did not qualify. And yet now it is something that really helps a lot of people."

He's right. But when it comes to Social Security, this deal isn't the kind of incremental progress he's celebrating. It only makes it easier for Social Security's opponents to move us backwards, not forwards. And that historical reference makes his earlier defense of the program even less reassuring: "Let us ensure," said Obama's statement, "(that) we continue to preserve this program's original purpose in the 21st century." Meaning what? Only protecting widows and orphans?

FDR also said, "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my Social Security program." Obama's deal would change that principle forever.

There are those who will argue this forecast is too pessimistic. But why take the chance when other stimulus packages would be more effective? There are also those who are unhappy when the President isn't trusted on an issue. But why hasn't he done more to earn trust on Social Security, especially before proposing a change of this magnitude? The bottom line remains the same: There's no reason for voters to swallow a bitter pill that could kill Social Security... and leave them facing an old age filled with uncertainty and fear.

And you thought appointing Erskine Bowles, retiring President of the University of North Carolina system to a fake deficit reduction commission wasn't a smart move on Obama's part (not to mention frauds like Al Simpson and Maya)? Did you know that Bowles, a rich boy, founded his own brokerage firm (Bowles Hollowell Conner) in 1975 (and later Carousel Capital) where he worked until he undertook a series of losing political races in North Carolina in the 00's after the defeat of President Clinton, whom he had served in various budget-balancing capacities? (Not that there's anything wrong with that.) (Some have suggested that the UNC Board of Governors broke the law in not holding public hearings when hiring him as Chancellor, but no one wants to talk about that either.) Overall, he's a very nice guy, but aren't they all?

And he/they're all certainly smart cookies too. Suzan _________________


Phil said...

"I can't remember a single one right now in the face of his latest $700,000,000 (that's Billion!). . ."

Nope! I'm pretty sure that's Million; feel free to add a few zeroes, just in case.

I gotta tell ya, Suzan, what passes for leadership in this country gets more bizarre by the day. But there I go, preaching to the choir, again.

Cirze said...

Thanks for your comment, Phil.

I always love hearing from you, sweetie.

However, this is Billion and the sad news is that $700 is just the gateway figure.

I just saw on Rachel Maddow that with the other goodies added in, it may be more like $900 Billion.

Notice how this overshadows the TARP bailout?

They are also playing us with these large figures.

Hell, most of the people who hate us can't even count to a billion.

It all sounds like a lot of money to the Tea Partiers, but as long as the Orangemen say it's all good . . . .

No. I'm not cynical yet.


Love ya,