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Economists Warn Against Budget-Cutting That Will Undermine Job Growth

Isaiah J. Poole — Sun, 31 Oct 2010 22:59:35 -0400

The GOP Payroll Tax Plan Does So Stink

Terrance Heath — Thu, 01 Dec 2011 14:48:27 -0500

No doubt Republicans know the fight over extending the payroll tax is one they could lose. Thus, they've pivoted away from opposing the extension, and have presented a plan of their own — one that Timothy Noah says the Democrats should be willing to work with because it "doesn't stink."

Well, in my experience, just because you can't smell something doesn't mean it doesn't stink. Some things "pass the smell test" because of a faulty sniffer, not because they don't stink. And the GOP's payroll tax plan does so stink.

It stinks, not least of all, because this far into the recession, we're even having to debate putting money into the hands of middle- and working-class Americans who will spend it, thus putting it back into the economy, instead of shoveling even more of it at wealthy 1 percenters who don't spend it and don't create jobs with it.

Noah breaks down the GOP plan in to five parts, and offers his take on each of them. I'm sure other people will address his various points, but I want to take a moment to address the fourth one, which Noah dismisses almost flippantly.

4. Allow millionaires and billionaires to voluntarily contribute to deficit reduction. This is a juvenile dig at Warren Buffett, but sure, whatever.

One of the things that stinks about the GOP plan is this idea that the government should operate like a charity, begging for alms from the one percent. How Oliver Twist can you get? What’s next? Telethons broadcast from Capitol Hill? Pledge breaks during the State of the Union address?

It's an idea that even some millionaires find laughable.

The self-described Patriotic Millionaires who want the government to close its budget gaps with higher taxes on the rich think it's ridiculous to expect wealthy people to just "tax themselves" and donate their extra money to the government.

"The idea that people are just going to send in $1 million or $500,000 or $5 million or something to reduce the national debt is just preposterous on its face," Dennis Mehiel, the founder and chairman of cardboard box manufacturer U.S. Corrugated, said on a conference call with other millionaires this week.

… Paul Egerman, founder of a medical transcription company called eScription, also scoffed at the suggestion millionaires who advocate for higher taxes should take it upon themselves to send money to the government.

"Running any government is a shared responsibility of its citizens," Egerman said. "Government is not a charity, and you can’t imagine a situation where the Department of Defense runs a bake sale to build an aircraft carrier."

It's hard to put it more plainly than that. Government is a shared responsibility of its citizens. That's what makes it our government, and not "the government." If real shared sacrifice is practically a joke in Washington, shared responsibility is almost entirely unheard of. But that's what it boils down to; shared responsibility, and the concept that the wealthy have a responsibility to contribute because they have benefited from everything that our government does with the support of our taxes.

The Patriotic Millionaires spelled it out in their letter to President Obama, Senate Majority Leader Harry Reid and House Speaker John Boehner.

Our country faces a choice – we can pay our debts and build for the future, or we can shirk our financial responsibilities and cripple our nation’s potential.

Our country has been good to us. It provided a foundation through which we could succeed. Now, we want to do our part to keep that foundation strong so that others can succeed as we have.

It's an answer to the question President Obama posed when he presented his American Jobs Act to Congress.

Should we keep tax loopholes for oil companies? Or should we use that money to give small business owners a tax credit when they hire new workers? Because we can’t afford to do both. Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs? Right now, we can’t afford to do both.

This isn’t political grandstanding. This isn’t class warfare. This is simple math.These are real choices that we have to make. And I’m pretty sure I know what most Americans would choose. It’s not even close. And it’s time for us to do what’s right for our future.

That's why this is more than a juvenile dig. Much more. It goes deeper than that. Much deeper. It's a partial summation of a conservative philosophy of government. It's not just a dig at Warren Buffet. It's another conservative attack on the social contract.

That fourth item is just more validation of the GOP line that “Those who contribute the most to government should benefit the most from it, and those who get the most from government should contribute more to it,” which they use to justify raising taxes on the poor, the working-class and the middle-class, while fighting tooth and nail to defend tax loopholes that mostly benefit the wealthy.

That's why they're willing to raise taxes on 113 million working- and middle-class households to spare 345,000 millionaires a surtax so tiny it would amount to 1/50th of their income. It's not even a vote for the 1 percent over the 99 percent. It's a vote for the 0.2 percent, that would cost us about 400,000 jobs.

That’s why the $30 million a year the government spends in welfare for those who earn $1 million or more a year never gets mentioned. It’s why the tax expenditures for the wealthy — which cost more than what we spend on defense, Social Security, Medicare, Medicaid and all the other non-defense discretionary programs is never addressed, and is thus sacrosanct while all the other programs above are targeted for cuts.

It all boils down to the Randian notion that the 1 percent contribute the most to the real wealth of society, while the other 99 contributes nothing and merely “leeches” off the mythically "self-made" one percent. But they're the ones who've been getting a free ride for the last decade or so, at great cost to the other 99 percent of us. The one percent is largely made up of Wall Streeters, hedge fund mangers and other financial sector types — who arguably create nothing of social value, but have instead destroyed more wealth than they've created, and caused more misery in a quest to suck even more out of the rest of us.

Elizabeth Warren already delivered the take-down for this.

In a video of a recent Warren appearance, posted online by an individual who says he or she is not affiliated with the campaign, Warren answered the charge. “I hear all this, you know, ‘Well, this is class warfare, this is whatever,’” Warren said. “No. There is nobody in this country who got rich on his own — nobody.

“You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.

“Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.”

Even Adam Smith and Abraham Lincoln understood that basic concept.

Well, this drew responses the right by everyone from Paul Ryan to George Will and (of course) the Massachusetts Republican Party. The GOP demanded that Harvard dump Warren. Her opponent, Scott Brown, resorted to low blows about Warren's physique. Some right-wing bloggers reached for their revolvers.

Turns out, they'd have been better off reaching for their bookshelves instead of their gun racks. There they would find their dog-eared copies of Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations in which, Truthout's Brian T. Thorn notes, the father of "the invisible hand" wrote the crib notes for Elizabeth Warren's stump speech.

Yes, that Adam Smith - beloved by laissez-faire capitalists for his economic metaphor, the invisible hand. From his 1776 work "An Inquiry Into the Nature and Causes of the Wealth of Nations":

"The woolen-coat, for example ... is the produce of the joint labor of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world!"(1)

There is a clear connection between the two passages. Both explain the cooperation required of businesses to build and sustain a functioning economy, cooperation with both government and workers. Both explain the importance of economic community.

...You might assume that a party that once upon a time called itself "The Party of Lincoln" would as honest as old Abe was about wealth and labor.

Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.

You'd be wrong.

Even Ayn Rand herself would probably get it.

In effect, an important aspect of Rand’s philosophy supports the central tenet of a functioning capitalist economy: Those who create the greatest societal wealth should be the most highly compensated.

...From this perspective, Rand’s philosophy points out that real capitalism is no longer enforced in America; not because of welfare programs, taxes, the social safety net, or government regulations, but for a very different reason: The highest paid people in America today create no real wealth for the society.

The financial industry, comprised of traders, hedge funds who exploit arbitrage opportunities, and “quants” who develop mathematical models to take advantage of minute inefficiencies in trading markets (for stocks, derivative securities of all types, commodities, and more) are now earning seemingly inestimable sums. Hedge fund owners earn billions of dollars annually while traders who earn less than several million dollars a year are not, by Wall Street standards, real successes. Yet they are all gambling in “a heads I win, tails you lose” game. The outcome of all their efforts are high profits, but little, if any, new societal wealth.

Real societal wealth is anything that enhances the lives of those in our society, starting with basics such as food, shelter and medicine, but also including almost any property a person can own or anything a person can experience, such as entertainment or greater convenience. Real wealth can be eaten, used, shared. or experienced.

… Here’s a final thought: In Rand’s Atlas Shrugged, the industrialists who create the real wealth of the society start to disappear as they go into hiding. The trains that make the society work, both literally and metaphorically, stop.

So I have developed what we can call the Ayn Rand test of value: If securities traders and quants at investment firms and hedge funds started to disappear in large numbers tomorrow, would the trains that comprise our economy and society run better or worse?

Conservatives believe that the 99 percent owes the 1 percent. But the reality is that the 1 percent wouldn’t have its wealth without the benefit of the social contract that the rest of us support.

What’s needed from them is not a “donation.” It’s payment due.

Before He Cuts Social Security, I Hope the President Listens To This "Obama" Guy

Richard Eskow — Fri, 14 Jan 2011 16:13:47 -0500

In an open letter to the President this week, Sen. Bernie Sanders mentioned "worriesome reports" that the President is planning to cut Social Security. These reports don't come out of the blue. They're the culmination of a months-long campaign. The White House has been privately signalling for months that it was leaning in that direction, and now the sky over Washington is darkening with trial balloons floating up from Pennsylvania Avenue.

Before you make such a disastrous and unwarranted move, Mr. President, there's someone I think you should meet. Actually, you may have run into him before: He's a skinny guy with an keen analytical mind and a gift for brilliant oratory. Sound familiar? He ran for President last time around, and he had some very sensible things to say about Social Security:

As you can see in this video, Presidential candidate Barack Obama opposed exactly the kind of cuts that are being discussed now by the White House. Candidate Obama pointed out that John McCain had indicated he would cut retirement benefits, either by raising the retirement age or slowing down the cost of living (COLA) adjustments, and responded unequivocally. "Let me be clear," the Candidate said. "I will not do either." That statement is admirable for its clarity and forthrightness - so much so, in fact, that it bears repeating:

"Let me be clear. I will not do either."

The Candidate showed a genuine command of the topic, and clearly understood what actuaries and others with specialized knowledge of the topic had been saying for years: that raising the cap on payroll tax deductions - or perhaps applying it to income above $250,000 - would remove any long-term concerns about the program's solvency.

In 2008 the public has just weathered a nerve-rattling attempt by Republicans to 'privatize' and cut Social Security, and it had survived an Administration that was openly run by lobbyists and special interests. Recently their trust in government has been shaken by the appointment of a series of right-leaning business figures to this Administration. Candidate Obama promised a different kind of government - and he pledged to defend Social Security.

Lobbyists have been hard at work trying to destroy Social Security ever since that election, and now they see their opportunity. The Chamber of Commerce, which the President is scheduled to address on February 5, continues to press for Social Security cuts and privatization. And the President's own Deficit Commission was stacked with a number of people in the past or present employ of Pete Peterson, a billionaire who has made Social Security cuts a lifelong passion. Peterson has quite a few people in Washington lobbying for his point of view (some of them have economics degrees).

But that's not who Barack Obama was elected to represent. The President was elected to represent the New Silent Majority, that vast number of Americans who have seen nobody in Washington fighting for them. Three out of four Americans want the government to do more to crack down on Wall Street, so the President's recent appointments won't please them. Are they about to discover that the President's pledge to protect their old-age financial security is being broken?

Our latest polls show that eight out of ten Americans oppose cutting Social Security to reduce the deficit. That includes 78% of independents, 82% of Republicans, and 74% of Tea Party supporters. That's worth repeating: The President may be on the verge of adopting a position that's too right wing for the Tea Party.

Our polling page also details the Democratic Party's plunging support among seniors. That's a fifteen-year trend that has accelerated under President Obama (the gap has widened from 8% to 21%). Wonder how candidate Barack Obama would have performed with this age group, with his straightforward position on this issue?

It would have seemed unthinkable in 2008 that Democrats could lose their lead over Republicans on the question, "Which party do you trust on Social Security?" Yet the figures are clear: The President and his party have lost the public's trust on this issue. "Trust" is a profound and delicate relationship. If you make an unequivocal promise, and then start equivocating as soon as you're in a position to meet your commitment, trust will fade away like dew on the White House lawn.

But it's not too late. The President can still stand up for Social Security in his State of the Union address, repeating the sensible (and financially accurate) comments of Harry Reid. Reid was absolutely right when he said that the "arithmetic" for Social Security was sound. There are reams of actuarial and economic studies to confirm that comment. Reid was eqully correct to say that Social Security cuts are "something that's perpetuated by people who don't like government." (The President may feel that such a comment isn't "civil discourse," but I don't feel it's very civil to frighten people needlessly for political reasons.)

The Candidate was right: We can protect Social Security benefits - which are too low, if anything - and fix future financial problems (scheduled to occur in 2037) by raising the cap. That would be smart policy and smart politics. It would also send the message that Candidate Obama and President Obama are one and the same person - a person who keeps his promises.

I'm sure his advisors are telling him that he must cut Social Security, even though it's politically unwise and fiscally unnecessary. Before he does, I hope the President will take the time to listen to Candidate Obama. I think he'll find that he's a pretty impressive guy. We certainly thought so; we elected him.

The President might want to give special attention to the words spoken by that candidate when he declared his intention to run for President, on a winter's day in Springfield just three years ago:

"Too many times, after the election is over, and the confetti is swept away, all those promises fade from memory, and the lobbyists and the special interests move in, and people turn away, disappointed as before, left to struggle on their own."

The President we elected will stand up and defend Social Security in his State of the Union address. We're hoping to see him there.

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This post was produced as part of the Strengthen Social Security campaign.

The Conservative Plan for Social Security Is “An Absolute Disgrace”

Isaiah J. Poole — Mon, 14 Jul 2008 11:54:31 -0400

THE POLITICS

Last week, Sen. John McCain called the system for funding Social Security "an absolute disgrace." [YouTube] Apparently, McCain was completely unaware that the way Social Security is funded has remained the same for more than 65 years. Yet, there is an absolute disgrace in the debate over Social Security—it's the right-wing fear-mongering that Bush, McCain, and other conservatives have used to stir up support for privatization schemes.

THE FACTS

Social Security is the cornerstone of retirement in America. More than 49 million Americans receive Social Security benefits, including more than 90 percent of the elderly. Social Security provides 73 percent of the typical retiree's income, compared to 17 percent from pensions and 10 percent from savings and other sources. [Economic Policy Institute] Without Social Security, more than 35 percent of Americans aged 65 and older would be living in poverty. [AARP]

The Social Security "crisis" is a right-wing myth. The nonpartisan Congressional Budget Office projects that the Social Security trust fund will run a surplus until 2019. The fund's assets, held in the form of U.S. Treasury securities, will last another 38 years. [Congressional Budget Office] Compared to our nation's trade imbalance; the price of oil; the lack of quality, affordable healthcare; and the war in Iraq, Social Security is hardly a crisis.

The right-wing "solution" of privatization does not even address the supposed problem. Privatization means diverting workers' Social Security deductions from the Social Security trust fund into private accounts. This would cause the trust fund's surplus to run out much sooner. Consequently, most privatization schemes would cripple the trust fund. [Century Foundation]

Privatization sacrifices security. The whole point of Social Security is to ensure a minimum income for retirees, not just to benefit individuals but also to protect society. Pushing millions of Americans into the stock market guarantees that the number of seniors living in poverty will multiply. Even in a bull market there are losers, and in a bear market almost everyone suffers. A Securities and Exchange Commission report found that the average current investor is extremely uninformed about stocks and bonds. [Century Foundation] Encouraging more, even less informed Americans to play the market will inevitably bring tragedy.

THE ARGUMENT

Every American deserves a secure retirement. Retirement security is an essential part of the American Dream. Today, less than half of workers participate in a retirement plan, and only a fraction of them have access to a traditional kind of pension that guarantees income in retirement. [EPI] So a strong Social Security system is now more important than ever.

Social Security needs an adjustment, not an overhaul. Contrary to John McCain's repeated claims, Social Security is not going bankrupt. There is no scenario in which Americans would stop receiving checks. Instead, it is projected that Social Security checks would have to be cut by 20 or 25 percent if nothing is done. Social Security has been adjusted many times over the years, and it simply needs another adjustment.

Privatization schemes are designed to enrich Wall Street at the expense of Main Street. Privatizing Social Security would deliver hundreds of billions of dollars to financial services corporations on Wall Street. They would, in turn, charge Americans billions of dollars in brokerage and management fees.

THE PROGRESSIVE SOLUTION

Social Security is financed by workers and employers, each paying a flat tax of 6.2 percent of a worker's salary. This payroll tax currently applies only to the first $102,000 a worker makes; any earnings above that are tax-free. The progressive solution is to apply the tax to some or all earnings above $102,000. Sen. Barack Obama has suggested that the payroll tax should apply to earnings above $250,000 per year, which would affect only the wealthiest 3 percent of Americans. [Boston Globe]

LINKS

For more information about Social Security, click here.

To subscribe to future CAF Making Sense 2008 talking points, click here.

To see the 2006 Senate vote on establishing private accounts, click here.

July 14, 2008