The ‘Repo-Demo’ Party’s Three Phase Austerity Plan for America

Jack Rasmus

President Obama's deal with Republican leaders, signed into law December 17, 2010, extended tax cuts for the wealthiest Americans for another two years.

Get ready for more of the same failed job cre­ation” poli­cies, enact­ed by an increas­ing­ly uni­fied polit­i­cal eilte

The Bush tax cuts are now extend­ed. What cost $3.4 tril­lion over the past decade, 80% of which accrued to the wealth­i­est house­holds and U.S. cor­po­ra­tions, will now cost anoth­er $802 bil­lion over the next two years and a pro­ject­ed $4 tril­lion over the com­ing decade.

But the Bush tax cut exten­sion just passed by a polit­i­cal elite increas­ing­ly unit­ed on eco­nom­ic pol­i­cy — a Repo-Demo’ Par­ty dom­i­nat­ed by cor­po­rate inter­ests — is only the first of three phas­es in a new pol­i­cy offen­sive designed to pro­tect the incomes of the wealthy and cor­po­rate Amer­i­ca for anoth­er decade, to be paid for direct­ly by mid­dle- and work­ing-class Amer­i­ca. Togeth­er, the three phas­es rep­re­sent the emerg­ing U.S. vari­ant of a gen­er­al aus­ter­i­ty strat­e­gy, sim­i­lar in objec­tive but dif­fer­ent in con­tent to oth­er aus­ter­i­ty pro­grams now emerg­ing as well in the Euro­zone, Japan and elsewhere.

Phase two: dra­con­ian spend­ing cuts

The sec­ond phase will like­ly be imple­ment­ed in the next three months, before the ceil­ing on the fed­er­al debt has to be lift­ed. It will take the form of mas­sive spend­ing cuts in the U.S. bud­get, tar­get­ing Social Secu­ri­ty and Medicare in par­tic­u­lar. (A par­al­lel dra­con­ian slash in spend­ing will occur at the state lev­el, tar­get­ing Med­ic­aid and education).

Social Secu­ri­ty has been a prime tar­get since the Rea­gan years. Unable to cut it in the ear­ly 1980s, Rea­gan instead set­tled on a major increase in the pay­roll tax in 1984, cre­at­ing a $2.5 tril­lion sur­plus over the last 25 years. How­ev­er, that sur­plus was bor­rowed’ every year by Con­gress to cov­er up in part U.S. bud­get deficits cre­at­ed annu­al­ly since the 1980s to pay for war spend­ing and tax cuts.

All that remains of the sur­plus in the Social Secu­ri­ty Trust Fund are gov­ern­ment IOUs promis­ing to replace the short­fall when nec­es­sary — a replace­ment we’ll nev­er see in our life­times.

In 2003, Bush II re-opened the attack on Social Secu­ri­ty by try­ing to pri­va­tize it, but failed. Despite the accu­mu­lat­ed sur­plus hav­ing been drained, Social Secu­ri­ty was still annu­al­ly pro­duc­ing a sur­plus and was thus finan­cial­ly too sta­ble to con­vince the pub­lic it need­ed basic change. In con­trast, today, as a result of a chron­ic three year long reces­sion, there is no longer an annu­al sur­plus being cre­at­ed. Social Secu­ri­ty is just break­ing even.

But imple­ment­ing the pend­ing pay­roll tax cuts — part of Phase One — will final­ly put Social Secu­ri­ty in the red, cre­at­ing for the first time the net annu­al loss­es con­ser­v­a­tives and cor­po­rate Amer­i­ca have always need­ed to push a major gut­ting of the pro­gram. The pay­roll tax cut is thus the first move in what will prove a gen­er­al attack on social secu­ri­ty that will gain momen­tum in the com­ing months. Rea­gan con­ser­v­a­tives have argued it would first be nec­es­sary to starve the beast’ in order to dis­man­tle it. For the first time, that sce­nario will exist.

Phase three: revis­ing tax code to help the wealthy

Fol­low­ing the immi­nent dra­con­ian cuts in spend­ing and Social Secu­ri­ty-Medicare-Med­ic­aid-Edu­ca­tion about to take place in 2011, which lie at the heart of the sec­ond phase, the third phase of the new aus­ter­i­ty strat­e­gy will fol­low in the sum­mer of 2012. It will take the form of a fun­da­men­tal revi­sion of the U.S. tax code.

As part of this gen­er­al revi­sion, the Bush tax cuts will like­ly be made per­ma­nent for the rest of the decade to come. In addi­tion, per­son­al income tax brack­ets for the wealth­i­est house­holds will be reduced to no more than three, pos­si­bly two, with a top rate for the wealthy or no more than 28%, rep­re­sent­ing a return to Rea­gan years.

For cor­po­ra­tions, depre­ci­a­tion write-offs, a de fac­to invest­ment tax cred­it for busi­ness, will be accel­er­at­ed to full deduc­tions in the first year — a mea­sure already just enact­ed for small busi­ness this year. For multi­na­tion­al cor­po­ra­tions, the for­eign prof­its tax will be restruc­tured to their advan­tage. The cor­po­rate tax rate will be sig­nif­i­cant­ly reduced or even phased out entire­ly. Not least, the new 2% cut in pay­roll tax­es could also be extend­ed, forc­ing yet anoth­er round of fur­ther reduc­tions in Social Secu­ri­ty and Medicare ben­e­fits and still high­er co-pays for retirees.

To pay for the tax code rewrite and even more con­ces­sions to wealthy house­holds, investors and cor­po­ra­tions, the mid­dle class will pay more. Adjust­ments to the Alter­na­tive Min­i­mum Tax, AMT, for the mid­dle class will be phased out. And the mort­gage inter­est tax cred­it will be elim­i­nat­ed in stages as well.

Same wine in same bot­tles, with new label

Oba­ma and the Repo Demo’ Par­ty have launched a PR offen­sive in the wake of the Bush tax cut exten­sions, pro­claim­ing that the Bush tax cuts plus unem­ploy­ment insur­ance exten­sion plus pay­roll tax cut togeth­er amount to a Stim­u­lus 2’ pack­age that will result in more eco­nom­ic growth and new jobs.

This is the same old tired song of the Bush admin­is­tra­tion. In fact, every one of the four major Bush tax cuts passed between 2001-04 was offi­cial­ly called job cre­ation’ bills.

The result of these job bills’ was the weak­est job cre­ation fol­low­ing a reces­sion of all the nine pri­or reces­sions since 1945. It took 46 months to recov­er jobs lost from Jan­u­ary 2001, the start of Bush’s first reces­sion. The sec­ond reces­sion of the Bush II era, which start­ed in Decem­ber 2007, was fol­lowed by a $168 bil­lion stim­u­lus bill passed in spring 2008 — about $90 bil­lion of which was tax cuts. The result: 4.5 mil­lion full-time jobs lost in 2008. Then anoth­er $787 bil­lion stim­u­lus in ear­ly 2009, Obama’s Stim­u­lus 1’ pack­age — about half of which was tax cuts. The result: Anoth­er 6.5 mil­lion full time jobs lost in 2009. In 2010, anoth­er half mil­lion lost jobs and dropped out of the labor mar­ket. Of the 900,000 pri­vate sec­tor jobs cre­at­ed in 2010, more than two thirds were part-time and temp jobs.

At the close of 2010, now we have yet anoth­er tax cut heavy Stim­u­lus 2’. Again the claim is that it will cre­ate jobs. How­ev­er, except for the pay­roll tax cut of $112 bil­lion there is noth­ing net new’ in the so-called Stim­u­lus 2.’ It’s the same old wine poured into same old bot­tles — just a new label slapped on the side and a brand new cork (pay­roll tax cut) added to the opening.

The key ques­tion: Will any jobs be created?

Cor­po­ra­tions are today sit­ting on a cash hoard of more than $2 tril­lion, accord­ing to the busi­ness press, not invest­ing or cre­at­ing jobs. Why should increas­ing that hoard anoth­er $500 bil­lion or so result in any­thing dif­fer­ent? That’s the key ques­tion con­ser­v­a­tives and the Repo-Demo’ Par­ty elite must answer — but are avoid­ing. That’s the ques­tion the media should be ask­ing, but about which they remain con­spic­u­ous­ly silent.

Only the $112 bil­lion pay­roll tax reduc­tion rep­re­sents a net new’ con­tri­bu­tion to stim­u­lus. But is it suf­fi­cient to gen­er­ate jobs? Not by a long shot. For those earn­ing $50,000 a year to the top pay­roll tax rate of $106,800 a year, the pay­roll tax cut will, on aver­age, lead to no more than $20/​week in real spend­ing pow­er after adjust­ments for par­tial sav­ing, debt pay­downs and what will be accel­er­at­ing costs for food, health­care, and gaso­line com­ing in 2011. Those below $50,000 will actu­al­ly have less to spend, since the Make Work Pay” cred­it is end­ing for them. That’s nowhere near­ly suf­fi­cient to stim­u­late the econ­o­my and cre­ate jobs.

Obama’s 2011 Stim­u­lus 2’ will thus prove no more effec­tive than his 2009 Stim­u­lus 1.’ The past decade has pro­duced repeat­ed tax-cut heavy poli­cies tar­get­ing the rich and cor­po­ra­tions: Bush II and a Repub­li­can Con­gress 2001-06. Bush II and a Demo­c­ra­t­ic Con­gress 2006-08. Oba­ma and a Demo­c­ra­t­ic Con­gress 2008-10. And now Oba­ma and a de fac­to Repub­li­can Con­gress.

The recent Bush tax cut exten­sions show the cor­po­rate-dom­i­nat­ed polit­i­cal elite of both par­ties are now clos­ing ranks as the eco­nom­ic cri­sis con­tin­ues with no res­o­lu­tion for all but the wealthy and cor­po­ra­tions. The Repo-Demo’ Par­ty, new­ly aligned around the same old failed poli­cies, has just begun to do its work. Get ready for more of the same.

Jack Ras­mus is the author of Epic Reces­sion: Pre­lude to Glob­al Depres­sion, pub­lished in May 2010 by Plu­to Press, Palgrave-Macmillan.

Jack Ras­mus, pro­fes­sor of eco­nom­ics and polit­i­cal econ­o­my at San­ta Clara Uni­ver­si­ty and St. Marys Col­lege, is author of Epic Reces­sion: Pre­lude to Glob­al Depres­sion, and The War at Home: The Cor­po­rate Offen­sive From Ronald Rea­gan to George W. Bush. His forth­com­ing book (2011) is Obama’s Econ­o­my: Why Recov­ery Failed. What’s Next? Ras­mus has pub­lished numer­ous arti­cles in Z mag­a­zine, Cri­tique, Amand­la, Against the Cur­rent, the Dis­patch­er and oth­er periodicals.
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