The Banker Who'd Cut Social Security and Medicare - And May Become Treasury Secretary

Pollsters keep telling us that the public wants action on jobs, a higher tax rate for millionaires, and protection for Social Security and Medicare. Our best economists keep reminding us that job creation should be government's top priority.

So why is the Administration talking about replacing Treasury Secretary Geither with a wealthy banker who wants to cut Social Security and Medicare, would lower taxes on his fellow rich people, and is trying to impose European-style job-destroying austerity on this country?

The Balloon

There was some consternation when the Administration floated a trial balloon which was prominently picked up by the Washington Post's Ezra Klein [1], whose headline asked "Will Erskine Bowles be our next Treasury Secretary?"

Klein wrote that "as of today, I’m ready to name a frontrunner, at least if Barack Obama is re-elected: Erskine Bowles." He also notes that Paul Ryan called Bowles "my favorite Democrat."

It's true that a Bowles nomination would, as Klein says, "ensure a smooth confirmation." So would the nomination of Grover Norquist. There are reasonable compromises to be made in the name of governance. And there are those that aren't.

The Candidate

Paul Ryan's affection is understandable. And it's reciprocated. Bowles said of Ryan: “I think he’s smart. I think he’s intellectually curious. I think he is honest, straightforward and sincere."

Their mutual regard is perhaps reinforced by the fact that Bowles co--authored a "Ryan-lite" personal austerity proposal with conservative Republican Alan Simpson, a former Senator, which would cut Social Security and Medicare benefits while simultaneously lowering tax rates for millionaires, billionaires, and corporations.

Before entering public life Bowles was a banker with Morgan Stanley. He now serves on Morgan Stanley's board, and has done so through a series of that bank's legal issues. As Dean Baker notes [2], Bowles was also on the General Motors Board "from June of 2005 until it went into bankruptcy in the spring of 2009," and "joined the board of Morgan Stanley, the Wall Street investment bank, near the peak of the housing bubble in December of 2005."

Bowles is also on the Board of Facebook, whose IPO has been the subject of controversy and scandal. (Baker offers a fun, interactive graph of the economic performance of the companies on whose boards Bowles has served. It isn't pretty.)

The Pitchman

Bill Clinton, among others, has delivered one sales pitch after another for the Simpson Bowles plan. He put one in his speech to the Democratic National Convention. I wonder if attendees understood what he was selling, or whether Democratic leaders noted that some of Clinton's best-received lines were these:

"Now, I think this plan is way better than Governor Romney’s plan. First, the Romney plan failed the first test of fiscal responsibility. The numbers just don’t add up." (Laughter, applause.)

The Simpson/Bowles numbers don't add up, either - partly because they offer various options and exchange them at will, and partly because they set target goals but never explain how they plan to achieve them. Clinton:

"I mean, consider this. What would you do if you had this problem? Somebody says, oh, we’ve got a big debt problem. We’ve got to reduce the debt. So what’s the first thing you say we’re going to do? Well, to reduce the debt, we’re going to have another $5 trillion in tax cuts heavily weighted to upper-income people. So we’ll make the debt hole bigger before we start to get out of it."

The baseline Simpson Bowles proposal reduces the tax rate for millionaires and billionaires, which is already at a historical low of 35 percent, to 27 percent. And it cuts the corporate tax rate, too.

"Now, when you say, what are you going to do about this $5 trillion you just added on? They say, oh, we’ll make it up by eliminating loopholes in the tax code. So then you ask, well, which loopholes, and how much? You know what they say? See me about that after the election. (Laughter.)"

"I’m not making it up. That’s their position. See me about that after the election."

It is funny, until you realize that's Bowles' and Simpson's position too - and that Bowles might be our next Treasury Secretary.

The Plan

The Simpson/Bowles proposal is often marketed - falsely - as the product of their deadlocked and failed Presidential Deficit Commission. It claims to be "centrist" because it offers unspecified tax increases as well as cuts -- probably by decimating the middle class by eliminating tax deductions for employer health care, dependent children, and home mortgage interest. It also claims "bipartisanship" because Bowles the banker is also Democratic Party insider.

The "Simpson Bowles" austerity cuts to US government spending closely resemble the cuts that have devastated the economies of Europe and Great Britain. Their plan would also cut Medicare and Social Security benefits -- while providing drastically lower tax rates for billionaires and millionaires.

When you look at it carefully, Simpson Bowles only differs from the radical right-wing Republican budget in a few areas, the most important of which is this: While the Republican plan calls for no tax increases at all, the Simpson Bowles plan says it would offset its billionaire tax cuts. But since they also lower tax rates for billionaires, millionaires and corporations, they're left to rely like Romney on unspecified loopholes, or "tax expenditures," which could eviscerate the tax deductions that help the middle class get health insurance and pay their mortgages.

The Voters

Washington insiders scoff at anybody who dares question the sanctity of the "Simpson Bowles" concept. But once you leave Washington, that includes pretty much everybody. About 96 percent of the country's voters reject their emphasis on deficits as our top priority, according to recent polling [3]. The same poll showed that 37 percent of those polled considered "the economy and jobs" their top priority. That's nearly ten times as many people.

That tracks closely with other poll results [4] which showed that seventy percent of Americans were either "very uncomfortable" or "somewhat uncomfortable" with the Simpson Bowles plan when it was released.

Meanwhile polls [5] show that Medicare is a key issue in three battleground states, with Paul Ryan's unpopular plan giving Democrats a decided edge on that issue. The selection of Bowles would damage that advantage if it was announced before the election, and would create a sense of betrayal if announced afterwards.

That particular form of right-wing wealth redistribution is what allows Simpson, Bowles, their funders and supporters to keep bragging that their plan is "brave." If they were really brave they'd admit that they're offering a right-wing austerity plan, not a "nonpartisan" solution to a long-term issue that's receiving attention that should be focused on today's jobs crisis.

The Job

What does the Treasury Secretary do? She or he is, among other things, the country's Chief Financial Officer or CFO. (That makes the past performance of Bowles' companies more than just a game.) The Treasury Department website says that "The Secretary of the Treasury is the principal economic advisor to the President and plays a critical role in policy-making by bringing an economic and government financial policy perspective to issues facing the government ... (and) is responsible for formulating and recommending domestic and international financial, economic, and tax policy... the formulation of broad fiscal policies that have general significance for the economy, and managing the public debt."

The website adds: "The Chief Financial Officer of the government ... serves as Chairman Pro Tempore of the President's Economic Policy Council, Chairman of the Boards and Managing Trustee of the Social Security and Medicare Trust Funds" - uh-oh! - "and as U.S. Governor of the International Monetary Fund" as well as other multilateral institutions.

The Treasury Secretary also controls the Emergency Economic Stabilization Fund - better known as "TARP." Should a banker run TARP?

Among its many fines and violations, Morgan Stanley recently signed a Consent Order [6] with the Federal Reserve regarding its "pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing.""

If a national tragedy occurs, the Treasury Secretary of the United States is fifth in the line of Presidential succession.

(Coming up next: A list of people who would do an exceptional job as Treasury Secretary.)