Thursday, April 22, 2010

The Big Fix (Hold on to your Wallets)

The Big Fix (Hold on to your Wallets)


By Robert L. Borosage

Co-Director of the Campaign for America's Future

Huffington Post

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

about the U.S. turning into Greece, headed to default.

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

about America's long term deficits.


Premature Ejaculation


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

deficits down.


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

Clinton effort to privatize it. The deal is

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

products in Europe. And we grew our way out of the debt

burdens over time, as we built the middle class society

that was America's pride.


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 South Korea than the South Koreans do.

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 Agra, and Big Pharma for starters), but in

the end we should be spending more, not less on vital

domestic investments.


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.

Clinton's former Treasury Secretary Robert Rubin

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 America more unequal and less

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.



This post is part of the two-week long Virtual Summit on Fiscal and Economic Responsibility for People Who Did Not Wreck the Economy,, hosted by Campaign for America's Future.


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