Friday, November 05, 2004

Bush's Scalpel

In the months leading up to this election, many observers pondered what four more years of George W. Bush would look like. Over the coming weeks, I will try to provide my estimation of what to expect, what to look out for, and what progressives can do to recapture the debate. But first, a look at what the prognosticators were saying before November 2nd.

There were primarily two competing schools of thought. On the one hand, it was argued, Bush had grown wiser and more introspective over his tenure. He would depart from his more extreme policies and return to staid conservative principles. The most sanguine supporters argued that his foreign policy would undergo a fundamental transformation - from neoconservative to multilateralist realist. Also, that his fiscal policy would return to sanity. He would curtail spending, some said, and possibly even rein in portions of his tax cut regime in order to balance the budget. Some even pointed to the fact that Bush's own plan to reduce the deficit by half over the next four years uses figures calculated on the basis that his tax cuts are not renewed by Congress. Domestically, it was argued, he would no longer need to energize his base, so he could go about repairing the rift in our nation, and attempt to be the uniter he has always claimed to be.

The other side was decidedly less optimistic. Emboldened by his victory, and released from the constraints of electoral demands (Bush could not run again, and Cheney, it is said, has no desire to make a bid in 2008), it was argued that Bush would pursue the agenda he began in his first term with even more reckless abandon. He could drop the pretense, and push all the way for his goals. This would have repercussions in many areas of policy. In the arena of foreign policy, Iran and/or Syria could be targeted for some type of military engagement, be it invasion, air strikes and/or the fomenting of local uprisings. Domestically, Bush will further his extremist religious and political beliefs by selecting federal judges and Supreme Court justices modeled on the high court's most conservative members: Scalia and Thomas. For the first time in my lifetime, Roe v. Wade could be in jeopardy. Fiscally, he will continue to "starve the beast" by making his tax cuts permanent, while funding the various wars and other needed federal programs - along with the pork barrel spending. The deficits will continue to rage out of control, which will bring about an era of "tough choices" that will lead to the abandonment, or severe underfunding, of many important federal programs. No program, no matter how sacrosanct, will be safe.

I tend to fall into the latter camp. Everything I know of Bush suggests that he is a stubborn man, a determined man, and someone who believes that he is right despite the evidence. These types are not prone to massive tectonic-shifts in world view. Furthermore, I was not encouraged by the messages he has been sending in the days following his reelection. The most telling moments probably came in his first press conference during which he proclaimed that this election had given him "Capital, political capital, and now I intend to spend it." At another point he declared that he would "reach out to everyone...everyone who shares my goals."

Those aren't the words of someone who is circumspect about their first four years, nor does it sound like someone who takes seriously the role of being a leader of all the people. The line about political capital was particularly telling. It didn't take long for Bush to begin explaining how he intended to spend some of this new found wealth. First, he declared his intent to pursue a radical set of Court Closing Initiatives that he has couched in the Orwellian language of "Tort Reform," which I discussed in
detail here.

The next major item on the agenda for Bush II is Social Security - or more specifically, the privatization of Social Security. At least that's how Bush introduced the concept. I do not really believe that Bush, or any of his closest advisors, have any real intention of attempting the delicate maneuver of privatizing Social Security. For one thing, it will cost trillions of dollars, for reasons that Treasury Secretary Paul O'Neill discussed during his tenure in the first Bush term. The simple explanation is as follows: workers currently paying into the Social Security system are paying for the benefits of the current retirees. Then in turn, when the current workers reach retirement age, they will be bankrolled by the next generation of workers. If today's workers are allowed to divert portions of their payroll taxes to private accounts, and not the Social Security system, there will not be enough money to pay the current retirees who depend on their pay-ins. This is an even more acute problem when calculating in the effect of the baby boomer retirees. That is why O'Neill wanted to use the budget surplus, and the Social Security trust fund, to finance the multi-trillion dollar transition. Instead, Bush used both of them up in a series of tax cuts that primarily benefited the upper 2% of Americans.

So there are only two possibilities if one is to take seriously the discussion of privatizing Social Security: either Bush finds a source for the trillions needed to finance the transition (next to impossible) or he leaves the current retirees holding the bag by severely cutting their benefits (possible, but crude in a tactical sense - alienating too many senior citizens along the way). There is a third possibility, however. Instead of discussing privatization in a serious policy implementation sense, this is just a way of introducing the concept that Social Security is broken, underfunded, and destined for bankruptcy. Once this is accepted as conventional wisdom, and the debate is framed this way, any number of options will be on the table. We will be forced to make "tough choices" the pundits will repeat ad nauseum.

Just yesterday, as I was watching CNN, Wolf Blitzer was reporting on Bush's agenda of privatization, and the caption on the screen read: "Saving Social Security." I assumed that I would get a typical dose of he said/she said journalism from the so-called-liberal CNN, something along the lines of "some people say privatization is the best way to save social security, but others say it is too expensive to implement" but I was shocked by the coverage. Blitzer did not mention the costs associated with privatization anywhere in his broadcast, nor did he mention the looting of the Social Security trust fund, or the role the tax cuts have played in determining funding priorities. The only things discussed were the fact that Social Security was in jeopardy, and something needed to be done. I guess Bush is spending some of that political capital early in the holiday season.

But it didn't need to come to this, nor does it need to end up with such a dilemma. The truth is that Social Security was fully solvent for the next century because there was a surplus built up to handle the retirement of the baby boomers and beyond. That surplus was created as a result of an increase in the payroll tax - an increase which was enacted at the behest of Federal Reserve Chairman Alan Greenspan. Keep in mind, the payroll tax is regressive in nature and hurts lower income wage earners disproportionate to high income wage earners and those who derive their income from investments, because only the first $87,000 in income is taxed, and it is all taxed at the same rate. The more you make, the smaller proportion of your income goes to payroll taxes, and if you are lucky enough to derive your income from an inheritance, dividends or other passive investments, you don't pay any payroll taxes.

That is why, despite the duplicitous claims by the Bush/Cheney campaign, according to, 35.6 million individuals and families got absolutely no benefit from the Bush tax cuts. For these taxpayers, their income was so low they were not paying federal income taxes before the cuts but were paying federal payroll taxes for Social Security and Medicare. Bush didn't cut payroll taxes, so this substantial group was left out entirely.

The surplus, or trust fund, built primarily on the backs of working Americans, was supposed to be secured, untouched, in a "lock box" or so both candidates Gore and Bush promised in 2000. Gore was so persistent in his promise, that Saturday Night Live and others lampooned his ceaseless repetition of the phrase during one of the debates. Unfortunately for Americans, Bush looted the trust fund completely, and now it is bankrupt. He did so in order to finance his massive regime of tax cuts, which, again, went to the wealthiest Americans. In this sense, working Americans got gouged twice: first by having their payroll taxes increased to create the Social Security surplus, then by having that surplus paid out to the wealthiest Americans leaving the working people with insufficient funds to help them with retirement.

Now, the same person who advocated for the payroll tax increase, Alan Greenspan, is doing his part to introduce the concept of the looming Social Security crisis. Asked if he would be in favor of reducing some of Bush's tax cuts in order to revitalize the Social Security trust fund, Greenspan categorically rejected such a course of action. He did have some other suggestions though:

The country will face "abrupt and painful" choices if Congress does not move quickly to trim the Social Security and Medicare benefits that have been promised to the baby boom generation.

"If we have promised more than our economy has the ability to deliver, as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels," Greenspan said. "If we delay, the adjustments could be abrupt and painful."
According to Greenspan, we should not reassess a tax policy that forced working Americans to pay more to create a surplus, only to have that money redistributed to the wealthiest 2%. Instead, we should push back the retirement age, beyond the increase from 65 to 67 that is already scheduled to take place, and trim the benefits that those working Americans did so much to earn. This is part of a long term strategy to gut Social Security and Medicare which I discussed in detail here.

Don't expect Greenspan or Bush, or the conservative punditry, to frame this debate as a question of fiscal and tax priorities. Instead, they will try to maintain that these circumstances were unavoidable, and beyond anyone's control. They will blame Social Security itself for its socialistic principles. They will say that Social Security needs to be "saved," and the mainstream media will echo this language without the least bit of analysis.

It is our job to unpack the language when Bush talks about privatization, and reframe the debate when Greenspan and others refuse to acknowledge the choices that have been made that have led up to this moment, the priorities given tax policy preferences in the past, and the options that still remain. Social Security does not need to be saved from itself, it needs to be made a priority that trumps tax cuts for the wealthiest Americans. The patient is in need of a transfusion, not an amputation. Privatization is just a scalpel.

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