News came last Friday that the budget President Obama will send to Capitol Hill today formally calls for the first reduction in benefits for Social Security beneficiaries in the nearly 80 year history of that program. Overall, the President's budget calls for long-term deficit reduction at a ratio of 4 dollars in spending cuts for every 1 dollar of tax increases. In addition to being bad policy, the President's budget is bad politics and represents a betrayal of Democratic principles dating to the Great Depression. Of course, anyone who has followed this President should be unsurprised. At every turn, he has run from the opportunity to harness public opinion to press his advantage and instead conceded negotiating points in the interest of comity with an opposition focused on his political destruction.
This is hope and change?
Five months ago, President Obama easily won re-election, Democrats in the Senate gained seats and House Democrats garnered a million more votes than their foes, but Nancy Pelosi was denied a second go around as Speaker because state legislatures effectively gerrymandered districts in the GOP's favor. So what has happened since then? Senate Republicans have taken the unprecedented step of filibustering two of Obama's Cabinet nominations, blocked a vote on a nominee to the D.C. Circuit Court of Appeals and have already gone back on the so-called "handshake" agreement Senators Reid and McConnell made to avoid more drastic changes to filibuster rules proposed by Senator Jeff Merkley. On the House side, Republicans dug in their heels to allow the so-called "sequester" cuts to happen and passed the latest iteration of the "Ryan Budget," which contains the same blend of austerity, fiscal gimmickry and end-Medicare-as-we-know-it sophistry that the Congressman proposed in 2010, 2011, and 2012.
On the "fiscal cliff," the President and Republicans had an argument over whether to raise taxes on the top 2% of income earners. Ultimately, they settled on raising income taxes for the top 1% but handed over two MASSIVE giveaways to the wealthy that rarely get reported. The first is the tax on capital gains and dividends, you know, the way Mitt Romney and his ilk make most of their money. Yeah, that. Instead of being taxed as regular income at up to the highest tax rate (39.6%), the President agreed to an eentsy-teensy bump from 15% to 20%. The second hand out is the estate tax. Here, the President agreed to a tax rate of 40% on estates of more than $5 million. As recently as 2000, the rate was 55% and the floor was $675,000. Even under George W. Bush, the tax rate was higher (45%) and kicked in at a lower level ($3.5 million). At its new (and permanent!) level, not only will this tax only impact one-fifth of 1% of estates, but the estate floor is now indexed to inflation, so it will go up as inflation does. Pretty sweet, no?
While the ultra-rich were getting all kinds of goodies, the President, with the help of Congress, sold out the middle class. While income tax rates were locked in at Bush-era levels, a middle-class tax increase occurred because the so-called "payroll tax" holiday that lowered FICA withholding from 6.2% to 4.2% was allowed to expire. In other words, what the government gave, it took right back. Meanwhile, the wealthy got tax certainty at a "cost" that most will never feel. In fact, some claim that the slowdown in job growth in March had to do not with the sequester, but the impact of the expiration of the payroll tax cut. This is based on the fact that jobs in the retail sector were lost, suggesting that consumers have less spending power now that the payroll tax holiday is over.
This matters for several reasons. First, having agreed to permanently extend the Bush-era tax rates for 99% of income earners, the President has essentially locked in future tax revenue at a level that will make it difficult to make needed investments in infrastructure, research and development, education and all the other things that his once message-de-jour of "winning the future" requires. Second, he has made it more difficult for any politician in the future to vote for tax increases at a level below $450,000 because that is now deemed "middle class," which is ludicrous considering people at that income level are literally the "1 percent." In fact, under the President's definition of "middle class tax cuts," at $400,000 per year, the President himself is also "middle class." Absurd.
But having made such a hash over the fiscal cliff, the President is now compounding his screw up by conceding the argument over taxes and spending entirely to the GOP. He's already cut government deeper than any modern Republican President would have dreamed of doing (more than $2 trillion over 10 years) and is now prepared to do something no Democratic President has ever done - reduce Social Security benefits - and for what? Closing tax loopholes for rich people who will lobby to get those same loopholes reinstated before the ink is dry on the President's signature while senior citizens living at or near the poverty line will have to make do with less - forever.
There is simply no rational explanation for this. Social Security is not in danger of insolvency. In fact, it can pay out full benefits for the next 20 years. Instead of pointing out the hypocrisy (not to mention inconsistency) in Republican talking points that say we cannot address an immediate problem (unemployment) but must tackle a long-term problem (Social Security), there is a far more important point the President fails to mention. Instead of figuring out ways to slice a smaller pie, he refuses to propose a simple fix that would ensure the program's solvency forever - removing the FICA deduction on wages. Currently, any income earned over about $113,000 is not subject to the FICA tax; removing that cap, or raising the ceiling to say, $1 million, would be a far more progressive way of addressing this "problem." And even if Republicans balked at this proposal, why not put it out there and negotiate down from removing the cap to lifting it to $200,000, or $300,000?
Obama is as good at being inspirational as he is bad at the day-to-day work of governing unless you believe, as I have come to, that Obama is not particularly "liberal." In fact, his domestic agenda is closer to George H.W. Bush than Franklin Delano Roosevelt, and yet, time and again, liberals and progressives (and I count myself among them) have been roped in by the soaring rhetoric only to be deflated by the mundane reality that this is not a President who relishes a fight like Bill Clinton, who stared down Republicans in 1995, or is willing to cleave the opposition like Ronald Reagan. Having come to D.C. unschooled in its ways and shown little interest in mastering the dark arts once he arrived, Obama has essentially been winging it, relying on calm, cool reasoning to carry the day against a party that gets traction for easily debunked tropes like "death panels" and "takers versus makers."
And while this battle brews in Washington, the corporate elites are less and less interested in the outcome. My own view of Wall Street's aggressive move this year is that the wealthiest in our society now have the one thing they wanted - "tax certainty" - they could give a shit about whether sequestration, Obamacare or any of the other shiny objects that Washington focuses on happen or not. Companies were already healing faster than the overall economy and because much of corporate profit is now made overseas, what happens in our nation's capital affects them less and less. Having had wealth redistributed to them in ways unseen since before the Great Depression already, the squeeze felt by the fiscal cliff deal will barely be felt. It is no coincidence that companies that cater to the wealthy (think luxury cars and private jets) are doing quite well even as "uncertainty" allegedly roils our economy.
And so it goes. A party that has lost the popular vote in 5 of the last 6 Presidential elections and, at the national level is about as popular as herpes has driven fiscal policy in ways it never could (or suggested) while one of its own was President. They continue to block nominations that were once de rigueur and set new standards for obstruction every time the gavel is banged to bring either the House or Senate to order. Now, if they'll have the common sense to say "yes" to a 4:1 cut/tax increase proposal made by the President, Republicans will put the last nail in the progressive coffin. Of course, if they say "no," that's ok too - the President will undoubtedly make them an even better offer.