Is There a War on the Middle Class?

The Center for American Progress compared proposed federal budget cuts against tax breaks and loopholes already in place for FY2012 (begins on 1 OCT).  The numbers speak for themselves, which is why I love numbers.

House leaders are unfortunately restricting their proposed budget cuts for the remainder of fiscal year 2011 to nonsecurity discretionary spending in an attempt to tame a $1.3 trillion deficit. This approach is especially shortsighted since the Federal Treasury loses twice as much revenue due to tax breaks than Congress appropriates on all nonsecurity discretionary spending.

The chart below compares the 10 safety-net programs slated for deep cuts with the cost of the tax breaks that should also be considered for reduction or elimination to bring the budget into balance. The column on the left is a list of safety-net programs that have already been targets of the House leadership’s budget ax. The column on the right is the cost to specified tax breaks (see bottom of page for sources).

Most Americans would be surprised to learn that tax breaks are not on the table during any budget negotiations. In fact, Congress has the Congressional Budget Office prepare an official spending estimate for the cost of all programs or their expansions. Meanwhile, Congress enacts and continues tax breaks without any requirement that the cost of tax breaks be calculated and shared with members before a vote.

That’s why, over the last 16 years, the cost to the Treasury of the mortgage interest tax deduction, for example, doubled from $48 billion in 1995 to nearly $100 billion this year and no one made a peep about getting control of this loss in revenue. The stunning growth in this tax break is unchecked and unquestioned.

This tax break is also increasingly benefiting individuals who don’t need any federal incentives to purchase a home. In 2011 the mortgage interest deduction will help families who purchase a vacation home avoid taxes to the tune of $800 million. Meanwhile, the House Budget Committee chairman’s 2011 budget bill included $730 million in cuts to housing programs for the elderly and disabled.

There are many other examples where the cost of tax breaks are skyrocketing and disproportionately benefiting companies and people who don’t need them (see chart above):

• Congress should rein in the $4.6 billion in tax breaks given to companies who move jobs offshore instead of making cuts to the $4 billion in job-training programs.
• Oil companies get more than $2 billion in tax write-offs for drilling expenses yet Congress is considering cutting the Low Income Home Energy Assistance Program, the $2 billion federal program that helps poor families pay their winter heating bills.
• Large biofuels companies, such as Archer Daniels Midland, benefit from the ethanol tax break that now costs nearly $5 billion a year. And oil companies such as ExxonMobil benefit from more than $9 billion in tax breaks for oil exploration.

Some tax breaks make sense. Those that stimulate economic activity that otherwise wouldn’t happen without the tax incentive may be worth the lost revenue, especially if that economic activity creates American jobs and provides assistance in sectors of the economy that show potential for growth.

That’s exactly what the Research and Development Tax Incentives or the Renewable Energy Tax Credits provide. Income tax breaks that help keep working families afloat, such as the Earned Income Tax Credit, use the tax code effectively to stabilize the economy.

It’s regrettable that the congressional budget process doesn’t permit a robust debate about the choices we can and must make to bring the budget into balance. The Center for American Progress is thus pushing for a process where tax breaks are “scored” so members of Congress know and consider the cost of tax breaks as part of the annual congressional process to pass a budget.

A transparent budget process approach should be instituted now given the enormity of the budget challenge. It makes no sense to eviscerate safety-net supports when billions in unnecessary tax entitlements can be cut to preserve these important and socially responsible federal expenditures. Congress must face up to the cold hard fact that it’s time to make the tough choice to end tax entitlements—such as the one for “NASCAR racing facilities”—so federal funding for critical items such as child-nutrition programs are spared.

Donna Cooper is a Senior Fellow at American Progress.

Sources for tax breaks

Row 1: Figure represents half of the estimated $23 billion cost of weakening the estate tax for 2011 and 2012. See: Gillian Brunet and Chuck Marr, “Unpacking the Tax Cut-Unemployment Compromise,” Center on Budget and Policy Priorities, December 10, 2010, available at http://www.cbpp.org/cms/index.cfm?fa=view&id=3342.

Row 2: Figure represents 1 percent of the fiscal year 2011 tax expenditure estimate for the mortgage interest deduction, over 10 years. The vacation home deduction accounts for at least one percent of the tax expenditure cost. See: Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2012 (Executive Office of the President, 2011), table 17-1; Congressional Budget Office, “Budget Options” (2000), REV-02.

Row 3 (now re: estate planning): General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011).

Row 4 (now re: itemized deduction limit): General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals (Department of Treasury, 2010).

Row 5: Joint Committee on Taxation, Estimated Budget Effects of the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” JCX-54-10, December 10, 2010 (subpart F active financing exception).

Row 6: General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011).

Row 7: Joint Committee on Taxation, Estimated Budget Effects of the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” JCX-54-10, December 10, 2010 (half of total cost of two-year extension).

Row 8: General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011).

Row 9: General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011) (10-year cost).

Row 10: Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2012, (Executive Office of the President, 2011), table 17-1 (expensing of multiperiod timber growing costs and capital gains treatment of certain timber income).

Row 11: Joint Committee on Taxation, Estimated Budget Effects of the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” JCX-54-10, December 10, 2010 (half of total cost of recent two-year extension).

See also:

•  Government Spending Undercover by Lily Batchelder and Eric Toder

Why it's Okay to Hate Union Workers

(by Mark Sumner for Daily Kos)

By now you've heard the cookie joke. You know: a CEO, a tea party member, and a union worker are all sitting at a table when a plate with a dozen cookies arrives. Before anyone else can make a move, the CEO reaches out to rake in eleven of the cookies. When the other two look at him in surprise, the CEO locks eyes with the tea party member. "You better watch him," the executive says with a nod toward the union worker. "He wants a piece of your cookie." [ad lib:  And then the tea party member draws out the argument with the union worker about whose cookie it is and calls out the Cookie Monster as a socialist!]

It's funny for the same reason most good jokes are funny, because it contains a strong element of truth. This little game, pitting one group of working class voters against another, isn't just a trick, it's the trick. It's what enables bankers to rob the nation blind and walk away. It's what lets executives take an ever larger share of corporate income when they're doing well, a larger share when they're doing poorly, a larger share when they're staying, and a larger share when they're leaving. It's what allows corporations to sit on the greatest stacks of money the world has ever seen, turn profits that dwarf those of even a few years ago, and still demand that their workers surrender a little more. A little more. A little more, please. Thanks, now get out.

Not only that, they get their workers to fight for them. Fight for surrendering their own rights, and fight to take those rights from others.

The engine of this schism is always powered by the same forces: fear and envy. There's always someone out there to be the "other," someone whose cultural values don't line up with yours. Someone who is getting a better deal than you. Robber barons and corporations have always been good at promoting factionalism, and of course it helps when you have the media and politicians under your thumb. No doubt nobles played the same game to keep their comfy seats throughout history. Heck, there was probably a nice "Intro for New Pharaohs" scroll that explained how to keep the stonecutters jealous of the hieroglyph carvers, just so neither group ever got around to wondering if carving Rootintootin III's face on blocks the size of houses was really the best use of their time.

For America, the tea party movement is just an update of a very old script.
You could see the same forces at work in 1843, as factionalism split the Whig Party and produced a third party movement. The American Republican Party first appeared on local election ballots in New York. This wasn't the Republican Party that would emerge over a decade later, but it was one of several movements and parties that boiled up out of the Whig's weakness. Supported by business organizations and trade unions , the party scored shocking victories in its first elections first in New York then in Philadelphia. Almost overnight, the party spread and within a year it had become a national movement challenging the established parties in almost every state.  Both major parties quickly adjusted their policies to try and accommodate this new entity, but the new party had a focus and energy that delivered surprising wins in Boston, in Chicago, and in several other cities.

What powered the movement?  Most of the energy came from a source that's still highly potent today: demonization of immigrants. The leaders of the movement (which soon changed its name to the American Nativist Party and then just the American Party) warned that the uncontrolled wave of immigration was destroying what made America great. The new immigrants lacked both education and culture. They were insular, odd, and dangerous; unwilling to adopt American customs and values. They were shiftless, without the productive and creative spark of Americans, but at the same time they were willing to work so cheaply that they threatened to steal jobs from American workers.

These immigrants were other. This invading army had their own language, their own music, and most threatening of all they brought with them a corrosive philosophy, one that was the enemy of both democracy and capitalism. This philosophy was out to cripple trade and destroy companies. It encouraged laziness, diminished respect for personal property, and threatened established institutions. Despite these un-American tendencies, traitorous and corrupt politicians had been elected who were beholding to these immigrants. These America-hating politicians refused to pass tough federal laws to clamp down on immigration. They even argued that state and local laws limiting immigrant's rights were unconstitutional. They tolerated or encouraged their new philosophy. Some even embraced it. In response, the American Party platform mandated English as the official language and restricted the government from printing documents in other languages, it sharply limited immigration and raised the requirements for citizenship, and it limited all political offices (including school teachers) to native born Americans.

The wave of dangerous immigrants came from Ireland and Germany. The anti-American philosophy they propagated was Roman Catholicism.

The nativism that spurred the appearance of the American Republican Party mirrors exactlythe feelings and ideas that now power anti-immigrant movements in Arizona and across the nation. If the hatred for union workers, government workers, and really anyone not part of their own small group may not be precisely the same, but it's a close cousin. It's not racism, but it fills that racism-shaped hole in society's soul. For tea partiers, the lazy, fat-cat teacher taking home a big pension on the government dime has replaced the Cadillac driving welfare queen.  It doesn't matter that both are myths.  Both of them are just placeholders for the other, a symbol of that person you just know is out there taking advantage of you – a focus for unfocused anger. A focus provided by people who are so, so relieved that you're willing to keep looking enviously at other workers and never glance up to see what your betters are doing.

At America's founding, there were dire predictions that the nation would not last out one election cycle. Then, as now, there were far more poor than rich. What was to prevent the have-nots from passing legislation that stripped wealth from the hands of the haves? Democracy was seen as utterly incompatible with capitalism. Traders and businessmen viewed it with horror, certain that they would be overrun by the mob. But it never worked that way.

Instead, those at the top have always found it easy to get people to champion their cause. There's always a group that feels wounded, angry and neglected. This group is susceptible to being told that they're better than some other group, that some other group is getting a better deal, that some other group deserves to be put in its place. It doesn't matter if that group is called Irish or Italian, Black or Hispanic, Union members or government workers.  Anyone can be painted as a threat with enough hot air and yellow journalism. Anyone.

In the heyday of the American Republican Party, members developed a not-so-secret phrase. Asked what they knew about party activities, they were taught to respond "I know nothing." Because of this, members of the group soon carried the name "Know-Nothings." Over a century and a half later, there may not be anyone eager to embrace the title of Know-Nothing. But as long as some working class voters are willing to carry the billionaire's water by attacking other workers, there are certainly plenty of Learned Nothings around.

The Truth Speaks for Itself

     If the Bush tax cuts are so vital to spurring economic growth, then why did we lose millions of jobs and face a Second Great Depression when they were already deeply in effect? It's a scam to make the middle class pay for the privileges of the rich. The incredibly rapid shrinking of the middle class is proof that we cannot pay for this scheme and maintain a viable economy.
     Union employees have agreed to take the recommended cuts in pay & benefits (or increases in paying premiums), yet, Republicans, like WI Gov Walker, refuse to accept that and wants to go beyond fiscal issues and end collective bargaining. Collective bargaining has nothing to do with the budget.
     For those who lose their jobs in the private sector, we should check the amount of bonuses (multi-millions per CEO) handed out to CEOs at the same time as these layoffs occur. Before asking the Middle Class to "take their fair share of the budget burden", we need to expect that from the rich who make employment decisions while they pocket their millions. This is an apparent rigged system!
     Tax rates are the lowest in decades. Going lower makes us even more broke. In fact, eliminating the Bush tax cuts brings us back to the tax rates of the 1990s, that time period of the greatest economic expansion in our history. The issue isn't revenue out to pay for programs and policies, it's revenue in to financially support what Americans want and expect. That is why Republican candidates never answered where they would make budget cuts if elected. Republicans knew that if the electorate knew how much this would adversely affect their personal budgets, they would have never voted for them in the first place.
     Now that Republicans have made sizable gains in the November elections, they are doing exactly as they ambiguously promised, and much to the dismay of mainstream America.  NBC & Wall Street Journal conducted a poll to see where Americans stand on all these budget cuts, and the numbers indicate that the populist rhetoric against government has quickly evaporated.  
     Now, more than ever, is the opportunity for Progressives to move with legislation that ends oil subsidies and closes all corporate tax shelter loopholes.  We need the IRS to collect back taxes owed by businesses, which was over $58 Billion as of the 2008 GAO reports.  CEOs need to be called out to publicly justify their exorbitant bonuses and salaries while their workers are laid off and at the same time, connect them to politicans who are in bed with their lobbyists.  
     Accountability is a cornerstone of justice!  The Middle Class must survive and thrive in order for this country to regain its economic might!