The teasers are the needed extension of unemployment benefits – the unprecedented denial of which were a Republican bluff that paid off big time – and continued tax cuts for non-rich Americans. The president doubled down with some Republican remodeling in the form of a restored estate tax set at the lowest level since 1931. And a cut in the Social Security payroll tax, which Republicans will use to gut Social Security later.
Congressional Democrats should stop the deal before it closes. It will cost most Americans and our economy much more than it gains.
Obama’s tax deal falls for the same trap Republicans have been running since the Reagan administration. Cut taxes to reward the wealthy and purposely run up the debt to cause cutbacks later in programs Republicans don’t like, which is most everything outside of the military and corporate subsidies mostly for big oil, big Pharma and other big business using small business as poster children.
Handed a budget surplus by the Clinton administration, President Bush slashed taxes - breaking precedent by asking the wealthy to pay less, not more, during wartime – and chopped away at the public services and infrastructure that underpin actual job creation and long-term economic growth. Bush left office with the nation in the worst economic crisis since the Great Depression, and falling down the world rankings in wages, living standard, life expectancy, economic mobility, education, infrastructure and global competitiveness. He also left office with the richest 1 percent of Americans having the greatest share of national income since 1928, right before the Great Depression.
Today, the too big to fail banks are bigger and Wall Street is back to paying big bonuses for playing heads I win, tails you lose with our money. Their campaign donations flooded to Republicans who want to undo financial reform and their lobbyists are hard at work trying to make the regulations much weaker in practice than on paper. Today, big businesses are sitting on a record pile of cash and liquid assets while small businesses still get the cold shoulder from banks. Millions of Americans have been foreclosed or are in default. One out of ten Americans are unemployed by the official count, which leaves many uncounted. Our infrastructure – much of it built decades ago when the highest-income taxpayers were more productive and less greedy - is rotting. The promised green jobs of the future are increasingly today’s jobs in Germany, China, Brazil and other countries investing more in their economies.
And now comes the tax deal, offering tax cuts that will be paid for next year and the years after by pay freezes and big budget cuts for the services and infrastructure non-rich Americans and a healthy economy depend on. People used to talk about robbing Peter to pay Paul. Now it’s more like robbing everyone to pay the richest 1 percent.
In the prelude to the real robbery, the poorest 20 percent of Americans will save $396 from the “compromise plan” in 2011, the middle 20 percent will save $1,521 and the richest 1 percent will save $76,949, according to Citizens for Tax Justice. The deficit will grow by $424 billion in 2011 and more after.
Enabled by Obama, the Republicans will use the rising deficit to set up the ultimate foreclosures: Social Security and Medicare. In the words of Nancy Altman, co-director of Social Security Works, “President Obama and the Republicans will say that the payroll tax holiday is all about stimulating the economy. But don’t be fooled … There are many better ways to stimulate the economy with that $120 billion the payroll tax holiday will cost, including simply extending the Making Work Pay Tax Credit … And the other, better forms of stimulus pose no threat to Social Security.”
The payroll tax holiday on the other hand, which will likely be extended, not ended heading into the next election, poses a grave threat. As Altman points out, scrapping the cap on earnings subject to Social Security taxes (now just $106,800) eliminates the projected Social Security shortfall. Cutting the tax while leaving the cap is a gift to those who want to cut, privatize and destroy Social Security under the pretense of saving it.
Obama’s hollow bring-it-on rhetoric aside, if we don’t avoid this trap now, it will set up much bigger losses in the future.
Holly Sklar is executive director of Business for Shared Prosperity.