Something to rally around: Rep. Jan Schakowsky's deficit reduction plan

by: Paul Rosenberg

Wed Nov 17, 2010 at 09:00

Representative Jan Schakowsky, the most outspoken progressive member of the Catfood Commission, has released her own deficit-reduction plan, complete with a clear, straightforward and honest rationale, plus more savings than asked for by President Obama.  Writing about it at Campaign for America's Future, Bill Scher's post about it was titled  "How To Cut The Deficit Without Stabbing America In The Back". Writing about it at DKos yesterday, Chris summarized:

It is good, sensible policy, focusing on:
  • Ending various corporate tax breaks (132.2 billion in annual savings)
  • Reducing defense spending (110.7 billion in annual savings)
  • Taxing Capital Gains and dividends as ordinary income (88.1 billion)
  • Passing cap and trade (52 billion)
  • Passing a robust public option (10 billion)
  • Reducing agricultural subsidies (7.5 billion)

And several other, smaller changes that would cut tens of billions from the federal budget deficit.

But this is not just a fair, sensible and effective plan.  It is also a very well-argued one--the sort of thing many of us were expecting to see from the Obama Adminstration itself on any number of topics, but have not--which is why I want to step through the one-page presentation on Schakowsky's website introducing the plan. Here's how she begins:

Schakowsky Offers Alternative to Simpson-Bowles Deficit Reduction Plan

Plan Would Close Deficit without Forcing the Middle Class to Pay the Bill

WASHINGTON, DC (November 16, 2010) - Today Rep. Jan Schakowsky (D-IL), a member of the bipartisan National Commission on Fiscal Responsibility and Reform, offered a comprehensive proposal to reduce the federal deficit without making middle class Americans foot the bill.  Schakowsky's plan is an alternative to the Bowles-Simpson plan and would reduce the deficit by $426.95 billion in 2015, surpassing President Obama's $250 billion target. Critically, the Schakowsky plan accomplishes deficit reduction without making cuts to essential federal expenditures that benefit the middle class. 

So, three main points right off the bat:

    (1) An ALTERNATIVE to Bowles-Simpson. (No, we don't have accept Bowles-Simpson as a starting point.)
    (2) Gets the deficit-reduction job done by 2015. (There are other ways to meet the goal.)
    (3) Doesn't harm the middle class. (Ways that don't harm folks who've already suffered a lot.)

Next, we get a statement from Schakowsky in her own words. She begins by explaining why she is offering her own proposal, laying the moral and practical foundations for her plan in terms of recent history, since the budget was last balanced under Bill Clinton:

Paul Rosenberg :: Something to rally around: Rep. Jan Schakowsky's deficit reduction plan
"The President's Fiscal Commission has been given a concrete goal: to achieve primary budget balance in 2015, ensuring that all spending is paid for except for interest on the national debt. Last week, co-chairs Erskine Bowles and Alan Simpson laid out their plan, which they presented to the Commission and to the public.  Their proposal would have serious consequences for lower and middle class Americans, and that is why I cannot support it.

"I am releasing my own plan today because I believe that there is a better way to achieve our goal - one that protects the poor and the middle-class.

"Lower and middle class Americans did not cause the deficit.

"Just ten years ago the federal budget was generating a surplus as far as the eye could see.  That surplus was turned into a deficit due to massive tax cuts - mainly to wealthy Americans; two wars paid for by borrowed money; and a major recession caused by the recklessness of the big Wall Street banks.

"Over the last decade the incomes of middle class Americans have actually shrunk, while those of the wealthiest two percent of the population have exploded.

"The middle class did not benefit from the Republican economic policies that led to the current deficit - they were the victims - they should not be called upon to pick up the tab.

This is, to my mind, a masterful job of laying out the moral foundations for her plan in a clear, succinct,  historically accurate manner.  She next pivots from looking backward at how we got her, and what should inform us going forward to focusing on the positive purpose of deficit reduction--something one normally hears remarkably little about:

"Fixing the Federal deficit is not an end in itself.  The goal of budget policy should be to assure long-term, widely shared economic growth.  Economic growth is not just good for businesses and families - it will reduce the deficit.  Sustained, long-term economic growth requires that we end the trend of concentrating more and more wealth in the hands of the rich and less and less in the hands of a middle class that can then afford to buy the products and services that will sustain economic growth.

"The proposals included in this plan are aimed at bringing the federal deficit under control using policies that will put Americans back to work and strengthen middle class incomes:  the foundation of long-term economic growth.

Schakowsky makes this all look easy, and in the hands of a master, it is.  But masters have been mighty few and far between of late.  The way she's speaking here is the way that many hoped and expected that President Obama would speak.  The perspective in firmly based in reality.  The logic is compelling. What more could you want?

She then moves on to spelling out the five key elements of her plan:

1) Increased economic stimulus to spur growth in the immediate term
  • Provide $200 billion to invest over the next two years in measures to create jobs and spur economic growth, including passing the Local Jobs for America Act; and funding for education and law enforcement; Unemployment Insurance, Federal Medical Assistance Percentages (FMAP) and Supplemental Nutrition Assistance Program extensions; and infrastructure. 
  • Adopt the President's proposals to eliminate overseas tax havens and incentives for outsourcing

2) Smart, targeted spending cuts

  • Non-Defense Discretionary - $7.55 billion in savings through increased efficiency and cuts to programs that benefit large corporations that don't need assistance.
  • Defense Discretionary - $110.7 billion in cuts from the 2015 defense budget, including efficiency savings, reducing our troop levels, cutting weapons systems we don't need, and scaling back the wartime increases in the size of the military.

3) Mandatory spending cuts
  • Health Care - at least $17.2 billion in savings by implementing measures to bring down the cost of health care to the federal government and lower health care inflation overall.
  • Other - $7.7 billion in savings by cutting agriculture subsidies in half, and redistributing federal support to offer greater benefits to small family farms reduce subsidies to large corporate agribusiness.

4) Reductions in tax expenditures
  • Raise $132.2 billion by closing tax subsidies for companies that ship American jobs overseas.

5) Increases in revenues
  • Raise $144.6 billion in revenue through progressive reforms to the estate tax, treating capital gains and dividends as regular income, and enacting a cap and trade proposal that includes protections for lower-income people.
  • Enact President Obama's budget proposal to let the Bush tax cuts for the top 2 brackets expire and return to 2009 estate tax levels.
  • Non-tax revenue - raise $7 billion by addressing places where the private sector is currently under-paying.

Finally, she specifically addresses Social Security:

On Social Security

"There is a better way than the Simpson-Bowles proposal - which relies heavily on benefit cuts instead of revenue increases.

"Social Security has nothing to do with the deficit. Addressing the Social Security issue as part of the deficit question is like attacking Iraq to retaliate for the 9/11 attacks - there is simply no relationship between the two and attempting to conflate them does a grave disservice to America's seniors.
"Taking money from Social Security retirees whose average total income is $18,000 per year and average benefit is $14,000 ($12,000 for women) is simply wrong. It places them at fiscal risk and hurts the economy because they will be unable to purchase the goods they need.  Americans in poll after poll have indicated their opposition to benefit cuts - particularly at a time when Wall Street bankers are making record bonuses."

The Schakowsky alternative does not contain any cuts to Social Security.

  • It ensures long-term solvency to Social Security by eliminating the wage cap on the employer side and raising it to 90% on the employee side, applying FICA to all wage income below the cap, and establishing a modest legacy tax on wealthier Americans.
  • Surplus funding that can be used to improve the extremely-modest benefits that are now provided.

This succinct presentation has all the necessary essentials.  It explains both the substance and the logic of what is being proposed, as well as the moral principles behind it and the pragmatic purpose for which it being proposed. This is something clear, purposeful, moral and uncompromised that all progressives should be happy to rally around.

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Wow. This is pretty awesome. (4.00 / 5)
Agree this is a much better starting point that the nonsensical Simpson garbage.

Is there a lower-end on taxing (0.00 / 0)
capital gains as ordinary income?  I'm thinking of someone in the bay area selling a condo and suddenly finding themselves in the top tax bracket, or someone inheriting a bunch of property, and not being able to sell it off because it's been appreciating since 1950 and they can't afford to have all of their income taxed at the top bracket.  Doing something like exempting the first $100,000 of capital gains would fix that (or just raising the capital gains rate to the mean tax rate).  

There Are Already Exemptions That Cover Those Examples.(n/t) (0.00 / 0)

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
True (0.00 / 0)
But, I think that simplification of the tax system is a good idea. The universe of exemptions, credits, rebates, offets, carry-overs, is vast. Overall, I'd suggest revisiting issues such as these, rather than just relying on the current system to "fix" them.

"It sounds wrong...
     ...but its right."

[ Parent ]
$250K (0.00 / 0)
Last time I checked (which was when I used it last) there was a $250K exemption for primary residences.

[ Parent ]
I like it (4.00 / 1)
This is an excellent place to start. The most valuable part is that it manages not to completely accept "deficit reduction" as the frame for the discussion. Such might be made more apparent by leaving any mention of the Simpleton/Bowels "plan" out of the document altogether. This is NOT an alternative - it is THE proposal.

I wonder if such plans might make a more graphic impact if one were to present them as if on a ledger sheet. I mean, keep a running tally of the savings/revenues/expenses down the right-hand (OK - let's use the Left-hand side for full psychological impact) of the page. Make it look like a bill. List how much each item costs - wars, tax-cuts, subsidies, everything in the proposal. Such would make direct, line-by-line comparisons very plainly and on a format that everyone understands intuitively.


"It sounds wrong...
     ...but its right."

Not good enough (4.00 / 2)
Wouldn't taxing all capital gains and dividends slam retail middle-class and retirement investors too?

How about a securities transaction tax instead? The most frequent traders (speculators, hedge funds, day traders) create the most volatility and instability, so this seems only fair. Their behavior is predatory and anti-growth, in that they profit mostly by gaming the system and through price manipulation strategies that rip off those who invest conventionally in promising or successful companies, ie, many middle-class retail investors. Here's an article by Lawrence Summers (of all people) advocating the STT, or as Summers calls it, STET (Securities Transfer Excise Tax).

He wrote this 20 years ago:

Unlike most major industrialized nations, the United States does not impose an excise tax on securities transactions.

We conclude that strong economic efficiency arguments can be made in support of a STET that throws "sand into the gears," in James Tobin's (1982) phrase, of our excessively well-functioning financial markets. Such a tax would have the beneficial effects of curbing instability introduced by speculation, reducing the diversion of resources into the financial sector of the economy, and lengthening the horizons of corporate managers. The efficiency benefits derived from curbing speculation are likely to exceed any costs of reduced liquidity or increased costs of capital that come from taxing financial transactions more heavily. The examples of Japan and the United Kingdom suggest that a STET is administratively feasible and can be implemented without crippling the competitiveness of U.S. financial markets. A STET at a .5% rate could raise revenues of at least $10 billion annually.

That $10 billion figure is in 1989 dollars, so I would think that the revenue estimate would be even higher today due to inflation.

Or you could add the STT into the plan and make even more savings, but I think you'll have more success with the public with a tax designed to to deter irresponsible behavior rather than one that hits a bunch of people indiscriminately.  

The MSM has tagged Independents the party of swing-voting 'centrism.' If Democrats no longer represent your liberal values, show America there is still a Left by registering for another left-aligned party.

More ambitious (4.00 / 1)
I want to point out here that this is a classically liberal reform in the sense of being an action that leaves the existing system in place but protects people from the worst excesses of the elites.

If you wanted to be a more aggressive progressive/radical you would seek policies that would change people's fundamental behavior and relationships. Policies that discourage Americans from investing in the stock market would decrease their tendency to see themselves as being in close alignment with business interests, and would reduce the hegemony of mercenary capitalist values throughout society. So from that standpoint, taxing all capital gains and dividends might be more desirable.

Right now, I'm more of a liberal on this issue though.

The MSM has tagged Independents the party of swing-voting 'centrism.' If Democrats no longer represent your liberal values, show America there is still a Left by registering for another left-aligned party.

[ Parent ]
Sure I'd Favor A Transactions Tax (0.00 / 0)
But see my comment to deebcop below.

The increased taxes on middle-class investors would be relatively minor.  And for the retired (other than the very well-off), it would be even moreso.  Don't forget: taxing it as regular income means that it's taxed progressively.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Taxing capital gains as ordinary income should be the sine qua non of progressive tax reform (4.00 / 1)
I seriously don't understand why capital gains isn't taxed as ordinary income as it is.  This proposal's a keeper.

[ Parent ]
Retail Investors (4.00 / 1)
Most "retail" investors wouldn't be affected by taxing capital gains and dividends at the same rate as ordinary income.  They only play in the market inside their 401K or IRA accounts, which already are taxed as ordinary income.  Treating types of income in different ways favors the rich, because they can afford to hire lawyers and accountants to turn one type of income into another.

We really should do both: treat income the same AND implement a transaction tax.

[ Parent ]
Economic Growth cuts the deficit (4.00 / 4)
Causes of this century's deficit.Goerge Bush's tax cuts and the Iraq War. Remember Bill Clinton left George Bush a surplus.  

How did Bill Clinton do that?  Two things. In 1993 he passed the deficit reduction act which slightly raised taxes - the same tax rates that if George Bush's taxes expired we would return to.

Second we had economic growth. And Paul Krugman has many charts from eras past with deficts to show that, just as with Bill Clinton, economic growth can deal with deficts.

Thirdly in this case, if measures are taken to create jobs, then all the automatic stabilizers like increased government outlays for health care and unemployment insurance will stop.  People will have jobs and tax receipts rise.

Frankly I am not sure I even want to play on this playing field of releasing your own deficit cutting plan.  It validates the wrong message.

Let the Bush tax cuts expire, 2.7 trillion dollars in the next 10 years and lower the unemployment rate...Abra Ca Dabra....defict is lower a lost faster and a lot lower than any ot these other plans.

"Incrementalism isn't a different path to the same place, it could be a different path to a different place"

I Agree In Principle, But... (4.00 / 2)
The Democrats are obviously far too weak organizationally and politically to do what you're suggesting now.

It's what Obama should have argued forcefully and constantly from the get-go.  But he didn't.

So now were in this box, and before we can really sketch out a new progressive way forward, we have to get out of this particular bind, which to be viable needs to have as much that is old, tried and true in it as possible.  While I'd love to see an even bolder plan out there right now, my primary concern is to see us shift the debate back into a sober, reality-based direction, and this proposal does that very well.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Schakowsky for President in 2012 (4.00 / 3)
Well, okay, 2016. But it would be much better if the current President either tacked towards someone like Schakowsky's positions and rhetoric or we got the real thing. It would be great if American voters had a real choice in 2012, indeed any Presidential election.

Thanks, Paul, for pulling this out. I'll be curious to see if it makes the front page, top of the fold of the NY Times and other media outlets the same as the Simpson Bowles plan did and another regressive alternative they wrote about today.

Jan Schakowksy as President would be awesome (4.00 / 1)
For one, we'd finally have a President who not only voted against the Iraq war, but also is a cosponsor of Medicare for All.

I really wish Schakowsky had ran for Senate this year, assuming that her district would replace her with someone equally or more liberal (and given its strongly Democratic tilt, it probably would).  I don't know why she didn't; she expressed interest in the Senate back in 2008, and if Mr. Be-Distracted-By-My-Bank came within 2 points I'm sure Schakowsky would've won cleanly.

I definitely think Schakowsky should run against Mark Kirk for the Senate in 2016.  Again, this is assuming we can find someone just as good or even better to replace her in IL-9.  We can't let a seat like that fall into the hands of anything less than a full-throated liberal (like Schakowsky).

[ Parent ]
Oddly enough (4.00 / 4)
I don't see anything about this on the NYT website.  There is an article about decreasing the deficit by cultivating growth and another about an alternative deficit-reduction proposal endorsed by Pete Domenici and Alice Rivlin (drafted by "the Bipartisan Policy Center, which was founded by four former Senate majority leaders,") but no Jan Schakowsky.

Her plan gets a mention in the Washington Post business section and Ezra Klein interviews her, but no front page write-up, at least on the web.

McClatchy covers it, though Schakowsky's name isn't in the headline.  I can only stand a few seconds of the Huffington Post, but nothing leapt out at me.

Maybe Jon Stewart should interview the congresswoman to force her plan into the news cycle.

Jon Stewart Would Be GREAT! (4.00 / 1)
I'm not the least bit surprised that the Versailles media is giving her plan the WikiLeaks treatment.  They are the enemy, remember?

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Oh, I remember (4.00 / 1)
"Oddly enough" was mild sarcasm.

[ Parent ]
I found an article on it at HuffPo (4.00 / 1)
but it wasn't on their front page but only on their politics page and it was way down the screen.  Even though it has been there for seven hours, there are only two pages of comments.  It obviously is not getting the traffic.

The good news is all the comments were supportive.

If you want to read it, here's the link:

Shakowsky's Deficit Plan Shows How To Get Things Done

Educate, Agitate, Organize, Mobilize, Act!

[ Parent ]
I forgot to add that (4.00 / 1)
the Domenici/Rivlin plan is the first article below the headline on the front page of HuffPo.

Educate, Agitate, Organize, Mobilize, Act!

[ Parent ]
This is the only place I can find it (4.00 / 1)
I've emailed TPM & digby & see nothing about this.  Just jokes about the Catfood Commission & deficit reduction.  I don't understand why, but your idea about Stewart may be the kicker.

[ Parent ]
Bravo! Bravo! Standing Ovation! (4.00 / 4)
Not only is this masterful & chock full of MAGNIFICENT ideas, it radiates real old-fashioned common sense US values & ideals.  It also leaves room to tweak - which the Lord knows will have to be done so the GOP & ConservaDems don't immediately implode & screw up the DC carpets.

Logic, values, courage, initiative.  I think I'm actually falling in love with a Democrat again.  

"What more could you want?" (4.00 / 3)
Schakowsky makes this all look easy, and in the hands of a master, it is.  But masters have been mighty few and far between of late.  The way she's speaking here is the way that many hoped and expected that President Obama would speak.  The perspective in firmly based in reality.  The logic is compelling. What more could you want?

A strong statement that explicitly supported the federal government's indispensable role in creating economic growth would've made this a real A+ work.  But as it is, it's still kickass.  


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