April 19, 2011
Republicans are trying to lower taxes on corporations and on the rich prevent regulation of business, cut pensions and benefits (for ordinary folk, not the upper echelons), privatize Medicare, repeal health care, break unions, and gut environmental protection, while General Electric pays no taxes, executive compensation boggles the mind, and hedge fund management fees — peaking above a billion dollars per year per manager — are taxed as capital gains. Consider this description:
I believe leaders of the business community, with few exceptions, have chosen to wage a one-sided class war... against working people... and even many in the middle class of our society. The leaders of industry, commerce and finance in the United States have broken and discarded the fragile, unwritten compact previously existing during a past period of growth and progress... At virtually every level, I discern a demand by business for docile government and unrestrained corporate individualism. Where industry once yearned for subservient unions, it now wants no unions at all... Our tax laws are a scandal, yet corporate America wants even wider inequities... The wealthy seek not to close loopholes, but to widen them . . . .
Actually, that was a comment by a frustrated labor leader, explaining his resignation from a presidential advisory board, in 1978.33 He no longer could pretend that there was labor-management cooperation. The assault by business and the wealthy which emerged in the Seventies only has intensified.
We’re in the midst of a debate about massive deficits and national debt. How did that condition come about? Democrats must accept their share of the blame, but a major factor is that Republicans, having abandoned their traditional fiscal conservatism, have been content, when in power, to cut taxes and to run up deficits, leaving it to Democrats to pick up the pieces and to take the blame for the measures required to sort thing out. Here is a description of the modern strategy:
And what if the traditionalist-conservatives are right and a... tax cut, without corresponding cuts in expenditures, also leaves us with a fiscal problem? The neo-conservative is willing to leave those problems to be coped with by liberal interregnums. He wants to shape the future, and will leave it up to his opponents to tidy up afterwards.
Again, not a new idea; Irving Kristol wrote that in 1980.34 We are now in one of those interregna, i.e., a Democratic administration, and President Obama is saddled with the tidying up.
The future which the Kristol plan shaped is, inevitably, one of massive debt, now leading to calls for a drastic shrinkage of government. The Ryan budget, just passed by the House, is the blueprint for that future. It purports to reduce the debt without raising taxes. In a rational world, that would get laughed off the stage, but now it treated as a sensible proposal.
Few conservatives have been as candid about tax cuts as Mr. Kristol. Most pretend that they have no cost, that they are in every way positive. That notion has taken various forms. There is the Kemp-Wanniski-Laffer version: cutting taxes stimulates business, which produces increased revenue. The notion has taken the Cheney form — deficits don’t matter — but that isn’t operative during a Democratic administration. It has taken the Greenspan form — cut taxes because it would be a bad idea to pay the debt down too quickly — but again the political situation is not congenial. Bush’s tax cuts were justified by the supposed surplus, or by the worsening economy, or by the need for investment, depending on the season. Tom DeLay stated the original principle that in war time, nothing is more important than cutting taxes.
Not everyone needs to be deluded regarding the effect of cuts; many just don’t want to pay taxes. Some libertarians believe that taxation is theft. Grover Norquist wants to starve the government to the point that it can be drowned in a bathtub. Some people seem to think that, whatever their purpose or effect, taxes are evil and must be exorcized. Some seem unaware that services cost money. Probably the most important factor is that no one likes to pay taxes, and those who like it least have the most influence.
When the Ryan plan was announced, news reports followed the familiar path of least resistance, describing the plan in the author’s terms, noting none of its flaws. On NBC, the reporter didn’t mention until the end of her bit that the plan includes more tax cuts for the rich, apparently not considering that an inconsistency. A Washington Post editorial noted several problems with the plan but commented that “it is brave of Mr. Ryan to risk the inevitable — and, indeed, swiftly ensuing — condemnations of the plan as an assault on seniors and the poor.” Brave? How about biased and blindly doctrinaire? Other reports and comments also spoke of the plan’s boldness or the author’s courage. Should we praise that sort of “courage”? The condemnations swiftly ensued because condemnation was in order.
Later, Rep. Ryan was given a spot on the Post op-ed page for a column entitled “A Budget for the 21st Century.” The caption is a joke but, although his sense of direction is off, he may well lead the way.
President Obama, not unaware of these developments, gave a speech last Wednesday, laying out a different plan. I missed the speech, but thought that there would be some mention of it on TV the following day. However, NBC News, looking more like Entertainment Tonight, ignored it.
I’ve now read the transcript of the speech. It was disorganized, and flawed politically and economically, but it more or less correctly analyzed the situation and proposed an approach to rectifying it. However, it has received remarkably little attention. When it has been noticed, it has been called partisan, as if the GOP plan were not. The bias in coverage is especially surprising given that Mr. Obama’s plan generally makes sense and Mr. Ryan’s does not.
The President called for cooperation and praised past examples of it, but was blunt as to his view of the principal source of the deficits and national debt. Debt was incurred before 1981, he said, somewhat understating the extent. “But as far back as the 1980s, America started amassing debt at more alarming levels, and our leaders began to realize that a larger challenge was on the horizon.”
At this point, he began to mix together the general fund deficit and Social Security, an error he never quite corrected. “They knew that eventually, the Baby Boom generation would retire, which meant a much bigger portion of our citizens would be relying on programs like Medicare, Social Security, and possibly Medicaid. . . . To meet this challenge, our leaders came together three times during the 1990s to reduce our nation's deficit . . . .” However, Social Security had been restructured and separated from the general budget in 1983; he ignored that, by implication folding Social Security into the general fund and into its deficit.
As to the 1990s, he praised “historic agreements that required tough decisions made by the first President Bush, then made by President Clinton, by Democratic Congresses and by a Republican Congress.” However, Mr. Obama overstated the effect: “As a result of these bipartisan efforts, America's finances were in great shape by the year 2000. We went from deficit to surplus. America was actually on track to becoming completely debt free, and we were prepared for the retirement of the Baby Boomers.” There was a surplus, but primarily because of Social Security taxes. Many believed that we were on track to pay down the debt, leading to the Greenspan theory noted above, but the forecasts of endless surplus were too rosy and soon evaporated. Even so, the President’s next comment is justified:
But after Democrats and Republicans committed to fiscal discipline during the 1990s, we lost our way in the decade that followed. We increased spending dramatically for two wars and an expensive prescription drug program — but we didn't pay for any of this new spending. Instead, we made the problem worse with trillions of dollars in unpaid-for tax cuts — tax cuts that went to every millionaire and billionaire in the country. . . .
After pointing to the tax cuts as a major problem, he made this odd comment: “if we had simply found a way to pay for the tax cuts and the prescription drug benefit, our deficit would currently be at low historical levels in the coming years.” This implies that the tax cuts were justified, but simply unfunded; which programs does he think should have been scrapped to pay for them?
When Mr. Obama took office he inherited not only debt but a recession, which necessitated further deficit spending. However, his attention now is on reducing the deficit. “By 2025, the amount of taxes we currently pay will only be enough to finance our health care programs -- Medicare and Medicaid -- Social Security, and the interest we owe on our debt. . . . Every other national priority - education, transportation, even our national security — will have to be paid for with borrowed money.” That is a very strange statement. It again runs together Social Security and general fund expenses —Medicare and Medicaid — and blames them for sopping up most of the revenue. I’m surprised that the Republicans haven’t quoted it.
The President presented a summary of the negative effects of high debt levels. One might quarrel with the particulars, but unquestionably the debt has reached an unsustainable level. He then returned to a formula laying the blame largely on social programs:
Around two-thirds of our budget -- two-thirds -- is spent on Medicare, Medicaid, Social Security, and national security. Two-thirds. Programs like unemployment insurance, student loans, veterans' benefits, and tax credits for working families take up another 20 percent. What's left, after interest on the debt, is just 12 percent for everything else.
Apart from running the first three together, creating what Paul Krugman derides as the socialsecuritymedicareandmedicaid budget ploy, Mr. Obama neglected to state the size of the “defense” budget, let alone comment on its massive wastefulness. He said that most approaches to the deficit focus on the 12 percent, which won’t do: “any serious plan to tackle our deficit will require us to put everything on the table. . . .” There’s another invitation to mess with Social Security..
“Now, to their credit, one vision has been presented and championed by Republicans in the House of Representatives . . . .” “It's a plan that aims to reduce our deficit by $4 trillion over the next 10 years, and one that addresses the challenge of Medicare and Medicaid in the years after that.” Does it accomplish that? Apparently he thinks so, as he didn’t challenge the arithmetic. However, “the way this plan achieves those goals would lead to a fundamentally different America than the one we've known certainly in my lifetime.” The fundamental change would be wrought, in his view, by a 70 percent cut in clean energy, a 25 percent cut in education, a 30 percent cut in transportation and cuts in Pell Grants, an oddly restricted list. Oh, we need to add Medicare: a few paragraphs later, he said, of the Ryan budget,
It's a vision that says America can't afford to keep the promise we've made to care for our seniors. It says that 10 years from now, if you're a 65-year-old who's eligible for Medicare, you should have to pay nearly $6,400 more than you would today. It says instead of guaranteed health care, you will get a voucher. And if that voucher isn't worth enough to buy the insurance that's available in the open marketplace, well, tough luck — you're on your own. Put simply, it ends Medicare as we know it.
I don’t know whether the numbers are correct, but the conclusion is.
The President then turned to the most glaring example of illogic and bias: although we can’t pay for education, clean energy, Medicare or Medicaid, we can somehow afford still more tax breaks for the wealthy. He noted that ordinary Americans have lost ground while, thanks in part to those tax cuts, the rich have become richer. He threw the favorable comments about the Ryan plan back at the silly reporters and columnists who made them: “There's nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires. And I don't think there's anything courageous about asking for sacrifice from those who can least afford it and don't have any clout on Capitol Hill.” No doubt that is why his speech was labeled “partisan.”
“This vision is less about reducing the deficit than it is about changing the basic social compact in America.” It’s also about drastically reducing the size of government, not merely changing its priorities. Toward the end of the speech, he acknowledged that:
This larger debate that we're having -- this larger debate about the size and the role of government -- it has been with us since our founding days. And during moments of great challenge and change, like the one that we're living through now, the debate gets sharper and it gets more vigorous. That's not a bad thing. In fact, it's a good thing. As a country that prizes both our individual freedom and our obligations to one another, this is one of the most important debates that we can have.
If it were a good faith debate, yes, but it is not. The Republican aren’t interested in finding the right size of government; they want to shrink it until it can’t inconvenience the wealthy and powerful.
The President’s counter-proposal necessarily is sketchy at this stage, but he gave a few particulars.
He led off with the ever-popular cuts to discretionary domestic spending. That will build on “the savings that both parties agreed to last week.” Those, however, appear to be largely illusory. He’ll preserve “core investments that we need to grow and create jobs,” such as medical research, clean energy technology, new roads and airports, broadband access, education and job training. Doing that and reducing spending will be quite a trick but, at this point, he mentioned the most obvious source of savings, defense.
“So just as we must find more savings in domestic programs, we must do the same in defense. . . . .We need to not only eliminate waste and improve efficiency and effectiveness, but we're going to have to conduct a fundamental review of America's missions, capabilities, and our role in a changing world.” That is indeed necessary, but I’m not optimistic that the review will be anything close to fundamental or even that very substantial cuts will be made.
“The third step in our approach is to further reduce health care spending. . . .” He rejected the Ryan approach, and noted that the health care law will save money. He went after the insane provision in the drug-benefit law prohibiting the use of the government’s bargaining power to lower prices. He hinted at a new compensation formula for health care providers.
At this point he belatedly drew a distinction between general-fund expenditures and Social Security. “While Social Security is not the cause of our deficit, it faces real long-term challenges in a country that's growing older.” He didn’t specify the challenges nor propose a solution.
“The fourth step in our approach is to reduce spending in the tax code, so-called tax expenditures.” That is an interesting way to describe a tax law which doesn’t raise enough money, but it’s safer to attack expenditures than to suggest that more revenue is required. “In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans.” But no more. “We can't afford it. And I refuse to renew them again.” Bravo, if that’s a real pledge, and not just rhetoric.
Later in the speech Mr. Obama talked of raising taxes, but his discussion was muddled. “Some will argue we should not even consider ever -- ever -- raising taxes, even if only on the wealthiest Americans. It's just an article of faith to them. . . .” So it is; are we going to raise taxes? “I say that at a time when the tax burden on the wealthy is at its lowest level in half a century, the most fortunate among us can afford to pay a little more.” Is he proposing a tax increase or merely talking about letting the Bush cuts expire, equating that to a tax increase as the Republicans do? Instead of clarifying that, he went off in another direction: “I don't need another tax cut. Warren Buffett doesn't need another tax cut. Not if we have to pay for it by making seniors pay more for Medicare . . ..” There he seems to be referring to the Ryan proposal for still more cuts. Probably his aim is to prevent a further extension of the Bush cuts and any new cuts.
He also called for capping itemized deductions, limiting them “for the wealthiest 2 percent of Americans.” Wait for the cries of class warfare.
We “should reform our corporate tax code as well, to make our businesses and our economy more competitive.” I don’t know what that means, nor what he had in mind for simplification of the tax code.
The President acknowledged that some Democrats don’t want to cut spending until the economy is fully recovered. He proposed to deal with this by using “a scalpel and not a machete to reduce the deficit, so that we can keep making the investments that create jobs.” That makes sense as a long-term strategy, but won’t do much to create jobs now
He concluded by saying “I don't expect the details in any final agreement to look exactly like the approach I laid out today.” Of course not, but it isn’t smart to say that. Once again, he has started compromising before the negotiation has begun.
_______________
33. Douglas Fraser, quoted in Jacob Hacker and Paul Pierson, Winner-Take-All Politics (2010), pp. 131-32
34. "The Battle for Reagan’s Soul," Wall Street Journal, 5/16/80; quoted ibid at 233.
