Get ready for the phony debt fight

Both candidates agree: The national debt is the most urgent challenge facing the nation. But it's not -- at all

Topics: Pete Peterson, budget deficit, national debt, economy, Health Care, Debt, Wall Street, Campaign to fix the debt,

Get ready for the phony debt fight (Credit: AP Photo/Jim Cole)

There is almost certain to be a renewed push for cutting the budget regardless of who wins the election. This is a big part of Romney’s and the GOP’s agenda. However, President Obama has also indicated a willingness to cut most areas of spending, including Social Security and Medicare, as part of a “Grand Bargain.”

In this context, the decision of a group of corporate CEOs to form a new group, the Campaign to Fix the Debt, to push for a budget deal can be seen as a big deal. This group brings back memories of a 1970s TV ad that featured a middle-aged man wearing a bad toupee pushing totally fake-looking toupees. The narrator assured viewers that no one would recognize that these toupees were not your real hair saying, “I wouldn’t lie to you, I’m the president of the company.”

It’s hard not to think of this ad when listening to the agenda being pushed by the Campaign to Fix the Debt. This is yet another project supported by Wall Street investment banker Peter Peterson. For the last two decades Peterson has used his fortune to bankroll a number of organizations that were ostensibly pushing fiscal responsibility, but always had the same punch line: cut Social Security and Medicare.

This latest gambit has the interesting twist that it involves 80 CEOs of major companies who are lending their time and good names to the effort to put in place a large-scale deficit reduction package. The plotline is that the 80 CEOs who are demanding that Congress act on the debt are supposed to be acting out of civic commitment. We are supposed to be impressed that these busy and important people are taking their time to focus on the country’s financial situation. They hope this will convince us that the debt is really an important problem.

This brings back the Hair Club for Men commercial, because like the president of the company, the 80 CEOs have lots of reason to lie to you. First and foremost these CEOs are all extremely wealthy people. Most of them are in the richest 1 percent of the 1 percent. They are looking at annual paychecks in the tens of millions and many have accumulated hundreds of millions or even billions of dollars from their past work, investments and/or inheritances.



The outcome of the budget battles could cost many of them millions of even tens of millions of dollars a year in higher taxes. Suppose the top marginal tax rate goes from 35.0 percent to 39.6 percent, as is scheduled under current law. If you’re a moderately successful CEO and pocket $15 million a year for your work, this change would add over $600,000 a year to your tax bill.

But wait, there’s more. Suppose that you had $200 million invested in the stock market. Currently dividends are given special treatment so that the maximum tax rate is 15 percent. This special treatment expires at the end of the year so the tax rate would rise to the 39.6 percent rate for ordinary income. If this $200 million in stock paid $5 million a year in dividends, our CEOs would see their tax on this money increase by more than $1.2 million.

This hypothetical CEO is already looking at an increase in his tax bill of $1.8 million, but there is even more to the story. The tax rate on capital gains is scheduled to rise from 15 percent to 20 percent. This means that if the stock market goes up by 10 percent and the CEO has gains of $20 million, the higher tax rate will cost him another $1 million.

This brings us to a grand total of $2.8 million a year in higher taxes and we haven’t even considered the story with corporate taxes. That should be good reason to give us a phony story on the deficit.

Of course the real story of the deficit is very simple. We have large deficits at present because the collapse of the housing bubble crashed the economy. That’s it.

In 2007, the last year before the downturn, the deficit was a modest 1.3 percent of GDP. We can run deficits of this magnitude forever. The debt to GDP ratio was actually falling. The Congressional Budget Office projected that the deficit would remain modest and actually turn to a surplus when the Bush tax cuts expired in 2011.

This all changed when the economic downturn sent tax revenues plummeting and caused a sharp jump in spending on unemployment insurance and other programs designed to counteract the downturn. But the basic story is simple and straightforward: The large deficits are because the economy collapsed, not because of huge tax cuts or runaway spending.

There is a longer-term deficit problem but this is entirely a problem due to the projected explosion of healthcare costs. Interestingly, the data doesn’t seem to be cooperating with this story either. Healthcare spending grew at just a 0.5 percent annual rate in the most recent quarter. Its growth rate has been far below projections since the start of the downturn.

If healthcare costs continue anywhere near their recent path, our deficit fighters will lose their long-term deficit crisis story. They will be left pushing cuts for Social Security and Medicare that lack any basis in budget realities.

Dean Baker is a co-director of the Center for Economic and Policy Research in Washington, D.C.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails

    Ten spectacular graphic novels from 2014

    Beautiful Darkness by Fabien Vehlmann & Kerascoët
    Kerascoët's lovely, delicate pen-and-watercolor art -- all intricate botanicals, big eyes and flowing hair -- gives this fairy story a deceptively pretty finish. You find out quickly, however, that these are the heartless and heedless fairies of folk legend, not the sentimental sprites beloved by the Victorians and Disney fans. A host of tiny hominid creatures must learn to survive in the forest after fleeing their former home -- a little girl who lies dead in the woods. The main character, Aurora, tries to organize the group into a community, but most of her cohort is too capricious, lazy and selfish to participate for long. There's no real moral to this story, which is refreshing in itself, beyond the perpetual lessons that life is hard and you have to be careful whom you trust. Never has ugly truth been given a prettier face.

    Ten spectacular graphic novels from 2014

    Climate Changed: A Personal Journey Through the Science by Philippe Squarzoni
    Squarzoni is a French cartoonist who makes nonfiction graphic novels about contemporary issues and politics. While finishing up a book about France under Jacques Chirac, he realized that when it came to environmental policy, he didn't know what he was talking about. "Climate Changed" is the result of his efforts to understand what has been happening to the planet, a striking combination of memoir and data that ruminates on a notoriously elusive, difficult and even imponderable subject. Panels of talking heads dispensing information (or Squarzoni discussing the issues with his partner) are juxtaposed with detailed and meticulous yet lyrical scenes from the author's childhood, the countryside where he takes a holiday and a visit to New York. He uses his own unreachable past as a way to grasp the imminent transformation of the Earth. The result is both enlightening and unexpectedly moving.

    Ten spectacular graphic novels from 2014

    Here by Richard McGuire
    A six-page version of this innovative work by a regular contributor to the New Yorker first appeared in RAW magazine 25 years ago. Each two-page spread depicts a single place, sometimes occupied by a corner of a room, over the course of 4 billion years. The oldest image is a blur of pink and purple gases; others depict hazmat-suited explorers from 300 years in the future. Inset images show the changing decor and inhabitants of the house throughout its existence: family photos, quarrels, kids in Halloween costumes, a woman reading a book, a cat walking across the floor. The cumulative effect is serene and ravishing, an intimation of the immensity of time and the wonder embodied in the humblest things.

    Ten spectacular graphic novels from 2014

    Kill My Mother by Jules Feiffer
    The legendary Pulitzer Prize-winning cartoonist delivers his debut graphic novel at 85, a deliriously over-the-top blend of classic movie noir and melodrama that roams from chiaroscuro Bay City to Hollywood to a USO gig in the Pacific theater of World War II. There's a burnt-out drunk of a private eye, but the story is soon commandeered by a multigenerational collection of ferocious women, including a mysterious chanteuse who never speaks, a radio comedy writer who makes a childhood friend the butt of a hit series and a ruthless dame intent on making her whiny coward of a husband into a star. There are disguises, musical numbers and plenty of gunfights, but the drawing is the main attraction. Nobody convey's bodies in motion more thrillingly than Feiffer, whether they're dancing, running or duking it out. The kid has promise.

    Ten spectacular graphic novels from 2014

    The Motherless Oven by Rob Davis
    This is a weird one, but in the nervy surreal way that word-playful novels like "A Clockwork Orange" or "Ulysses" are weird. The main character, a teenage schoolboy named Scarper Lee, lives in a world where it rains knives and people make their own parents, contraptions that can be anything from a tiny figurine stashable in a pocket to biomorphic boiler-like entities that seem to have escaped from Dr. Seuss' nightmares. Their homes are crammed with gadgets they call gods and instead of TV they watch a hulu-hoop-size wheel of repeating images that changes with the day of the week. They also know their own "death day," and Scarper's is coming up fast. Maybe that's why he runs off with the new girl at school, a real troublemaker, and the obscurely dysfunctional Castro, whose mother is a cageful of talking parakeets. A solid towline of teenage angst holds this manically inventive vision together, and proves that some graphic novels can rival the text-only kind at their own game.

    Ten spectacular graphic novels from 2014

    NOBROW 9: It's Oh So Quiet
    For each issue, the anthology magazine put out by this adventurous U.K.-based publisher of independent graphic design, illustration and comics gives 45 artists a four-color palette and a theme. In the ninth issue, the theme is silence, and the results are magnificent and full of surprises. The comics, each told in images only, range from atmospheric to trippy to jokey to melancholy to epic to creepy. But the two-page illustrations are even more powerful, even if it's not always easy to see how they pertain to the overall concept of silence. Well, except perhaps for the fact that so many of them left me utterly dumbstruck with visual delight.

    Ten spectacular graphic novels from 2014

    Over Easy by Mimi Pond
    When Pond was a broke art student in the 1970s, she took a job at a neighborhood breakfast spot in Oakland, a place with good food, splendid coffee and an endlessly entertaining crew of short-order cooks, waitresses, dishwashers and regular customers. This graphic memoir, influenced by the work of Pond's friend, Alison Bechdel, captures the funky ethos of the time, when hippies, punks and disco aficionados mingled in a Bay Area at the height of its eccentricity. The staff of the Imperial Cafe were forever swapping wisecracks and hopping in and out of each other's beds, which makes them more or less like every restaurant team in history. There's an intoxicating esprit de corps to a well-run everyday joint like the Imperial Cafe, and never has the delight in being part of it been more winningly portrayed.

    Ten spectacular graphic novels from 2014

    The Shadow Hero by Gene Luen Yang and Sonny Liew
    You don't have to be a superhero fan to be utterly charmed by Yang and Liew's revival of a little-known character created in the 1940s by the cartoonist Chu Hing. This version of the Green Turtle, however, is rich in characterization, comedy and luscious period detail from the Chinatown of "San Incendio" (a ringer for San Francisco). Hank, son of a mild-mannered grocer, would like to follow in his father's footsteps, but his restless mother (the book's best character and drawn with masterful nuance by Liew) has other ideas after her thrilling encounter with a superhero. Yang's story effortlessly folds pathos into humor without stooping to either slapstick or cheap "darkness." This is that rare tribute that far surpasses the thing it celebrates.

    Ten spectacular graphic novels from 2014

    Shoplifter by Michael Cho
    Corinna Park, former English major, works, unhappily, in a Toronto advertising agency. When the dissatisfaction of the past five years begins to oppress her, she lets off steam by pilfering magazines from a local convenience store. Cho's moody character study is as much about city life as it is about Corinna. He depicts her falling asleep in front of the TV in her condo, brooding on the subway, roaming the crowded streets after a budding romance goes awry. Like a great short story, this is a simple tale of a young woman figuring out how to get her life back, but if feels as if it contains so much of contemporary existence -- its comforts, its loneliness, its self-deceptions -- suspended in wintery amber.

    Ten spectacular graphic novels from 2014

    Through the Woods by Emily Carroll
    This collection of archetypal horror, fairy and ghost stories, all about young girls, comes lushly decked in Carroll's inky black, snowy white and blood-scarlet art. A young bride hears her predecessor's bones singing from under the floorboards, two friends make the mistake of pretending to summon the spirits of the dead, a family of orphaned siblings disappears one by one into the winter nights. Carroll's color-saturated images can be jagged, ornate and gruesome, but she also knows how to chill with absence, shadows and a single staring eye. Literary readers who cherish the work of Kelly Link or the late Angela Carter's collection, "The Bloody Chamber," will adore the violent beauty on these pages.

  • Recent Slide Shows

Comments

0 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>