A blueprint for the cuts to come

December 7, 2010

The big news in the deficit commission's report regards Social Security and Medicare.

THE NATIONAL Commission on Fiscal Responsibility and Reform--formed earlier this year on Barack Obama's orders and jointly appointed by him and congressional leaders of both parties--concluded this month with a report that recommends unprecedented cuts in government spending, "reforms" in entitlement programs like Social Security and an overhaul of the U.S. tax code.

Eleven of the 18 members of the deficit reduction commission voted in favor of the alarmist report, titled "The Moment of Truth." But that was short of the 14 votes required for the recommendations to come before Congress for an up-or-down vote on the full package.

Since it ended up without the needed 14 votes, it might be tempting to conclude that the commission went out with a whimper, rather than a bang. Unfortunately, that would be the wrong way to read its unlamented end.

Instead of dismissing the failure to get to its 14 votes as evidence of another wasted effort by a useless government commission, official Washington--from political leaders to media commentators--is hailing the report as a blueprint for budget plans in the future.

THE ACCLAIM is bipartisan. Douglas Holtz-Eakin, the conservative who was John McCain's main economic adviser during the 2008 presidential campaign, called the 11-vote majority for the commission plan "shockingly good."

Supposed ideological adversaries like the Republicans' incoming House Budget Committee Chair Paul Ryan and the Obama administration officials in charge of the budget have pledged to use the commission's recommendations when putting together their proposals for the next federal fiscal year. As The Hill magazine reported:

Democrat deficit hawks think the administration should seize on the plan as a reasonable compromise and run with it, rather than wait for House Republicans to seize the initiative next year, even though the plan has cuts to entitlement spending that could inflame the liberal base.

For his part, the right-winger Ryan, though he voted against the final plan because he determined that it wasn't conservative enough, wrote that the report was nevertheless "a serious and credible deficit-reduction plan...I look forward to working with my colleagues in Congress to build on the success of this commission."

Alan Simpson and Erskine Bowles preside over a vote of commission members on their austerity proposals
Alan Simpson and Erskine Bowles preside over a vote of commission members on their austerity proposals

Ryan particularly highlighted the commission's willingness to touch the so-called "third rails" of U.S. politics, including exploring ways to cut Medicare and Social Security. More than anything else, this was the commission's accomplishment that had the Washington elite so elated.

When Obama created the commission in early 2010, he mandated it to consider various options "designed to balance the budget, excluding interest payments on the debt, by 2015," including "changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the federal government."

Translated into everyday language, this meant two things: One, that closing the deficit would depend on some combination of increased revenues and lower government spending on many activities; and two, that Obama himself was putting a big bull's eye on entitlement programs like Medicare and Social Security.

To make sure that the commission produced the kind of result that official Washington was looking for, Obama used his six appointments to put two well-known budget "hawks," Republican Alan Simpson and Democrat Erskine Bowles, in charge as commission co-chairs. Obama also tapped two business executives, as well as Alice Rivlin, the former director of the Office of Management and Budget in the Clinton administration. With the game already rigged, Obama then tossed a bone to organized labor with the appointment of former Service Employees International Union President Andy Stern.

Anyone who still thinks that Obama is a liberal--or really wants to be one if he could escape the "bad advice" from his advisers--should consider this. The president's appointees were overwhelmingly from business or the conservative "New Democrat" wing of his party that has long made "entitlement reform" a major goal.

Their predictable proposals to exact more pain from working people now has a "bipartisan" stamp of approval that Republicans will trumpet as they move to slash and burn federal spending. Even the so-called liberal Sen. Dick Durbin (D-Ill.), appointed by Democratic congressional leaders, voted for the plan.

This is yet another stab in the back for the Democratic party's liberal base, including millions of working people for whom many of these government programs provide an essential lifeline.

What's more, the commission report helps to legitimize the idea that the U.S.'s biggest crisis facing isn't about jobs or the explosion in poverty rates, but that the government is spending too much on programs like Medicare and Social Security.

SO HOW does the commission propose to actually achieve deficit reduction?

It puts forward a grab bag of policies, from cutting agricultural subsidies to raising the federal gasoline tax. It also includes proposals for "tax reform" that would cut the corporate income tax rate and lower the top marginal tax rate paid on the high incomes of the wealthiest Americans from the current 35 percent to 23 percent. The tax "reform" proposals would even exempt corporations from paying taxes on profits made outside the U.S.--an open invitation to outsourcing if there ever was one.

Under the commission's recommendations, non-military federal workers would have their pay frozen for three years (making Obama's two-year pay freeze declared last week seem like a "lesser evil"), and students with federal loans would lose the federal subsidy on interest charged while they're still in school.

Overall, the liberal Center for Budget and Policy Priorities estimates that the commission's proposals would amount to a cut of about 22 percent from "discretionary" programs, affecting everything from child nutrition to medical research.

Still, the big news regards the commission's plans for Social Security and Medicare.

Even though commission members had to acknowledge that Social Security has no impact whatsoever on the federal deficit, they nevertheless proposed a number of changes, from increasing the retirement age for retirees in 2050 and 2075 (!) to using a different (and less generous) formula to calculate cost-of-living increases for benefits. The commission's own figures show that Social Security benefits would decline for all but the poorest people in the country if the changes were enacted.

Bowles, Simpson and Co. also took the ax to Medicare and veterans' health benefits, pushing up out-of-pocket expenditures for seniors and veterans. Moreover, as a way to supposedly address the rising costs of government health care programs, the commission gives a nod to a number of policies dear to the hearts of health care privatizers--like creating a voucher system for federal workers' health care benefits.

The commission's recommendations are as significant for what they don't propose as much as for what they do propose.

For instance, they don't propose simply lifting the cap on income subject to Social Security taxes--a measure that would fill in most of the projected gap in funding for the Social Security system that is supposed to emerge after 2035. They don't call for repealing the expensive giveaways to the pharmaceutical industry codified in the 2010 health care reform law.

And given the commission's makeup, it's no surprise that the most cost-effective way of addressing rising health care costs--a government-provided "single-payer" health care system--was never even considered.

Some liberal commentators commended the commission for its willingness to consider cuts in the military budget, but most of the commission's Pentagon spending reductions were aimed at health care benefits in the Veterans Administration. Nothing about ending U.S. wars or cutting back on the thousands of U.S. military installations across the world.

The commission claims that its plan, if it were enacted, would reduce the federal deficit by a cumulative $4 trillion by 2020, with about three-quarters of that coming from spending and benefit cuts.

So around $3 trillion in cuts. Ironically, in the same week that the commission released its report, the Federal Reserve divulged that it had provided $3.3 trillion in aid to all of the major banks and to many major corporations within a matter of weeks at the height of the financial meltdown of late 2008 and early 2009.

This form of corporate welfare came with no strings attached. In fact, Sen. Bernie Sanders (I-Vt.), who pushed for the Fed's disclosure, speculates that much of this almost no-interest money was spent on huge purchases of...Treasury notes! In other words, the federal government essentially gave money to Wall Street so it could loan the money back to the federal government at a nice return--and thereby pad its balance sheets with taxpayer money.

Now the same forces that benefited from this federal largess are coming after the measly benefits that the federal government provides to ordinary people. They want to make sure--as Obama, Bowles and Simpson have promised--that the government will tighten its belt while it makes sure that interest on the federal debt continues to be paid...to them.

In everyday terms, that arrangement might be called larceny. In Washington, it's called deficit reduction.

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