Budget Woes

by Bill McCabe, as published in The Hudson Valley News 2/16/2011

In his first message to Congress, President George Washington clearly expressed the governing principle that a degree of individual liberty has to be modified to provide for the protection and benefit of the common good. This principle has been the basis for taxing individuals and corporations to fund the operations of government, including the costs of military defense, public education, and human welfare.

Newly elected Republicans in the House and Senate have been calling for drastic cuts in funding government programs amounting to over $32 million in our current 2010-2011 budget. They are also preparing for more drastic cuts in the 2011-2012 budget, including proposals to eliminate the Department of Education, privatize Social Security, reduce Medicare, and repeal last year’s Health Insurance Reform Act. Their motivation is not just to cut costs and eliminate waste; they want to minimize, and indeed eliminate, government involvement in the health, education, and welfare of our citizens.

As President Obama has clearly stated, every effort should be made to eliminate waste, put an end to outmoded programs, combine overlapping programs, and prosecute fraud; however, too many Republicans in Congress seem more interested in transforming the role of government from a strong defender of individual rights and protector of the weak into a more passive observer that is often laissez-faire EXCEPT when corporations need a bailout or special treatment.

As the costs of government and the federal debt increase, Republicans in Congress call for massive tax reductions and severe cuts in social programs. They seem to ignore the fact that due to the stimulus package and the Health Insurance Reform Act, federal income tax rates and corporate tax rates are at their lowest since the 1950’s. The cause of the increase in national debt is NOT primarily due to costs of education, Medicare, and Social Security. Rather, the trillions we have had to spend on wars in Iraq and Afghanistan (presently $2 billion per week) are the truer cause of the higher debt. Until President Obama took office, those trillions in military costs of war were not recognized in the nation’s annual budgets and went directly to the national debt column. All of this debt was accruing while tax rates were declining and while the federal government was “borrowing” from the Social Security trust fund.

So, Republicans in Congress are now loudly exerting enormous pressure to reduce or eliminate social programs to balance the budget instead of recognizing the need to pay for the costs of war, in sharp contrast with the actions of Republican Presidents Eisenhower, Reagan, and G.H.W. Bush – all of whom raised income and corporate taxes to pay for some of the costs of the military. A moderate increase in tax rates for millionaires and major corporations, to the levels of George W. Bush’s Administration, would significantly reduce the national debt without harming economic recovery.

It is also time to put an end to targeted subsidies and tax loopholes that only benefit the largest, most profitable multi-national mega-corporations. What justifies the industry-specific subsidies presently enjoyed by Haliburton, BP, and every other corporation in the oil and gas industry? These are corporations that accept billions in federal tax credits but resist each and every environmental regulation.

While Republicans like Senator Rand of Kentucky and Congresswoman Bachman of Minnesota call for phased-in reductions of Social Security benefits for all workers under age 55, they fail to admit that the program is solvent for another fifteen years despite federal “borrowing” from its trust fund, which still has a $2.5 trillion surplus. The very best solution to make the program solvent for another eighty years is to do what Congress did in the 1980’s and increase the income cap for the 6.2% payroll FICA tax, which now has a cap set at $110,000 of an individual’s earned income.
Any person now earning more than $110,000 per year effectively receives a tax withholding reduction (FICA tax) at whatever point in the year the $110,000 earning level is reached. For example, according to press reports, the Bank of America, which received $45 billion in federal bailouts, paid $10 million in compensation to its CEO in 2010 for his first year on the job – allowing him to stop paying FICA after his first pay check! Other, more experienced CEO’s received more: $17.5 million to JPMorgan Chase’s CEO; $13.2 to the CEO of Goldman Sachs; and $15 million to Morgan Stanley’s CEO. Last year Wall Street banks and investment firms paid out a total of $135 billion in compensation to its CEO’s and management staffs. Removing the $110,000 cap, or raising it, would go a long way to preserving Social Security as we know it to mid-century and beyond.

Certainly the economic problems facing our country are enormous and complex, and government programs need reform and adjustment. But just as certainly, we cannot gut essential social programs while the wealthiest individuals and corporations reap the benefits of corporate welfare and the lowest tax rates in sixty years.