The “Fiscal Cliff”: A Trojan Horse for Austerity

Sen. Bernie Sanders: The Only Socialist in the U.S. Senate and a REAL fighter for citizens' economic security. His cogent defense of working, middle class interests is a major reason why I left the Democratic Party 12 years ago to join the Democratic Socialists of America! Bottom line: I no longer trust the Dems to look after the People's welfare!

In the latest issue of  ‘Democratic Left’ – the publication of the Democratic Socialists of America’- the cover image depicts a large killer drone with the word ‘AUSTERITY’ flying over two people in wheelchairs. One is an elderly lady and the word ‘Medicare’ is on her wheelchair, the other is a disabled oldster with the word ‘Medicaid’ on his. The elderly lady is saying “I hope we're not on its kill list!”


The drone, of course, could be a good symbol for the specious “fiscal cliff’ – a McGuffin created exclusively to justify severe austerity cuts as has now become manifestly apparent (what with Social Security and Medicare having been put on the table by the always appeasing Dems). However, perhaps the term ‘Trojan Horse’ is a better fit. The original Trojan Horse referenced in Virgil’s Aeneid referred to a hollow horse left behind by the Greeks after a 10-year siege of Troy. Inside, however, an elite group of soldiers remained. The Trojans themselves fell for the trap, dragging the monstrous hollow horse into their city as a trophy. Only too late did they realize their folly as the Greeks poured out.


Hence, the term “Trojan Horse" has come to mean any stratagem that tricks a target into dropping its defenses and then being taken down. In like manner, the fiscal cliff avoidance is presented as a benefit whereby citizens can keep more money in their pockets – by keeping the Bush (now Obama) tax cuts. Not exposed, the hidden weapon, is how their future benefits will be savaged leaving 30 million impoverished seniors by 2025. So by copping to a few thousand bucks in their pockets now, the people will be fleeced later as the chained CPI kicks in, as well as higher Medicare premiums (even after those premiums have effectively increased 133% the past 10 years owing to reduced S.S. COLAs).

As I already noted, neither Social Security nor Medicare should be on the table in any current negotiations. Obama flatly promised this during his campaign and he must be held to account this time, as opposed to 2008 when half or more of his promises were broken. Moreover, as Sen. Bernie Sanders has noted, Social Security is showing a surplus of $2.7 trillion hence is NOT the problem! Therefore, even for the sake of ephemeral PR or atmospherics it makes no sense for the spineless Ds to use it as a bargaining chip.

As for Nancy Pelosi’s recent claim (at a news conference) that the Chained CPI “is not a benefit cut” – all I can say then is that Ms. Pelosi is a moron and has no grasp at all of what the Chained CPI means. (Or perhaps, she doesn't want citizens to know what it means!) In either of those cases, she needs to resign forthwith as House Minority Leader and let Debbie Wasserman-Schultz take charge. We need people with spines, not Neoliberal appeasing weaklings! Meanwhile, here's some heads up news for Nancy and also why I regard the "fiscal cliff" has a hidden austerity measure:

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 unreasonable act, it remains morally unacceptable to reduce spending on the backs of the elderly, women, the poor, veterans, disabled Americans, and already malnourished children. 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.  Wise- ass Neolib Dems are trying to fudge this by asserting they will parse the Chained CPI so that the "poorest seniors" aren't terribly affected. That's nice to know but of little value or use to middle -income seniors who still face rocketing costs usually via health issues. Besides, nearly every financial advisor and publication in the land advises seniors to have at least $260,000 each for medical care expenses to pay for what Medicare does not. Hence, the Chained CPI by eroding benefits will make it harder and harder for those middling seniors to cover costs. WTF you expect them to do, take out loans! Are you frickin' nuts?

Here are some 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.

2. Refuse to compromise on the original $250,000 income level that Obama insisted he wouldn't deviate from!

Obama's original tax plan, the one he said over and over that he wouldn't budge from during his campaign,  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." That loss in tax revenue (say for a $400,000 threshold) automatically would mean more spending cuts and on social insurance programs. That can't be tolerated!

3. Reduce the budget for overseas U.S. Military bases by 50%.- saving $500 billion

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. ALL of these represent redundant costs since the wars that incepted the bases are now more than a half century over! 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.

4. Allow Medicare to Negotiate with Drug companies like the VA does! ($220 billion saved)

Current law specifically forbids the government from using its negotiating power to obtain lower rates for Medicare prescriptions like the VA -- 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. If this isn't on the table instead, one must ask why the Dems seek to go after the vulnerable as opposed to Big PhrmA - which has money to burn (our money) in showing endless ads every evening!

ALL of these are doable but require our elected DEM representatives to fight for the PEOPLE as opposed to appeasing the Neoliberal Establishment. What are you Dems, men (women) or MICE? Is this a countryy of, by and for the PEOPLE OR is it of, by and for the corporations and the Neoliberal Washington media?

Now, let’s get to the stupidity of the American people (at least too many of them), which is maybe why the politicos treat them as idiots. If polls are to be believed, 74% demanded no cuts to Social Security and Medicare, but that taxes be raised on the richest. BUT….in a recent Washington Post poll 57% said that Obama “was not compromising enough”. How can these morons on the one hand demand no cuts to Social Security and Medicare, and THEN…..after Obama has put BOTH on the table, assert he isn’t compromising enough? Are they total morons? Maybe! Or perhaps not paying enough attention to what’s going on which makes them “effective morons” or maybe ignorant twits. The point is the polls indicate massive cognitive dissonance. It is in fact the Repukes that haven’t given an inch on raising tax rates, allowing the tax cuts to remain for the top 0.5%.

It is time this foolishness ends and the Dems, repukes and their corporate enablers in the media, as well as all the Neoliberal hacks be called out. (Again, NO ….I am NOT a registered Democrat, I am a Democratic SOCIALIST – who is registered as an INDEPENDENT. I only vote with dems when the choice is between political cholera or diarrhea). Alas, as a realist I do have passing hopes when I do vote for the dems they will fight for the people who put them into power for once, as opposed to filling the airwaves with Washington-ese rhetoric, BS and palaver. Democrats should not "stick with the president" on this one -- and the president should not stick with this proposal. Indeed, now he needs to take his offer off the table entirely!

(You can go  here to tell President Obama: NO deal that cuts Social Security, Medicare or Medicaid...not even a "superlative Chained CPI")

See also:   http://www.smirkingchimp.com/thread/cenk-uygur/47253/obama-will-ride-to-the-rescue-for-republicans

'Taxes are Much Higher Than We Think?'- HARDLY!

According to Edward C. Prescott and Lee E. Ohanian ('Taxes are much higher than you think', WSJ, Dec. 12, p. A19) the average American is being taxed senseless.  The authors assert:

"Taking into account all taxes on earnings and consumer spending- including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes,....the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output he will be able to consume only an additional $60."

Well, that's assuming of course that the worker isn't made to work all or most of those extra hours off the clock....as at Walmart. More seriously, the authors throughout their anti-tax rant make no mention of the benefits that accrue from the taxes paid!

Hence, in accounting for said benefits - say Social Security monies - which surely assist and fuel consumer spending (at least of oldsters, as well as many on disability), they are off the mark! In truth then, the 6.2% payroll taxes ought not even be part of the mix because it's more a defined contribution plan paid back to beneficiaries. Contributions paid in (with more than a gov't 'match') and later received as benefits go for groceries, health care (e.g. prescriptions) and other components that drive aggregate demand.

Thus, knocking off that 6.2% defined payroll contribution puts the proper tax rate at less than 34% while eliminating sales taxes takes it down even further (given sales taxes are really optional and imposed only on certain consumption transactions). When I therefore use the term "effective marginal tax rate" I apply it to income taxes exclusively, not optional taxes which one avoids by not undertaking the specific transaction (or undertaking it online). This leaves even lower percentages.

The fact remains that even if such adjustments aren't made, Americans are currently taxed at the lowest percentage of GDP for the past 40 years. This as our domestic needs have expanded, including infrastructure repair and alternative energy investment.

Compared to the marginal tax rates of 91% in the 50s, an era which also saw only one parent having to work, and bank interest rates approaching 4-5%, Americans are getting off Scot free. Indeed, if Americans value their future benefits, such as Social Security and Medicare, they ought to be the first to be standing in line to pay HIGHER taxes, and especially to come out both barrels blazing against any further postponement of full payroll taxes- which pay the freight on those benefits!

Bottom line? We simply cannot afford any further extensions of payroll tax cuts, for "stimulus" or any other absurd reasons! The Social Security Disability funds are already bleeding down to zero and while Social Security can't go bankrupt (it has no external creditors) we don't want future seniors to have to live on only three fourths of what current seniors receive!

The authors also claim (ibid.):

"High tax rates, on both labor income and consumption, reduce the incentive to work by making consumption more expensive relative to leisure, for example. The incentive to produce goods for the market is particularly depressed when tax revenue is returned to households either as government transfers-in -kind, such as public schooling, police and fire protection, food stamps and health care that substitute for private consumption."

But it's important to understand what these guys are saying here: To wit, that it's better for each 'Murican to use more before tax income to buy even more cheesy crap to fill his home or storage unit (and that he likely will never use more than once....like that 20-year old 'Tickle Me Elmo' or  Mark McGwire bobble head collection) than it is to put that money toward the common good!


Thus, these two numbnuts rate the consumption -purchase of cheesy crap over paying for police and fire protection, public schooling or food stamps - which actual stats (e.g. by the Economic Policy Institute) show drives aggregate demand and betters the economy far beyond tax cuts.

To put a finer point on it, there is already TOO MUCH private consumption in the U.S. which is infantilizing all of us (See e.g. 'CONSUMED: How Markets Corrupt Children, Infantilize Adults and Swallow Citizens Whole' ). The book depressingly details how private consumption is feeding the capitalists' coffers while converting us all into selfish infants who gotta have their own toys!

One thing that can't be defended, therefore, is enabling more disposable income to dispose of in junk! Taxes therefore provide the incentive and basis for genuine economic growth and quality jobs - as opposed to generating twenty million Bloomingdales' clerk, sales serfs and burger flippers.

Authors James Medoff and Andrew Harless (The Indebted Society, 1995) indeed show that as tax rates increase, aggregate demand is enhanced and job output grows. This is in direct opposition to the specious claims of the tax cutter fetishists like the two WSJ authors. As EXHIBIT A, one need look no further than the 20 million-plus jobs created over the Clinton years when the marginal tax rates were at 39.6% - which we are told now will bring us over a "fiscal cliff".

The true fact is that if the Bush tax cuts (more and more now the Obama tax cuts) aren't fully repealed soon, rampant inequality will continue to grow across the board. How much has it already grown? An Economic Policy Institute  Study reported in today's New York Times (p. A22)  found that between 1983-2010 three quarters of all new wealth accrued to the wealthiest 5 percent of households. Over that same period the bottom 60% actually become poorer.

If we want this travesty to end, we have to be prepared to cough up more of our paychecks for higher taxes....for the common good, and ultimately our own welfare! This is also exactly why ALL the Bush-Obama tax cuts must be sunset at the end of this year - as they were originally intended to when passed in 2001 (actually after ten years) because of the toll taken on the deficit!

We need NOW to get out of this tax phobic state or reap the consequences very soon!