The Big Fix (Hold on to your Wallets)
By Robert L. Borosage
Co-Director of the Campaign for
April 21, 2010
The drumbeat about deficits has reached deafening
levels. The president warns about "out of control"
spending. Fed Chair Ben Bernanke calls for bringing
deficits down. The opinion pages bristle with rants
Next week, the first session of the president's
"National Commission on Fiscal Responsibility and
Reform" will convene. The next day, shamelessly, the
two co-chairs and the staff director (all committed
deficit hawks) will grace a forum sponsored by the
Peterson Foundation, established by Wall Street
billionaire Pete Peterson largely to gin up hysteria
This potion is being served long before its time. Sure,
deficits are big and the projections are scary. But the
economy is struggling to get out of a big hole.
Unemployment is still near 10%. Foreclosures are still
rising. Banks aren't lending; businesses aren't hiring.
Deficit spending is critical to what little growth we've seen.
The president and the Congress should be focused on
jobs, not deficits. Ironically, when pushed, most of
the purveyors of the hysteria agree. Bernanke admits we
shouldn't roll back the spending too soon, and is
keeping interest rates (for the banks) near zero. David
Walker, head of the Peterson Foundation, agrees
deficits might be larger in the short run to create
jobs and help get the economy going. But these cautions
can't be heard amid the clamor about deficits.
The Elite's Big Fix
Consider this another example of Naomi Klein's "shock
doctrine." Not wanting to let the crisis go to waste,
an elite consensus is congealing on how to bring the
Call it the big fix. "Everything is on the table,"
we're told. That's code for a trade-off. Republicans
accept tax increases; Democrats accept spending cuts.
But the fix is in the details. On the revenue side, the
favored vehicle is a value added tax (VAT). The VAT is
essentially a hidden sales tax, levied at each stage of
a product's production. Conservatives, who, unlike Dick
Cheney, believe deficits matter, accept it because it
is regressive, taxing spending, not investment or
wealth. Liberals accept it because it is hidden, and
could generate a lot of revenue.
The debate has already begun around the VAT. John
McCain, in his new guise as conservative partisan,
brought a resolution to the Senate denouncing the VAT
as a "massive tax increase that will cripple families
on fixed income." Eighty-five Senators voted for the
non-binding resolution, including all six members of
the President's Commission. The administration has
since denied that it has any designs on a VAT. But
these protestations are simply reflections on how
serious the move towards a VAT has become.
On the spending side, cuts in Social Security, Medicare
and domestic spending are targeted. The Republican co-
chair of the President's Commission, former Senator
Alan Simpson is an infamous scourge of Social Security.
The Democratic co-chair Erskine Bowles favored the
foreshadowed by the president's budget which calls for
a three year freeze on domestic discretionary spending,
and "pay-go" limits on entitlements, insisting that any
increase in entitlements be paid for.
All this is wrapped in gauzy poll designed packaging. A
VAT will sold as a corporate tax reform. Entitlements,
we're told, must be brought under control as the
boomers age. Domestic spending is rife with waste,
fraud and abuse.
Stuff and Nonsense
There's only one problem with this consensus -- it is
both wrong-headed and dangerous. It ignores how we got
into this hole, is blind to the challenges the country
faces, and offends the values that made this country
great. Here's a little common sense:
1. Ignore False Prophets
As Dean Baker has pointed out, the elite deficit agenda
is being peddled by the same folks that profited from
the bubble bust economy that drove us over the cliff.
Wall Street moguls Pete Peterson and Robert Rubin,
leaders of the effort, have preached against deficits
for years, arguing that they would eventually lead to
recession. They never uttered a word about the housing
bubble, the financial casino, the excesses and frauds
of Wall Street that actually blew up the economy. They
made a lot of money along the way. But their profits
don't make them sound prophets.
2. Get the Question Right First
The question isn't how we raise taxes, cut spending and
balance the budget. The question is how we return to an
economy of full employment with a broad and prosperous
middle class. If we create a prosperous and growing
economy, wages will go up, revenues will go up,
spending on unemployment and misery will go down, and
budgets will come into greater balance. Growth is an
essential precondition to sound finances. We last had
debt of this size relative to the economy at the end of
World War II. We invested in the GI Bill and educated a
generation. We built the interstate highways. We
transferred war industries to private companies. We
launched the Marshall Plan, and created markets for
burdens over time, as we built the middle class society
3. Wrong diagnosis, wrong remedy
To understand what remedy is, you've got to have a
clear view of what the problems are. The irony of the
elite consensus is that in every particular, it ignores
the problems we face, and calls for remedies that would
make things worse.
We don't have an "entitlements problem." Social
Security is in surplus and, if the economy grows and
workers capture a fair share of the productivity they
help generate, Social Security will be in surplus as
far as the eye can see.
We also don't have a "Medicare problem." We have a
broken health care system. The source of virtually the
entire long term projected deficits comes from soaring
health care costs. We're spending 50% more than other
industrial countries per capita and getting worse
results in terms of good health. The new health care
reform does offer some hope of reducing the rate of
cost increase. A single payer system -- extending
Medicare to all - would do far more. But the problem
isn't entitlements or greedy geezers, but a broken
health care system.. Cutting Medicare and Social
Security won't solve that problem.
We now suffer Gilded Age inequality. The wealthiest 1%
of Americans not only pockets 21% percent of the
national income; they hold more than one-third of the
privately held wealth. Plus they've enjoyed the largest
tax cuts over the last decades. IRS figures show that
the wealthiest 400 Americans -- averaging over $263
million in income in 2006 -- now pay taxes at a rate
(17%) lower than their chauffeurs.
Yet the elite consensus is pushing a VAT that will
burden the working and middle class far more than the
wealthy. Instead we should be talking about increasing
top end tax rates, taxing unearned income at the same
rate as earned income (last done when Reagan was
president), and cracking down on tax avoidance schemes,
levying a speculation tax on short-term financial
speculation, reviving the estate tax. And of course, we
need to set a "price on carbon," a regressive tax no
doubt, but one that at least is focused on taxing
spending on what we need to reduce.
On the spending side, we spend almost as much on the
military as the rest of the world combined. We spend
more to defend
We police the world and maintain an empire over some
750 bases. And, the military is by far the largest
cesspool of waste, fraud and abuse in government. The
Defense Department's books are in such disarray that
none of the services can be audited, much less pass an audit.
At the same time, we have a debilitating domestic
public investment deficit that is rapidly getting
worse. As the president has said, we need to build a
new foundation for our economy. And that requires
investing in education and training so our children get
the best education in the world; investing in research
and development so we remain on the cutting edge of
invention and science; building a 21st Century
infrastructure - from a smart electric grid, to fast
trains, cutting edge broadband, and renewable energy.
And we've got to rebuild a basic infrastructure - from
schools to sewers to bridges - that is aged and
literally falling apart. Sure, if the Congress is ready
to take on entrenched interests, we can cut a lot of
fat out of domestic spending (consider subsidies for
Big Oil, Big
the end we should be spending more, not less on vital
So it makes no sense at all to focus on domestic
spending cuts, and leave the military off the table.
Beware Bipartisan Blight
Most Americans want the two parties to work together to
solve problems. But when the parties come together to
do something big, Americans should be particularly
vigilant. Too often, that reflects a strong elite
consensus, willing and able to purchase support on both
sides of the aisle.
The elite consensus described above already has a lot
of momentum and money behind it. You'll see publicists
from AEI on the corporate right joining those from the
Center for American Progress, on the center-left.
joining Nixon's former Commerce Secretary Pete
Peterson. Editorial boards will echo established authority.
But trust your common sense. The reality is that they
have it wrong. If we follow their advice now, we're
likely to suffer a renewed recession. And their
prescriptions will make
secure. We'll continue to squander resources across the
world, while failing to build a sound foundation for
the future at home. America's broad middle class, the
pride of our democracy, will continue its decline. And
our politics and our lives will get nastier and more brutish.
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