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Deficit Commission Chairs’ Proposals Open the Doors to Even More Austerity for Working People

Commentary by Masao Suzuki |
November 15, 2010
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On Nov. 10, former Colorado Republican Senator Alan Simpson and Erskine Bowles, investment banker and Morgan Stanley board member, released a draft report on deficit reduction. Both are co-chairs of the bipartisan deficit reduction commission appointed by President Obama. Their recommendations have been widely slammed by labor union and other progressives for good reason: The recommendations open the doors to even more austerity for working people while proposing lower tax rates for the well-to-do.

Under the cover of deficit reduction, the co-chairs’ proposal is really pushing the Republican and Wall Street agenda of cutting Social Security and Medicare while lowering the tax rates for the wealthy and corporations. The proposal to further increase the retirement age would hit lower-income Americans the hardest, as they are falling further and further behind the life span of the well-to-do. Some of the biggest cuts would come from Medicare reimbursements for doctors, which would lead to less access to medical care, as doctors switch to higher reimbursements from private insurance.

The co-chairs want to cap tax revenues and propose dropping the top personal tax rate from 35% today (which would rise to almost 40% in January if the Bush tax cut is not extended) to between 23% and 28%. The corporate tax rate would drop from 35% today to 26% to 28% and multinational corporations would not have to pay any taxes on profits from abroad, which can be more than half of their total profits.

One way that the most recent recession differed from the Great Depression is that the rich have done relatively better this time around. During the 1930s, inequality of income went down as the well-to-do suffered relatively more than today. New Deal programs such as the Works Progress Administration jobs program, Social Security and unemployment insurance benefitted working people.

But between 2008 and 2009, the share of income going to the 20% of households who had the highest income (over $100,000) actually went up from 50% to 50.3%, with most of this gain going the top 5% of households (making more than $180,000) who saw their share of income go up from 21.5% to 21.7% of total income. The actual share of income going to the most well-to-do is probably even greater, as capital gains (income from sale of land, businesses, stocks, bonds, etc.) are not counted and non-wage and salary income, such as interest and dividends that mainly go to higher-income households, are more likely to be underreported.

This growing inequality is no surprise, since the government bailed out the big banks while millions of homeowners have been foreclosed. Corporate profits and the stock market are back to levels from before the financial crisis began in September 2008, while there are still 5.8 million fewer jobs, more than a year after the recession officially ended. College administrators are getting big raises while workers and classes get cut and student fees are at record levels. Military spending is up while spending on education is down. The list goes on and on, as the rich try to put the burden of the crisis on working people. This ‘deficit reduction’ proposal is just one more scheme to make the rich richer and the poor poorer.