COMMENTARY: Today, Tuesday July 12, with great fanfare the Obama administration and its spin doctors are trumpeting the cave in of House and Senate Republican leaders on the on-going debt ceiling debates. The latter have been holding up raising the debt ceiling, to extract trillion dollar cuts from Obama without any tax increases. In recent weeks in an attempt to move them off this position the Obama administration–first VP Biden and then Obama himself–have been making deep concessions, including offering trillion dollar cuts in social security and medicare spending, to get a debt ceiling deal. However, not wanting to risk a default that would cost them billions in bond losses, big capitalists have now straightened out their political minions in Congress and moved them off holding the debt ceiling hostage. Perhaps the rapidly deepening debt crisis in Europe now accelerating has moved the Republican corporate moneybags off their duffs to get the debt ceiling issue out of the way ‘just in case things get worse fast’ in the Eurozone, leading to a bank crisis that spills over unpredictably to the US? Whatever, the following is my analysis of what’s going on behind the scenes with the latest on the debt ceiling matter in the US, and my predictions where it’s all headed from today to October 1–the real drop dead date.
READING THE DEBT CEILING DEBATE TEALEAVES TO PREDICT THE FUTURE’ by Jack Rasmus, July 12, 2011
A few weeks ago in late June it leaked out that Vice-President Biden had secretly agreed with Republicans to $1 trillion in spending cuts in an effort to get them to agree to raise the debt ceiling. That was soon upgraded in rumors to Biden agreeing to $2 trillion. And there was no agreement by Biden from Republicans in exchange for equal tax hikes on the rich and corporations. It raised political eyebrows. It disconcerted the Democrat political base. Most did not believe it. It must not be correct. President Obama will straighten this out by taking over negotiations.
President Obama did step in and take over negotiations with the Republicans directly. Many assumed when he did so that he did not agree with Biden’s massive concessions. There would be no agreement on cuts in social security and medicare, the Party faithful argued.
However, this assumption proved incorrect. Obama met Boehner on the golf course, and then over a weekend. It leaked a second time that Obama had himself in fact agreed with Boehner, not to $1 or $2 trillion but to a $4 trillion dollar grand deal. $3 trillion of that total was spending cuts, with at minimum $400 billion in cuts in social security and medicare frontloaded in the first few years. Apparently, House Republican leader Boehner agreed in exchange for the $3 trillion cuts to $1 trillion in tax hikes in the form of closing the most egregious tax loopholes for corporations, investors, and corporate CEOs.
The grand deal blew up in both Boehner’s and Obama’s faces. Both bases rose up. First the Republican and then progressively the Democrat, when the latter began to discover their $3 trillion was predominantly social security and medicare cuts. It set off a firestorm within the Democratic party base and even lit some campfires within the moderates in the party in the House. Representing the Democratic mainstream within the House, Nancy Pelosi came out publicly rejecting any cuts in social security and medicare, adding she and her colleagues were not even in the loop as to the Obama-Boehner negotiations.
The Obama team then began back-tracking off its position, hurrying to find formulations that denied its $3 trillion, social security-medicare cuts position in the negotiations.
Enter now the past weekend the real power behind the Republican Party–the moneybag campaign contributors–i.e. the powerful big bankers, Chamber of Commerce, Business Roundtable, big corporations and institutional investors. They had most to lose should the debt ceiling not be raised. Were talking real money here if bond prices collapsed and the stock market, already in decline, accelerated. Or if the banks in Europe collapse due to deepening debt problems in Greece, Spain, and now Italy. Pressure on Republican Senate, and to some extent House Republican leadership, intensified this past weekend. House leader Boehner and Senate leader McConnell blinked. In so many words, they today agreed to allow the debt ceiling to be raised and will no longer hold the raising as a tactic to extract no tax hike concessions from Obama.
Today Democratic Party spin-doctors also went into action. The explanation over the cable shows and talk radio on Tuesday, July 12–now that the Republicans de facto had backed off their no debt ceiling increase position–was: See, this was all a clever tactic by the President, a real bargaining ploy, a maneuver all the time. President Obama never really meant or proposed to cut spending, social security and medicare in particular, by $3 trillion. The president knew all along the Republicans would not agree to any tax hike as part of the deal. That’s why he offered to cut $3 trillion in spending cuts. Now the Republicans gave up. The President won. Hooray!
As ex-Democratic Senate operative, Larry O’Donnell, now TV political talk show host, declared on his show Tuesday night: “Nothing was ever agreed to by Obama”. O’Donnell’s explanation was intended to absolve the President offering draconian cuts in social security and medicare in exchange for a debt agreement. As O’Donnell repeated the spin-message: “Nothing’s agreed to unless everything is agreed”. And since everything was not agreed to by the Republicans, ipso facto O’Donnell’s contorted logic meant Obama never agreed to sacrifice social security and medicare to get a deal.
But the gutting of social security and medicare is not over. The negotiations have just begun anew. All that’s changed is that big money bag corporate campaign contributors arm-twisted their Republican politicians to drop the debt ceiling as hostage factor in the debt debate and negotiations.
The day after the ceiling is raised, and it soon will be, the real negotiations will begin. Those real negotiations will pick up where Obama-Biden left off. On the table once again will be the President’s proposals to cut $3 trillion in entitlements. That will be the start point for negotiations, not the end point.
Once that $3 trillion in cuts and the evisceration of social security and medicare is back on the table, that will conclusively disprove O’Donnell’s and Obama administrations spin message that Obama’s proposals to cut social security and medicare was only tactical, a maneuver, and that he really never meant to propose to cut social security and medicare. But, yes, he did mean it. Yes, he did propose it. And yes he will propose it again. And once its back on the table, that means it was never a mere maneuver, that it was fully intended.
The next act in the cut the deficit follies will begin the day after the debt ceiling is passed. The new deadline will be the deadline for passing the federal budget for 2012, which begins October 1.
This writer predicts the coming cuts in social security and medicare will take the form of raising the retirement age to 70 and sharply reducing social security disability benefit payments as well. For medicare, it will mean retirees will have to absorb all future medicare cost increases for Part B (doctors costs) and pay substantially more deductibles for Part D (prescription drugs). The current monthly fee for Part B will initially double, from the current $95-$115 to more than $200-$250 a month per person. That way Obama can say he never cut medicare benefits and yet get massive reductions in medicare and social security spending ranging from $200 to 400 billion a year for the next decade.
In exchange for these cuts in medicare-social security, this writer predicts the Republicans will eventually agree in the 2012 budget to some token tax loophole closing for the rich and corporations. But the loophole closing will be more than offset in an agreement post-budget to a major overhaul of the general tax code. Tax code revisions are what Corporate America really wants, and they and Republican politicians have been calling for since 2010 as a priority. The tax code revisions, I further predict, will include reducing the corporate tax rate from 35% to 20%, lowering rates for foreign profits tax to placate the multinational corporations, and institutionalizing most of the Bush era tax cuts for investors for the next decade. What the politicians take from corporate interests with one hand, they will give back twice with the other.
This trading tax loopholes for tax rates and vice-versa has been the decades long tax shell game. Eliminate loopholes when they become bad public PR and thereby raise some tax revenue. Then give the tax revenue back to corporations, and then some, by lowering the corporate tax rate. Conversely, when public discontent grows with corporations not paying their fair share in tax rates, raise the rates but open up more tax loopholes. That’s how the net federal revenue from the corporate income tax has been reduced over recent decades from 20% of total revenue to barely 10%.
All these maneuvers are unfortunate and deceitful by both parties. For all it takes to resolve social security’s issue for the next 75 years is to raise the cap on the 12.4% payroll tax rate to cover all forms of income, capital forms and earned wages. That will not only cover all shortfalls but enable the lowering of the retirement eligibility age. And as for Medicare, all it takes to cover its shortfall is a mere 0.25% increase in the Medicare share of the payroll tax for the next ten years and another 0.25% starting in the eleventh year. But you wont hear that discussed in the upcoming negotiations to make seniors and retirees pay for the deficits they did not create.
Jack Rasmus
July 12, 2011
Jack is the author of Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, May 2010; and the forthcoming Obamas Economy: Recovery for the Few, same publishers, late 2011. His blog is jackrasmus.com and website: http://www.kyklosproductions.com.
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 
Should the deficit be increased? Do we need additional federal spending? We are in a 1938 replay, the economy won’t create private sector jobs, and Roosevelt has tried to balance the budget only to see unemployment rise. Obama’s position is self-defeating. I think balancing the budget is wrong policy. Who is saying “make the deficit bigger”?
SOCIAL SECURITY: EXPOSING THE DESTRUCTIVE FIXES AND SHOWING HOW TO PRESERVE IT INTO PERPETUITY
By John M. Bachar, Jr., Emeritus Professor of Mathematics, CSULB
July 2011
An analysis of the Social Security retirement system (official name: OASDI Trust Fund – Old-age and Survivors Insurance and Federal Disability Insurance Trust Fund), not to be found anywhere else, for the 16 year period, 1993 through 2008, shows the following:
1. Easy structural changes can be made to the OASDI taxation system that will easily provide for sufficient annual contributions and Trust Fund assets growth to take care of the retirement needs of the increasingly aging population into perpetuity.
2. These changes will replace the existing 73-year old regressive OASDI taxation system (only salaries/wages are taxed below a certain amount called the “cap”) by a progressive one. This means all income, not merely salaries/wages, will be taxed at a rate that increases with increasing income.
3. With the adoption of this new OASDI taxation system, retirement benefits will not need to be reduced (in fact, they may be increased) and the retirement age will not need to be reduced (in fact, they may be decreased).
**The complete analysis may be found in absentlinks.com by clicking on:
Click to access four_analytical_papers_on_preserving_and_strengthening_social_security_by_john_bachar.pdf
However, for those who may not wish to read the complete analysis, including the complete analytical tables, please read the following discourse.
The Social Security System, since its inception by Franklin D. Roosevelt 73 years ago, is the most successful government program in US history and has successfully provided a financial safety net for citizens after they retire from the work force. For recent decades, this safety net has become the dominant retirement pension system for an overwhelming number of elderly persons. From a study by the Investment Company Institute (ICI):
Ongoing Role of Social Security in Retirement
Since 1975, there has been little change in the importance of Social Security benefits in providing retiree income: Social Security benefits continue to serve as the foundation for retirement security in the U.S. and represent the largest component of retiree income and the predominant income source for lower-income retirees. In 2009, Social Security benefits were 58 percent of total retiree income and more than 85 percent of income for retirees in the lowest 40 percent of the income distribution. Even for retirees in the highest income quintile, Social Security benefits represented more than one-third of income in 2009.
As of June 30, 2011, 54.8 million citizens are beneficiaries of OASDI.
For many decades, there has been an incessant effort by Wall Street, wealthy investors, bankers, conservative politicians, commissions (recently, President Obama’s “National Commission on Fiscal Responsibility and Reform”, co-chaired by Alan Simpson and Erskine Bowles) to privatize the Social Security retirement system, to reduce benefits, or to increase the retirement age. Alan Simpson infamously said that social security “is like a milk cow with 310 million tits”, and, on social security reform, “we’re trying to take care of the lesser people in society …”). On October 7, 2010, Obama compromised with the GOP to cut the OASDI payroll tax rate on salaries/wages that fall below the current cap of $106,800 (currently, 6.2% for both employee and employer) down to 4.2% for employees. This action reduces the contributions to OASDI by $140 billion for 2011! Even worse, Obama (July 2011) wants to extend this cut to 2012, thereby causing a loss of $300 billion for OASDI contributions!!
From these groups, whether knowingly or out of ignorance, a steady stream of misinformation, errors, or distortions of fact steadily flow. Add to this group still others, who wish to “fix” the system they deem in “crisis”.
Currently, Obama and the GOP are proposing to reduce the Federal deficit by reducing OASDI benefits. Purportedly, OASDI is in “crisis” and contributes to the deficit! This flies in the face of the fact that, not only has OASDI not contributed a dime to the deficit, it has a $2.6 trillion surplus!! In the August, 2010, report of the SSA (Social Security Administration) Trustees, this is sufficient to last for the next 27 years even if we make no changes to the system!! For 73 years, the OASDI Trust Fund has always been in the black because more has been taken in than paid out.
In the words of AARP executive VP John Rother (August 20, 2010):
Social Security hasn’t contributed a single dime to the current deficit. It is financed separately from the rest of the federal budget with contributions Americans make over a lifetime of hard work. Any attempts to cut Social Security benefits to reduce a deficit it didn’t cause would undermine retirement security and place an unfair burden on future generations.
If the destructive forces now at work succeed in “fixing a system that isn’t broken” by replacing it with a draconian one, thereby increasing the retirement age to 69 or more and reducing benefits, then the quality of life for the majority of retired workers – those who have low-to–medium incomes, and who solely rely on Social Security for their subsistence – would be adversely affected. Is it fair to impose rules that would shorten their right to fruitful retirement years and to cut their retirement income, thus depriving them of a fulfilling life style after a dedicated life of long, hard work?
As stated earlier, the life-expectancy of our population is increasing as well as the number that reach the current OASDI full retirement age of 67 (for those born in 1960 and after). In order to take care of this phenomenon, let us examine structural changes that can be made to the OASDI taxation system and that will easily provide for sufficient annual contributions and Trust Fund assets growth to take care of the retirement needs of the increasingly aging population into perpetuity.
Every year since the1937 start of retirement/disability payments by OASDI, there has been a “cap” (it changes from year to year) on each person’s salary/wage earnings (=earned income) as well as an OASDI tax rate. This means each person pays a payroll tax (at the current OASDI tax rate) on all earned income up to the current cap, but not beyond. Furthermore, non-salary/wage income (=unearned income) is not, nor ever has been, taxed for OASDI purposes. The inherent nature of the taxation system used to acquire contributions to the OASDI Trust Fund is regressive. This means that the percentage of gross income (= earned plus unearned income) paid into OASDI decreases as gross income increases. The following examples will demonstrate this fact. (The current cap is $106,800 and the current OASDI rate is 6.2%).
Example 1. Earned income below $106,800 and no unearned income: percentage of gross income (=$106,800) paid to OASDI equals 6.20%.
Example 2. Earned income $213,600 and no unearned income: percentage of gross income (=$213,600) paid to OASDI equals 3.10%.
Example 3. Earned income $320,400 and no unearned income: percentage of gross income (=$320,400) paid to OASDI equals 2.07%.
Example 4. Earned income $534,000 and $128,160 unearned income: percentage of gross income (=$662,160) paid to OASDI equals 1.0%.
Example 5. Earned income $2.4496 million and unearned income $4.172 million: percentage of gross income (=$6.6216 million) paid to OASDI equals 0.1%.
In calendar year 2008, tax returns listing a gross income of over $200 K (= only 3% of all tax returns) held 30% of all US gross income, yet less than 3% of the listed gross income was paid to OASDI; returns listing over $1 Million (= only 0.23% of all tax returns) held 13% of all US gross income, yet less than 0.6% of the listed gross income was paid to OASDI; finally, the $10 million and over gross income class had an average gross income of $37 million, yet paid an average of less than 0.006% to OASDI!
The regressive OASDI taxation system has resulted in a tax cut for the rich. The analysis of the 16 year period from 1993 to 2008 indicates that taxing all income would have provided somewhere between $3.5 trillion to over $4.8 trillion in additional OASDI trust funds (see below)! The cumulative tax cuts that the wealthy received during this period are staggering: it amounts to over $2 trillion! Tax cuts for the wealthy under the current regressive OASDI taxation system warrants further comment. Unlike the average American worker, most wealthy individuals receive much or most of their income from what is called “unearned income‟, that is, income from other sources, such as stock and bond dividends, capital gains, interest, and other lucrative means, most of which cannot be acquired by the struggling average worker. These sources are not taxed. If this gigantic source of unearned income were to be taxed, it would insure the financial stability of OASDI into perpetuity.
Five different progressive OASDI tax rate systems (applied to all income, not merely to salary/wage income) are given in the complete analysis (see ** above). Typically, these systems lower the rate for OASDI payments for 85% of all tax returns (those below an annual Adjusted Gross Income of $100,000) in comparison to the 6.2% rate now paid to OASDI. This is because the total income of these 85% consists almost entirely of salaries/wages, and everything below the salary/wage cap of $106,800 is taxed at 6.2% for OASDI contributions.
Here is a description of tax rate system 1 (the other four are all progressive as well).
Tax rate system 1: 4% on all income below $30,000 (40.3% of all tax returns in 2008); 5% from $30,00 to $75,000 (24.6% of all tax returns in 2008); 6% from $75,000 to $200,000 (22.1% of all tax returns in 2008; currently, those from $100,000 to $200,000 pay as little as 3% to OASDI); 7% from $200,000 and up (13.0% of all tax returns in 2008; this group pays from below 3% to as little as 0.006% to OASDI).
If these five systems had been used during the 16 year period of 1993 through 2008, the following results would have ensued:
In addition to providing more than the annual retirement/disability needs produced under the existing regressive taxation system, the annual OASDI Trust Fund assets at the end of 2009, for each of the five systems analyzed, would have increased from the current $2.52 trillion (2008) to:
$3.47 trillion for tax-rate system 1
$4.17 trillion for tax-rate system 2
$4.27 trillion for tax-rate system 3
$4.41 trillion for tax-rate system 4
$4.83 trillion for tax-rate system 5
Recall the words of FDR (he signed into law the Social Security Act on August 14, 1935):
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” – FDR
“Taxes, after all, are the dues that we pay for the privileges of membership in an organized society.” – FDR
IT IS IMPERATIVE THAT WE, AS A NATION FOUNDED UPON THE PRINCIPLE OF PROVIDING FOR THE GENERAL WELFARE OF ALL, ESTABLISH AN OASDI PROGRESSIVE TAX RATE SYSTEM ON ALL INCOME.
Bio
I am a Mathematician with a 50+ year record of research and university teaching (to summarize; Ph.D. UCLA, 1969; M.S. Northwestern University, 1955; 36 years teaching at CSULB; dozens of research conferences; director of research conferences; research papers). In addition to the world of pure mathematics in academia, I have analyzed and written about dozens of issues that are in the Public Interest, with particular emphasis on the inherent mathematical content of such issues.
Thanks for taking the time to provide the detailed and valuable information.