Jamie Galbraith on the "fiscal cliff" scam as an excuse to cut benefits on Social Security, Medicare and Medicaid

Stripped to essentials, the fiscal cliff is a device constructed to force a rollback of Social Security, Medicare and Medicaid, as the price of avoiding tax increases and disruptive cuts in federal civilian programs and in the military. It was policy-making by hostage-taking, timed for the lame duck session, a contrived crisis, the plain idea now unfolding was to force a stampede. (Jamie Galbraith, 6 Reasons the Fiscal Cliff is a Scam Alternet 11/22/2012)

This really is a scam, mainly directly toward getting to the infamous Grand Bargain to cut benefits on Social Security, Medicare and Medicaid.

This is a key point he makes:

... is there a looming crisis of Social Security, Medicare and Medicaid, such that these programs must be reformed? No, there is not. Social insurance programs are not businesses. They are not required to make a profit; they need not be funded from any particular stream of tax revenues over any particular time horizon. Reasonable control of health care costs – public and private – is necessary and also sufficient to keep the costs of Medicare and Medicaid within bounds.

The lobbyists pushing the fiscal cliff/Grand Bargain deal aren't concerned about too many gubment handouts; they're just want to make sure only the One Percent get the handouts.

Christina Wilkie and Ryan Grim report in CEO Council Demands Cuts To Poor, Elderly While Reaping Billions In Government Contracts, Tax Breaks Huffington Post 11/25/2012 on the results of a report from the Institute for Policy Studies (IPS), The CEO Campaign to 'Fix' the Debt 11/13/2012.

Sarah Anderson and Scott Klinger, the report's authors, also provide a brief summary in The CEO Campaign to ‘Fix’ the Debt: A Trojan Horse for Massive Corporate Tax Breaks at the IPS website (11/13/2012). The report focuses on an advocacy group called Fix The Debt, who is likely to be one of the most visible advocates the next few weeks for the Grand Bargain to cut benefits on Social Security, Medicare and Medicaid. Anderson and Klinger in their report define the group's two main goals as follows:

1. "Pro-growth" corporate tax reform. This is Washington-speak for cutting corporate tax rates and shifting to a “territorial tax system” that would permanently exempt from U.S. taxes all offshore income earned by U.S. corporations.
2. "Reforming" earned-benefit programs. This means cutting Medicaid, Medicare, and Social Security benefits. While these CEOs have offered few details on how they would cut costs with these reforms, it would likely be by limiting access to these programs paid for by all working Americans and by yet again raising the retirement age.

Their report focuses in particular on the various CEOs who back the Fix The Debt group. And it makes clear that their idea of which government benefits they see as bad (those benefiting the 99%) and those they treasure (their own). It also has a good description of the tax giveaway they're seeking on un-repatriated foreign profits of American corporations:

The practice of accumulating massive earnings in foreign countries goes far beyond Fix the Debt’s corporate membership. S&P 500 companies as a whole have nearly $1.5 trillion parked offshore, according to Citizens for Tax Justice. While some of these profits are offshore because a U.S. multinational corporation produced a product offshore and sold it to a foreign consumer, a significant share is there for the purpose of avoiding taxes.

Here’s how it works. The U.S. corporate tax code requires U.S.-headquartered corporations to pay a tax rate of 35 percent on their profits regardless of where in the world those profits are earned. But there are two important exceptions. First, U.S. corporations are granted credits for any taxes paid to foreign governments. Second, any profits deemed permanently reinvested offshore are exempted from U.S. taxes until and unless they are returned to the United States.

A company that books profits in the United Kingdom or Germany and pays taxes there gets a full credit for those taxes on its U.S. tax returns and thus owes little, if any, U.S. taxes on those profits. But if profits can be shifted to a tax haven where corporate profits are very lightly taxed, if taxed at all, then something close to 35 percent in taxes would be due when these funds are returned to America. Thus, a territorial tax system would be enormously profitable for the many firms that are aggressively shifting their profits to offshore tax havens like the Cayman Islands or Bermuda.

Corporate lobby groups argue that a territorial tax system would be good for American workers because it would encourage firms to bring foreign earnings home where they would be used to invest and create jobs in this country. However, the 63 public companies in the Fix the Debt campaign are hardly strapped for cash. According to their most recent 10-K reports, they collectively have nearly $480 billion in cash on their balance sheets,’ enough to pay living wage salaries for 10 million workers. Slashing their taxes may well increase their cash hoard, but it will not necessarily spur them to invest in the United States. [my emphasis]

The CEOs certainly hope to get some tax gifts out of the farcical posturing around the phony "fiscal cliff." But supporters of Social Security, Medicare and Medicaid all need to keep our eye on the ball.

The corporate lobbies are always angling for new tax breaks and tax avoidance schemes. Page 9 of the Anderson-Klinger report is a sidebar titled "Leveraging the 'Fiscal Cliff' to Push an Old Idea" that relates the tax themes and membership of the Fix The Debt group. For example:

In 2004, corporate lobby groups won their first campaign to repatriate foreign earnings virtually tax-free. The misnamed American Jobs Creation Act offered corporations a deeply discounted tax rate of 5.25 percent (instead of the 35 percent tax rate they otherwise would have paid) if they repatriated foreign earnings and invested that money to create jobs. In the year that followed, 843 U.S. corporations repatriated $312 billion, saving about $80 billion on their tax bills. But instead of creating jobs, the biggest beneficiaries downsized. Pfizer, for example, cut more than 10,000 U.S. jobs in the six years after it repatriated $40 billion. The vast majority of repatriated funds came from tax haven nations, according to a Senate report.

The fact that CEOs and assorted corporations, hedge funds and trust-fund babies and so forth are lobbying for tax breaks. That's a given, year in and year out.

What's on the table right now that was not, for instance, in 2004 is benefits for Social Security, Medicare and Medicaid. Nothing that the Democrats are going to get in concessions from the Republicans on tax equity or total revenue is going to make up for the harm that would be done by cutting benefits on Social Security, Medicare and Medicaid. And in any case, since President Obama is approaching this with the same basic negotiating strategy he did in 2011 - please let me give you Republicans cuts in benefits to Social Security, Medicare and Medicaid in exchange for a cosmetic increase in taxes for the wealthiest - we have enormous reason to be skeptical of what kind of real concessions on taxes the Democrats are likely to get anyway.

The Pod Pundits are impressed at the so-called rebellion against Grover Norquist's tax pledge on never raising taxes on the part of some Republican opponents of Social Security, Medicare and Medicaid. Charlie Pierce, among others, is warning us to watch this scam carefully. In Saxby Chambliss' Predictable "Heresy" Esquire Politics Blog 11/26/2012, he writes, speaking of the sleazy Georgia Senator of the title:

... what do we make of his "bold" stand at the end of last week in which he bravely announced that he would "break" the "pledge" he took to Grover Norquist to never, ever to allow taxes to rise on his watch? Hurrah, said the centrist chorus in the Beltway. Bipartisanship is just around the corner there.

Horse hockey.

... "New tax revenues" is a dodge to keep the rest of the political class from looking at the top rate. This is the old "close everybody's loopholes" scam, which inevitably will fall hardest on that great majority of Americans who can't afford the best tax lawyers.

... Chambliss didn't discover an inner liberal. It is because he has pledged his fealty to a different Beltway cargo cult, the one that worships at the feet of the great god Simpson-Bowles. This way, he gets to close some evanescent tax loopholes while getting the beginning of the final dismantling of the social safety net in return. ... But watch as Chambliss's "heresy" is praised as a move toward the "middle." I've seen professional wrestling matches that weren't this predictable.

Digby has been on this Grand Bargain watch for the last four years. In Chump change exchange update Hullabaloo 11/25/2012, she explains how this cosmetic tax increase for the wealthy in exchange for drastic and permanent cuts in benefits to Social Security, Medicare and Medicaid is positioned:

This has been the set-up for months. And the President has already basically agreed to it by emphasizing his "balanced approach" and saying that he's willing to betray his own "special interests" (which translates to old and sick people) in order to get a deal as long as the rich "pay a little bit more." His promise of 2-1 spending to revenue locks in the idea that the wealthy will be contributing chump change while average people will feel that pain.It's only a matter of the details at this point.

Now, I suppose the Senate can reach an agreement on this and the House Republicans will still balk. We haven't heard a lot from them on the Grover back stab yet. But if Boehner can persuade enough of his crazies this time, the real pressure will fall on the Democratic caucus. And the pressure will be severe.

If you have a Democratic House member it isn't too early to call and let him or her know that you don't want cuts to benefits (and that you are well informed and will know if that's what the deal entails.) The president is activating OFA [Obama for America] on behalf of this "balanced approach" nonsense ... They will need to hear from their own constituents.

Those of us who've been following this Grand Bargain saga for the past four years have known this trainwreck was coming. It's still possible that the worst of it can be averted, at least for a while. It's worth a phone call.

Joe Firestone discusses the OFA push for the Grand Bargain to cut benefits on Social Security, Medicare and Medicaid in Stop Using Obama for America Against the People! New Economic Perspectives 11/23/2012:

... what does it mean to reduce the deficit "in a balanced way"? We know what it means. It means that any "grand bargain" should be "fair" in that it takes something out of everyone’s hide. "Shared sacrifice," you know.

So, what’s that about? Maybe a few points increase in marginal tax rates for the rich, the impact of which they will be able to substantially get around with tax loopholes and deductions anyway. Some reductions in spending on defense including cuts for defense contractors. And for the middle class and the poor the expiration of the payroll tax cuts, perhaps cuts for the long-term unemployed, certainly cuts for discretionary spending programs that benefit working and middle class people, and probably cuts in Medicare, Medicaid, and Social Security entitlements, since the President has so kindly put these on the table again and again over the past years. ...

So, even if deficit reduction was a REAL problem, which it is NOT, the President’s call for balanced reduction is UNBALANCED and UNFAIR, because you can’t forget about history and create balance. We’ve had 40 years of UNBALANCED economics, now fairness and justice demand REDRESS. We need UNBALANCE to create a NEW BALANCE.

Tags: austerity economics, fiscal cliff, grand bargain, james galbraith, medicaid, medicare, social security