Say What?!!!!

Monday 18 July 2011

by: Dean Baker, Truthout | News Analysis

President Obama's Big    Deal: Cuts for Social Security, but No Taxes for Wall Street

Monday 18 July 2011

by: Dean Baker, Truthout | News Analysis

President Barack Obama during a press conference at the White House in Washington, July 15 2011. (Photo: Doug Mills / The New York Times)

The large deficit came about because the housing bubble, which was fueled by Wall Street excesses, crashed the economy. Yet, we are constantly being told by politicians from President Obama to Tea Party Republicans that we have a problem of out-of-control spending.

The claim of out-of-control spending is simply not true. It is an invention, a fabrication, a falsehood with no basis in reality that politicians are pushing to advance their agenda. And that agenda is not pretty.

According to numerous reports in the media, President Obama wants a "big deal" on the budget, which will involve cuts to Medicaid, Medicare and Social Security. The last is especially ironic, since Social Security is financed by its own designated tax. Therefore, it does not contribute to the deficit. If there is no money in the Social Security trust fund, then benefits will not be paid.

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The plans to cut to Social Security also seem perverse since we know that the vast majority of retirees are not living especially well right now and the benefits already are not especially generous. If we exclude their Social Security income, more than 80 percent of people over the age of 65 get by on less than $20,000 per year.

The average Social Security check is about $1,100 a month. This would be less than an hour's pay for many of the Wall Street honchos whose greed and incompetence brought down the economy.

Yet, when President Obama preaches equality of sacrifice, it is the elderly and the poor who are supposed to do most of the sacrificing. His plan to change the annual cost-of-living adjustment formula for Social Security would reduce benefits for someone in their seventies by 3 percent, in their eighties by 6 percent and in their nineties by 9 percent.

These are huge cuts. The Republicans are screaming bloody murder because President Obama wants to raise the top tax rate by 4.6 percentage points. Imagine that he proposed raising taxes on the wealthy by twice as much. That is effectively what he is proposing for people in their nineties who are entirely dependent on Social Security.

And he is proposing to impose this tax on seniors who had nothing to do with the crisis, while leaving Wall Street untouched. A modest tax on financial speculation could raise more than $150 billion a year or $1.5 trillion over the course of a decade.

It is striking that a financial speculation tax (FST) has not been mentioned in the debt discussions. The European Union has been actively debating the imposition of a FST ever since the crisis. The European Parliament voted for such a tax by a margin of more than 3 to 1. The United Kingdom has had an FST for decades. It raises the equivalent, relative to the size of its economy, of almost $40 billion a year just by taxing stock trades. Even the International Monetary Fund has come out in support of increased taxes on the financial sector.

Presumably, the continuing power of the financial industry explains why few in Washington are discussing an FST. After all, a director of Morgan Stanley, Erskine Bowles, was the head of President Obama's deficit commission.

And this explains why we are looking to gut Social Security and Medicare in response to Wall Street's wreckage of the economy. The basic story is that the average worker and retiree will have to sacrifice because of the damage that the Wall Street crew did to the economy. That is what democracy in America's looks like now.