Federal, State and Local Governments:
Partners in Attacking the Working Class and the Poor

May 2, 2011

One day after President Obama finally signed the U.S. budget for 2011, six months late, the Republican dominated House of Representatives passed its blueprint for the 2012 budget.

A large number of the cuts in the 2011 budget had already targeted state and local programs, directly impacting the working population and the poor: programs for affordable housing, infrastructure improvements, public transportation, police and fire departments. These cuts reinforce those already carried out by the states on spending for social safety net programs and basic services.

When Obama introduced his 2012 budget plan in February, he bragged that in five years his plan would bring domestic discretionary spending for these kind of programs down to “its lowest share of our economy since Dwight Eisenhower was president. That level of spending is lower than it was... under Ronald Reagan.”

But the biggest attack that both parties intend are on the big “entitlement” programs. The Republican plan of House Budget Committee Chairman Paul Ryan proposes to transform Medicare into a “defined benefit program,” under which seniors would get vouchers to buy private insurance, thereby making health coverage for seniors increasingly unaffordable. They propose to cap federal funding of Medicaid, resulting in a drastic cut in health care benefits for the poor. Implicit in Ryan’s plan are big cuts to the Social Security pension system.

President Obama denounced the Ryan plan for hurting the elderly by driving up the cost of medical care and depriving millions of health insurance. But Obama conceded that he too intended to “rein in entitlement growth.” (Entitlements are government programs that provide benefits to all those whose situation meets the program’s criteria). In plain language this means Obama intends to attack Medicare, Medicaid and Social Security. A few days later, Obama announced that he wanted a provision that would allow him to use a special 15-member panel that, once established, would cut Medicare spending without oversight, in other words letting Congress avoid taking the political heat for future cuts.

Left more imprecise are the plans to cut Social Security. During his State of the Union message and in his answer to the Ryan plan, Obama had vaguely said that Social Security “faces long-term challenges.” But the Wall Street Journal pointed out on April 18, the fact that neither party is talking in precise terms about cutting Social Security, increases the likelihood that they will do it. Given how much opposition has developed in the past to cuts in Social Security, the Democrats and Republicans have been keeping the details under wraps, this time right up to the last minute.

Harry Reid, the Democratic Senate majority leader, vowed that the Republican plan would never get through the Senate. Of course not. It’s a stalking horse. Behind the scenes, a team of three senior Democratic and three Republican senators has been quietly working on a deal for months, the framework of the deal that will go through.

Certainly, Social Security, Medicare and Medicaid have already been cut. Medicaid has been cut by bits and pieces, and often state by state. Medicare has been cut indirectly by medical inflation, and by requiring recipients to pay a bigger share of the costs and increasing the premiums they pay. And Social Security benefits have been chipped away, including by inflation. According to economist John Williams of the Shadow Government Statistics website, the government has changed the Consumer Price Index (CPI) so much over the years that: “Social Security checks would be about doubled had the various changes not been made.”

So cuts in these big programs are not new, but, now, both parties have announced plans to take the programs head on, openly cutting the “entitlements” put in place following the two massive social upsurges of the 20^th century.

The Social Security Entitlements

The big entitlements and other social programs that politicians are dismembering were created essentially during two periods: the late 1930s, following the decade-long explosion of the working class movement, and in the late 1960s and early 1970s, following decades of an increasingly powerful mobilization of the black population.

Up until the Great Depression of the 1930s, the role of the national government in social aid had been relatively limited. State and local governments, along with churches and private charities, held primary responsibility for relief and social welfare programs, programs that were pitifully small compared to the vast poverty and misery, even during so-called good times. These tiny, disconnected networks reflected the relatively decentralized economic and social development that took place over a country that spread over a continent. And it was justified by a kind of individualistic, petty bourgeois ideology—the so-called pioneer spirit, a throw-back to the early 19^th century—which promoted individual “responsibility” and “self-reliance.”

When the Great Depression of the 1930s broke out, workers, small farmers and the poor faced not only record unemployment and poverty, but employers who imposed wage cuts and vicious speed-up on the shop floor, bankers and landlords who drove millions out of their homes and off their farms. For millions of people, there was nothing to fall back on. The old system of relief and charity was completely swamped.

By 1932, cities were beset by unrest. World War I veterans from across the country converged on Washington, D.C., set up camp and vowed not to leave until Congress voted to pay them their bonus. In that same year, unemployed workers from Detroit marched on the big Ford Rouge complex demanding jobs. Both marches may have been thrown back by repression and state violence—but they were harbingers of what was to come.

When Franklin Roosevelt became president in 1933, the aim of his first measures was to help the bourgeoisie recover from the economic crisis, by moving immediately to legally sanction the creation of cartels in order to reduce competition and increase concentration, as well as by providing huge subsidies and other forms of aid. But by 1934, American capitalism was also confronting a growing social crisis, working class revolt, as four big general strikes broke out. Three of the strikes, in Toledo, Minneapolis and San Francisco, were to one degree or another successful. The fourth strike, the textile general strike, was eventually crushed, but not before it had swept through 13 states, including in the South, the bastion of the lowest wage labor and Jim Crow segregation.

The bourgeoisie and its state had tried to throw the working class backwards with repression by its police, thugs, the KKK and the National Guard. But repression had not stopped the fights from spreading.

At that point, the most conscious sections of the capitalist class and its most important political representatives in the Roosevelt administration recognized the threat and saw the need to shift gears. They moved to set up some social programs, or at least a project for them. In 1935, the Roosevelt administration presented the Social Security Act. Today most people think of Social Security as simply old age pension. But in fact, Social Security offered a three part program: retirement pensions at age 65, temporary benefits for the unemployed, and income support, or welfare, for those who cannot work, including single mothers with children, the handicapped and blind.

This was the beginning of the so-called “entitlements.” The government would provide some kind of support or benefit for anyone who met the program’s criteria.

In fact, there were very big limits to the 1935 Social Security Act. Entire categories of low wage workers were excluded from both the old-age retirement system and the system of unemployment compensation—people working, for example, as agricultural labor and housekeepers. And the benefits for welfare and unemployment insurance varied widely between the states. In some states, for example, people on welfare were hired out to local businesses in a kind of indentured servitude.

Moreover, there were years of delays in implementing the system. The first pensions were not supposed to be paid until 1942, seven years after the act was passed. Effectively, the government was waiting to see if future promises would be enough to slow down the social explosion.

Large sections of the wealthy were adamantly opposed to Social Security. They didn’t want to see “their government resources” touched. And they didn’t want anything that would interfere with their use of starvation to force workers to work as cheaply as possible.

The Supreme Court was waiting in the wings—adding to the delay. This same Supreme Court, which had already struck down several New Deal programs, including a law containing the supposed right for workers to organize a union, might very well strike the Social Security Act down. All this meant that the Social Security Act of 1935 was little more than a bunch of vague promises.

But the working class was not waiting for the government to provide some security. In 1935, rubber workers occupied the factories of the big tire companies. In 1936 and early 1937, auto workers extended those occupations to Flint, Michigan, the heart of the General Motors empire. From there, a wave of sitdown strikes spread throughout the Midwest region, from Chrysler to big auto suppliers to five-and-dime stores and almost every other company.

In the middle of these upheavals, in early 1937, the Supreme Court decided to hear the case, and quickly upheld the constitutionality of Social Security. In other words, the bourgeoisie had come to the realization that it had to ameliorate the situation of the working class, at least somewhat.

The strikes continued. So the Roosevelt administration and Congress sweetened the pot in 1939, extending Social Security, adding benefits for dependents of retired workers and surviving dependents of deceased workers, thus making the old-age insurance system a family program. Congress also moved up the first old-age benefit payments from 1942 to 1940.

In a period of five years, big social programs were created, instituted and expanded by the federal government. For the first time, there was a single national social insurance system for the population. It was a remarkable change.

Only the central federal government could have imposed it on often recalcitrant capitalists and sections of the establishment, which were particularly strong at the level of the states. And only the federal government had the means to do it, for the simple reason that it had much greater access to funds, its ability to create debt.

These programs had been established centrally; nonetheless, only the system of old age pensions was set up and run as one program across the country. The other two programs established by the federal government, welfare and unemployment insurance, were run by the states, with funding set up in various ways depending on the program. This hybrid model in funding and implementation for programs established centrally marks the way social programs have been carried out ever since.

The Government’s Expansion of Social Programs and Entitlements

In the following years, there was some expansion in the range of programs included in Social Security coverage. But not until the mobilization of the black population—which, starting in the 1940s, reached its height in the late 1960s and early 1970s—did the federal government greatly extend the number of entitlements, and add a whole new range of other social programs.

The black movement also encouraged the growth of other movements: against the Viet Nam War, for women’s rights, as well as challenges by unionized workers to the entrenched union bureaucracies that had been imposed on them, and the rapid growth of strikes in the early 1970s.

Even in the early years of the struggle, some of the more conscious political representatives knew that the bourgeoisie and its state apparatus were going to face a severe test. In the 1940s, Lyndon B. Johnson had explained to an assistant: “The Negro fought in the war [World War II], and... he’s not gonna keep taking the shit we’re dishing out. We’re in a race with time. If we don’t act, we’re gonna have blood in the streets.”

But for quite awhile, the policy of the bourgeoisie as a whole and its political representatives was to meet the black movement head on through brutal repression and violence by the police and FBI working in concert with the KKK and other para-legal organizations. Not until the urban rebellions began to confront the state apparatus in the big cities, starting in 1963, did the bourgeoisie catch up to Johnson’s warning from the 1940s that its state had to give another answer besides repression.

That answer was a big increase in social programs. Under the Johnson administration, starting in the mid-1960s, the number of federal social programs mushroomed from 45 to 435. There were new anti-poverty programs, including Head Start, job training, housing aid, legal aid. Funding was increased for existing programs for the aged, health care, and children and youth, as well as for education.

The most important of these programs were the two new entitlements, Medicare and Medicaid, which were added to the Social Security Act in 1965. Previously, health care coverage had been a negotiated benefit that came with union contracts and better-paying jobs, or else it was bought by those who could afford it. This excluded most of the elderly and low-paid working class, especially a big proportion of the black population. With Medicare and Medicaid, health care coverage was expanded and became an entitlement for the elderly and poor, that is, those who met its criteria. Within two short years, these two measures extended health care coverage to 30 million more people.

Food stamps were also added as an entitlement. Other entitlements, such as old-age pensions, welfare and unemployment insurance, were expanded and the benefit levels were raised.

A few of the big entitlements, Medicare, food stamps, and Social Security old age pensions, remained national programs. But for the rest of the programs, the federal government handed wide authority and responsibility to the state and local governments to set up and run the programs, just as in the 1930s. This allowed local authorities to decide not only on just how much to spend, depending on the local conditions, but even what programs to put in place. For example, several states completely opted out of instituting Medicaid. Arizona, the last state government to implement a Medicaid program, didn’t do so until 1982. In the cities and regions where there were big upsurges and mobilizations, the authorities often instituted most of the programs and spent more on social services. In their headlong rush, local authorities often set up a dizzying array of organizations, which functioned under different rules and funding formulas, and held overlapping responsibilities.

To put in place these programs, the Johnson administration had to go up against a large amount of resistance by local capitalists at the level of the states. And a large part of the bourgeoisie opposed to this expansion used racism as a tool to build opposition, not just in the South, but in big parts of the country. That is to say, once again, this expansion in social programs could only have been imposed centrally. But once again, their implementation was for the most part handed over to the states or local governments.

Johnson may have been forced out of office in 1968. But by that time, the revolts had settled the issue. He was succeeded by Richard Nixon, who had launched his career as a witch hunter during the McCarthy years and campaigned in 1968 appealing to the right wing with promises to cut social programs and entitlements. But the spread of social movements greeting Nixon brought him to reverse direction and extend Johnson’s programs. The Nixon administration added automatic cost-of-living allowances to Social Security benefits. Facing a revolt by coal miners, it started a federally funded black lung benefit program for miners. It created the Supplemental Security Income Program, and the expansion of disability benefits under Social Security. And it started the Special Supplemental Food Program for Women, Infants and Children (WIC). His administration built more subsidized housing units than any before or since. Of course, many of these programs were set up in way that openly benefitted business.

In the early 1970s, came the first signs of a worsening economic crisis, with rising unemployment. The budgets of the cities and states, through which so many of the social programs were run, and at least partially funded, were being squeezed. But the social mobilizations were not abating. The Nixon administration introduced revenue sharing, sending the state and local governments several extra billion dollars in federal funds every year to help them cover the costs.

What had been set up was a hodge-podge, programs set up nationally, but run differently from state to state and even from one locality to another. Part of their funding was from the federal government, along with state and local funding thrown in. This meant a wide disparity in benefit levels and enrollments. Who could know what part of the government was responsible for what? This decentralized and complicated structure of administration would work in the bourgeoisie’s favor, once it decided the programs should be cut.

The First “Reforms” of Social Programs

With the open onset of the crisis in the 1970s, especially after the 1974-75 recession, big capital wanted to put social programs on the chopping block.

But neither the Republican President Gerald Ford, nor his Democratic successor, Jimmy Carter, dared cut the big social programs outright. Social ferment in the working class continued throughout most of the 1970s. As part of the black movement was joined by the Viet Nam vets in the factories, wildcat strikes were not uncommon, and in 1974 the number of strikes hit a new high.

Ford and Carter simply held the line on budget increases and let the high rate of inflation do the cuts for them. In early 1977, Carter went a step further. He asked Congress to renew a 26-week emergency extension for unemployment benefits, but only until the end of the year, with no more extensions after that. Of course, it was a benefit cut. But with the recession over and unemployment falling, it wasn’t so obvious. The following year, Carter cut unemployment benefits again, this time by making some of the benefits taxable as ordinary income. But since the benefits were taxed only if regular income for the year was above a certain threshold, this attack was also not so obvious. But this partial taxation of unemployment benefits opened the door to the government finally taxing all the benefits in 1986.

Capital wanted more direct help from the government. In 1977, the major coal mine operators tried to impose a big concession contract on the coal miners, who a few years earlier had ousted the bureaucratic, gangster-ridden clique that headed the union for decades. Starting in December 1977, the miners went on strike, and stayed out for 110 days, voting down two company-union settlements. With the strike drawing the attention of workers around the country, President Carter first tried to reinforce union officials who were pushing the miners to accept the offers. But after the second rejection, he invoked a Taft-Hartley injunction on March 6, 1978, ordering the strikers back to work, threatening them with firings, arrests and federal troops if they refused. The miners received the injunction on March 10, ignored it and continued the strike. Instead of pushing the working class backwards, the government was forced to retreat. Providing a barely veiled cover for the White House, a federal judge rescinded the injunction on March 17. “Anyway, the miners don’t care what I do,” said the judge.

Carter, and behind him the state apparatus, had been blocked by the miners.

So, in 1979, when the auto companies called on the government for help to strong arm auto workers into accepting concessions, Carter was more cautious. With auto plants closing, the federal government offered to guarantee bank loans to save a supposedly failing Chrysler—if everyone sacrificed. With the collaboration of the UAW bureaucracy, and with Chrysler’s CEO offering to work for one dollar a year, Carter and the auto companies were thus able to push through concessions on the workers. But fearing that the plant closings and layoffs might spark strikes or other reactions by the auto workers, the Carter administration also resurrected an old law, TRA (Trade Readjustment Act), as the excuse to pay big chunks of money and other benefits to many of the auto workers who lost their jobs.

Not until 1981 had the situation changed enough that the political class decided it could take the working class head on. The Reagan administration did this spectacularly, when it fired all the striking air traffic controllers and broke the PATCO strike. When the AFL-CIO leadership organized only a token protest march and there were no other responses from the laboring population, the path had been cleared for a bigger offensive. And part of that offensive was to play out in attacks on the edifice of social programs that had been established.

In 1981, the Reagan administration, working with the Democratic Speaker of the House Tip O’Neill, pushed through cuts on social programs of 25%. They did so under the pretext of consolidating federal funding for 77 social programs—including education, welfare, housing and job training—into nine big “block grants.” State and local governments were left with the dirty work, choosing what to cut and by how much. The mantra for these cuts was Reagan’s vow that he would shrink the role of the federal government in running social programs, picking up the language of the reactionaries and racists who had long opposed those social programs, under the guise of “states rights.”

Over the next decade the funding cuts to the programs handled by the states and cities were growing. As the New York Times reported (December 30, 1990), “...the federal government has shifted a heavy financial burden to the states and cities, cutting and eliminating Federal grants for housing, education, mass transportation and public works projects. In the late 1970s, Washington provided 25% of state and local budgets. It now provides 17%.”

There was a kind of domino effect. The federal government shifted the cuts to the states, which then shifted them to the city and county governments, school boards and other local agencies that handled many of the programs. As the Times noted: “Cities lost much more than states as programs like revenue sharing and aid for low-income housing were cut.”

Dispersing the authority for the cuts, the federal government obscured, not just where they were coming from, but how big they really were, and to what extent this was a carefully honed, central policy to impose sacrifices on the whole laboring population.

The First Entitlement Is “Reformed” Out of Existence

But even though there was a vast number of different programs caught up in this complicated federal-state-local network, the biggest sources of funds were still the entitlements, with the richest prize, the trust fund for the Social Security retirement pension. But, because it covers almost the entire population in a single national program, it has always been a tricky target for the bourgeoisie. The political firestorms that politicians ran into when they tried to cut Social Security benefits illustrated why it was called “The Third Rail of Politics.”

Of course, there have been cuts. Under Carter in 1977 and Reagan in 1983, the Social Security tax rate increased nine times from 1977 and 1990, going from 5.85% to 7.65%, an increase of 31%. In 1983, the Reagan administration pushed through other so-called “reforms,” which over time amounted to a cut in benefits of about 19%. The biggest change, by far, is a gradual increase in the age when full benefits are available, from 65 to 67 in 2022. The age increase was phased in slowly, and put off so far into the future that it almost wasn’t noticeable.

The result of all this tinkering with the Social Security pension was to produce a much bigger surplus year after year, which is supposed to be parked in the Social Security Trust Fund, and which is supposed to amount to 2.4 trillion dollars. Actually, this surplus has been put into bonds issued by the U.S. government. That is, the U.S. government has “borrowed” the surplus—and then folded it into the federal budget, which the politicians put at the disposal of the bourgeoisie.

One president after another attacked welfare. For two decades, between 1970 and 1990, the politicians had been whittling away at its funding. As a result, typical benefits for a family of three fell 42% after adjusting for inflation, while an increasingly cumbersome bureaucracy and red tape kept many poor people off the rolls. The proportion of people officially defined as poor who were receiving welfare benefits fell sharply in those years.

But in 1990, the federal government took a step that prepared the way for a head-on, direct attack on welfare. The federal government required state governments that run the welfare programs to provide training, education, counseling and job placement services for welfare recipients. States were also required to extend Medicaid benefits for 12 months after women got jobs. After a couple of years, some states trumpeted these programs’ successes.

It was propaganda. Studies at the time found that few women were able to find work, and among those who did, almost none of the recipients achieved “a stable source of employment that provides enough income for a decent standard of living (at least above the poverty line) and job related benefits that adequately cover medical needs,” according to the Center on Budget and Policy Priorities. In other words, these so-called experiments at the state level illustrated that the real problem for poor women was always the lack of jobs, especially jobs that paid enough to allow someone to support a family. Moreover large numbers of people on the welfare rolls were simply not able to work, because of physical or other problems.

Nonetheless, these programs were used to justify dismantling welfare all together. In 1996, President Clinton and Newt Gingrich, the Republican Speaker of the House, passed the law that ended welfare, one of the original entitlements that were part of the Social Security Act of 1935.

Even the language of the 1996 law makes the intention clear. Under the heading, “No Individual Entitlement,” comes the following statement: “This part shall not be interpreted to entitle any individual or family to assistance under any State program funded under this part.”

This was a historic attack. No longer would a person who qualified have a legal right to assistance. In welfare’s place, the government created TANF (Temporary Assistance for Needy Families), a temporary dole that limits the number of years someone on welfare could receive aid to five over their lifetime and for any two consecutive years.

Most states responded by reducing the welfare rolls by two-thirds within just a few years. And they’ve kept them low ever since. As a result, since the most recent recession began almost four years ago, the overall size of the welfare rolls hardly budged. Even some of the most desperately poor were cut after they had been on welfare for two years. And those few who did remain got tiny benefits. Nationwide, there has been no increase in federal welfare funding since the 1996 law was enacted, so thanks to inflation, the value of that funding has eroded by about a third. Today, 30 states pay a maximum benefit that’s less than 30% of the federal poverty line. Mississippi offers its TANF recipients $170 a month for a family of three, about 9% of the poverty line.

A Democratic president and Republican congress destroyed an entitlement under which the government, 60 years earlier, had promised to take responsibility for the most minimal needs of a part of the population.

It was a first step to dismantle other entitlements. Dismantling welfare was the easiest target, because it affected the most disadvantaged part of the population. It had been prepared by a decades-long propaganda campaign against so-called “welfare queens” and cheats. Some of the more stable parts of the working class and a sizable part of the elderly on Social Security succumbed to the propaganda, believing the cuts were justified.

The attack on welfare, however, was only the opening wedge of a much bigger attack on all the entitlements.

The Bourgeoisie’s Agenda for the “Budget Deficit”

Today, once again, a Democratic president working with a Republican Congress together are preparing to take on more of the entitlements.

During his April 14 answer to the Republican budget blue print, Obama made the point as clear as politicians ever make it. “So, here’s the truth,” said Obama, “Around two-thirds of our budget—two-thirds—is spent on Medicare, Medicaid, Social Security, and national security.” Of course, neither the Republicans nor Democrats are proposing anything but cosmetic cuts in military spending. In fact, military spending has continued to increase. In other words, they are aiming to cut the big entitlements under the pretext of cutting the budget deficit.

Obama described how comparatively small the rest of the budget is. “What’s left after interest on the debt, is just 12% of everything else. That’s 12% of our national priorities—education, clean energy, medical research, transportation, our national parks, good safety, keeping our air and water clean—you name it—all of that accounts for 12% of our budget.”

Obama then posed the problem bluntly: “...the cuts proposed by a lot of folks in Washington have focused exclusively on that 12%. But cuts to that 12% alone won’t solve the problem. So any serious plan to tackle our deficit will require us to put everything on the table, and take on excess spending wherever it exists in the budget.”

In other words, Obama wants to attack the big entitlements, that is, old-age pensions, health care for the elderly, disabled and poor. That is what Obama said “require the tough decisions and support from our leaders in both parties now.”

Together, the Democratic and Republican leaders are trying to make the working class foot the bill for what the politicians have already spent in the service of the bourgeoisie. More recently that includes the trillions of dollars in government money bailing out the biggest banks, financial companies—not to speak of GM and Chrysler. There are also the Bush tax cuts that they just extended for the wealthy and big business, costing four trillion dollars over 10 years. And then there are the hundreds of billions of dollars they are spending every year for the ongoing wars to defend the interests of U.S. domination in the world, such as the wars in Iraq, Afghanistan, Pakistan, and now Libya.

And that’s not all. The capitalist class wants more: more tax cuts, more giveaways to boost their profits and wealth. And the politicians of both parties are searching for the money to deliver that too.

The politicians of both parties are trying to take advantage of the deficit that they themselves created bailing out the bourgeoisie, in order to dump what the working class of the 1930s and the black mobilization of the 1960s had forced the bourgeoisie to give up. They would take society back 100 years.

But clearly what the history of their “entitlements” shows is that the working class can force the bourgeoisie to do what it doesn’t want to do. This time, we can hope that the working class, when it mobilizes, will get rid of bourgeois rule all together.