Obama Reassures Labor on Priorities in Battle Over the Fiscal Cliff

Labor’s aggressive stance is reinforced by recent polling that shows strong majority support for protection of these three key safety-net programs. Pollster Guy Molyneux concluded: ​“You can see by an even more overwhelming margin voters were saying they want to protect Social Security and Medicare from cuts — not that they were looking to reduce spending on those programs in the service of deficit reduction. So defense of the safety net was perhaps [generating] an even more strong consensus than the need to raise taxes on the wealthy and corporations.” (Other polls have found similar results.)

Labor — in contrast to its low level of street activism (with the exception of the Republic Doors & Windows occupation) in the early days of the first Obama term — is preparing to start his second term by turning up the heat on representatives and senators across the nation. More than 100 events highlighting tax hikes for the rich and protection of Social Security, Medicare, and Medicaid have been held across the nation by labor.

Obama’s comments seemed to diminish anxiety many in labor had felt about the president’s ultimate commitment to their position. That unease stemmed from his late 2010 capitulation to extending the Bush tax breaks for the rich for two years, a decision which provoked an exasperated United Steelworkers President Leo Gerard to declare, ​“He didn’t get the deal he should have gotten.” Obama’s effort last year to achieve a ​“grand bargain” with the Republicans on taxes and social safety net cuts further heightened labor’s anxiety.

And more recently, his Democratic National Convention speech implicitly endorsed raising the Social Security age and other regressive measures. Obama’s latest statements have been more reassuring, but ​“Obama still has not come back to where he was four years ago when he said no cuts in Social Security,” Michael Briggs, communications director for Sen. Bernie Sanders, Vermont’s independent socialist, told Working In These Times. ​“Now he says he opposes ​‘slashing.’”

The ​“fiscal cliff” showdown revolves around the December 31 deadline for the president and Congress to agree upon deficit-cutting measures, with the Republicans trying to preserve massive Bush-era tax cuts for the wealthiest 2 percent. If an agreement is not reached by that date, automatic cuts will be imposed on military programs long shielded from budget trimming by Republicans and on social programs — ranging from food stamps to extended unemployment benefits affecting an estimated 2 million jobless — upon which poor and working-class Democratic constituencies rely. Taken together with the reinstatement of payroll tax cuts, some economists predict that an inability to reach an agreement could potentially trigger a new recession.

Given the nation’s lurch toward spectacular levels of inequality more typical of Third World nations than industrialized countries (e.g., the richest 1 percent collected 93% of all income gains in 2010) and the Democrats’ recent electoral victories, modest tax increases on the rich to fund job programs and protecting the three most vital social safety net programs would appear to be a slam dunk. However, imposing higher rates on the super-rich and protecting essential programs from cuts will not be an easy task, with several barriers standing in the way.

One obvious hurdle is Republican intransigence, exemplified by their unremittingly hostile posture toward Obama’s initiatives. Republicans have engaged in a record number of filibusters to block legislation, as documented by political scientists Norman Ornstein and Thomas Mann, authors of It’s Even Worse Than It Looks. This time around, Republicans are digging in on the thoroughly discredited claim that Obama is seeking a tax increase that will depress job creation by small business people. However, the Center on Budget and Policy Priorities revealed, ​“of the top 400 people — who received $19.8 billion in S corporation and partnership net income in 2009 — 237 would be counted as small businesses” under the GOP’s standard yardstick for defining small firms. Clearly a substantial number of private-equity tycoons, real-estate moguls and wealthy lawyers use these legal structures, yet the Republicans attempt to depict a tax increase for them as a merciless, self-defeating massacre of small ​“job creators.”

Second, Obama and labor-friendly Democrats must also combat calls from the mainstream media and moderate Democrats to end the polarization and resulting paralysis in Washington, D.C., by yielding concessions to the GOP so a settlement can be reached by January 1. Despite the GOP’s sharp turn to the far right and all-encompassing strategy of total opposition, mainstream pundits continually call upon Obama and Democrats to illustrate their willingness to compromise. Just as frank discussion of the Republicans’ extremism has remained largely off-limits in respectable media, the strong sentiments of the vast majority of the public are excluded from the discourse.

Meanwhile, major media remain filled with warnings about the ​“fiscal cliff” and the need to avoid it by concessions from the Democrats on ​“entitlements.” Politico, reflecting much the conventional wisdom, anxiously wondered ​“whether the new liberals [in the Senate] will be hard-liners who refuse to compromise with the tea party [sic] types on the other side of the aisle,” as if the obligation to make concessions somehow rested almost exclusively with Democrats.

A third barrier is the false sense of intense urgency being whipped up by the Republicans and corporations, 95 of which have formed a ​“Fix the Debt” coalition. The Republicans, having lost considerable ground on Election Day, seemingly hope to gain leverage by using the December 31 deadline to pressure concessions from Obama and the Democrats. Their corporate allies are asserting that lack of action by the deadline will add a large and destructive dose of economic ​“uncertainty”

However, the actual consequences of the deadline passing without a deal are far less dire than predicted, said Michael Briggs, communications director for Sen. Sanders. ​“First, the notion of a ​‘Fiscal cliff’ notion doesn’t reflect reality, would take place over a decade,” said Briggs. This is a stance with which labor is becoming increasingly comfortable, as evidenced by AFL-CIO President Rich Trumka decrying ​“a manufactured crisis,” as NPR reported. ​“We would prefer no deal to a bad deal,” stressed Sen. Sanders in a recent MSNBC appearance.

His spokesman Briggs elaborated. ​“We’d come back in January with a better Senate [with progressives like Tammy Baldwin (Wisc.), Elizabeth Warren (Mass.), Chris Murphy (Conn.), and Mazie Hirono (Hawaii.)] and a little bit better House. We’d then have the Senate passing tax cuts for the majority.”

But that kind of scenario raises the hackles of conventional thinkers inside the Beltway. For much of the media elite and the corporate elite, the essence of the ​“Grand Bargain” would be the Simpson-Bowles plan, the thoroughly regressive nature of which was rarely dissected by major media and elite pundits. The Simpson-Bowles proposal was purportedly designed to reduce the nation’s deficits — its justification for raising the Social Security retirement age to 69, severely reducing increases in Social Security benefits, and increasing Medicare and Veterans Administration co-payments. But in a stunning contradiction, it also proposes a massive loss of revenue through massive tax cuts for the rich and corporations, including an exemption from taxation for U.S. subsidiaries operating outside the country.

While top corporate leaders are on the one hand calling for deficit reductions via cuts in programs for workers and the poor, they are — following the path laid out by Simpson-Bowles, Ryan and Romney — hypocritically grasping for these immense deficit-raising tax cuts. As Doug Cunningham reported on November 14 for Workers Independent News:

Sixty-three CEO’s representing the largest U.S. corporations have launched a campaign calling for $134 billion in tax breaks. According to a report by the Institute for Policy Studies the corporations want the U.S. to switch to a ​“territorial” corporate tax system, similar to a Mitt Romney proposal. The report says if that happens, the corporations could reap tax breaks of up to $134 billion. Under the guise of ​“fixing the debt” these corporations want to exempt foreign earnings from U.S. taxation. The single biggest beneficiary if this corporate tax system were adopted would be General Electric, which has overseas earnings of roughly $102 billion. Actual U.S. corporate tax revenue has plunged despite a 60-year high in corporate profits.

Sen. Sanders made no effort to conceal his contempt for the CEOs who issued the letter:

There really is no shame. The Wall Street leaders whose recklessness and illegal behavior caused this terrible recession are now lecturing the American people on the need for courage to deal with the nation’s finances and deficit crisis. Before telling us why we should cut Social Security, Medicare and other vitally important programs, these CEOs might want to take a hard look at their responsibility for causing the deficit and this terrible recession. Our Wall Street friends might also want to show some courage of their own by suggesting that the wealthiest people in this country, like them, start paying their fair share of taxes. They might work to end the outrageous corporate loopholes, tax havens and outsourcing provisions that their lobbyists have littered throughout the tax code - contributing greatly to our deficit.

A number of the CEOs who signed the deficit-reduction letter head up corporations that evaded, in total, at least $34.5 billion in taxes by setting up more than 600 subsidiaries in the Cayman Islands and other offshore tax havens since 2008, according to Sanders. As a result, at least a dozen of the companies avoided paying any federal income taxes in recent years, and even received more than $6.4 billion in tax refunds from the IRS since 2008.

Further, the AFL-CIO Now blog documented, ​“Of the 63 Fix the Debt CEOs at publicly held firms, 24 received more in compensation last year than their corporations paid in federal corporate income taxes. All but six of these firms reported U.S. profits last year.”

Still, Fix the Debt and its Republican allies and media supporters have had the gall to suggest ​“broadening the base” of tax exemptions under consideration, a smokescreen for attacking deductions that benefit working-class and poor people whose incomes and net worth have already been slipping. This version of ​“broadening the base has nothing whatever to do with the rich paying more,” argues former Labor Secretary Robert Reich. ​“That’s because a lot of tax credits and deductions help the middle class and the poor.

Reich proposes that Obama follow a different course to achieve the $4 trillion in deficit reductions that he seeks, by going far beyond higher income-tax rates for those raking in more than $250,000. Obama should be taking on the full range of tax breaks that favor corporations and the top 2 percent. These include the 15% capital gains tax rate, ​“the major reason Mitt Romney pays a rate of under 14 percent on over $20 million of annual income.” Capital gains should be taxed the same as ordinary income. Also targeted should be the even-lower tax rate on earnings from ​“vulture capitalist” private equity funds, which comes courtesy of the ​“carried-interest” loophole, a 2% surcharge added to the wealth of the richest 0.5%, and a restoration of the old 55.2% tax rate on the very highest earners. Coupled with other steps like a reduced military budget and ending subsidies to the oil industry and Wall Street, roughly $4 billion could be raised, estimates Reich. ​“And we haven’t had to raise taxes on America’s beleaguered middle class, cut Social Security or Medicare and Medicaid, reduce spending on education or infrastructure, or cut programs for the poor,” he points out.

Reich was one of 350 economists — including other notables like New York Times columnist and Nobel laureate Paul Krugman — who signed a letter attacking the conventional obsession with short-terms deficit reduction is actually counter-productive.

​“The budget hawks have the sequence backwards….Budget cuts in a deep slump lead only to a deeper slump,” the economists wrote. ​“We need jobs first. With recovery, deficit reduction will come of its own accord thanks to increased revenues in an improving economy.”

In short, a set of aggressive jobs creation and jobs-preservation programs is the best way to approach deficit reduction. That is precisely the rationale behind the fiscal justice coalition that labor is mobilizing. If Obama weighs in wholeheartedly and the campaign proves successful, labor has the chance to finally recapture the offensive and begin to shape a relationship with Obama that is much closer to the sometimes-fractious but productive partnership between Franklin Delano Roosevelt and labor that produced so many gains for working people in the 1930s.