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The President’s last stand is no stand at all: Why the tax deal is an abomination

Robert Reich, professor of public policy | December 8, 2010

The deal the President struck with Republican leaders is an abomination.

It will cost $900 billion over the next two years — larger than the bailout of Wall Street, GM, and Chrysler put together, larger than the stimulus package, larger than anything that’s come out of Washington in years.

It makes a mockery of deficit reduction. Worse, the lion’s share of that $900 billion will go to the very rich. Families with incomes of over $1 million will reap an average of about $70,000, while middle-class families earning $50,000 a year will get an average of around $1,500. In addition, the deal just about eviscerates the estate tax — yanking the exemption up to $5 million per person and a maximum rate of 35 percent.

And for what?

Wealthy families won’t spend nearly as large a share of what they get out of this deal as will middle-class and working-class families, so it doesn’t do much to stimulate the economy.

The deal further concentrates income and wealth in America — when it’s already more concentrated than at any time in the last 80 years.

The bits and pieces the President got in return — extended unemployment benefits, a continuation of certain small tax benefits for the middle class — are peanuts. After last week’s awful jobs report, Senate Republicans would have been forced to extend unemployment insurance anyway.

It’s politically nuts. Polls showed most Americans are against extending the Bush tax cuts for the wealthy.

It would have been a defining issue for the President to use to show whose side he’s on (the middle and working class) and whose side the Republicans are on (not the middle and working class). And given that the House turns over to Republicans in January, the President probably won’t have another chance like this one.

It loses him even more of his “base” — by which I mean people who think of themselves as Democrats and are committed to the ideal of equal opportunity and don’t want the nation to become even more of a plutocracy.

It makes him look weak — Republicans got everything they wanted. And when a President looks weak, he is weak.

House and Senate Democrats should reject this abomination.

The President should get himself new advisors.

Cross-posted from Robert Reich’s blog.

Comments to “The President’s last stand is no stand at all: Why the tax deal is an abomination

  1. Class warfare is a dog that does not hunt in America. There is tremendous income and social mobility here. Your ideas seem rooted in the view that there is a static rich ruling class in America – wrong! Anecdotally, many of us know several fellow citizens who were born in modest circumstances and rose through hard work and effort to a position of greater wealth. I suspect you may be one yourself.

    Almost 60 percent of taxpayers were in a different quintile in 2007 than they were in 1999, according to a June 2010 report by Washington’s Tax Foundation. Forty percent of households in the top quintile moved down, while 60 percent of those in the bottom quintile moved up.

    While the share of income earned by the top 1 percent more than doubled between 1980 and 2007, that kind of distributional analysis — comparing snapshots of the population at different points in time — fails to capture mobility among groups.

    Perhaps another tack to take Professor is for the most unpopular Congress in the history of Gallup poll taking to pass a law before recess confiscating 80% of the wealth of all taxpayers with $250K or more in income. Let’s just get it done.


    Point (1) The current tax debate is taking place in context of a questioning or an attempt to reject long established principles of law. Section 7 of Article 1 of the U.S. Constitution reads: “All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.” Clearly it is an ancient legitimate and enlightened power for the United States to engage in necessary taxation under our Constitution “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…” And the 4th Section of the 14th Amendment of the U.S. Constitution declares: “The validity of the public debt of the United States, authorized by law… shall not be questioned.” But by embracing a rigid irrevocable theory that taxes not be raised above the current historically low levels, the Republicans, representing the moneyed class and the wealth of the country, are attempting to wall themselves off from, to limit their responsibility for, and to erect a barrier to their payment of their share of “the public debt of the United States”. The Republicans, hiding behind the Laffer Curve and the trickle down economics argument, are “questioning” their constitutional responsibility for “the public debt” in violation of the spirit, if not the letter, of the Constitution and the 14th Amendment. In effect they want to insulate and make “off limits” the wealth (the top 5% own 72% of all financial assets) of the country from attachment for the country’s debts and operating expenses. In effect they want to erect a bar, a “preference” as it is called in bankruptcy law, which scoundrel debtors use to hide their assets from attachment in court by their creditors. The Republicans are attempting the equivalent of “fraudulent transfer” of the nation’s wealth to a safe haven where the small cadre of the owners of that wealth cannot be charged with the obligations of the country, which ironically protects that very wealth (TARP) on behalf of that very small cadre of owners. By emasculating the progressivity of the income tax and the estate tax (debunking it as a “death tax”) and preventing those taxes from reaching and attaching and re-circulating the country’s wealth and GDP cash flow in a healthy manner, we, the left out bankrupt 95% of the citizenry, who don’t own the wealth or the national flow of profits, are expected to carry the government without any means to do so, e.g. we are to be left holding the bag with our country much the poorer for it. The Republican rejection of our traditional progressive tax system is nothing but a “fraudulent transfer” of our wealth to make it inaccessible in the hands of but a few aristocrats. It’s a device akin to the medieval law of primogeniture (all property goes to the firstborn) designed to keep estates intact in the hands of the most narrowest of aristocracies, elites, and nobility. Is this what the United States’ promise has come to? Clearly the current tax debate is about a major fork in the road, whether the United States, by surrendering centuries of enlightened Constitutional and common fair sharing law, will now adopt legal shackles shifting taxation onto the poor, and slipping the country into a medieval period of serfdom where all property is owned by the rich. (Need we but note the wave of underwater homes and foreclosures now enveloping our population with no end in sight?)

    Point (2) What is exasperating to a rational observer of President Obama’s compromise package, the concession to the rich aside, is that the unemployed are left out in the cold. For all the long term debt which will be incurred by the deal, the biggest problem in the economy, e.g. unemployment, is almost cavalierly ignored. It’s almost as if a calculation was taken, that since the unemployed didn’t vote in the election, and had they done so, their numbers to date are far fewer than the employed, and besides that, unemployed don’t hold protest rallies, therefore Obama chooses to give a $140 billion a year in payroll tax holiday to the employed, who don’t need it, rather than to a hiring program of those silent unemployed, who are at the center of our economic desperation, but don’t have lobbyists or clout at the election polls. This decision is clearly a least best choice for the spending our future indebtedness to China at a time when every penny should have the maximum effectiveness. We just don’t have the luxury to continue spend without results. The CBO has clearly outlined in its February 23, 2010 report to Congress that a payroll tax holiday for employers who spend the credit entirely on hiring the unemployed will produce up to 18 jobs for each $1 million of credits. Whereas the payroll tax holiday for employees, who are already working, produces barely 8 jobs for each $1 million in payroll tax holiday. It’s probably to be expected that Republicans don’t want to bother businessmen with the task of hiring. But it’s inexplicable why Obama and his experts can ignore the CBO’s counsel that the country can hire over twice as many workers in this time of emergency for any given amount of payroll tax credit compared to the path he is choosing. But then again the employed have the clout. The unemployed don’t. It’s short sighted not to realize that the fate of the economy is tied to nothing else, but curing unemployment post haste. Feel good lumps of money doled out to people with jobs has failed in the past. But then again the unemployed are in Obama’s blind spot (for which he suffered on election day). The only program he has mentioned on unemployment is, “It’s going to take a long time.” It’s HOPE.

    Point (3) During his filibuster Friday Senator Sanders explained his misgivings over using payroll tax credits to stimulate the economy. He gets nervous, he says, that this procedure allows a foot in the door for those who want to destroy the Social Security Program, that when the payroll tax holiday ends, the Republicans will take a stand against going back to the old rates, like they are doing now with extending the temporary Bush tax cuts, seemingly with success with a malleable President. In that way the enemies of Social Security hope to starve the program out of existence. What should be done to insure against the risk, which Senator Sanders voices, is to declare a temporary interruption of the Bush tax cuts for the top 2%, call it a surcharge if you like, until such time as the extra revenues collected due to the “interruption surcharge” on the top 2% produces enough revenue to cover and offset the cost of the payroll tax holiday, be it for the employed or alternately for hiring the unemployed as outlined above. By holding the rich hostage with a surcharge until the shortfall in the Social Security funding due to the payroll tax holiday is replenished, Senator Sanders could feel that this emergency diversion of the payroll tax is less likely to be permanent, that Social Security will not be weakened. But here again, besides the argument that extending the Bush tax cuts is a blow to the Constitution, and a fraudulent transfer of the nation’s wealth to a legally insulated “Do Not Touch” land where it no longer serves to underwrite the United States Government, besides that argument, there is the immediate crying out need for the $700 billion cost in indebtedness to the Chinese of extending those Bush cuts, that that $700 billion could be much more usefully spent to offset a payroll tax holiday fully dedicated dollar for dollar to employers’ expenses in hiring the unemployed. A $260 billion payroll tax holiday in its first year to employers in return for their using the money to hire the unemployed would yield over 5,600,000 million new jobs immediately. The unemployment rate would go to 6% immediately. The surcharge to the rich would not be to punish them, but would be for the patriotic purpose of putting Americans back to work without the need for going further into debt to the Chinese. What are we waiting for?

    • Each of your points is true and correct, point-1 clearly explains how they are systemically transferring the wealth to a few, point-2 should make us wonder how our nation plans to climb out of the hole by digging deeper and point-3 we should canonize Senator Sanders for trying to save social security.

  3. Please explain to me how I spend a tax cut extension… doesn’t actually put any more money in my pocket, it only keeps the government from taking it from me.

  4. The Republicans lie when they say that the money the richest save on taxes will go toward job creating investments. Their investments are stocks which are JUST SPECULATION and do not create jobs. Except for stockbrockers. Unless you own a business or are a venture capitalist there are not many places to invest that create jobs.

    HOWEVER, demand creates jobs. Giving money to those at the bottom of the economy will create demand because they will spend it almost immediately and not sit on it with speculative investments. The best way to give money to those who will immediately spend it is through public works and assistance.

    Today Pelosi played the right card, leaving the (R)s to slam the door on the unemployment insurance extension because they could not rip off more money for the billionaires. Let’s give the (R)s enough rope to hang themselves. I think Obama and Pelosi are playing a little good cop bad cop. Time to send Biden over to talk to the (R) caucus about being flexible.

  5. No tax deal will work until employers, employees compromise on a loyalty partnership. Businesses and university campuses are into a phase of creative disassembly where reinvention and adjustments are constant. Hundreds of thousands of jobs are being shed by Lockheed Martin, Chevron, Sam’s Club, Wells Fargo Bank, HP, Starbucks etc. and the state, counties and cities. Even solid world class institutions like the University of California Berkeley under the leadership of Chancellor Birgeneau & Provost Breslauer are firing employees, staff, faculty and part-time lecturers through “Operational Excellence (OE) initiative”: 1,000 fired; 0 Vice-Chancellors fired. Yet many employees, professionals and faculty cling to old assumptions about one of the most critical relationship of all: the implied, unwritten contract between employer and employee.
    Until recently, loyalty was the cornerstone of that relationship. Employers promised work security and a steady progress up the hierarchy in return for employees fitting in, accepting lower wages, performing in prescribed ways and sticking around. Longevity was a sign of employer-employee relations; turnover was a sign of dysfunction. None of these assumptions apply today. Organizations can no longer guarantee work and careers, even if they want to. Senior managements paralyzed themselves with an attachment to “success brings success’ rather than “success brings failure’ and are now forced to break the implied contract with their employees – a contract nurtured by management that the future can be controlled.
    Jettisoned employees are finding that their hard won knowledge, skills and capabilities earned while being loyal are no longer valuable in the employment market place.
    What kind of a contract can employers and employees make with each other?
    The central idea is both simple and powerful: the job or position is a shared situation. Employers and employees face market and financial conditions together, and the longevity of the partnership depends on how well the for-profit or not-for-profit continues to meet the needs of customers and constituencies. Neither employer nor employee has a future obligation to the other. Organizations train people. Employees develop the kind of security they really need – skills, knowledge and capabilities that enhance future employability. The partnership can be dissolved without either party considering the other a traitor.
    Let there be light!

  6. To read Reich’s article and the comments that follow is to bear witness to people trapped within the circle of their words, condemned to an endless repetition of 19th century politics. It’s truly depressing.

  7. Making the deal only helps Obama. How so?

    1. If the tax cut extension works and boosts the economy and reduces the unemployment figures, then Obama is the hero come election time.

    2. If the tax cut extension doesn’t work and does nothing to reduce the unemployment figures, then he can blame Bush again.

    Since this is a two-year extension only, it works perfectly in his favor come election time no matter the outcome.

    Plus, it allows the government to keep paying unemployment benefits for three years, thus after the election.

    You have to keep political strategy in mind while considering the President’s options. I don’t agree that he was bullied. Far from it. I believe that the Republicans are too stupid to even bully him.

    I also don’t believe that he is caving one bit on his Social(ist) agenda. He seems to have his eye on the prize of Socialistic/Cradle to Grave government handouts.

    The question is, can America afford it? Most likely not. But, you certainly can’t fault him. He is single minded in his actions and policies.

  8. I believe Reich makes a key mistake by treating the $900B as money that the wealthy will not spend. The money saved on taxes by the wealthy will go straight into investments, which will then provide capital for businesses to grow and hire labor. Most investment money goes to pay for salaries. The continued tax cut for the wealthy will probably be the most direct way to generate jobs for the middle class.
    The government will not use the $900B as effectively to stimulate the economy, and deficit reduction is the something we need when we are trying to get people working.
    The people in the middle and lower income areas will spend their tax cuts on consumables or building savings. Neither will generate jobs like direct investment in companies that will do the hiring.

  9. Although I certainly agree with you that tax cuts for the wealthy are ridiculous, wouldn’t you agree that the Republicans had President Obama over the proverbial barrel?

    Much to my disappointment, the Republicans had vowed not to extend unemployment benefits unless they got their Bush era tax cuts. What our Congress doesn’t realize is that when both parties hold fast to their ideologies, it is the American people who suffer. True, extending the tax cuts AND unemployment benefits do nothing for the deficit, but at least my taxes won’t skyrocket as a result. And if I fall victim to layoffs, I know my unemployment benefits will be there. I believe that in politics compromise is viewed as the necessary “evil.”

    And I laugh when I hear that the Tea Party is angry at the Republican leadership for “giving in.” Some people will never be satisfied.

  10. I’m with Michael on this. As infuriating as this particular deal is, what is perhaps even worse is that the President, as it turns out, is an incompetent negotiator. Being taken to school by the likes of Mitch McConnell is not only humiliating but a dark omen for the future.

  11. We could use a man like Reich back in Washington: at least we’d then have ONE sane person there. How do we clone you, Professor Reich?

  12. Although I share the frustration of Reich, Paul Krugman in the NYT and other commentators, I think there is an issue here that is being overlooked–simple competence.

    If the Democrats are the NY Mets of politics (chronic underachievers) while the Republicans are the Yankees (the best team money can buy), then Obama and crew are the gang that had one good season but have not been able to step up their game, are in two years will be sent back to the minors in Chicago.

    Remember when more conventional African-American politicians questioned the credentials of the boy wonder? Remember when Hillary talked about Obama’s thin resume and lack of experience? Remember how they were excoriated? Well, maybe they were right.

    How else do you explain the astounding failure of Obama to play his strong hand on the tax cuts more skillfully? All he had to do was sit tight. He just had to do nothing. How do you blow that? He was in the position to say to the Republicans, “Make me an offer I can’t refuse, or taxes on your wealthy benefactors go back up.” But he couldn’t even get that right.

    It is simply incomprehensible. To explain it, all I can think of is to draw from the wisdom of the 1960s. Not incense, bell bottoms and the summer of love, but a small book on management call “The Peter Principle.” Obama kept rising until he reached his level of incompetence. And now we are stuck with him.

  13. All I can say is this is why we as Americans are looked upon so poorly by other Nations! Please stop helping the wealthy & help those who really work for a living get back on our collective feet.

  14. Rarely can I empathize with your point-of-view, but in this case you’re almost on the mark. This example of partisan politics and pure posturing for 2012 votes is not in our best interest. Yes we need tax relief and the ability to help those that can’t find work, but we also need our government to focus on its core mission. I suggest our elected officials need to reflect on their oath of office and ask themselves if it is really all about them; or us?

  15. “It makes him look weak — Republicans got everything they wanted. And when a President looks weak, he is weak.”

    Republicans got everything they wanted because they will control the House by a huge margin, starting January. The president either makes deals with the opposition party, or he sits on his hands for two years, while the Republicans run countless investigations into his sleazy supporters and policies, and ends up a single term president.

    Look, it’s not like Dems are suddenly going to vote for Sarah Palin in 2012 because O cut a pro-business deal on taxes. They should think strategically. What they need is a second term president to stop repeal of ObamaCare, their Holy of Holies entitlement program, meant to redistribute the white health care infrastructure to non-paying minorities, particularly poor immigrant Hispanics who will guarantee Democratic rule in perpetuity (as we now see in CA).

  16. You have stated the situation exactly. Thank you for verbalizing my thoughts. I feel terribly betrayed. It is time for the progressive senators to filibuster…..

    • The Presidents’ tax deal is a disaster, every school child knows you don’t make compromises with a bully.

      To many of our nation, state and local leaders abandon the working populace to be friends with the popular crowd, sadly it reveals their real motive for personal power over duty to protect and defend the people.

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