As We Approach the Fiscal Cliff: What is the GOP’s Primary Goal?

In theory, the GOP’s main concern is the deficit. We must reduce it they say—and we must do it now–or face a financial Armageddon. But somehow or other, “cutting the deficit” always turns out to mean “reducing entitlement programs.”

Let me suggest that cutting those entitlements programs is the GOP’s primary goal.

Why would I say this?

Earlier this week , wh en Republican House speaker John Boehner presented his party’s counter-proposal for solving the budget deadlock, he once again put lifting the eligibility age for Medicare from 65 to 67 near the top of his list. Yet, it you take a hard look at the numbers, it becomes clear that this proposal would not save money–or strengthen the economy. Moreover, entitlement programs did not create the current deficit.

Begin with forcing seniors to wait until they are 67 before they can apply for Medicare. As I explain in the post above, this proposal simply shifts costs to employers, the states, everyone buying insurance in the Exchanges, other Medicare beneficiaries, and 65 and 66-year-olds themselves. It does not lower the nation’s total healthcare bill. Indeed, the GOP’s remedy would wind up costing us twice as much as we now spend providing Medicare benefits for people who are 65 and 66. (See graph in the post above).

I am not  the first person to make this argument. The Kaiser Family Foundation and the Center for Budget Policy and Priorities  offer  eye-opening numbers that prove the point.  One would think that, if the GOP’s main goal were to save the economy, Republicans would be interested in these numbers.

One would be wrong.  They ignore them (and seem to have persuaded the mainstream media to follow suit.) Why would conservatives close their eyes to the financial facts? The GOP has an agenda, and it’s not about the deficit. The party’s main fear is “creeping socialism.”

Conservatives use the deficit as an excuse for slicing benefits that they acknowledge will inflict pain on the people who most depend on Medicare, Medicaid and Social Security—the elderly and the poor.

 

Hat tip to Igor Volsky for calling attention to the language that Senator Bob Corker [R-TN] used Sunday when he appeared on Meet the Press to talk, proudly, about the “very painful cuts” he was proposing as part of a package to avert the fiscal cliff.” (Given his righteous tone, one would think that Corker himself was going to suffer.) As Volsky concluded: “The cuts are designed to shrink entitlement programs and consequently cause very real pain to the people who benefit from them.”

Why are Republicans so bent on shrinking “entitlements”?  As a matter of principle, they just don’t believe that Americans are “entitled” to a helping hand from government. After all, the funding for those acts of kindness comes from taxes, which means that wealthier Americans wind up reaching out to those who are poorer, sicker and older. Conservatives see this (correctly) as “redistribution of income.”

This is why they call the government safety-nets  “entitlements”—conjuring up unpleasant memories of Ronald Reagan’s imaginary “welfare queens” demanding their due. For more than twenty-five years, “deficit hawks” have been trying to find a way to dismantle, privatize, or otherwise vaporize these programs.

I can recall Wall Street mogul Pete Peterson arguing that the middle-class gets too much from government back in 1994. How did Peterson define middle-class? In a 1996 article published in The Atlantic Monthly, he suggested that entitlements should be reduced for households earning over $40,000–i.e. any family earning more than 5 percent above U.S. median income that year. And at that point, the economy was not in trouble. There was no reason for slashing Social Security, Medicare and unemployment insurance except that  some conservatives found these programs morally offensive.

But Today, Aren’t Medicare, Medicaid and Social Security Driving the Deficit?

Conservatives declare that the link between “entitlements” and the deficit is obvious  Tyese programs have driven us into debt. They have said this so often, and so loudly, that many in the media now seem to believe it: We would not have a deficit if Medicare were not so expensive.

But I would point out that, at the end of the 1990s, when Bill Clinton left office, this nation was running a surplus—despite the fact the millions of Americans were receiving Medicare, Medicaid and Social Security benefits. What is the difference between now and then? What happened to the budget surplus the federal government had in 2000?

The Bush tax cuts added over $2 trillion to the deficit; the wars in Iraq and Afghanistan piled more than $1 trillion on top of that that heap of debtm  followed by  the Great Recession, which  decimated tax revenues while leading to a sharp rise in spending on unemployment insurance.

Nevertheless,  the pundits blamed the public for asking for government help .  Nobel-winning economist Paul Krugman explains: “The idea is that we got into this mess because voters wanted something for nothing, and weak-minded politicians catered to the electorate’s foolishness.”

This  simply is not true: “The policies that got us into this mess were not  responses to public demand,” Krugman writes. “They were, with few exceptions, policies championed by small groups of influential people — in many cases, the same people now lecturing the rest of us on the need ‘to get serious'” and cut entitlements.)

So who was responsible for creating the deficit? “It wasn’t the man in the street,” Krugman observes:

“President George W. Bush cut taxes in the service of his party’s ideology, not in response to a groundswell of popular demand — and the bulk of the cuts went to a small, affluent minority.

“Similarly, Mr. Bush chose to invade Iraq because that was something he and his advisers wanted to do, not because Americans were clamoring for war against a regime that had nothing to do with 9/11. In fact, it took a highly deceptive sales campaign to get Americans to support the invasion, and even so, voters were never as solidly behind the war as America’s political and pundit elite.”

At the end, of the Bush era,  government deregulation of banks (which let them lend to people who had little hope of paying their mortgages) led, in turn,  the Great Recession

“And who was responsible for that deregulation?”” asks Krugman. “Powerful people in Washington with close ties to the financial industry, that’s who. Let me give a particular shout-out to Alan Greenspan, who played a crucial role both in financial deregulation and in the passage of the Bush tax cuts — and who is now of course, among those hectoring us about the deficit.

“So it was the bad judgment of the elite, not the greediness of the common man that caused America’s deficit.”

In another column Krugman goes so far as to suggest that when the Bush administration “cut taxes in the face of a war,” — something that this nation had never done before–  “it was also clearly following a starve-the-beast budget strategy. Tax cuts that reduced the revenue base” would “force later spending cuts . . .  In effect,” Krugman suggests, “it was a strategy designed to produce a fiscal crisis, so as to provide a reason to dismantle the welfare state.”

Whether or not that was the administration’s conscious design, Krugman turned out to be entirely right: That has been the effect. (Whether Bush, or his team, were capable of “conscious design” is another matter.)

Today Republicans claim that we have no choice. Even though the economy remains at best, “fragile” they argue that this is the time to rein in benefits for our most vulnerable citizens—despite the fact that bargain-basement interest rates make it possible for us to pay the interest on the government’s debt until the economy recovers,

On the other hand, if  we cancel tax cuts for the top 2%, and raise taxes on investment income and inheritances (as the Obama administration has suggested)  tax revenues will rise, creating a ladder that we could use to begin to climb out of the deep financial hole that the Bush administration dug.

                               Will the Bond Market Give Us Time to Dig Out?

Conservatives have long claimed that if we don’t take drastic measures to bring down the deficit, bond-market investors will revolt. But the truth is that, at this point, the bond market has not tanked.

I’ve followed financial markets for enough years to know that they are only as rational as we are—and thus not terribly predictable. 

That said, my best guess is that if Republicans and Democrats don’t reach an agreement by January 1, you might see a temporary panic in the bond and/or stock markets. But the fiscal “cliff” is really a rather small slope.

While the markets might over-react for a week or so, nothing extreme will happen to the economy on January 2.  The spending cuts and tax increases would roll out over over  a period of months—and during that time, I believe that Democrats will win the debate about letting tax cuts for the wealthiest 2% expire. At that point, Democrats and Republicans will agree to extend tax breaks for the remaining 98%, making those cuts retroactive to January 1.  Then, they will agree to decide about the spending cuts later in 2013.

I say this because President Obama is remaining resolute. He knows that a growing number of Democrats recognize that if we take a ride over the fiscal slope, the economy will not collapse.  And in 2013, when the country blames Republicans for higher taxes (as polls suggest they will) the president will be in a stronger position to negotiate a settlement that won’t hurt our most vulnerable citizens.