Don't Let Deficit Panel Co-Chairs Hype a Bad Plan

http://www.thenation.com/blog/156831/after-deficit-panel-deadlock-progressives-must-promote-alternative-austerity

Don't Let Deficit Panel Co-Chairs Hype a Bad Plan, Embrace the Progressive Alternative That Saves Social Security
John Nichols
December 3, 2010

The National Commission on Fiscal Responsibility and Reform failed to produce a mandate for assaulting Social Security, undermining Medicare and Medicaid and generally balancing the budget on the backs of working Americans.

But that hasn't stopped its co-chairmen from claiming a sort of victory for their plan to make Main Street pay for Wall Street's failures.

Their goal is obvious. Commission co-chairs Alan Simpson and Erskine Bowles want to spin a win they did not achieve in order to foster the false impression that their ominously titled " Moment of Truth" proposal is the only real alternative to fiscal ruin. That's not the case. There are better proposals—such as the detailed alternative to austerity outlined by commission member Jan Schakowsky. But this is a critical juncture, and progressives need to be conscious that an effort will be made to narrow the range of options and impose key elements of a bad plan that failed to gain required support.

Let's start by getting a few things straight:

The commission was given a clear charge when President Obama cobbled it together in February—after failing to win congressional support for the formal launch of the project.

The commission was to come up with a plan address deficits, debts and the challenge of maintaining a federal government at a point when revenues are not sufficient to keep paying for every war, bailout and boondoggle that comes along.

Proposals for what could be radical, and in many cases painful, change had to attract broad support, so the president said that at least fourteen of the eighteen members of the commission would need to back an initiative before he would promote it. Senate majority leader Harry Reid and House speaker Nancy Pelosi promised to hold votes this year vote a consensus could be reached.

On Friday, the commission co-chairs failed to get to fourteen. Only eleven members of the commission voted "yes," while seven voted "no." And the seven "no" votes came from precisely the members whose votes were most needed if this plan was to have legitimacy. Three House conservatives—incoming Budget Committee chair Paul Ryan, R-Wisconsin; incoming Ways and Means Committee chair Dave Camp, R-Michigan; and incoming Republicans Conference chair Jeb Henserling, R-Texas—voted "no" because they did not think it went far enough in calling for tax cuts and the gutting of entitlement programs.

Two key House Democrats, Xavier Beccera, D-California, and Jan Schakowsky, D-Illinois, voted "no" because, as Schakowsky explained it, the proposed benefit cuts would have meant that "those who have not joined the prosperity party the last couple years are being asked to pick up too much of the tab."

Senate Finance Committee chair Max Baucus, D-Montana, also voted "no," as did former Service Employees International Union president Andy Stern.

Opposition from the right and the left—including that of the legislators who will chair the House Budget and Senate Finance committees in the new Congress—is significant, as is the opposition of the most clearly identifiable representative of working Americans on the panel.

But commission co-chairs Simpson and Bowles, who went rogue last month and started promoting a proposal that lacked broad backing, were going to claim a mandate no matter what vote their got. Bowles declared victory, claiming that the panel had opened an "adult conversation" about cutting the deficit. Simpson, the former Republican senator from Wyoming who was the driving force on the commission, chirped: "I will walk home proudly, with my head held high."

Simpson is proud of his plan, and of the fact that he and Bowles won some unexpected votes for austerity—including that of the number-two Democrat in the Senate, Illinois's Dick Durbin. But what they aren't highlighting is the fact that Durbin announced that he was voting for the plan in order to "to kick-start an adult debate," not because he thought it was sound.

Pointing out that opposed many of the proposal's provisions and would not necessarily have backed it if it came to a Congressional vote, Durbin explained that: "I want progressive voices at the table arguing that we must protect the most vulnerable."

So what is the progressive alternative?

Stern offered a credible plan on Wednesday, calling for substantially larger tax increases than Simpson and Bowles proposed, along with a shift in government spending toward infrastructure investment.

But the strongest alternative is a detailed plan advanced by Schakowsky.

The Congressional Progressive Caucus member and key ally of outgoing House Speaker Nancy Pelosi—who has dismissed the Simpson-Bowles approach as a non-starter—has been the sanest voice in the commission's debate about how to balance budgets, reduce debt and grow the economy.

"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 2 percent of the population have exploded," argues Schakowsky, who says, "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."

As such, Schakowsky has rejected the Simpson-Bowles scheme, which would weaken Social Security, Medicare and Medicaid while cutting taxes for multinational corporations. "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," she explained after the co-chairs laid out their plan. "Their proposal," she explained, "would have serious consequences for lower- and middle-class Americans, and that is why I cannot support it."

But Schakowsky did not just say "no."

She presented an alternative plan to reduce the deficit by $427 billion over the next five years, far surpassing the target proposed by President Obama, and she would do it with an eye toward protecting the poor and the middle class and strengthening the economy.

"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," explains Schakowsky. "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."

Notably, Schakowsky preserves Social Security and other programs that protect and serve working Americans. Instead of undermining the program, she would assure its long-term solvency by eliminating the wage cap on the employer side and raising it to 90 percent on the employee side, applying FICA to all wage income below the cap and establishing a modest legacy tax on wealthier Americans.

This is part of a broader plan from Schakowsky, which has five key elements:

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—$7.55 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

• Healthcare—at least $17.2 billion in savings by implementing measures to bring down the cost of healthcare to the federal government and lower healthcare inflation overall.

• Other—$7.7 billion in savings by cutting agriculture subsidies in half, and redistributing federal support to offer greater benefits to small family farms and 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 two brackets expire and return to 2009 estate tax levels.

• Nontax revenue—raise $7 billion by addressing places where the private sector is currently underpaying.

The plan that Schakowsky has produced is not the final word on how progressives ought to approach debates about fiscal policy, debts and deficits. There needs to be more consideration of the role that the trade deficit plays in destabilizing the US economy and the financial health of the federal government, as Ohio Congressman Marcy Kaptur has noted. There should be consideration of the proposals by Oregon Congressman Peter DeFazio for taxes on speculation and financial transactions. And there should be new approaches to how the Federal Reserve manages bank funds, as economist Robert Pollin has suggested.

But Schakowsky has provided the essential framework for the coming debate.

Simpson and Bowles can claim their hollow "victory."

But when the real debate about deficits and debts gets opens, progressives can say there is an alternative to austerity—an alternative, presented by Jan Schakowsky, that balances budgets, reduces debt, serves working families rather than Wall Street CEOs, protects Social Security and expands the economy.