Debt Reduction Will End this Presidency
The Obama administration is committing political suicide with its debt negotiations, and it’s not entirely clear that there should be much of a protest from the American people. Obama’s center-right attempts to “compromise” by seeking major cuts to Social Security (a program that is currently not in financial trouble, but in fact running a surplus) and Medicare (in which hundreds of billion in cuts are being sought) will inevitably harm the American middle and working classes. Obama claims that the “sacrifices” (which he will not be forced to endure) are necessary in order to come to an agreement with Republicans over deficit reduction. He is wrong. If he continues to push this agenda, we should organize around an alternative, progressive candidate for 2012.
Past presidents such as Reagan and Bush learned the hard way what the senior vote can do to them when they sought to dismantle Social Security. It's not that they discovered some deep commitment to preserving Social Security, it's just that they realized the dangers of taking on the senior citizen voting bloc. Obama may very well win greater support from Wall Street elites (and the bond rating agencies) by agreeing to the conservative agenda on cutting social programs, but this will also likely be followed by a major demobilization of former Obama supporters - those who see no reason to support the president any longer. This was the lesson of the 2010 midterms: the failure of Democrats to pursue progressive reforms depressed the base, and Democrats paid dearly as a result. Obama seems to be making the same mistake all over again.
Obama’s proposed cuts concede far too much to the Republicans. He supports ending tax loopholes for the rich and reducing the Bush tax cuts (for the wealthy) in a package that would see less than $1 trillion in total revenue savings from these sources. Compare that to the additional $3 trillion in cuts he’s seeking over ten years – much of which will come from popular social programs – and one begins to see that he really is “bending over backwards” to placate Republicans’ elitist agenda, as he complained in his recent national address. Such cuts go far beyond the compromise supported by Democrats, in which sacrifices by the masses would equal half of the total revenue increases, and the closing of tax cuts for the wealthy would include another half. Obama’s proposed cuts even go beyond those cuts pushed by Republicans, as they had not originally mentioned Social Security payment reductions as part of their demands.
Republicans have no interest in deficit reduction, as seen in their irresponsible “spend like a drunken sailor” mentality whenever they hold political power (a la the Reagan and Bush years). Debt and deficit reduction are merely a class war tactic to be used against the poor and middle class, and in favor of extending deficit increasing tax cuts for the rich. By playing the Republicans’ game, Obama is risking his political future by crossing the one political constituency that disproportionately follows politics and participates regularly in national elections – the elderly. Resisting cuts to Social Security is a no-brainer for any Democrat interested in getting re-elected, which is why Democrats in Congress opposed them so ardently in 2005, and continue to do so today. Reagan and Bush learned that elementary lesson when they tried to dismantle Social Security, and it’s unclear why the Obama administration is so obtuse as to have forgotten this basic political reality. Social Security has always been the third rail of American politics.
Obama is falling victim to the propaganda theme in Washington that the deficit and debt are the cause of the current economic crisis, rather than a symptom of a much larger problem of reckless speculation on Wall Street. In reality, it was the collapse of the Housing market and the subsequent implosion of the derivatives market that caused the massive hole in the economy, high unemployment, and rapidly expanding deficits under which we now suffer. Contrary to Democratic and Republican propaganda today, it was the stimulus itself, and its accompanying increase in the national debt, that prevented a full-on collapse of the U.S. economy. Debt and deficit spending (in the name of stimulus) are the reason we still have a moderately functioning economy today, rather than the cause of the problem. A forward looking, positive agenda for Democrats must focus on pushing more stimulus and deficit spending until the economy turns around, rather than removing demand from the economy, as will happen with the $4 trillion in budget cuts Obama is supporting.
But what about debt reduction? Isn’t this a worthy goal in the long term, lest we are to continue with the unsustainable path of mass tax cuts for the wealthy, continuously escalating military spending, and growing costs for welfare programs such as Social Security and Medicare? At some point in the future, debt levels could become so high as to impede future government borrowing, and lead to the evisceration of popular welfare programs that America’s political elites have so long sought. There are simple answers to this question for those seriously interested in deficit and debt reduction: cut military spending, increase the payroll tax (and taxes in general) for the wealthy, and rein in the worst abuses endemic in the Medicare system. The United States currently spends approximately $1.2 trillion a year on the “defense.” Cutting the military budget to $800 billion a year would lead to $5 trillion in savings over the next ten years, or $1 trillion more than Obama is promising under his deficit reduction plan. Such cuts are not as radical as they sound, as they would reduce annual military spending to about $100 billion more per year than the approximately $700 billion per year spent on “defense” during the mid-1990s Clinton years – a time when permanent occupations of Middle Eastern countries was not considered the foundation of U.S. foreign policy.
Raising the payroll tax to cover the upper portions of the incomes of the wealthy would ensure the solvency of Social Security into the indefinite future. Putting an end to Congress’s legal prohibition on government bargaining over pharmaceutical prices would help rein in escalating Medicare costs. Under current law, the largest purchaser of pharmaceuticals - the federal government - is not legally allowed to negotiate prices. This prohibition is a blatant violation of “free market” assumptions that companies should be forced to compete in order to provide lower priced, more effective drugs.
A second major reform that would help reduce Medicare costs entails the introduction of comparative effectiveness measures to lower costs of care, without sacrificing quality. We currently have a weak understanding of the effectiveness of competing and alternative procedures and medical treatments, as provided by doctors. Many medical procedures are far more costly than others, and no more effective. By undertaking comparative effectiveness research, we can reduce the costs of health care, while still providing superior medical services. Republicans vehemently oppose comparative effectiveness because such a reform would cost hospitals and doctors some of their excessive profits. Finally and most importantly, we should seek the introduction of a universal health care, Medicare-for-all system, which would dramatically reduce costs of health care for federal and local government employers, who are forced to pay exorbitant amounts for health care under private-sector run programs. Such a change would do much to reduce escalating health care costs and growing deficit spending.
Obama is playing with political fire by promoting a “compromise” with Republicans. Opinion polls show that Americans favor ending the Bush tax cuts over cutting social programs. The Republican Party, however, will continue to resist termination of the Bush tax cuts for the wealthy – their primary political constituency. Obama should be appealing to the public, rather than Republicans, with a budget plan that includes military cuts and preservation of Medicare and Social Security (in addition to his attempts to end the Bush tax cuts). Winning public support for this agenda should not be that difficult, considering the strong public opposition to cutting Social Security and Medicare, and since the cutting military spending (instead of welfare programs) is the most popular choice of Americans whenever they are asked how to reduce the deficit and debt. This alternative approach would allow Obama and the Democrats to preserve programs that are vital in reducing poverty in a time of economic crisis, while reducing the size of a bloated, wasteful, and imperialist military industrial complex.
But what of the Bush tax cuts for the rich, which macro-economic data suggest have done little to nothing to promote economic growth over the last half decade? Eliminating those cuts doesn’t need to be a part of any immediate deficit plan. It’s true that extending these cuts won’t promote growth, as our current economic problems stem from a lack of consumer demand that is caused by growing unemployment and rising household debt, coupled with massive personal savings losses following the housing collapse. Extending tax cuts for the rich in the name of spurring investment and growth is an absurd waste of money at a time when the corporate community is hoarding $2 trillion in cash reserves and when average Americans are suffering under high unemployment and growing poverty.
By simply doing nothing on these tax cuts this year, however, Obama could allow them to expire when they are legally scheduled to end in 2012. Letting the cuts expire will not produce the dire consequences in which Republicans warn. The most optimistic supporters of the cuts – such as the reactionary Heritage Foundation – promised they would provide a mere $4,500 over ten years to the average family, or just $450 a year. Taking that estimate at face value, $450 represents less than one percent of the median family’s annual income of approximately $46,000. It is entirely reasonable to expect those who already have jobs to make such a miniscule “sacrifice” in order to end the deficit-inducing, inequality increasing Bush tax cuts. These cuts are already providing Republicans leverage in demanding major cuts to Social Security and Medicare. Allowing the privatization of Medicare (as proposed under Republican Congressman Paul Ryan’s plan) would cost seniors dearly. As shown in recent empirical research by the Center on Budget and Policy Priorities, Ryan’s Medicare-voucher-privatization plan would increase the average cost of health care for the elderly by more than 120 percent a year (or an additional $5,750 a year). This is an unacceptable price for Middle Americans to pay as they move into retirement, in exchange for a mere $450 a year in yearly rebates under the Bush tax cuts.
Eliminating the Bush tax cuts will have no effect on the already unemployed (who aren’t paying income taxes), and a minimal effect on the employed, when compared to the deadly effects that the current deficit reduction talks will have if Social Security and Medicare are subjected to deep cuts. The elimination of the Bush tax cuts, however, will have a dramatic effect on the richest 5%, who secured a staggering one-half of all the Bush cuts. It is this group, rather than the other 95% of Americans, that Republicans are dedicated to protecting. Of course, allowing the Bush tax cuts to expire would likely cost Democrats support from Republicans in terms of extending unemployment insurance in the future. Obama could deal with this problem, however, by winning majority control of government for the Democrats in 2012. Simply by taking a stand against the Republican Party’s draconian class war, the Democrats could secure impressive victories in the upcoming election, thereby eliminating the need to compromise on unemployment insurance.
Sadly, the progressive options discussed above are not defining the policies of the Obama administration. Those on the left who care about the future of the masses should be asking a simple question: why bother supporting a president who shows no interest in fighting for your interests? By “going public” and appealing to the American people for support against Republicans’ draconian class war, Obama could win serious victories for the American people, without having to compromise with those pushing a policy agenda far out of step with the demands of the people. Compromise for the sake of compromise (or in order to protect one’s “legacy” as a “centrist) is no virtue. Obama’s continuation down the “Republican-lite” path should give us pause and force a re-evaluation of public support for this president. Democrats in Congress would do well to take heed, as a vote against Medicare and Social Security will come with deadly consequences in the 2012 elections. It’s really a no-brainer.
Anthony DiMaggio is the co-author with Paul Street of the newly released Crashing the Tea Party (Paradigm Publishers, 2011), and the forthcoming book: The Rise of the Tea Party (Monthly Review Press, September 2011). He is also the author of When Media Goes to War (2010) and Mass Media, Mass Propaganda (2008). He has taught U.S. and Global Politics at Illinois State University, and can be reached at: email@example.com.