Nov 26th 2012

Why Lame Duck Budget Battle is Really a Struggle Between the 1% and Ordinary Americans

by Robert Creamer

Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.
To hear some pundits tell it, the Lame Duck budget battle is about the “unsustainable federal deficit,” or “entitlement reform,” or even “tax rates.”  These characterizations make it sound like a contest between two competing sets of policies and programs.

But underlying all of the policy-speak, the Lame Duck budget battle is really about one question.  Will the 1% of Americans who had the party that caused the deficit be asked to pay the bill?
 
The pain of “fixing” the deficit should not be distributed widely.  It should be distributed fairly – to the people who caused the problem and reaped the benefit – the wealthiest people in America.
 
The Lame Duck battle goes right to the most important question facing our political and economic decision-makers at this moment in American history: will we continue to allow the wealthiest 1% of Americans to siphon off all of our economic growth for themselves, or will the benefits of that growth be widely spread to ordinary Americans?   What portion of the goods and services produced by our society will go to the wealthiest 1% of Americans – and how much goes to everyone else?
 
From what some right wing pundits and “wise men” from the business community say, you’d think that America is poorer today than it was fifty years ago, when Medicare and Medicaid became part of our social contract – or 70 years ago when we created Social Security.  Some of the “entitlement programs” we’ve had for decades are now “unsustainable” they say.  
 
We no longer can afford to guarantee seniors a decent retirement?  We can’t afford to guarantee every American the right to decent health care?  We can’t afford to provide guaranteed pensions – or to provide a living wage to our workers so they can look forward to providing a better standard of living for their kids? We just can’t do big things anymore like build the Interstate Highway system, or send someone to the moon, or create the Internet? They claim that “we” – meaning most of us but certainly not the 1% -- have to get used to the new “normal” of austerity and lowered expectations.
 
To put it bluntly, that is simply ridiculous.
 
To understand what is really going on all you have to know is three critical facts:
 
      1). First, for the last three decades our per-person gross domestic product – the amount that the average person in America produces in goods and services -- has consistently increased.  That increase has been slowed by several economic downturns and by the Great Recession, but over time, we have more to go around today than we did thirty years ago.
 
In fact, real (adjusted for inflation) per capita gross domestic product (GDP) increased more than 80% over the period between 1975 and 2005.  In the last ten years, before the Great Recession, it increased at an average rate of 1.8% per year.  That means that if the benefits of economic growth were equally spread throughout our society, everyone should have been almost 20% better off (with compounding) in 2008 than they were in 1998. 
 
     2). But ordinary people weren’t better off.  In fact, median family income actually dropped in the years before the recession.  It fell from $52,301 (in 2009 dollars) in 2000 to $50,112 in 2008. And, of course it continued to drop as the recession set in. In fact, as a group, ordinary Americans haven’t had a raise in about 30 years. 
 
How is that possible? 
 
Was it – as the Right likes to argue – because of the growth of the Federal Government?  Nope. In fact, the percentage of GDP going to federal spending actually dropped during the last four years of the Clinton Administration. When Bush took office it began to increase again as the Republicans increased spending on wars.  Over the last 28 years, federal spending has averaged about 20.9% of the GDP and varied within a range of only about 5%, with the high being in 1983 (in the middle of the Reagan years) and the low in 2000 before Bush took office.  It has never even come close to the 43.6% of GDP that it consumed during World War II in 1943 and 1944, or the 41.9% it consumed in 1945.   The percent of GDP that goes to Federal spending went up in 2009 and 2010 – but that was mainly because the economy shrunk on the one hand, and a major, temporary stimulus bill was need on the other to prevent another Great Depression.
 
Was it because taxes have skyrocketed?  No again.  In fact, Bureau of Economic Analysis data indicates that Americans now pay 23.6% of income for state, local and federal taxes compared to 27% from the 1970’s through the 1990’s.  In fact, the overall tax burden is the lower today than it has been since 1958.
 
Was it that labor became less productive?  No.  In fact, there has been a major gap between the increase in the productivity of our workforce and the increase in their wages.  Even when wages were improving at the end of the Clinton years, productivity went up 2.5% per year and median hourly wages went up only 1.5%. 
 
From 2000 to 2004, worker productivity exploded by an annual rate of 3.8% but hourly wages went up only 1% and median family income actually dropped .9%.
 
The bottom line is that people who work for a living (most of us) are getting a smaller and smaller slice of the nation’s economic pie. 
 
In fact, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government started keeping records in 1947.  And corporate profits have climbed to their highest levels since the 1960’s.
 
Which brings us to fact number three.
 
      3). Virtually all of the increase in our gross domestic product over the ten years before the Great Recession went to the wealthiest 2% of the population. 
 
These changes in income distribution are not the result of “natural laws.”  They were the result of systems set up by human beings that differentially benefit different groups in the society.
 
And that is what the Lame Duck budget battle is all about.  The wealthiest people in America want to continue to siphon off all of the growth in productivity and economic production – it’s that simple.
 
When George Bush took office from Bill Clinton we had a massive budget surplus.  The reason was that Clinton had passed a tax bill that mainly increased the tax rates paid by the wealthiest Americans.  Republicans made dire predictions that these new taxes on the wealthy would cause a recession.  Instead, the economy expanded like gangbusters.  Under Clinton the economy created 22 million new jobs.  The tech boom contributed mightily to increased productivity of the American work force.   And, notwithstanding the increase in taxes, the rich weren’t hurting.  Many fortunes were made during the 1990’s.
 
But the wealthiest Americans and their representatives in the Republican Party wanted more.  After the Supreme Court handed George Bush and the Republicans the election victory in 2000, they insisted that tax rates for the wealthy be slashed. And when the Republicans launched two wars they refused to increases taxes on the rich – or anyone else – to pay the bill.
 
Now they insist that cost of fixing the deficit they created, should fall upon the poor and the middle class and they should be asked to pay nothing.  Instead, they want Social Security recipients who make $15,000 per year to have their Medicare benefits cut.  Instead, they want to cut our spending on education and new roads and transit systems.  Instead they want to cut food stamps and unemployment benefits that help prevent ordinary people from falling into poverty when they are laid off by a company like Sensata, that is making money manufacturing its products in the U.S. but wants to make even more by shipping its jobs to China.
 
The increasing costs of the country’s health care programs are not driven by greedy seniors, or by “unsustainable entitlement programs.”  They are driven by rising health care costs – that result in large measure from the fact that our insurance company-driven health care system led us to pay twice as much per capita for health care than any other society on earth – even though we are 37th in health care outcomes.

You bet we have to control health care costs, but we don’t do that by transferring those costs to ordinary people whose share of the economic pie has been stagnating for years.  We need to do that by creating a more rational system for financing and delivering health care – a project that has finally begun with the passage of ObamaCare.
 
Changes to Medicare or Medicaid that actually control health care costs are a great idea.  We might start by allowing Medicare to negotiate with drug companies to get lower rates on prescriptions – which was explicitly prohibited under the law that created Republican-crafted Medicare Part D drug benefit.
 
But Democrats should not agree to any change in Medicare or Medicaid that cuts benefits for ordinary Americans.  Ordinary Americans didn’t benefit from the party that caused the deficit, and they shouldn’t be asked to pay the bill.
 
Maybe the most outrageous proposal coming out of the “big thinkers” who flack for Wall Street and the CEO class, is the proposal to raise the Social Security retirement age.
 
Remember that Social Security has absolutely nothing to do with the deficit.  In fact the Social Security Trust Fund has been in surplus since it was reformed in 1980.  Regardless, the one percent crowd insists that Social Security is  “unsustainable” in its current form and the way to fix it is to require that everyone retire later.
 
That may make sense to editorial writers or business executives who love their jobs, make big salaries and have no intention of retiring at 65.  It makes no sense at all to people who do manual labor or clean hotel rooms and are paid a minimum wage.
 
The people making these proposals will never be affected by increasing the retirement age.  The people who are being asked to sacrifice are generally the people who work the hardest for the lowest pay and have not benefited at all from the economy growth that their labor helped to fuel over the last 30 years.
 
This proposal is particularly outrageous when you realize that the payroll taxes that finance Social Security and Medicare don’t apply to income over $110,000 per year.  If everyone paid the same percentage of their income in payroll taxes as a the average American that earns $50,000 per year, the Social Security Trust Fund would be solvent for the next 75 years. 
 
When wealthy executives who make millions say that America can’t “afford” the current Social Security and Medicare programs, what they really mean is that they don’t want to pay their fair share to support these critical programs.   What they are really saying is that they have a right to take all of the increased economic growth that our society generates over the next three decades the same way they have for the last 30 years.
 
It is up to Democrats – to all everyday middle class Americans -- to just say no to the greed and arrogance that underlies their proposals that everyday Americans should have to sacrifice more, so that the 1% doesn’t have to pay its fair share. 
 
It’s time we refuse to give any credibility whatsoever to their absurd assertions that increasing taxes on the rich will slow the economy by punishing “job creators.”  In fact, economic history – and most recently the Clinton years – demonstrated beyond the shadow of a doubt -- that economies grow from the middle out, not the top down.  Economic history demonstrates that the best way to grow an economy is to make sure that ordinary American consumers have growing incomes that will allow them to buy the goods and services that their increased productivity can produce.   Middle class consumers with money in their pockets are the true “job creators.” 
 
Republican policies that allow the wealthy to continue siphoning off all of our growth in national income are the true enemy of long-term economic growth.  They are a formula for economic stagnation because they are a recipe for the destruction of America’s middle class.
 
It’s up to us to demand that Wall Street gamblers who don’t make anything of value should no longer be allowed to pay a smaller share of their income in taxes than teachers or firefighters or the millions of Americans who go to work every day and actually create the goods and services that people need to live more fulfilling lives.
 
And it’s up to the media to understand that in the final analysis, the Lame Duck budget battle is not about policies and programs at all – it’s about right and wrong.
 

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