Washington’s Fiscal Cliff Notes

How to Get Yourself to the Edge of the Fiscal Abyss and Not Jump
by Mattea Kramer and Chris Hellman

They don’t call it the "cliff” for nothing. It’s the fiscal spot where a nation’s representatives can gather and cry doom. It’s the place -- if Washington is to be believed -- where, with a single leap into the Abyss of Sequestration, those representatives can end it all for the rest of us.

In the wake of President Obama’s electoral victory, that cliff (if you’ll excuse a mixed metaphor or two) is about to step front and center. The only problem: the odds are no one will leap, and remarkably little of note will actually happen. But since the headlines are about to scream “crisis,” what you need to understand American politics in the coming weeks of the lame-duck Congress is a little guide to reality, some Cliff Notes for Washington.

As a start, relax. Don’t let the headlines get to you. There’s little reason for anyone to lose sleep over the much-hyped fiscal cliff. In fact, if you were choosing an image based on the coming fiscal dust-up, it probably wouldn’t be a cliff but an obstacle course -- a series of federal spending cuts and tax increases all scheduled to take effect as 2013 begins. And it’s true that, if all those budget cuts and tax increases were to go into effect at the same time, an already weak recovery would probably sink into a double-dip recession.

But ignore the sound and fury. While prophecy is usually a perilous occupation, in this case it’s pretty easy to predict how lawmakers will deal with nearly every challenge on the president’s and Congress’s end-of-year obstacle course. The upshot? The U.S. economy isn’t headed over a cliff any time soon.

Sequestering Congress

A peek at the obstacles ahead makes that clear.

Across-the-board spending cuts threaten to shave roughly 9% from discretionary spending in the federal budget. Those cuts, known in Washington parlance as “sequestration,” are the results of an agreement between Congress and the president and are scheduled to take effect on January 2nd. If they were to actually happen, they would reduce Pentagon spending, as well as funding for a vast array of domestic programs ranging from cancer research and food safety to grants for disadvantaged public schools.

For different reasons, neither Democrats nor Republicans want sequestration to happen -- and it was never intended to. It was originally meant as a threat so terrible that lawmakers would hammer out a bipartisan, deficit-reducing budget compromise to avoid it. The very fact that sequestration is now in the pipeline crystalizes what’s wrong in Washington -- and to understand how lawmakers will deal with it, a back story is needed.

Last August, a group of House Republican lawmakers nearly refused to raise the debt ceiling -- the limit Congress places on its own borrowing -- even though failing to do so would have shut down the government and raised interest rates for everyone. As part of a last-second bargain-basement deal to avert that disaster, Congress agreed to one dollar of deficit reduction for every dollar added to the debt ceiling. Lawmakers settled on a debt ceiling $2.4 trillion higher and deficits $2.4 trillion lower over 10 years. In other words, they wrote into law a purely arbitrary level of deficit reduction. It had nothing to do with what the best available experts believed about how soon and how much to reduce deficits.

On top of that, the lawmakers didn’t actually decide how they’d achieve all that deficit reduction. They simply dumped that little detail on a 12-member “super committee” of Republican and Democratic House and Senate members. Predictably, the committee proved something less than “super,” failing at the task -- a failure that, according to the August deal, was to trigger those automatic cuts.

Ever since, lawmakers of both parties have been warning with increasing desperation and fervor -- the Republicans because of Pentagon spending, the Democrats because of domestic programs -- that disaster, if not world-ending catastrophe, is now in the wings ready to strike unless someone does something. The irony should not be lost that these are, of course, the very lawmakers who wrote sequestration into law in the first place.

In recent months, it has come to light that sequestration could lead to the loss of more than two million jobs -- from schoolteachers to young people working for AmeriCorps. Defense hawks in particular have gone wild over very public and strategic threats of layoffs by various giant defense corporations. The reality is that your local high school will have a far tougher time sustaining budget cuts than the Pentagon, which is well-fortified to survive more than its share of reductions. After all, in the post-2001 decade Pentagon spending grew by a staggering 48% (after inflation). And war funding would be exempt from any cuts.

But sequestration is loathed by both parties, and that makes it easy to predict one thing: it won’t happen. The lame-duck Congress will likely do what it’s best at. It will punt sequestration down the road -- a safe bet is six months -- dumping it in the lap of the new Congress. In a perfect world, Congress would simply cancel sequestration as part of an intelligent plan to replace across-the-board cuts with a measured, long-term approach to deficit reduction. But don’t bet on that. The only safe wager is that Congress will dodge sequestration.

The Obstacle of Obstacles in American Politics

Those across-the-board cuts are, however, just one hurdle on that post-election fiscal obstacle course landscape. Let’s tour the rest.

On December 31st, the Bush-era tax cuts are scheduled to expire, returning rates to Clinton-era levels. They include tax breaks for just about everyone, but for our purposes, let’s break the package into two parts: tax cuts for families making over $250,000 and individuals making over $200,000 annually, and those for everyone else. There’s already agreement across the aisle in Washington to retain the lower rates for the under-$250K crowd, so it’s a pretty safe bet that, in the end, middle-class families won’t actually see their income taxes rise. But what of tax cuts for the wealthy? We’ll get to those later. Let’s take care of a few other things first.

Two policies that were meant to buoy the economy during the recession are scheduled to expire at the end of the year: expanded unemployment compensation and a payroll-tax holiday. Expanded unemployment benefits extend a crucial lifeline to the jobless. What’s more, unemployment insurance is one of the most efficient ways for the government to strengthen a weak economy, since unemployed people, unlike those with a lot of money, spend extra cash immediately and pump that money into the economy. Moody’s Analytics, a risk-management firm, and the non-partisan Congressional Research Service recently affirmed this wisdom.

Unfortunately, Congress will get stuck on this part of the obstacle course. Federal unemployment benefits will likely expire. So will the payroll-tax holiday, a temporary reduction in the Social Security tax paid by workers. This will indeed be bad for the economy, but it’s not a cliff. What’s important about these changes is they will hurt a small group of the most vulnerable Americans -- the people who have already been hardest hit.

Once again, it’s all about politics, not about the stuff that actually matters -- a reality that becomes more obvious with the next two obstacles. There’s a bundle of expiring provisions in the tax code -- known esoterically as “tax extenders” and the Alternative Minimum Tax “patch”-- that benefit corporations and upper-middle class Americans, respectively. Congress will likely extend these expiring provisions without much discussion, just as they’ve done in the past.

Next obstacle: health care. The Affordable Care Act -- Obamacare -- includes a handful of new taxes that will go live in 2013. These will affect high-income Americans and some of the medical industry, like medical-device manufacturers. These taxes will likely go into effect right on schedule, but they’re so small they’ll have next to no discernible impact on the economy. (The more controversial taxes and fees in Obamacare go into effect in 2014.)

Also in the queue is a massive pay cut for doctors who serve Medicare patients. That scheduled change is the result of legislation originally passed in 1997. It’s something that lawmakers have repeatedly managed to avoid, and it’s not a daring prediction that they’ll do so again.

And then there’s the twenty-first century obstacle of obstacles in American politics: the Bush-era tax cuts for the high-income set. President Obama has said he will veto any legislation that keeps them in place, while Republicans in Congress insist that extending them must be part of any deal to maintain low rates for everyone else.

Among all the spending and tax changes in the queue, and all the hype around the cliff, the great unknown is whether it’s finally farewell to the Bush tax cuts for the wealthy. And that’s no perilous cliff. Letting those high-end tax cuts expire would amount to a blink-and-you-miss-it 0.003% contraction in the U.S. economy, according to Moody’s, and it would raise tens of billions of dollars in desperately-needed tax revenue next year. That’s no small thing when you consider that federal revenue has fallen to its lowest point in more than half a century. Ending these tax cuts for the wealthy would bring in cash to reduce deficits or increase funding for cash-starved priorities like higher education.

It’s impossible to say how Congress will come down on this final issue, though we do know how lawmakers will arrive at their decision. At least Congress is consistent. On this, as on all other matters in the fiscal obstacle course, it’s not the economy.

It’s the politics, stupid.

© 2012 Mattea Kramer and Chris Hellman

Mattea Kramer is a research analyst at the National Priorities Project in Northampton, Massachusetts and co-author (with Chris Hellman) of the new book, A People's Guide to the Federal Budget.

Christopher Hellman is communications liaison and researcher at the National Priorities Project in Northampton, Massachusetts and co-author (with Mattea Kramer) of the new book, A People's Guide to the Federal Budget. He was previously a military policy analyst for the Center for Arms Control and Non-Proliferation, a Senior Research Analyst at the Center for Defense Information, and spent 10 years on Capitol Hill as a congressional staffer working on national security and foreign policy issues. He is a frequent media commentator on military planning, policy, and budgetary issues.


The Grand Bargain is a Grand Lie

Why the scheme being negotiated in Washington is one-sided and totally unfair
by Cenk Uygur

First of all, let's establish that no one in Washington actually cares about balancing the budget. If they did, they would love this so-called Fiscal Cliff. It raises taxes and cuts spending, so it would massively reduce the deficit. Isn't that what all of Washington has been pretending to care about all of this time?

Second, understand that this so-called compromise they are talking about in order to avoid this supposed calamity is a trick. In fact, it'll be the greatest robbery in American history. Think about it -- they say they are worried about all those tax increases and spending cuts. But that's not true. The Grand Bargain would dramatically increase spending cuts, not alleviate them. So, in fact, the only thing they care about is paying less taxes, as always.

Right now, according to the sequester $1.2 trillion in spending cuts are set to take place if nothing happens. Half of that would come from defense. Of course, this is the real problem because there's no way the defense contractors are going to allow that. Whenever people in Washington complain about spending cuts they mean spending cuts that would affect defense contractors. They want to massively increase spending cuts everywhere else in the budget.

President Obama has proposed that the Grand Bargain include $4 trillion in savings. He has said over and over again that the ratio would be $3 in spending cuts to $1 in tax increases. This is before his legendarily disastrous negotiating begins. So, let's do some quick math. According to the president's own plan that would be $3 trillion in spending cuts, which is significantly higher than the current plan of $1.2 trillion in spending cuts.

Let me add one other fact, if all you do is let the Bush tax cuts expire for people making over $250,000, you would already have $1 trillion in tax increases. And we were told because of this election that was already non-negotiable. That's what we fought to make sure would happen and the president has guaranteed it. So, what exactly do progressives gain out of this Grand Bargain?

The reality is that this is cost shifting. They are going to move the spending cuts away from defense and on to the middle class and poor by hacking away at Medicare and Medicaid. This is defined as courageous in Washington. What a load of crap. What would be courageous is taking on the rich and the powerful and the large political donors, which is the exact opposite of what's going to happen.

President Obama has already promised corporate tax cuts (from 35 percent to 28 percent). Think about that. Why are we doing tax cuts if we are trying to reduce the deficit? The administration tells us not to worry because they will close some loopholes and make it revenue neutral. But wait a minute, I thought the whole point was not to make it revenue neutral. I thought we were trying to raise revenue.

There's a good chance they'll pull this same kind of crap on income taxes, after all, if they wanted to raise a trillion in revenue all they would have to do is do nothing. Once the Bush tax cuts expire, you re-instate the middle class tax cuts and voila, you're done. That way, you don't have to give up anything in return!

Yet, the White House is planning to give up at least $3 trillion in spending cuts anyway. If you were progressive, if you cared about the middle class, if you were honest, why in the world would you do that? The reality is that this robbery is indefensible and my math here is irrefutable, that's why they will do this deal as quickly as possible. The more people think about it, the more they have a chance to get enraged. The Democrats and Republicans have to agree to this deal in the lame duck session before the public realizes their pocket has been picked.

They're going to raise the Medicare eligibility age even though Medicare costs less than private insurance to the country overall. That's not going to save us any money; it's going to cost us money. But it will shift money from the middle class who would get the benefits of those years of Medicare to private insurance companies and to the rich in the form of extra tax cuts they finance in the federal budget.

If you think these politicians have your best interest in mind, then you're living in an alternate reality. And are you telling me that no one else in the media did the simplest math in the world on this? They also don't want you to know (they don't want to know themselves, that's why they avoid thinking about the obvious problems in this charade), because they're also rich and powerful. The money gets shifted to them. So, why would they want to tell you about how you are about to get robbed?

The Grand Bargain is a Grand Lie. Anyone who argues for it is either a fool or a charlatan. If President Obama was anything but the establishment hack that he is, he would never consider it. There is nothing wrong with compromise, but this isn't compromise. This is a robbery.

© 2012 Cenk Uygur

Cenk Uygur is host of The Young Turks on Current TV as well as the host and co-founder of The Young Turks online which is the largest news show on the Internet. Uygur is the former host of MSNBC Live and has appeared numerous times on CNN, CNN Headline News, E! Entertainment Channel, Al Jazeera, ABC News, Voice of America and NPR.

1% Uses "Liberal" Front Group to Assault Social Security

Wall Street Uses "Liberal" Front Group to Lead Its Assault on Social Security
Third Way is not progressive think tank and only represents the interests of the 1%ers
by William K. Black

Third Way, lobbyists for and from Wall Street who are leading the effort to enrich Wall Street by privatizing Social Security, was created by Wall Street to fool some of the people all of the time. I have written previously here (http://neweconomicperspectives.org/2012/11/wall-street-urges-obama-to-co...) and here (http://neweconomicperspectives.org/2012/10/robert-j-samuelson-tries-to-c...) to expose their fictional claims to be a moderate or liberal Democratic group.

Eric Lautner documented Wall Street’s effort to become even wealthier by privatizing Social Security in articles (http://www.huffingtonpost.com/eric-laursen/the-can-kicks-back_b_1848474....) and his recent book (“The People’s Pension: The Struggle to Defend Social Security Since Reagan (AK Press)).

The National Journal ran an article on November 8, 2012 entitled “Left Divided over ‘Grand Bargain.’”

Groups concerned with protecting entitlements such as Social Security and Medicare are finding themselves at odds over whether an overarching fiscal deal during Congress’s end-of-year session would help or hurt their cause.

The AFL-CIO organized a day of action on Thursday–part of a broader post-election campaign to protect entitlements–with dozens of events scheduled nationwide to urge lawmakers to avoid such a deal.

A “grand bargain” to prevent the year-end onset of tax hikes and spending cuts “could cut Social Security, Medicare and Medicaid benefits, all to give tax cuts to the wealthiest Americans,” the labor group argued on its organizing site. But the union campaign is being met with resistance from others on the left.

“We, like you, are ecstatic about the reelection of President Barack Obama and what it means or American growth and prosperity,” wrote Jim Kessler, senior vice president for policy for Third Way, a liberal think tank with a centrist approach, in an open letter to the groups involved with the day of action. “However, as fellow progressives, we were disappointed to learn that you will be leading an effort against the President to impede a balanced grand bargain.”

In order to protect safety-net programs, such as Social Security and Medicare, the left must embrace reform, Kessler writes.

Let me attempt again to make the basic facts clear. Third Way is not a “liberal think tank.” It does not take “a centrist approach.” It is not run by “fellow progressives.” It is not concerned with “protecting entitlements.” It is not even a “think tank.” Third Way is a creature of Wall Street. It’s version of “protecting” the safety net was made infamous during the Tet offensive in Viet Nam when the American officer explained that “it became necessary to destroy the village in order to save it.” Third Way is the Wall Street wing of the Democratic Party, which seeks to defeat Democratic candidates like Elizabeth Warren running against Wall Street sycophants like Senator Scott Brown and seeks to unravel the safety net programs that are the crown jewels of the Democratic Party. Wall Street’s “natural” party is certainly the Republican Party, but Wall Street has no permanent party or ideology, only permanent interests. Third Way serves its financial interests and the personal interests of its senior executives. Wall Street has always been the enemy of Social Security and its greatest dream is to privatize Social Security. Wall Street’s senior executives live in terror of being held accountable under the criminal laws for their crimes. They became wealthy by leading the “control frauds” that drove the financial crisis and the Great Recession. This is why Wall Street made defeating Warren a top priority.

Third Way is run by a man who Lautner terms an “acolyte” of Pete Peterson. Peterson is a Republican, Wall Street billionaire who has two priorities – imposing austerity on America and privatizing Social Security. Privatizing Social Security is Wall Street’s unholy grail. They would receive hundreds of billions of dollars in fees and ensure that their firms were not only “too big to fail,” but “too big to criticize” if they could profit from a privatized retirement system. (We do not know who funds Third Way because it refuses to make its donors public. Given who dominates its Board of Trustees, however, the donors must be overwhelmingly from Wall Street.)

Third Way’s self-description has some elements of honesty, admitting that it is “led by a prominent private sector Board of Trustees, drawn from finance, industry, academia, the non-profit sector and government.” The order is revealing – the board is dominated by finance, with a thin veneer provided by industry, and with the barest patina of “academics” and “government.”

Here are key excerpts from their web site identifying their board.
• John L. Vogelstein

Mr. Vogelstein is the Chairman of New Providence Asset Management, LLC and Senior Advisor to Warburg Pincus, LLC. [He co-managed that huge private equity firm.]

• Bernard L. Schwartz

Mr. Schwartz is Chairman and CEO of BLS Investments, LLC.

• David Heller

Mr. Heller … was … the Global Head of Equity Trading for Goldman Sachs.

• Georgette Bennett

Dr. Bennett—an award-winning sociologist, criminologist, and journalist…. [Yeah criminologists!]

• William D. Budinger

William D. “Bill” Budinger is the founder of Rodel, Inc., where he served for 33 years as its chairman and CEO. [Rodel manufactured semi-conductors.]

• David A. Coulter

Mr. Coulter serves as Managing Director and Senior Advisor at Warburg Pincus, focusing on the firm’s financial services practice.

Mr. Coulter retired in September 2005 as vice chairman of J.P. Morgan & Chase Co. He previously served as Executive Chairman of its investment bank, asset and wealth management, and private equity business.

• Jonathan Cowan

Prior to co-founding Third Way, Mr. Cowan founded and ran Americans for Gun Safety…. In 1992, he co-founded Lead…or Leave, which became the nation’s leading Generation X advocacy group. [He lobbied to protect “second amendment rights” to bear arms and led a Pete Peterson inspired group urging “Gen X” members to unravel the safety net.]

• Lewis Cullman

Mr. Cullman was the Founder and President of Cullman Ventures, Inc., a diversified corporation that included the At-A-Glance group, which manufactures and markets diaries….

• William M. Daley

William Daley served as President Obama’s Chief of Staff from January 2011 until January 2012.
Prior to his Chief of Staff role, he was Vice Chairman … of … JPMorgan Chase, from 2004 until 2011.
As Special Counsel to President Clinton in 1993, Daley coordinated the successful campaign to pass the North American Free Trade Agreement (NAFTA).

He was co-chair of the US Chamber of Commerce Center for Capital Markets Competitiveness. [This is code for deregulation of finance.]

• John Dyson

Mr. Dyson is Chairman of Millbrook Capital Management, Inc. (MCM), a private investment firm.

• Robert Dyson

Mr. Dyson … is Chairman and CEO of the Dyson-Kissner-Moran Corp., a privately owned, diversified investment holding company….

• Andrew Feldstein

Andrew Feldstein is the CEO and Chief Investment Officer of BlueMountain Capital Management….
Prior to co-founding BlueMountain in 2003, Mr. Feldstein spent over a decade at JPMorgan where he was a Managing Director and served as Head of Structured Credit; Head of High Yield Sales, Trading and Research; and Head of Global Credit Portfolio. [“High yield” is a euphemism for junk bonds.]

• Brian Frank

Mr. Frank is a Director and Portfolio Manager at MSD Capital, L.P., the private investment firm founded by Michael Dell.

• Michael B. Goldberg

Mr. Goldberg joined Kelso & Company in 1991 as a Partner and Managing Director. [Private equity.]

• Peter A. Joseph

Mr. Joseph has been in the private equity investment business for over twenty years….

• Derek Kaufman

Derek Kaufman is Head of Global Fixed Income at Citadel LLC. He is a member of Citadel’s Portfolio Committee.
Prior to joining Citadel in 2008, Mr. Kaufman was a Managing Director at JPMorgan Chase….

• Derek Kirkland

Mr. Kirkland is a Managing Director and Co-Head of the Global Financial Institutions Group at Morgan Stanley’s Financial Institutions Group in Investment Banking.

• Ronald A. Klain

Ronald A. “Ron” Klain is President of Case Holdings, and General Counsel of Revolution LLC. [Case is an investment fund for the holdings of AOL’s founder.]

• Thurgood Marshall, Jr.

Mr. Marshall is a partner at Bingham McCutchen LLP, and a Principal of Bingham Consulting Group. Mr. Marshall counsels and devises strategies for advancing clients’ interests before Congress, the executive branch and independent regulatory agencies. [He is a lobbyist for a firm best known for representing financial firms.]

• Susan McCue

Ms. McCue is President of Message-Global, LLC, a strategic communications and public affairs firm she founded in January 2008 to advance progressive campaigns, activism and issue advocacy in the U.S. and globally.

• Herbert Miller

Mr. Miller, former CEO and Chairman of The Mills Corporation, one of America’s most innovative and successful mall developers and managers, founded Western Development Corporation (WDC) in 1967 and serves as its Chairman, Chief Executive Officer and Principal Stockholder.

• Michael Novogratz

Mr. Novogratz has been President and Director of Fortress Investment Group LLC….. Prior to joining Fortress, Mr. Novogratz spent 11 years at Goldman Sachs….

• Andrew Parmentier

Mr. Parmentier is a Founding and Managing Partner of Height Analytics. He and fellow Managing Partner John Akridge formed the company in January 2009. He has worked in the financial services industry since 1997….

• Kirk Radke

Recognized internationally as one of the top private equity attorneys during his 28 year career at Kirkland & Ellis….
Among professional activities, Mr. Radke is Co-Chair & Organizer of the International Bar Association Private Equity Symposium, Founder of the Private Equity General Counsel Network, Founder of Legal Series and Co-Founder of the Private Equity Law Firm Roundtable.

• Howard Rossman

Dr. Rossman is a President and Founder of Mesirow Advanced Strategies, Inc. and a Vice Chairman of its parent, Mesirow Financial Holdings Inc. He is responsible for all aspects of fund management, including manager due diligence, strategy analysis and asset allocation.

• Tim Sweeney

Mr. Sweeney has been President and CEO of the Denver-based Gill Foundation since October 2007. For more than 30 years, he has worked to advance equality for all people regardless of sexual orientation or gender expression.

• Ted Trimpa

Mr. Trimpa is a partner with the international law firm, Hogan Lovells LLP.

• Barbara Manfrey Vogelstein

She has over 24 years of experience in venture capital and specialized equity investing. [S]he was a Partner of Warburg Pincus, one of the world’s largest private equity firms.

• Joseph Zimlich

Mr. Zimlich is the Chief Executive Officer of Bohemian Companies, a group of family-owned real estate and private equity holdings.

Twenty of the twenty-nine trustees come from finance (counting the lawyer whose specialty is representing private equity firms). Their most common background is Mitt Romney’s – private equity – and hedge funds. The nine non-finance members include:

• A Pete Peterson acolyte who previously created supposedly centrist front groups for gun rights and an effort to enlist “Gen X” in Wall Street’s assault on the safety net
• A developer of giant malls
• A semi-conductor manufacturer
• A manufacturer of diaries
• A criminologist/journalist
• A PR specialist
• A gay rights activist
• A lobbyist at a firm best known for representing finance
• A lawyer

The board includes three representatives of “main street” (malls, semi-conductors, and diaries). They are not heavy hitters compared to the finance representatives. On finance issues, Third Way is Wall Street. It is run by Wall Street for Wall Street. It is liberal only on social issues such as gay rights – and Wall Street created Third Way to focus on finance.

I have explained in other articles the incoherence and ineptitude of the financial policies that Third Way (including Casey, who temporarily left Third Way’s board to serve as President Obama’s chief of staff, where he urged Obama to adopt austerity and the Great Betrayal. I have explained how those policies would have thrown the nation back into recession and doomed Obama’s chance for re-election. Third Way has learned nothing from their errors – they continue to push the Great Betrayal and austerity. Their overriding goal is to begin the process of privatizing Social Security. The fact that their policies would cause a gratuitous recession, immense misery, and terrible electoral losses to Democrats does not represent a policy failure to Wall Street. Wall Street would be the grand winner if we began to privatize Social Security as Third Way proposes.

The “left” is not divided on the need to oppose austerity and the Great Betrayal. Third Way is not left or center or even right. It is Wall Street on the Potomac. Opposition to austerity and the Great Betrayal is not a left v. center issue. Wall Street’s proposed financial policies are terrible for virtually all Americans.

© 2012 William K. Black

William K. Black, J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. He is also the author of the book "The Best Way to Rob a Bank is to Own One."

'Grand Bargain' Charade a Scheme to Protect Corporate Welfare

Preserve Benefits: Cut Gouging and Inequities
by Ralph Nader

Congress is still talking about a “Grand Bargain” that “balances” far more spending cuts than tax increases. That is another way of saying that you – the consumer of Medicare and Medicaid services, the recipient of Social Security, and the average taxpayer will take the brunt of the spending cuts, while the wealthy get their income taxes restored, not raised, to their pre-Bush modest levels. Don’t buy it!

There are two ways to cut Medicare and Medicaid. The right wingers want to cut benefits. Consumers want to cut vendor fraud, the overcharging and the immense over-diagnosis, over-treatment and erroneous or unnecessary procedures and prescriptions documented so often by, among others, the Dartmouth Institute for Health Policy and Clinical Practice (http://tdi.dartmouth.edu/), Johns Hopkins University School of Medicine and the Harvard School of Public Health.

Don’t think this is small stuff. The waste and fraud amount to hundreds of billions of dollars a year! Americans pay the highest prices for drugs in the world even though most of them were developed in the U.S. significantly based on government research, development and with tax credit subsidies for Big Pharma. Even Mr. Obama’s 2013 budget recognizes savings from excessive drug industry pricing.

The nation’s leading expert, Harvard’s Malcolm Sparrow, has estimated that computerized billing fraud and abuse is anywhere from 10 to 25 percent of the nation’s health bill. This adds up to $270 billion to $650 billion a year. A big slice of that fraud is taken out of Medicare and Medicaid.

A single-payer, full Medicare for all system – formerly supported by President Obama, Hillary Clinton and many members of Congress, before Mr. Obama took it off the table in 2009 – would cut present administrative costs in half. Canada’s system, which allows patients to freely choose their doctor and hospital, covers everyone for half of the $9000 per capita that Americans will pay this year. Our system leaves 50 million people uncovered of whom 45,000 will die this year alone due to lack of coverage, according to a peer-reviewed study by Harvard Medical School researchers.

Longer range savings come from reducing medical malpractice, hospital-induced infections and plain errors that annually cost 200,000 lives, and more injuries and sicknesses. Some hospitals are proving these savings can come quickly with common sense solutions: better sanitation, checklists and stronger internal peer reviews.

The trilogy of health care fraud, waste and abuse requires public discussion, along with the vastly greater returns from better funded policing of the healthcare system. Yet pundits and columnists ignore reaping savings from the bloated healthcare industry and assume the cuts must overwhelmingly come out of people’s hides – namely benefits.

As economist Dean Baker has written (http://www.cepr.net/index.php/issues/social-security-and-retirement), we don’t need to cut Social Security benefits (already solid for the next 25 years) whether in money or later age eligibility.

Congress could also simply raise the social security tax on incomes above $115,000, increase the minimum wage, inflation adjusted, to that of 1968! And adopt other long-overdue improvements such as disability enforcement efficiencies. The initiatives will move the trust fund to sustainability for the next 75 years.

The deep bias of public dialogue here, whether in such reborn deficit-reduction commissions as Simpson-Bowles or in the general media is revealed in the use of the word “entitlements.” It is only used to apply to Medicare, Medicaid and Social Security, which involve recycling peoples’ tax dollars. It is not used to describe the massive corporate entitlements shoveled out daily to business welfarists in the form of subsidies, bailouts, giveaways, tax loopholes, debt revocations, loan guarantees, discounted insurance and other aid to dependent corporations. Why? Power produces privileges.

When 30 large companies, such as Verizon and General Electric, make a total of $160 billion in U.S. profits from 2008-2010 according to the Citizens for Tax Justice (http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersPR.pdf) and pay NO federal income taxes there is a substantial loss of revenue to the U.S. Treasury. Two thirds of corporations pay no income tax on their profits under the Swiss cheese tax code.

Moreover, the corporate welfare they receive in various modes, including free research, development, and inflated government contracts (a disguised subsidy) is hardly a recycling of their taxes.

Just taxing corporations at the rate paid in the prosperous nineteen sixties would bring in hundreds of billions of dollars yearly. Another great revenue producer is a tiny Wall St. speculation sales tax, a far tinier rate than what you pay in sales taxes.

What about taxing capital gains and dividends the same as ordinary income? That was the case under Ronald Reagan. Then there is the bloated military budget, so full of redundancies, waste, boondoggle weapons programs such as the F-22, endless weapons cost over-runs, contracting fraud and boomeranging Empire expenditures as to boggle the minds. Even retired high military officers condemn giving the Pentagon such blank checks.

Anyone who has been in the armed services has seen the runaway expenditures, especially those that hugely outsourced contracts inflict on American taxpayers.

It is hard to remember when the last thorough Congressional investigation of the Pentagon budget occurred. Why, Congress can’t even get the Department of Defense to provide accountings so as to be auditable by the Congressional Government Accountability Office (GAO). The Defense budget is half of the entire U.S. government’s operating expenditures and it is not even auditable!

So enough already of the twisted, evasive talk of the Grand Bargain on your backs. The Grand Bargain should be both Parties paying close attention to corporate welfare, corporate tax escapes, and corporate crime, fraud and abuse before unraveling the most meager social safety net in the western world.


Ralph Nader is a consumer advocate, lawyer, and author. His latest book is The Seventeen Solutions: Bold Ideas for Our American Future. Other recent books include, The Seventeen Traditions: Lessons from an American Childhood, Getting Steamed to Overcome Corporatism: Build It Together to Win, and "Only The Super-Rich Can Save Us" (a novel).

Experts: 50 Million Poor Need Safety Net, Not Austerity

New Census data shows millions in poverty as well as millions saved from poverty by crucial government programs like Social Security, food stamps
by Common Dreams staff

A chorus of poverty experts says that new data from the Census Bureau show the human cost of putting safety net programs like food stamps and unemployment insurance on the chopping block as austerity-pushers warn of the so-called "fiscal cliff."

The new Supplemental Poverty Measure (SPM - http://www.census.gov/prod/2012pubs/p60-244.pdf) released Wednesday from the U.S. Census Bureau shows 49.7 million Amerians living in poverty -- an increase from the 46.6 million reported in poverty in the Bureau's official estimate from September.

What the data also show is how government safety programs have kept millions from heading into poverty.

In contrast to the federal poverty figures released by the Census Bureau roughly two months ago, the SPM offers a more holistic look at poverty, explains Melissa Boteach (http://www.americanprogress.org/issues/poverty/news/2012/11/14/44898/new...), Director of the Poverty and Prosperity Program for Center for American Progress and Director of Half in Ten, "by taking into account factors such as work expenses and medical costs that push families into poverty. They also provide crucial information on the effectiveness of work and income supports in lifting families above the poverty line."

The fact that the SPM shows these programs keep people out of poverty proves austerity-pushing voices like that of Paul Ryan wrong, says Greg Kaufmann, whose blog on The Nation focuses on poverty (http://www.thenation.com/blogs/greg-kaufmann). Kaufmann says that "Paul Ryan says we don't look at whether programs are working, we just throw money at problems. He's wrong. SPM is an example of how we look at whether programs are working and find that poverty would be much worse without SNAP (food stamps), child tax credits, the Earned Income Tax Credit (EITC), unemployment insurance, etc. -- all of the things the GOP and some democrats will attack during 'cliff' negotiations."

Boteach points out the millions who've escaped poverty through safety net programs, as shown in the new SPM:

Refundable tax credits for working families such as the earned income and child tax credits, for example, lifted 8.7 million people out of poverty in 2011, and the child poverty rate would have been 6.3 percentage points higher without them (http://www.census.gov/hhes/povmeas/methodology/supplemental/research/Sho...). Similarly, the Supplemental Nutrition Assistance Program lifted 4.7 million people out of poverty in 2011. Without it, the child poverty rate would have been 2.9 percentage points higher (http://www.census.gov/hhes/povmeas/methodology/supplemental/research/Sho...).

David Cooper, an economic analyst at the left-leaning Economic Policy Institute (http://epi.org/) writes that that figures offer a blunt reminder of the human toll cuts to safety net government programs would have:

As Congress debates how to address the looming “fiscal obstacle course" (http://www.epi.org/publication/ib345-navigating-fiscal-obstacle-supporti...), [Wednesday's] release is a stark reminder of what is at stake. Budgetary decisions have real world consequences. Lawmakers must remember that the choices they make are not simply reconciling numbers in the federal ledger; for millions of Americans, these decisions are the difference between meeting their family’s basic needs and falling into poverty.

The SPM's documentation of the poverty-saving benefits of these safety nets couldn't be more timely, Arloc Sherman, a senior researcher at the Center on Budget and Policy Priorities (http://www.cbpp.org/) adds:

First, in coming weeks policymakers will likely consider deep program cuts as part of major budget negotiations. Second, key measures that account for part of the safety net’s large anti-poverty impact are poised to expire. These include federal emergency unemployment insurance and the 2009 Recovery Act’s improvements in refundable tax credits like the EITC. Third, this is all happening at a time when joblessness – particularly long-term joblessness – remains elevated and the need for safety net programs remains strong, both to reduce hardship for jobless households and to maintain the strength of the economy overall.

The SPM makes clear that, to help avert any rise in poverty going forward, federal and state policymakers need to protect programs like unemployment insurance, housing assistance, and nutrition programs. And they should extend key recent, recession-related improvements to these programs, such as those in unemployment benefits and working-family tax credits like the EITC.

Also included in this more comprehensive measure of poverty is Medical Out-of-Pocket Expenses (MOOP), which, as the graphic below shows, is pushing millions into poverty, a fact that would be eliminated by a national, single-payer health program.

* * *


Facts Falling Off the Fiscal Cliff

by Robert Farley

Home • The FactCheck Wire • Facts Falling Off the Fiscal Cliff
Facts Falling Off the Fiscal Cliff
Posted on November 14, 2012
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In press conferences on the so-called fiscal cliff, House Speaker John Boehner greatly exaggerated the negative effect on the economy of raising taxes on upper-income individuals.

Boehner erred when he said that “the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners.” That’s incorrect. Boehner’s spokesman said the speaker simply misspoke, but Boehner is a repeat offender with this bogus claim.
Boehner repeatedly cited an Ernst & Young analysis to claim that raising taxes on upper-income earners would “destroy nearly 700,000 jobs in our country.” But that analysis assumes revenue from the taxes would be used “to finance a higher level of government spending,” even though Obama would use the added revenue to reduce the deficit. The analysis also takes an extremely long view: Only “two-third to three-quarters of the long-run effect” is expected to occur within a decade.
Boehner said raising taxes on those making over $250,000 “would slow our economy.” But according to a recently released report by the nonpartisan Congressional Budget Office, the effect on the economy would be “relatively small.”

The “fiscal cliff” is shorthand for a $560 billion mix of tax hikes and deep spending cuts that are scheduled to kick in at the end of 2012. The Congressional Budget Office warned that absent intervention by federal legislators, the confluence of tax hikes and spending cuts “will lead to economic conditions in 2013 that will probably be considered a recession.” President Barack Obama and congressional Democrats have advocated that the George W. Bush tax cuts be allowed to expire for those making over $250,000. In a press conference on Nov. 9, Boehner said he believes a tax hike on the wealthy would harm an already fragile economy.

Boehner has got a point — some small-business owners will see taxes go up, and the CBO projects some restraint on economic growth as a result. But he and other Republicans exaggerate this greatly, even to the point of making statements that are downright false sometimes.

Half of wealthy people are small-business owners?

In his news conference on Nov. 9, Boehner repeated an incorrect talking point about the percentage of wealthy Americans who are small-business owners.

Boehner, Nov. 9: The problem with raising tax rates on wealthy Americans is that more than half of them are small-business owners. Raising tax rates will slow down our ability to create the jobs that everyone says they want.

It’s not true that more than half of the people who earn more than $250,000 are small-business owners. Boehner’s spokesman, Michael Steel, said Boehner misspoke, that he meant to say half of small-business income, not half of small-business owners. If it’s an honest mistake, it’s one Boehner has made before.

Steel pointed to a July 14, 2010, report from the Joint Committee on Taxation that found 53 percent of the $1.3 trillion of business income would be reported on tax returns in the top two tax brackets that Obama proposes to raise taxes on. However, the JCT study makes clear that not all of this income might be considered “small”; that in 2005, “12,862 S corporations and 6,658 partnerships had receipts on more than $50 million.”

In 2011, the Treasury Department’s Office of Tax Analysis took a more in-depth look at the issue using a more realistic definition of “small business” and it shows that more than 90 percent of small-business owners wouldn’t be affected by Obama’s proposal to raise taxes on individuals making over $200,000 and couples making over $250,000. Moreover, about 90 percent of those who would be affected by the tax increase are not small-business owners.

Using the Treasury report’s “narrow” definition of small business — one with $10 million maximum in income (or deductions) — and defining “owner” as anyone who gets at least one-fourth of all his or her income from a “small business,” then:

Only 8 percent of small-business owners have income of $200,000 or more. So 92 percent of small-business owners wouldn’t be affected by Obama’s proposal. (Table 14, Small Business Owners, Narrow Definition) They account for 57 percent of the income of small-business owners, so Boehner would have been on more solid ground had he said — as his spokesman says he meant to say — “small-business income” instead of “small-business owner.”
Of the 1,191,000 taxpayers who fall into the top two tax brackets that would see increases under Obama’s plan, only 133,000 (11 percent) reported any small-business income at all, and only 105,000 (9 percent) qualify as small-business owners under the narrow definition. (Table 17)
Furthermore, despite Boehner repeatedly referring to small businesses and “job creators” interchangeably, the notion that small businesses are necessarily “job creators” is also a big exaggeration. “Slightly more than one-fifth of small businesses” qualify as an “employer,” the report states. (Page 1)

The Ernst & Young Study

In making his case for the Bush tax cuts to be extended for everyone, Boehner has repeatedly cited a study done by the accounting firm Ernst & Young.

Boehner, Nov. 7 press conference: The independent accounting firm Ernst and Young says going over part of the fiscal cliff and raising tax rates on the top two brackets will cost our economy more than 700,000 jobs.

Boehner, Nov. 9 news conference: On Wednesday I outlined a responsible path forward to avert the fiscal cliff without raising tax rates. About 24 hours after I spoke, the Congressional Budget Office released a report showing that the most harmful consequences of the fiscal cliff come from increasing tax rates. According to Ernst & Young, raising the top rates would destroy nearly 700,000 jobs in our country.

Boehner, Nov. 10 weekly radio address: Raising those rates on January 1 would, according to the independent firm Ernst & Young, destroy 700,000 American jobs.

Boehner is referring to a study prepared by two economists at Ernst & Young on behalf of pro-business groups: the Independent Community Bankers of America, the National Federation of Independent Business, the S Corporation Association, and the United States Chamber of Commerce — all of which lean strongly Republican. One of the study’s authors, Robert Carroll, once worked in the Treasury Department under President George W. Bush.

Boehner accurately cited the figures in the report, but left out some important caveats.

Ernst & Young, July 2012: This report finds that the increase in the top tax rates would reduce long-run output by 1.3% when the resulting revenue is used to finance additional government spending. Employment is found to fall by 0.5%. In today’s economy, these results would translate into a reduction of gross domestic product (GDP) of $200 billion and employment by 710,000 jobs.

There’s an important caveat in there that some may miss; the projection assumes the revenue generated by raising taxes on those making over $250,000 would be “used to finance additional government spending.” The report did not examine what would happen if the additional revenue were used to reduce future federal deficits. As we noted when the report was raised during the vice presidential debate, Moody’s chief economist, Mark Zandi, called that omission “odd” and said, “It seems to me that is the more relevant scenario. And my sense is that if they did, the results would be very different.”

In its analysis of fiscal cliff alternatives, the nonpartisan Congressional Budget Office assumed that “a significant part of the decrease in taxes (relative to those under current law) would be saved rather than spent.”

We asked Boehner spokesman Michael Steel about that Ernst & Young report’s assumption, and he responded by email: “How would additional revenue reduce government spending? Given that President Obama’s budget includes a trillion-dollar deficit, isn’t it obvious that new revenue would go to spending?”

But the Ernst & Young report assumed the revenue would be used for “additional government spending.” According to the 2013 budget proposed by Obama, spending would go down. As part of the Budget Control Act agreed to by both parties, discretionary spending will be reduced by $1 trillion over 10 years. The projected deficit for the 2012 fiscal year, $1.33 trillion, is expected to drop to $901 billion in FY 2013.

There’s another small-print caveat to the Ernst & Young report, the definition of “long run.” A footnote at the bottom of the report explains that “roughly two-third to three-quarters of the long-run effect is reached within a decade.” In other words, when the report cites the loss of 700,000 jobs, a quarter to a third of those job losses would happen more than a decade from now.

Slow the economy?

In addition to costing Americans jobs, Boehner contended in his Nov. 9 press conference that “we also know that it would slow down our economy.” If it does, it won’t be by much, according to the Congressional Budget Office.

In a November report looking at the impact of the fiscal cliff and several alternative scenarios, the CBO concluded that raising taxes just on those earning above $250,000 would have a “relatively small effect” on the economy. (Page 2)

According to the report, if instead of allowing the Bush tax cuts to expire, they were extended for everyone, it would result in a 1.4 percent inflation-adjusted increase in the GDP (and 1.8 million jobs). Conversely, if the Bush tax cuts were extended only for those who earn less than $250,000, then the GDP would rise 1.3 percent (and add 1.6 million jobs). In other words, as the House Ways and Means Committee Democrats noted in a Nov. 8 press release, 0.1 percent of GDP and 200,000 jobs are attributable to the upper-income Bush tax cuts.


Fiscal Cliff or Austerity Bomb, Time for Obama to Show Courage

by Heather Mallick

The “fiscal cliff” allegedly approaches, as if the U.S.A. spends its days and nights in a Road Runner cartoon. Tax cuts expire but automatic spending cuts kick in, and that just might resend America into recession.

But a better name for it would be the “austerity bomb,” as economist Paul Krugman has written (http://krugman.blogs.nytimes.com/2012/11/14/the-austerity-bomb/). Americans would be blowing themselves up with a weapon of their own making. Stupidity is a weapon. How ironic it would be if sheer foolishness and the “selfishism” cult did the damage (http://www.goodreads.com/work/quotes/443285-the-virtue-of-selfishness).

Why am I even writing “Americans”? It’s Republicans vs. Democrats and it’s time for the victorious Democrats to start actual governing instead of catering and pandering to the countrified primitives that the Republican party has become.

It’s time for President Barack Obama to take the stand he should have taken in his first term: no more bowing to Tea Party Republicans eager to hammer the economy into the ground to back a disgraced ideology, that taxation is bad, government is emasculating and its spending toxic.

Obama doesn’t have to listen to these anti-government neanderthals any more. They certainly never bent in his direction in his first term and they still don’t. Their reaction to their election loss has been to demonize those who voted Democrat as contemptible freeloaders, conducting the Civil War all over again with words.

If Republicans were to look beyond their own borders — something they are loath to do on principle — they’d see the economic consequences of their hard-right ideology. The EU has fallen back into a recession for the second time in four years. And in some nations, like Spain and Greece where the unemployment rate is above 25 per cent, we see terrible things on the horizon.

Greece appears to be veering toward a level of disorder that will allow a return to fascism. Spain is a bubbling cauldron, such high hopes as they had only to be dashed by Eurocrats demanding austerity. One has a vision of a kind of medical experiment having been conducted on the living European patient.

The patient is dying, but the medicine is still being sold. Nothing dents the confidence of neo-liberals, not failure, and certainly not human pain.

When economies are fragile, austerity crushes. Austerity might work in boom times but in a recessionary era, austerity is the worst possible tactic. It’s all very well for Obama to do his usual “Can’t we all just get along?” but this time, he holds almost all the cards.

In an era of 24-hour news cycles desperate to grab attention, everything in the U.S. is presented as a crisis: the Petraeus crisis, the Gen. Allen crisis, the cliff, the flat state of Texas’s no to Obamacare, the constant hysteria. But these stories are exciting mainly for their novelty, even a level of cuteness.

The American economy won’t die on Jan. 1. “Nothing very bad will happen to the economy if agreement isn’t reached until a few weeks or even a few months into 2013,” Krugman writes. “So there’s time to bargain.”

The Financial Times of London reports that the bargaining thus far is over the tax cuts the rich have been enjoying. When they end, the top tax rate should switch back to a Clinton-era 39.6 per cent but the Republicans want it at 35 per cent.

There is no reason for Obama to compromise.

He won a tough election filled with Republicans openly ridiculing the nonrich. But even Californians agreed, in this election, that their nonsensical hatred of taxes had led them to the brink of collapse. It’s time for the 1 per cent to pay their fair share, not that a 39.6 per cent rate is even close to that.

This is basic stuff.

Obama then has to deal with a small matter that wasn’t raised even once in the presidential debates: the toll that global warming is taking on an unprepared world.

Drought, extreme heat, flooding and catastrophic storms are here to stay. The purpose of government is to prepare for huge events that individuals cannot deal with. There will never be a bigger crisis than the planet we put on a hot plate.

Obama has to get this absurd austerity bomb quarrel out of the way and start with the real work.

© 2012 Toronto Star

Heather Mallick is a columnist for the Toronto Star

Reagan: "Social Security has nothing to do with the deficit."

Ronald Reagan: "Social Security has nothing to do with the deficit."

Grand Bargain is a Grand Betrayal: The Forgotten World of Facts

A Grand Bargain is a Grand Betrayal: The Forgotten, Lonely World of Facts
That the United States is center-right and Obama needs compromise on slashing the welfare state is a myth
by Paul Rosenberg

"Facts are stupid things," Ronald Reagan once said, hilariously misquoting Founding Father John Adams, your typical elitist Enlightenment intellectual, who actually said, "Facts are stubborn things, and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence." But in the contest between the real world of John Adams and the fantasy world bequeathed to us by Ronald Reagan, stupid and stubborn are on both on the side of the latter... and the latter is winning, hands down, as can be seen in President Obama's pursuit of a so-called "grand bargain" that would cut far more in spending than it would raise in taxes. In the Reaganite fantasy world of Washington DC, Obama represents the left. In the real world? Well, take a look for yourself.

There is a political party in the United States whose presidential candidate got over 60 million votes, and whose members - according to the General Social Survey (http://www3.norc.org/gss+website/) - overwhelmingly think we're spending too little on Social Security, rather than spending too much, by a lopsided margin of 52-12. The party, of course, is the Republican Party.

There is as an ideological label claimed by over 100 million Americans, who collectively think we're spending too little on "improving and protecting the nation's health", rather than spending too much, by a 2-1 margin: 48-24. The labelled ideology, of course, is conservative.

Combine the two categories and the two spending questions, and you find that a 51.4 percent of conservative Republicans think we're spending too little on either Social Security, health care or both. Only 28.7 percent think we're spending too much, and just 7.3 percent think we're spending too much on both.

That's 7.3 percent of conservative Republicans in support of the position taken by leaders of both political parties - Republicans, who want to slash the welfare state drastically while making permanent tax cuts for the rich, and Democrats, led by President Obama, who wants a more "balanced" approach, with $2.50 cut from spending for every $1 added in taxes. Other Democrats, particularly in Congress, are trying to push back against Obama, without letting their slips show, and Obama is doing his best to hide what he's up to, but there is simply no way to get $4 trillion in cuts - almost $1 trillion already agreed to and another $3 trillion in his current proposal - without deep spending cuts that even a majority of conservative Republicans oppose.

Yet, as the Guardian reports, Obama's grassroots campaign organization is being kept alive after the campaign, and pushing this far right agenda is their first emailed call to action. "It's now clear that ordinary citizens will also be subjected to a full bore messaging campaign to persuade them that they should regard this counterproductive sacrifice as good for them," notes leading econoblogger Yves Smith at Naked Capitalism (http://www.nakedcapitalism.com/2012/11/obama-to-deploy-campaign-apparatu...). She also notes, correctly, that "most Americans have a simple response to the notion of 'reforming' these popular programs: Cut military budgets and raise taxes on upper income groups".

Something we can all agree on

The figures cited above come from the General Social Survey of 2010. The GSS is the gold standard of public opinion research in the United States. Social scientists reference it more often than any other data source except for the US Census. The GSS has been asking these same questions since the 1970s, with similar ones added to its list over time. The responses to those questions reveal a much broader truth - the American people like the various different functions of the welfare state, regardless of their political ideology or affiliation. They like spending on highways, roads and bridges, mass transportation, education, child care, urban problems, alternative energy, you name it.

For example, in 2010, if we combine six questions - adding education, mass transit, highways and bridges, and urban problems to Social Security and health care - then the percentage of conservative Republicans saying we spend too much on all of them drops to a minuscule 0.4 percent, while two-thirds (66.5 percent) say we are spending too little on at least one of them. They may philosophically subscribe to the idea of shrinking government, but pragmatically they know what works and they want more of it, not less. Americans are famously described as being pragmatic, rather than ideological, and in this respect, at least, that political cliche is absolutely right.

Indeed, 2010 was only remarkable as a year in which anti-welfare state hysteria had been whipped up to a fever pitch. If one looked instead at the combined surveys for 2006, 2008 and 2010, then two-thirds of conservative Republicans (66.6 percent) thought we were spending too little on one or both of health care and Social Security, compared to just under one in seven (14 percent) who thought we were spending too much on at least one. A mere 5.1 percent thought we were spending too much on both.

In the world of stubborn and stupid, America is a center-right nation, and it really does make no sense that Barack Obama beat Mitt Romney. He's trying to compromise with the Republicans because he has to: Their insistence on slashing the welfare state represents the overwhelming consensus of American political opinion, regardless of the last election's results. But in the forgotten, lonely world of facts, none of that is true.

The need for a restatement

While GSS data since 1973 repeatedly confirms this pattern of welfare state support even from self-identified conservatives, the pattern was actually first described and discussed in the 1967 book The Political Beliefs of Americans by Lloyd Free and Hadley Cantril, two towering pioneers of public opinion research. Their book was based on surveys conducted in 1964, almost a full decade before the GSS data begins. The disjunction between what they called "operational" liberalism and ideological conservatism was one of the dominant themes of their book (they identified ideological conservatism by agreement with a set of five questions about government interference versus individual initiative). In the final section of the final chapter of the book, titled, "The Need for a Restatement of American Ideology", they wrote:

"The paradox of a large majority of Americans qualifying as operational liberals while at the same time a majority hold to a conservative ideology has been repeatedly emphasized in this study. We have described this state of affairs as mildly schizoid, with people believing in one set of principles abstractly while acting according to another set of principles in their political behavior. But the principles according to which the majority of Americans actually behave politically have not yet been adequately formulated in modern terms...

"There is little doubt that the time has come for a restatement of American ideology to bring it in line with what the great majority of people want and approve. Such a statement, with the right symbols incorporated, would focus people's wants, hopes, and beliefs, and provide a guide and platform to enable the American people to implement their political desires in a more intelligent, direct, and consistent manner."

This, of course, never took place. Two major political figures who might have helped foster such a restatement - Dr Martin Luther King, Jr and Robert F Kennedy - were assassinated the next year. Philosopher John Rawls' Theory of Justice actually embodied that restatement in a brilliantly simple abstract metaphor, the veil of ignorance, but his ideas never found the sort of symbolic amplification that Free and Cantril rightly recognized as crucial.

Instead, American politics took a much darker turn, one led by the indulgence of racist animosity, whose influence only became more deeply embedded over time, even as its initial expression was formally abandoned, and condemned. This turn can even be seen implicitly there in Free and Cantril's data. It's not just the case that Americans as a whole are schizoid - operationally liberal (65 percent according to their data) while ideologically conservative (50 percent). It's particularly true of a crucial subset: 23 percent of the population is both operationally liberal and ideologically conservative. And here's the kicker: The proportion of people fitting this description was double that in the five Southern states that Barry Goldwater carried in 1964 - the only states in the nation he carried aside from his home state of Arizona.

What this clearly implied, we can now see with hindsight, is that this population could be tipped either way, and was particularly vulnerable by tipping on the issue of race. Even though Goldwater himself abhorred making racist appeals, activists and even party organizations working for him had no such qualms, and the states he carried reflected that. Indeed, we can even see this today in GSS data, by looking at differences within the broad spectrum of support for government spending.

If, for example, we consider two different spending questions which bear on dealing with the problem of global warming - support for spending on the environment and for developing alternative energy (a new question just added in 2010) - we find a difference between liberals and conservatives, Democrats and Republicans, but the difference is entirely within the realm of overwhelming support. Democrats say we're spending too little versus too much on both by 57.8 percent to 0.3 percent - a factor of almost 200-to-1 - while Republicans agree by "only" 29.8 percent to 6.6 percent - a factor of more than 4-to-1. For liberals, its more than 80-to-1 (65.2 percent to 0.8 percent), while for conservatives its better than 5-to-1 (29.6 percent to 5.7 percent). So the differences are stark - but they're all in the realm of overwhelming support for more spending. It's like comparing a rabid football fan to another rabid football fan with season tickets for his extended family.

When we look at spending on poor people and blacks, however, the picture is starkly different. Liberals once again say we're spending too little rather than too much on both by an overwhelming margin, 25-to-1 (39.8 percent to 1.6 percent), but Republicans are evenly split (10.5 percent to 10.4 percent). For liberals the ratio is roughly 20-to-1 (35.3 percent to 1.8 percent), while for conservatives it's 3-to-2 (15.6 percent to 10.0 percent). But when you combine the categories, that's when the depth of the difference really stands out. For liberal Democrats, the ratio is 200-to-1 (40.8 percent to 0.2 percent), while for conservative Republicans it's more than 2-to-1 in the other direction (6.4 percent to 13.8 percent). In short, the one way to get conservative Republicans to be operationally conservative is to talk about poor people and blacks - in 19th century terms "the undeserving poor". And yes, since you asked, they really do still think that way. If you want to know where Mitt Romney's talk of the 47 percent came from, you need look no farther than this.

Just the facts

But America rejected Romney's vision, didn't they? As the last few million votes are still being totaled, his percentage of the vote has dwindled down... to 47 percent, ironically. And yet, Obama's reasoning, even his "progressive" argument to his base is articulated within a conservative framework, one that highlights the deficit as the focus of hysterical concern, even when it tries to sound sensible and sober. Thus, the email call to his volunteers mentioned above said that Obama was "working with leaders of both parties in Washington to reduce the deficit in a balanced way so we can lay the foundation for long-term middle-class job growth and prevent your taxes from going up".

The idea of a bipartisan plan to grow the economy by balanced deficit reduction is understandably quite popular. It ranks right up there with the pizza-beer-and-ice-cream-heart-healthy-weight-loss-diet plan: The perfect solution for a fact-free world. But, as a recent letter from 350 economists points out (http://jobsnotausterity.org/), "[T]oo many in Washington are fixated on cutting public spending to balance the budget, not on how to put people back to work and get our economy going", but "there is no theory of economics that explains how we can deflate our way to recovery". To the contrary, as they pointed out, the opposite is true: "As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery."

But it's not just this popular proposal is a fantasy. It's also not really that popular if you ask folks about specifics. Which is just what Democracy Corps and Campaign for America's Future did with an election eve poll (http://www.ourfuture.org/files/documents/dcor.cafpe.graphs.110812.FINAL.pdf). In particular, they asked about all the major components of the Simpson-Bowles Plan, the informal background for Obama's "balanced deficit reduction plan". Every single component they asked about was deemed unacceptable by landslide majorities.

"Capping Medicare payments, forcing seniors to pay more" was rejected 79-18.
"Requiring deep cuts in domestic programs without protecting programs for infants, poor children, schools and college aid" was rejected 75-21
"Cutting discretionary spending, like education, child nutrition, worker training, and disease control" was rejected 72-25.
"Not raising taxes on the rich" was rejected 68-28.
"Continuing to tax investors' income at lower rates than workers' pay" was rejected 63-26.
"Reducing Social Security benefits over time by having them rise more slowly than the cost of living" was rejected 62-31.

Turning to the subject of preserving Medicare:

"Capping Medicare payments, forcing seniors to pay more" was rejected 79-18.
But - taking a very different approach, "Save Medicare costs by negotiating lower drug prices from drug companies" was supported 89-8.

Robert L Borosage warned in a cover story (http://www.thenation.com/article/171266/grand-bargain-fiscal-cliff-could...) for the Nation magazine, which cites some of these same strong views opposing what the fantasy rhetoric hides. "The grand bargain not only offers the wrong answer; it poses the wrong question," Borosage writes. The right question, of course, is what to do about the stranglehold of wealth and income inequality that has developed over the past 30+ years, and how to secure the future of the 99 percent that have been left behind. "The call for shared sacrifice makes no sense," Borosage argues, "given that in recent decades, the rewards have not been shared."

A truly progressive vision, stubbornly rooted in the world of facts would focus like a laser beam on the right question. This is what FDR's New Deal was all about at bottom - rebuilding the nation's prosperity from the bottom up. The economic soundness of his approach can be seen in the decades of broadly shared prosperity that followed in his wake. The political soundness can be seen in the polling data cited above - particularly the measures of conservative support. Those are the stubborn facts that President Obama ought to be attending to. And leave the stubborn fantasies behind. It's time he set aside his love affair with Ronald Reagan. John Adams is waiting in the wings.

© 2012 Al Jazeera

Paul Rosenberg was a frontpage blogger for OpenLeft.org and is now Senior Editor for Random Lengths News, an alternative bi-weekly in the Los Angeles Harbor Area, where he specializes in labor, community and environmental justice issues.

If the Budget Debate Had a Nate Silver

by Dean Baker

At this point almost everyone has heard of Nate Silver, the New York Times polling analyst who had all the pundits looking stupid on election night. Silver managed to call every state exactly right. He ignored the gibberish about momentum or voters' moods and simply focused on the data given by the various polls taken in the final weeks of the campaign.

While Silver's work has likely permanently transformed election coverage, it is interesting to think about a similar analysis being applied elsewhere -- for example, the debate over the budget. Suppose that we had someone focused on actual data involved in the budget debate instead of the silly rhetoric coming from the Republicans and Democrats.

The first thing that a Nate Silver would likely point out in discussing the budget is that the large deficits of the last few years cannot be attributed either to extravagant social spending or to the Bush tax cuts. The reality that neither Republicans nor Democrats like to acknowledge is that deficits were relatively modest until the economy collapsed in 2008.

The data here is straightforward and not debatable. The Congressional Budget Office reports (http://www.cbo.gov/publication/41661 -- Table 1-1) that the deficit in fiscal year 2007, the last full year before the downturn, was 1.2 percent of GDP. We can run deficits of 1.2 percent of GDP forever. At this level, the debt-to-GDP ratio was falling. Furthermore, the deficit was projected to remain in this neighborhood until 2012 when the expiration of the Bush tax cuts was expected to bring the government to a small surplus.

The reason that we got deficits of close to 10 percent of GDP in 2009 and 2010 and continuing large deficits through the present is that the economy collapsed. This led to a plunge in tax collections and increased spending on programs such as unemployment insurance and food stamps. There were no large unfunded increases in social spending since 2007, nor where there big permanent tax cuts.

While we did have both spending and tax cuts as part of stimulus packages, these were explicitly temporary efforts to boost the economy. Had the economy not collapsed, there would have been no reason for this policy. In short, a Nate Silver of the budget debates might force people on both sides to acknowledge that the large short-term budget deficits are simply the result of the economic downturn caused by the collapse of the housing bubble.

There are still those scary stories of exploding debt and deficits that the Peter Peterson types like to flaunt. Someone focused on evidence and data would point out that the projections of exploding budget deficits are driven almost entirely by projections of exploding health care costs. If age-adjusted health care costs did not radically outstrip the growth in GDP, then the projections for debt and deficits 10, 20, or 30 years out would not look nearly so scary.

Furthermore, a Nate Silver type might point out that the CBO projections for exploding health care costs are somewhat dubious. As a recent Federal Reserve Board study points out (http://www.nakedcapitalism.com/2012/11/fed-budgetary-experts-demolish-cb...), the CBO projections imply that non-health care consumption will be declining if private sector health care costs rise at the same pace as public sector costs. Alternatively, the CBO projections would imply sharp divergence between per person costs in the public sector and costs in the private sector, something that we have not previously seen. The CBO projections also imply an ever-growing disparity between the per-person cost of health care in the United States and the cost in other countries, a gap that might prove difficult to sustain (http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/how-glob...) given the ability of people to travel across national borders.

In addition to the implausibility of these projections going forward, a Nate Silver type would likely point to the past high-side bias in CBO health care cost projections. In 1995, CBO projected that Medicare spending would be equal to 4.0 percent of GDP, while Medicaid spending would be 2.0 percent of GDP (http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/55xx/doc5506/doc... -- Table 2-14). The actual numbers for 2005 were 2.7 percent and 1.5 percent. This means that CBO's projections overstated actual health care spending on these programs in 2005 by more than 25 percent.

Given this track record, a Nate Silver in the budget analysis business would treat the CBO projections for health care cost growth the same way that Nate Silver treated the polling results showing a Romney lead from Gallup. While the sequence of Gallup polls through time may provide information about trends among voters, to use the polls to make a projection about the election it was necessary to adjust for the underlying bias. A comparable adjustment to the CBO numbers would largely destroy the basis for the long-term deficit horror story that occupies center stage in Washington today.

Unfortunately, there is no one like Nate Silver in the budget debates who can force the participants to look at logic and evidence. For the foreseeable future the budget debate will be dominated by the Karl Roves of both political parties. This is too bad, because the Karl Roves in the budget debate don't just want to mislead us about Governor Romney's election prospects; they want to take away our Social Security and Medicare.

© 2012 Center for Economic and Policy Research (CEPR)

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and the more recently published Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.

Obama's Fiscal Politics: Snatching Defeat out of Jaws of Victory

When it comes to the fiscal cliff, the president is in a superb tactical position. Why is he making concessions before he has to?
by Robert Kuttner

President Obama, to his great credit, has drawn a bright line. Taxes have to revert to the rates that were in effect before Bush tax cuts for the richest two percent.

This is crucial because the less the very rich pay, the more others have to pay either in the form of less tax relief for the bottom 98 percent or on program cuts like Social Security and Medicare.

Or has he drawn that line?

Yesterday, the White House put out the word that the president was willing to be “flexible” on the question of tax rates for the very top bracket. Specifically, that means the president will accept the Republican idea of getting some of the needed revenue by closing loopholes rather than increasing rates.

The leak of the softening of the Obama bargaining position was first reported by Erskine Bowles—why does he keep turning up like a bad penny?—after meetings with insiders at the White House, and confirmed by administration officials.

This stance is bad policy and dumb tactically on several grounds.

First, rates on the top two brackets are currently 33 percent on incomes between $250,000 and $388,000, and 36 percent on incomes above that level. On January 1, they revert to the rates that were in effect before the Bush tax cuts—36 percent and 39.4 percent, respectively. If Obama agrees not to raise rates on the very top bracket, he has to get the revenue somewhere else—or cut spending that much more.

The very richest people are the ones who have made out like bandits, even in the recession. They can surely afford to pay higher taxes. The Republican position is to get the revenue some other way—by closing loopholes. But the idea of capping deductions or closing other loopholes will hit a lot of upper-middle-class people, and leave the super-rich with less of a tax hike.

So this is dubious policy. It’s also bad politics.

Obama has the Republicans in a superb tactical position. If Congress does nothing, rates rise January 1 for everyone. The Senate has already passed legislation keeping the current rates for the bottom 98 percent. All the Republican House has do to is concur, as Obama has requested. If they don’t, taxes rise for everyone. Why blur that bright line?

The president’s tough stance was working. Republican unity on the issue of no rate cuts for the rich was already beginning to crack.

Obama still has a novice’s habit of softening his negotiating position going in, rather than holding possible concessions in his pocket for the final round. Republicans just take the concession as the new starting point, and don’t concede anything in return. Where is his learning curve on this? Lyndon Johnson or Harry Truman would weep.

And it gets worse. The president softened his position at a meeting with corporate CEOs, who have formed the $60 million campaign called “Fix the Debt” to lobby for a deal that cuts Social Security, Medicare, and Medicaid but preserves as many of their tax breaks as possible. Every one of these people is in the top bracket.

They are posing as representatives of the public interest, but this is about self-interest.

Meanwhile, the AFL-CIO, AFSCME, the SEIU, the NEA and other unions have been waging a Washington and grass-roots lobbying blitz to pin down Democratic members of the House and Senate to refuse to vote for any deal that fails to restore the higher rates on the top two percent or that cuts Social Security, Medicare, or Medicaid. Most Democrats in Congress are already firmer on these principles than their president.

If Obama is saved from his own impulses to cave in for the sake of splendid bipartisanship (and needlessly appeasing Wall Street), the thanks will be owed to the larger progressive community.

Obama has already embraced the very conservative notion that we need $4 trillion in deficit reduction over a decade. We don’t. The best way to bring down the deficit is to restore strong economic growth and full employment, which increases revenue collections.

The dreaded fiscal cliff would cut the deficit next year by about $607 billion—that’s such a big contraction that the Congressional Budget Office says it would push the economy back into recession. But if a one-year cut of $607 billion is so deflationary that it equals a fiscal cliff, what’s a ten year cut of $4 trillion? It’s a leap off a fiscal Everest?

The budget deal of 2011—the one that created the automatic sequesters—has already taken $1.7 trillion out of domestic spending over a decade. There is almost nothing left to cut on the spending side of the equation, except Social Security and Medicare—which are not the prime drivers of the current deficit and which do not belong in this debate at all.

As Obama points out in his moments of resolve, we just had an election to decide whether to raise taxes on the rich, or to cut Social Security and Medicare. He won. The party that would favor the wealthy and sock the middle class yet again lost.

As the bargaining gets serious, the president has a very strong hand. But he needs to play it a lot better than he has been doing.

© 2012 The American Prospect

Robert Kuttner is co-founder and co-editor of The American Prospect magazine, as well as a Distinguished Senior Fellow of the think tank Demos. He was a longtime columnist for Business Week, and continues to write columns in the Boston Globe and Huffington Post. He is the author of A Presidency in Peril: The Inside Story of Obama's Promise, Wall Street's Power, and the Struggle to Control our Economic Future, Obama's Challenge, and other books.

Compromise: A Misnomer for Absurdly Unequal Budget Deal

Compromise: A Misnomer for Absurdly Unequal Deal to Resolve Budget-Cliff Issues

by Roger Bybee and Carolyn Winter

Voices of the 1% are dominating the media and congressional discourse regarding the “fiscal cliff” by offering a “compromise” which justifies significant cuts in the safety-net “entitlements” by promising economic growth as a mask for their own self-interest. Their claim of the need for an economic environment offering more “certainty” for Wall Street and Corporate America is merely cover for establishing new rules and tax breaks to further enrich themselves.

This pole of the debate has recently been articulated by Lloyd Blankfein, CEO of Goldman Sachs and a key leader of the Fix the Debt coalition of 95 corporations. Blankfein holds out this tantalizing prospect: “There is a huge amount of investible cash that is now sitting on the sidelines, waiting for sensible reforms,” Blankfein stated in a Nov. 14th Wall Street Journal editorial. All of this job-creating investment will be unlocked, once President Obama and the Democrats simply accede to “sensible” changes in Social Security and Medicare, such as raising the eligibility age for both programs.

Wealthy executives like himself—Blankfein hauled in $16,164,405 in 2011—are willing to pay somewhat higher taxes so long as there is “flexibility and “shared sacrifices.” Blankfein and his Fix the Debt allies are quite prepared to be “flexible” in agreeing to pay a 4% increase in his income above $250,000, “but only if they are joined by serious cuts in discretionary spending and entitlements”. He apparently perceives an equivalent level of “shared sacrifices” betweent his modest tax increase and a new two-year delay in a 65-year old worker with meager income waiting to receive a Security check and the same two years to obtain healthcare coverage through Medicare. When he calls for ordinary Americans to “lower their expectations,” Blankfein seemingly believes that if you are a multi-millionaire or billionaire, you are entitled to have unlimited expectations and continued massive financial returns from society.

Meanwhile, even as Blankfein and his allies demand harsh sacrifces from those living in already-precarious cirucmstances in the name of lowering the government’s deficit, Blankfein and the Fix the Debt coalition are busy promoting the notion that US coprorations should no longer be obligated to pay taxes on their plants and other operations located outside the US. This proposed "territorial tax system" would exempt their companies' foreign profits from taxation, saving them $134 billion in taxes, according to a new report from the Institute for Policy Studies titled "The CEO Campaign to ‘Fix’ the Debt: A Trojan Horse for Massive Corporate Tax Breaks." Some cynics who question the depth of Blankfein’s commitment to deficit-cutting will surely suggest that the estimated $134 billion could help pay off the federal budget deficit.

Despite the obvious effort by Fix the Debt coalition to exploit the fiscal cliff crisis mentality, hasty calls for compromise are artificially setting the contours of the debate in terms that are favorable to the 1% agenda. In addition, the false urgency adds to the impetus to cede permanently hard-won social programs that have created security for tens of millions of ordinary citizens.

The set of programs that are called "the safety net" are guarantees that are undisputed in other western democracies. To compromise the guarantees provided by Social Security, Medicare, Medicaid, food stamps, and many other programs critical to the well-being of our most vulnerable citizens is to lose the foundations of a modern, humane democracy in our nation.

Before Democrats submit to this ridiculously lopsided “compromise” of a few tax dollars in exchange for major sacrifices in the safety-net, they need to consider the impact of any substantial changes to these programs on real working Americans. Workers that have expended considerable physical well-being by executing the demands of their jobs such as waitresses, auto workers, construction workers, etc. already must wait until 65 to receive comprehensive medical care for ailing bodies. In addition, many older workers have lost their insurance coverage due to unemployment or underemployment.

Consistent with the elite’s desire to divorce the discussion from uncomfortable realities, the debate is taking place without any reference to the mounting inequality in U.S. society today. Over the past thirty years, America has experienced a massive transfer of income and wealth from the lower and middle classes to the top 10%, primarily to the top 1%. This top 1% now earns 24% of all annual income, more than the bottom half of American society. In addition, in 2010, this 1% garnered 93% of all income gains in the U.S.

In the recklessness and greed enabled by this bonanza, we were dragged by the investor class into an economic collapse when the housing bubble burst in 2007 and Wall Street melted down in the fall of 2008. As economist Dean Baker has pointed out, “the indisputable reality is that the large budget deficits of recent years are due to the economic downturn following the collapse of the housing bubble” (http://www.cepr.net/index.php/blogs/beat-the-press/post-in-hyper-drive-o...) exceeding even the costs of needless wars in Iraq and Afghanistan and the unproductive Bush tax cuts. It is this economic collapse that has directly created the current deficit that drives the call for cuts in government spending.

With millions unemployed and underemployed, tax revenues from workers are low while the costs of unemployment insurance, food stamps, other government transfer, etc. are high. The deficit has been deepened by Corporate America’s intensified efforts to limit its contributions in tax revenues since the 2008 onset of the crisis. Crorporations paid an average of 22.5% from 1987 to 2008. But since then,, corporations have paid an annual rate of just 10%, causing federal revenues to plummet annually by $250 million.

The deficit situation was not brought about by the greed of working people; rather, they have been its victims. People faced with survival needs are frankly not worried about the federal deficit on a daily basis, and are far more concerned about the deficits in their bank accounts caused by a shortage of income from family-sustaining jobs.

The deficit has been the obsession of Congress, corporate leaders, and President Obama, and the business community. Therefore, asking people to face cut-backs in Medicare, food stamps, education, public safety (police and firefighters), and physical infrastructure to help millionaires and billionaires have a better “less uncertain”, since that’s investment climate is not much of a “tradeoff” to ordinary Americans.

Not only is the general concept of a “compromise” between the most vulnerable parts of the lower and middle classes and the investment class incompatible with the realities faced by citizens living in increasingly precarious conditions our citizenry inherently unequal in this era of vast disparities in political influence, but the compromise being proposed is close to absurd. In order to avoid returning to the tax structure of the last growth period in recent history, corprorate CEOs, with the approval of much assistance of the corporate media—especially, the Washington Post-- want minor tax changes for the rich in exchange for undoing the Great Society and even the New Deal

Finally, the “certainty” that the “job creators” demand-- as a precondition for investment-- carries the price tag of the 99% living in increasing uncertainty and falling living standards. Lurking beneath the slogan of making the United States “the most competitive place for investment” is the further proliferation of low-wage, no-benefit jobs which have spread since economic “recovery” got rolling .

How can competition on the current “free trade terms” be fair for U.S. workers invited to compete with workers in Mexico and China denied fundamental union rights as well as other essential human rights? How can it be good for the environment to be competing with China and their environmental standards?

Somehow, in recent years, we have bought into the idea that American wealth stands for all of America, regardless of who owns and benefits from that wealth. Instead, we must return America to a vision where its citizens must share this wealth to make it meaningful.

But we need to look again critically at the question: “Who is America?” We have been sold a bill of goods--that even many liberals buy into--that the U.S. is merely Wall Street, business success, and profits. We have been far too quick to equate the well-being of the elite with the health of all America, and to surrender to greed and profits as the organizing principle of our society.

Acceptance of the shameful “compromise” touted by Blankfein and the Fix the Debt corporations would only destroy America’s most vital social protections, deepen insecurity among the vast majority, and reflect the nation’s increasingly hollowed-out democracy.

Roger Bybee and Carolyn Winter are a husband and wife writing team based in Milwaukee. He is a freelance writer and a contributing editor and labor blogger for In These Times, and writes frequently for The Progressive website and Z magazine. They can be reached at winterbybee@gmail.com.

The GOP's Big Budget Mumble

by Paul Krugman

In the ongoing battle of the budget, President Obama has done something very cruel. Declaring that this time he won’t negotiate with himself, he has refused to lay out a proposal reflecting what he thinks Republicans want. Instead, he has demanded that Republicans themselves say, explicitly, what they want. And guess what: They can’t or won’t do it.

No, really. While there has been a lot of bluster from the G.O.P. about how we should reduce the deficit with spending cuts, not tax increases, no leading figures on the Republican side have been able or willing to specify what, exactly, they want to cut.

And there’s a reason for this reticence. The fact is that Republican posturing on the deficit has always been a con game, a play on the innumeracy of voters and reporters. Now Mr. Obama has demanded that the G.O.P. put up or shut up — and the response is an aggrieved mumble.

Here’s where we are right now: As his opening bid in negotiations, Mr. Obama has proposed raising about $1.6 trillion in additional revenue over the next decade, with the majority coming from letting the high-end Bush tax cuts expire and the rest from measures to limit tax deductions. He would also cut spending by about $400 billion, through such measures as giving Medicare the ability to bargain for lower drug prices.

Republicans have howled in outrage. Senator Orrin Hatch, delivering the G.O.P. reply to the president’s weekly address, denounced the offer as a case of “bait and switch,” bearing no relationship to what Mr. Obama ran on in the election. In fact, however, the offer is more or less the same as Mr. Obama’s original 2013 budget proposal and also closely tracks his campaign literature.

So what are Republicans offering as an alternative? They say they want to rely mainly on spending cuts instead. Which spending cuts? Ah, that’s a mystery. In fact, until late last week, as far as I can tell, no leading Republican had been willing to say anything specific at all about how spending should be cut.

The veil lifted a bit when Senator Mitch McConnell, in an interview with The Wall Street Journal, finally mentioned a few things — raising the Medicare eligibility age, increasing Medicare premiums for high-income beneficiaries and changing the inflation adjustment for Social Security. But it’s not clear whether these represent an official negotiating position — and in any case, the arithmetic just doesn’t work.

Start with raising the Medicare age. This is, as I’ve argued in the past, a terrible policy idea. But even aside from that, it’s just not a big money saver, largely because 65- and 66-year-olds have much lower health costs than the average Medicare recipient. When the Congressional Budget Office analyzed the likely fiscal effects of a rise in the eligibility age, it found that it would save only $113 billion over the next decade and have little effect on the longer-run trajectory of Medicare costs.

Increasing premiums for the affluent would yield even less; a 2010 study by the budget office put the 10-year savings at only about $20 billion.

Changing the inflation adjustment for Social Security would save a bit more — by my estimate, about $185 billion over the next decade. But put it all together, and the things Mr. McConnell was talking about would amount to only a bit over $300 billion in budget savings — a fifth of what Mr. Obama proposes in revenue gains.

The point is that when you put Republicans on the spot and demand specifics about how they’re going to make good on their posturing about spending and deficits, they come up empty. There’s no there there.

And there never was. Republicans claim to be for much smaller government, but as a political matter they have always attacked government spending in the abstract, never coming clean with voters about the reality that big cuts in government spending can happen only if we sharply curtail very popular programs. In fact, less than a month ago the Romney/Ryan campaign was attacking Mr. Obama for, yes, cutting Medicare.

Now Republicans find themselves boxed in. With taxes scheduled to rise on Jan. 1 in the absence of an agreement, they can’t play their usual game of just saying no to tax increases and pretending that they have a deficit reduction plan. And the president, by refusing to help them out by proposing G.O.P.-friendly spending cuts, has deprived them of political cover. If Republicans really want to slash popular programs, they will have to propose those cuts themselves.

So while the fiscal cliff — still a bad name for the looming austerity bomb, but I guess we’re stuck with it — is a bad thing from an economic point of view, it has had at least one salutary political effect. For it has finally laid bare the con that has always been at the core of the G.O.P.’s political strategy.

© 2012 The New York Times

Paul Krugman is professor of Economics and International Affairs at Princeton University and a regular columnist for The New York Times. Krugman was the 2008 recipient of the Nobel Prize in Economics. He is the author of numerous books, including The Conscience of A Liberal, The Return of Depression Economics, and his most recent, End This Depression Now!.

Debtpocalypse, Austerity and the Hollowing Out of America

Modern US history and the archeology of decline
by Steve Fraser

“Debtpocalypse” looms (http://www.nytimes.com/2012/11/17/us/fiscal-cliff-slope-debtpocalypse-it...). Depending on who wins out in Washington, we’re told, we will either free fall over the fiscal cliff or take a terrifying slide to the pit at the bottom. Grim as these scenarios might seem, there is something confected about the mise-en-scène, like an un-fun Playland. After all, there is no fiscal cliff (http://www.tomdispatch.com/blog/175615/tomgram%3A_kramer_and_hellman,_it...), or at least there was none -- until the two parties built it.

And yet the pit exists. It goes by the name of “austerity.” However, it didn’t just appear in time for the last election season or the lame-duck session of Congress to follow. It was dug more than a generation ago, and has been getting wider and deeper ever since. Millions of people have long made it their home. “Debtpocalypse” is merely the latest installment in a tragic, 40-year-old story of the dispossession of American working people.

Think of it as the archeology of decline, or a tale of two worlds. As a long generation of austerity politics hollowed out the heartland, the quants and traders and financial wizards of Wall Street gobbled up ever more of the nation's resources. It was another Great Migration -- instead of people, though, trillions of dollars were being sucked out of industrial America and turned into “financial instruments” and new, exotic forms of wealth. If blue-collar Americans were the particular victims here, then high finance is what consumed them. Now, it promises to consume the rest of us.

Scenes from the Museum

In the mid-1970s, Hugh Carey, then governor of New York, was already noting the hollowing out of his part of America. New York City, after all, was threatening to go bankrupt. Plenty of other cities and states across what was then known as the “Frost Belt” were in similar shape. Yankeedom, in Carey’s words, was turning into “a great national museum” where tourists could visit “the great railroad stations where the trains used to run.”

As it happened, the tourists weren’t interested. Abandoned railroad stations might be fetching in an eerie sort of way, but the rest of the museum was filled with artifacts of recent ruination that were too depressing to be entertaining. True, a century earlier, during the first Gilded Age, the upper crust used to amuse itself by taking guided tours of the urban demi-monde, thrilling to sites of exotic depravity or ethnic strangeness. They traipsed around “rag-pickers alley” on New York’s Lower East Side or the opium dens of Chinatown, or ghoulishly watched poor children salivate over toys in store window displays they could never hope to touch.

Times have changed. The preference now is to entirely remove the unsightly. Nonetheless, the national museum of industrial homicide has, city by city, decade by decade, grown more grotesque.

Camden, New Jersey, for example, had long been a robust, diversified small industrial city. By the early 1970s, however, its reform mayor Angelo Errichetti was describing it this way: “It looked like the Vietcong had bombed us to get even. The pride of Camden... was now a rat-infested skeleton of yesterday, a visible obscenity of urban decay. The years of neglect, slumlord exploitation, tenant abuse, government bungling, indecisive and short-sighted policy had transformed the city’s housing, business, and industrial stock into a ravaged, rat-infested cancer on a sick, old industrial city.”

That was 40 years ago and yet, today, news stories are still being written about Camden’s never-ending decline into some bottomless abyss. Consider that a measure of how long it takes to shut down a way of life.

Once upon a time, Youngstown, Ohio, was a typical smokestack city, part of the steel belt running through Pennsylvania and Ohio. As with Camden, things there started turning south in the 1970s. From 1977 to 1987, the city lost 50,000 jobs in steel and related industries. By the late 1980s, the years of Ronald Reagan’s presidency when it was “morning again in America,” it was midnight in Youngstown: foreclosures, an epidemic of business bankruptcies, and everywhere collapsing community institutions including churches, unions, families, and the municipal government itself.

Burglaries, robberies, and assaults doubled after the steel plants closed. In two years, child abuse rose by 21%, suicides by 70%. One-eighth of Mahoning County went on welfare. Streets were filled with dead storefronts and the detritus of abandoned homes: scrap metal and wood shingles, shattered glass, stripped-away home siding, canning jars, and rusted swing sets. Each week, 1,500 people visited the Salvation Army’s soup line.

The Wall Street Journal called Youngstown “a necropolis,” noting miles of “silent, empty steel mills” and a pervasive sense of fear and loss. Bruce Springsteen would soon memorialize that loss in “The Ghost of Tom Joad.”

If you were unfortunate enough to live in the small industrial city of Mansfield, Ohio, for the last 40 years, you would have witnessed in microcosm the dystopia of destruction unfolding in similar places everywhere. For a century, workshops there had made a kaleidoscope of goods: stoves, tires, steel, machinery, refrigerators, and cars. Then Mansfield’s rust belt started narrowing as one plant after another went shut down: Dominion Electric in 1971, Mansfield Tire and Rubber in 1978, Hoover Plastics in 1980, National Seating in 1985, Tappan Stoves in 1986, a Westinghouse plant and Ohio Brass in 1990, Wickes Lumber in 1997, Crane Plumbing in 2003, Neer Manufacturing in 2007, and Smurfit-Stone Container in 2009. In 2010, General Motors closed its largest, most modern U.S. stamping factory, and thanks to the Great Recession, Con-way Freight, Value City, and Card Camera also shut down.

“Good times” or bad, it didn’t matter. Mansfield shrank relentlessly, becoming the urban equivalent of skin and bones. Its poverty rate is now at 28%, its median income $11,000 below the national average of $41,994. What manufacturing remains is non-union and $10 an hour is considered a good wage.

Midway through this industrial auto-da-fé, a journalist watching the Campbell Works of Youngstown Sheet and Tube go dark, mused that “the dead steel mills stand as pathetic mausoleums to the decline of American industrial might that was once the envy of the world.” This dismal record is particularly impressive because it encompasses the “boom times” presided over by Presidents Reagan and Clinton.

The “Pit” Deepens

In 1988, in the iciest part of the Frost Belt, a Wall Street Journal reporter noted, “There are two Americas now, and they grow further apart each day.” He was referring to Eastport, Maine. Although the deepest port on the East Coast, it hosted few ships, abandoned sardine factories lined its shore, and its bars were filled with the under- and unemployed. The reporter pointed out that he had seen similar scenes from a collapsing rural economy “coast to coast, border to border”: shuttered saw mills, abandoned mines, closed schools, rutted roads, ghost airports.

Closing up, shutting down, going out of business: last one to leave please turn out the lights!

Such was the case in cities and towns around the country. Essential public services -- garbage collection, policing, fire protection, schools, street maintenance, health-care -- were atrophying. So were the people who lived in those places. High blood pressure, cardiac and digestive problems, and mortality rates were generally rising, as was doubt, self-blame, guilt, anxiety, and depression. The drying up of social supports, even among those who once had been friends and workmates, haunted the inhabitants of these places as much as the industrial skeletons around them.

In the 1980s, when Jack Welch, soon to be known as “Neutron Jack” for his ruthlessness, became CEO of General Electric, he set out to raise the company’s stock price by gutting the workforce. It only took him six years, but imagine what it was like in Schenectady, New York, which lost 22,000 jobs; Louisville, Kentucky, where 13,000 fewer people made appliances; Evendale, Ohio, where 12,000 no longer made lights and light fixtures; Pittsfield, Massachusetts, where 8,000 plastics makers lost their jobs; and Erie, Pennsylvania, where 6,000 locomotive workers got green slips.

Life as it had been lived in GE’s or other one-company towns ground to a halt. Two travelling observers, Dale Maharidge and Michael Williamson, making their way through the wasteland of middle America in 1984 spoke of “medieval cities of rusting iron” and a largely invisible landscape filling up with an army of transients, moving from place to place at any hint of work. They were camped out under bridges, riding freight cars, living in makeshift tents in fetid swamps, often armed, trusting no one, selling their blood, eating out of dumpsters.

Nor was the calamity limited to the northern Rust Belt. The South and Southwest did not prove immune from this wasting disease either. Empty textile mills, often originally runaways from the North, dotted the Carolinas, Georgia, and elsewhere. Half the jobs lost due to plant closings or relocations occurred in the Sunbelt.

In 2008, in the sunbelt town of Colorado Springs, Colorado, one-third of the city’s street lights were extinguished, police helicopters were sold, watering and fertilizing in the parks was eliminated from the budget, and surrounding suburbs closed down the public bus system. During the recent Great Recession one-industry towns like Dalton, Georgia (“the carpet capital of the world”), or Blakely, Georgia (“the peanut capital of the world”), or Elkhart, Indiana (“the RV capital of the world”) were closing libraries, firing police chiefs, and taking other desperate measures to survive.

And no one can forget Detroit. Once, it had been a world-class city, the country’s fourth largest, full of architectural gems. In the 1950s, Detroit had a population with the highest median income and highest rate of home ownership in urban America. Now, the “motor city” haunts the national imagination as a ghost town. Home to two million a quarter-century ago, its decrepit hulk is now “home” to 900,000. Between 2000 and 2010 alone, the population hemorrhaged by 25%, nearly a quarter of a million people, almost as many as live in post-Katrina New Orleans. There and in other core industrial centers like Baltimore, “death zones” have emerged where whole neighborhoods verge on medical collapse.

One-third of Detroit, an area the size of San Francisco, is now little more than empty houses, empty factories, and fields gone feral. A whole industry of demolition, waste-disposal, and scrap-metal companies arose to tear down what once had been. With a jobless rate of 29%, some of its citizens are so poor they can’t pay for funerals, so bodies pile up at mortuaries. Plans are even afoot to let the grasslands and forests take over, or to give the city to private enterprise.

Even the public zoo has been privatized. With staff and animals reduced to the barest of minimums and living wages endangered by its new owner, an associate curator working with elephants and rhinos went in search of another job. He found it with the city -- chasing down feral dogs whose population had skyrocketed as the cityscape returned to wilderness. History had, it seemed, abandoned dogs along with their human compatriots.

Looking Backward

But could this just be the familiar story of capitalism’s penchant for “creative destruction”? The usual tale of old ways disappearing, sometimes painfully, as part of the story of progress as new wonders appear in their place?

Imagine for a moment the time traveler from Looking Backward, Edward Bellamy’s best-selling utopian novel of 1888 waking up in present-day America. Instead of the prosperous land filled with technological wonders and egalitarian harmony Bellamy envisioned, his protagonist would find an unnervingly familiar world of decaying cities, people growing ever poorer and sicker, bridges and roads crumpling, sweatshops a commonplace, the largest prison population on the planet, workers afraid to stand up to their bosses, schools failing, debts growing more onerous, and inequalities starker than ever.

A recent grim statistic suggests just how Bellamy’s utopian hopes have given way to an increasingly dystopian reality. For the first time in American history, the life expectancy of white people, men and women, has actually dropped. Life spans for the least educated, in particular, have fallen by about four years since 1990. The steepest decline: white women lacking a high school diploma. They, on average, lost five years of life, while white men lacking a diploma lost three years.

Unprecedented for the United States, these numbers come close to the catastrophic decline Russian men experienced in the desperate years following the collapse of the Soviet Union. Similarly, between 1985 and 2010, American women fell from 14th to 41st place in the United Nation’s ranking of international life expectancy. (Among developed countries, American women now rank last.) Whatever combination of factors produced this social statistic, it may be the rawest measure of a society in the throes of economic anorexia.

One other marker of this eerie story of a developed nation undergoing underdevelopment and a striking reproach to a cherished national faith: for the first time since the Great Depression, the social mobility of Americans is moving in reverse (http://www.nytimes.com/2012/01/05/us/harder-for-americans-to-rise-from-l...). In every decade from the 1970s on, fewer people have been able to move up the income ladder than in the previous 10 years. Now Americans in their thirties earn 12% less on average than their parents’ generation at the same age. Danes, Norwegians, Finns, Canadians, Swedes, Germans, and the French now all enjoy higher rates of upward mobility than Americans. Remarkably, 42% of American men raised in the bottom one-fifth income cohort remain there for life, as compared to 25% in Denmark and 30% in notoriously class-stratified Great Britain.

Eating Our Own

Laments about “the vanishing middle class” have become commonplace, and little wonder. Except for those in the top 10% of the income pyramid, everyone is on the down escalator. The United States now has the highest percentage of low-wage workers -- those who earn less than two-thirds of the median wage -- of any developed nation. George Carlin once mordantly quipped, “It’s called the American Dream because you have to be asleep to believe it.” Now, that joke has become our waking reality.

During the “long nineteenth century,” wealth and poverty existed side by side. So they do again. In the first instance, when industrial capitalism was being born, it came of age by ingesting what was valuable embedded in pre-capitalist forms of life and labor, including land, animals, human muscle power, tools and talents, know-how, and the ways of organizing and distributing what got produced. Wealth accumulated in the new economy by extinguishing wealth in the older ones.

“Progress” was the result of this economic metabolism. Whatever its stark human and ecological costs, its achievements were also highly visible. America’s capacity to sustain a larger and larger population at rising levels of material well-being, education, and health was its global boast for a century and half.

Shocking statistics about life expectancy and social mobility suggest that those days are over. Wealth, great piles of it, is still being generated, and sometimes displayed so ostentatiously that no one could miss it. Technological marvels still amaze. Prosperity exists, though for an ever-shrinking cast of characters. But a new economic metabolism is visibly at work.

For the last 40 years, prosperity, wealth, and “progress” have rested, at least in part, on a grotesque process of auto-cannibalism -- it has also been called “dis-accumulation” by David Harvey -- of a society that is devouring its own.

Traditional forms of primitive accumulation still exist abroad. Hundreds of millions of former peasants, fisherman, craftspeople, scavengers, herdsmen, tradesmen, ranchers, and peddlers provide the labor power and cheap products that buoy the bottom lines of global manufacturing and retail corporations, as well as banks and agribusinesses. But here in “the homeland,” the very profitability and prosperity of privileged sectors of the economy, especially the bloated financial arena, continue to depend on slicing, dicing, and stripping away what was built up over generations.

Once again a new world has been born. This time, it depends on liquidating the assets of the old one or shipping them abroad to reward speculation in “fictitious capital.” Rates of U.S. investment in new plants, technology, and research and development began declining during the 1970s, a fall-off that only accelerated in the gilded 1980s. Manufacturing, which accounted for nearly 30% of the economy after the Second World War, had dropped to just over 10% by 2011. Since the turn of the millennium alone, 3.5 million more manufacturing jobs have vanished and 42,000 manufacturing plants were shuttered.

Nor are we simply witnessing the passing away of relics of the nineteenth century. Today, only one American company is among the top ten in the solar power industry and the U.S. accounts for a mere 5.6% of world production of photovoltaic cells. Only GE is among the top ten companies in wind energy. In 2007, a mere 8% of all new semi-conductor plants under construction globally were located in the U.S. Of the 1.2 billion cell phones sold in 2009, none were made in the U.S. The share of semi-conductors, steel, cars, and machine tools made in America has declined precipitously just in the last decade. Much high-end engineering design and R&D work has been offshored. Now, there are more people dealing cards in casinos than running lathes, and almost three times as many security guards as machinists.

The FIRE Next Time

Meanwhile, for more than a quarter of a century the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector. Between 1980 and 2005, profits in the financial sector increased by 800%, more than three times the growth in non-financial sectors.

In those years, new creations of financial ingenuity, rare or never seen before, bred like rabbits. In the early 1990s, for example, there were a couple of hundred hedge funds; by 2007, 10,000 of them. A whole new species of mortgage broker roamed the land, supplanting old-style savings and loan or regional banks. Fifty thousand mortgage brokerages employed 400,000 brokers, more than the whole U.S. textile industry. A hedge fund manager put it bluntly, “The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around.”

For too long, these two phenomena -- the eviscerating of industry and the supersizing of high finance -- have been treated as if they had nothing much to do with each other, but were simply occurring coincidentally.

Here, instead, is the fable we’ve been offered: Sad as it might be for some workers, towns, cities, and regions, the end of industry is the unfortunate, yet necessary, prelude to a happier future pioneered by “financial engineers.” Equipped with the mathematical and technological know-how that can turn money into more money (while bypassing the messiness of producing anything), they are our new wizards of prosperity!

Unfortunately, this uplifting tale rests on a categorical misapprehension. The ascendancy of high finance didn’t just replace an industrial heartland in the process of being gutted; it initiated that gutting and then lived off it, particularly during its formative decades. The FIRE sector, that is, not only supplanted industry, but grew at its expense -- and at the expense of the high wages it used to pay and the capital that used to flow into it.

Think back to the days of junk bonds, leveraged buy-outs, megamergers and acquisitions, and asset stripping in the 1980s and 1990s. (Think, in fact, of Bain Capital.) What was getting bought and stripped and closed up supported windfall profits in high-interest-paying junk bonds. The stupendous fees and commissions that went to those “engineering” such transactions were being picked from the carcass of a century and a half of American productive capacity. The hollowing out of the United States was well under way long before anyone dreamed up the “fiscal cliff.”

For some long time now, our political economy has been driven by investment banks, hedge funds, private equity firms, real estate developers, insurance goliaths, and a whole menagerie of ancillary enterprises that service them. But high times in FIRE land have depended on the downward mobility of working people and the poor, cut adrift from more secure industrial havens and increasingly from the lifelines of public support. They have been living instead in the “pit of austerity.” Soon many more of us will join them.

© 2012 Steve Fraser

Steve Fraser is Editor-at-Large of New Labor Forum and co-founder of the American Empire Project (Metropolitan Books). He is, most recently, the author of Wall Street: America’s Dream Palace. He teaches history at Columbia University.

4 Ways to Leap the “Fiscal Cliff” to a Better U.S.A.

Sarah van Gelder looks beyond the hype about the deficit and finds four ways to balance the books while protecting our health and financial security.
by Sarah van Gelder

Feeling panicked about the so-called “fiscal cliff?” Don’t be. At worst, if would be more of a “ramp” than a cliff, since effects would be spread out over time.

More importantly, the crisis atmosphere is a fabrication created by Congress. The cuts in spending and the end to tax breaks were intended to be so unacceptable that members of Congress would be forced to reach agreement to lower the deficit, which was considered, at least by some, to be at crisis levels.

Artificial or not, the outcome of this fiscal showdown could set policy for years to come. Times of crisis—even ones that are fabricated—open the door to changes that would be politically impossible in calmer settings, as author Naomi Klein has pointed out in her work on disaster capitalism.

We are told, for example, that we can’t afford full Social Security benefits, even though Social Security is entirely self-funded and not a contributor to the federal budget deficit. We are told Medicare must be cut, even though it is by far the least expensive means of providing health care coverage.

It’s not hard to see who would benefit from these cuts. Without Social Security, our retirement money would be poured into Wall Street accounts, which would profit investment bankers and financiers, but put savings at risk. And if eligibility for Medicare is moved from age 65 to age 67, more of the elderly would be forced to rely on expensive for-profit health insurance companies for coverage.

Fortunately, lowering living standards for ordinary people is not a necessary sacrifice, as the proponents of “entitlement cuts” would have us believe. Instead, these cuts would increase poverty and further undermine the stability of the middle class. And with less money to spend, there would be less money in circulation to maintain the economy’s already weak momentum.

So how could we cut long-term deficits while also improving the standard of living of ordinary people? The answer, it turns out, involves a combination of familiar ideas and new ones.

1. Reduce the waste and overspending in the military budget.

We could be cut $440 billion from the military over 10 years (http://www.ips-dc.org/articles/fact_sheet_on_unified_security_budget) without harming our security, according to a report by the Institute of Policy Studies. The Center for American Progress placed that number even higher, at $487 billion.

There are few threats facing the United States today—at least few that hundreds of billions in military spending can protect us from. Instead, we need massive investments in a transition to a clean-energy economy that will protect against climate change—which poses a real threat to our security. And we need spending that creates jobs; every $1 million spent on the military creates about eight jobs, but the same amount spent on home weatherization creates 12 jobs, and the $1 million spent on education creates 15 jobs.

In a recent New York Times column, Reagan administration Assistant Secretary of Defense Lawrence J. Korb puts the scale of U.S. military spending in a global context (http://www.nytimes.com/roomfordebate/2012/09/09/how-big-should-the-defen...): “Even with sequestration-size cuts, we would still account for more than 40 percent of the world’s defense spending, and our allies would account for about half of the rest.”

And he shows that there is room to cut billions of dollars of waste. “Over the past decade, the Pentagon squandered $46 billion on weapons it later canceled, and let half its procurement programs balloon beyond their original budgets.”

A majority of Americans support cutting the military budget, as well: 54 percent of Republicans, 76 percent of Democrats, and 71 percent of Independents, according to the Chicago Council’s 2012 biennial survey of public opinion (https://docs.google.com/viewer?a=v&q=cache:uRlg1-XnhW4J:www.thechicagoco...). The 68 percent overall who favor defense cuts is up 10 points since 2010.

2. Cut subsidies for climate-polluting energy corporations.

Those companies now receive about $4 billion in subsidies each year, although they are among the largest and most powerful corporations in the world. Taxpayer money should not be spent supporting a form of energy that is destabilizing the climate. CNN developed a list of these subsidies and how they can be cut.

3. Get more tax revenue from those who can afford it.

The best place to start is by recovering some of the billions in tax cuts given to the wealthiest 1 percent and large corporations, and by creating some carefully crafted new taxes.

The Forbes richest 400 individuals have assets worth $1.7 trillion—more than five times the $300 billion they owned in 1992, according to Warren Buffett. That’s partly because they kept $1.3 trillion dollars they would have paid without the Bush tax cuts. Meanwhile, the share of federal revenue contributed by corporations fell from 27.6 percent in the 1950s to just 10.4 percent in the 2000s, according to the Congressional Progressive Caucus.

New York Times columnist Paul Krugman agrees that the wealthy can pay more. In the 1950s, he points out, the top marginal tax rate was over 90 percent—and that was under a Republican administration. “The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent.”

With the 400 wealthiest individuals paying an effective tax rate of about 18 percent, according to the National Economic Council, there is lots of room for tax increases on the wealthy that would result in a fairer tax system.

4. Use these smart revenue ideas to create multiple benefits.

In addition to these familiar cuts and revenues, creative new ways of generating tax income are coming in from around the world and at home. Here are three we should do right away:

We should tax carbon—an idea that is gaining widespread support as a means to address the climate crisis. Doing so would tap market forces to free us from dependence on fossil fuels and make renewable sources of energy and energy-efficiency investments more cost competitive. An equal rebate to every American can offset the immediate burden of the tax, while providing an incentive for each household to shift to climate-friendly energy sources and to get efficient with energy use.
We should enact a financial transaction tax, as 10 European countries are doing. This tax would help cool the speculative fever of Wall Street, hit the highest income earners, and help reduce the deficit.
And we should eliminate the cap on wages subject to Social Security contributions. Doing so would keep the Social Security Trust Fund solvent for the next 75 years without any need to reduce benefits or raise retirement age.

What do Americans think of these ideas? Here’s an indication:

According to a recent poll conducted by Princeton Survey Researcher Associates just one in five Americans supports cuts to Social Security and Medicare. Just one in three supports cuts in Medicaid (http://www.pollingreport.com/budget.htm).

But two out of three support cuts in military spending. And, 60 percent support raising taxes (http://www.pollingreport.com/budget.htm) on those with incomes over $250,000 a year, according to an ABC News/Washington Post poll from late November.

Ask the American people, and you will find no patience for using an artificial “fiscal cliff” to push through cuts that will harm ordinary people and extend tax breaks for the wealthiest Americans. The subject was thoroughly debated during the election. The argument should be over.

This work is licensed under a Creative Commons License

Sarah van Gelder is co-founder and executive editor of YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. She is also editor of the new book: "This Changes Everything: Occupy Wall Street and the 99% Movement."

Obama's Ugly 'New Deal' Aims to Gut Social Security

Rich Kissed, Middle Class Kicked: Obama's Ugly 'New Deal' Aims to Gut Social Security
President gives away the store in fiscal negotiations
by Jon Queally

Reports indicate that Obama has willingly affronted public opinion, sound economics, and his political base of supporters by agreeing to make significant cuts to Social Security, health programs, education, and other programs while at the same time making some of the most odious benefits for the nation's financial elite permanent.

In a new deal (http://www.huffingtonpost.com/2012/12/18/obama-social-security-fiscal-cl...) — though certainly out of step with "the New Deal" — offered by the White House late Monday, President Obama showed that he'd rather cut health and social service programs for the nation's poor and elderly than allow tax rates for some of the nation's wealthiest individuals to go up.

Long holding that tax rates should go back to previous and modestly higher rates for all individuals making $250,000 or more, Obama has now given that popular promise away by offering to make the Bush tax cuts permanent for all those making $400,000 or less in exchange for a deal with Republican Speaker of the House John Boehner.

In addition, reports (http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/17/a-fiscal-clif...) the Washington Post's Ezra Klein in his review of what may be in the final agreement, he says, the payroll tax cut, which middle class workers have enjoyed during the current economic down turn-- and what Klein classifies as "one of the most stimulative policies"--will be allowed to lapse. Klein called it "perverse" to do such a thing.

To make up for this loss of revenue, Obama has put cuts to Social Security benefits on the table by changing the way cost-of-living adjustments are calculated. The change, known as the "chained CPI" which would alter the way payments are calculated, is a cynical ploy by the White House, say most critics, because politicians likely feel they can get away by calling it an "adjustment" rather than a "cut."

But make no mistake, say economists (http://krugman.blogs.nytimes.com/2012/12/17/rumors-of-a-deal/?gwh=67A53E...) and experts (http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/17/a-fiscal-clif...), it's a cut. And, over the long-term, a significant one. As a recent brief by the Center for Economic and Policy Research explains (http://www.cepr.net/index.php/publications/reports/the-chained-cpi-a-pai...):

Over time, changing to the Chained CPI would result in significant cuts to Social Security benefits: a cut of roughly 3 percent after 10 years, about 6 percent after 20 years, and close to 9 percent after 30 years. In addition, lower-income retirees would lose much larger proportions of their income than wealthy ones.

Progressives were rightly outraged by Monday's announced offer.

“Using the debt ceiling to hold the country hostage to exact otherwise unacceptable cuts in education and other vital domestic programs is disreputable policy and politics. Offering to hold off a year before taking the next hostage does not remove the threat," said Campaign for America’s Future co-directors Robert Borosage and Roger Hickey.

Their clear message to the Obama and other Democrats considering accepting this kind of economic plan: "No deal.”

Alex Lawson, executive director of Social Security Works, which opposes cuts to the program, told (http://www.huffingtonpost.com/2012/12/18/obama-social-security-fiscal-cl...) the Huffington Post that moving to the chained CPI is terrible and painful policy. "Almost every elected official just spent an entire election season saying they wouldn't cut the benefits of those 55 and older. The truth is the chained CPI hits everyone's benefits on day one," he said. "It hits the oldest of the old and disabled veterans the hardest. If it wasn't being bandied about as being 'on the table,' I would guess that it was created as an office joke to see who could create the most noxious and offensive policy possible."

And the Social Security cut is just a sample of what else the President included in what will be widely viewed as unnecessary concessions to the Republicans.

As the Huffington Post reports (http://www.huffingtonpost.com/2012/12/18/obama-social-security-fiscal-cl...):

Obama's offer would allow the payroll tax holiday to expire, meaning middle class workers will see smaller paychecks in 2013. Economists have warned that the recovery is too fragile to risk a broad tax hike on workers. It would (http://www.huffingtonpost.com/2012/12/06/fiscal-cliff-social-security-ch...) also gradually reduce Social Security, pension and Medicare benefits seniors are due to receive, taking a small bite up front, but building up to much larger cuts over time.

Obama's concession to Republicans is opposed by a majority of Americans, according to a HuffPost/YouGov poll. Fifty-two percent of survey respondents said the payroll tax cut should be extended to avoid raising taxes on the middle class, while 22 percent said that it should be allowed to expire to help pay down the debt. Extending the payroll tax cut received bipartisan support (http://big.assets.huffingtonpost.com/cliffproposaltabs.pdf): 64 percent of Democrats and 57 percent of Republicans in the survey said they supported the extension.

Despite widespread opposition not only within his base, but among many Republicans and independent voters, a deal along these lines looks very close to being reached.

As the The New York Times reports (http://www.nytimes.com/2012/12/18/us/politics/president-delivers-a-new-o...): "The two sides are now dickering over price, not philosophical differences, and the numbers are very close."

To economic progressives, like Demos senior fellow Robert Kuttner, the reported offer is what many feared.

As Kuttner wrote just weeks ago, when Obama seemed to taking a firmer negotiating stance:

The budget deal of 2011—the one that created the automatic sequesters—has already taken $1.7 trillion out of domestic spending over a decade. There is almost nothing left to cut on the spending side of the equation, except Social Security and Medicare—which are not the prime drivers of the current deficit and which do not belong in this debate at all.

As Obama points out in his moments of resolve, we just had an election to decide whether to raise taxes on the rich, or to cut Social Security and Medicare. He won. The party that would favor the wealthy and sock the middle class yet again lost.

As the bargaining gets serious, the president has a very strong hand. But he needs to play it a lot better than he has been doing.

In that piece, Kuttner wondered if Obama could be "saved from his own impulses to cave in for the sake of splendid bipartisanship (and needlessly appeasing Wall Street)."

It looks like we have the answer. No.

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