Starving the beast

For the most part, the liberal-left has denounced Obama’s deal over taxes with the Republicans but it will probably have enough votes from the Republicans and Blue Dog Democrats like Ben Nelson to pass. Of course, according to the NY Times’s Matt Bai, the president himself has described himself as essentially a Blue Dog Democrat so it should not come as any great surprise that he struck a deal with Mitch McConnell and company.

It is of some interest that some on the liberal-left and even on the radical left have bought into the deal as well. Kevin Drum, a blogger at Mother Jones, wrote:

In the end, this is the second stimulus we all wanted. It’s not a very efficient stimulus, and it sadly caves into the conservative snake oil that the sum total of fiscal policy is tax cuts, but them’s the breaks. Anyone who doesn’t like it needs to spend the next two years persuading the public not just to tell pollsters they don’t like tax cuts for the rich, but to actually vote out of office anyone who supports tax cuts for the rich. That’s the only way we’ll win the replay of this battle in 2012.

Dean Baker, an economist generally associated with populist attacks on wealth and privilege, wrote a piece provocatively titled In Defense of Giving Money to Rich People that reasons: “extending the tax cuts to the richest 2 percent for another 2 years is not especially harmful. It will hand money to people who will spend at least some it, thereby creating demand and generating jobs.”

Moving over a few steps to the left, the Communist Party joins Drum and Baker in putting a positive spin on the deal. Art Perlo, the son of the late Victor Perlo, the party’s long-time economics expert, put it this way:

Spending money on tax cuts for the rich stinks. It is offensive to the majority of working Americans who are suffering in this economic crisis. And it is bad economics. But if it is a price necessary to continue unemployment benefits for millions of families, and to prevent a tax increase for all workers, it might be worth it.

Now it should be understood that the CPUSA no longer makes any pretenses of being some kind of revolutionary organization and seems intent on carving out a space on the left once occupied by Irving Howe, but it still has some influence in the trade union movement and in the Democratic Party where its aging cadres have sunk their tentacles.

Most interesting of all is the article by Michael Meerpol that appears on The Nation website titled Obama’s a Sell-Out on Taxes? Not So Fast that repeats the talking points found above, including the same formulation as Dean Baker’s about doing no harm:

I also think, however distasteful it is on moral grounds, extending the Bush tax cuts does not do much harm. Even after Clinton persuaded Congress to raise taxes on the highest income earners and well before the estate tax cuts passed in 2001, the super-rich were continuing to increase their share of the nation’s income and wealth. Long term trends in inequality have more to do with the decline of union membership, financial deregulation and increased trade in labor intensive goods, while increasing protectionism for high salaried professionals (doctors, accountants, professors) and the fraying of the social safety net. Tax policy plays some role, but it is nowhere near the whole story.

Meerpol seems to have a soft spot for Obama even though his policies are basically warmed over Clintonism, and arguably a continuation of the Bush administration. In 1998 Meerpol wrote a rather good book called “Surrender: How the Clinton Administration Completed the Reagan Revolution.” Perhaps he has changed his mind about the role of these DLC types in the interim since the same kind of book can be written about Obama, especially in consideration of his nod to the Gipper. In “Audacity of Hope”, Obama expresses sympathy for Reagan’s antagonism toward high corporate tax rates since they “distorted investment decisions” and led to tax shelters. In the same paragraph, he blamed welfare for creating “perverse incentives” when it came to the “work ethic”. One wonders if the “progressives for Obama” ever read this crap before they made fools of themselves.

Considering the fact that tax breaks are seen as a job-creating stimulus by these people, one wonders what they make of the fact that under the New Deal tax rates were at an all-time high. And what’s even more interesting is that they were raised under Herbert Hoover, a politician that Obama has been likened to. Sigh. If only Obama were half as progressive as Hoover or Nixon, for that matter. The Tax History website reports:

Some of the most important elements of the New Deal tax regime were engineered by Herbert Hoover. Congress passed the Revenue Act of 1932 five months before Franklin Roosevelt won his bid for the White House. But key elements of the law — including an array of regressive consumption taxes — remained a cornerstone of federal finance throughout the 1930s.

The 1932 act imposed the largest peacetime tax increase in American history. Congress expected it to raise roughly $1.1 billion in new revenue, much of it from the rich. Lawmakers raised income tax rates across the board, with the top marginal rate jumping from 25 percent to 63 percent; overall effective rates on the richest 1 percent doubled, according to economic historian Elliot Brownlee. Meanwhile, estate tax rates also climbed sharply, while the exemption was cut by half.

For all its progressive features, Hoover’s revenue swan song — which passed with strong support from the Democratic majority in Congress — also included an array of regressive excise taxes. The law created new levies (including taxes on gasoline and electricity), while raising rates for old ones. As a group, most of these consumption taxes fell squarely on the shoulders of Roosevelt’s famous Forgotten Man. Yet once in office, the new president did nothing to reduce them. Indeed, excise taxes provided anywhere from a third to half of federal revenue throughout the 1930s.

But the most important question is whether or not such tax breaks to the rich “do no harm”. Lost in the discussion is the overall political context for tax reduction, a driving policy goal of the Republican Party since Reagan’s election. Some of the motivation obviously is a desire to become even more obscenely rich in the manner of the gangster Johnny Rocco in “Key Largo”, played by Edward G. Robinson, who has this exchange with the hero Frank McCloud, played by Bogie:

Johnny Rocco: There’s only one Johnny Rocco.

James Temple: How do you account for it?

Frank McCloud: He knows what he wants. Don’t you, Rocco?

Johnny Rocco: Sure.

James Temple: What’s that?

Frank McCloud: Tell him, Rocco.

Johnny Rocco: Well, I want uh …

Frank McCloud: He wants more, don’t you, Rocco?

Johnny Rocco: Yeah. That’s it. More. That’s right! I want more!

Greed counts for a lot but there is something else going on. It is what is known as “starving the beast”, a ploy to reduce federal spending on entitlements like Social Security through budget deficits caused by tax revenue shortfalls.

When Obama’s role model Ronald Reagan was a candidate in 1980, he likened Social Security recipients to children (is this worse than Alan Simpson’s teat analogy, it is hard to say): “John Anderson tells us that first we’ve got to reduce spending before we can reduce taxes. Well, if you’ve got a kid that’s extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker.”

But the man most associated with this policy is Grover Norquist, the president of Americans for Tax Reform, who once said: “My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.” This character was closely associated with Jack Abramoff and accompanied him on junkets to meet with counter-revolutionaries around the world, including the contras in Nicaragua Savimbi’s UNITA and Renamo in Mozambique, as well as facilitating Abramoff’s crooked ties to various politicians including Tom DeLay. It is wonder that he did not end up in a prison cell next to Abramoff.

Norquist was crucial in helping George W. Bush draft his tax cuts during the first term. He was also the liaison to the conservative movement. This movement has developed close and organic ties to the Republican Party and serves as a kind of “vanguard” pushing it to the right, whether through the Tea Party or various other think tanks like the one that Norquist runs.

While Dean Baker and Michael Meerpol claim that the tax deal will do no harm, there are others who see it as a dagger aimed at the heart of a key New Deal measure, Social Security. Richard Eskow, a Senior Fellow with the Campaign for America’s Future and not someone open to the “do no harm” arguments of Baker and Meerpol, wrote an article titled Obama’s “Tax Holiday”: A Poison Pill for Social Security in the Huffington Post on Wednesday. In it he takes up the question of the threat to social security posed by the payroll tax reduction in the “compromise” worked out between the Reagan fan Barack Obama and his even more ardent fans in the Republican Party. Described as a “payroll tax holiday” by its corporate backers, the provision amounts to a kind of Trojan Horse described by Eskow:

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.

Starving the beast, indeed. Of course, these seniors can always afford cat food…