10 Reasons the Deficit Commission Proposal Is Still Unconscionable and Unacceptable

We're being told the final draft of the proposal is fairer than its predecessor. It's nothing of the kind. In many ways it's worse than the draft that preceded it, and those much-lauded "compromises" evaporate in the cold light of reality.
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The co-chairs of the presidential Deficit Commission released the final draft of their report today, and it's now scheduled for a Friday vote by members of the Commission. We're being told that it's a fairer and more reasonable document than its predecessor. It's nothing of the kind.

In many ways this document is worse than the draft that preceded it, and those much-lauded "compromises" evaporate in the cold light of reality. This new draft is lipstick on a piggy-bank robber, a package of cosmetic changes meant to disguise its true purpose: To raid the future financial security of most Americans in order to benefit a few.

This proposal would still cripple government's vital role in society by imposing arbitrary limits on spending. It would still place great financial burdens on lower- and middle-class Americans while easing those of the wealthy. All in all, it's the most profoundly right-wing policy prescription the nation has seen in decades. Democrats who lack the political courage to oppose it will be remembered for it for a long time to come.

There are more balanced and effective ways to balance the budget. Instead, this plan is so ideologically driven that it actually increases the deficit at times, while the reductions it does achieve are needlessly unfair and destructive. Here are ten reasons why this proposal remains unacceptable and must be opposed -- not just by progressive or Democrats, but by anyone of good conscience who wants to reduce the deficit in a responsible way:

1. It's still a massive tax giveaway for the rich.

Imagine the outcry if a deficit-cutting commission recommended spending more money on government programs. Then imagine it recommended spending that money on programs that weren't needed, and which only benefited the wealthy. When it comes to tax revenues, that's exactly what this proposal does.

Remember, spending's only one-half of the deficit problem, and tax revenue's the other. A responsible plan would increase revenue wherever it's fair and possible to do so. Yet, in the name of "deficit reduction," this plan actually proposes cutting taxes -- for the wealthiest Americans. Its defenders point out that the proposal also ends all sorts of itemized deductions -- but those deductions primarily help the middle class.

Defenders will also say that it no longer eliminates vital middle-class tax breaks (like mortgage interest deductions) completely, which is true. But it would force "Congress and the president" to decide which of these deductions is retained and at what levels. And it would force Congress and the president to offset them with increased tax rates elsewhere, which the authors know is politically almost possible.

It's true that the plan proposes to tax capital gains and dividends as ordinary income. [1] But Wall Street law firms are no doubt already developing workarounds -- and, in any case, the net effect is still a tax break for the wealthiest Americans.

The wealthy even get a break on the payroll tax used to fund Social Security. The plan's defenders boast that it would raise the payroll tax cap to cover 90 percent of all income. But that was the percentage the tax covered back in the 1980s, before the explosion in very high-end wealth distorted the entire economy. This plan doesn't return to that 90 percent level until 2050! That's a 40-year wait before we fund Social Security with as much high-end income as we did twenty years ago.

In a little-noticed observation, the actuaries who reviewed this proposal observed that "lower marginal tax rates are expected to have a large effect on (this tax)... reducing revenue... by roughly 20 percent." The net effect will be to "increase the long-range... actuarial deficit... " Got that? This Commission's co-chairs insisted on attacking Social Security because they claimed to be so concerned about its long-term actuarial deficit (which is easily fixed by asking the wealthy to pay their fair share). Yet, having seized control of Social Security's under that pretense, they then propose tax breaks for the wealthy that make Social Security's long-term deficit worse.

Since this is supposed to be a deficit-reducing Commission, not a party-time-for-the-rich Commission, how are they going to pay for such big giveaways?

2. It still increases the tax burden for everyone else.

That's where you come in. (Unless you're a billionaire, of course.) Unless Congress and the president come up with something else, this proposal would set arbitrary caps on home-mortgage deductions and other tax deductions that are primarily used by the middle class. As we've seen, even that rise in payroll taxes is expected to hit the middle class more than the wealthy.

And, while this needs further study, it looks as if their new tax brackets place more of a burden on you, too. The 10 percent and 15 percent tax brackets seem to be compressed into a 12 percent bracket, which doesn't seem like a dramatic change. The 28 percent bracket goes to 25 percent, which is a little more than 10 percent and is more than offset in most cases by the loss of itemized deductions. But the highest bracket takes a deep plunge, from the current planned level of 39.6 percent down to 28 percent. That's more than 28 percent. Sweet -- if you're rich. But somebody's gotta pay for it.

That would be you.

3. It will result in millions of lost jobs.

As the Economic Policy Institute has demonstrated, this proposal will cost the nation four million lost jobs and damage our economic growth. This new draft demands even deeper discretionary spending cuts, enacted even sooner, so the loss of jobs is likely to be even greater.

That's why Mary Kay Henry, President of the SEIU, said, "This proposal is a jobs killer at a time when our number one priority must be putting America back to work." It's why AFL-CIO President Richard Trumka said that "this whole discussion reeks of hypocrisy. The faux deficit hawks on the commission -- and Senators who claim unemployment insurance must be paid for -- have no problem clamoring for more unpaid Bush tax cuts for millionaires. We need to focus now on the jobs deficit."

The report's defenders will dismiss Henry and Trumka as "special interests" (while criticizing any mention of co-chair Erskine Bowles' position on Morgan Stanley's Board of Directors or the financial interests of other commissioners as an "ad hominem" attack). But these two leaders are aware of proposals like the EPI's and the Citizens' Commission on Jobs, Deficits, and America's Economic Future. These reports demonstrate that these radical changes aren't needed to balance the budget -- and that, in fact, they interfere with that goal.

4. The elderly will face harsh benefit cuts.

The average Social Security retirement benefit today is $1,100, and even less for women ($920). Under this proposal a median earner, someone earning $43,000 in today's dollars, would face a 20 percent (19.1 percent) benefit cut.

It looks, therefore, as if the average benefit would eventually drop to $889 overall, with women receiving an average of $744. These cuts are offset somewhat for lower-income workers, but, as we'll see, those offsets aren't what they seem to be.

5. Most of us will still work longer for less.

You won't just receive less in benefits. You'll work longer to get it, since they're raising the retirement age.

We're told that there will be exceptions for people who would face hardship if forced to work longer. That's a nice thought, given all the benefit-slashing going on. But that decision is kicked down the road and assigned to Social Security administration staff. The cuts are fixed, but the exemptions are left vague and deferred to people who aren't trained in that kind of analysis.

Their definition of "hardship" is narrow, too, and it excludes hardships like discrimination. The net effect of this proposal is to ensure a longer work life for most people while making jobs harder to get. The only small mitigating factor they promise is delayed to a future date and left vague.

6. It punishes the long-term jobless.

This proposal doesn't just ignore the nation's "jobs deficit." It makes it worse, at a time when the number of long-term unemployed Americans is at historical levels. This program doesn't just leave them in the lurch, or ignore their urgent need for unemployment assistance. After having made their situation worse, it then punishes them in their old age too.

Much has been made about the proposal's "generous" suggestion that benefit cuts be made offset for lower-income workers who are at the brink of poverty in old age. But many (if not most) of the workers struggling today would be excluded from this change. As the actuarial analysis of the proposal notes, "workers... (at) the level of the low and very low scaled earners, but with less than 25 years of (qualifying) work... would be subject to the full reduction in benefit for longevity... "

There's more, but you get the gist. These much-vaunted "safety nets" are filled with holes.

7. Women will pay an unfair price.

Women get the short end of the stick here, too. Women already receive less in retirement benefits than men, on average -- right now they receive an average of about $920 per month. They live longer, too. Women have traditionally moved in and out of the workforce more than men, because of traditional gender roles. They'll be punished even more for this difference under this proposal, thanks to rules and loopholes like the one described above. For a "family values" culture, that's not a very family-oriented policy.

Here's the future Simpson and Bowles plan for the mothers of America: First, cut their income by reducing the adjustments to their benefits. That means they'll get less than $920 in tomorrow's dollars. Then offer them a poverty exemption -- but dangle it out of reach for millions of women who chose to stay home with their children for a few years (and all of them who couldn't find work when they looked).

Thanks for raising us, Mom, now eat your Friskies and pipe down.

8. That "living longer" benefit bump is a pittance.

We're also hearing about the "benefit bump" America's beleaguered seniors have been promised once they reach extreme old age. But here's what the proposal actually says: "Provide benefit enhancement equal to 5% of the average benefits (spread out over 5 years) for individuals who have been eligible for benefits for 20 years."

Since they're proposing to raise the retirement age to 68 and then 69, that means offering this bounty when a retiree becomes 88 or 89. With the estimates we've made above, that amounts to a "bonus" of $45 per month ($37 for women).

9. The plan still discriminates -- by income and by race.

Even that minimal adjustment is likely to benefit wealthier -- and whiter -- Americans. As Paul Krugman and others have pointed out, average life expectancy has risen by six years for the top 50 percent of earners, but only by 1.3 years for the bottom half.

White Americans still live five years longer on average than African-Americans, too. So who is this really helping?

10. It doesn't solve the health-care problem. It just shifts the cost.

This proposal is filled with irreversible triggers, like the Doomsday Machine in Dr. Strangelove, that are set to go off if targets aren't met. But they're all designed to trigger spending cuts or regressive tax changes. When it comes to the single greatest driver of future deficits -- health-care costs -- there's no trigger for the public option that would significantly lower costs.

Here's a proposal that is in the plan: Repeal the CLASS Act. That's the Community Living Assistance Services and Supports Act, which provides funds that allow people to receive medical care in the home rather than the hospital. Why does this proposal single out the CLASS Act? It's only projected to cost $11 billion in 2015. But then, that's typical of this proposal. It ignores the big issues and then goes out of its way to step on programs that serve the public good.

Their health proposals tinker at the margin of cost and ignore the big picture. Reducing administrative cost support for Medicaid merely shifts costs from the federal government to the states, while freezing provider payments will reduce access to care with minimal reduction in costs. They also plan to cut health benefits severely for federal employees.

They want to force Medicare recipients to pay more out-of-pocket for their care. That's a double whammy for seniors who have already had their Social Security benefits cut.

The authors claim that because "(Medicare) cost-sharing for most medical services is low, the benefit structure encourages over-utilization of health care." That's unproven theory, especially when discussing seniors. Studies have shown that increasing out-of-pocket costs discourages utilization -- it keeps people from getting medical care -- but studies among younger populations that seemed to back this idea have recently come under question, while other studies among seniors suggest they're likely to skip needed care and suffer as a result.

These Medicare changes will impose unnecessary hardship without addressing the real causes of health-care cost. Why? Because private health insurance is one of this Commission's "sacred cows," and any program that would provide public competition for these insurers is deferred (while "all-payer" coverage is buried elsewhere as one of many possible alternatives once other avenues have failed.)

What do they propose for the under-65 crowd instead? One of the main features of their proposals is an increase in the health "excise tax," which would undermine employee benefit health plans and shift more health-care costs on the under-65 set, too. (For greater discussion of this very bad idea, see here.)

"No class act." Somehow that seems to say it all. Commission member Dick Durbin is a good Senator who has provided valuable service. But it's painful to hear him say, as he did today, that he's inclined to vote for this plan because the times call for "shared sacrifice." That's a highly regrettable statement. In this plan, the sacrifice is only shared among those who can least afford it, while the wealthiest enjoy a free ride.

This proposal must not be passed.

(Why not call the key Democrats on the Commission who are still persuadable? Kent ConradSen. Durbin's office number is (202) 224-2152. Rep. Xavier Becerra can be reached at (202) 225-6235, and Rep. John Spratt's number is (202) 225-5501. As always, clear but respectful is the best approach. UPDATED: Sen. Max Baucus says he will vote "no.")


[1] There's a footnote with an escape clause, offering the possibility of exempting a portion of these earnings from that rule by raising the top tax rate instead.

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project and the Strengthen Social Security campaign. Richard also blogs at A Night Light.

He can be reached at "rjeskow@ourfuture.org."

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