This past Monday, September 19, President Obama revealed his proposals for how to pay for his $447 billion tax cut/jobs bill announced last week. In the same speech, he announced a goal of cutting the deficits and debt by $4.4 trillion. But what he didn't tell us is that the $4 trillion plus in deficit and debt reduction is almost exactly the amount of tax cuts that have been enacted over the past decade, 2001-2011, roughly three-fourths of which have gone to corporations, banks, investors and the wealthiest 10 percent households.
$4 Trillion Budget Cuts to Pay for $4 Trillion Tax Cuts
Here's how the $4 trillion tax cuts stack up:
- Bush tax cuts, 2001-2010 $2,900 billion
- Bush 2008 stimulus tax cuts $90 billion
- Obama 2009 stimulus tax cuts $313 billion
- AMT tax “fix” for high income households $70 billion
- Supplemental tax cuts June 2009-October 2010 $50 billion
- Obama December 2010 tax cuts $802 billion
- Obama September 2011 “jobs” bill tax cuts $270 billion
Total tax cuts $4,495 billion ($4.49 Trillion)
Approximately 75 percent of the $4.482 Trillion in tax cuts accrued to corporations, bankers, investors and the wealthiest 10 percent households. Today, the consensus of policy makers from Obama to the Deficit Commission to the “Supercommittee” is that the “appropriate mix” of budget cuts should be 75 percent spending reductions and 25 percent tax hikes. Most of the spending cuts will be social programs benefiting seniors; retirees (Medicare, Social Security); the working poor and children (Medicaid, CHIP); students (loans, assistance to schools); and just about every other social program aiding the least fortunate.
In his September 19 speech, Obama “threatened Monday to veto any bill that cuts Medicare benefits without increasing taxes on corporations or the wealthy,” according to the front page story in the September 20 Wall Street Journal. Among those experienced in bargaining, that statement means, “I am signaling I will cut Medicare if you, Republicans, agree to raise taxes,” but not until you do. In other words, folks, bigger Medicare cuts are not “off the table” by any means. In fact, as a “sweetener,” Obama has already agreed to start with $320 billion in Medicare and Medicaid cuts out of the gate, which he already announced. Once again, a “freebie” concession up front for nothing in return, which is the president's negotiating “style,” it appears. Republicans get an initial pass from agreeing to any tax increase, in exchange for Obama's first “down-payment” of $320 billion in Medicare cuts as a prelude to a later final deal in December.
The $4 Trillion Consensus
For some time now there's been a clear consensus among Democrats and Republicans alike, Obama and Boehner, Deficit Commission, “Gang of Six,” “Supercommittee of 12,” and all the rest. That consensus is to cut $4 trillion minimum from the budget.
The original Simpson-Bowles deficit commission report issued last December 2010 called for about $4 trillion in deficit reduction over the coming decade. Then, last spring, Republicans demanded that same amount. Even Tea Party Congressman Paul Ryan's budget last spring proposed $4 trillion in cuts. It's just that he wanted the lion's share taken out of the hides of seniors and Medicare. After that, in June, Vice President Joe Biden held his then secret backroom negotiations with Republican leaders on behalf of the Obama administration. When news of the negotiations leaked out, it was reported Biden had agreed to a $3 trillion deficit reduction, with 87 percent composed of spending cuts, including Social Security and Medicare, and 13 percent in tax loophole closings. The Democrat Party base choked when it found out what was going on. The negotiations blew up and Republican House Leader John Boehner walked out. In July, the magic number of $4 trillion was once again quickly reintroduced by the “gang of six” senators. President Obama then directly jumped into the public negotiations in July and proposed his “grand deal” of $4 trillion of deficit cuts, composed of 75 percent spending reduction and 25 percent tax loophole closing. And now, most recently, the magic number of $4 trillion in budget cuts is offered up again by Obama.
One trillion dollars is already in the bag, as they say. This past August's “debt ceiling deal” between Obama and Republicans amounted to roughly $1 trillion in immediate cuts and required a further minimum $1.2 trillion to $1.5 trillion guaranteed cuts by end of this year from the “Supercommittee” in Congress that will make its proposals public on November 19. So, that adds up to a guaranteed minimum $2.5 trillion. But wait! Obama's recent proposed $447 billion “jobs” bill will raise that $2.5 trillion to $2.95 trillion, since Obama has publicly said the Congressional Supercommittee should add that amount to $1.5 trillion additional cuts mandated by year end. That same Supercommittee is already talking about cutting more than the $1.5 trillion, however. So, to the $1 trillion cuts this past August will be increased, at minimum, by another $2 trillion and possibly more. This writer predicts the eventual final deficit cutting package by year end will add at least another $1 trillion. That adds up to the consensus $4 trillion number.
$4 Trillion Tax Cuts and 25 Million Jobless
The $4 trillion in 2008-2011 tax cuts were supposed to create jobs, but they didn't. Nor will Obama's $447 billion “jobs” bill – composed of 60 percent of tax cuts – create jobs. We had 25 million jobless when Obama came in office. After $420 billion in tax cuts in 2009 and another $802 billion in tax cuts in 2010, we still have 25 million jobless today. By what logic does anyone think another $270 billion in tax cuts will create jobs when more than $1.2 trillion did not? Whether another $270 billion in Obama's “jobs” bill or more (which is likely after Republicans take a whack at it), six months from now, there will still be 25 million jobless – as the US and global economies continue to drift inexorably toward a double-dip recession.
$4 Trillion Tax Cuts and $4 Trillion Corporate Cash Hoard
But wait, there's still more. That $4 trillion in deficit cuts for tax cuts is also just about the amount that big business, multinational corporations and banks have been hoarding in cash since they were bailed out during 2009-10.
According to various sources and estimates, large US corporations – not small businesses – are sitting on a cash hoard of $2 trillion and refusing to invest it and create jobs in the US. Multinational corporations are reportedly hoarding another $1.2 trillion to $1.4 trillion in their offshore subsidiaries, refusing to return it to the US and pay the normal 35 percent corporate income tax rate. And US big banks are sitting on an excess cash reserves hoard of at least another $1 trillion. That's all just about … guess what? Four trillion dollars.
$4 Trillion Tax Cuts and $9 Trillion US Debt
In 2001 the total federal debt as George W. Bush entered office was approximately $5.5 trillion. That total debt accelerated to $14.5 trillion today. So, the run-up in the total federal debt over the last decade was about $9 trillion. As already noted, about $4 trillion attributable to tax cuts. Another $1 trillion in lost revenue due to chronic joblessness. That leaves … $4 trillion of the $9 trillion debt run-up due to excess spending over the decade. So, where does this $4 trillion in excess spending derive from?
The amount of $2.1 trillion was from escalating defense spending and wars. Defense spending rose at an annual rate of 8.2 percent over the decade. If it had just risen at the normal consumer price rate over the decade of roughly 2 percent, instead of the 8.2 percent, it would have lowered the deficits over the past decade by $2.1 trillion. Add at least another $400 billion to $500 billion in the Medicare Part D prescription drug program introduced by Bush that was not funded, but paid for by borrowing; add another $200 billion in excess inflationary health care cost increases that have pushed government Medicare and Medicaid payments through the roof; add the $700 billion cost of the TARP bailouts of banks in 2008 plus $140 billion in bailout costs for the government housing agencies, Fannie Mae & Freddie Mac; and then add $589 billion in non-tax spending provisions in Obama's 2009-10 stimulus packages. The total in spending contributing to the $9 trillion debt now comes to roughly … $4.179 trillion. And that's before any interest charges on the debt from the $4.179 trillion.
Summing it all up, about $4.495 trillion of the $9 trillion debt added since 2000 has been due to tax cuts that didn't create jobs. And another $4.179 trillion of the $9 trillion is the product of inflationary defense spending, inflationary health care costs, unfunded prescription drug plan, bank bailouts and stimulus spending that didn't create a sustained economic recovery. (The remaining $500 billion to $1 trillion is a consequence of three years of 25 million unemployed and lost income tax revenue and interest on the $9 trillion debt.)
Some Simple Alternatives to $4 Trillion Budget Cuts
If the consensus budget cut target is $4 trillion, why not just reverse the $4 trillion tax cuts? Or address the four major causes of deficit spending: wars, health care cost inflation, bank bailouts and poorly targeted stimulus spending? Or why not tax the $4 trillion cash hoard big corporations, multinational companies and banks are sitting on and refusing to spend to create jobs after we bailed them out? Or, while we're at it, how about taxing the $4 trillion that US wealthy investors have squirreled away in offshore tax havens from the Cayman islands to Cyprus to Vanuatu to Seychelles … and, of course, Switzerland?
So, why are politicians, Republican and Democrat alike, Obama and Tea Partiers, liberals and libertarians, all so focused on cutting $4 trillion at the expense of seniors and retirees, students and middle-working class households when they had nothing whatsoever to do with the deficits and $9 trillion debt run-up? They didn't cause the economic crisis and weren't bailed out even to this day. They are the 25 million unemployed. They are the 11 million foreclosed homeowners. They are the 20 million with homes “under water.” They are the 44 million seniors who will soon have to pay twice as much for their Medicare and receive no cost of living increases in their Social Security checks. They are the tens of millions of children of the poor who will soon be denied Medicaid. They are the millions of students now facing decades of financial indenture due to accelerating college debt.
Who will speak for them, as the politicians this coming December 23, 2011, cut another $3 trillion from social programs, and as we are offered yet another tax-cut bloated jobs bill from the president that won't create jobs and only add to corporations' cash hoarding? Don't count on the politicians in Washington, whatever their party affiliation or ideological stripe. It's time to take to the streets and be heard.
Jack Rasmus is the author of the forthcoming book “Obama's Economy: Recovery for the Few,” Pluto Press and Palgrave-Macmillan, 2011, of which this article is an excerpt.