The Gang of Six's Raw Deal


Posted on 20 July 2011

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By Robert Borosage
Campaign for America's Future

The backroom Senate gang of five or six (its membership changing over time) released a plan Tuesday that swept through Washington. It got the support and the opposition of all the right people (the President carefully called it “broadly consistent with the approach that I've urged;” Harry Reid called it “wonderful;” House Majority leader Eric Cantor scorned it as a tax hike).

But this isn’t a New Deal or a Fair Deal; it’s a Raw Deal – one that every citizen concerned about rebuilding the middle class should oppose. It would add to unemployment in the short term, increase Gilded Age inequality, leave seniors more vulnerable, and shackle any possibility of rebuilding America. It puts the burden of deficit reduction on the elderly, the poor and the vulnerable, endangers jobs and growth, and lards even more tax breaks on the rich.

The details of the plan aren’t worked out. It isn’t, as Senator Dick Durbin noted, ready for prime time, and won’t be passed as part of the debt ceiling showdown, now careening to its climax. The danger is that it will provide a template for the congressional commission likely to come out of the debt ceiling negotiations with a mandate to reduce the deficit. So it is worth comparing the outlines of the Gang of Six plan with sensible principles for deficit reduction.

1. Sensible deficit reduction would combine long-term deficit reduction with short term jobs programs to put people back to work and get the economy going. The Raw Deal calls for immediate cuts in spending, which will add to layoffs of government workers and contractors and worsen an already sputtering economy.

2. With revenues at levels not seen since 1950 and inequality at Gilded Age extremes, sensible deficit reduction begins with asking the rich to pay their fair share of taxes. But if you thought sustaining the Bush tax breaks for the rich was irresponsible, the Raw Deal would add to them, lowering top rates on individuals and corporations. It also abolishes the Alternative Minimum Tax which, for all of its faults, at least insures that the affluent pay some minimum rate of taxes. This won’t make America more “competitive,” as the Gang of Six (GOS) proclaim, it will render it more unequal.

The Raw Deal claims to raise revenues by closing loopholes. But they don’t target the biggest loophole – which taxes income on wealth (stock and bond returns) at a lower rate than income on work (salaries and wages). That insures that the richest Americans pay a lower rate of taxes than their chauffeurs. It doesn’t focus on jet planes or the hedge fund billionaires carried interest tax dodge. Instead the fine print points to cutting retirement deductions, the mortgage deduction and the tax benefits for employer-based health care. This is likely to hurt middle-class homeowners, and workers whose employers provide decent health care.

3. Sensible deficit reduction would leave Social Security out of the discussion. Social Security is in surplus, and hasn’t contributed to the deficit. The Raw Deal imposes growing cuts on Social Security by a formula which insures benefits will rise more slowly than inflation. It claims it does this to make Social Security sound. But it spurns the first step in reforming Social Security – and the one supported by the broad majority of Americans: lifting the cap on Social Security taxes, a cap that now has Bill Gates paying a lower percentage of his income in payroll taxes than kids working at McDonalds.

4. Sensible deficit reduction would focus on getting our broken health care system under control – the sole source of the horrifying long-term debt projections. This would, as the president’s health care reform has started to do, take on the entrenched interests that drive up costs – the insurance companies, the drug companies, the private hospital complexes. Instead the Raw Deal puts a lid on Medicare spending and imposes unspecified cuts on Veteran’s health care spending. How to do the cuts is left to the tender mercies of congressional committees, while the cuts are protected against lobby-induced gridlock by a budget mechanism that would force across-the-board cuts.

5. Sensible deficit reduction would focus discretionary cuts on the Pentagon and security agencies, the budgets of which have soared over the last decade, not on spending for domestic programs which haven’t risen in per capita terms. The Raw Deal put a lid on discretionary spending through 2015, reducing it with the inflation cut, with no clarity about how much will come from the Pentagon and how much from domestic spending. This leads to what Dr. Martin Luther King Jr. used to call “ham and egg” justice – where the hen gives up an egg and the sow gives up a leg. The Pentagon gives up a baroque Cold War weapons system that doesn’t work and poor kids face cuts in food and nutrition.

6. Sensible budget policy would use added revenue generated by a growing economy to make investments vital to our future – in education, in modernizing our decrepit infrastructure, in research and innovation – while continuing to reduce the burden of our debt. Instead the Raw Deal requires that any additional tax revenue either be used to cut taxes or to pay off debt. It would effectively ban making any additional investments in our future.

The Raw Deal is a true marker – it marks how removed the Washington debate is from common sense and from the values of most Americans. That it has garnered bipartisan support indicates just how divorced Washington is from the struggles that Americans face. Rather than rebuilding America’s beleaguered middle class, it will add to its burdens and shred what little security it has. It will impede rather than aid economic recovery. It will exacerbate rather than reverse extreme inequality. It will undermine rather than defend the American dream.

The Campaign for America’s Future has joined in the effort to launch the American Dream Movement, a movement designed to rebuild a broad middle class, to recreate an America of opportunity, with liberty and justice for all. If enacted, the Raw Deal would be a direct assault on the middle class and the American dream. It is time for citizens to mobilize – and to tell Republicans and Democrats alike that we will not accept a Raw Deal, no matter how it is packaged.

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Robert L. Borosage is the founder and president of the Institute for America’s Future and co-director of its sister organization, the Campaign for America’s Future. This article originally appeared on Campaign for America's Future blog.