The Deficit Reduction Alternative: Raise Revenue

(Part One)

            Grover Norquist isn’t exactly a household name, but he has been called the second most powerful man in America (by MSNBC’s Lawrence O’Donnell).

            Norquist is the president of Americans for Tax Reform.  He claims to have the signatures of 41 U.S. Senators and 236 members of the House of Representatives pledging not to vote for any measure that would in any way constitute a tax increase, be it an actual levy of some kind or a “reform-measure” that sought to close tax loopholes.

            In other words, Mr. Norquist has pledges that render virtually impossible any attempt to balance the budget or reduce the federal deficit (and the national debt) by increasing revenues.

            As you might expect, Mr. Norquist is extremely popular in Republican Party circles, especially those that support the plan of Representative Paul Ryan, the Congressman from Wisconsin whose deficit-reduction proposal recently passed the House.  Among other things, the Ryan bill would convert the single-payer Medicare system into a voucher program, thereby reducing its draw on the federal budget.  It would also reduce corporate tax rates significantly and maintain the current individual rates (those passed by the Republican-dominated Congress under the Bush administration in 2001 and 2003).

            The essence of the Norquist vision is also in lockstep with that of most proponents of the Ryan plan.  It is that by denying the funds to carry out government programs, those programs will cease to exist.  It’s a very thinly veiled form of the “starve the beast” strategy that was first introduced by Ronald Reagan (albeit Reagan was not nearly as “religious” about it as his current political descendants), whose real goal in running for office (other than to defeat the evil empire) was to roll back the New Deal and the Great Society.

            But Reagan, whatever else might be said about him, was an astute politician.  He quickly recognized that Social Security, the signature program of the New Deal, was much loved by most Americans.  And so he quickly backed a bi-partisan effort that successfully secured its viability well into this century.  (No, Social Security is not at risk, and won’t be for another 30 years under the current funding for it.)

            But its continued existence grates at the conservatives who have taken up Reagan’s philosophical fight.  They hate that it is a government program that takes care of people.  Governments, in this view, should not take care of people, because doing so teaches them not to take care of themselves.

            Whether this view has any merit is pure conjecture, but it should be recognized as the same argument against welfare programs.  But Social Security is not a pure welfare program, because it is largely paid for by the people who benefit from it.  (Welfare, on the other hand, is not paid for by the people who directly benefit from it.) 

            Simply stated, Social Security is a program that is funded by taxes that are used to pay the benefits the program provides.

            But the Ryan plan doesn’t target Social Security.  It has Medicare in its cross-hairs.  Medicare differs from Social Security, but it also is not a traditional welfare program.  It is not funded directly by the ultimate recipients of it, but it is guaranteed to everyone, unlike welfare programs that are targeted for those who are impoverished or otherwise in need.

            Medicare is an entitlement program, in that it is a government program that everyone becomes entitled to when they reach the age of 65.  It is paid for with general revenues, and therein lies the problem, because as the baby boomer generation reaches the entitlement age, starting this year, and as the cost of healthcare continues to increase dramatically, the program appears to be bankrupting the government.

            And so the fiscal logic of the Ryan bill is that if the current program cannot be paid for, it must be changed.  Ryan’s plan is to reduce the level of benefits provided by giving those 65 and over a voucher with which they can buy insurance to cover their healthcare needs.  And it would be a neat trick, essentially turning a government program into a private one, if it could work. 

            But, of course, it can’t.  No insurance company is going to cover seniors for their healthcare needs without either bankrupting themselves, or severely reducing the amount of coverage they provide to those seniors, or passing on the costs of their coverage to the younger purchasers of their insurance.

            And, since private industry is always in business to make a profit, the cost of those premiums will be appreciably higher than the comparable government (single-payer) plan now in existence would be.

            Thus is the Ryan plan revealed for what it is: a none-too-clever attempt to roll back the signature program from the Great Society.  Conservative purists would rejoice at this result, even as just about everyone without independent means would be far worse off than they are now.

            And that last point is the other aspect of the Ryan plan that must be understood.  It benefits the very wealthy (another top conservative agenda item) while making life more difficult for everyone else. 

            And here is where Grover Norquist and Representative Ryan meet philosophically and in practical effect.  Both seek to reduce spending that benefits the masses while increasing the amount of financial reward that the most financially successful have been able to attain. 

            Put simply, what Norquist, in his “no new taxes” mantra, and Ryan, in his “cut government spending” efforts, have in common is the pursuit of an America that is very good to those who are already very well off and very hard for those who have not yet realized the American dream.

            And, of course, it is all done under the guise of a crisis of allegedly monumental proportions, to wit: the ever expanding federal deficit.

            But isn’t there something fishy about a supposed cure that only looks to spending cuts (and indeed seeks even lower levels of revenue)?  You bet there is. 

            But, happily, there is an alternative, which I’ll unveil in the second part of this column.

(Part Two)

            Grover Norquist, the president of Americans for Tax Reform, and Paul Ryan, the Republican Congressman from Wisconsin, have a plan for America.  It consists of cutting taxes for the rich and reducing benefits for the rest of the country.  It is presented in the form of Ryan’s budget overhaul bill (passed recently by the House of Representatives) as a way to corral the runaway costs of Medicare while rejuvenating the economy. 

            But, as I suggested in the first part of this column, it is really just a way to reduce the role of government in the lives of most Americans while allowing those who have achieved incomparable wealth to increase even further their share of the pie.

            Happily, there is a better way to get the nation’s fiscal house in order, a way that doesn’t hit the middle and lower classes nearly as hard and that asks of the wealthiest only that they pay their fair share of the load.

            To get to the alternative, we need to talk about what our country has been and what it has become in terms of the distribution of wealth.

            As originally designed, America was a very egalitarian society, largely based on an agrarian economy.  If the founders had any thoughts about the acquisition of great wealth, it certainly wasn’t the one we have now.  The plan then, to the extent there was one, allowed for individual effort (normally in the form of hard labor, perhaps coupled with a good education) to yield a marginally better life than the rest of the community enjoyed.

            It’s safe to say that private jets and 90-foot yachts were not thought to be the mark of success then anymore than personally-owned spaceships are now (although such intergalactic vehicles may very well be on the current wish-list of a few of our multi-billionaires).

            My point is that in its early years, indeed, up until the early twentieth century, the acquisition of wealth in America was attainable to those who worked hard and made the most of opportunities that came their way.  And even up until the latter part of the 1900s, moving up in economic class was something that a good work ethic, coupled with a few breaks, could accomplish.

            But more recently, certainly over the last 30 years, moving up has been much harder for most Americans.  And in many instances, it isn’t for want of trying.  More Americans are pursuing higher education than ever before, yet fewer college graduates are attaining the same level of economic success as their parents.

            At the same time, a relatively small number of Americans, already wealthy to start with, have seen their wealth increase dramatically.  And so, the shares of the pie, as it were, have been re-divided, with a small number of people getting a large portion of it, while everyone else, with varying degrees of miniscule portions, have divided up the rest.  Upward mobility, for the great majority of Americans has become a false hope.  Just staying even is the new goal, if not the new American dream.

            Tax policy can reverse this trend, just as it has largely caused it.  The heavily graduated income tax rates that existed as the country emerged from World War II, with the highest rates over 90% for the top five percent of all incomes, have been reduced to barely 30% under the now-extended Bush tax cuts.  With little asked of them in terms of shared sacrifice, wealthy Americans have gotten ever wealthier. 

            And with little support from those on top, middle- and lower-class Americans have had to bear ever more of the burdens of making ends meet.  In essence, we have become a two-tiered society, with the few super rich on the top tier, and everyone else just plain struggling to make ends meet.

            In the face of this reality, a plan that seeks to reduce entitlements like Medicare and programs for the poor like Medicaid, while reducing taxes even more for the upper tier elite, is unconscionable, if not immoral. 

            Instead, the country should revert in the direction of the more significantly graduated personal income rates of the post WWII era.  If not a top rate of 91%, the rates that existed during those boom years of the Clinton presidency should be re-instated. 

            And, let’s recall that, coincidentally or otherwise, in the years following the 1993 Clinton tax increase, the economy, far from collapsing, as most Republicans predicted, actually exploded.  On the other hand, the years following the Bush tax cuts were dismal, if not devastating.

            Reverting to the Clinton tax rates will marginally increase taxes for middle- and lower-income Americans, while substantially increasing taxes for the upper crust types.  The result will be an immediate reduction of the deficit by at least half, according to most economists who have studied this alternative.  (The reduction would be even greater if/when the economy returns to anything close to normal output, something most economists believe is inevitable under any tax plan.)

            What I’m proposing is a new form of shared sacrifice.  It recognizes the value of taxes under this variant of a time-honored cliché: “You have to pay for what you get.”

            Most Americans want to be free of need or fear in their later years.  And they aren’t going to work any less knowing that their government is going to provide for them in those years.

            The choice is an easy one.  The nation can move in one of two distinctly opposite directions: towards a society with a small number of super-rich and an uncared for and left-to-their-own-devices citizenry, or towards a society with shared sacrifice that provides basic needs for those who have worked hard and struggled all their lives just to make ends meet.  Given the choice, the vast majority of Americans would opt for the latter alternative. 

            So, here’s the plan: Share the sacrifice.  Roll back the Bush tax cuts for everyone.  Then, when we reach a new sense of stability regarding budgets and deficits, we can look more dispassionately at what we want to get for what we pay.