Let me get this straight. First, a bunch of financial barons, in their wild pursuit of profits from reckless financial bets (affectionately called "financial innovation"), crash our entire economy. Then we, the taxpayers, fearing another Great Depression, bail them out with trillions of dollars in cash, asset guarantees and market support programs.
And now Wall Street is back to making record profits and bonuses. But its casinos aren't doing anything for the 29.9 million Americans left jobless (or underemployed) by Wall Street's crash. Meanwhile, the Great Recession plus the enormous bailouts plus ludicrous tax cuts for the super-rich are running up our national debt. And lost revenue has left state and local budgets in shambles.
So what does President Obama propose? Does he demand that Wall Street pay restitution for the mess it made and profited from?
No. He wants to freeze public employees' wages and shower the super-rich with more gifts -- by extending the Bush tax cuts for the rich and reducing estate taxes for the super-rich.
An array of pundits and policy wonks claim that Obama's bargain with the Republicans, which includes extended unemployment benefits and payroll tax cuts, is a good deal because it will create many new jobs. Really? The sad truth is that Obama's economic policies will do a great deal for the very rich and very little for the rest of us.
Two Million Public Sector Workers versus 25 Hedge Fund Managers?
Team Obama made so many dumb moves this week that last week's dumb moves are already fading from view. Last week was when Obama tried to placate the deficit hawks by calling for a freeze on federal workers' pay. This gratuitous attack on government employees is not only a weak-kneed sop to deficit hysteria, it's also certain to touch off a tsunami of state and local government pay freezes and cuts. These, in turn, will neutralize the impact of the "good deal" Obama thinks he struck with the Republicans this week. Mother of God, can't anyone in the White House tell Obama that cutting middle-income wages is exactly what you don't do to stimulate the economy and create jobs? (More on this travesty in a moment.)
Obama is looking for deficit reduction in all the wrong places. Let's do the math. The wage freeze, the New York Times reports, will save $5 billion over the next two years. We could raise more than twice that amount if we closed just one tax loophole on the 25 richest hedge funds managers.
This year the top 25 hedge fund moguls will again make about $1 billion each for a total of $25 billion -- just for 25 individuals. Because of an unconscionable tax loophole, their staggering personal incomes are not considered "income" at all, but instead are taxed at the capital gains rate of 15 percent. In the current deal, Obama abandoned his earlier call for an anemic five percent increase in the capital gains tax. But "capital gains" is not an accurate phrase for the incomes of these 25 moguls. If these 25 individuals paid the current Bush top income tax rate of 35 percent on their income like other affluent people do, the federal government would gain $5 billion in revenue per year -- twice the amount delivered by the federal worker wage freeze. If the Bush tax cuts ever expire (fat chance -- unless there's a revolution) and the top income tax rate returns to 39.6 percent, the extra tax haul just on those 25 elites would produce an additional $6.5 billion a year of badly needed revenue. All from a fair tax on only 25 of the richest individuals in the world.
Instead of joining Republicans in beating up public employees and sending yet more
Christmas gifts to the super-rich, President Obama should be using the bully pulpit to explain to the American public why these hedge fund moguls -- and other ultra-wealthy people -- must pay their fair share. And why the money we recoup from them should be used to create jobs. He should be embarrassing Congress by forcing votes on closing that ridiculous loophole. Instead, in his defensive press conference on December 7, he embarrassed himself by attacking the very people who helped to put him into office.
Obama Launches Massive Anti-Stimulus Program?
And it gets worse. The Obama administration is now very proud that economists are praising its proposed tax deal, which they say will pump more money into the economy. Though the payroll tax cut will net a lot more cash for the prosperous than for the poor, reducing payroll taxes and extending unemployment benefits certainly will put more money into the hands of people who will spend it. The lavish gifts to the super-rich will not.
But forget about putting more money into the pockets of federal workers -- they're getting a wage freeze, and 600,000 of them actually will see a tax increase as a result of Obama's grand compromise with the Republicans. The payroll tax cut does not apply to these workers because they are not part of the Social Security system. Also Obama's deal will eliminate the Work Pay credit which gives up to $400 to low and middle income workers. (See "In Tax Deal Many Public Employees to Pay More," New York Times)
Doesn't Obama realize that he's sending a signal to every public employer in the country to follow suit? You can be sure that hard-pressed state and local governments across the nation will use President Obama's wage freeze as a template for eviscerating the pay and benefits of their own employees. By closing ranks with the most vicious anti public-employee politicians (like New Jersey's Governor Chris Christie), President Obama is encouraging state and local governments to take out of our pockets as much money as the new round of tax cuts and unemployment checks will put into it. That's voodoo economics on a grand scale.
Obama Whuped by Wall Street?
Obama turned on public workers because he's been beaten into submission by Wall Street. After our bailouts, the too-big-to-fail banks got even bigger and richer. Then they turned around and used their vast clout to thwart serious financial reforms. They also blocked any move to close their tax loopholes -- which could have funded job programs and reduced the debt.
Obama and his Wall Street advisors gambled that if he bailed out our financial elites, the jobs would come. Unfortunately, this version of trickle-down economics didn't work any better than Bush's. Obama let the Wall Street gamblers reopen their casinos and collect record profits yet again. Yet unemployment remains higher than at any time since the Great Depression. Understandably, in November the American people pummeled the Democrats for Obama's failure to put our country back to work.
After that humiliation, the president knew he had to demonstrate some backbone somewhere. Why not show public employees who's boss? Government workers are the perfect scapegoat for our economic ills: They're heavily unionized and one of the last groups in the country still holding on to decent jobs and benefits. It's child's play to stoke the resentment of hard-strapped private sector workers against public employees with better wages and benefits. Why are we spending our hard-earned tax dollars to support these lazy people? They even get vacations and pensions! Screw them!
Conservative politicians and think tanks are fanning the flames with bogus statistics supposedly showing that public sector workers are wildly overpaid and have far richer benefits than the rest of us. But more careful studies show that when you compare public workers by education and job title with their counterparts in the private sector, the cost per worker is lower in the public sector. (See the Economic Policy Institute's report.)
Although Obama never would admit it, probably even to himself, he's doing Wall Street's bidding yet again by broadcasting the idea that public workers have to pay for the deficit -- not the Wall Street honchos who caused the crash. Obviously Wall Street has no intention of paying for the mess it created. So they want us to pay. And slapping around federal workers is a great way to start.
Do Progressives have the guts to act?
It's time for progressives to reconsider their strategic options. Some key liberal leaders want to find a candidate to challenge Obama in the 2012 primaries. But the problem is not just Obama. The Democratic Party as whole sold its soul to Wall Street long ago in a bid for campaign dollars and lucrative jobs. It's no accident that the Democrats didn't take on too-big-to- fail institutions. It's no accident that we don't hear the Dems talking about windfall profit taxes on Wall Street or closing the obscene hedge fund tax loopholes. (As we speak, Peter Orszag, the 41-year-old Obama deficit hawk and budget chief is resigning as head of OMB to take a fat-paying job with CitiGroup, the giant bank that was saved by enormous tax-payer bailouts. Many more Democratic officials will be following him to Wall Street.)
And, it remains to be seen if many Democrats will even rebel against Obama's tax gifts to the super-rich.
The American people want fairness and they want jobs. Scapegoating public sector workers will get them neither. The only decent alternative is to make Wall Street pay for its mess and use that money to create jobs -- now. If that takes a new political formation, so be it. In less than two years, the Tea Party has changed the political landscape. We need a Jobs Party to do the same. Clearly President Obama doesn't have the courage to take on the super-rich... But do we?
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009. He is currently working on a new book, How to Earn $900,000 an Hour: The Rise of Wall Street Billionaires and the New Class War, (hopefully to be published in 2011).