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Obama Deficit Commission Criticized for Proposals to Slash Social Security, Medicare

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The co-chairmen of the bipartisan presidential deficit commission released a list of recommendations Wednesday on ways to reduce the nation’s deficit by $4 trillion by 2020. Co-chairmen Erskine Bowles and Alan Simpson have proposed raising the retirement age for Social Security to 69 by the year 2075, decreasing the cost of living benefits for Social Security recipients, imposing new limits on the Medicare health insurance program, and ending several middle-class tax breaks. We speak with economist Robert Kuttner. [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.

JUAN GONZALEZ: On Wednesday, the co-chairmen of the bipartisan presidential deficit commission released a list of recommendations on ways to reduce the nation’s deficit by $4 trillion by 2020. Co-chairmen Erskine Bowles and Alan Simpson have proposed raising the retirement age for Social Security to 69 by the year 2075, [decreasing] the cost of living benefits for Social Security recipients, imposing new limits on Medicare health insurance programs, and ending several middle-class tax breaks.

Many of the proposals read like a wish list for the Republican Party, including the elimination of funding for the Corporation for Public Broadcasting, the capping of jury awards in malpractice cases, and a major reduction in corporate income taxes.

But the commission is also making significant cuts to the Pentagon budget. The draft proposals call for the closing of one-third of the nation’s overseas military bases, a temporary freeze on Defense Department salaries, and a reduction on the Pentagon’s reliance on private contractors.

AFL-CIO President Richard Trumka slammed the commission’s proposals. He said, quote, “The chairmen of the Deficit Commission just told working Americans to 'drop dead.' Especially in these tough economic times,” Trumka said, it is, quote, “unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare.”

The commission’s co-chair, Erskine Bowles, said Wednesday that the nation is facing an economic crisis if the budget deficit is not addressed.

ERSKINE BOWLES: We are on the most predictable path towards an economic crisis that I can imagine. The path we’re on today is not sustainable. And I don’t know a soul on this commission or anywhere else in the Congress that believes it is. The arithmetic is compelling. This debt is like a cancer that will truly destroy this country from within if we don’t fix it, and we can’t grow ourself out of this problem. We could have double-digit growth for decades and not solve this problem. We can’t tax our way out of this problem, and we can’t cut our way out of this problem. It’s going to take some combination thereof.

JUAN GONZALEZ: To talk more about the deficit commission’s proposals, we’re joined by the journalist and economist Robert Kuttner. He’s the co-founder and co-editor of The American Prospect magazine. His latest book is called A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle to Control our Economic Future.

Welcome to Democracy Now!, Robert Kuttner.

ROBERT KUTTNER: Thanks so much for having me. Thanks so much for having me.

JUAN GONZALEZ: Your reaction to the preliminary proposals, because obviously the commission has not yet even voted on these proposals. This is sort of the outline of what they’re considering. Your reaction?

ROBERT KUTTNER: Well, the only thing worse than the economics is the politics. The economics are totally perverse. Bowles talks about being on a path to an economic crisis. Of course, we’re in an economic crisis. We’re in a prolonged recession that bears more resemblance really to a depression. And you cannot get out of a depression by austerity. The idea that you should have an arbitrary set of cuts in the deficit at a time when you need more public spending is totally perverse. It’s the economics of Herbert Hoover. It’s the politics of the Republican right. And it’s one more indication of the capture of the Obama administration by Wall Street.

I mean, Erskine Bowles gets over $300,000 a year for attending a few meetings of Morgan Stanley, the investment bank, on whose board he sits, so he gets more money in board fees than 99 percent of Americans earn. And you’ve got three privately funded commissions by the Peterson Foundation, Pete Peterson, proposing the same stuff. It’s intended to create a drumbeat to carry out a wish list that has long been the goal of fiscal conservatives, that has nothing to do with this crisis. Social Security is in surplus for the next 27 years. So, the idea that you can somehow get the budget closer to balance by cutting Social Security is perverse. It’s politically insane.

And if the President had the kind of spine that we hoped he had when we elected him, he would be saying, “No way are we going to balance the budget on the backs of working people.” Instead, I think the risk is that the President is going to embrace some version of this. And the hope is that the four progressives on the commission, three of whom have already said “no way,” plus Max Baucus, the chair of the Senate Finance Committee who’s on the commission, will view this as a threat to his prerogatives as a Senate committee chairman. The best thing about this commission is that maybe it will deadlock.

JUAN GONZALEZ: And when you say the four progressives, who are the other progressives that you are expecting to stand up on these issues?

ROBERT KUTTNER: Well, Jan Schakowsky, who’s a member of the Democratic House leadership, she’s a very progressive member of Congress from Chicago; Xavier Becerra, also a progressive; and Dick Durbin, the senator from Illinois. They have said “no way.” Andy Stern, the former head of the Service Employees International Union, is on the commission. Andy is a bit of a free spirit. Andy loves to see if there can be some kind of a deal. But I think this particular deal will even stick in Stern’s craw. So, I think the hope is that the Republicans, some of them, will say, “Well, nothing that reduces defense spending or reduces tax loopholes are we going to support,” and the liberals on the commission will hang tough and say, “No way are we going to cut Social Security and Medicare.”

I think the problem is that the editorialists of this country — if you read this morning’s New York Times editorial — are saying, “Well, gee, anything that the left and the right don’t like must be pretty good.” And that’s exactly wrong. I mean, this is a case where the so-called center just completely has it wrong. You cannot get out of a depression by having deeper cuts in spending. And I think if you look at the criticism of the Federal Reserve policy of buying treasuries because it doesn’t know what else to do, in the hope that that will lower interest rates and somehow stimulate recovery, the Fed is doing that as a last resort because Congress is opposed to increasing social investment. The only way you can really get out of a prolonged slump like this is to increase social investment in job creation, in the infrastructure, in the clean energy that the country needs. And yet that path seems to be blocked. And instead of fighting for some degree of public investment, Obama, who, after all, appointed this commission, is at risk of embracing at least some of its proposals.

So I think the only thing that’s going to block this — and we heard some of this from Rich Trumka — the progressive movement needs to put forward its own version of a budget that would cut defense spending, cut tax loopholes, insist on suspending the Bush tax cuts for the wealthy, and dramatically increase social investment, and explain to the American people why that’s a better route out of the real crisis that we’re in. There’s one resource I want to commend to all of your viewers and listeners. It’s a new website, ourfiscalfuture.org, which proposes a counter-strategy for getting the economy out of this mess. That’s a coalition of progressive think tanks — Demos, where I’m a fellow, Economic Policy Institute, Century Foundation. And we have a huge fight on our hands, because the other side is investing tens of millions, if not hundreds of millions, of dollars in a propaganda effort on behalf of austerity. It’s backed by Wall Street. And all we can do is try and argue that this whole set of proposals is bad economics and bad politics for the Obama administration and the Democrats.

JUAN GONZALEZ: Well, Robert Kuttner, one of the arguments of those who would support many of these cuts are saying that this will allow the government to further cut the nominal tax rates for — not only for high income, but for middle-class Americans, as well. But isn’t the reality — I mean, there was a time in this country when the highest tax brackets, in the 1950s, were being taxed at a 90 percent rate. Now they’re down into the mid-thirties, and they think that that is too high a rate, and they want it lowered further. What about this tax policy that now, for years, has continued to reduce the tax rates for the highest-earning Americans in the country?

ROBERT KUTTNER: Sure. Well, the Alice in Wonderland character of this whole exercise is demonstrated by the fact that, on the one hand, they’re talking about some kind of a tax deal where you cut loopholes and you raise rates — or lower rates. And by the way, one of the so-called loopholes that they want to close is the child tax credit. Hundreds of millions of dollars of relief for working poor people, where you get a refundable tax credit to help you raise your kids, that’s one of the supposed loopholes that the commission wants to get rid of. That’s crazy. Also, the idea that you cut loopholes and then cut rates, that produces no net increase in revenue. It simply reshuffles the deck.

And the other thing that’s deceptive is that at the same moment that the Republicans on the panel are proposing this deal, they’re also demanding that the Bush tax cuts from 2001, which expire at the end of this year, be extended not just for the 98 percent of Americans who make less than $250,000 a year, as President Obama proposes, but for very, very rich people. Now, continuing those tax cuts for very rich people would add almost a trillion dollars to the deficit over the next ten years, and yet the commission is treating that as absolutely untouchable, because there’s no way the Republicans would buy into that. So, you’re absolutely right. I mean, if we want to do something about the deficit in the long run — and we should not be doing anything about it in the short run. In the short run, with the economy in the condition that it’s in, we need more deficit spending, not less. But if we want to deal with the deficit in the long run, restore higher tax rates on the people who got us into this mess, who are still making an absolute killing and, unlike working people, who can afford to pay higher taxes.

JUAN GONZALEZ: Also, I’d like to ask you — you were mentioning the people who got us into this mess. Clearly, the enormous amounts of speculation that has been occurring — and the financial speculation has been growing exponentially, not only in the United States, but across the world, on markets. There’s never any kind of a discussion of being able to tax stock transactions on all of these various markets, which obviously, if these companies want to continue to engage or investors want to continue to engage in speculative activity, why not have the government tax it as a means of being able to close our deficit? But that’s never somehow discussed.

ROBERT KUTTNER: Well, no, and it’s not even in the proposal. And again, here’s Erskine Bowles. He’s on the board of directors on one of the top five banks that would actually be taxed if you taxed financial speculation. And he’s the chair of this, appointed by President Obama. And that proposal is nowhere to the seen. I would call that a conflict of interest. I mean, if Obama had put, you know, Rich Trumka as one of the two co-chairs, the right would be screaming bloody murder, and so would Wall Street. And yet, Wall Street got one of its people, not as the Republican co-chair, but as the Democrat co-chair.

JUAN GONZALEZ: Well, I want to thank you very much for being with us, Robert Kuttner, journalist and economist. He’s also the co-editor of The American Prospect magazine and the author of A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle to Control our Economic Future. And we’ll continue to be covering this issue of what happens with the deficit commission proposals.

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