Thoughts on the Massive Tax Giveaway to the Wealthy

[Time for change]

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.

[Newest Reality]

1. Can't the deadbeat rich and their minnions on the ladders

defend their tax breaks? I know it is a vicious circle, but the worse things get for the masses, the more Daddy Warbucks and his clansmen are going to need to protect themselves and create closed communities, maybe even build encampments in other countries to move to.

What with the bodyguards and other protection required to shield themselves from the fallout of systemic collapse, it is no wonder that they will need generous tax breaks in order to fund their shift to enclosed utopias and places where they can continue to enjoy the wondrous marvels an technologies of a copious modern life.

After most of us die-off from being homeless, starving, freezing and fighting for scraps, they can then rebuild what is left in their own image, being so deserving and privileged and all.

Just think, that solves the crises for resources and the strain on the planet that their exploitation helped to create. Without millions or billions of useless eaters, the upper-classes can keep a enough of us around to provide what they need to exploit the newest technologies for HeavenOnEarth Inc., by membership only.

[Hydra]

9. They've basically announced that's what they are doing

The funny thing is that people still refuse to believe it.

5% of the population- the top 1-2% or so and their chosen servants.

I'm just curious as to what will happen after that. Will they be able to put up with each other, or will they then feud among themselves?

[Time for change]

73. If you have a link for that, I’d love to see it.

Thanks.

[Hydra]

90. I tried to find a clean link, but it may just be too old

"A total world population of 250-300 million people, a 95% decline from present levels, would be ideal."

Ted Turner, 1996 interview with Audubon magazine.

I ran across it back in 2002/2003 when I was doing research on the Bush Admin and eugenics. I don't recall it causing much of a stir at the time, but it fit what I found nicely for a "perfect world" eugenics scenario.

[Time for change]

92. Thank you

[bluesbassman]

2. There you go again...

citing facts. :) Nicely done.

It was clear in '08 and it's just as clear today who this benefits.

[ProSense]

3. All the handwringing

"They argue that the Republicans tied the tax giveaway to the rich to benefits desperately needed by the unemployed and the middle class. "

Congress had every opportunity to make a better deal. The fact is that with the President's support, the middle class tax cuts were voted on in the Senate and it failed. So did an alternative.

There was no other deals that would pass the Senate, none. Senator Sanders tried to amend the bill and 15 Democrats voted against it. The deal was designed to pass the Senate with Democratic and Republican support.

[Time for change]

6. That is true

I am certainly not blaming only Obama for this.

But as president he should have made every effort to make a strong case to the American people. It is not so much the middle class tax cuts, but more importantly the extension of unemployment benefits. There is no excuse whatsoever for voting those down. Doing so proves what a bunch of psychopaths our Republican Congresspersons are. What the Democrats (Congress, with much support from our president) should have done is to repeatedly bring this up for a vote and make a great big deal to the American people about the Republican refusal to vote for them. I don't think that Republicans in Congress would like to have their psychopathic tendencies widely publicized, even two years before an election.

[kentuck]

7. It's all about propaganda.

Sometimes you get a crappy deal to sell. Sometimes you get a winning hand to sell. All you need to do is sell it. The President and the Democrats had a winning hand. They had no patience and they had no faith in the people. I would bet that less than 25% of Americans knew the debate was even going on?

[Time for change]

18. I agree

This should have been very easy to sell, and I’ll be that you’re right about how few Americans knew about it.

[bvar22]

53. It WOULD have been an easy sell,

just like expanding Medicare WOULD have been an easy sell.


Nothing happens by accident.

[Enthusiast]

66. Nothing happens by accident and

nothing happens in isolation. There are no coincidences, not this time. The campaign promise of allowing Bush tax cuts for the wealthy to expire is no coincidence. This was a well thought out coordinated operation.

[gratuitous]

8. Make the case to the American people?

To do that, he'd need some kind of communicate-with-everybody machine or something! And he'd have to make his message understandable through some kind of language or words or something. You want the impossible!

But let's see he had some kind of seeing-from-far-away machine, a visiotel or something like that. But what would the message be? "It's time to start paying the bills" and "I'd like the people who gained the most to pay for it, but the Republicans refuse to put their wealthy pals on the hook. So, rather than continue to bust the budget, we'll let the lower tax rates expire come January 1, just like the Republicans intended when they first enacted the cuts." But how could that be made comprehensible?

[pscot]

16. Sad, but very true

The situation was hopeless. Capitulation was the prudent choice. He did it for us. He's so brave and wise.

[bread_and_roses]

62. ROFL, that's one of the funniest posts I've ever read on DU -

- and that's saying something. "Visiotel" - too hilarious. Kudos. Ridicule really is the only really appropriate response to the ludicrous "the Pres had no choice" defense.

[AlbertCat]

75. a visiotel or something like that.

Of course the people who own and run the "visiotel" would have to actually air what the president wanted to say, and not lie about or distort his message.

[AllyCat]

57. And yet, the case to the American people was NEVER made

No one was on the teevee clamoring for the benefits to the rich. All I heard day in and day out on "mainstream" media sources was how this was going to help "everyone". No one was out there saying "those horrid Replican'ts are trying to tie unemployment benefits to taxes. There was NO SELL on how unfair this all was. None.

So the fact that they "had no alternative" is just a bunch of hooey.

[rhett o rick]

74. So what's your point? We should appreciate the "cake" the wealthy are allowing us to eat?

Yes middle class tax cuts were voted down, but those voting against it knew that Obama would settle for less. I agree that Obama shares the blame with the Democratic Congress. They either dont give a shit about the middle class or are too weak to do anything.

[Matt Shapiro]

82. "no other deals that would pass the Senate, none." Flawed logic.

The only other "deal" that was offered was an amendment by Senator Sanders which, while perfectly correcting all the horrible aspects of the bill, was doomed to failure. All it did was to give 43 Democratic senators the opportunity to say to their liberal constituencies -- "See - I tried to do the right thing." While it was emotionally satisfying to see this wonderful amendment proposed, it was certainly not the only other possible deal.

The myriad calls in this thread for up or down votes on single parts of the "deal" after vigorous public campaign on each issue did not happen. One vote on the middle class tax cuts after a few public statements of support by the President just doesn't cut it.

Where was the public or private statement by the President that Social Security was "off the table?" That he would veto any bill that raided the Social Security Trust Fund? No where!

Where was the public explanation by the President of just how dangerous cutting the Social Security payroll tax is to the future of the program? No where.

The Republicans have been pushing for a payroll tax "holiday" for decades. They know that it opens the door to cutting and/or privatizing social security, since the general fund is now "forced" to make up the difference and increase the deficit. We can no longer say that social security has absolutely nothing to do with the deficit. So, what did we do? We just gave it to them.

The financial industry - Wall Street - has been looking to get its grubby hands on the social security trust fund for decades. So what did our President do? He opened the door!

Who explained that the 2% payroll tax cut that mainly benefits the wealthy is replacing the "making work pay" tax credit program that provides more economic stimulus and benefits lower income workers and families at half the cost? Well, Bernie did, but Barack did not!

Who explained that the net result of getting rid of the "making work pay" tax credit program with the 2% payroll tax holiday is a tax INCREASE for lower income working families? Not the President.

Can we really be certain that the Republicans would not have accepted the same (lousy for us) deal without raiding the social security trust fund by cutting payroll taxes and keeping the really stimulative "making work pay" tax credit program?

No, we cannot be certain of that. It wasn't tried.

So what did we get? As the OP explained in devastating detail, we got the Republican dream, the wealthy dream, Wall Street's dream!

This was certainly NOT the only possible deal that could have been struck.

Why was this deal the one that happened? Why did the wealthy millionaires & billionaires get their way YET AGAIN? The only logical answer is to look at the allegiances of the players who struck the deal. The Republicans, the President, and, yes, a few Democratic leaders in the Senate (& maybe the House).

LBJ, for all his flaws, would never have struck this deal. FDR would not have struck this deal. No true Democrat would have struck this deal.

[pacalo]

4. What was it that a famous, gum-smacking ingenue once said?

Honestly, I think we should just trust our president in every decision he makes and should just support that, you know, and be faithful in what happens. -- Britney Spears, one of the 2 percenters, in regard to the boy king.

[kentuck]

5. Does that mean we are all "supply-siders" now?

It does seem that way. We came to a crossroads and we took the wrong road.

[Lorien]

17. One has to be a Reaganite to be a "New Democrat"

and that includes being a trickle down supply-sider.

[harun]

23. Yep, they agree with and support Reagan's world view.

Pump up the Upper Class and oppress the Middle Class.

[Piggy56]

80. Halfway at least

Reagan would have screwed the unemployed and lowered the estate tax to zero for billionaires. Half full is unsatsfying with a dem congress and president.

[Statistical]

10. FALSE. "it should be noted that $120 billion of it, will come out of the Social Security"

False.

The $120B payroll reduction is paid for by the general fund. It will not reduce funding to SSA Trust Fund by a single cent.

[Time for change]

11. See this report from "Social Security Works"

It would undermine Social Security’s long-range solvency.
- A 2% payroll tax cut, if unfunded from general revenue, doubles the 75-year projected shortfall projected by the actuaries in the 2010 Trustees Report.
- Repaying the Social Security trust fund $120 billion each year will be increasingly more difficult in a political environment dominated by debates over federal deficits and debt; this could result in a huge revenue drain to Social Security.
Keeping the payroll tax cut in place but not paying Social Security back will lead to massive benefits cuts, even as the population rapidly ages.

http://strengthensocialsecurity.org/sites/default/files/SSWObamasPayrollTaxHolidayCouldUnravelSocialSecurityFINAL_NP.pdf

The bottom line is that it would seriously jeopardize the SS Trust Fund. It may be anticipated that the Trust Fund would be paid back out of general revenue funds. But what do you think is the probability of that actually happening?

[Statistical]

12. Did you miss this " if unfunded from general revenue"

The bill signed by Obama replaces $112B in payroll taxes with $112B from general fund. Thus there is no change to trust fund, projected shortfalls, or benefits.
In other words the 2% payroll tax reduction is NOT "unfunded from general revenue".

Now if in the future, 2012, 2014, 2018, 2099 there is another bill with a x% reduction in payroll taxes without an equivelent offset from the general fund then and only then would the scenario above apply.

[Time for change]

14. Here is what Representatives James McGovern and Barney Frank had to say about it:

Furthermore, a reduction in the payroll tax that funds Social Security will weaken the retirement insurance program and could lead to calls to cut it in the future, they said.

Frank said one of his main objections to the bill is it does not identify a source of revenue to replace the payroll tax money that will be lost to Social Security. "It will deplete Social Security and they will use it for an argument to undermine Social Security," he said.

http://www.thesunchronicle.com/articles/2010/12/17/news/8559909.txt

Do you think they're wrong?

[PassingFair]

27. Then why not just disburse the money from the general fund to begin with?

Why crack into SS, only to pay it back.

In what world does that even make sense?

It reads to me like an e-mail from Mr. Otombe from Nigeria
that I once received....

[Statistical]

28. To make it more marketable while helping everyone (but helping the rich more)

Lets say Obama & Republicans proposed a tax credit instead. The only qualification for this tax credit was income. If you have income you get the credit. Nobody is excluded from this credit no matter how much money they make. The credit is really simple. You get 2% of your income back free as a tax credit. The credit is capped at $2,136 per person.

Sound really crappy right? Well that is the payroll tax holiday.

Which sound better (more marketable for low information voters):
* Making high incomes pay tax credit
* Payroll Tax Holiday

[PassingFair]

32. They don't give a damn how it plays with "voters".

I don't recall being given a chance to
"vote" on whether or not Congress could
crack into SS contributions.

This is the camel's nose under the tent,
plain and simple.

[Statistical]

34. It is fine to have that opinion however ...

the original statement is still valid. someone claiming this will reduce SS funding by $112B is making a false claim.

[PassingFair]

36. As is someone who claims that SS is not being defunded.

Even if temporarily.

There is no guarantee that the funds
will be replaced and it is CRAZY that
the diversion has to begin with SS.

[Statistical]

38. It isn't being defunded. SS trust fund will receive $112B from general fund.

$112B from payroll taxes vs $112B from general fund.

I agree it is dangerous, and create risk, and it isn't how I would structure the tax reduction but the claim that is defunds SSA is completely false.

[PassingFair]

39. Why not just issue tax credits, like Bush did?

Why raid SS and then have to "pay it back"
through the general fund?

[Statistical]

40. That would help everyone equally.

Obama making work pay credit helped everyone equally.

Reducing payroll taxes by 2% helps out directly related to income.

Bush $250 check.
$15K income - $250 check
$100K income - $250 check

Obama Making work pay credit
$15K income - $400 credit
$100K income - $400 credit

2% payroll tax holiday
$15K income - $300 reduction in payroll taxes.
$100K income - $2000 reduction in payroll taxes.

Still even if you believe there is a nefarious reason for the method (beyond helping rich at expense of the poor) that is fine.

I am just saying the claim "this tax cut costs SSA $112B" is 100% false. It will cost the SSA trust $0.00.

[Kalun D]

101. Decades

""Still even if you believe there is a nefarious reason for the method (beyond helping rich at expense of the poor) that is fine.""

It's a scam that's been attempted for decades, all it took was a traitorous democratic president to pull it off.

""I am just saying the claim "this tax cut costs SSA $112B" is 100% false. ""

What is true is that they are replacing direct tax dollars with borrowed funds, when they are already running $billion/trillion deficits/debt. So a few years from now they can claim that SS is a liability and is not self-sustaining.

[Time for change]

13. Self delete - Duplicate

[Yo_Mama]

30. True but not factual

There isn't a separate bloc of money in the SS Trust fund.

What's going to happen is that the Trust fund will be given additional IOUs. The general fund will pay the shortfall in taxation this year, so retirees will continue to get benefits. Nor will the legal status of SS change. So your contention is true.

But in fact, the general fund already is going to be pressured to find revenue to pay the SS shortfalls (which are already occurring), so the odds that SS will be de facto cut in the future are increasing. The deficit will be hugely increased by this action.

Whether economists in the future will judge this measure to have been successful or not will hinge on its actual result over the longer term. If, for example, the US economy gains significant lasting growth from this measure then the overall ability to continue repaying the SS Trust fund from the general fund may be enhanced. If not - if it is mainly a short-term effect - then the overall ability to continue repaying the SS Trust fund will be impaired to the tune of about 100 billion.

Few people have realized that the Medicare Treasury receipts (charged on all wages and salary) for October and November returned to year-over-year drops. This means that total US wages and salaries in 2010 for October and November were less than in 2007, 2008, and 2009.

This, in turn, means that the SS fund projections which were just issued in the fall were wrong, and that the shortfall is worse than we thought, which means that the exhaustion date for the fund is probably now around 2033, and that even before then, the general fund will have to come up with more money each year to cover the repayment to the general fund.

So the real question is the change in growth, and that is why I feel (and many if not most economists concur) that this measure, as structured, will result in a long term impairment of the SS program.

Because this measure skews the tax cuts hugely toward the upper classes, and because many of these people are older, it is likely that many will save most or part of the money. Whereas the cuts in unemployment and the MWP tax credit that the lower income brackets will experience (compared to 2010 law) mean that people who spend the majority of their income will simply have less to spend. Therefore the odds that long term growth will be sparked are pretty poor.

[Statistical]

41. The general fund will be paying an increasing share of SS outlays in coming years.

That was the purpose of the trust fund. As obligations exceed revenue the SSA will redeem bonds and where do you think that money comes from? DING DING DING the general fund.

In essence the $2.4 trillion value of the trust fund is entirely a $2.4 trillion obligation on the general fund.

[Recursion]

56. But that 2.4 trillion can be borrowed to pay it off without affecting the debt

If we redeemed every single bond in the trust fund, and financed it entirely with borrowing, the debt would be the same (though it will be more expensive to borrow now from the general market than it was to borrow from the SSA, so there's that: same debt, more expensive to service).

[Yo_Mama]

100. No

From the point of view of the budget, the debt is offset because all the money given to the funds (extra) is given back to the general fund. That is, until the tax income is insufficient to pay benefits, and this is now true for both Medicare and SS. So now it is a drag on the general fund.

We do not really pay interest at all on that "debt". It is a bookkeeping entry.

In the comment just above I posted a link to the GAO audit of the public debt and quoted their explanation, so you do not have to take my word for it. Please see that quote.

It makes a huge difference. It means that we have to go out and borrow between 105 billion and 107 billion (the 120 billion number is flat wrong) that we would have had to otherwise.

Please also go to the link and see the graph on page 16. Adding to around 3 trillion to the debt held by the public will bring our 2013 starting debt to around 78% of GDP, assuming GDP grows a total 6% between now and then. We will have to not just roll over all that huge bulge in short term debt but borrow 3 trillion MORE. 80-90% debt/GDP ratios are the tipping point. Long rates are already above 4%.

The net result is that by 2013 we will have to borrow a huge amount of money. If we borrow it long, we will pay at least 2% more (November's average interest rate was about 2.36%). If we borrow short we can continue to pay an average rate of around 3%, but then by 2015 investors are going to become panicked and we will only be able to borrow short. And then in a couple of years, we won't be able to borrow at all....

We're going to hit the wall by 2018. And when we do, Social Security WILL be cut.

1% of a trillion is 10 billion. 5 percent of 1 trillion is 50 billion. 5% of 12 trillion is 600 billion, and that's just interest.

According to Treasury:
http://fms.treas.gov/annualreport/cs2010/outlay.pdf

Total outlays for Social Security (OASDI) were 706.7 billion in fiscal 2010. Interest paid on the debt was about 200 billion. Outlays for Social Security are due to rise very rapidly due to retirements. We cannot pay both SS and massive interest.

[Yo_Mama]

99. That's right.

But the problem is the shape the general fund is in.

And as another poster notes, we now pay no interest on the debt (we theoretically pay it - we just credit it to the theoretical SS fund), but we do not have to send someone the money.

This is why they are running around talking about cutting SS - no one can figure out how to actually borrow the money that we need to borrow.

The tax "deal" just made things approximately 900 billion worse.

Most of our current public debt of 9.3 trillion is in short-term instruments, and will have to be rolled over in just a few years. Adding 3 trillion more to the 9.3 trillion is going to make that very difficult and quite expensive. It's not a pretty picture.

GAO has put out its 2010 (fiscal year) audit of the public debt. It is available here:
http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2010.pdf

I wish everyone claiming that this has no effect on Social Security would take a look at the graph on page 16.

This is a taxpayer-funded report, so I am going to quote two paragraphs about the difference between intragovernmental debt and debt held by the public:

Intragovernmental debt holdings represent balances of Treasury securities
held by federal government accounts, primarily federal trust funds, that
typically have an obligation to invest their excess annual receipts (including
interest earnings) over disbursements in federal securities. Most federal
trust funds invest in special U.S. Treasury securities that are guaranteed for
principal and interest by the full faith and credit of the U.S. government.
The federal government uses the federal trust funds’ invested cash
surpluses to assist in funding other federal government operations. The
Treasury securities held by the federal government accounts are not shown
as balances on the federal government’s consolidated fi nancial statements
because, under current U.S. generally accepted accounting principles,
they represent loans from one part of the federal government to another.
When the federal government’s fi nancial statements are consolidated, those
offsetting balances are eliminated. These securities are nonmarketable;
however, they represent a priority call on future federal budgetary
resources.

While both are important, debt held by the public and intragovernmental
debt holdings are very different. Debt held by the public approximates the
federal government’s competition with other sectors in the credit markets.
Federal borrowing absorbs resources available for private investment and
may put upward pressure on interest rates. In addition, interest on debt held
by the public is paid in cash and represents a burden on current taxpayers.
It reflects the amount the federal government pays to its outside creditors.
In contrast, intragovernmental debt holdings typically do not require cash
payments from the current budget or represent a burden on the current
economy. In addition, from the perspective of the budget as a whole,
interest payments to federal government accounts by Treasury are entirely
offset by the income received by such accounts. This intragovernmental
debt and related interest represent a claim on future resources and hence
a burden on future taxpayers and the future economy. Specifi cally, when
trust funds redeem Treasury securities to obtain cash to fund expenditures,
Treasury usually borrows from the public to fi nance these redemptions.
Such borrowings result in competition for funds with the private sector and
thus an effect on the economy.2
2

[Better Believe It]

15. Thanks for your well written and researched article that sheds more light on this "tax cut deal".

[Desertrose]

19. Excellent excellent post. Thank you!

K&R

Just wish it wasn't so spot on. We are pretty much done for...something has to change...and it will. I hope the people can come out of it better off than we are now.

[defendandprotect]

20. This certainly is not a democracy .... it's a corporate crime wave ....

from beginning to end --

Where did we think this would end with elected officials being pre-bribed and

pre-owned by corporations?

Corporation are replacing sovereign governments all over the world --

[ibegurpard]

21. k&r

another disgusting clusterfuck

[disillusioned73]

22. K&R

for later consumption, thanks

[Starry Messenger]

24. k&r

[zeemike]

25. K&R just because it is a great summation of the situation

But they know they are destroying there market base in the US. But they don't care because they think they have the world market to take it's place.
They think they own the world....and they just might.

[Roy Rolling]

26. Voters like jackasses

American voters are like jackasses, we won't change course unless hit upside the head with a 2-by-4. That means, there will be no policy change until the stock and bond markets crash or something similarly disastrous happens tow wake everyone up. The whole success of blind-side politics like this is that you never see the wrongheadedness of it until it is too late. :banghead:

Meanwhile, the longer it takes to collapse, the more wealth the greedy can extract from the economy and cushion the fall that is caused by their greed to begin with.

[bvar22]

54. I agree.

It seems that "they" are grabbing all the loot "they" can carry before the whole thing comes crashing down.

What I resent the most it that since NAFTA, they keep telling me that "this will be good for you!!!".

There is really no such thing as Tax Cuts while running a deficit.
In reality, it is stealing money from our children so that The RICH can have MORE today.

[russspeakeasy]

29. Many thanks for your research and post.

[me b zola]

31. K&R

[xchrom]

33. recommend

[Kurovski]

35. Kick. (nt)

[lonestarnot]

37. I say no passive acceptance. Passive acceptance is for cowards.

[Martin Eden]

42. "On Presidential leadership"

That's the most disappointing thing about all of this. I understand the forces of vast wealth and power are arrayed against any effort to reverse or even slow down the growing disparity of wealth in this country ... but is it asking too much for a Democratic president to lead his party in representing our interests and at least put up a fight?

[TBF]

43. We.do.not.consent.

The people of Greece have been dealing with austerity issues this year. The KKE, the communist party of Greece, has been very strong in their protests.

"Aleka Papariga, head of the KKE delegation which participated in the central strike rally of PAME in Athens and in the massive march which followed, made the following statements to journalists “No consent. No ceasefire. Secret and official measures have been scheduled to be taken up until 2014.

Either the people will be bankrupted, or the political system, we will fight against it, we will box into a corner and eventually overthrow it. There is no other choice. 20 years ago the workers could gain some victories through their struggles, but today we need radical change and only the people can bring it about.”"

I agree with Ms. Papariga - we do not consent to being robbed blind by the wealthy of this country (whether aided and abetted by Mr. Obama or not). We.do.not.consent.

Edited to add appropriate link for quote: http://inter.kke.gr/News/2010news/2010-12-16-strike

[blindpig]

45. Nope, no way in hell.

None of it, and why should we, they have no legitimacy, they do not answer to us, the only source of legitimacy.

[maryf]

69. +300,000,000

:fistbump:

[rusty fender]

44. Excellent analysis! K & R

:thumbsup:

The truth::hurts:

[HillbillyBob]

46. String them up like they have done to us

nt

[sirthomas66]

47. Excellent post. Once the rich have destroyed all, they will move

on to more fertile grounds. We can only hope that one of those fertile grounds will have an FDR-leader who will destroy them. As far as the US goes, we are beyond the Rubicon and nothing can be done.

[4dsc]

48. Like Thomm said "the President capitulated".

We all lost in the end because its the deficit that matters the most. I could care less if my taxes would have gone up Jan. 1 because we would have been putting some little effort into reducing the deficit and not increasing in.

[TheKentuckian]

52. Adding to the deficit without purpose is stupid. The stimulative portions are a fraction and there

Is ZERO percent investment.

The deal is a turd minus the U/I and some of the little crumbs kicked down to the bottom 40% or so.

For me it isn't a yes or no but a why and for what. We aren't going to reduce the deficit with an ever shrinking tax base and a population restricted by resources from conducting commerce at or above subsistence. Wise investments that add to the deficit to increase our ability to be competitive, better balance the distribution of wealth, or increase efficiency/reduce overall systemic cost are a must.

Greasing palms and tossing crumbs is not investment and the plan helps fuel the poor distribution fiasco so it drags us down.

I'd agree that on the whole, nothing was an equal or better idea than what we are doing. While just hammering on unemployment benefits all the way up to a Constitutional issue on the matter to force a majority vote.
I'll take my chances on the people tolerating dying on such a hill.

[fascisthunter]

49. Makes me wonder if the wealthy expect a DIE-OFF

from lack of water, and other resources. Seems like they are preparing for the worst while leaving us all out in the cold.

[Poboy]

50. recommend

[texshelters]

51. There is definitely a lack of leadership on this

and Obama and the Congressional Democrats bought into the Republican messaging on taxes. People don't need tax cuts, they need a raise and a raise in the minimum wage and jobs. If salaries rose with inflation, the Clinton tax cuts would not be a big deal.

Who's going to pay for this? We are all being squeezed, and as more and more baby-boomers retire, the Republicans are going to feel the pain for their largess to the wealthy as they try to take away Social Security.

Peace,
Tex Shelters

[bvar22]

55. Oh, I get it...

You HATE the Unemployed. :shrug:

[supertruck97]

58. Here's the problem with your math

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%.

This shows a "tax reduction" (BTW, not really a reduction so much as it is NOT a tax hike) of 4.6% for the wealthy, and a tax reduction of %5 for the poorest. To me, that seems like the poorest are getting a bigger break.

But wait, let's take a look at the percentage of the original, to see the net effect (not the gross effect).

(Original - New)/Original = the incremental value increase/decrease

(15%-10%)/15% = 33%. That means the poorest in the country saw their taxes reduced by over 33% of their original tax burden.

(39.6%-35%)/39.6% = 11%. That means the richest only saw their taxes "go down" by 11% of their original burden.

Every way you cut it, the poor are helped more than the rich. When you start comparing percentages (which is waht taxes are based on) to real dollar, your argument falls apart.

For instance 1% of $100 is much less than 1% of $1 Million. Does that mean that if everyone's taxes were reduced by 1% that it hurts the poor? No. It's even. 1% across the board. Flat. Fair.


This whole debate reminds me of the barstool-tax example, which hols unbelievably true now:

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. What happens to the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man, ‘But he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important.

They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Both sides MUST stop playing this class warfare game when it comes to politics in our country, or else we'll all be screwed.

[Time for change]

59. Yeah, I understand

You believe that the rich getting an average break of $73,600 compared to $425 for the the poor is perfectly fair because those amounts represent the same percentage of their respective income.

What you seem to be forgetting or ignoring is that as a result of the massive cost to our government, a multitude of government services/programs will have to be cut that people of low income depend upon, such as Social Security, public schools, Medicaid, etc. Cuts in programs such as these will eat up the $425 benefit to the poor in no time at all, while barely making a dent in the average $73,600 break given to the wealthy.

[supertruck97]

60. How to you make it even?

Let's toss out the whole "equal percentage is equal reduction" argument.

How do you make it an even tax cut? An even dollar amount would be best, right?

$1000 tax cut for everyone?? Something like the $250 & $450 checks of the past?

How about that?

That's about the only way to make things "even" for all.

But then you take a look and say: the lower 40% percent don't pay taxes, and thus don't see the benefits at all....well, that's not fair either, right?

How do you make a tax cut even and fair for 300 million people, earning at such different levels??

It's easy to poke holes in the existing solutions, but the argument is moot unless you have a more viable alternative.

BTW, I completely agree with you on your premise that the government is spending WAY too much money. That's why a tax cut like this should ALWAYS be coupled with a massive spending cut by the government as well. But that means taking a hit in government programs across the board. Defense, Education, Subsidies, SS, welfare, etc. ALL of it should be reduced by 10-15% before we even start thinking about cutting into individual programs.

[Time for change]

61. I think my alternative was evident

The alternative was to simply let the Bush tax cuts expire at the end of this year, as well as to extend unemployment benefits to the unemployed. Very simple, and a hell of a lot less costly.

[supertruck97]

63. We have some agreement

I agree. Let the tax cuts expire. I have no problem with that.

The unemployment benefits, however, should be looked at independent of the tax decision. I'm an uncertain how people who have been on unemployment for 99 months deserve even MORE benefits and time to find a job.

I think sometimes these benefits act as a crutch for someone to NOT work. Hey, if I can make $290 per week for sitting on my backside, or $320 a week forking 40 hours @ $8 an hour, and only taking home a percentage of that, which would I rather do?

Obviously, I'll sit around and collect checks.

I think there needs to be a bigger disincentive for someone to stay on unemployment. (hint, the answer is NOt raising the minimum wage to a higher number).

[Time for change]

64. You don't understand the idea of the unemployment extension

It would not have extended the benefits for more than 99 weeks. The Republicans voted to terminate it for EVERYONE currently collecting unemployment. The Democrats wanted to extend it for everyone up to 99 weeks.

What I'm saying is that it should have been extended (up to the standard 99 weeks) without the massive tax cuts to go along with it. You talk like you think that the unemployed are unemployed because they don't want to work. Do you understand that there is a massive shortage of jobs in our country now? Would you like millions of workers and their families to starve or become homeless because there is no job available to them?

[jtown1123]

65. Good point. With 5 people available for each job opening (possibly higher) pple cannot find

employment. There are NO jobs. These tax cuts did not create jobs for the past 8 years so it is patently absurd that they magically will.

[Hoyt]

72. A twist on Atlas Shrugged. However, the wealthy ain't leaving if there is still a buck to be made.

Don't you think attribution to the Ron Paul Web site is in order.

With that said, I think Obama did the right thing under the circumstances. And I am a little bit concerned that we are demonizing the wealthy when it is really the Republicons always sticking up for them because the wealthy pad their campaign funds. Maybe the wealthy should share the pain a little more equally.

[COLGATE4]

77. Wasn't this posted on Free Republic? Perfect RW talking points.

[hay rick]

96. Right wing cut and paste job.

This argument undoubtedly cut and pasted from an email.

Discussion from the propaganda debunk group here: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=284x506

[Still a Democrat]

67. You need a fact checker

The $120 billion is not coming out of the Social Security trust fund.

The majority of the $186.8 billion goes to those earning under $250k

[Time for change]

68. You need to read more carefully

Regarding the $186.8 billion in income tax reductions, my statement applied to the amount going to the average rich person vs. the average poor person. The ration is about 173 to 1. Since there are a lot more poor people than rich people, the total amounts have a very different ratio.

Regarding the $120 billion, this is what Representatives Barney Frank and James McGovern had to say about it:

Furthermore, a reduction in the payroll tax that funds Social Security will weaken the retirement insurance program and could lead to calls to cut it in the future, they said.

Frank said one of his main objections to the bill is it does not identify a source of revenue to replace the payroll tax money that will be lost to Social Security. "It will deplete Social Security and they will use it for an argument to undermine Social Security," he said.

http://www.thesunchronicle.com/articles/2010/12/17/news/8559909.txt

Do you think they're wrong about that?

[Still a Democrat]

83. Nope, the way you stated it in the OP is clearly wrong

"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"

You included the $186.8B income tax reductions in " a bunch of other cuts that primarily go to the richest households". They don't. If I give away $100, and I give one person $2 and 98 people $1, did my money go primarily to the person getting $2? Clearly not.

"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."

Again, not true. The money will come from the general revenues, but $120B will not "come out of the Social Security Trust Fund".

I don't think it's intentional, but the way you presented it is sloppy to the point it's misleading.

[Time for change]

85. If you have $3 million, and

you give one person $1 million and 1 million other people $2 per person, then I would say that your money went primarily to that one person, who received far more than any of the other people. Anyhow, I provided the figures on which my assertion was based, and your dispute with my wording is trivial.

Regarding the issue of the $120 billion, I provided a link of a statement by two of our representives who voted on the bill, and I asked you if they were wrong. You ignored my question, and again made your same assertion, with no reference to back it up.

Talk about sloppy!

[Still a Democrat]

87. There was nothing in those quotes that supported your flawed presentation of the data

So I wasn't sure if a response to those was necessary.

[maryf]

70. "They require our passive acceptance":...they'll be getting our active resistance...

there is a point...K&R

[femrap]

71. K and R

Great post. Tax the Rich until their eyes bleed!!!!

[sasha031]

76. K&R

I'll bookmark this

[Piggy56]

78. Not a good deal

Why did congress wait so long? Mediocre deal with dem majorities and a dem president is unsatisfying. Dems should have fought harder. Repugs prove once again they only care about the rich.

[sam sarrha]

79. please... THIS IS..." WELFARE".... for the richest people on earth, nothing else..

[PhillySane]

81. Thanks

T for C for taking the time to lay this out so explicitly. I still can't understand why so many, after 30 years of this bullshit, don't quite get it. 65% of $1,000,000 is $650,000. Plain and easy. Thats a lot of bread. If you're making less than $50,000, there is no tax cut that can make it THAT much better for you. But if I make $1,000,000, and I get to keep 5% more of that, I just added your entire year's salary to my already fat-ass wad. And you know what that allows me to do? Cut 10% of that off and give it to a politician, who will get busy and make sure we all get to keep our juicy bankrolls. And our houses, and our cars, and our cushy lifestyles.

[supertruck97]

84. Jealousy is a stinky cologne

Anyone who uses the argument that "rich people have enough money, even if you take 90% of it away" reeks of bitterness. Do not begrudge the rich for being rich. Strive to get that way on your own merits, instead of by forcibly taking away that which others have earned.

[democracy1st]

86. dayum you're ignorant!

[racaulk]

88. That's not the only thing that's stinky around here. nt

[blindpig]

89. Earned? What nonsense.

The rich get that way by stealing the labor of workers.

One day we're gonna take it all back.

[ProfessorGAC]

91. Ok Ayn

I don't want 90% tax rates, either. I think they're macroeconomically counterproductive.

But, your post is full of sophomoric libertarianism that has been CLEARLY disproven by actual econometric data.

So, give back mommy's computer and come back when you actually know something about how a massive macroeconomy actually works.
GAC

[davidthegnome]

93. Wow...

Are you a recently defrosted caveman or something?

[Hannah Bell]

94. you sound like a jr high school genius. ie. that line sounded good in jr high.

[dana_b]

95. they have "earned"?! yeah - on the backs of others

The rich "earn" their money on the backs of the guy/gal making $50,000/year trying to support his/her family. They "earn" their money through tax breaks and a system that is set up for them to retain most of their money and for the middle and lower classes to pay more of theirs.

Take that right wing b.s. somewhere else.

[Laelth]

97. Well done & well said. n/t

-Laelth

[Blue_Tires]

98. i just hope all those assclown deficit hawks will remember this...

what am I talking about? the deficit hawks mostly vanished the day after the elections....

[Blue_Tires]

102. kick