America Faces Three Serious “Cliffs,” None of Them Fiscal

Robert Reich’s Blog / By Robert Reich [1] December 6, 2012  |

The “fiscal cliff” is a a metaphor for a government that no longer responds to the biggest challenges we face because it’s paralyzed by intransigent Republicans, obsessed by the federal budget deficit, and overwhelmed by big money from corporations, Wall Street, and billionaires.

If we had a functional government America would address three “cliffs” posing far larger dangers to us than the fiscal one:

The child poverty cliff.

Between 2007 and 2011, the percentage of American school-age children living in poor households grew from 17 to 21%. Last year, according to the Agriculture Department [2], nearly 1 in 4 young children lived in a family that had difficulty affording sufficient food at some point in the year.

Yet federal programs to help children and lower-income families – food stamps, aid for poor school districts, Pell grants, child health care, child nutrition, pre- and post-natal care, and Medicaid – are being targeted by the Republican right. Over 60 percent of the cuts in the GOP’s most recent budget came out of these programs.

Even if these programs are preserved, they don’t go nearly far enough. But the Obama Administration doesn’t talk about reducing poverty in America. It talks only about preserving the middle class.

Yet unless we focus on better schools, better health, and improved conditions for these poor kids and their families, in a few years America will have a significant population of under-educated and desperate adults.

The baby-boomer healthcare cliff.

Healthcare costs are already 18% of GDP. Between now and 2030, when 76 million boomers join the ranks of the elderly,those costs will soar [3]. This is the principal reason why the federal budget deficit is projected to grow.

The Affordable Care Act offers a start but it isn’t nearly adequate to limit these rising costs. The President and the Democrats have to lead the way in using Medicare and Medicaid’s bargaining power over providers to get lower costs and to move from a fee-for-service system to a fee-for-healthy outcomes system of healthcare.

But we can’t avoid the fact we have the most expensive and least effective system of health care in the world that’s spending 30 percent more on paperwork and administration than on keeping people healthy. The real healthcare cliff can only be avoided if we adopt a single-payer healthcare system.

The environmental cliff.

Global emissions of carbon dioxide jumped 3 percent in 2011 and are expected to jump another 2.6 percent this year according toscientists [4], putting the human race perilously close to the tipping point when ice caps irretrievably melt, sea-levels rise, and amount of available cropland in the world becomes dangerously small.

Yet Republicans (and their patrons, such as Charles and David Koch) continue to deny climate change. And the Administration is no longer pushing for a cap-and-trade system or a carbon tax.

Yet unless we act to reduce carbon emissions, other major emitters won’t do so. The only binding pact so far is the Kyoto Protocol, which the U.S. never joined. And we’re taking no leadership at the international climate talks now taking place in Qatar.

Yes, America does face a cliff — not a fiscal cliff but a set of precipices we’ll tumble over because the GOP’s obsession over government’s size and spending has obscured them. And Democrats so far haven’t been able or willing to sound the real alarms.

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Bush-Era Tax Cuts Projected As Largest Contributor To Public Debt [CHART]

The Huffington Post by William Alden
First Posted: 05/20/11 Updated: 07/20/11

If the Bush-era tax cuts are renewed next year, that policy will by 2019 be the single largest contributor to the nation’s public debt — “the sum of annual budget deficits, minus annual surpluses” — according to new analysis from the non-partisan Center for Budget and Policy Priorities.

These tax breaks, combined with the cost of fighting wars in Iraq and Afghanistan, will account for nearly half the public debt in 2019, measured as a percentage of economic output, the CBPP’s analysis shows. Even the cost of the economic downturn, combined with the cost of the legislation passed to stem the damage, won’t be as burdensome as the weight of the Bush-era tax cuts, the chart below suggests. See if you can find the debt associated with the Trouble Asset Relief Program and the rescue of Fannie and Freddie:

link to chart

Tax cuts for the highest earners were renewed late last year, as part of a deal that extended tax breaks for middle earners and reauthorized unemployment insurance. In an April speech, President Barack Obama laid out a plan to reduce the nation’s deficit and debt, suggesting that he would strive to make sure the tax cuts for the highest earners expire naturally in 2012.

If tax cuts do expire as scheduled, that would win significant debt relief for the government, CBPP says:

[S]imply letting the Bush tax cuts expire on schedule (or paying for any portions that policymakers decide to extend) would stabilize the debt-to-GDP ratio for the next decade. While we’d have to do much more to keep the debt stable over the longer run, that would be a huge accomplishment.

Correction: An earlier version of this post incorrectly stated in one instance that the tax cut portion of the chart refers to tax cuts for the top earners. In fact, the Bush-era tax cuts apply to a broader range of income levels.

New Report Reveals Relationship Between Rapid Growth of the Financial Sector and the Weak Real Economy

Demos, December 5, 2012

NEW YORK – December 5 – Published today, a new report from national policy center Demos reveals a surprising and important relationship between the rapid growth of the financial sector and the weak economy: Wall Street’s share of GDP has jumped dramatically since deregulation commenced in 1980 and, at the same time, it has become less and less efficient at its true utility – serving as a pipeline funneling capital from investors to productive businesses in the Real Economy.

According to the report, “Cracks in the Pipeline: Restoring Efficiency to Wall Street and Value to Main Street” by Demos Senior Fellow and former Goldman Sachs investment banker Wallace Turbeville, the total value the financial industry currently extracts – in excess of historic levels of capital intermediation costs – is $635 billion dollars annually. The financial sector should be compensated for intermediating between investors and users of capital, but the current levels are particularly startling. Advances in information technology and quantitative analysis must have made elements of the process more efficient and less costly. However, those advances have been deployed to divert more capital from the pipeline of intermediation to ensure unprecedented profits for the intermediators themselves.

Turbeville details how three additional factors have reversed Wall Street’s historically productive role: 1) the consolidation of market power, 2) the era of deregulation, and 3) shifts in industry compensation to short-term performance benchmarks.  As a result, the higher cost of capital prevents producers from growing, and job growth and consumption is stunted, income inequality grows, and monetary policy is less effective.

“The principal social value of financial markets is to facilitate the efficient deployment of funds held by investors to productive uses – like factories, infrastructure, and jobs,” said Turbeville. “However, the model has changed in recent decades, and Wall Street is siphoning money from the capital pipeline that should grow the real economy. Simply stated, a system in which almost one-third of all earnings go to the relatively unproductive financial sector weakens the broader economy.

“As we continue to debate the costs and benefits of financial regulation, the opponents of reform repeatedly raise the specter of declining market liquidity that damages the economy,” continued Turbeville. “Liquidity is one thing; sheer volume is another. A great deal of trading activity reduces individual transaction costs, but extracts value from the economy that far outweighs this benefit. To say that regulation is burdensome simply because it might reduce volume focuses attention on costs of individual trades, and away from the truly valuable function of capital intermediation.”

Heather McGhee, Demos’ Vice President of Policy and Outreach, added, “Until the financial sector again serves its purpose as a utility enabling broad economic growth, its unchecked rise and speculative innovations are actually damaging our economy, not contributing to it. Reforms such as the Volcker Rule improve the capital intermediation model in ways that may challenge industry players. A cost to Wall Street may well be a benefit to the economy.”

“Cracks in the Pipeline: Restoring Efficiency to Wall Street and Value to Main Street” is the first in a series of “Financial Pipeline” papers by Wallace Turbeville.  Subsequent papers will examine the impact of high frequency trading, derivatives, and the financialization of the U.S. economy. The “Financial Pipeline” series is part of Demos’ ongoing work to promote a vision of Wall Street as a conduit for productive investment and expanded opportunity in the broader economy. For interviews, please see contact information above.

Read “Cracks in the Pipeline”:


Dēmos  212.633.1405 |

A multi-issue national organization, Demos combines research, policy development, and advocacy to influence public debates and catalyze change. We publish books, reports, and briefing papers that illuminate critical problems and advance innovative solutions; work at both the national and state level with advocates and policymakers to promote reforms; help to build the capacity and skills of key progressive constituencies; project our values into the media by promoting Demos Fellows and staff in print, broadcast, and Internet venues; and host public events that showcase new ideas and leading progressive voices.

Norquist still calling cadence in GOP ranks

By Peter Wallsten, Washington Post, December 2, 2012

At times, it has seemed that Republican lawmakers eyeing a fiscal compromise with President Obama were moving closer to a public split with Grover Norquist, author of the famous no-new-taxes pledge that has defined conservative politics for decades.

Yet Norquist, whose influence in the conservative movement spans well beyond his well-known fixation on taxes, remains an unwavering force in the GOP debate — and even some of the most prominent lawmakers publicly flirting with a break from Norquist have assured him in private that they remain loyal soldiers in the anti-tax cause.

Sen. Saxby Chambliss (R-Ga.), for example, might have seemed a perfect illustration of the trend away from Norquist’s hard-line views when he said recently that policies backed by Norquist would lead to more debt.

“I care too much about my country — I care a lot more about it than I do Grover Norquist,” the senator told a Georgia TV station.

But five days later, on the phone with Norquist, Chambliss was sounding a conciliatory tone. As Norquist read aloud a transcript of Chambliss’s earlier remarks, item by item, Norquist recalled later, the senator repeatedly assured him on each one that he did not mean to imply they had major differences when it came to GOP principles on taxes.

“He said he’d wished he hadn’t invoked my name and wished that he’d been clearer,” Norquist recalled from the Monday conversation.

Norquist said he came away from the conversation with this understanding of Chambliss’s position: “If he’d get a jillion dollars of spending cuts, he’d be willing to get rid of a deduction or two.”

Chambliss’s office said he was unavailable for an interview. A Chambliss aide later said that the purpose of the call was “most definitely not an apology.” In a written statement to The Washington Post, the senator said he and Norquist agree on “the vast majority of fiscal policy,” including that tax rates should not rise and spending should be reined in, though he added: “Grover disagrees with my longstanding position of using some revenue from closing special-interest loopholes to pay down our national debt, which is something I’ve never apologized for.”

For two decades, Norquist, 56, has been the most ardent enforcer of the Republican Party’s anti-tax theology. And Republicans have dutifully hewed close to that dogma.

But humbled by last month’s election results, and facing a ­determined President Obama in deficit-reduction negotiations with tax rates set to rise Jan. 1 for all Americans as part of the “fiscal cliff,” several Republicans in recent days have expressed a willingness to compromise. Some have suggested striking a deal with Obama to raise tax rates on higher-earning Americans, as the president has pushed for, or rolling back tax credits and closing loopholes as a way to increase revenue — stances that could well violate the Norquist pledge.

The debate over the fiscal cliff presents a test for Norquist, whose influence is likely to rise or fall depending on how the fight plays out in the coming weeks — and what punishment, if any, Norquist can exact on GOP lawmakers he views as transgressors.

“There are going to be some people who took that pledge that vote for tax increases, and the way he handles that will either preserve his influence or diminish it,” said Charlie Black, a veteran Republican lobbyist and strategist. Still, for now, Black acknowledged, “he is as influential as ever.”

More evidence of Norquist’s enduring influence in the GOP came last week in the way conservatives closed ranks around him during an unusually packed session of the regular meeting of activists and GOP officials Norquist hosts every Wednesday at his Americans for Tax Reform offices near Metro Center.

One after the other, par­ticipants rose to congratulate Norquist for his multiple television and radio appearances defending the tax pledge, and to assure the crowd that Republican activists and lawmakers would stand firm against Obama’s call to raise taxes. Attendees included emissaries from House Speaker John A. Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.).

“The fact they’re attacking Grover really shows the impact of what he’s doing,” Rep. Steve Scalise (R-La.), incoming chairman of the conservative caucus in the House known as the Republican Study Committee, said as the room burst into applause and cheers. Scalise then declared himself “proud to be a pledge signer.”

Norquist says he will not hesitate to support 2014 primary challenges against Republicans who violate the pledge. His group spent $15.7 million in the 2012 election, mostly against Democrats, according to the Center for Responsive Politics.

The threat of a primary fight is unnerving for many Republicans, and it helps explain why even some of Norquist’s apparent critics in the GOP — such as Chambliss, who is up for reelection in 2014 — want to smooth over any apparent tensions.

Sen. Lindsey O. Graham (R-S.C.) told ABC last week that Norquist was wrong to oppose finding new revenue by capping deductions and that “I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform.”

The remarks did not faze Norquist. In an earlier private telephone chat, Norquist said, Graham had assured him that he would compromise on taxes only if Democrats agreed to entitlement changes “on a massive scale” — prompting Norquist to tell Graham that he would “never be tempted” to raise taxes because the left would never make such a concession.

Rep. Tom Cole (R-Okla.), who caused a stir when he urged House Republicans to consider letting taxes rise on the highest-earning Americans to preserve lower rates for others, later told CNN that “I admire Grover Norquist, I think he’s doing a lot of good,” and that he was “honored” to have signed the tax pledge. Cole said he did not think his idea violated the pledge.

Norquist said he also has had private conversations with Sen. Bob Corker (R-Tenn.), who said Sunday on “Meet the Press” that he was “not obligated to any pledge other than my oath.” Norquist, appearing on the same program, said Corker had been “seduced into thinking, well, maybe I’ll have a small, tiny tax increase and have real reform and we’ll move forward.”

Norquist’s influence extends beyond the famous anti-tax declaration. In addition to heading Americans for Tax Reform, which he launched at the behest of President Ronald Reagan to lobby for White House priorities during the 1986 tax debate, Norquist is closely aligned with some of the GOP’s most well-heeled and politically active groups.

He sits on the board of the National Rifle Association, for instance.

Americans for Tax Reform does not disclose its donors, but The Post reported in April that Crossroads GPS, the political organization co-founded by Karl Rove, gave Norquist’s group $4 million in 2010.

Norquist also has built clout among key activists and politicians in Washington and around the country through his regular Wednesday meetings. His focus on fiscal policy, a unifying issue across all facets of conservatism, has helped Norquist take on the additional role of a sort of orchestra conductor for the political right.

The meetings, begun in 1993 with a small group rallying opposition to President Bill Clinton’s health-care plan, now bring together fiscal hawks, social conservatives, tea party followers, home-schoolers, gun enthusiasts, opponents of same-sex marriage — even Republican gays and abortion rights backers — for invitation-only strategy sessions. Top GOP officials or their staff members attend each meeting, as do key conservative group leaders. During the George W. Bush presidency, the White House regularly dispatched senior aides to attend.

“I’ve never seen anyone who understands coalitions more fully,” said Marjorie Dannenfelser, president of the Susan B. Anthony List, which raises money to elect women who oppose abortion rights, and a regular Wednesday attendee. “I’m in there with pro-choice Republicans.”

The off-the-record meetings have been replicated in 48 states. Norquist and his staff help coordinate those gatherings, giving him frequent and direct access to governors, state legislators and key activists on the ground far outside the Beltway — and in the back yards of GOP lawmakers considering a break from the tax pledge.

In 2009, Americans for Tax Reform moved locations, and Norquist custom-designed a meeting space with stadium seating and a giant glass wall to allow for sidebar conversations among participants who come to network as much as to listen to presenters.

At the 11 / 2-hour meeting, an intern counts participants every 15 minutes so Norquist can mon­itor the level of attendance throughout each session. Last week, with Norquist at the center of the fiscal-cliff debate, there were as many as 205 attendees.

Norquist used characteristically colorful language to warn Republicans that should they agree to raise taxes on wealthy people, pressure will mount for them to give even more ground. “The reason you don’t want your fingerprints on the murder weapon,” he said, “is that someone will ask you to use it again.”

Heads nodded in approval.

Wall Street CEOs are the ‘Faces of Class Warfare’

- Common Dreams staff, Published on Friday, November 30, 2012 by Common Dreams

Sen. Sanders: Wall Street CEOs are the ‘Faces of Class Warfare’

Incredulous that Wall Street investment bankers and billionaire CEOs have descended on Washington in the midst of ongoing budget talks to tell Americans that they should “lower their expectations” when it comes to the security of their retirement and future health care, Vermont Senator Bernie Sanders took to the Senate floor Thursday to call out the audacity of corporate-minded millionaires and billionaires, calling them the new “face of class warfare” in the United States.

“I find it literally beyond comprehension, that we have folks from Wall Street who received huge bailouts from the people of our country—from working families in this country—because of the greed and recklessness and illegal behavior, which Wall Street did to drive us into this recession, and now these very same people are coming here to Congress to lecture us and the American people about how we have to cut Social Security, Medicare, and Medicaid while they enjoy huge salaries and retirement benefits.”

Sanders specifically called out CEO of Goldman Sachs, Lloyd Blankfein, who has recently been making both the media rounds and consulting with lawmakers regarding the ongoing tax and budget debate in Washington during the current lame duck session. Blankfein, one of the highest paid executives on Wall Street and worth hundred of millions personally, made the comments about ‘lowered expectations’ in a recent evening news interview with CBS and said that average Americans should understand that the US simply can’t “afford” to maintain programs like Social Security and Medicare.

The facts of such sentiments, as many economists repeatedly point out, are false, but Sanders said that Blankfein delivered the familiar rightwing trope “with all the sympathy for someone struggling to get by on $14,000-a-year retirement that you’d expect from a Wall Street banker paid $16 million last year.”

Blankfein is also a member of the CEO cabal that has come together under the banner ‘Fix The Debt’ to protect the historically low tax rates of the nation’s wealthy elite while simultaneously calling for the slashing of social programs. As the Huffington Post reports:

CEOs including Blankfein have been warning that the fiscal cliff could hurt business investment, hiring and the economy as a whole, and they have been calling for cuts to the social safety net to avert it. Dozens of major CEOs, including Blankfein, are members of the CEO council of the campaign Fix the Debt, which calls for cuts to Medicare and Medicaid and vague Social Security reform to address the deficit. More than 80 CEOs, including Blankfein, also signed a recent letter calling for deficit reduction.

But as a recent report from the Institute for Policy Studies aimed to show, the ‘Fix the Debt’ campaign, which has raised $60 million to lobby for a debt deal that “would reduce corporate taxes and shift costs onto the poor and elderly,” is really just a Trojan horse designed to use an invented debt crisis to achieve long-held agenda goals.

“Think about the arrogance of these guys on Wall Street who were bailed out by the middle class of this country when their greed and recklessness nearly destroyed the financial system and now they come to Capitol Hill to lecture Congress and the American people about the need to cut programs for working families.” — Sen. Bernie Sanders

The CEOs involved in the group, including Blankfein, are trying to “pass themselves off as noble leaders who are willing to compromise in order the save America from financial ruin,” explain co-authors of the report Scott Klinger and Sarah Anderson. But the reality is that these CEOs are “leveraging the ‘Fiscal Cliff’” in order to push age old attempts to avoid paying taxes at the expense of those in need, they say.

And, as Ezra Klein points out in a recent Bloomberg op-ed, the US has an ‘austerity crisis’ not a ‘debt crisis’. Klein argues that employing the much-used term “fiscal cliff” mistates the nature of the financial and policy realities. Worse, he says, the term “provides no hint of how to solve it.”

He says, “I prefer the term ‘austerity crisis,’ which at least describes the real issue — too much austerity, imposed too quickly.”

Called by its true name or not, the CEOs behind ‘Fix the Debt’—with Lloyd Blankfein and Honeywell’s David Cote leading the charge— are using the generated panic around the talks as a way to impose their own interests and have proven unafraid to speak boldly and use their fast resources to make their case.

However, what Klinger and Anderson call ‘leverage’, Sanders simply called arrogance Thursday.

“Think about the arrogance of these guys on Wall Street who were bailed out by the middle class of this country when their greed and recklessness nearly destroyed the financial system and now they come to Capitol Hill to lecture Congress and the American people about the need to cut programs for working families,” he said.

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The Biggest Lie in America Today

by  Jeff Freeman | Liberal is Logical, 30 November 2012

Grover Norquist, a conservative lobbyist and founder of Americans for Tax Reform, has made a career by trumpeting the biggest lie in American politics.  The problem is most people don’t know it’s a lie.  By continuing to push the idea that Americans are overtaxed, Mr. Norquist has added to a growing misconception about taxation in the US.

The New York Times Reports that in 1944 when the US was engaged in World War II, in spite of historically high income tax rates, including a 94% tax rate on the highest earners, roughly 90% of all Americans believed their tax rates were fair.  Yet today, as the US remains entrenched in an eleven year war in Afghanistan and with historically low income tax rates including roughly half the country having no income tax liability at all, a shrinking number of Americans still believe their rates are fair.  In fact, it was the perceived threat of higher taxes that eventually gave birth to the conservative Tea Party movement, a group whose very name is an acronym for Taxed Enough Already.

Grover Norquist’s assertion that Americans are overtaxed, an assertion that a growing number of Americans believe, has been the central focus of his work in politics; and make no mistake about it, he makes a very convincing case.  Mr. Norquist can rattle off a series of statistics to support his positions, and while his figures are often taken out of context, his influence should not be dismissed.  After all, he did get 95% of all Congressional Republicans to sign an anti-tax pledge.  Mr. Norquist’s position is not a difficult one to defend.  Honestly, who wouldn’t want to pay less in taxes and it’s an easy argument to fit on a bumper sticker?  But with talks around the fiscal cliff heating up and with every government program with the possible exception of Social Security potentially on the chopping block, a simple question must be asked.  Are Americans really overtaxed?  Getting to the root of this issue is not easy, but it is necessary.

Taxation is a complex issue, so for the purpose of objectivity we will briefly examine three major areas of taxation: individual income tax rates, corporate income tax rates, and tax revenue as a percentage of gross domestic product (GDP).  Leaving politics aside, let’s take a look at the numbers and see how they compare both historically and in relation to our peers in the Organization for Economic Cooperation and Development (OECD).  First, let’s consider the single biggest provider of federal revenue, the individual income tax.  Income tax rates today are at historically low levels.  Across all income brackets, tax rates are as low as they’ve been since 1930 and are only a third of what they were in the 1940′s and 50′s.[1]

Comparatively speaking, the US has some of the lowest income tax rates of any major economic player in the world.  Ranking only 23rd, America does not come close to breaking into the top 10 nations in terms of income tax rates.  In fact, the income tax rate in the US on the highest earners is a full 15% lower than the rate in Ireland, which has only the 10th highest income tax rates in the world.[2]  Turning to corporate taxes, while the US corporate tax rate at 35% on the highest business incomes seems a bit high, in reality the average US corporate income tax is still below the median effective rate among OECD nations. Finally, in terms of all forms of tax revenue as a percentage of GDP, the US ranks only 31st among OECD nations at 25.1% of GDP, which is a lower percentage share than it had in 1945, 1965, 1985, and 2005.[3]

If you’ve traveled abroad much, particularly to developing nations, you may come to realize just how much the US government provides for its people and how effective and efficient our nation’s government is when compared to the rest of the world.  Certainly there is a lot of wasteful spending and we should always seek to achieve an even more effective and efficient government, but the idea that US citizens are overtaxed is simply not supported by the evidence, neither historically nor relative to other nations.

The premise upon which Grove Norquist has built his entire career is false and in my opinion the biggest lie in American politics today.  Popular as it may be, it is this sort of foolishness that has made it impossible for politicians to address the issue of taxation in any real or meaningful way, and it has played a major role in creating the huge debt and deficits our nation now faces.  There are real debates to be had about what government should and should not invest in, but we would do well to recognize that Americans are not overtaxed.  In fact, as unpopular as it is to say, we’re simply not taxed enough.  And if you’re not an American and happen to be reading this post and are wondering why it didn’t discuss any form of a national consumption tax, commonly known as VAT, it’s because the US doesn’t have one.  That’s right, America is among only a handful of nations that has no national VAT.  On that note I’ll ask again.  Are Americans really overtaxed?  Not likely.

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‘Fix the Debt’: How 1%ers Build a Mass Movement for Millionaires

by Kevin Roose, November 30, 2012 by New York Magazine

The Fixers: How Fix the Debt Won Over Wall Street and Built a Fiscal Cliff Army

“You meet people, and you’re all trying to work on something together. It’s its own little think-tank.”

“The beautiful thing about this is that, when you get a room full of incredibly bright people with compelling ideas together in a room, something good comes of that.”

“We would lose people if we got more specific about our goals. We’d rather try to influence the overall broad parameters of what happens.”

Quick: Which loosely organized, quasi-ideological faction came up with those lofty expressions of idealism?

If you guessed Occupy Wall Street, you were wrong. They came from recent interviews with top-level members of Fix the Debt, the high-minded confab of business elites that is pushing for bipartisan deficit reduction ahead of the so-called “fiscal cliff.”

The Campaign to Fix the Debt, as it is properly known, is a four-month-old effort led by Alan Simpson and Erskine Bowles, the bipartisan duo who unsuccessfully tried to push a deficit-reduction scheme through Congress in 2010. With a reported $43 million war chest and the support of Peter G. Peterson, the Blackstone billionaire and leader of the deficit-scold movement, the group has been waging a nationwide media campaign meant to encourage President Obama and House Republicans to work together to avoid the expiration of the Bush income tax cuts and get long-term spending under control.

At its top levels, Fix the Debt has quickly morphed into a massive business kaffeeklatsch — a stateside Davos, with fewer panels on green energy and more talk of baselines and dynamic scoring. The organization’s “CEO Council” now consists of roughly 150 executives, many of them recognizable names from Wall Street’s upper echelons. The leaders of Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America, and Citigroup are all in, as are a number of well-known investors like Bill Ackman and Bain Capital’s Josh Bekenstein. Members of the group have a multitude of reasons for getting involved — real concerns about the deficit, a desire to make their voices heard in Washington, and, for some, a chance to hop on a growing bandwagon filled with A-list peers.

The single-minded mobilization of Wall Street’s finest raises a question: How, exactly, did this group of corporate chieftains assemble?

Fix the Debt prefers to keep its behind-the-scenes operations under wraps. Most on-the-record comments are a mishmash of platitudes about shared sacrifice and working together for the good of the country. But interviews with a number of organizers and CEO council members point to a massive networking effort among one-percenters — one that relies on strategically exploiting existing business relationships and appealing to patriotic and economic instincts.

The roots of the movement were planted last September, at a series of private dinners held at the home of Virginia Senator Mark Warner, and hosted by Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. In attendance were budget experts like Alice Rivlin and politically active CEOs including David Cote of Honeywell and Mark Bertolini of Aetna. MacGuineas, a longtime Peterson ally, told the CEOs that their help — along with the support of small-business leaders and private citizens — could help steer the conversation about the deficit in a way that could essentially save the economy from Washington’s gridlock.

When Fix the Debt was officially launched in July, it had a working budget of about $3 million, and the most visible talking heads were the group’s centrist political figures: Simpson, Bowles, Pennsylvania Governor Ed Rendell, and former New Hampshire Senator Judd Gregg. MacGuineas was the official spokesperson. But that changed as Cote, Bertolini, and other early organizers like BlackRock chief Larry Fink began reaching out to their fellow business titans, setting up small lunches and dinner meetings, and bringing new recruits into the fold. Executives recruited their friends, board members, and clients, who then dug into their own networks on the group’s behalf. “CEO Tools” were given to members to use in pitching the Fix the Debt platform, including sample letters to employees and Powerpoint decks to “communicate the debt story in a visual way.”

A vast and powerful fund-raising machine emerged. Cote and other non-bank CEOs targeted their peers in the Fortune 500, while Simpson and Bowles leaned on their various political and corporate connections (Bowles, a board member of Morgan Stanley, is said to have gotten the bank’s CEO, James Gorman, in the mix). Steven Rattner and James B. Lee, Jr., it was decided, would head up the Wall Street push.

The choice of Rattner and Lee as Fix the Debt’s main financial industry recruiters was an indicator of the group’s division-healing ambitions. Rattner — an Obama administration auto czar, Bloomberg consigliere, and former private equity executive — had the Democratic bona fides to woo left-of-center financiers. “Jimmy” Lee, the vice chairman of JPMorgan Chase and right-hand man to CEO Jamie Dimon, had a golden Rolodex and an ability to get Republicans on board. The two had butted heads on deals before (most notably, during the 2009 Chrysler bailout, when Rattner represented the government and Lee negotiated on behalf of Chrysler’s creditors). But now they would work together to shoehorn their Wall Street connections into the movement and get them not only to contribute their time, but their cash as well.

“Maya came to me and said, ‘I’ve got a $3 million budget,” Lee says. “And I said, ‘Maya, it costs a billion dollars to run for president. Where’s $3 million going to go?’”

While Rattner began touting the group’s aims on cable TV shows, Lee formed a team of government-relations types and began working the phones. “Steve and I are running it like a deal,” Lee says. “We’ve got a syndicate book, if you will — who’s spoken to who, how much they’ve contributed.”

Soon Wall Street machers — some of whom had been major supporters of Mitt Romney and were looking for a way to recover their Washington influence after Romney’s election loss — were tripping over themselves to contribute to the cause. Rattner and Lee, along with Cote and other members of the Fix the Debt steering committee, raised tens of millions in a matter of weeks.

“Jimmy’s very persuasive,” said one Fix the Debt recruit. “He’s very good at getting a good group of people together in a room, talking about good ideas.”

“These phone calls take about a minute when you explain what you’re doing,” Lee told me. “It doesn’t matter if you’re talking to a Democrat or a Republican — they say, ‘where do I sign?’”

Not all of the chieftains’ pitches worked, though. Lee tried and failed to persuade Blackstone co-founder Steve Schwarzman to join the cause, according to one insider. President Obama’s longtime allies on Wall Street — hedge fund manager Marc Lasry, Evercore Partners founder Roger Altman, and former UBS banker Robert Wolf, among others — are conspicuously absent from the CEO council. And, for reasons having more to do with the gender makeup of the Fortune 500 than the appeal of deficit hawkery, the group has had trouble making inroads with female executives.

“We’re a little short on women,” one recruiter sheepishly admitted.

But many of the business bigwigs signed on. Jamie Dimon, Lee’s boss, agreed to host a pair of Fix the Debt–themed lunches at JPMorgan’s Park Avenue headquarters, and appear with Bowles and Goldman Sachs CEO Lloyd Blankfein on CNBC in mid-October to make the case for a grand bargain. (That appearance so impressed CNBC’s top brass, according to a source close to the network, that they decided to blanket the airwaves with a channel-wide, Fix the Debt–inspired marketing campaign called “Rise Above.”) Blankfein became part of a corporate coalition that has made multiple lobbying trips to Washington, including a trip to the White House this week to meet with President Obama.

“These CEOs are supporting the effort more than financially,” MacGuineas said. “They’re willing to do the work.”

Fix the Debt’s impressive growth is easy to understand as a social phenomenon, especially given the various personal and professional webs that have connected many of its members for decades, and how little up-front investment is required of new joiners. It’s not hard to imagine that when Rattner, Lee, or one of your biggest corporate clients is on the phone, twisting your arm for a small check and your support, the potential costs of not participating make saying yes a no-brainer. In addition to being a powerful political force, Fix the Debt is also an elite hobnobber’s paradise.

“We have these great dinners,” raved one relatively new member, who says he has met a number of CEOs for the first time through his work with the group. “Everyone has been throwing out ideas about how to get the message to a broader audience.”

But even as Fix the Debt increasingly resembles a networking event with a vague political gloss, many of these CEOs have concluded that a federal impasse on deficit reduction poses serious risks to their businesses and the broader economy. Rightly or wrongly, they genuinely believe that their corporate acumen makes them well-suited to determine what is best for America as a whole. If you can analyze a billion-dollar term sheet with a gimlet eye, they imagine, it shouldn’t be that hard to balance a federal budget in a way that protects future generations from an all-out debt crisis.

“It’s really not a political thing,” one steering committee member told me. “These guys all look at the numbers, and they see that the country’s entitlement programs and demography are headed for a crash.”

Not everyone thinks Fix the Debt is acting in good faith. In recent days, the group has aroused the suspicion of groups on both the left and the right, who see in it a pro-business ideological movement masquerading as aisle-crossing diplomacy. Critics have accused the group’s CEO leaders of acting in their economic self-interest by laying groundwork for lower corporate taxes and deep cuts to entitlement programs that primarily benefit the working and middle classes. After a meeting with Fix the Debt members, House Speaker John Boehner said in a statement, “One thing Republicans won’t be party to is a deal that protects big businesses and preserves special-interest tax breaks while raising tax rates on the small businesses.” (Fix the Debt says Boehner’s statement is consistent with its mission.)

And even though Fix the Debt makes no specific proposals for entitlement cuts, groups that want to protect Medicare, Medicaid, and Social Security — Peterson’s lifelong bêtes noires — are howling.

“Fix the Debt is a PR campaign that appears as a very sensible, very bipartisan effort. But at its core, all of it is window dressing for a very ideological, partisan policy position, which is the destruction of Social Security,” Alex Lawson, the executive director of Social Security Works, told me yesterday.

Whether Fix the Debt will ultimately succeed in bringing about a grand bargain before the fiscal cliff is anyone’s guess. Most likely, Congress and President Obama will hash out some sort of arrangement that allows them to claim credit for any bargain that includes new tax revenue and entitlement reform, no matter the exact details or timing. And what then? Will this massive, mobilized group of powerful business executives just vanish back into their corner offices? Like kids approaching the last day of summer camp, some members sound like they want to keep the movement alive even after a deal is struck.

“I don’t know,” Lee said, when asked about the group’s future. “Maybe we tackle some other issue of national importance, like making the Boston Red Sox a contender again.”

© 2012 New York Magazine

Kevin Roose is a staff writer for New York Magazine. He is also the author of The Unlikely Disciple: A Sinner’s Semester at America’s Holiest University, which was published in March 2009 by Grand Central Publishing.

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Life, Death and Deficits

by Paul Krugman, The New York Times, November 16, 2012

America’s political landscape is infested with many zombie ideas — beliefs about policy that have been repeatedly refuted with evidence and analysis but refuse to die. The most prominent zombie is the insistence that low taxes on rich people are the key to prosperity. But there are others.

And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains.

First of all, you need to understand that while life expectancy at birth has gone up a lot, that’s not relevant to this issue; what matters is life expectancy for those at or near retirement age. When, to take one example, Alan Simpson — the co-chairman of President Obama’s deficit commission — declared that Social Security was “never intended as a retirement program” because life expectancy when it was founded was only 63, he was displaying his ignorance. Even in 1940, Americans who made it to age 65 generally had many years left.

Now, life expectancy at age 65 has risen, too. But the rise has been very uneven since the 1970s, with only the relatively affluent and well-educated seeing large gains. Bear in mind, too, that the full retirement age has already gone up to 66 and is scheduled to rise to 67 under current law.

This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security.

So any rise in the Social Security retirement age would, as I said, be cruel, hurting the most vulnerable Americans. And this cruelty would be gratuitous: While the United States does have a long-run budget problem, Social Security is not a major factor in that problem.

Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem.

It’s true that thanks to Obamacare, seniors should actually be able to get insurance even without Medicare. (Although, what happens if a number of states block the expansion of Medicaid that’s a crucial piece of the program?) But let’s be clear: Government insurance via Medicare is better and more cost-effective than private insurance.

You might ask why, in that case, health reform didn’t just extend Medicare to everyone, as opposed to setting up a system that continues to rely on private insurers. The answer, of course, is political realism. Given the power of the insurance industry, the Obama administration had to keep that industry in the loop. But the fact that Medicare for all may have been politically out of reach is no reason to push millions of Americans out of a good system into a worse one.

What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money, because younger seniors are relatively healthy and hence low-cost. Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?

The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats, in particular, who even consider either alternative need to ask themselves what on earth they think they’re doing.

But what, ask the deficit scolds, do people like me propose doing about rising spending? The answer is to do what every other advanced country does, and make a serious effort to rein in health care costs. Give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” (And isn’t it odd that the same people who demagogue attempts to help Medicare save money are eager to throw millions of people out of the program altogether?) We know that we have a health care system with skewed incentives and bloated costs, so why don’t we try to fix it?

What we know for sure is that there is no good case for denying older Americans access to the programs they count on. This should be a red line in any budget negotiations, and we can only hope that Mr. Obama doesn’t betray his supporters by crossing it.

© 2012 The New York Times

Paul Krugman is professor of Economics and International Affairs at Princeton University and a regular columnist for The New York Times. Krugman was the 2008 recipient of the Nobel Prize in Economics. He is the author of numerous books, including The Conscience of A Liberal, The Return of Depression Economics, and his most recent, End This Depression Now!.

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The campaign’s moral hole

By E.J. Dionne Jr., New York Times, October 7 2012

Does our presidential campaign lack a moral core?

The question arises in the wake of last week’s presidential debate. However you analyze it in electoral terms, the exchange between President Obama and Mitt Romney was most striking as a festival of technocratic mush — dueling studies mashed in with competing statistics. In many ways, the encounter offered voters the worst of all worlds: a great deal of indecipherable wonkery and remarkably little clarity about where each would lead the country.

But there are forces working to make the campaign about something more than a suffocating battle to influence tiny slivers of the electorate. One of my favorite pressure groups, Nuns on the Bus, will be launching a five-day tour on Wednesday through the red, blue and purple parts ofOhio.

Who better than a group of women who have consecrated their lives to the Almighty to remind us that our decisions in November have ethical consequences? Those who serve the impoverished, the sick and the dying know rather a lot about what matters — in life, and in elections.

If some of the nation’s Roman Catholic bishops often give the impression that they constitute the Republican Party at prayer, the activist nuns often seem like Democrats at the barricades. And it’s quite true that a struggle is on for the political soul of American Catholicism. Those among the faithful who see the abortion issue as trumping all others are in a quarrel with their brethren who place more emphasis on the church’s long-standing commitment to social justice.

Nuns on the Bus, led by Sister Simone Campbell, are very much players in this dialogue, and Sister Simone addressed the Democratic National Convention last month. Yet she was careful in her speech to emphasize that what she has been saying about government’s obligation to the poor — and about the problems with Rep. Paul Ryan’s budget — reflected what the bishops have been saying, too.

She also noted in an interview last week that she had laid down some conditions before she spoke in Charlotte. “I would talk if I could say that I was pro-life, that I could lift up the people who live in poverty and that the Democrats have a big tent,” she said.

The nuns’ message on poverty got some reinforcement in a statement late last month from Cardinal Archbishop Timothy Dolan of New York and Bishop Nicholas DiMarzio of Brooklyn. “There are very dark clouds,” they wrote. “Too much rhetoric in the country portrays poor people in a very negative way.”

They argued that the economy is not only failing to “provide sufficient jobs for poor people to earn a decent living to support themselves,” but is also offering fewer “resources for government to do its part for Americans in need.” The situation, they concluded, is “devastating to struggling families throughout the country.”

It’s no accident that the nuns are waging their Ohiocampaign against the Ryan budget during the week of the vice presidential debate. One would like to hope that Thursday’s tussle between Ryan and Vice President Joe Biden will be less a parade of numbers and obfuscating talk of “baselines” and concentrate instead on why voters should actually care about what’s in the federal budget.

Sister Simone points to a study from Bread for the World, a genuinely nonpartisan group that advocates on hunger issues, to suggest one useful line of questioning. To make up for the food-stamp cuts in Ryan’s budget, the group found, “every church in the country would have to come up with approximately $50,000 dedicated to feeding people — every year for the next 10 years.” Can government walk away like this? Can we realistically expect our houses of worship to pick up such a tab?

In all the dissections of Obama’s performance in the first debate, not enough attention has been paid to the real problem with his self-presentation: his failure to convey passion for the purposes of government, the requirements of justice and the point of his presidency. “The president,” says Sister Simone, “has gotten disconnected from the people he cares about.”

Nuns on the Bus will no doubt be criticized from the right for intervening in a political campaign, something that doesn’t bother conservatives when religious figures engage on their side. But the nuns’ most important message is to Obama and Biden: Don’t be afraid of reminding voters that budgets and elections have moral consequences. Doing so just might keep debate-watchers from changing the channel.


Five Practical Reasons Not To Vote Republican

by Paul BuchheitCommon Dreams, October 8, 2012

There is no shortage of reasons not to vote Republican. The litany includes tax cuts for the rich, cutbacks in government programs, obstructing needed legislation, disregard for the environment, denial of women’s and other human rights, military escalation.

But the following five reasons have to do with money — specifically, who’s paying for the $1 trillion of annual tax savings and tax avoidance for the super-rich? And who’s paying for the $1 trillion of national security to protect their growing fortunes? The Republicans want that money to come from the rest of us.

1. Economic Darwinism — Republicans want the Poor to Pay

Paul Ryan’s proposed budget would take about a half-trillion dollars a year from programs that support the poor. This is a continuation of a 15-year shredding of the safety net by Republicans. The GOP-controlled Congress of Bill Clinton created Temporary Assistance to Needy Families (TANF), which has experienced a 60% drop in its caseload despite growing poverty, and which, according to the Urban Institute, provides “maximum benefits [that] even in the more generous states were far below the federal poverty level of $1,525 a month for a family of three.”

The Supplemental Nutrition Assistance Program (SNAP), another vital program that serves 50 million “food insecure” Americans, would be cut by $16 billion under the House version of the Farm Bill. The average recipient currently gets $4.30 a day for food.

Republicans also voted to end the Child Tax Credit, and favor a tax plan that would eliminate the Earned Income Tax Credit.

2. Payroll Tax — Republicans want the Middle Class to Pay

Encouraged by the steady Republican demand for lower corporate tax rates, big business has effected a stunning shift in taxpaying responsibility over the years, from corporate income tax to worker payroll tax. For every dollar of payroll tax paid in the 1950s, corporations paid three dollars. Now it’s 22 cents.

It’s gotten worse in recent years, as corporations decided to drastically cut their tax rates after the start of the recession. After paying an average of 22.5% from 1987 to 2008, they’ve paid an annual rate of 10% since. This represents a sudden $250 billion annual loss in taxes.

Republicans claim that almost half of Americans don’t pay taxes. But when payroll and state and local taxes are considered, middle-income Americans pay at about the same rate as the highest earners. Only about 17% of households paid no federal income tax or payroll tax in 2009. And average workers get little help from people who make most of the money. Because of the $110,000 cutoff for payroll tax deductions, the richest 10% of Americans save $150 billion a year in taxes.

3. Job Shrinkage — Republicans want Young People to Pay

The jobs that exist for young Americans are paying much less than just a few years ago. During and after the recession, according to the National Employment Law Project, low-wage jobs ($7.69 to $13.83 per hour) dropped by 21 percent, and then grew back at a 58 percent rate. Mid-wage jobs ($13.84 to $21.13 per hour) dropped by 60 percent and grew back at a 22 percent rate. In other words, the median wage is falling fast.

Unemployment for workers under 25 stands at 16.4 percent, twice the national average. Half of recent college graduates are jobless or underemployed.

Yet Republicans killed a jobs bill that was supported by two-thirds of the public.

An academic study of employment data over 64 years found that an average of two million jobs per year were created under Democratic presidents, compared to one million under Republican presidents. Similar results were reported by the Bloomberg Government Barometer.

4. Retirement Planning — Republicans want the Seniors to Pay

There’s a common misconception in our country that most seniors are financially secure. Actually, Census data reveals that elderly people experience greater inequality than any other population group, with the poorest one-fifth receiving just 5.5% of the group’s total resources, while the wealthiest one-fifth receives 46%.

The senior wealth gap is further evidenced by data during the great 30-year surge in inequality. The average over-60 wealth was five times greater than the median in 1995, as would be expected with a small percentage of ultra-high-net-worth individuals and a great majority of low-wealth people. Further confirmation comes from 2004 Harvard data that shows rising inequality within all age groups, including the elderly. Indeed, an MIT study found that about 46% ofU.S. senior citizens have less than $10,000 in financial assets when they die.

For the vast majority of seniors, Social Security has been life-sustaining, accounting for 55% of their annual income. Because of this successful and popular program, the senior poverty rate has dropped from 50% to 10%, and due to life-long contributions from working Americans the program has a $2.7 trillion surplus while contributing nothing to the deficit. Yet Republicans want to undo it.

5. Public Fire Sale — Republicans want Society to Pay

The common good is threatened by the Republican disdain for public resources. Drilling and mining and pipeline construction continues on public lands, and the House of Representatives has voted over 100 times since 2011 to subsidize the oil and gas industry while weakening environmental, public health, and safety requirements. The “land grab” is pitting corporate muscle against citizens’ rights.

Sadly, most of Americaenvisions a new era of energy independence that increases our world-leading consumption of energy while depending on a proliferation of dirty technologies to extract it. Threats of methane emissions, water pollution, and earthquake activity don’t deter the fossil fuel enthusiasts.

It gets worse. Republicans are eager to sell public land. Paul Ryan’s “Path to Prosperity” proposes to sell millions of acres of “unneeded federal land” and billions of dollars worth of federal assets. His running mate Mitt Romney admits that he doesn’t know “what the purpose is” of public lands.

That brings us to the heart of the reasons not to vote Republican. Their reckless belief in the free market, and their dependency on corporatization and privatization to run the country, means that middle-class Americans keep paying for the fabulously wealthy people at the top who think they deserve everything they’ve taken from society.


Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (,,, and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached at