This is the first of two articles about the growing politcal “consensus” that America needs austerity.  I wrote this a little while back and it gives some background on who is pushing this current austerity drive and how they’ve gone about it.  I’ll post part 2 “Lame Ducks Cooking Up A Catfood Christmas,” tomorrow.

Sign: Warning! Permanent Austerity Ahead. Vote No.

Irish anti-austerity sign (Photo: William Murphy / Flickr).

Practically since the modern social safety net was created wealthy, powerful right-wingers and organizations have been trying to kill it.  In recent years, those right wing forces have had a lot of help from Democrats in making their twisted dreams a reality.  Organizations like the billionaire Koch family created and funded Cato Institute and hedge fund billionaire Peter Peterson’s namesake foundation have led the fight against Social Security.

The extreme right wing’s attacks and deceptive campaigns over the course of decades are now close to fruition with the help of neoliberal Democrats.

President Obama has come very close to helping right-wingers realize their long-desired goal; only the incredible intransigence of congressional Republicans has saved the social safety net thus far.

The Scam

Back during the Reagan years Social Security faced a short-term funding crisis and Congress appointed the Greenspan Commission to make recommendations for putting Social Security on a sound financial footing for the future.  The recommendations generated by the commission became the basis for the 1983 Social Security Amendments which among other things raised the level of revenues by significantly raising the rates that workers pay.

Since the adjustments made to rates were based on pessimistic assumptions the revenues generated produced significant surpluses.  Rather than using the proceeds from the revenue increase to pay off the federal debt and invest the remainder in bonds, Reagan (and most of his successors) have used them to pay for tax breaks for corporations and the wealthy.

As David Cay Johnson explains in a fine article on this:

Let’s look at how Social Security taxes have grown in the last half century — a little-known tale of tax burdens shifted off the rich and onto workers. From 1961 through 2011, the year covered in the last Social Security report, Social Security taxes exploded from 3.1 percent of Gross Domestic Product to 5.5 percent.

Income taxes went the other way. The personal income tax slipped from 7.8 percent of the economy to 7.3 percent, with most of the decline enjoyed by people in the top 1 percent of incomes. The big drop was in the corporate income tax, which fell from 4 percent of the economy to 1.2 percent. Notice that the corporate income tax fell by 2.8 percentage points, an amount almost entirely offset by a 2.4 percentage point increase in Social Security taxes.

The effect has been to ease the taxes of the wealthy, while burdening the vast majority of workers. Considering how highly ownership of stocks is concentrated, the benefit of those lower corporate taxes went overwhelmingly to the top 1 percent and, especially, the top 1 percent of the top 1 percent. Considering that the Social Security tax is capped, most of the burden of the increased payroll tax went to the bottom 90 percent.

We have now reached a point where the gifts given to corporations and the rich based upon the increase in revenues from Social Security taxes are no longer supportable.  Unfortunately,  the wealthy have grown accustomed to a certain lifestyle based upon significant growth of their wealth and are in no mood to give back.

The biggest reason why the revenues for Social Security are no longer satisfactory is not that there are too many greedy geezers, it’s our growing income inequality.  As Robert Reich explains:

Greenspan’s commission must have failed to predict something. What?

Inequality.

Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling. (That ceiling is now $106,800.) The ceiling rises every year according to a formula roughly matching inflation. Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan Commission’s fixes. The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.

Today, though, the Social Security payroll tax hits only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.

The simplest solution to the shortfall in funding for Social Security is probably to raise the cap so that the payroll tax once again affects 90% of total income.

That, in our current political environment, would likely be called class warfare.

The Con

Back in 1983, in the wake of the Social Security Amendments right-wingers from the Heritage Foundation and the Cato Institute put together what they called Achieving a “Leninist” Strategy, a plan to replace Social Security with a privatized plan.  Here’s their description of their strategy:

A Plan of Action

The first element consists of a campaign to achieve small legislative changes that embellish the present IRA system, making it in practice a small-scale private Social Security system that can supplement the federal system. As part of this campaign, the natural constituency for an enlarged IRA system must be identified and welded into a coalition for political change. If these objectives are achieved, we will meet the next financial crisis in Social Security with a private alternative ready in the wings—an alternative with which the public is familiar and comfortable, and one that has the backing of a powerful political force.

The second main element in our reform strategy involves what one might crudely call guerrilla warfare against both the current Social Security system and the coalition that supports it. An economic education campaign, assisted by modest changes in the law, must be undertaken to demonstrate the weaknesses of the existing system and to allow it to be compared accurately (and therefore unfavorably) with the private alternative. In addition, methods of neutralizing, buying out, or winning over key segments of the Social Security coalition must be explored and formulated into legislative initiatives. The objective of this element of the strategy complements the first. The aim is to weaken political support for the present system when the next financial crisis appears.

Elsewhere in their document the right-wingers lay out further elements of their plan. Seniors already retired or nearing retirement are to be bought off, to “neutralize the most powerful element of the coalition that opposes structural reform.”  They would construct a coalition of those who will reap benefits from a private system and the banks, insurance companies and other institutions that will gain from providing such plans to the public.  They would press for incremental “modest changes in the laws and regulations designed to make private pension options more attractive.”

Does any of this sound familiar to you? It should, millions of dollars have been spent and huge media campaigns have been waged to bring you messages based on the above. And they’re still doing it today.

Trudy Lieberman has a must-read article at the Columbia Journalism Review’s website, How the Media Has Shaped the Social Security Debate that demonstrates the degree to which the right-wing’s “education effort” on Social Security has been successful in misinforming the public. Read the whole article, but here’s a sampling to give you a sense of it:

For nearly three years CJR has observed that much of the press has reported only one side of this story using “facts” that are misleading or flat-out wrong while ignoring others. Whatever the reason—ideology, poor understanding of how the program works, gullibility, or plain old reportorial laziness—news outlets have given the public a skewed picture of the financial health of this hugely important program, which is the sole source of retirement funds for millions of Americans and will continue to be for decades to come.

The one-sided reporting on this issue has influenced the way millions of Americans, especially younger ones, now think about Social Security. A twenty-nine-year old web manager for a New York City agency recently told me she was opting out of the program, which the city pension system allows her to do. “I don’t think Social Security is a wise investment given the (availability) of a deferred compensation plan,” she said. “It’s a known fact,” the woman explained, “if it stays the way it is right now, it would run out of funds in 2035.” How did she know that? She listed the media outlets that helped shape her opinion. The elites were there like The Wall Street Journal, CNN, The New York Times, and Bloomberg News, but so were relative newcomers like Investopedia and other media products. The message from the elite media is trickling down.

It’s a popular message. Broadcast anchors, hosts, and expert guests have also told the public that Social Security is the cause of the federal deficit, and have narrowly framed the possible cures. The ones mentioned most often include reducing cost-of-living increases; means testing the program, which will turn it into a welfare arrangement; and raising the age of eligibility to 69, 70, or higher. … With that kind of news reporting, young people like the New York City worker can be forgiven for misunderstanding the concept of social insurance and believing Social Security is almost dead. Over the decades since the passage of Social Security in 1935, the media have used the term “social insurance” less and less, which of course keeps people in the dark about what it really is. In 1930, The Washington Post, The New York Times, and the Chicago Tribune together published nearly eighty articles with the words “social insurance” in the headline. In 1990, there were at most two—one in the Times and one in the Post. <strong>By then the Cato Institute and other conservative think tanks were well on their way to changing the media’s narrative and description of Social Security.</strong> The program was no long to be described as social insurance, but as an investment that fell short of what people could achieve on their own by saving and managing their payroll tax contributions. It was not a good deal for younger workers.

With the media bombarding the public with these negative messages about the future viability of Social Security, the right wing is growing ever closer to its destructive goal.  There is one right winger, hedge fund billionaire Peter G. Peterson who is investing heavily in dragging their initiative across the goal line:

The idea of “fiscal responsibility” seems to have become as American as motherhood and apple pie — both parties preach it, and say the other guys are the profligate ones. The group of people saying “hey, we print our own money, interest rates are at zero, inflation is not an issue, the corporate sector isn’t borrowing, there are a thousand more important things to worry about right now, why on earth is everybody worried about the deficit all of a sudden” is in a decided minority.

The obsession about fiscal prudence is a new phenomenon, and can be dated, pretty much, to 2008, when Blackstone went public and Pete Peterson took his billion dollars in proceeds and decided to use it to found the Peter G Peterson Foundation. Wherever fiscal prudence is preached, Peterson’s money can nearly always be found.

Guess where Pete Peterson’s money has been found hanging out lately?  Check the next section…

The Heist

President Obama is not the first modern Democrat to cooperate with the right wing on these issues, Bill Clinton and his Treasury Secretary Robert Rubin and Erskine Bowles (Clinton’s chief of staff and lead budget negotiator) worked hard for the right wing agenda:

Robert Kuttner, in his 2007 book The Squandering of America, detailed how Washington elites of both Parties had been planning to weaken Social Security since the Clinton Administration. Clinton’s Treasury Secretary Robert Rubin prodded the president to cut a deal with Newt Gingrich to partially privatize Social Security. Clinton appointed [Erskine] Bowles as his intermediary. But in the plan’s initial stages the Monica Lewinsky scandal erupted, causing both embarrassed Congressional Democrats and Gingrich to distance themselves from Clinton. The plan fell apart.

We may have Monica Lewinsky to thank for the fact that Social Security withstood a right-wing attack during the Clinton administration.  Erskine Bowles, Clinton’s COS budget negotiator, of course turned up again like a bad penny when the Obama administration appointed him to the Debt and Deficit Commission (the Catfood Commission for us regular folks). Bill Clinton is still working hard to help the right wing even today:

Bill Clinton’s the headliner at next month’s “Fiscal Summit” of the Peterson Foundation, along with Tim Geithner, Paul Ryan and John Boehner. That’s the organization founded by billionaire Pete Peterson to carry out the traditionally right-wing goals he spelled out in the 1980s: to cut Social Security and Medicare and other government programs, and to lower taxes for the wealthiest Americans even more. …

Clintonite Democrats are all too eager to embrace this false “centrism,” taking the lead from the ex-President who made false statements like this one at the last “Fiscal Summit”: “… on Social Security it was meant to be self-sustaining, and with the retirement of the baby boomers it won’t be anymore.”

But then, that’s how the elites of both parties roll, and they get plenty of help from centrist Democrats who follow the ex-president’s lead. Rather that take responsibility for their own actions, the “centrist” crowd prefers to promote the deceptive illusion that both the overall Federal deficit and Social Security’s problems were caused by middle-class Americans themselves. The blame itself take different forms: Sometimes they blame Americans for having the temerity to be born in large numbers during the Baby Boom. At other times they blame them for living longer. And at other times they sneeringly dismiss them as “greedy geezers.”

Peterson’s conference, which Bill Clinton headlined was timed with a particular goal in mind:

On Wednesday Wall Street multi-billionaire Peter G. Peterson, who has pledged to spend a billion dollars to panic Americans about deficits in order to get them to slash Social Security and Medicare, is conducting a “Fiscal Summit” in Washington featuring many of the very people who created the deficits Peterson decries.

This summit is designed to stampede President Obama’s new deficit commission (which meets the day before – on Tuesday – for the first time) into adopting their version of fiscal austerity.

President Obama created the National Commission on Fiscal Responsibility and Reform, otherwise known as the “Catfood Commission.”  He had first attempted to form a bipartisan entitlement commission, but was shot down by the Senate.

From its inception, the Catfood Commission was created by President Obama to cooperate with conservative organizations dedicated to destroying Social Security:

When Obama’s new Deficit Commission gets going, it has plans for “partnering“–in the words of executive director Bruce Reed–with outside groups. Among them will be the foundation run by Wall Street billionaire Peter G. Peterson, who today is upstaging the president with his own fiscal summit in Washington. Obama insists he is keeping an open mind about how to deal with the deficit and national debt– but he’s already stacked his own commission with people who lean heavily toward one particular solution: cutting entitlements for the old, the sick, the disabled, and the poor. And if that wasn’t enough, he now looks to be working hand-in-glove with a wealthy private organization whose central purpose is to cut Social Security and Medicare. Talk about foregone conclusions.

In June, according to the Washington Post,  Obama’s deficit commission will be participating in a 20-city electronic town hall meeting, put together by an organization called America Speaks. It is financed by Peterson, along with the MacArthur Foundation and Kellogg Foundation. This is a truly unusual event because it marks the first time a presidential commission’s activities are financed by a private group that has long been lobbying the government on the very subjects the commission is supposed to “study.”

Not only was the committee “cooperating” with private interests hell-bent on destroying Social Security, it later emerged that President Obama’s commission was being funded by these right-wing ideologues:

the National Commission on Fiscal Responsibility and Reform has also come under attack for its unusual approach to staffing: Many of its employees aren’t employed by the panel at all.

Instead, about one in four commission staffers is paid by outside entities, many of which have strong ideological points of view about how to tackle the deficit.

For example, the salaries of two senior staffers, Marc Goldwein and Ed Lorenzen, are paid by private groups that have previously advocated cuts to entitlement programs. Lorenzen is paid by the Peter G. Peterson Foundation, while Goldwein is paid by the Committee for a Responsible Federal Budget, which is also partly funded by the Peterson group.

President Obama chose to partner with a billionaire that was funding three groups (Pew-Peterson Commission, America Speaks and Simpson-Bowles) that shockingly (I’m shocked, shocked I tell you!) created similar recommendations as Robert Kuttner explained in an apppearance on Democracy Now:

You’ve got three privately funded commissions by the Peterson Foundation, Pete Peterson, proposing the same stuff. It’s intended to create a drumbeat to carry out a wish list that has long been the goal of fiscal conservatives, that has nothing to do with this crisis. Social Security is in surplus for the next 27 years. So, the idea that you can somehow get the budget closer to balance by cutting Social Security is perverse. It’s politically insane.

President Obama’s commission rejected the plan created by the co-chairs (Simpson and Bowles), but the beltway bureaucracy and the media pretended it was successful and it became the basis for numerous attempts at budget resolutions. In fact the failed report of the commission has become something of a zombie plan that keeps showing up whenever there are budget negotiations.

The entitlement cutting mania of Simpson and Bowles’ failed commission was followed by the failure of the Supercommittee.  In the wake of that failure was the failure of the Gang of  Six. That was followed by the failure of the President himself to be able to arrange a G rand Bargain to cut Social Security in exchange for some extremely modest tax hikes.

Stop the Thieves

Sounds like the social safety net survived by the skin of it’s teeth, doesn’t it?  Well, President Obama with the assistance of Democrats has dealt a serious hit to Social Security.  The damage that this cut will cause won’t be evident until later.  He has undermined Social Security’s legitimacy by diminishing its funding and putting it on a less sound financial footing, thereby making it more vulnerable to attacks.

The president has bought into a Republican proposition favored by conservatives who would love to do away with this New Deal creation. They know this will deprive the trust fund of $120 billion in annual revenue and that shortfall will sooner or later have to be made up to sustain future benefits. Can you imagine Congress finding $120 billion for Social Security amid all the other fiscal pressures?

For that matter, can you imagine Congress turning off this modest tax break for working people once it’s in place?  If you believe that, you probably believe Obama is going to fight to recover the $700 billion tax giveaway to billionaires while he is in the midst of his reelection campaign.

Further, the debt ceiling will be reached sometime before the end of this year though currently the Treasury says that it expects to be able to hold off until after the elections by invoking “extraordinary measures.”

This next battle over the debt ceiling whenever it occurs will of course be another opportunity for a “grand bargain” that is clearly on the President’s mind.  This time the extremist right wingers will have another ally in their quest, Nancy Pelosi, leader of the Democrats in the House has indicated that she will support the Peterson/Catfood plan.

It is a testament to the ingenuity, deviousness and power of the right wing extremists that, despite the fact that Social Security is an enormously popular program, with support from across the political spectrum they have managed to get the people’s representative government to the point of being willing to make drastic cuts to this program rather than take relatively simple steps to fix it.

We are at a point where it looks like if we would like to keep the social safety net for ourselves and our children and grandchildren we are going to have to make some noise, probably a lot of noise.  Maybe even some angry noises, with signs and chants and feet in the streets.

This would be a great time to remind the President, your Senators and your Congressman that cutting the social safety net is not something that you support.  Perhaps you should tell them that if they can’t see their way to supporting you when you are old or infirm that they shouldn’t expect any help from you, either.  Just sayin’.

Check back tomorrow for an update on the latest moves by the various actors towards imposing the Simpson-Bowles austerity plans on us.