News reports say the President’s proposed deal includes the “chained CPI,” which would impose drastic Social Security cuts and tax hikes for everybody but the wealthy. And House Minority Leader Nancy Pelosi says that “Democrats will stick with the President.”
They should both think again.
The “chained CPI” is being offered as part of a “deficit reduction” deal, even though Social Security is forbidden from contributing to the deficit. Even if you accepted this unreasoned act, it remains morally unacceptable to reduce spending on the backs of the elderly, women, the poor, veterans, disabled Americans, and the poor.
It’s even more unethical to do it when other options available could save much more money, And it’s even worse when we see who isn’t “sharing in the sacrifice” – a list that includes hedge fund managers, Wall Street gamblers, billionaires, drug companies, defense contractors, and tax-dodging corporations.
Independent estimates say that the “chained CPI” will slash Social Security benefits by $122 billion over the next ten years. Here are eight solutions that will save more money – and really will reduce the deficit – without compromising either our ethics or our sense of fairness:
1. Close multiple loopholes in the capital gains law: $174.2 billion. (1.42x)
Lawmakers could save nearly one and a half times as much money as they’ll get from stripping seniors, the disabled, veterans, and children of their benefits – 1.42 times as much, to be precise – by closing capital gains loopholes.
They include the “carried interest” loophole, which taxes hedge fund managers’ service fees at the low “investors’” rate; the ‘blended rate,’ which taxes some quick derivatives trades as if they were long-term investments; the ability to ‘gift’ capital gains to avoid taxation; a dodge for bartering capital gains; and the ability to ‘defer’ gains to future years.
A more aggressive approach – eliminating the capital gains altogether – could yield more than $900 billion in savings, but that might affect middle-class families and seniors. By using the “chained CPI,” America’s seniors, vets, and disabled are taking a hit so that hedge fund managers can keep their loopholes.
(Source: Calculations based on figures cited by the Center for Budget and Policy Priorities.)
2. Refuse to compromise on the President’s $250,000 figure for increased taxation: $183 billion (1.5x)
The President’s initial tax plan – the one he and his party ran on, the one that voters endorsed – called for letting the Bush tax cuts expire for income above $250,000. That would bring in an estimated $366 billion in added revenue over the next ten years. Now, say reports, he and the Republicans will agree on a figure that’s “somewhere in the middle.”
If true, the deal’s deficit reduction impact will be reduced by $183 billion. That’s one and a half times as much as the “chained CPI” will take from seniors, the disabled, veterans, and their dependents. They’ll pay — so that people earning $250,000 and up don’t have to.
(Source: CBPP estimate, divided in half.)
3. Reduce the budget for US overseas military bases by 20 percent: $200 billion. (1.6x)
The United States maintains 702 military ‘installations’ in 63 foreign countries (it has 4,471 bases altogether), according to the Defense Department’s annual budget statement.
These figures don’t include bases in Iraq and Afghanistan. We’re talking about our military presence in nations like Germany, South Korea, and Japan. While the total cost of these bases is kept secret, the best analysis I’ve seen estimates their ten-year cost at approximately $1 trillion.
A twenty percent cut in that budget is extremely modest under the circumstances, and would save 1.6 times as much as the “chained CPI” cut.
4. Allow the government to negotiate with drug companies: $220 billion. (1.8x)
Current law specifically forbids the government from using its negotiating power to obtain lower rates for Medicare prescriptions – even though much of the research behind the drugs involved was performed at government expense.
If we allow the government to negotiate with drug companies, that will save an estimated $220 billion. That’s 1.8 times as much money as the “chained CPI” – and it comes from the drug companies, not vulnerable Americans.
(Source: Outterson and Kesselheim, Health Affairs.)
5. Enact DoD-friendly cuts to military budget: $519 billion. (4.25x)
A defense think tank conducted an exercise to help the military prepare for the possibility of forced spending cuts under sequestration (the so-called “fiscal cliff”). It convened what it called “a series of strategic choices exercises,” using “experts from across the defense community,” in order to decide how best to cut $519 billion from defense spending cuts over ten years.
The participants were not peaceniks – most were in the defense community, while some were Congressional staffers – and the think tank’s staffed by ex-military and military-friendly consultants. Nevertheless, they were able to come up with options that seemed acceptable by balancing short-term readiness with long-term preparation.
It was a surprisingly smart exercise – and it sounds like a very good way to build consensus around defense cuts (even though that was not its intent). A project leaderdescribed the exercise as “listening to the future,” while the report itself said that “Failing to recognize and make strategic choices is effectively a form of self-sequestration.”
We can listen to our future selves, since we’ll all need Social Security some day, and say: Make these cuts. That’s better than “self-sequestering” by letting politicians cut Social Security.
(Source: “Strategic Choices: Navigating Austerity,” Center for Strategic and Budgetary Assessments)
6. Enact Rep. Jan Schakowsky’s ‘Fairness in Taxation Act’ for very high earners: $872.5 billion. (7.15x)
In 2011 Rep. Jan Schakowsky introduced the “Fairness in Taxation Act,” which would have created additional tax brackets for very high earners. As Rep. Schakowskynoted at the time, today’s tax structure “fails to distinguish the merely ‘well-off’ from the ‘super-duper rich.’”
The bill adds the following tax brackets:
• $1-10 million: 45%
• $10-20 million: 46%
• $20-100 million: 47%
• $100 million to $1 billion: 48%
• $1 billion and over: 49%
It also taxes capital gains and dividend income as ordinary income for those taxpayers with income over $1 million.
The very wealthy would still be paying much less than they paid under Republican President Dwight D. Eisenhower, when the top rate was 91 percent. For that matter, these rates are lower than those we had under most American Presidents of the last century.
This bill brings in more than seven times the “chained CPI” savings by asking the ultra-rich to pay their fair share, instead of targeting seniors and other Americans in need.
(Sources: Rep. Jan Schakowsky; Economic Policy Institute.)
7. Eliminate corporate tax loopholes: $1.24 trillion (10x)
A 2007 Treasury Department report (prepared under President Bush) concluded that “corporate tax preferences” – that is, loopholes – resulted in lost revenue of $1,241,000,000,000 over a ten-year period.
That number looks pretty good – especially when it’s stacked up against the “chained CPI” figure of $122 billion.
If we can’t afford to honor our commitment to America’s veterans and their families, or to our seniors, or to the disabled, we sure can’t afford these corporate tax loopholes – excuse me, I meant “preferences.”
(Source: United States Department of the Treasury background paper.)
8. Create a financial transactions tax for high-volume Wall Street trading: $1.8 trillion (14.75x)
And here’s our grand prize winner: A financial transaction tax like the one they’ve imposed in the United Kingdom. The UK tax rate is tiny – 0.25 percent of each transaction, levied on both parties – but the overall impact is substantial.
Not only would this tax bring in substantial revenue, it would also discourage the massive volume of ultra-high-speed computer-driven transactions that have turned the stock market into both an imperceptible ‘black box’ and a real-time mega-casino operating in nanoseconds.
‘Algorithmic trading’ and other forms of Wall Street speculation don’t build economic value or encourage wise investment. Instead they’re used to drive the kinds of speculation that’s driving out smarter investments – and brought our economy to its knees in 2008.
Dean Baker of the Center for Economic and Policy Research estimates that a UK-style tax would bring in $1.8 trillion over ten years. It could also lead to healthier investment – and potentially might even help prevent another crash. More than 200 economists signed a letter supporting the concept of a financial transaction tax.
So the choice is clear: Tax the folks who ruined the economy, and protect the rest of us in the process, or ask seniors, etc. to sacrifice needed benefits. Guess which one they’re leaning toward right now?
(Source: Dean Baker, “The Deficit-Reducing Potential of a Financial Speculation Tax“)
These figures don’t even include the tax hike that the “chained CPI” will impose on all but the highest levels of income. But even without those numbers, the public already hates the idea. Confirming our interpretation of polling data yesterday, a new Washington Post poll shows that 60 percent of the people polled found the idea “unacceptable” and only 34 percent found it acceptable.
Imagine how they’ll feel when they learn that’s it coming anyway – and that it’s being used to protect hedge fund managers, Wall Street tycoons, Big Pharma, military contractors, and tax-evading corporations?
Democrats should not “stick with the President” on this one – and the President should not stick with this proposal.
(You can go here to tell President Obama: No deal that cuts Social Security, Medicare or Medicaid.)