Tuesday, August 2, 2011

The Screw Deal: Debt-Ceiling Pact Yet Another Hosing Of Americans

By Manifesto Joe

The American people have taken so many hosings over the past 30 years, it's gotten to where most folks don't know they are having it done to them, let alone who's on the spraying end of the hose. House Minority Leader Nancy Pelosi, who held her nose and voted for the deal to raise the federal government's debt ceiling, commented that not one cent of this "compromise" was coming from the wealthiest Americans. (That's a pretty strong hint about who's on the spraying end.)

Call it The Screw Deal, Part III. Since there aren't very many specifics, the effects of Part III won't be known for a couple of years. Rest assured that if a Republican -- any Republican -- wins the White House next November, and Republicans also win control of the Senate and retain control of the House of Representatives, this will be perhaps the biggest hosing of them all.

This deal leaves the door open for meat-ax cuts in Social Security, Medicare and Medicaid. Will somebody please tell me exactly what role the elderly, the poor and the sick played in getting the U.S. mired in two foreign wars that the rich paid not one cent in extra tax to finance?

For those among us who understand what's happening, this has been a lot like sitting at a train crossing in your car, waiting for a very, very long train to finally pass. The caboose just never seems to arrive, after scores of cars have slowly passed.

Reagan and the first Screw Deal

During the protracted "debate" about the debt-ceiling deal, there was a lot in the Mainstream Media about the alleged wit and wisdom of Ronald Reagan, and how neither party seemed to be remembering moves from the Gipper's playbook. Au contraire -- the Republicans have been following that playbook for 30 years, and with astonishing success at the polls.

Reagan presided over the first Screw Deal in phases during 1981-86. The first year, he got tax cuts passed that dramatically reduced the burden on his rich friends and the big corporations. Oh, well, he did toss a bone to everyone. Here's a quick summary of the Kemp-Roth tax cuts from Wikipedia:

Included in the act was an across-the-board decrease in the marginal income tax rates in the U.S. by 23% over three years, with the top rate falling from 70% to 50% and the bottom rate dropping from 14% to 11%. This act slashed estate taxes and trimmed taxes paid by business corporations by $150 billion over a five year period.

Then, the very next year, the supply-siders had to pull back from some of their initial commitments with what has been described as the biggest tax increase in U.S. history. Still, the deficits started, and they were at record levels for that time.

In 1983, Reagan signed off on an increase in Social Security payroll taxes. Now, it was nice in a sense that this action has kept the system going in the 28 years since. But please note that Social Security taxes are regressive -- they are cut off and maxed out after a certain level of income. It is a burden that is largely borne by middle-income people.

Then, in 1986, Reagan presided over tax "reform" that, while plugging a few loopholes, also cut the top tax rate all the way down to 28%. The Screw Deal, Part I, was complete.

The years of Bush the First and Bill Clinton slowed and mitigated some of The Screw Deal's effects, with tax increases passed under both. In particular, the Clinton economic plan that barely passed in 1993 raised the marginal tax rate back up to 39.6%, and those record deficits started shrinking until they had turned into record surpluses by the time Clinton left office.

(Of course, Republicans can't let Clinton have credit for anything, so they now say that the Internet "bubble" of the late 1990s worked heavily in Clinton's favor, and perhaps it did. But he delivered the first balanced budget the country had seen in 30 years, and that's a fact they can't reasonably deny.)

Il Doofus and the second Screw Deal

In 2001, the first year of his stolen presidency, Il Doofus got a tax cut passed that once more lowered the top rates for his rich friends. Oh, and again, he tossed everybody a bone, with those $300 rebates and such. Wow.

By the very next year, Il Doofus was responding to the 9/11 attacks like a true bozo, by moving toward an invasion of Iraq to depose of one of Al-Qaida's worst enemies, Saddam Hussein. No tax increase was proposed to help pay for this needless bloodbath. I think what Doofus & Co. thought was that an Iraq conquest was going to be easy. So far, it has cost nearly $800 billion.

What we kept hearing, starting with Reagan and then throughout the Il Doofus administration, was that keeping taxes lower on rich people and big corporations was supposed to stimulate employment through the resulting investment. Somehow, this proposition doesn't appear to work in practice. If it did, we should now be literally awash in swell new jobs for our 9%-plus unemployed. Hey, I'm still waiting for my "trickle-down" from the first time. (Always felt more like "tinkle-down" to me.)

So now, after eight long years of Il Doofus, Barack Obama inherits two unpaid-for foreign wars, a tax system in which two-thirds of U.S. corporations pay zero income tax, and record deficits. Republicans are blaming him, with MSM stooges like CNN's Don Lemon sitting there like burros while these fools say Obama has been spending money insanely for two-and-a-half years. (Lemon failed to point out to a Republican talking head that Obama inherited from Il Doofus the first budget he presided over. The job of journalists is to present the public with facts, not just to sit and allow specious rhetoric to go unchallenged.)

Exactly how much is Obama to blame for The Screw Deal, Part III?

It's easy to understand the frustration with Obama that's coming from the far left -- well, what there is of "the far left." It looks like millions of people turned out in 2008 to vote for a guy they thought would be Dennis Kucinich. Instead, he turned out to be a Bill Clinton-style Republicrat. (I hate to break it to y'all -- but that's exactly why Clinton became president, and why Kucinich didn't and never will.)

I'll argue once more that Obama has simply done what was politically necessary. He believes that it's often wiser to compromise today and thereby live politically to fight another day. He couldn't afford to just dig in and preside over a debt default, because then, House Speaker Orange Julius & Co. would blame him, and it likely would have stuck.

And, like him or not, Obama appears to be the only thing standing between Americans and those meat-ax cuts in Social Security, Medicare and Medicaid. I don't like the fact that he left the door open for such cuts -- but I don't think that, privately, he likes being the guy who signed off on that deal.

A lot will hinge on what happens next year. I'm not particularly happy with Obama, either, but when one considers the likelihood of a Congress with both houses controlled by Republicans in 2013 -- well, it looks like he's what we've got. And he can't do anything without votes.

Stay tuned.

Manifesto Joe Is An Underground Writer Living In Texas.


Cletis L. Stump said...

Joe, if I may, I will repost this. I respectfully disagree with some of your points but, as always, you present your views very well. Drop me an e-mail and let me know if that's okay. Food for thought is good for each of us.

John Myste said...

But he delivered the first balanced budget the country had seen in 30 years, and that's a fact they can't reasonably deny. They deny it routinely and with reason. The Dot Com boom and perhaps other factors did cause the surplus. Clinton deserves some credit, though. If a republican had been in office at the time, the republican would have forwarded all of the surplus to the wealthy, assuming congress would allow it, and there would have been no surplus at all.

You included lots of food for thought. I started dining, but soon filled up. I will digest the remaining morsels and if you don't hear back from me, it means I am impressed with your analysis (not to suggest this has value, but it's a something).

Burr Deming keeps sending me back here in an indirect way, and every time I read an new article, I am again impressed. Then I keep forgetting you exist, until Mr. Deming intrigues me with his teaser again.

Eventually I will learn that I like your site.

Manifesto Joe said...

I'm not even what anyone could reasonably term a radical on this subject. I paid more taxes this year than ExxonMobil did, and they even got back a big refund. I paid a small penalty because I couldn't pay the whole bill I faced all at once.

The American people have been snookered horribly over the past 30 years. At the beginning of the Eisenhower administration, the top marginal tax rate was 91%. I will repeat -- 91 percent. Even I think that's too much to ask of anyone short of a situation in which the Luftwaffe was bombing New York. I'd say that 49% is a top marginal rate that would bring in a great deal more revenue without being a huge disincentive to achievement. Then, if we would actually plug up some of the biggest loopholes, the ones that two-thirds of all U.S. corporations use to pay ZERO income tax, we might come pretty close to solving the deficit problem.

The structural problem is that the financial establishment has a potential stranglehold on not just the U.S. economy, but that of much of the world. Please watch the documentary "Inside Job." These are people who for 30-plus years have been socializing their losses and privatizing their profits. And the American people have become so indoctrinated, they've let them do it. Barack Obama, and before him Bill Clinton, have been put in untenable positions, up against monoliths that they could never hope to overcome without much broader public support. But that support isn't forthcoming, so they have had to swallow a lot of, as Rep. Emanuel Cleaver put it, "Satan sandwiches." It would appear that only when enough people become uncomfortable enough will things change. And they can't continue this way.

John Myste said...

No one paid anywhere close to 91%, bu that was the official rate. If people had actually had to pay that, they would not have done business in America. There would have been no point.

Currently, no one pays the 35% top marginal rate.

If they closed loopholes and removed most incentives, the tax revenues would probably quintuple immediately.

Raising rates to 49% would then not be necessary. I am for paying down the debt and balancing the budget and using an overhaul of the tax plan coupled with raising top marginal rates to whatever is needed to it.

I am not really for spending cuts, except in the area of defense, our war making budget.

I think other spending cuts are not needed. I am in favor of spending freezing except in exceptional situations.

Manifesto Joe said...

John, let me make sure we're on the same page here. The 91% top marginal rate was a bracket, not the aggregate amount being levied. The brackets were, and are, progressive. There are, and always have been, people paying taxes at the top bracket, if they don't have a shelter to avoid doing so. The brackets start very low, then progress until they reach the high point. The top rate was still 70% in the 1970s, and I recall the boxing champ Muhammad Ali telling Howard Cosell that he was routinely paying half of his purses to the U.S. government. Not 70% all the way, but with bracket creep, it effectively amounted to about 50% of his multimillion-dollar purses.

We are on the same page about this, no?

Also, regarding Bill Clinton's surplus: I respectfully but emphatically disagree. These are FACTS. Republicans are spinning this, and they are entitled to their own opinions -- not their own facts. I acknowledged in the post that the dot-com bubble was likely a factor, but it wasn't all of it. My sources -- factcheck.org and the nonpartisan Congressional Budget Office.

John Myste said...


I fully understand progressive taxation (and have written articles on it's possible flavors a number of times).

To be clear, no one ever pays or paid the top marginal rate on any portion of their income.

If we correct that, then that would give us the revenues we need, without raising taxes to an absurd high. No one ever has paid 91%, nor will they, even if we create laws that say they must. If we set the top marginal rate at 91% and if that amount only applied to income of over 2 million dollars, people in America would never claim more than 2 million dollars. They would make sure any other earnings were elsewhere.

Manifesto Joe said...

John, when you say that NO ONE ever paid 91%, that's a very sweeping statement. I understand that there are and were many shelters and credits and deductions that could be taken, but there were and are people such as athletes and entertainers who have had to pay the marginal rate because their incomes simply couldn't be hidden. Muhammad Ali I gave as just one example. Boxing purses are public knowledge before the champ or challenger are paid. It's always well-publicized when an athlete in another sport signs a $20 million contract. The gross receipts for an entertainer's concert tour are fodder for the papers all the time. What actors and actresses make per movie is common knowledge as well. The IRS would certainly know about all of the above. I understand quite well that a lot of people hire tax lawyers and accountants and find many ways of avoiding the high brackets, but not ALL can or do.

Personally, I would like to see the marginal rate go back up as high as 49%, plus closing of loopholes, for two reasons: (1) It's low enough, compared with past rates, to avoid the phenomenon of punishing success and inducing people to "cheat" and evade, and (2)We are currently seeing what happens when great wealth becomes concentrated in the hands of too few people. The political system, and markets as well, are distorted. Financial power translates very directly into political power, and superrich people and entities seldom resist the temptation to tamper with the market in ways that favor them. They employ lobbyists to influence public policy in that fashion. A more progressive, but not punishing, tax system would not only balance the budget but do much more to re-establish a more level political and economic playing field.

But the forces that would have to be overcome are very powerful, and even if they lose a battle today, they keep coming.