Obama Sells Out - Put In Perspective

I’ve seen an abundance of comments recently praising President Obama’s “compromise” with the Republican Party on their recently passed tax cut deal. The people who make these comments note that everybody or almost everybody “gained” something through this deal, so we all ought to be appreciative. They note that none of us wanted to see the rich get massive tax breaks, but if that what was required in order to ensure that those in most need of additional money at this time get what they need, then it’s worth it, and liberals should not “whine” about the rich getting something too.

First of all, let me say that it is not mathematically possible that everyone – or even nearly everyone – “gained” from this deal. These tax cuts are a zero sum game at best – unless you hold to the repeatedly discredited Reagan philosophy of trickle down economics that says that giving money to the rich will benefit everyone because it will “trickle down” to everyone. The money for these tax cuts did not materialize out of thin air. One way or the other, they will have to be paid for, and they come at an enormous price. But before talking more about that, let’s consider some of the breakdown of benefits of this $858 billion deal.


Some facts about the distribution of benefits

The most complete accounting I can find on the breakdown of benefits comes from a recent AP article. Even so, it is far from complete, and it tends to hide how much this deal favors the rich. The largest single bulk of the $858 billion deal would come from a reduction in income tax. The AP article notes that the bill reduces the highest marginal tax rates, on individual incomes above $379,150, from 39.6% to 35%, while reductions on those with individual incomes below $8,500 are reduced from 15% to 10%. Let’s calculate what this comes out to regarding average benefit for those in the top bracket vs. those in the lowest bracket, given that the average income in the top bracket is about $1.6 million, and assuming (a generous assumption) that the average income in the lowest bracket is $8,500:

Average income tax reduction in top bracket: $73,600
Average income tax reduction in bottom bracket: $425
Ratio of average savings in top bracket to average savings in bottom bracket: 173:1

In addition, we have a bunch of other cuts that primarily go to the richest households. Let’s tally them up:

Income tax reductions (discussed above): $186.8 billion
Itemized deductions: $20.7
Capital gains: $25.9 billion
Dividends: $27.3 billion
Taxes on estates over $5 million: $68.1 billion
Total tax reductions going primarily to the wealthy: $328.8 billion

That comes to more than 38% of the total package, and the good majority of these benefits go primarily to the wealthy. The rest of the tax reductions are more evenly distributed than the above noted 38%.


How will this $858 tax giveaway be paid for?

There are a few possibilities for how this tax giveaway will be paid for. But first it should be noted that $120 billion of it, 14% of the total, will come out of the Social Security Trust Fund. So how will the remaining $738 billion be paid for?

One possible way would be for the government to just print the money. But that would be highly inflationary, reducing the value of the money that we all hold, and I haven’t heard anyone talking about that as a solution.

Another possibility would be for the government to reduce its expenditures over the next couple of years. With a Republican House you can bet that there is going to be great clamor over the next couple of years to reduce money spent on much needed social programs – of the type that provide a safety net for the most vulnerable Americans.

And then, the rest of it will simply be added to the national debt. So our children and grandchildren will be encumbered by this problem so that multi-millionaires and billionaires can have their tax breaks.

Again, let me stress my main point of this discussion. Everyone will NOT benefit from this. One way or another, this deal causes some Americans to pay for the tax breaks of other Americans. With this particular bill, the money will be paid to the upper 1% of earners from the rest of us – as well as from our children and grandchildren.


On the “temporary” nature of the tax cuts

The above noted figures assume that these tax cuts will be “temporary” – the term used by our president to sell this deal to the American people. But what if it’s not temporary? Or what if it’s “temporary” for only the next 20 years? Obviously if it’s not temporary, or if it extends beyond two years, it will be more expensive than $858 billion.

So are these tax cuts “temporary”? Well, if a Congress with large Democratic margins in both houses and a Democratic President couldn’t come up with a better deal than this, then what is the likelihood that a Congress with a large Republican majority in the House will let this deal expire? It should be clear that the chances of that are close to zero – unless the American people finally wake up, understand what’s going on, and demand something better.


Additional downside to this giveaway to the wealthy

Since Ronald Reagan began his presidency in 1981 the income and wealth gap between rich and poor has been continually widening, so that now it is at record levels, even greater than the gap that existed in 1929 and ushered in the Great Depression. Furthermore, the United States has the greatest disparity between rich and poor of any of the industrialized nations.

Our best economists believe that this wealth gap was a major cause of the Great Depression. This was recognized by FDR’s Chairman of the Federal Reserve (1934-48), Marriner Eccles, who wrote in 1951 an explanation of the role that the extreme wealth gap of 1929 had in causing the Great Depression:

As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth…. By taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out the game was stopped.

It should be obvious that the extension of the Bush tax cuts for the wealthy will further increase our already record level wealth gap. Besides the harmful economic consequences of these cuts, there are the political consequences that must be considered. We are dealing with a vicious cycle here, in which vast sums of wealth concentration among the wealthiest American individuals and corporations are used to bribe our elected representatives through an army of lobbyists, for the main purpose of enacting legislation designed primarily to concentrate ever more vast sums of wealth in their hands.


On Presidential leadership

Many of President Obama’s supporters have expressed the view that he didn’t have any choice in this matter. They argue that the Republicans tied the tax giveaway to the rich to benefits desperately needed by the unemployed and the middle class. But why did Obama stand by and allow them to do that by making a deal with them, rather than putting up a fight? Thom Hartmann discusses this point:

President Obama should have been publicly DEMANDING an “up or down vote” in the same way that the Republicans were screaming and shouting for such a vote on Bush’s Supreme Court nominees. President Obama’s office should have been coordinating talking points for Democrats in the House and Senate for every radio and television appearance they made. After all, it’s an easy sell. The middle class tax cuts are already what most Americans want.

Instead of a coordinated effort including regular public statements and press conferences on being entitled to an “up or down vote” on tax cuts for the middle class, the President capitulated. The deal that he made with the Republicans provides only very short-term relief and at a HUGE cost.

The grifter class

The most recent tax giveaway is just one more incident in a long line of events that have resulted in a massive transfer of wealth to the rich from the rest of us. In recent weeks I’ve discussed that issue at length here, here, and here, so I won’t repeat those discussions here. Matt Taibbi has many insightful things to say about this in his new book, “Griftopia – Bubble Machines, Vampire Squids, and the Long Con that Is Breaking America”. In the first chapter of his book he talks about the roots of our current financial crisis:

The root cause of all these disasters was the unraveling of a massive Ponzi scheme centered around the American real estate market, a huge bubble of investment fraud that floated the American economy for the better part of a decade…

Later in the chapter he gets into some of the dynamics behind this massive fraud:

Even after the rich almost destroyed the entire global economy through their sheer unrestrained greed and stupidity, we can’t shake the peasant mentality that says we should go easy on them, because the best hope for our collective prosperity is in them creating wealth for us all. That’s the idea at the core of trickle-down economics and the basis for American economic policy for a generation…

What’s accelerated over the last few decades is just how thoroughly the members of the grifter class have mastered their art… What has taken place over the last generation is a highly complicated merger of crime and policy, of stealing… The financial leaders of America and their political servants have seemingly reached the cynical conclusion that our society is not worth saving and have taken on a new mission that involves not creating wealth for all, but simply absconding with whatever wealth remains in our hollowed-out economy. They don’t feed us, we feed them.

The giant military-industrial complex… has now been expertly and painstakingly refitted for a monstrous new mission: sucking up whatever savings remains in the pockets of ordinary people… the little hidden nest eggs of the men and women who built the country and fought its wars, plus whatever pennies and nickels their offspring might have managed to accumulate in preparation for the gleaming future implicitly promised them, but already abandoned and rejected as unfeasible in reality by the people who run this country.

In summary – The power of money converted to propaganda

I sometimes wonder why I should be so upset about all this. After all, we presumably live in a democracy, in which we all have input into our collective futures. If the representatives whom we elected to serve our interests work out a compromise that presumably provides a little bit for all of us, why shouldn’t I accept that?

The problem is that our elected representatives for the most part have chosen to serve the interests of the grifter class rather than the majority of their constituents because the grifter class has amassed the money – and consequent political power – to make a mockery of the principle of one-person-one vote and maintain their minions in office. Taibbi sums up our current situation at the end of his first chapter in similar words:

The new America is fast becoming a vast ghetto in which all of us, conservatives and progressives, are being bled dry by a relatively tiny oligarchy of extremely clever financial criminals and their henchmen in government, whose main job is to be good actors on TV and put on a good show. This invisible hive of high-class thieves stays in business because… we prefer not to ponder the dilemma of… why our pension funds just lost 20 percent of their value, or why… banks that have been the opposite of prudent get rewarded with free billions. In reality political power is simply taken from most of us by a grubby kind of fiat… through a thousand separate transactions… that most of us are simply not conscious of.

Derrick Jensen, in Volume II of his book “Endgame”, puts the issue in even starker terms. Referring to perhaps the most valuable human resource of all, he says:

We hear all the time, for example, that “we” are running out of water. And it’s true that rivers are dying. Lakes are dying. Seas are dying… And we are told that within a few years two-thirds of all humans will be without adequate access to water… We know as well that governments are busy “privatizing” water, which means they are declaring that regular humans do not have access to water while corporations do. We know also the truth of what one water company, Global Water Corporation, puts on its website: “Water has moved from being an endless commodity that may be taken for granted to a necessity that may be taken by force.” And we know who will use that force. But through all of this talk, we are not so often told that more than 90 percent of all water used by humans is… in fact used by agriculture and industry… The Colorado River has been murdered for golf courses in Palm Springs and fountains in Las Vegas…

Thus it is that we live in a country and an era in which vast sums of money are used for the purpose of convincing us to accept that the wealthy deserve so much more than the rest of us, and that they are hard at work creating a world that will benefit all of us – the philosophy behind trickle down economics. Their vast wealth allows them to do this, through control of our national communications media and the politicians whom we elect to serve our interests. Otherwise they could not possibly hold our needs hostage to our transferring of vast sums of money from us to them.

They require our passive acceptance of all this in order to maintain their myths and their scams. The Internet provides a means for us to see through these myths and scams. But not enough Americans thus far have availed themselves of this opportunity. Until they do, our situation will continue to worsen and our democracy will continue to slip away.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x41629
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