Unions Collaborate With Obama to Squeeze American Workers

Image from Flickr, by DonkeyHotey

With the country moving ever closer to the “fiscal cliff,” the Obama Administration is doing everything it can to strike a “grand bargain” that appeases the ruling elite. The grand bargain is a euphemism for an austerity package that will maintain low taxes for the wealthy and subsidies for their business by slashing social spending and services that help keep the rest of the country from sinking further into poverty.

Union leaders met with the president on Tuesday to give their support for his plan which will include large cuts to social programs like Medicare, Medicaid, Social Security, food stamps and other welfare programs, the WSWS reported this week. Because there is broad support for most of these programs, the President is depending on the unions to help quell popular opposition and avert the kinds of protests and mass discontent seen in Greece, Spain, Portugal and the UK.

While the unions have claimed they are fighting to protect American workers from austerity, their actions indicate that their actual goal is to sell the president’s scam as a good deal for their members.  AFL-CIO President Richard Trumka, for example, said his organization was committed to making sure that the middle class and workers don’t end up “paying the tab for a party that we didn’t get to,” and he asserted that the president had the same commitment. Also present at the meeting were Mary Kay Henry, head of the Service Employees International Union (SEIU), Lee Saunders of the American Federation of State, County and Municipal Employees (AFSCME), and Dennis Van Roekel, president of the National Education Association (NEA). Mary Kay Henry said “We expect to have the president’s back on the agenda that the voters just declared support for. The president has always said he needs a movement behind his mandate.”

Unions Have President’s Back (As He Attacks the Middle and Working Classes)

In 2011 Obama proposed a deficit-reduction plan that would have raised the eligibility age for Medicare, cut Medicare benefits, reduced Social Security benefits, slashed Medicaid, and reduced tax deductions for the middle and working classes. According to the WSWS, William Daley (White House chief of staff when Obama first proposed this “grand bargain”) told Bloomberg News that this would be Obama’s starting point for the next round of negotiations with Republicans. To make matters worse, the extension on unemployment benefits will automatically expire on January 1, ending payments to over 2 million unemployed workers and Obama has said nothing about how (or if) he would avert this disaster.

The “bargain” in this Grand Bargain is Obama’s insistence that taxes must be raised on those earning more than $250,000 per year. However, he has indicated that he would be willing to consider other ways of increasing revenue from the wealthy, like maintaining current tax rates, but decreasing deductions. In either case, the rich earn most of their income through capital gains, which are taxed at the relatively low rate of 15%. Thus many, like Mitt Romney, end up paying a far lower effective rate than the majority of Americans (who earn most or all of their income through salaries) and will continue to do so even if Obama wins approval for tax increases on the wealthy.

Further evidence that Obama is planning austerity for the majority of Americans comes from a secret document leaked last week to Meet the Press. The document indicates that in 2011 Obama proposed over two dollars in cuts for every dollar in increased revenue ($2.8 trillion in cuts and $1.2 trillion in tax increases), setting the stage for raising the debt ceiling and the automatic spending cuts that comprise the “fiscal cliff.” The document revealed that Obama was willing to cut TRICARE (health insurance for the military and veterans) and to lower tax rates for business and for the wealthy. The document also suggested cutting Medicare by $250 billion between 2012 and 2021 and by $800 billion between 2022 and 2031. It proposed cutting Social Security payments by $112 billion over the next 10 years and cutting veterans’ disability payments by $24 billion. It also suggested slashing $11 billion from military retirement and $33 billion from benefits for retired federal employees, as well as $2 billion from nutrition assistance, $4 billion from flood insurance and $10 billion from higher education.

All this sounds exactly like an attempt to make American workers pay the tab for a party they didn’t attend. The Republicans have refused to sign off on any tax increases for the wealthy and Obama has indicated he would be willing to lower their tax liability. A few Republicans, like Mitch McConnell, have indicated they might accept a cap on deductions in exchange for cuts to entitlements (e.g., slashing Medicare and Social Security) and Obama has indicated he is open to this. In the end, the rich will sacrifice little or nothing toward closing the federal deficit, which will be subsidized almost entirely by reductions in services and programs that benefit the majority. Yet the deficit is almost entirely a byproduct of gifts to the wealthy, like subsidies to defense contractors, oil and coal companies, and big Agri-business; bailouts of banks; and tax breaks for the wealthy and their businesses.

California’s 1% Goes On The Offensive

We've Saved the Schools! (Image from Flickr, Mike Licht, NotionsCapital.com)

Three of California’s billionaires have committed over $20 million of their own money to launch and win a ballot initiative that would help close California’s perennial budget hole, according to the Los Angeles Times. However, their plan would only increase tax revenue by $10 billion, not even enough to close next year’s budget gap, which is already projected to exceed $13 billion. It will do nothing to restore the $21 billion that has been slashed from K-12 education over the past three years, or the billions cut from higher education and services for the poor, elderly and disabled. But worst of all, it relies on regressive sales tax hikes and a restructuring of the income tax code that leave the 1% unscathed, placing the burden of closing the budget gap on the rest of us.

The Think Long Committee is headed by investor Nicolas Berggruen, philanthropist Eli Broad and Google Chairman Eric Schmidt. The group also includes former governors Gray Davis and Arnold Schwarzenegger, according to the Times.

On the surface, their plan seems like a well-intentioned attempt to help bolster California’s crumbling infrastructure. After all, it promises to increase K-12 funding by $5 billion per year plus add several billion more for higher education. In reality it is an attempt to take the wind out of the Occupy Wall Street movement, which has been criticizing the skyrocketing cost of higher education and the defunding of both K-12 and higher education. The Think Long millionaires and billionaires are hoping the promise of increased education funding will convince the protestors to go home and give up their desire to make “the rich pay.”

This is unlikely, as their plan calls for a regressive 2% sales tax hike that disproportionately impacts lower income peoples, and an income tax restructuring that places the burden of closing the budget gap on middle income people.

The new tax code would leave those making less than $45,000 without any income tax liability, while those in the $45,000-95,000 range would be taxed a modest 2%. However, there would only be one more bracket, $95,000 and above, which would be taxed at 7%. This means that lower middle class families would be taxed at the exact same rate as millionaires and billionaires. In reality, though, those making millions would be paying a much smaller percentage of their income in taxes, since they tend to have more deductions and exemptions and bring in the bulk of their wealth through capital gains, which would be unaffected by their plan.

The California Teachers Association plans to float a countermeasure that would increase taxes on the state’s wealthiest residents. However, even their plan doesn’t go far enough, aiming only to close the state’s existing deficit and doing little to repay schools for the huge cuts they’ve suffered over the past few years, let alone raise revenue to a level that might bring California back among the top five states in per pupil spending.

What the state needs is a revenue increase in the $50-100 billion range, something that it is fully capable of achieving if income taxes on the wealthiest residents are sufficiently increased, along with business taxes and capital gains taxes. If we go back to the pre-Reagan era, the highest tax bracket paid from 50-90% in federal income tax on all income above a certain threshold. There is no reason the state of California can’t do likewise, for example, raising tax rates on all income over $500,000 to 20% or even 50%.

If we consider just the state’s 80 billionaires, this could bring in more than $10 billion. However, if we include each of the state’s roughly 600,000 millionaires, such a tax ought to create a budget surplus.

Of course this is exactly the kind of scenario the Think Long group is trying to avoid with their preemptive strike.