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Christy McGill, Art Teacher - Divide Elementary School, Lookout, WV.

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No More Manufactured Crises—Disarm the Hostage Takers

February 27, 2013

Republicans in Congress once again are threatening to harm the economy unless Democrats agree to cut Social Security, Medicaid, and Medicare benefits. We urge President Obama and members of Congress of both parties to reject the Republican ransom demands and disarm the hostage takers instead. Only then can we focus on the urgent challenge of fixing the economy, raising wages, investing in our people and putting America back to work.

Republican leaders are threatening to harm the economy by letting automatic across-the-board budget cuts—called “sequestration”—go forward on March 1, 2013. “Sequestration” is the result of a previous episode of hostage taking in July 2011, when Republicans threatened to cause a government default. These across-the-board cuts would cost more than 1 million jobs and could derail the economic recovery.

The solution is to disarm the hostage takers so they no longer can hold the economy hostage to get their way. Disarming the hostage takers means repealing “sequestration”—not replacing it. Across-the-board cuts would increase unemployment and harm the economy, but so would replacement cuts of the same size.

There is no economic need to replace “sequestration” or meet any arbitrary deficit reduction target. Further fiscal austerity before the United States returns to full employment only would weaken the economy and cost jobs. If the “sequester” is to be replaced, it should be replaced in a way that minimizes drag on the economy—which is by raising additional revenues from the wealthiest households and corporations. Since January 2011, 70 percent of deficit reduction has been through discretionary spending cuts, which is an important reason why the recovery has been so sluggish. Under no circumstances should the “sequester” be replaced by furloughs for federal employees, who already have sacrificed $103 billion to reduce the deficit.

“Sequestration” is not the only “leverage” Republicans think they have. They also believe threatening to shut down the government on March 27, as Newt Gingrich did in 1995, gives them “leverage.” And they believe maintaining their threat to cause a government default after May 19 gives them additional “leverage.” Following through on these threats surely would do great harm to the economy, just as “sequestration” would.

What do Republican leaders want to use their leverage for? What is so important they are willing to throw the economy back into recession unless they get their way? House Speaker John Boehner (R-Ohio) and Sens. Mitch McConnell (R-Ky.) and Orrin Hatch (R-Utah) have demanded cuts to Social Security, Medicaid and Medicare benefits. Republican leaders also have demanded deep cuts to education and essential services that are necessary to rebuild the middle class and lay the foundations for long-term economic prosperity.

The benefit cuts demanded by Republican leaders include cuts to Social Security COLAs; an increase in the Medicare eligibility age; an increase in Medicare premiums for beneficiaries with incomes as low as $47,000; an increase in out-of-pocket expenses for Medicare beneficiaries; and deep cuts to Medicaid that would shift costs to individuals and reduce access to care.

Just to be clear, the demands to cut health benefits are not really about reining in health care cost growth or “reforming entitlements.” Rather, they are about protecting the profits of the big pharmaceutical companies, insurance companies and monopoly health care providers—by continuing to shift costs to individuals. 

Republican leaders actually oppose reforms that would make our entire health care system more cost-effective without shifting costs. For example, they oppose closing the loophole that prohibits Medicare from negotiating lower drug prices with pharmaceutical companies. They oppose requiring drug companies to give Medicare the same drug discounts they give Medicaid, which would reduce Medicare’s costs by $137–156 billion over 10 years. And they oppose allowing employers and individuals to buy into a Medicare-like “public option,” which would reduce the deficit by $110 billion.

Republican leaders are demanding benefit cuts because they want to, not because they have to. They simply prefer cutting benefits to closing tax loopholes for Wall Street and the richest 2% of Americans. They oppose closing the tax loophole that makes it more profitable for corporations to send jobs overseas, which would generate $583 billion over 10 years. They oppose a millionaires’ surtax, which would generate $453 billion. They opposea tiny speculation tax on Wall Street trading in stocks, bonds and complex financial instruments, which would generate more than $350 billion. They oppose closing the tax loophole for Wall Street hedge fund managers, which would generate $21 billion. And they oppose closing the tax loophole for Wall Street derivatives traders, which would generate $3 billion.

In fact, Republican leaders actually want to give Wall Street and the richest 2% of Americans more tax breaks than the lavish ones they already enjoy. Republican leaders are demanding “tax reform” that eliminates U.S. taxes on the overseas profits of multinational corporations, which would increase the tax incentive for sending jobs overseas. They are demanding lower tax rates for the wealthiest Americans, as well as lower tax rates for profitable Wall Street corporations. Yet all of these tax breaks cost hundreds of billions of dollars, which Republicans would pay for by cutting Social Security, Medicaid and Medicare benefits.

All of these ransom demands are wildly unpopular, which is why Republican leaders keep manufacturing crises to get their way. After all, many Republican voters oppose cutting Social Security COLAs and increasing Medicare premiums and deductibles. Even more reject cutting benefits to pay for tax breaks for outsourcing and lower tax rates for millionaires. This month, a majority of House Democrats signed a letter pledging opposition to any Social Security, Medicaid or Medicare benefit cuts. This is the right approach.

It is time to put these manufactured crises behind us and focus instead on the urgent business of putting America back to work and raising wages, which has been neglected for far too long. But giving in to the ransom demands of the hostage takers—and giving them political cover—will not put an end to these manufactured crises. On the contrary, it only will encourage more hostage taking. The only solution is to disarm the hostage takers and allow the American people to decide for themselves—without bullying or threats or coercion or backroom deals—whether they want to cut Social Security, Medicaid and Medicare benefits to pay for tax breaks for Wall Street and the wealthiest 2% of Americans.

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