tax deal

The New Silent Majority

Richard Eskow — Thu, 09 Dec 2010 03:50:54 -0500

In 2008, Barack Obama said this: "I think Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not ..." He might want to rethink that statement, especially now that he seems to be promoting policies that are opposed by large majorities of the voting public.

Obama needs to channel his inner Nixon, not his inner Reagan. It was Nixon, not Reagan, who tapped the power of the "silent majority" and changed politics for a generation to come. Today there's a New Silent Majority, and it looks very different from Nixon's. The polling results are undeniable: This Majority is looking for somebody to fight the big banks, protect Social Security, and tax the rich to fund government's vital role in society.

Somebody could transform politics with this new majority, just as Nixon did. Somebody probably will.

si·lent ma·jor·i·ty (noun): the ordinary people in a country, who are not active politically and who do not make their opinions known
- Longman Dictionary of Contemporary English

Only 4% of people polled by CBS News after November's election thought that Congress should focus on deficits, and only 2% thought Washington should make taxes its highest priority. Yet those two topics have dominated the debate ever since, all but crowding out the concerns of the majority. Politicians and the media obsessed over them and ignored the topic that 56% of the public considered its highest priority: jobs and the economy.

We've only heard serious talk about "job creation" in the last 24 hours -- and that's in the context of a tax deal! Before yesterday, any attempt to bring up the public's top priority was dismissed by Washington insiders as the irrelevant chatter of marginal extremists. "Stimulus" was a dirty word, not to be spoken in polite company. Now it's on everybody's lips - conveniently enough, just as it could be applied to extending tax cuts for the wealthy. That part of yesterday's deal was opposed by 64% of the American public.

Is it any surprise that over 70% of those polled by CBS were either "dissatisfied" or "angry" with the way Washington works? Neither Obama's base nor his fellow Democrats had a seat at the table when this deal was cut, and that's become a major news story. But seven out of ten voters weren't represented at that table, either. In the long run, that 's a much bigger story.

The New Majority

We won't go through all the numbers and charts again (most of them are here and here.) We'll just stick to the highlights, starting with this one: When asked how we should cut the deficit, the public would rather raise taxes on the wealthy than cut Social Security - by more than two to one.

That includes 71% of independents, 77% of Republicans--and 76% of Tea Party supporters. That's the populist face of the New Silent Majority.

And they really are silent, at least in Washington and on the airwaves. We've just endured a month-long propaganda blitz, led by hyperbolic presidential appointees, focusing on a topic that was the priority of less than one voter in twenty: the deficit. And journalists and politicos alike have been pushing the radical right-wing prescriptions of the Simpson/Bowles Commission, whose recommendations made 70% of those polled either "somewhat" or "very uncomfortable." Still, there was no stopping the deafening chant: We have to cut Social Security! We must reduce Medicare benefits! The deficit's our biggest crisis!

There wasn't even a whisper, it seemed, about the Silent Majority's cry for jobs and growth. Then, without even skipping a beat, it was announced that the trillion-dollar tax giveaway to the wealthiest Americans was being extended, adding hundreds of billions to the deficit that had been such a crisis the day before. And what was the sudden justification for this deficit-busting plan? Jobs and growth! Stimulus!

The American majority must be suffering from whiplash. It's not just the sudden reversal on the deficit. Now the story of the day is taxes - which was a top priority for only one voter in fifty.

What else does the "new silent majority" stand for, besides jobs, protecting Social Security, and taxes for the rich?

72% want the government to crack down on Wall Street more than it has.
81% want the government to do more to reduce poverty.
Eight out of ten oppose cutting Medicare.

Despite the widespread support for these views by members of both parties (bipartisanship at last!), the political and media landscapes are dominated by journalists and politicians who keep telling us these positions are "extremist" and politically unrealistic.

If this new majority could say anything at all to the nation, it might be "Hello? Is this thing on?"

Nixon's (still) the one

You'd think the president and his party would be all over this. Look what Nixon managed to do, almost by accident: He used the phrase "silent majority" in a 1969 speech about the War in Vietnam, and post-speech polling unexpectedly showed it was a huge hit with the public. Thousands of letters and telegrams flooded into the White House, spontaneous demonstrations broke out on Veteran's Day, and a poll showed a 12-point jump in his popularity, from 56% to 68% -- all for a president who had barely squeaked into office a year earlier with 43.3% of the vote (to Humphrey's 42.7% and George Wallace's 13.5%).

Using then-new polling techniques, Nixon was able to identify this majority, appeal to it, and use it to build an unbreakable core of support. While the 1970 Congressional results were disappointing for Republicans, he went on to win a landslide victory in 1972. Even after Watergate discredited him (and to some extent his party), the "silent majority" concept allowed the GOP to build a right-wing public consensus that was unbreakable for a generation. And Republicans didn't just win elections with their Silent Majority: They won huge victories for their political principles, making them the bedrock of public opinion for decades to come. They broke down the liberal consensus and replaced it with their own.

Reagan didn't transform American politics. Nixon did.

Blue Dogma

Historians will marvel someday at our current president's iron-willed refusal to fight for policies that are both widely popular and broadly considered by experts to be the best solutions: stimulus spending to achieve jobs and growth, more regulation to reign in reckless and greedy banking, and ironclad protections for core social benefit plans. They'll wonder why deficits were given higher priority than the bleeding wounds of a jobless economy, while the deficit-busting costs of military spending and an overly privatized health care system were considered off-limits.

Most of all, they'll wonder why a month of deficit frenzy was capped by more of the same tax cuts that helped create those deficits in the first place.

And yet President Obama doesn't just fail to fight for the New Silent Majority and its positions. He gets visibly angry when he's asked about it. The president known for keeping his cool loses it whenever the subject comes up. Why?

Part of the answer may lie in this line in an article by Matt Bai: "Privately, Mr. Obama has described himself, at times, as essentially a Blue Dog Democrat." I've differed with Bai over his own statements about postpartisanship, but he's a first-class reporter and I'm pretty confident his report is accurate.

Obama's description of himself as a "Blue Dog" feels like a marker for something deeper, a theme that runs through his life and work. Bai summarizes that theme very well. But the president, along with sympathizers like Bai and centrist advocacy groups like Third Way, seems to be falling victim to an illusion. Writes Bai: "The body of Mr. Obama's writing and experiences before he became a presidential candidate would suggest that he is instinctively pragmatic, typical of an emerging generation that sees all political dogma -- be it '60s liberalism or '80s conservatism -- as anachronistic."

That seems to be the essence of some self-image for the president, as well as many of his sympathizers and advisors. But it's a misperception. It's not "pragmatic" to reject positions that are popular with the public are most likely to improve the economy. There's something deeper going on. For the "postpartisans" I've met, and from the postpartisan manifestoes I've read, there seem to be several key elements to their worldview:

A strong belief that the best results are achieved by developing consensus among powerful people
A profound attraction to the process of consensus-building
A disdain for partisan debate, based on an emotional distaste for conflict that's coupled with a belief that "wiser heads" can come to a meeting of the minds
A strongly held belief that compromise is morally superior to confrontation
Self-esteem that's based on the belief that this style of leadership is inherently superior

Underlying all this seems to lie a deep need to reject the politics of past generations, regardless of whether the politics in question are right or wrong for the moment, in order to be seen as part of "an emerging generation that sees all political dogma as anachronistic."

dog·ma (noun). something held as an established opinion ... a point of view or tenet put forth as authoritative without adequate grounds.
- Merriam-Webster Dictionary

Why does the president get so angry at "the left" that he insists on attacking it even when it hurts his own interests? Why does he reject opinions held by the great majority, including most Republicans, with disdainful terms like "sanctimonious"?

Remember, Nixon shattered the Democratic Party by linking them to "hippies." Most Americans hated longhaired demonstrators, and Nixon used that hatred to crush liberalism. But being associated with these despised, scruffy peaceniks didn't just defeat the Democrats: It traumatized them. They were painted a fuzzy-haired members of a pointy-headed elite, and it took them generations to get over the shock.

Apparently some of them still aren't over it.

Oldies

When Bill Clinton shook the hippie curse and gave Democrats their cojones back, it made sense. He backpedaled on some core Democratic positions and adopted the posture that a technocratic, bipartisan approach was the best way to solve our problems. Back then, there seemed to be a nonpolitical consensus on what was needed: Less regulation, less government, and more reliance on the "creativity" of the private sector (especially banking).

How'd that work out for you? Like we were saying, it made sense ... back then.

Bashing "the left" was a smart political strategy for Democrats when longhairs were chanting for peace in the streets (RIP, John Lennon). Maybe that's why bloggers describe this kind of left-bashing as "hippie punching." But the hippies are gone. Everybody else has moved on. Nobody's thinking about "hippies" anymore, or even about anything called "the left." They're just wondering how to pay their bills and survive their old age in a world they're increasingly likely to see as Obama's creation.

And they will see it as Obama's creation. That may or may not be fair, but think about it: How many Republicans were on TV last night pitching this deal?

Meanwhile, the New Silent Majority remains silent and unrepresented in the halls of Washington. It's as if some people are too busy fighting with the phantoms of "the left" to see that times have changed. The hippie wars are over. Who's "anachronistic" now?

The North Star

What do you do when the nation's leadership see bartering with Washington power brokers not merely as a political necessity, but as a superior way of being? Voters have seen the end result of this "way," and they don't like it. People are waiting for the president to remold the Washington consensus into something that serves their interests. If compromise does that, they want compromise. If it takes a bar fight, then they want a bar fight.

But the "postpartisans" have elevated compromise from a tactic into a moral principle. That can leave them paralyzed when compromise becomes impossible, as it has now. Fortunately, there may be a way out. And the president touched on it last night, with a passing phrase that was striking and evocative. Where, a reporter asked, is your "line in the sand"?

"My job," he answered, "is to make sure that we have a North Star out there. What is helping the American people live out their lives? What is giving them more opportunity? What is growing the economy? What is making us more competitive? And at any given juncture, there are going to be times where my preferred option, what I am absolutely positive is right, I can't get done. And so then my question is, does it make sense for me to tack a little bit this way or tack a little bit that way, because I'm keeping my eye on the long term and the long fight."

The North Star is a lovely image that evokes something important. It suggests that every political tactic must be illuminated by core set of values and goals, a set of beliefs that make up a glittering pole around which all action revolves. Stars like that have guided political debate for centuries. Some people even have a name for that kind of compass: they call it a "dogma."

If the president can let go of his attachment to his postpartisan self-image and embrace the policies most Americans want and need, they can be his North Star. But to do that he'll need to get over his reflexive distaste for the "old dogma" of the "left," because that old dogma also happens to be the new political reality.

Or, as seems more likely right now, he could keep fighting the battles of the past. His own ideology may be too centrist (that is, conservative) for the times. Or he may not have the temperament for the battles he'd have to fight. If that's true, the New Silent Majority will look elsewhere. The Right hijacked part of it this year, and it's ready to do it on an even bigger scale next time.

Whatever happens, 2012 is coming and The New Silent Majority is looking for its leader. And just in case you hadn't noticed, the auditions have already started.

________________________________________________________

UPDATE: The link in the last paragraph, to the PAC of a leading American politician, came under cyberattack late last night by supporters of Julian Assange. It therefore may or may not work when you click on it.

(There's good reference material on Nixon and the "Silent Majority" in Nevin, M. D. , 2007-04-12 "The Making of the Silent Majority: Nixon, Polling, and Constituency Building" Paper presented at the annual meeting of the Midwest Political Science Association, Palmer House Hotel, Chicago, IL Online . 2010-01-24 from http://www.allacademic.com/meta/p196625_index.html)

This post was produced as part of the Curbing Wall Street project and the Strengthen Social Security campaign.

Congressional Progressives: Make 'Em End Debt Issuance!

Joseph M. Firestone — Wed, 08 Dec 2010 23:45:09 -0500

There's a flood of reaction out there among Progressives and other Democrats criticizing the recent “tax deal” on grounds that President Obama was rolled again and got far too little for his agreement to extend the Bush Tax Cuts for the wealthy, and agree to Estate tax rates of 35%. I share that opinion. But since a) the Democrats have steadfastly refused to use the constitutional option to get rid of the filibuster, b) the Republicans in the Senate will certainly prevent any legislation from being passed this month without a tax cut deal, and c) the unlikelihood that a Republican House will pass an extension of the middle class tax cuts without also passing the tax cuts for the wealthy, the Democrats still need a deal this month if they want to get unemployment insurance extended and other legislation passed.

So what should they to do? Well, for starters, the House and Senate Democrats could send the Republicans and the President back to the negotiating table with some instructions about what else they want in order to make a deal. The most important price they can make them pay in return for the tax cuts for the wealthy they want so much is an end to debt issuance. Why is an end to debt issuance so important? Here's why?

Almost everyone, in talking about our so-called fiscal crisis, says that the Government can only fund its spending by either taxing to raise revenue or borrowing to fund deficit spending, and that if too much is borrowed too fast, so that the debt-to-GDP ratio grows too rapidly, this will result in the bond markets losing confidence in the Government's ability to repay its debt, which, in turn, will cause these markets to demand higher interest rates on Treasury Securities, increasing the cost of interest on the debt over time, until, eventually, the interest payments on Federal Debt are so high that they squeeze out other Federal expenditures and programs leave no space for spending we need to do to solve vital problems.

The concern about the bond markets and the pressure on the dollar they can bring to bear is so great that some think that President Obama's primary reason for creating the National Commission on Fiscal Responsibility and Reform was to try to get a long-term deficit reduction plan through Congress in order to convince them that the United States is serious about bringing its debt problems under control.

There are many things wrong with this reasoning I've just laid out about deficits, debts, and the bond markets, and in past months I've blogged about its various flaws. But let's put that aside for this post. Let's assume that the narrative is correct. If so, then the problem of rising interest costs is caused not simply by deficit spending, but by our need to borrow "to fund it."

If we didn't need to do that anymore, then we'd be able to avoid increasing the national debt, and the debt-to-GDP ratio, we wouldn't have to raise the debt limit, and, eventually, there'd be no Federal Debt and no interest costs at all, since we'd be gradually paying down the Federal debt as it came due. And soon people would stop talking about the debts we are leaving to our grandchildren, and the money we are borrowing from China and others “whose values are not our own.” By 2025, the date when current projections suggest that our debt-to-GDP ratio will reach 120%, we'd actually have a debt-to-GDP ratio of nearly zero, because we'd have nearly paid off the national debt.

So, the simplest and most direct solution to the so-called “fiscal crisis” is simply not to issue any more debt when the Federal Government deficit spends. Why can't the Government do that now? The answer is that when the nation went off the Gold Standard in 1971 and adopted its fiat currency system, Congress didn't repeal its mandate, very appropriate when our currency was convertible to Gold on demand, in least in theory, requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold.

The mandate to borrow funds, however, has no useful function today, and the interest income it provides for mostly wealthy investors and foreign Governments who buy Treasury Securities is simply a form of welfare for the rich. Any positive effects it produces are vastly outweighed by the bad effects of having to cope politically and economically with the concerns of people who believe that the increases in the debt, and the debt-to-GDP ratio give us a fiscal sustainability problem whose priority outweighs everything else. So, let's make the “hysterical” deficit hawks like Alan Simpson and Erskine Bowles, and occasionally, the President, and the “responsible” doves like Paul Krugman, Brad DeLong, Jeff Madrick, and occasionally, the President, happy and remove all their debt, and debt ratio worries with the following solution. Why even Ed Schultz would have to stop talking about the need for "sacrifice" so that we can avoid borrowing hundreds of Billions from the Chinese in order to “finance” the “tax cuts for the rich.”

Congress: repeal the mandate forcing the Government to issue debt instruments on a dollar for dollar basis with deficit spending. The mandate has no useful function now, other than to provide welfare for the rich and foreign nations, which isn't useful for most of us. If Progressives can make a deal including repeal of the mandate, on the other hand, Congress will:

-- cease to provide that welfare,
-- gradually pay off the $13.8 Trillion Federal debt entirely,
-- have rapidly decreasing Federal interest costs over the next decade until they entirely disappear,
-- have no further need to take difficult votes about increasing the Federal debt limit,
-- have no further need to worry about borrowing money from the Chinese, or the oil rich states, or the Japanese, that our grandchildren will one day have to re-pay,
-- have no further need to worry about what the bond markets think or are going to do, or
-- to worry about our debt or deficit spending being “fiscally unsustainable” when we want the Government to spend money to sustain the unemployed, help us end unemployment altogether, fulfill American needs for new infrastructure, develop a re-invented first class educational system, and provide Medicare for All, among our other needs.

C'mon Progressives, if you can get this repeal measure into the tax deal, you can solve the fiscal responsibility and reform/fiscal sustainability problem very, very easily, and also quit having to worry about those difficult votes on increasing the debt limit. All you have to do is get rid of that mandate to issue debt, and the whole political/economic mess these deficit reduction Commissions and interest groups are bent on making making goes away.

You won't have to worry about raising the Social Security Retirement age and getting young people angry at you, or having to cope with millions of angry Seniors because you're committing to cut their Medicare, or get people frosted because you're going to cut the heart out of a program they really, really like. You know that neither progressives, nor really anyone else in Congress wants to take that vote that the President, Bowles and Simpson, Alice Rivlin, and Pete Peterson are setting you up for, sometime during 2011.

So don't! Make a deal that gets rid of the mandate to issue Federal Debt, and with it the whole issue of whether the Federal Government can afford to do what we need it to do. Get on with the real problems facing our country, and tell the bond markets, the deficit hawks, the Republicans and the blue dog Democrats who are forever saying that the Government can't do this or that important thing, because it's running out of money, to go to hell!

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Highway Robbery and the Progressive Future

Zach Carter — Wed, 08 Dec 2010 09:27:33 -0500

Kevin Drum gives a pretty thorough analysis of President Obama’s open assault on the mainstream Democratic Party at yesterday’s press conference, and declares that “programmatic liberalism is dead.” I think that’s more than a little exaggerated, but regardless, it’s not a fair description of the policies at stake in Obama’s lousy tax deal. The tax deal is fundamentally about whether the United States still believes it has a basic commitment to protect its most vulnerable citizens from harm. For so basic an intuition to be the subject of political negotiation should be abhorrent to anybody of any ideological stripe in today’s United States. The deal is not a signal of strength or weakness on the left or the right, it is a symbol of rank political cynicism.

Protecting the most vulnerable members of society is not a liberal idea. It is the basic moral intuition of every philosophical and religious tradition but two: cruel interpretations of Friederich Nietzsche, and a brand of libertarianism far more radical than anything in contemporary American politics. Republicans were threatening to cut off unemployment benefits and a poverty tax credit for families with children. Let me emphasize: poverty relief for children.

These policies should never, ever be the subject of political negotiation. Obama could have raised a fuss, he could have publicly shamed his adversaries for threatening a basic moral building block of a decent society. Instead, he offered absurd giveaways to the rich that have not only been the ire of “the professional left,” but of the mainstream Democratic Party for almost a decade. Nearly every Democrat in Congress is now wondering if a primary challenge will be the result of support for this deal. And Obama now has the gall to chastise “the left” for being outraged.

A decent society takes care of its poor. Committing to conservative political thinking does not require one to believe that the poor should suffer for no reason. The number of poor families in the United States has gone up dramatically during the worst recession since the Great Depression, just as the number of unemployed parents has skyrocketed. These problems are caused by major structural economic problems, not by laziness or recklessness on the part of families (and even if it were only the result of laziness or recklessness, a decent society would not take that out on the children of the lazy and reckless). Amid mass poverty, any policymaker should support poverty relief.

This is a moral intuition even more fundamental than the commitment to equality of opportunity—the root belief that a decent society does not let its members endure extreme suffering needlessly. It is not egalitarian, it is not Marxist, it is not socialist, it is not liberal. It is just something a decent society does. It can be described with economic language, but it is not fundamentally an economic problem, unless short-term poverty relief somehow results in total economic calamity. Needless to say, the United States faces no such crisis from aiding its poor.

But Obama did not make this case. He didn’t even try. He entered a room with Republican leaders, and returned to declare they had been given everything they wanted.

Shortly before the deal was announced, Gretchen Morgenson and Louise Story of The New York Times ran a numbers on how the Bush tax cuts affect Wall Street bonuses. For every $1 million in bonus payouts, they calculated, the Bush tax cuts allow Wall Streeters keep an additional $40,000 to $50,000 in income.

The price Republicans demanded for allowing the United States to participate in the basic moral foundation of every decent society the world over was $40,000 for every $1 million in Wall Street bonuses. That should be appalling to liberals and conservatives alike, and a President who does not go to the mat to shame his opponents under such circumstances is bound to lose respect among his followers.

Via a link to a prior post, Kevin defines “programmatic liberalism” as the Progressive Era of 1911 – 1919, the New Deal of the 1930s, and the 1960s. All of these involved significant restructurings of the United States government and its institutions. This is not the sort of thing under discussion in the tax debate. Not even close.

“Should the poor be sustained?” Is a much different question than, “Is it the proper jurisdiction of government to regulate X given recent events?” All kinds of ideological issues can play into regulatory questions. But for quite literally centuries, there has been a broad moral consensus about the right of the poor to live (this glosses over racism and sexism, of course). The “professional left” is not demanding new institutions or government functions. It’s demanding that our society actually be a society.

And so Obama’s assault on what he called “purist” and “sanctimonious” left cannot be viewed as anything but outrageous. MoveOn and DailyKos and FireDogLake are not actually demanding leftist positions on tax policy—their opponents are threatening outright brutality, and the President of the United States is not seriously challenging those threats. Obama’s willingness to capitulate does reveal the man’s fundamental human compassion—but it also portends serious dangers. The next major negotiation, as Matt Yglesias and Mike Konczal have emphasized, will be over raising the federal debt ceiling. If it is not raised, the United States will have no choice but to default on its debt, and the global economy will collapse. If Obama is willing to throw up the Bush tax cuts to preserve the basic moral foundation of society, then he will certainly offer anything to prevent mere economic Armageddon. With this deal, the President has signaled that whenever a difficult choice arrives, he will roll over.

Here’s a leftist tax position: restore tax rates on millionaires to Johnson-era levels of 90 percent, and use that money to guarantee free college education for the children of families earning less than $50,000 a year. Nobody on the “professional left” is demanding that right now. We’re demanding that the basic functioning of society not be ransomed away in the name of bigger bonuses, and that negotiations over economic and tax policy not allow the most vulnerable members of society to be used as bargaining chips.

So perhaps this is what Kevin means. Now that a Democratic president is willing to cave on negotiations about the moral foundation of society, liberals cannot hope for serious economic progress for several decades. I see things otherwise. Two years ago, pundits were forecasting the end of conservatism as it has been practiced for 30 years. “Liberal” thought is not dead. Our president is simply ineffective.

Obama's "Tax Holiday": A Poison Pill For Social Security

Richard Eskow — Tue, 07 Dec 2010 18:30:52 -0500

You know what they always say: Pay now or pay later. Middle-class Americans may pay very dearly for the president's tax deal, and at the stage of life when they can least afford it. By providing a temporary cut in the payroll taxes that fund Social Security, this deal starts the nation down a slippery slope that could lead to permanent benefits cuts for the middle class and even more wealth for the rich.

In other words, Obama's "payroll tax holiday" could send the financial safety of America's seniors on a permanent vacation.

The embattled president lashed out at his critics at today's press conference. (Well, not all his critics. Just the ones in his own party. That seems to be the pattern lately.) He sneered at those who, he said, just want to "be able to feel good about ourselves and sanctimonious about how pure our intentions are."

"Purity" is a strange word for opinions that are strongly held by seven out of ten Americans, including most Republicans, independents, and even Tea Partiers. They're against cutting Social Security, and would rather raise taxes on the wealthy instead. This deal moves in the opposite direction by keeping taxes down for the rich and strengthening the hand of those who want to cut Social Security. The president's track record on this issue isn't reassuring, either. While he's attacked GOP privatization schemes, he has also carefully phrased his "defenses" of Social Security with qualifiers like the one about "protecting Social Security as a reliable income source" (a statement which avoids addressing benefit levels.)

It was Barack Obama who promoted an off-balance set of priorities that made deficits the center of attention, at a time when the official unemployment rate is 9.8% (and the unofficial rate is much higher). It was Barack Obama who formed a deficit commission and then gave it explicit authority to address Social Security (which doesn't affect the deficit). And it was Barack Obama who appointed two longtime Social Security slashers to co-chair it (along with an economist who has made cutting benefits her life's mission).

The president may resent the widespread lack of trust from members of his own party. But their distrust doesn't mean they're "sanctimonious" or "purist." It means that he's done very little to earn anyone's trust on this issue. Instead, he's given people every reason to doubt his willingness to protect Social Security.

Obama described his disaffected base as impractical people who only want "the satisfaction of having a purist position and no victories for the American people." But that assumes that this deal is a "victory for the American people." Yes, he won an extension of unemployment benefits. But when good liberal economists on the presidential payroll struggle to describe it as "a plan that's all about jobs," the gentlest thing one can say is that they're overstating the case. When it comes to jobs then, as Dean Baker succinctly says, the plan is "not trivial, but it's an order of magnitude less than what we should be looking for."

Worse, whatever gains working Americans might see under this plan is likely to cost them far more in the long run. It's not just that the $120 billion cost of the "payroll tax holiday" could be used more effectively in other ways. And it's not just that it could be distributed in a way that doesn't give yet another break to the wealthy. (Obama's economists keep repeating that this plan will save $1,000 next year for a family making $50,000, and that's true. But it will save more than twice as much ($2,136) for a family making $106,800, the current maximum for the FICA tax. And it will save $2,136 for a family making a million dollars. And $2,136 for a family making ten million. And $2,136 for a family making a hundred million...)

Those are serious flaws. But the biggest problem with the "payroll tax holiday" is the way it undermines Social Security.

The long game

It's no accident that the "payroll tax holiday" was first proposed by sworn enemies of retirement benefits on the deficit commission. We should be asking ourselves: When tax breaks can be designed in so many different ways, why did they choose this way? Why single out the only source of Social Security's funding? Could it be part of a long-term game plan?

Let's play out a likely scenario if this deal is enacted:

The 2% tax holiday expires in 2012, an election year. Meanwhile the government debt will have increased by $120 billion, the amount that will be paid into Social Security to cover the cost of this "holiday." Bear in mind: Never before in Social Security's 75-year history has it taken any funds from the overall Treasury. It's forbidden by law from adding to the deficit. That's why it has its own trust fund, which currently holds a surplus of $2.6 trillion. That's money the Federal government has borrowed, and which it's morally (and legally) obligated to pay back so we can receive our retirement benefits.

Flash-forward to 2012: The "holiday" is set to end. Republicans aren't likely to acknowledge that this was a temporary program, any more than they did with the Bush cuts. Any attempt to let the 2% cut expire will be spun as an "Obama tax hike" on the middle class. In order to believe this "holiday" is really temporary, you have to believe that Obama and other Democrats will be willing to take that kind of heat, under enormous pressure in an election year. Any takers?

Extending this 2% cut would gut Social Security's finances forever. But whatever happens, look at what Social Security's enemies will have accomplished:

The "lockbox" principle between Social Security and the overall budget will have been erased forever. A relatively small infusion of cash into the trust fund will be the poison pill that erases the "trust fund" principle. Once the program has contributed to the deficit, it's no longer separately funded.
The enemies of Social Security will have painted a bull's eye on its only source of funding. People will see it as a "new tax" -- in a year when the economy's not expected to have fully recovered.
They'll be in a position to argue, once again, that "America can't afford" to provide financial security for middle-class seniors.

What's more, would-be cutters like Maya McGuineas and Alan Simpson have made it clear that they'd love to get their hands on the $2.6 trillion in Social Security's Trust Fund to use it for other purposes (like covering the debt that was run up by tax cuts for the wealthy and a couple of wars). This will give them their chance.

How do you think all of this is going to play out? My guess is that the 2% cut will be extended for even the richest Americans. After all, 94% of the working public would see their payroll tax go from 4.2% back up to 6.2%. Can't you see the campaign ads now? "Democrats want to increase your payroll taxes by fifty percent!"

The pressure to cut Social Security benefits will be greater than ever. That will also give the slashers their chance to welsh on the promissory notes to the trust fund. They might even be able to do away with Social Security's separate accounts altogether. In the meantime, this deal will have ended the program's 75-year history as a program that working Americans, along with their employers, fund for their own future use.

That's why Social Security isn't just another government program, and it's why lower- and middle-income people support it so strongly : You pay into Social Security while you work, and then you collect from it when you retire. Its benefits aren't just another item on the Federal balance sheet, and payroll taxes aren't just another tax. By design, Social Security is a secure way for people to provide for their own future. This deal could end that forever.

Either the anti-Social Security conservatives have played a better game of chess than the President, or this is the outcome he wants. But it doesn't matter in the end whether he's been outplayed, or is playing one of those "three dimensional chess games"... in this case, with seniors as pawns. It's a lousy move either way.

Compromises should move us forward, not backward

As Nancy Altman pointed out, a permanent 2% cut would double the projected 75-year shortfall in Social Security, while lifting the payroll tax cap would eliminate that shortfall. The first option would benefit rich people and the second would help the middle class. Which option will be chosen in 2012 if this deal takes effect? Ladies and gentlemen, the betting windows are now open...

The president said this in today's press conference: "In order to get stuff done, we're going to compromise. This is why FDR, when he started Social Security, it only affected widows and orphans. You did not qualify. And yet now it is something that really helps a lot of people."

He's right. But when it comes to Social Security, this deal isn't the kind of incremental progress he's celebrating. It only makes it easier for Social Security's opponents to move us backwards, not forwards. And that historical reference makes his earlier defense of the program even less reassuring: "Let us ensure," said Obama's statement, "(that) we continue to preserve this program's original purpose in the 21st century." Meaning what? Only protecting widows and orphans?

FDR also said, "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my Social Security program." Obama's deal would change that principle forever.

There are those who will argue this forecast is too pessimistic. But why take the chance when other stimulus packages would be more effective? There are also those who are unhappy when the President isn't trusted on an issue. But why hasn't he done more to earn trust on Social Security, especially before proposing a change of this magnitude? The bottom line remains the same: There's no reason for voters to swallow a bitter pill that could kill Social Security... and leave them facing an old age filled with uncertainty and fear.

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UPDATE: Steve Benen at Washington Monthly is among those pointing out that yesterday's deal won't touch the Social Security Trust Fund ("yet," I would add), which we also point out above. He adds: "For those of us looking out for Social Security, that's good news." That's like having your king in check in a chess game and saying "it's not checkmate, and that's good news."

To be fair, Steve also says " I don't doubt that it remains a GOP goal that Democrats are going to have to fight." But a relaxed attitude toward this "holiday" deal - "when listing legitimate concerns about the tax policy agreement, this one doesn't make the cut" - puts Social Security at risk. If this deal's accepted, it's bad news.

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

A Tax Deal Fit For The Gilded Age

Zach Carter — Tue, 07 Dec 2010 12:26:28 -0500

President Barack Obama and Congressional Republicans are ready to mortgage the American economy to billionaires in exchange for a few months of unemployment benefits. This deal is easily the gravest economic outrage of the Obama presidency to date, and signals that other political assaults on the economy are ahead.

The basic deal: One year of unemployment benefits, a $40 billion extension of an anti-poverty tax credit, a $120 billion tax cut for workers and some additional tax cuts for American businesses that are already sitting on $1 trillion in cash and refusing to hire new people. In exchange, we get the Bush tax cuts for billionaires, plus an estate tax even more regressive than the worst estate tax implemented by George W. Bush. A few billion for the poor, hundreds of billions for the rich, and nothing—nothing – that will alleviate epic unemployment. It may even fail to prevent the economy from deteriorating further. The best I can say for it is that it will prevent things from getting too much worse.

David Dayen at Firedoglake does some number-crunching and finds $116 billion of actual new stimulus in this deal. He acknowledges that this is a charitable figure, because $56 billion of that total comes from extending unemployment benefits—meaning "not cutting them off"-- not exactly a "new" program. Under either calculation, the result is pathetic. The George W. Bush stimulus from 2008 was $160 billion, and featured a roughly similar approach to the stimulative measures in this one: putting money in workers' pockets. It's better than not putting money in workers' pockets, but it's simply not enough.

This is it, folks—the only economic aid package we are going to see until 2012. If it passes, both parties will praise it as a great bipartisan victory, and critics demanding further economic relief will be told to give it time to "work," as the worst recession since the Great Depression grinds on and on and on. It will be the stimulus package disaster all over again. And remember, Americans actually liked the stimulus plan when it was enacted. Today, most Americans already want to see the Bush tax cuts for billionaires expire.

The actual consequences of this deal, of course, will be more severe than the political fallout in 2012. We'll soon hear about "tough choices" facing the country as a result of our allegedly out-of-control budget deficit (bond interest rates, shmond interest rates!). Now that raising taxes on the rich has been taken off the table, those "choices" will translate to devastating cuts in Social Security. After agreeing to useless tax cuts for the rich in the name of economic "stimulus," Wall Street executives and Congressional Republicans will demand Social Security be slashed, further sabotaging our demand-starved economy, and actually starving our senior citizens.

The United States does not have a deficit problem, with or without the Bush tax cuts for billionaires. Interest rates on U.S. Treasury bonds are at record lows, and aren't going anywhere with Europe, the U.K. and Japan in serious fiscal distress, and with China buying up as much U.S. debt as it can in order to support its own economy.

But that doesn't mean the Bush tax cuts for billionaires will be without consequences. Asset bubbles don't just materialize out of thin air. They occur when a few people have loads of money to invest, while most people don't have the money to buy things. When most people can't buy things, the rich can't invest their money in productive enterprises—however good somebody's new product may be, it can't be sold to people who are broke. So investments flow to things that aren't actually very useful, inflating their value—things like the stock market in the 1990s and the housing market in the Bush years. There are other factors, of course, but severe inequality is a key component.

Right now demand in the economy is much, much weaker than it was in the '90s or the naughties, and we have a too-big-to-fail banking industry that not only receives generous bailouts, but cannot even be bothered to follow the law in carrying out foreclosures. Extending the Bush tax cuts without seriously addressing unemployment, big finance and foreclosures is asking for another asset bubble. And that's how we get to a real fiscal problem: another bubble, another round of epic bailouts for banks that are bigger than those we bailed out in 2008 and 2009.

Today, banks are facing huge losses from foreclosure fraud, and asset valuations based on outrageously optimistic home prices that have not come to fruition (translation: banks are pretending big losses are big profits). This is a problem that can be solved, and one that will not wreak economic havoc if investors are forced to help bear the costs of solving it. But so far policymakers have only attempted to address the issue by papering over the problem for banks, with many actively encouraging more and faster foreclosures (read: deflation).

More Bush tax cuts, more unemployment and more bad banking. So we beat on, boats against the current, borne back ceaselessly into the past.