December 13, 2010

The deficit reduction commission convened by Barack Obama proposes to cut the U.S. government's deficit by $4 trillion in 10 years, by making working people pay the price. Eric Ruder can save twice as much--and only those who can afford it will pay.

IN EARLY December, President Obama's deficit reduction commission released its proposal for how to reduce the federal government's budget shortfall by $4 trillion over the next 10 years.

Not that it will surprise anyone, but this "bipartisan commission" wants you to pay for years of government deficits caused by tax cuts for the rich, spending on the Pentagon and for the wars in Iraq and Afghanistan, and the rising cost of health care--and rising profits of the health care industry--as it affects the government's Medicare and Medicaid programs. Add in the government's bailout of the financial industry, and you have a federal debt approaching $14 trillion.

But there are far better ways to reduce the federal government's deficits by $4 trillion over the next 10 years than what the commission proposed.

The commission's plan includes the elimination of tax breaks, such as deductions for mortgage interest and health benefits, that benefit many working Americans. Plus, its members think you should add a few more years of work to your life (recall that commission co-chair and former Republican senator Alan Simpson described Social Security as "a milk cow with 310 million tits"), so it suggests gradually raising the retirement age for Social Security over the next several decades and lowering cost-of-living adjustments--at a time when pensions for working Americans are disappearing and the housing crisis has wiped out home values that many Americans nearing retirement had been counting on.

A $94 million F/A-18 Hornet flies past a U.S. warship

At the same time, the commission proposes a reduction of the tax rate for corporations and the tax rate for those at the top of the income ladder, even though boatloads of economists predict this would have at best a mild stimulative effect on the economy.

Congress and the White House could have increased federal government revenue by $3.9 trillion over 10 years--remember that this is basically the full goal of the commission--by doing nothing more than allowing the tax cuts passed during the presidency of George W. Bush to expire at the end of 2010 as they are scheduled to.

If this happened, the top 0.1 percent of the income ladder would pay an extra $371,650 in taxes. But don't cry too hard for them, because they are making about $6 million a year on average. Collectively, the top 0.1 percent took in as much as the poorest 120 million people in 2006.

It should be acknowledged that if all the Bush tax cuts expired, taxes would increase--if only slightly--for the whole population, including those on the bottom. Those in the bottom 20 percent would pay an extra $69 a year on average, the next 20 percent would pay $583 more, and the middle 20 percent $1,016.

Barack Obama's original proposal would have extended the Bush tax cuts for all but the top marginal rates, paid by a tiny minority of taxpayers. Raising tax rates on the rich to the level they were at during Bill Clinton's presidency would have brought in $1 trillion of the $4 trillion that the commission wanted to save.

But Obama collapsed like a house of cards in the face of Republican complaints on behalf of their billionaire friends. The Obama-Republican "compromise" will cost the government nearly $1 trillion in revenue in just the next two years (this Washington Post interactive chart illustrates the trade-offs).

SO BECAUSE Obama and Congress are starving the government of revenue by cutting taxes on the wealthy, the deficit commission can "reasonably" insist that the only way to reduce deficits is to cut spending. And cut and cut and cut.

The deficit commission says that the cuts should target "redundant, wasteful, and ineffective federal spending, wherever we find it. We should cut all excess spending--including defense, domestic programs, entitlement spending, and spending in the tax code."

Don't believe it--the commission isn't touching the true wasteful spending in government.

Consider that the deficit commission specifically targets the retirement plans for government workers and military veterans. The commission says that $70 billion could be saved over 10 years through cuts to military and civil service pensions by bringing them "more in line with standard practices from the private sector."

But nowhere does the report mention the more than 1,000 military bases that the U.S. has scattered all over the world. Germany alone is home to 227 U.S. military installations. Never mind that these bases reflect the Cold War battlefield of yesteryear. And never mind that many of them operate in secret. And never mind that any number of these bases incur the wrath of the local population (think of the protests against the U.S. military base in Okinawa, Japan, or the successful movement a few years ago that kicked the U.S. Navy out of Vieques in Puerto Rico).

Instead, focus on the price tag: These bases cost the U.S. about $102 billion to operate each year. If the Pentagon cut the budget for these bases in half, it would shave $500 billion off the federal deficit in the next 10 years. Instead, the deficit commission is focused on cutting back on pensions for government and military workers in order to save a fraction of that $500 billion.

But forget about the specifics. The amount that the U.S. spends on its military as a whole is incredibly bloated. "In 2008, the most recent year for which complete global data is available, the U.S. approved $696.3 billion in defense budget authority (fiscal 2010 dollars)," according to the Center for Arms Control and Non-Proliferation. "This figure includes funding for the Pentagon base budget, Department of Energy-administered nuclear weapons activities and supplemental appropriations for Iraq and Afghanistan."

U.S. military spending is greater than all of the following countries and regions combined: all of Europe (both NATO and non-NATO countries), China, Russia, all of the Middle East and North Africa, all of sub-Saharan Africa, and all of South and Central Asia.

Is it really impossible to imagine how the U.S. would survive if it cut, say, 30 percent of its overall military budget? That would save more than $2 trillion over the next decade. And before all those defense hawks among you start yelling about how that would leave the U.S. vulnerable to all the evildoers in the world, that would still leave the U.S. military budget at $504 billion, or almost 20 percent higher than it was in the 2001 fiscal year.

SO FAR, my deficit-cutting proposals have found $3 trillion in budget savings over the next decade--$1 trillion came from implementing Obama's original plan to extend the Bush tax cuts for all but the richest few, and $2 trillion came from a 30 percent cut in U.S. military spending.

The Bush administration did the exact opposite of this. When Bush took office in 2001, the government budget was in surplus from the Clinton administration. But two rounds of tax cuts (in 2001 and 2003), two wars (in Iraq and Afghanistan) and 10 years later, those budget surpluses have turned into record deficits and a massive increase in the federal debt.

According to the Center for American Progress:

Total publicly held debt stood at $3.3 trillion at the beginning of fiscal year 2002, four months after President Bush signed the first package of tax cuts into law. Six years later, publicly held debt passed $5 trillion. Not only did the Bush tax cuts not produce a $2 trillion debt reduction; they had precisely the opposite effect. In fact, the Bush tax cuts have directly added $2.5 trillion to the national debt in the full 10 years that they have been law.

Reversing this train wreck that has saddled the U.S. with a nearly $14 trillion debt seems like an impossible task. Except that it's not at all impossible.

First, imagine winding the clock back to 1955 when Republican Dwight D. Eisenhower lived in the White House. In that year, taxpayers who made more than $2 million (calculated in 2006 dollars to adjust for inflation in the intervening years) paid taxes at an average rate of 49 percent, according to researchers for the Institute for Policy Studies and Wealth for the Common Good.

In 2006, the top 139,000 taxpayers made at least $2 million in income. Their average income was $5.9 million. They paid income taxes at an average rate of just 23 percent. If they paid taxes at the same rate as their 1955 counterparts, the federal government would have collected an additional $202 billion. Over 10 years, this would add somewhere in the neighborhood of $2 trillion to the treasury.

Second, consider the wealth of the richest 1 percent of the U.S. population. Here we're switching gears from looking at income--the amount that those at the top of society make in a given year--to wealth, which is the money that they have accumulated (or inherited) throughout their lives. The wealth of the richest 1 percent amounts to $21.9 trillion.

A one-time 15 percent tax on that wealth would add up to $3.3 trillion. The super-rich would scream bloody murder, but they would still have $18.6 trillion to help them limp through the rest of their lives.

Together, these two measures would generate $5.3 trillion in revenues and affect only a tiny proportion of the population that's best equipped to pay up--especially considering that this segment of society has enjoyed a huge increase in income and wealth during the last 30 years while workers have experienced practically no growth in income and a marked increase in personal debt.

So the total of my deficit reduction plan amounts to $8.3 trillion over 10 years, twice what Obama's deficit commission is proposing. Practically no one but the super-rich and some defense contractors would find themselves any worse off.

Tune in next year to find out if Congress and the White House show any common sense--or if they continue cutting taxes for the rich, raising taxes on the working class, and attacking Social Security, Medicare and spending programs for the poor. Meanwhile, feel free to get angry--and get others angry--so we can demand some different priorities.