Obama's Deficit Commission Proposals & Will he Cave on Tax Cuts for the Rich?

The Corporate Republican and Corporate Democrat Appointed by the Corporate Obama Come Up With a (Surprise!) Corporate Idea

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Obama Deficit Commission Criticized for Proposals to Slash Social Security, Medicare

The co-chairmen of the bipartisan presidential deficit commission released a list of recommendations Wednesday on ways to reduce the nation’s deficit by $4 trillion by 2020. Co-chairmen Erskine Bowles and Alan Simpson have proposed raising the retirement age for Social Security to 69 by the year 2075, decreasing the cost of living benefits for Social Security recipients, imposing new limits on the Medicare health insurance program, and ending several middle-class tax breaks. We speak with economist Robert Kuttner. [includes rush transcript]

Guest:
Robert Kuttner, Journalist and economist. He is the co-founder and co-editor of The American Prospect magazine, as well as a Distinguished Senior Fellow of the think tank Demos. His latest book is A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle to Control our Economic Future.

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RUSH TRANSCRIPT

JUAN GONZALEZ: On Wednesday, the co-chairmen of the bipartisan presidential deficit commission released a list of recommendations on ways to reduce the nation’s deficit by $4 trillion by 2020. Co-chairmen Erskine Bowles and Alan Simpson have proposed raising the retirement age for Social Security to 69 by the year 2075, [decreasing] the cost of living benefits for Social Security recipients, imposing new limits on Medicare health insurance programs, and ending several middle-class tax breaks.

Many of the proposals read like a wish list for the Republican Party, including the elimination of funding for the Corporation for Public Broadcasting, the capping of jury awards in malpractice cases, and a major reduction in corporate income taxes.

But the commission is also making significant cuts to the Pentagon budget. The draft proposals call for the closing of one-third of the nation’s overseas military bases, a temporary freeze on Defense Department salaries, and a reduction on the Pentagon’s reliance on private contractors.

AFL-CIO President Richard Trumka slammed the commission’s proposals. He said, quote, "The chairmen of the Deficit Commission just told working Americans to 'drop dead.' Especially in these tough economic times," Trumka said, it is, quote, "unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare."

The commission’s co-chair, Erskine Bowles, said Wednesday that the nation is facing an economic crisis if the budget deficit is not addressed.

ERSKINE BOWLES: We are on the most predictable path towards an economic crisis that I can imagine. The path we’re on today is not sustainable. And I don’t know a soul on this commission or anywhere else in the Congress that believes it is. The arithmetic is compelling. This debt is like a cancer that will truly destroy this country from within if we don’t fix it, and we can’t grow ourself out of this problem. We could have double-digit growth for decades and not solve this problem. We can’t tax our way out of this problem, and we can’t cut our way out of this problem. It’s going to take some combination thereof.

JUAN GONZALEZ: To talk more about the deficit commission’s proposals, we’re joined by the journalist and economist Robert Kuttner. He’s the co-founder and co-editor of The American Prospect magazine. His latest book is called A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle to Control our Economic Future.

Welcome to Democracy Now!, Robert Kuttner.

ROBERT KUTTNER: Thanks so much for having me. Thanks so much for having me.

JUAN GONZALEZ: Your reaction to the preliminary proposals, because obviously the commission has not yet even voted on these proposals. This is sort of the outline of what they’re considering. Your reaction?

ROBERT KUTTNER: Well, the only thing worse than the economics is the politics. The economics are totally perverse. Bowles talks about being on a path to an economic crisis. Of course, we’re in an economic crisis. We’re in a prolonged recession that bears more resemblance really to a depression. And you cannot get out of a depression by austerity. The idea that you should have an arbitrary set of cuts in the deficit at a time when you need more public spending is totally perverse. It’s the economics of Herbert Hoover. It’s the politics of the Republican right. And it’s one more indication of the capture of the Obama administration by Wall Street.

I mean, Erskine Bowles gets over $300,000 a year for attending a few meetings of Morgan Stanley, the investment bank, on whose board he sits, so he gets more money in board fees than 99 percent of Americans earn. And you’ve got three privately funded commissions by the Peterson Foundation, Pete Peterson, proposing the same stuff. It’s intended to create a drumbeat to carry out a wish list that has long been the goal of fiscal conservatives, that has nothing to do with this crisis. Social Security is in surplus for the next 27 years. So, the idea that you can somehow get the budget closer to balance by cutting Social Security is perverse. It’s politically insane.

And if the President had the kind of spine that we hoped he had when we elected him, he would be saying, "No way are we going to balance the budget on the backs of working people." Instead, I think the risk is that the President is going to embrace some version of this. And the hope is that the four progressives on the commission, three of whom have already said "no way," plus Max Baucus, the chair of the Senate Finance Committee who’s on the commission, will view this as a threat to his prerogatives as a Senate committee chairman. The best thing about this commission is that maybe it will deadlock.

JUAN GONZALEZ: And when you say the four progressives, who are the other progressives that you are expecting to stand up on these issues?

ROBERT KUTTNER: Well, Jan Schakowsky, who’s a member of the Democratic House leadership, she’s a very progressive member of Congress from Chicago; Xavier Becerra, also a progressive; and Dick Durbin, the senator from Illinois. They have said "no way." Andy Stern, the former head of the Service Employees International Union, is on the commission. Andy is a bit of a free spirit. Andy loves to see if there can be some kind of a deal. But I think this particular deal will even stick in Stern’s craw. So, I think the hope is that the Republicans, some of them, will say, "Well, nothing that reduces defense spending or reduces tax loopholes are we going to support," and the liberals on the commission will hang tough and say, "No way are we going to cut Social Security and Medicare."

I think the problem is that the editorialists of this country—if you read this morning’s New York Times editorial—are saying, "Well, gee, anything that the left and the right don’t like must be pretty good." And that’s exactly wrong. I mean, this is a case where the so-called center just completely has it wrong. You cannot get out of a depression by having deeper cuts in spending. And I think if you look at the criticism of the Federal Reserve policy of buying treasuries because it doesn’t know what else to do, in the hope that that will lower interest rates and somehow stimulate recovery, the Fed is doing that as a last resort because Congress is opposed to increasing social investment. The only way you can really get out of a prolonged slump like this is to increase social investment in job creation, in the infrastructure, in the clean energy that the country needs. And yet that path seems to be blocked. And instead of fighting for some degree of public investment, Obama, who, after all, appointed this commission, is at risk of embracing at least some of its proposals.

So I think the only thing that’s going to block this—and we heard some of this from Rich Trumka—the progressive movement needs to put forward its own version of a budget that would cut defense spending, cut tax loopholes, insist on suspending the Bush tax cuts for the wealthy, and dramatically increase social investment, and explain to the American people why that’s a better route out of the real crisis that we’re in. There’s one resource I want to commend to all of your viewers and listeners. It’s a new website, ourfiscalfuture.org, which proposes a counter-strategy for getting the economy out of this mess. That’s a coalition of progressive think tanks—Demos, where I’m a fellow, Economic Policy Institute, Century Foundation. And we have a huge fight on our hands, because the other side is investing tens of millions, if not hundreds of millions, of dollars in a propaganda effort on behalf of austerity. It’s backed by Wall Street. And all we can do is try and argue that this whole set of proposals is bad economics and bad politics for the Obama administration and the Democrats.

JUAN GONZALEZ: Well, Robert Kuttner, one of the arguments of those who would support many of these cuts are saying that this will allow the government to further cut the nominal tax rates for—not only for high income, but for middle-class Americans, as well. But isn’t the reality—I mean, there was a time in this country when the highest tax brackets, in the 1950s, were being taxed at a 90 percent rate. Now they’re down into the mid-thirties, and they think that that is too high a rate, and they want it lowered further. What about this tax policy that now, for years, has continued to reduce the tax rates for the highest-earning Americans in the country?

ROBERT KUTTNER: Sure. Well, the Alice in Wonderland character of this whole exercise is demonstrated by the fact that, on the one hand, they’re talking about some kind of a tax deal where you cut loopholes and you raise rates—or lower rates. And by the way, one of the so-called loopholes that they want to close is the child tax credit. Hundreds of millions of dollars of relief for working poor people, where you get a refundable tax credit to help you raise your kids, that’s one of the supposed loopholes that the commission wants to get rid of. That’s crazy. Also, the idea that you cut loopholes and then cut rates, that produces no net increase in revenue. It simply reshuffles the deck.

And the other thing that’s deceptive is that at the same moment that the Republicans on the panel are proposing this deal, they’re also demanding that the Bush tax cuts from 2001, which expire at the end of this year, be extended not just for the 98 percent of Americans who make less than $250,000 a year, as President Obama proposes, but for very, very rich people. Now, continuing those tax cuts for very rich people would add almost a trillion dollars to the deficit over the next ten years, and yet the commission is treating that as absolutely untouchable, because there’s no way the Republicans would buy into that. So, you’re absolutely right. I mean, if we want to do something about the deficit in the long run—and we should not be doing anything about it in the short run. In the short run, with the economy in the condition that it’s in, we need more deficit spending, not less. But if we want to deal with the deficit in the long run, restore higher tax rates on the people who got us into this mess, who are still making an absolute killing and, unlike working people, who can afford to pay higher taxes.

JUAN GONZALEZ: Also, I’d like to ask you—you were mentioning the people who got us into this mess. Clearly, the enormous amounts of speculation that has been occurring—and the financial speculation has been growing exponentially, not only in the United States, but across the world, on markets. There’s never any kind of a discussion of being able to tax stock transactions on all of these various markets, which obviously, if these companies want to continue to engage or investors want to continue to engage in speculative activity, why not have the government tax it as a means of being able to close our deficit? But that’s never somehow discussed.

ROBERT KUTTNER: Well, no, and it’s not even in the proposal. And again, here’s Erskine Bowles. He’s on the board of directors on one of the top five banks that would actually be taxed if you taxed financial speculation. And he’s the chair of this, appointed by President Obama. And that proposal is nowhere to the seen. I would call that a conflict of interest. I mean, if Obama had put, you know, Rich Trumka as one of the two co-chairs, the right would be screaming bloody murder, and so would Wall Street. And yet, Wall Street got one of its people, not as the Republican co-chair, but as the Democrat co-chair.

JUAN GONZALEZ: Well, I want to thank you very much for being with us, Robert Kuttner, journalist and economist. He’s also the co-editor of The American Prospect magazine and 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. And we’ll continue to be covering this issue of what happens with the deficit commission proposals.
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CEPR Statement on Deficit Commission Proposals
Center for Economic and Policy Research (CEPR)

Statement on Deficit Commission Proposals
For Immediate Release: November 10, 2010
Contact: Alan Barber, (571)306-2526

Washington, D.C.- Dean Baker, Co-Director of the Center for Economic and Policy Research (CEPR) released the following statement on the proposals offered by Erskine Bowles and Alan Simpson, co-chairs of the President's deficit commission:

"Senator Alan Simpson and Erskine Bowles appeared to have largely ignored economic reality in developing the proposals they presented to the public today.

"The country is suffering from 9.6 percent unemployment with more than 25 million people unemployed, underemployed or who have given up looking for work altogether. Tens of millions of people are underwater in their mortgage and millions face the prospect of losing their home to foreclosure.

"This situation is not the result of government deficits, contrary to what Mr. Bowles seemed to suggest at the co-chairs' press conference today. The downturn was caused by the bursting of an $8 trillion housing bubble. This bubble was the basis of the construction and consumption demand that drove the economic expansion through 2007. 

"The large government deficits are the only factor sustaining demand following the loss of this bubble wealth. If today's deficit were smaller, we would not be helping our children; we would just be putting their parents out of work. Simpson and Bowles somehow think they have covered this concern by delaying their cuts until fiscal year 2012, 11 months from now. Virtually all projections show the unemployment rate will still be over 9.0 percent at the point when the Simpson-Bowles cuts begin to slow the economy further. This leaves the economy like a plane with one engine already out and Simpson Bowles prepared to knock out the other engine as well.

"The failure to understand current deficits contributes to a misunderstanding of the debt burden. For example, Simpson and Bowles raised fears of an exploding debt reaching 90 percent of GDP by the end of the decade. There is no reason that the Fed can't just buy this debt (as it is largely doing) and hold it indefinitely If need be, the Fed can use other tools at its disposal to ensure that this expansion of the monetary base does not lead to inflation.

"This creates no interest burden for the country, since the Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country's net interest burden.

"This means that the country really has no near-term or even mid-term deficit problem, just paranoia being spread by many of the same people who led the economy into its current disastrous situation.

"Over the longer term, the country is projected to face a deficit problem but this is almost entirely attributable to the projection that private sector health care costs grow at an explosive rate. This projected growth rate of health care costs would eventually lead to serious budget problems in addition to leading to enormous problems for the private sector. However, the underlying problem is the broken health care system, not public sector health care programs. For some reason, though, Simpson-Bowles never directly addresses these of the health care system.

"Simpson and Bowles apparently never considered a Wall Street financial speculation tax (FST) as a tool for generating revenue. This is an obvious policy-tool that even the IMF is now advocating, in recognition of the enormous amount of waste and rents in the financial sector. Through an FST, it is possible to raise large amounts of revenue, easily more than $100 billion a year, with very little impact to real economic activity. The refusal to consider this source of revenue is striking since at least one member of the commission has been a vocal advocate of financial speculation taxes. It is also worth noting that Mr. Bowles is a director of Morgan Stanley, one of the Wall Street banks that would be seriously impacted by such a tax.

"Finally, it is striking that the Co-Chairs felt the need to address Social Security, even though it was not part of their mandate. The commission's mandate was to deal with the country's fiscal problems. Since Social Security is legally prohibited from ever spending more than it has collected in taxes, it cannot under the law contribute to the deficit. Their proposal would cut benefits for tens of millions of middle class workers who are overwhelmingly dependent on Social Security for their retirement income. It would also raise the retirement age for lower income workers who have seen little increase in life expectancy.

"While there are some positive items in the report (it would limit the mortgage interest rate deduction get rid of the deduction for cafeteria benefit plans), it suffers from the fact that the co-directors never reflected on their basic economic assumptions. It is hard to avoid the conclusion that this exercise was a waste of time and that we should go back to having Congress determine our budgets through the normal process rather than secret commissions."

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Cuts to Social Security and Medicare are Fiscal Commission’s Primary Solution to Nation’s Debt Crisis

By NCPSSM | November 10, 2010

 Sometimes you’d just rather be wrong…and this is one of those times. 

The Chairmen of the President’s Fiscal Commission unveiled their solutions for the nation’s debt/deficit mess in a hastily called news conference today and– as predicted– it’s all about cuts to Social Security and Medicare.

“America’s retirees, disabled and their families had hoped for a balanced approach to solving our nation’s fiscal crisis.  Unfortunately, that is not what we received in today’s report by the Chairmen of the President’s Fiscal Commission.  This proposal relies far too heavily on benefit cuts which will hurt millions of Americans.  Lowering COLA’s which hit even current retirees, raising the retirement age, and making benefit cuts in Social Security have nothing to do with solving this fiscal crisis and do not offer a balanced solution to debt reduction by any stretch of the imagination.”…Barbara B. Kennelly, President and CEO 

Specifically, the proposal released today by the Chairmen of the National Commission on Fiscal Responsibility and Reform, former Senate Alan Simpson and Erskine Bowles would: 

Raise the Retirement Age to 69 – this proposals calls for a gradual increase to age 68 by the year 2050 and 69 by 2075. This would result in substantial benefit reductions for the generations of Americans.

 Reduce Cost of Living Adjustments – this proposal suggests a different method of calculating the cost-of-living adjustment resulting in smaller COLAs as soon as 2012, impacting even current retirees. Estimates are this would lower benefits by approximately 3 percent after 10 years of retirement and 6 percent after 20 years of retirement. 

Cut Social Security Benefits – by changing Social Security’s benefit formula this proposal would cut benefits for millions of future retirees.  

More Medicare cuts – this time directly to benefits  

Increased Cost Sharing for Seniors – Congress just enacted the Affordable Care Act, which included billions in savings from Medicare yet did not target beneficiaries.  However, this Commission proposal includes hundreds of billions of additional Medicare cuts, over $100 billion of which will come directly out of the pockets of seniors in the form of increased cost-sharing.  The average senior is already spending 30% of his/her Social Security benefit on Medicare Part B & Part D out-of-pocket costs alone; this proposal would increase that amount.   

Reduced Provider Reimbursements – This proposal includes a new round of cuts in Medicare provider reimbursements before reforms in the health care law have even been implemented, which could leave seniors without access to affordable health care.   

“America’s seniors and their families want Washington to get its fiscal house in order; however, they also know Social Security did not create this economic mess and should not foot the bill for failed economic policies of the past.  The American people are serious about deficit reduction and have said in poll after poll that they’ll support a balanced proposal.  This isn’t it.”…Barbara B. Kennelly, President and CEO

The only good news here is no one takes this proposal seriously beyond those who’ve pushed this anti-Social Security and Medicare agenda from the beginning, such as the Peterson Foundation and all of the other anti-entitlement groups it funds. 

According to CBS:

The document, from co-chairs Erskine Bowles and Alan Simpson, is not the bipartisan commission’s final proposal, which is due at the end of the month. It likely could not win support from 14 of the commission’s 18 members, which is necessary to advance it to Congress for consideration.
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Cutting Social Security is the New TARP
Cenk Uygur
Host of The Young Turks
Posted: November 11, 2010 12:41 AM
. . . .
They propose to cut the top rate from 35% to 23% for the personal income tax, and the corporate tax rate would get cut from 35% to 26%. What an unbelievable joke. So, you have to cut Social Security and Medicare because you just had to give the rich one more gigantic tax cut? They'll claim they are getting rid of some tax exemptions and credits, but that doesn't come close to making up for the tax cuts they have proposed.

But we have to thank them for making their intentions undeniably clear. This Deficit-Reduction Commission has nothing to do with the deficit. It never did. I . . . always thought it was an excuse to cut Social Security to pay for the tax cuts that went to the rich and ate up the Social Security surplus. It turns out, it's more audacious than that. It cuts Social Security to pay for whole new round of tax cuts for the rich. The balls on these guys.

A new poll out by PPP indicates that when asked how to balance the budget, 43% of real Americans said tax the wealthy, 22% said cut defense spending and only 12% said cut Social Security. They didn't stutter. That's crystal clear. If some of our current politicians make the mistake of backing these cuts for Social Security, those numbers are going to come back to bite them. And they'll be our former politicians. I, for one, will work the rest of my life to kick out of office anyone who signs off on this robbery. I don't give a damn what party they claim to be from. That includes the president.

Through all of my frustrations with the president, I have never called for a primary opponent against him in 2012. And I don't know any other established progressive that has. If he pushes for this plan, he should definitely get a primary challenger. Because I couldn't vote for a guy who agreed to rob the middle class like this. This is definitely the last straw. If he does this, then he was never on our side to begin with.
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Ten Flash Points In The Fiscal Commission Chairmen's Proposal
Dan Froomkin
froomkin@huffingtonpost.com

The two deficit-hawk extremists President Obama put in charge of his fiscal commission released their personal suggestions for cutting the federal budget deficit on Wednesday. And while it's quite possible that not a one of them will make it into the commission's official recommendations, which require the approval of 14 of the 18 commissioners (not just two), the document will inevitably be welcomed as a "serious" contribution to the debate - at least by Republicans and conservative Democrats.
. . . .
As New York Times opinion columnist Paul Krugman writes: “Even if those cuts are offset by supposed elimination of tax breaks elsewhere, balancing the budget is hard enough without giving out a lot of goodies -- goodies that fairly obviously, even without having the details, would go largely to the very affluent.”
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See Also:

The Wall Street TARP Gang Wants to Take Away Your Social Security
by Dean Baker [CEPR]

Just over two years ago, the Wall Streeters were running around Congress and the media saying that if they don't immediately get $700 billion the world will end. Since they own large chunks of both, they quickly got their money.

Even more important than the hundreds of billions of loans issued through the TARP was the trillions of dollars of loans and guarantees from the Fed and the FDIC. This money came with virtually no strings attached. It kept Goldman Sachs, Citigroup, Morgan Stanley, and Bank of America and many others from collapsing. As a result, folks like Goldman CEO Lloyd Blankfein are again pocketing tens of millions a year in wages and bonuses, instead of walking the unemployment lines. Instead, 15 million ordinary workers are being told to just get used to being unemployed; it's the "new normal."

But wait, it gets worse. The thing about Wall Streeters is that no matter how much money you give them, they always want more. Now they are using their political power and control over the media to attack Social Security. . . . .
[See article above for rest and for links]
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Many deficit commission staffers paid by outside groups
By Dan Eggen
Washington Post Staff Writer
Wednesday, November 10, 2010; 8:12 PM
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The Draft Proposal
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Will Obama Cave (once again) on Tax Cuts for the Rich?

Obama’s First Stand

Robert Reich
WEDNESDAY, NOVEMBER 10, 2010

The President says a Republican proposal to extend the Bush tax cuts to everyone for two years is a “basis for conversation.” I hope this doesn’t mean another Obama cave-in. 

Yes, the President needs to acknowledge the Republican sweep on Election Day. But he can do that by offering his own version of a compromise that’s both economically sensible and politically smart. Instead of limiting the extension to $250,000 of income (the bottom 98 percent of Americans), he should offer to extend it to all incomes under $500,000 (essentially the bottom 99 percent), for two years.

The economics are clear:

First, the top 1 percent spends a much smaller proportion of their income than everyone else, so there’s very little economic stimulus at these lofty heights.

On the other hand, giving the top 1 percent a two-year extension would cost the Treasury $130 billion over two years, thereby blowing a giant hole in efforts to get the deficit under control.

Alternatively, $130 billion would be enough to rehire every teacher, firefighter, and police officer laid off over the last two years and save the jobs of all of them now on the chopping block. Not only are these people critical to our security and the future of our children but, unlike the top 1 percent, they could be expected to spend all of their earnings and thereby stimulate the economy.

Conservative supply-siders who argue the top 1 percent will stop working as hard if they have to return to the 39 percent marginal rate of the Clinton years must be smoking something (probably an expensive grade).

The incomes of the top are already soaring (Wall Street is reading a 5% boost in bonuses, executive salaries and perks are back on the trajectory they were on before the collapse, and the stock market is booming), so it’s hard to argue much hardship.

Besides, only earnings over $500,000 would be affected because — remember — we’re talking about the marginal tax rate.

In addition, the Clinton years weren’t exactly bad years, economically, for the top 1 percent.

Finally, the Bush tax cuts didn’t trickle down anyway. To the contrary, between 2001 and 2007, the median wage dropped. And Bush’s record on jobs was pitiful.

The politics are even clearer. Over the next two years, Obama must clarify for the nation whose side he’s on and whose side his Republican opponents are on. What better issue to begin with than this one?

The top 1 percent now takes in almost a quarter of all national income (up from 9 percent in the late 1970s), and its political power is evident in everything from hedge-fund and private-equity fund managers who can treat their incomes as capital gains (subject to a 15 percent tax) to multi-million dollar home interest deductions on executive mansions. 

If the President can’t or won’t take a stand now — when he still has a chance to prevail in the upcoming lame-duck Congress — when will he ever?