Saturday, January 5, 2013

The Austerity Confusion Continues

First, the notion that the measures just passed by the Congress are "not Austerian" is widespread and wrong, and this misperception would be hilarious if real people weren't being forced into poverty because of it.

Yet I've seen a lot of cant and rhetoric claiming that because "taxes were raised on the rich" -- yeah right -- the measures "can't be Austerian." Not only that, but there were some spending programs in the mix. (Like yet more corporate welfare?) AND unemployment benefits were extended! Yay!

Reducing the disposable income of the masses through increased taxation is Austerian pretty much by definition, and that's what's happened with the expiration of the payroll tax holiday. What makes it even more Austerian, by definition, is the fact that at least twice as much revenue will be raised from the increased payroll taxes on the masses as will be raised from increased income taxes on the rich. Isn't that wonderful? Isn't that the way it's supposed to be?

Second, the argument that the increased payroll taxes will be used to shore up Social Security is something of a crock. During the payroll tax holiday, the shortfall in Social Security revenue -- which is used to pay current benefits, not socked away for the future -- was made up dollar for dollar from the general fund, something like $110 or $120 billion per year. What it meant was that any shortfall in Social Security revenue to pay existing benefits was paid directly from the general fund, and guess what? That's exactly what happens all the time and will continue to happen for some time to come as the Baby Boomers retire in their multitudes. We can call it "cashing in" Social Security's Treasury Bonds if we want, but the effect is the same: any shortfall between SS revenues from payroll taxes and obligations to beneficiaries is made up from the general fund.

That's why there is such a push to curb, limit, cut, reduce, hack, and trim Social Security benefits now and going forward.

The Chained CPI being promoted as the "least bad" of options. The point is to reduce the amount SS draws from the general fund so as to avoid raising revenues from those who have the most in order to the benefits due seniors and other recipients of Social Security.

The increased payroll taxes are actually shoring up the general fund, making it less necessary to increase taxes on the rich in order to pay for Social Security and other benefits. But still, there is a drain on the general fund as SS Treasuries are redeemed, and any drain at all to pay for Old Farts is considered anathema by the Highest of the Mighty, so there will continue to be calls to cut benefits, no matter how much revenue is extracted from the masses. In the end, there is no dedicated Social Security money which cannot be taken for other purposes if Congress wants to do so and the White House agrees. If Congress and the White House want wars, for example, and need money to pay for them, they will get that money anywhere they can, and if that means raiding Social Security, they'll do it. In fact, Social Security has already been fully and repeatedly raided -- to pay for wars and tax cuts on the rich among many other things.

And there is nothing you and I can do about it.

But income tax rates were raised on the rich, né? Well, yes, slightly. And that increase -- which may not actually produce much revenue, we'll see -- is also by definition Austerian. Of course the effect of the income tax increase on the rich is nothing like the effect of the payroll tax increase on the working and middle classes. In fact, if  the rich actually pay the increase the effect on them will be almost imperceptible. The increased payroll taxes on the working and middle classes, on the other hand, can have a devastating effect for those on the financial edge.

I've seen lots of commentary from people who say "It's only $50 a pay period! I can afford that! And it's going to Social Security, so it's a good thing!" Well, a lot of people can't  afford it, especially not after their income has already taken such a battering from the Permanent Recession as it is. The revenue is not going to shore up Social Security, it's going to shore up the general fund so that taxes on the rich won't have to be raised to an appropriate level. Millions upon millions of Americans have already been forced into poverty during the course of this Perpetual Recession, and due to the increase in payroll taxes without any offset, millions more  will be forced into poverty. Oh, it's lovely that some working and middle class households can afford to lose 2% of their disposable income, but many cannot.

The fact that there was no effort to provide an offset for the loss of working and middle class disposable income is the tell here. The Neo-liberal/Austerian point, after all, is to make the masses pay for everything and insofar as possible to relieve the rich and powerful from taxation, even provide them with handsome emoluments and subsidies -- paid for by extractions from the masses.

And we should note -- though without surprise -- the extraordinary levels of corporate welfare included in the Neo-liberal/Austerian measures just passed and signed into law. My, my, my. But then, corporate welfare is part of the Neo-liberal/Austerian program, after all.

There has been a lot of argument regarding the fact that "Austerity doesn't work." But that avoids the point. "Doesn't work" for whom? It doesn't work to the benefit of the masses, of course not. It's not meant to -- no matter how it's sold. It is meant to enable a diminishing cadre of super-rich to accumulate a greater and greater and still greater number of assets (not "wealth" so much as assets)  through and by which they are able to exercise greater and greater levels of power. And for those purposes, Austerity works wonders.

Austerity is imposed in order to take assets from the masses at the lowest possible cost to the plunderers and predators, pure and simple. And it works.

The confusion about all of this is a factor of the propaganda that surrounds the imposition of the policies of Austerity (Shock Doctrine, Neo-liberalism.) Without the propaganda, these policies cannot be imposed. And the propaganda is everywhere. Surprisingly -- or maybe not -- it pervades the "progressive" new media, to the extent that it is almost impossible to avoid or in many cases to cut through the bullshit.

Under the circumstances, people by and large don't know what to believe. Confusion is inevitable (and desirable to the beneficiaries of these policies.) The People "go with their gut," and too often that means buying a lie. Grifters, hucksters and conmen have never had it better.


  1. Below, a rather long quote from Michael Hudson:

    The key question is what the 1% do with their revenue “freed” from taxes. The answer is that they lend it out to indebt the 99%. This polarizes the economy between creditors and debtors. Over the past generation the wealthiest 1% have rewritten the tax laws to a point where they now receive an estimated 66% – two thirds – of all returns to wealth (interest, dividends, rents and capital gains), and a reported 93% of all income gains since the Wall Street bailout of September 2008.

    They have used this money to finance the election campaigns of politicians committed to shifting taxes onto the 99%. [pws - emphasis mine] They also have bought control of the major news media that shape peoples’ understanding of what is happening. And as Thorstein Veblen described nearly a century ago, businessmen have become the heads most universities and directed their curriculum along “business friendly” lines.


    Of course, Michael Hudson is a complex theorist who is not simply about defending the New Deal/Great Society. Not that those things aren't important, but Hudson explicitly divides society into people who are extracting money from the majority and people who earn money through labor. Hudson also does something very important as an economist, he calls out the rentiers income as immoral and destructive.

  2. Oh, and a personal note:

    I've mentioned before that I have a debt problem. In order to try to get out from under them, I took on a demanding part time job. It's miserable stressful work, it doesn't pay very well but it has the advantage of being flexible around my work schedule. Evenings, weekends, whenever I have time. I took on this work both as a favor for a friend and as a way to more quickly pay back my debts.

    The payroll tax increase completely wipes out the money I will make from this job which has represented a couple of months of work. (Besides which, both my rent and my health insurance contribution are increasing, and those increases are not covered by the money from my part time job.)

  3. Hudson's convolutions can give anyone a headache sometimes, but he's fundamentally correct about the hows and wherefores and what's become. It's a sad commentary on our elites that the basics, the fundamentals, the truths of the matter are simply ignored by them, not even deigning to dismiss the rabble in the process.

    The other part of it is exactly what you describe in your personal note: victim blaming has long been all the rage. You try to do the right thing and you get screwed.

    The high and the mighty don't deal with debt the way they tell us the rest of us must. If they owe someone or some entity of lesser status, don't count on them ever paying it back. They don't bother with technicalities like bankruptcy to clear their debts -- unless they can make a profit in the process. They just screw the Lesser People outright; contracts? Ha! And if they owe someone or some entity of a higher status watch them grovel and plead class solidarity and all the rest of it, and watch what happens. Watch how often they are simply forgiven the debt if they can't afford to pay it back. There may be a trade off, sure, but still, it is nothing like the debt-situation most of us face.

    The casualness with which the 2% payroll tax increase is being practically universally treated is really stunning. "Well, you should have saved during the 'holiday' -- and then you wouldn't have these problems now." "It was always only going to be temporary. You should have prepared. It's your fault if you can't afford to lose 2% of your income at this point." "It's going to shore up Social Security!"

    Yes, well...

    We won't know how many more people are going to suffer, how many more will go hungry, and how many more will be thrown into poverty because of this measure for some time, but the trends have not reversed during the Obama regime, so we can assume that the fallout from it will include millions of Americans.

    And then there's Taibbi's latest: it's all to protect the banks and their ability to gamble without consequence (to them) and screw the Little People with drunken abandon...


  4. I was reading this by Taibbi today, it's very insightful, it's about the Greenspan/Reagan payroll tax hike:

    "Two things about this. One, Social Security taxes are very regressive, among other things because they only apply to wage income (if you’re a hedge fund manager or a Wall Street investor and you make all your money in carried interest or capital gains, you don’t pay) and they are also capped, at this writing at around $106,000, meaning that wages above a certain level are not taxed at all. That means that a married couple earning $100,000 total will pay roughly the same amount of Social security taxes that Lloyd Blankfein or Bill Gates will (if not more, depending on how the latter two structure their compensation). So if you ignore the notion that Social Security taxes come back as benefits later on, and just think of them as a revenue source for the government, it’s a way for the state to take money from working-and middle-class taxpayers at a highly disproportional rate." -- Griftopia by Matt Taibbi, excerpt

  5. Oh, I think I'll add this as well:

    "But instead of keeping their hands off that money and preserving it for Social Security payments, Reagan, Bush I, Clinton, and Bush II spent it—all of it—inspiring the so-called Social Security crisis of George W. Bush’s presidency, in which it was announced suddenly that Social Security, far from having a surplus, was actually steaming toward bankruptcy. That bad news was released to the public by then-Treasury secretary Paul O’Neill, who let it slip that the Social Security fund had no assets at all, and instead just had pieces of paper in its account.

    ‘I come to you as managing trustee of Social Security,’ O’Neill said. ‘Today we have no assets in the trust fund. We have the good faith and credit of the United States government that benefits will flow.’

    In other words, Greenspan and Reagan had conspired to hike Social Security payments, justifying it with the promise of building up a Social Security nest egg for subsequent decades, then used up that nest egg on current government spending." -- Griftopia by Matt Taibbi, excerpt

    So much for this latest tax hike being used as a support for Social Security. How are they going to save this money in the piggy bank when there are all those shiny new wars on the shelf just saying, "Buy me!"

  6. In theory, current SS benefits are paid from current SS payroll tax receipts. As I understand it, there was a small shortfall in those receipts prior to the "holiday" which was made up from redeeming the Trust Fund Treasuries. Ie: paid from the general fund.

    During the "holiday" the general fund was making up about $120 billion a year in lost receipts. I assume the $230-240 billion that cost will be charged against the SS surplus, reducing the balance on those special SS Treasury bonds.

    Meanwhile, there will still be a shortfall, even with full payroll tax receipts, and the shortfall will still be made up from the general fund.

    This is why there's so much pressure to cut Social Security now, cut it later, keep cutting it and cutting it for the foreseeable future, Medicare, too, because these revenue shortfalls will continue for another 20-30 years (longer if the employment and wage situation doesn't improve.)

    The SS surplus -- built up over decades of double taxing workers -- has all been spent on tax cuts for the rich, corporate welfare, wars of aggression and whatnot, so every dime that's being made up is coming directly from the general fund, which ultimately means the only way to sustain it is to raise income tax rates, principally on the rich.

    They have been squealing for years that they won't pay.

    So far they're getting away with it.

  7. In general, huge amounts of money are spent on the National Security State, for suppressing nationalist or socialist movements abroad, and also suppressing social justice movements at home. That's all the rich want the state to spend money on, protection from their foreign and domestic slaves.