Oct 30, 2011
For the past year, Democrats and Republicans both have pushed the idea that the federal budget is in a crisis and the annual budget deficit is out of control.
President Barack Obama put it this way in his State of the Union Address on January 25: “We have to confront the fact that our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.” In an important policy speech in April, Obama reaffirmed this idea: “We have to reduce our deficit, and we have to get back on a path that will allow us to pay down our debt.” And the cuts have to start immediately. “If not now, when?” said Obama in July.
House Republican leader John Boehner claims that the national debt has grown so large it is impossible for the government to continue to function. “I’m not afraid to tell you,” said Boehner, “there’s no money left. In fact, we’re broke. Our debt is now on track to exceed the size of our entire economy in the next two years.”
It’s true the annual deficit has tripled from a half a trillion dollars each year before the recession hit to 1.5 trillion dollars now, leaving the accumulated debt at over 14 trillion dollars, which is about equal to the U.S. gross domestic product (GDP), that is, the entire economy.
But where did these deficits come from, and who benefits from them?
First, a good part of these deficits were created by the government bailout, which showered money on the banks and other big companies. Nobody yet knows how much the bailout cost, since it was carried out largely in secret. But certainly the cost was in the trillions of dollars. And, obviously, it’s not finished. Many of the emergency bailout programs that were started during the crisis continue to funnel more money to the banks and other big companies. The Federal Reserve continues to provide trillions of dollars in free loans to the big banks, which then lend the money back to the federal government – to the banks’ great profit. Fannie Mae and Freddie Mac, the two big financial companies which were taken over by the federal government in 2008, continue to buy up the banks’ bad mortgage debts, as does the Federal Reserve.
Second, these deficits come out of all the ways the government gives away money to the very rich. Last December, for example, Congress extended for another two years the infamous Bush tax cuts, which mainly benefit those with the very highest incomes. These tax cuts had already cost 2.6 trillion dollars from 2001 to 2010. Their extension for two more years is estimated to cost 678 billion dollars more.
Then there are all the ways the government funnels money to big companies, especially through tax cuts. When the crisis hit, Congress offered up more corporate tax cuts at every turn. It loaded them onto every supposed stimulus bill and extension of emergency unemployment benefits. There are big corporate tax cuts in the extension of the Bush tax cuts. Obama inserted them into the Jobs Bill that he proposed in early September. An incomplete list by the U.S. Treasury puts the cost of corporate tax cuts at 365 billion dollars in 2010. This is as much as the government spent on all federal domestic programs except entitlements like Social Security.
Military spending is also an important way that the government funnels money to the big corporations. Almost every Fortune 500 company has contracts with the Defense Department. The mounting costs of these contracts is what has increased military spending by a staggering 56% after inflation in the decade since 9/11. These are spending levels not seen since the end of World War II. Last year, the military spent 250 billion dollars more in real terms than what it averaged during the Cold War. And that’s not counting the wars in Iraq and Afghanistan, which have been funded by special supplements and not through the Defense Department budget.
The government created the huge deficits by handing over trillions to the biggest corporations and the very wealthiest people in the country. Of course, neither Democrat nor Republican mentions this. Instead, they geared up a huge propaganda barrage aimed at panicking the working population into thinking they had no choice but to pay for it and make all the sacrifices.
The propaganda campaign really began at the start of the year. During the first months, the Democrats and Republicans staged a kind of charade. The Republicans, who had won control of the House of Representatives in the last election, said that they refused to lift the government’s “debt ceiling” unless the Democrats would agree to big cuts in government spending. And the Democrats said that if the government was not able to borrow money, it would not be able to pay its bills, send out checks, and pay its workforce. The fight over the debt ceiling was totally absurd. There is nothing absolute about the debt ceiling. Since 1940, Congress had increased it 86 times, almost automatically every time, including seven times under George W. Bush and three times under Obama. The fuss about the debt ceiling and the threatened government shutdown was nothing but an excuse for carrying out big spending cuts.
And on April 9, Obama, along with the Democratic and Republican leaders of Congress, did agree to cut 38 billion dollars in spending, which the Obama administration hailed as “the largest spending cut in our history.”
The 38 billion dollars in cuts were targeted mainly at domestic programs that serve working people and the poor. The cuts hit funding of community service jobs for senior citizens, low income housing, community health centers, food aid for mothers and their infants, the Children’s Health Insurance Program, public transportation, first responders, such as Fire and EMS. Other programs Congress cut were in health and safety – such as funding for medical research, pandemic flu prevention, AIDS, tuberculosis and other disease prevention, and EPA clean and safe drinking water projects. Finally, there were cuts to spending on natural resource preservation and the infrastructure, such as the National Park Service, highway construction and repair, and land conservation.
But these cuts were not nearly enough. Hardly was the ink dry on them than the two parties pretended that government spending was bumping up against the latest debt ceiling they had just agreed to. Throughout the spring and early summer, while the clock ticked down to the moment when the government was supposed to run out of money, the two parties pretended to fight over spending cuts. Democrats denounced Republicans. The Tea Party Republicans denounced Obama, the Democrats and the Republican Congressional leadership. One budget deal after another fell through. Contingency plans for a possible government shutdown blared out over the mass media: the government might have to furlough a million federal employees. President Obama warned seniors that they might not get their Social Security checks. Experts and political commentators speculated about whether the U.S. government was losing “credibility” around the world.
Finally, by the end of July, as zero hour approached, the Obama administration and Congressional leaders announced they had a deal. The Democrats and Republicans had agreed to impose annual spending caps on all “discretionary” spending for the next 10 years. Congress sets spending levels for what it calls “discretionary” spending every year. The caps are designed to progressively starve the “discretionary” programs of money, getting worse every year.
Government officials estimate that these spending caps will result in a total of 917 billion dollars cut out of spending over the 10 years. Leaders of the two parties claim that the spending caps are even-handed, since they are divided between the military “discretionary” spending and the domestic “discretionary” spending. However, only one-third of the reductions are aimed at the military, even though military “discretionary” spending is twice as much money as all the other “discretionary” programs combined. And Congress did not touch spending for the wars in Iraq and Afghanistan, or for any future military actions. Lawrence Korb, a former assistant secretary of defense in the Reagan administration, said, “It’s a good deal for defense when you probe under the numbers. It’s better than what the Defense Department was expecting.”
Two-thirds of the reductions are aimed at all the domestic “discretionary” programs that serve the population, especially working people and the poor, other than “entitlements,” such as Social Security and Medicare. Since the early 1980s, these domestic programs had already been slashed repeatedly, falling from 4.5% to 2.9% of Gross Domestic Product (GDP) in the years before the recent recession hit. The current agreement will cut this percentage from 2.9% to 1.5%, compared to GDP, by 2021. As time goes on, even as the population grows and the cost of goods and services increases, the government will spend less and less on these programs.
All the domestic programs slashed in April will be cut again in these across-the-board reductions. In addition, federal funding will be increasingly cut for such things as education, housing assistance, child care, nutrition assistance, home heating assistance, income security of the blind, disabled and the aged, and workforce development. Infrastructure construction and repair will be squeezed further, as will scientific research. There will be fewer and fewer inspections of food, water, air, drugs, giving companies even freer rein to maximize their profits at the expense of their own workforce, the environment and public health. And since one-third of this spending is administered by state and local governments and school boards, it means even bigger cuts in jobs, pay and benefits for teachers and other state and local government employees.
This is an enormous attack on the working population and poor.
Obama and the Democrats pretended that the Republicans had forced them into making a deal that they didn’t want. But the August agreement looks eerily similar to what Obama himself had called for in his “State of the Union Address” back on January 25, when he proposed that “we freeze annual domestic spending for the next five years” and set as a goal that the government “bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president.”
And this was only the first phase of budget cuts.
What the government had not yet cut in that first phase of the budget deal were the big entitlements: Social Security, Medicare, Medicaid, food stamps. As opposed to “discretionary” spending, “entitlements” are those programs Congress has to fund for everyone who qualifies.
The entire political establishment has been talking about cutting the big entitlements for years, especially Social Security benefits. For decades, the Social Security program produced a surplus every year, which today totals 2.7 trillion dollars. Congress used every bit of those surpluses to fund part of its deficit. Finally, in 2010, with unemployment out of control and millions fewer paying into Social Security, Social Security for the first time actually paid out more than it took in, requiring the government to dip into its other funds to pay for what the government had given away out of the Social Security trust fund. All the big companies, the banks, the wealthy have been pushing Congress to slash benefits – so that Social Security could once again begin to produce big surpluses that Congress could use for them.
The problem for Congress is that a large part of the population depends on Social Security and Medicare, and most of those people vote in elections. The politicians want reassurances that when they cut these programs, they won’t get booted out of office.
The law passed in early August was structured in order to provide political cover for the politicians of both parties who vote to cut entitlements.
First, the law mandated a second phase of cuts, requiring Congress immediately to slash at least 1.2 trillion dollars from the deficit over 10 years. So, everything is up for grabs.
The entire process of enacting these cuts was made quickly and quietly. Putting the deficit cutting budget package together was relegated to a bipartisan Congressional panel, a “super committee,” which began meeting behind closed doors in September. The “super committee” is supposed to present its recommendations to Congress on November 23 – right before the Thanksgiving holidays. Congress has a month to take up the bill. No filibusters or amendments are allowed, reducing discussion and debate to a minimum. The up-or-down vote on the bill will be held on December 23, right before Christmas, when the population is preparing for the holidays, reducing how much attention people pay to what is going on.
But most important, the process makes it appear as if the politicians have no choice but to vote to cut entitlements. According to the law, if Congress fails to pass a deficit-cutting bill in December, there is an automatic “trigger” mechanism that will cut 1.2 trillion dollars from both military and domestic “discretionary” spending, as well as Medicare. It gives the Democrats a way to say that if they didn’t vote to cut entitlements, there would have been even worse cuts to all the domestic programs already severely cut. It gives Republicans who vote to cut entitlements a way to claim they did it to avoid cutting military spending and supposedly “weakening our nation’s security.”
The downgrading of the U.S. government debt by Standard and Poor (S&P) right after the August law passed was Wall Street’s warning that it expected even bigger cuts – and in fact, this is exactly what the S&P announcement said.
Obama, like Congress, was thinking about his own election. He’s the one who signs off on all the bills passed by Congress, and he would take a big share of the blame for cuts to Social Security, etc. In early September, with great fanfare he presented his Jobs Bill. He went on a whistle-stop tour to promote it, denouncing Congress for not doing enough to create jobs. It was obvious the Jobs Bill would not pass. The Republicans said it. Indeed, the Democratic-controlled Senate quickly blocked it. But the Republicans, with Obama’s blessing, did get ready to pass measures in the bill that they liked, especially the cuts in the payroll tax that businesses pay into Social Security, a measure that also weakens the Social Security trust fund.
Two weeks later, again with great fanfare, Obama presented his own deficit-cutting proposal to the Congressional supercommittee. Everyone heard that he was calling for 1.5 trillion dollars in tax increases for the very wealthy, the oil companies and owners of corporate jets.
But behind all the talk about “creating jobs” and “taxing the rich” were huge attacks on programs that directly serve the population.
First, Obama proposed 320 billion dollars in cuts to two entitlements, Medicare and Medicaid. For those on Medicare, it would mean higher premiums and deductibles. Medicare would also start charging co-payments to frail homebound older people who receive home health services. The Medicaid cuts aim at reducing how much the federal government pays to states for treating low-income people at a time when Medicaid coverage is supposed to be extended for tens of millions of low-wage workers under Obama’s health care reform. There are also 250 billion dollars in cuts to various other programs, including the public health care system and federal employee pension benefit programs.
Obama also slipped into his proposal to the “super committee” a bill allowing the U.S. Postal Service (USPS) to cut Saturday mail delivery and to reduce the number of post offices and eliminate 70,000 jobs, a huge attack. So why did this proposal go to the “super committee?” It has nothing to do with reducing the deficit, since the USPS is an independent entity and doesn’t cost the government a dime. In fact, the Obama administration wanted to use the “super committee” charade to authorize the cutbacks. It couldn’t be clearer – the “super committee” is a hoax – used to justify a wide range of cuts and attacks on the population.
These attacks are not just enormous. For 10 years, they will insidiously continue to reduce spending year after year after year. Bailing out the banks and handing over the keys of the Treasury to the very wealthy, the government is trying to make the population pay.
All the fuss over the deficit is aimed at preparing the population, trying to convince people, and especially the working class, that they have no choice but to passively accept the attacks that are coming, and coming, and coming.
Confronting these attacks, there can be only one stance: working people did not create this deficit, nor did they benefit from it. They should not pay for it.
Working people must prepare to defend their jobs, wages and standard of living, and to defend the government programs and services the population needs.