"Deficit Hawks" Have Amnesia

Yesterday, the Co-Chairs of the Bi-Partisan Commission on the Deficit proposed a package of dramatic cuts in government expenditures and changes in the tax code that they said were meant as "shock therapy" to force attention onto the growing Federal deficit.

The implication is that putting the Federal Deficit represents a massive, intractable crisis -- a national emergency that requires all of us to sacrifice. For many "deficit hawks" the federal deficit has morphed into an enemy that threatens the nation like a foreign army. They claim that victory in their war on the deficit requires "shared sacrifice" -- that "we" simply cannot afford to continue on the current path to fiscal perdition.

These people have lost their memories. They seem to have forgotten what caused the deficit. And they have certainly forgotten that we know how to eliminate the deficit without making the middle class pay the bill.

Recall that just ten years ago, at the end of the Clinton administration, the Federal budget was generating a long-term surplus. It was in the black as far as the eye could see. The big question of the day was, "what do we do with the surplus?"

Then George Bush and the Republicans in Congress systematically eliminated the surplus and replaced it with budgets that generated more debt in eight years than all of the debt generated by all of the presidents before him. How?

  • They passed the Bush tax cuts, with the lion's share of benefit going to millionaires and billionaires. Who wouldn't gladly pay the tax rates of the 1990's today and experience the benefit of the economy of the late 1990's?
  • They initiated two wars that were paid for entirely with borrowed money. These two wars alone account for 25% of the accumulated deficit since 2000.
  • They allowed Wall Street to wreck the economy and cause the greatest economic disaster since the Great Depression. That caused tax revenue to the government to collapse, and required massive federal spending to prevent the economy from going into free fall.

Please note that none of the factors that caused the Federal deficit involved profligate spending by middle class Americans -- or senior citizens. In fact, during this same period the incomes of middle class Americans shrunk and those of the very wealthy continued to soar.

In fact, earlier in the week it was announced that many of the big Wall Street Banks will give record bonuses to their traders and CEO's. Yet, yesterday the Chairs of the Bi-Partisan Deficit Commission proposed that to deal with our "fiscal problems" we should reduce the incomes of seniors citizens on Social Security, make cuts in Medicare, cut veteran's health care and take innumerable other steps to reduce the living standards of the middle class.

Then you hear some of the network commentators -- all of whom make very comfortable incomes (some in the multimillion dollar range) pontificating about how seniors with an average income of $15,000 to $18,000 a year should take a twenty or thirty percent cut in Social Security to solve our long-term deficit crisis. How outrageous.

Time for us to remember seven key facts about the deficit debate:

Social Security has nothing to do with the deficit. The Social Security program generates a surplus and will do so for many decades to come. To assure its long-term solvency, all that is needed is to require that the wealthy are subject to the same Social Security tax on all of their income -- like most everyday Americans.

The budget deficit debate is not mainly about numbers and budgets -- it's about who gets what. For two decades the incomes of middle class Americans have stagnated. The share of income and wealth in the hands of the top two percent of the population is at its highest levels since 1928. Federal budgets should be aimed at increasing the share of national income that goes to the middle class and reducing the share going to millionaires and billionaires.

The budget debate is not just about policies and programs. It's about right and wrong. Fixing the budget does not require "shared sacrifice." It requires that the millionaires who had the economic party for the last decade -- and whose greed caused the financial collapse -- be required to pick up the tab. The middle class did not benefit from the Republican economic policies that lead to the current deficit -- they were the victims.

Fixing the Federal deficit is not an end in itself. The goal of budget policy should be to assure long-term -- widely shared -- economic growth. That requires more Federal stimulus now -- to fill the deficit that is really dangerous to America -- the "Demand Deficit," George Bush left President Obama a three trillion dollar deficit in economic demand that resulted in massive unemployment. Idle workers, plants and equipment are the real danger for our economy, because they represented wasted output that will never be recovered. The goods and services that they fail to produce directly reduce the store of our country's wealth.

The primary goal of our budget policy must be to get people back to work by generating economic demand so they will produce more wealth.

And sustained, long-term economic demand requires that we end the long-term trend of concentrating more and more wealth in the hands of the rich and less and less in the hand of the middle class that will then buy the products and services that will sustain long-term economic growth.

Those who argue that we can't "afford" to maintain Social Security and Medicare are flat wrong. We can't afford not to.

First, from a purely economic standpoint reducing the standard of living for senior citizens -- or future retirees -- will make our long-term economic prospects worse -- not better. Our problem is how to provide a larger share of income to the middle class, not less.

Second, from a moral standpoint, it is ridiculous. We can't afford $14,000 in Social Security for a retired widow, but we can afford to allow the barons of Wall Street to take home hundred million dollar bonuses?

Cuts in Medicare do nothing to reduce health care costs. They just shift who pays. Increasing co-payment for Medicare is not the same thing as "reducing health care costs." To reduce health care costs you have to reduce the cost of providing the services by providers.

There are obvious solutions to reduce the Federal deficit that benefit the middle class. Here's a start:

  • Over the next several years we need to completely end the wars in Iraq and Afghanistan that have been such a drain on our nation's wealth.
  • We can end many of the "defense" contracts that are simply boondoggles -- such as the "star wars" missile defense program. It's time to end the programs aimed at defending America against the Soviet Union that collapsed two decades ago.
  • We must reject the Republican proposal to give a new $700 billion tax break to the wealthy.
  • We should increase job creation spending now and put the middle class back to work. That will do more to generate long-term growth in revenue over the long run than any other single policy.
  • We should guarantee that millionaires pay the same tax rates for Social Security and Medicare as the middle class.
  • We should change the tax code to subject "capital gains" -- virtually all of which goes to the wealthy - to the same tax rates as income earned by people who work for a living.

And finally, we need to remember that the idea of fixing the Federal budget is to help create prosperity for us all -- not austerity for the middle class.

Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com.