There must be something in the local water that leads Missouri Democrats to wail and figuratively rend their garments over the question of deficits and the national debt. It also often leads them to support what can only be described as stupid policies. Claire McCaskill worked hard to establish her me-too, “bipartisan” fiscal credentials by embracing the very bad idea of a balanced budget amendment. Jason Kander, who hopes to join her in the Senate next year, drew gasps of horror from many potential Democratic supporters when he jumped on that same bandwagon. We’ll soon see how far it will carry him.

Showing that he’s on the cutting edge of Missouri deficit thinking, Chuck Raasch, a political columnist at the St. Louis Post-Dispatch revived the Oh-dear-me-the-deficit-is-looming refrain in a column published today (9/3), which dealt with the responses of the two presidential candidates when asked to describe what they would do to reduce deficit (yearly overspending) and manage the nation’s debt (the  sum of past years’ deficits).” Raasch was disturbed by what he considered the failure of either to adequately address the issue. In the case of Donald Trump, who, as Raasch points out seemed to confuse the trade deficit with the federal spending deficit, most rational people would agree.

As for Hillary Clinton, Raasch seems to think that while she proposes tax reform to generate new revenue, she fails to address what he calls the “eat-your-peas challenges,” presumably spending cuts to programs like social security and Medicare, the necessity of which Raasch seems to think has been indisputably established. He also gives short shrift to Clinton’s claim that directing the new tax revenue to infrastructure and education spending would generate deficit-shrinking growth. In short, Raasch evaluates her answer on the basis of the bill of goods Republicans have been hawking since the dawn of modern political time.

Deficit spending is not such a terrible thing

First off we should get our facts straight. Deficit spending is not necessarily the problem alarmists want us to think it is. Lots of economists, liberal and otherwise, are emphatic that our current yearly deficits are not excessive when viewed as a percentage of GDP, nor is the national debt (the sum of past yearly deficits) potentially unmanageable.

Among those who hold these views are widely respected economists like the Nobel prize winner Paul Krugman who is actually arguing that now is the time to increase the deficit. Nobel prize winner Joseph Stiglitz believes that there is a long-term debt problem although he has definitively rejected the “eat-your-peas” solution. (He famously described anti-debt, European austerity programs as a “suicide pact” – a description that seems prescient as austerity-raddled EU economies stall.) Neither are industry economists inclined to worry about current deficits. Business Insider notes that Scott Brown, chief economist at the investment firm Raymond James has argued that the current deficit rate of %2.5 of GDP is easily sustainable and goes even further, asserting that warnings about the long-term dire effects of the national debt are overstated:

Many of these same economists would also endorse the deficit reducing effect of the proposed Clinton program of progressive tax reform combined with economic programs designed to lessen economic inequality. Although this program leaves Raasch unimpressed, it is very suggestive of the remedies proposed by economists like Stiglitz and Brookings economist Henry Aaron who remarks that:

Many analysts, from both political parties, agree that the federal government should do more now to spur economic growth and that it should simultaneously take steps to lower projected long-term deficits. Republicans and Democrats often don’t agree on the details. But here is one illustrative strategy that economists from both parties have endorsed. The first element is increased investment in what is called ‘infrastructure’—meaning roads, bridges, tunnels, harbors, and airports. Many are in need of repair, replacement, or expansion. Furthermore, interest rates are abnormally low just now, which means that borrowing is unusually inexpensive. When interest rates are low is the best time to undertake long-lived investments. Carrying out those repairs and improvements would put people to work now and improve productive capacity in the future. So would increased support for scientific research and increased spending to support post-high-school education of those who cannot now afford it. These measures would promote economic recovery right now and boost U.S. productivity in the future.

Hillary isn’t necessarily evading the “eat-your-peas” issues, she just has a different perspective than the one sold to journalists like Raasch as economic orthodoxy.

The Beltway Deficit Feedback Loop

Raasch, like our other Missouri Democratic Sistren and Brethren mentioned above, is a victim of what Greg Sargent has described as the “Beltway Deficit Feedback Loop” which he defines as “the relentless bipartisan focus on the deficit convinces voters to be worried about it, which in turn leads lawmakers to spend still more time talking about it and less time talking about the economy” – the real economy, that is, the economy in which the deficit is a rather minor consideration and the growth of the national debt is an easily managed problem.

And why is this feedback loop so prevalent? To paraphrase Mount Holyoke College professor Douglas J. Amy, it has provided the GOP with an issue to help fan resentment against government and against their Democratic opposition. Additionally, it is a tool that can be used to fight progressive programs that the GOP has long opposed such as Medicare and Social Security.

What’s sad is the fact that the deficit chorus is endlessly echoed by otherwise competent journalists like Raasch and that otherwise astute politicians like McCaskill and Kander have so easily succumbed. But we can still be happy that we have a presidential candidate who declines to sing the same, sad old song.

[This article was originally posted on ShowMe Progress.]

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What I can say is that I have heard, including from people that you might not expect to hear it from, that if they bring from the Senate a piece of crap which really comes down heavy on working families, and the elderly, and the sick, and the children, and they expect me to matter of factly vote for it, they have another think coming. So I think the White House is for a serious surpise if they think everybody in the Democratic caucus is going to willy nilly follow the President and vote for anything he brings forth.

—Senator Bernie Sanders,
July 8, 2011

On Thursday, July 21, Senator Bernie Sanders spoke on the floor of the Senate on the dangers of the Gang of 6 plan to reduce the deficit—a plan supported by President Obama. The “Gang of 6,” is made up of three conservative Democrats and three Repiublicans. As a bit of déjà vu, this is the same strategy—empowering a conservative Senate panel—that President Obama used in crafting  health reform legislation—the one without a public option, and with generous giveaways to the health and pharmaceutical industries.

Bernie Sanders is calling for Americans to get involved and fight back against what, he is warning, will not be small cuts, or “tweaks” in Social Security, Medicare and Medicaid. The Gang of 6 Plan includes suggestions of revenue increases, two of which are cutting out the mortgage deduction which will directly impact low and middle income families and taxing health care plans that are part of job benefits.

Sanders vowed to fight against this plane that includes cuts in Pell Grants for college education, and cuts in environmental protections. He notes that details of the plan are not fleshed out, so it is unknown just how deep the cuts to social programs will be. Senator Sanders reminds that Social Security has nothing to do with the deficit as it is funded through payroll taxes.

Photo credit: Jack Com, U.S. National Archives

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The rich are getting richer. The middle class and poor are getting poorer. What is the Republican solution to the deficit crisis? More tax breaks for millionaires and billionaires. Savage cuts in programs that are desperately needed by working families.

—Senator Bernie Sanders

We have a deficit crisis because our politicians spend our tax dollars to increase the wealth of corporations rather than the well being of the nation as a whole. Vast amounts are spent every year feeding the bloated military/security complex, and in subsidizing the obscenely profitable oil and gas industries. Our politicians refuse to close their lucrative tax loopholes and rein in the use of tax havens. They look the other way as corporations and some wealthy individuals pay no tax at all. This, while our infrastructure crumbles, and middle class jobs disappear overseas.

The deficit crisis reflects problems with spending priorities, but also with a lack of adequate revenue. The rich do not pay nearly enough taxes.

There are specific reasons why we have a major deficit crisis today. To mention a few:

• George W. Bush, his radical neoconservative friends launched a war in Iraq. That war will end up costing us at least $3 trillion.
• The ongoing wars in Iraq and Afghanistan under President Obama are draining our treasury, not to mention the newly minted war in Libya.
• Republicans, and our current Democratic president and Democrats in Congress, have given tax breaks for the wealthiest people, thus reducing revenue for those things that would benefit children, the elderly and working families
• Under President Bush and a Republican-run House, Congress passed a $400 billion-plus Medicare prescription drug program, which was written by insurance and drug companies. By barring the government from negotiating better prices, it drove up drug costs, increased drug company profits and also added to the deficit.
• Congress voted for a massive bailout of Wall Street. That cost at least $700 billion, although the amount is probably much higher. Having destroyed the economy through their reckless and illegal behavior, we bailed out the bankers and gave them our money to speculate with once again.

Rather than raise taxes on the wealthy Republicans are choosing to harm working families

Republicans want to reduce the deficit they created on the backs of working people. In the proposed Republican budget, Head Start programs are on the chopping block as are Pell Grants for low-income college students, administrative staff for Social Security, the Community Services Block Grant Program, and funding for community health centers. Add to that slashing the EPA funding by 30% and cutting back the WIC Program that provides supplemental nutrition for women, children and infants. Republicans propose cutting $5 billion from the Department of Education. The austerity they champion is austerity only for the poor and middle classes.

For decades, the wealthy have been extracting wealth from the country instead of creating wealth. The shortsightedness and greed of the elite and their political retainers, if not stopped, will hollow out the middle and working classes, leaving the country impoverished. Without a renewed, vibrant and healthy working and middle class, the United States will continue to deteriorate.

The idea of raising taxes on the wealthy to help reduce the deficit, and contribute to the wellbeing of working families has not been on the table because the wealthy fund Republican (and Democratic) reelection campaigns. All Republicans and many Democrats serve their interests of their wealthy individual and corporate donors before working families. Wealthy donors do not want their taxes raised, so the politicians they support do not raise them.

Two (real) Democrats offer bills to raise taxes on the wealthy

According to Rep. Jan Schakowsky (D-Ill.) and Sen. Bernie Sanders (D-VT) it is time the wealthiest people in this country, who are now doing phenomenally well, to help with deficit reduction. To that end each have introduced bills to raise taxes on the rich.

On March 10, Senator Bernie Sanders introduced the Emergency Deficit Reduction Act, which would place a 5.4 percent emergency surtax on income over $1 million. The revenue would go into an Emergency Deficit Reduction Fund which will bring in up to $50 billion a year.

According to Senator Sanders, an NBC News/Wall Street Journal poll recently asked the American people about the best ways to reduce the deficit. Eighty-one percent responded that it is totally acceptable or mostly acceptable to impose a surtax on millionaires to reduce the deficit. Senator Sanders’ bill would also eliminate tax loopholes that enable the big oil companies to avoid their fair share of taxes. This would bring in an additional $3.5 billion in revenue per year.

Rep. Jan Schakowsky (D-Ill.) has also announced a new bill, The Fairness in Taxation Act, that would create new tax brackets for earners who make significantly more than the baseline for the current top income bracket.

Currently, the top marginal tax rate of 35 percent applies to income starting at $373,650, but the tax code fails to distinguish between earners making a few hundred thousand dollars a year and those making a few hundred million dollars, or even a billion dollars a year.

According to Rep.Schakowsky: “In the United States today, the richest 1 percent owns 34 percent of our nation’s wealth—that’s more than the entire bottom 90 percent, who own just 29 percent of the country’s wealth,” she said during her prepared remarks at a press conference. “And the top one-hundredth of 1 percent now makes an average of $27 million per household per year. The average income for the bottom 90 percent of Americans? $31,244.”

Schakowsky’s bill would create new tax brackets for earners making between $1 million and $1 billion annually, with tax rates starting at 45 percent with the millionth dollar and increasing on a sliding scale. The legislation would also tax capital gains and dividend income as ordinary income for those earning over $1 million in a given year. A full list of the new brackets appears below:

$1-10 million: 45%

$10-20 million: 46%

$20-100 million: 47%

$100 million to $1 billion: 48%

$1 billion and over: 49%

If enacted in 2011, Schakowsky’s Fairness in Taxation Act would raise an estimated $78.9 billion in its first year, according to Citizens for Tax Justice, a liberal lobbying group.

According to Citizens’ for Tax Justice:

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Last week, Erskine Bowles and Alan Simpson, co-chairs of President Obama’s National Commission on Fiscal Responsibility and Reform, offered a preliminary plan to reduce government debt that gives tax cuts to the wealthy and cuts entitlements. Progressive response to the Bowles-Simpson proposal has been highly negative. On November 16, Rep. Jan Schakowsky, also a member of the Commission, offered a counter to the Bowles-Simpson plan that doesn’t rest on the backs of the middle and working classes. In a statement on her website Congresswoman Schakowsky said:

The President’s Fiscal Commission has been given a concrete goal: to achieve primary budget balance in 2015, ensuring that all spending is paid for except for interest on the national debt. Last week, co-chairs Erskine Bowles and Alan Simpson laid out their plan, which they presented to the Commission and to the public.  Their proposal would have serious consequences for lower and middle class Americans, and that is why I cannot support it.

I am releasing my own plan today because I believe that there is a better way to achieve our goal – one that protects the poor and the middle-class.

Lower and middle class Americans did not cause the deficit.

Just ten years ago the federal budget was generating a surplus as far as the eye could see.  That surplus was turned into a deficit due to massive tax cuts – mainly to wealthy Americans; two wars paid for by borrowed money; and a major recession caused by the recklessness of the big Wall Street banks.

Over the last decade the incomes of middle class Americans have actually shrunk, while those of the wealthiest two percent of the population have exploded.

The middle class did not benefit from the Republican economic policies that led to the current deficit – they were the victims – they should not be called upon to pick up the tab.

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.  Economic growth is not just good for businesses and families – it will reduce the deficit.  Sustained, long-term economic growth requires that we end the trend of concentrating more and more wealth in the hands of the rich and less and less in the hands of a middle class that can then afford to buy the products and services that will sustain economic growth.

The proposals included in this plan are aimed at bringing the federal deficit under control using policies that will put Americans back to work and strengthen middle class incomes:  the foundation of long-term economic growth.

Schakowsky’s proposal would reduce the deficit by $427.75 billion in 2015, without raising taxes on middle-class Americans or making cuts to federal expenditures that benefit them. Her proposal is made up of five key elements.The following summary is from her website:

1) Increased economic stimulus to spur growth in the immediate term

• Provide $200 billion to invest over the next two years in measures to create jobs and spur economic growth, including passing the Local Jobs for America Act; and funding for education and law enforcement; Unemployment Insurance, Federal Medical Assistance Percentages (FMAP) and Supplemental Nutrition Assistance Program extensions; and infrastructure.
• Adopt the President’s proposals to eliminate overseas tax havens and incentives for outsourcing

2) Smart, targeted spending cuts

• Non-Defense Discretionary – $8.55 billion in savings through increased efficiency and cuts to programs that benefit large corporations that don’t need assistance.
• Defense Discretionary – $110.7 billion in cuts from the 2015 defense budget, including efficiency savings, reducing our troop levels, cutting weapons systems we don’t need, and scaling back the wartime increases in the size of the military.

3) Mandatory spending cuts

• Health Care – at least $17.2 billion in savings by implementing measures to bring down the cost of health care to the federal government and lower health care inflation overall.
• Other – $7.5 billion in savings by cutting agriculture subsidies in half, and redistributing federal support to offer greater benefits to small family farms reduce subsidies to large corporate agribusiness.

4) Reductions in tax expenditures

• Raise $132.2 billion by closing tax subsidies for companies that ship American jobs overseas.

5) Increases in revenues

• Raise $144.6 billion in revenue through progressive reforms to the estate tax, treating capital gains and dividends as regular income, and enacting a cap and trade proposal that includes protections for lower-income people.
• Enact President Obama’s budget proposal to let the Bush tax cuts for the top 2 brackets expire and return to 2009 estate tax levels.
• Non-tax revenue – raise $7 billion by addressing places where the private sector is currently under-paying.

Schakowsky On Social Security

There is a better way than the Simpson-Bowles proposal – which relies heavily on benefit cuts instead of revenue increases.

Social Security has nothing to do with the deficit. Addressing the Social Security issue as part of the deficit question is like attacking Iraq to retaliate for the 9/11 attacks – there is simply no relationship between the two and attempting to conflate them does a grave disservice to America’s seniors.

Taking money from Social Security retirees whose average total income is $18,000 per year and average benefit is $14,000 ($12,000 for women) is simply wrong. It places them at fiscal risk and hurts the economy because they will be unable to purchase the goods they need.  Americans in poll after poll have indicated their opposition to benefit cuts – particularly at a time when Wall Street bankers are making record bonuses.

The Schakowsky alternative does not contain any cuts to Social Security.

• It ensures long-term solvency to Social Security by eliminating the wage cap on the employer side and raising it to 90% on the employee side, applying FICA to all wage income below the cap, and establishing a modest legacy tax on wealthier Americans.
• Surplus funding that can be used to improve the extremely-modest benefits that are now provided.

Last Friday Sen. Bernie Sanders announced he will work with seniors’ organizations, unions, and members of Congress, to develop an alternative to the Simpson-Bowles recommendations. Rep. Schakowsky plans to work with Sen. Sanders and others in further developing a progressive alternative.

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Sen. Bernie Sanders announced on Friday, November 12 that he will work with members of Congress, labor unions, seniors’ organizations, economists and others to develop progressive alternatives to proposals first floated on Wednesday, November 10 by Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles, leaders of President Obama’s deficit commission.

We all know that there are a number of fair ways to reduce deficits without harming the middle class and those who have already lost their jobs, homes, life savings and ability to send their kids to college.  The time has come to put these proposals into a package so that a fair and progressive deficit reduction plan will become part of the national discussion,” he said.

The Simpson-Bowles deficit reduction plan is extremely disappointing and something that should be vigorously opposed by the American people. The huge increase in the national debt in recent years was caused by two unpaid wars, tax breaks for the wealthy, a Medicare prescription drug bill written by the pharmaceutical industry, and the Wall Street bailout.  Unlike Social Security, none of these proposals were paid for. Not only has Social Security not contributed a dime to the deficit, it has a $2.6 trillion surplus.

It is reprehensible to ask working people, including many who do physically-demanding labor, to work until they are 69 years of age. It also is totally impractical. As they compete for jobs with 25-year-olds, many older workers will go unemployed and have virtually no income. Frankly, there will not be too much demand within the construction industry for 69-year-old bricklayers.

Despite all of the right-wing rhetoric, Social Security is not going bankrupt.  According to the Congressional Budget Office, Social Security can pay every nickel owed to every eligible American for the next 29 years and after that about 80 percent of benefits.

If we are serious about making Social Security strong and solvent for the next 75 years, President Obama has the right solution.  On October 14, 2010, he restated a long-held position that the cap on income subject to Social Security payroll taxes, now at $106,800, should be raised.  As the president has long stated, it is absurd that billionaires pay the same amount into the system as someone who earns $106,800.

Senator Sanders made the following preliminary suggestions:

Military Spending One way to cut the $13.7 trillion national debt, Sanders said, would be for the Department of Defense to drop outdated and expensive Cold War-era programs and refocus on modern-day enemies. “Our military posture should be fighting international terrorism and al Qaeda,” he said.  Citing other ways to save, Sanders mentioned Government Accountability Office studies he commissioned that found billions of dollars are wasted every year on unneeded spare parts.

Taxes Another way to reduce red ink, according to Sanders, is to stop giving expensive tax breaks to the wealthiest Americans whose incomes have soared while the buying power of middle-class workers has shrunk. Sanders favors renewing tax cuts for the middle class, but he said the White House should not bargain away $700 billion in tax breaks for the richest Americans for a decade.

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To extend or not to extend: That’s the question for Democrats and Republicans, who are facing off over the Bush-era tax “cuts,” which mostly benefited a very small slice of very wealthy Americans. Republicans want to keep the whole thing going. Democrats want to keep the tax rates that help “middle class” people [defined, these days, as families who earn less than $250,000 per year!], and cut the cuts for the wealthiest.

Who’s got it right, and who benefits most from each plan? The Washington Post recently published a helpful graph that says it all. Take a look:

One thing we might learn from this visual representation is that the “ideological” battle, as is often the case in Washington, has very little to do with lower-income people and a lot to do with the people who need tax cuts the least. In fact, looking at the bubbles on the chart, it’s clear that there’s almost no difference, for lower-income individuals and families, between the Democratic and the Republican scenario. The differences are, in some cases, in the single digits.

But when you get to the top income levels, there’s a dramatic spread between the Republican plan to keep tax rates low for upper-income people and the Democratic plan to expect a fairer share from the top tier.

What’s the right way to go? Both plans are controversial. According to a report from the House Ways and Means Committee, keeping tax rates as they were set during the Bush years will cost the US Treasury $238 billion in 2011. The Washington Post article says,

Given the soaring national debt, many economists deem both proposals unaffordable. Even some Republicans, including Reagan administration budget chief David Stockman and former Fed chairman Alan Greenspan, have urged lawmakers to let them expire and allow income tax rates to pop back up to their levels during the Clinton administration.

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