Thanks, Bernie. Yes, there is no reason to cut social security, and yet, there will be a lot of talk from deficit hounds – the purveyors of the Grand Diversion that retirement age will need to be raised and accounts will need to be privatized.  None of this is necessary.

Third Way: “Wall Street on the Potomac”

, Assoc. Professor, Univ. of Missouri, Kansas City and Senior regulator during the S&L debacle talks about Wall Street’s assault on Social Security. He focuses on Third Way, a Wall Street lobbyist group that is leading the effort to enrich Wall Street by privatizing Social Security:
  • He has written about their fictional claims to be a moderate or liberal Democratic group.
  • He points to Eric Lautner’s documentation ofWall Street’s effort to privatize Social Security in articles and his book “The People’s Pension: The Struggle to Defend Social Security Since Reagan.”

He explains that Third Way is not a centrist group looking to help protect entitlements. Instead, Third Way states that it is led by a prominent private sector Board of Trustees, drawn from finance, industry, academia, the non-profit sector and government. Twenty of the twenty-nine trustees come from finance, their most common background being in private equity and hedge funds.  Black points out that:

Third Way is the Wall Street wing of the Democratic Party, which seeks to defeat Democratic candidates like Elizabeth Warren running against Wall Street sycophants like Senator Scott Brown and seeks to unravel the safety net programs that are the crown jewels of the Democratic Party. Wall Street’s “natural” party is certainly the Republican Party, but Wall Street has no permanent party or ideology, only permanent interests. Third Way serves its financial interests and the personal interests of its senior executives. Wall Street has always been the enemy of Social Security and its greatest dream is to privatize Social Security. Wall Street’s senior executives live in terror of being held accountable under the criminal laws for their crimes. They became wealthy by leading the “control frauds” that drove the financial crisis and the Great Recession. This is why Wall Street made defeating Warren a top priority.

Third Way is run by a man who Lautner terms an “acolyte” of Pete Peterson. Peterson is a Republican, Wall Street billionaire who has two priorities — imposing austerity on America and privatizing Social Security. Privatizing Social Security is Wall Street’s unholy grail. They would receive hundreds of billions of dollars in fees and ensure that their firms were not only “too big to fail,” but “too big to criticize” if they could profit from a privatized retirement system. (We do not know who funds Third Way because it refuses to make its donors public. Given who dominates its Board of Trustees, however, the donors must be overwhelmingly from Wall Street.)

Third Way is not left or center or even right. It is Wall Street on the Potomac. Opposition to austerity and the Great Betrayal is not a left v. center issue. Wall Street’s proposed financial policies are terrible for virtually all Americans.W

Black feels that the hidden danger to the social programs comes unexpectedly from the left. The so-called “Grand Bargain,” which aims to cut spending to bring down the decicit is in fact “the  Great Betrayal – the adoption of self-destructive austerity programs and the opening wedge of the effort to unravel the safety net (including Social Security, Medicare, and Medicaid).”

Reinstate the Estate Tax

Robert Reich and others have shown that there is are more balanced alternatives to bringing the deficit under control than just slashing social programs that benefit most Americans and the economy.

One of the lesser-known tax breaks that would expire under current law is a 2010 cut in the estate tax, which had already shrunk considerably between 2001 and 2009 due to President Bush’s 2001 tax cuts.

Background: In 2001, Congress passed legislation to phase out and eliminate the federal estate tax, the only tax on inherited wealth, which gave a $1.35 trillion tax break for multi-millionaires and billionaires over the last decade. Due to Congressional inaction, the estate tax expired at the end of 2009. Congress then passed a deal at the end of 2010 to reinstate the estate tax at a rate of 35%, and to exempt estates worth as much as $5 million ($10 million for a couple).

Senate Republicans Want To Permanently Eliminate The Estate Tax: This is much more generous than the estate tax had been prior to 2009. However, the Senate GOP plan to preserve the Bush tax cuts on incomes above $250,000 – which already amounts to a deficit inflating tax cut for the rich – also includes  another tax cut that benefits only the super-wealthy. The Hatch-McConnell plan effectively eliminates the estate tax, costing billions in revenue and giving a huge tax cut to the very wealthiest Americans, as the Center on Budget and Policy Priorities notes:

Specifically, the new Senate Republican proposal, which Senators Mitch McConnell and Orrin Hatch unveiled earlier this month, would:

Cost $119 billion more in forgone revenues over the next ten years than the Obama Administration proposal to reinstate the already generous 2009 estate-tax rules. Analysis by the Urban Institute-Brookings Tax Policy Center shows that all of the $119 billion would flow to the heirs of the estates of the wealthiest three of every 1,000 people who die, since those are the only estates that would owe any estate tax under the 2009 rules.

Give taxable estates an average of more than $1.1 million each in tax reductions, compared to the tax that would be owed under a reinstatement of the 2009 estate-tax rules. The bigger the estate, the more lavish the tax break would be. Estates worth more than $20 million would receive an average tax reduction of $4.2 million in 2013.

The rationale for President Obama’s estate tax proposal:  As CBPP notes, even President Obama’s estate tax plan is generous, allowing exemptions on millions of dollars of an estate’s value. The GOP’s plan would provide an even larger exemption, and though critics of the tax claim the estate has already been subject to taxation, in most instances it is not because the increase in value of the estate classifies as unrealized capital gains. If the estate was sold, the increase in value would be taxed. When it is inherited, however, those taxes are never levied. Here’s what President Obama’s proposal would do:

  • Revenue: The estate tax affects less than 2% of taxpayers, yet raises more than $25 billion per year, about 1.2% of total federal revenues. In 1997, estates with a gross value of more than $5 million (the top 5%) accounted for nearly half of all estate tax revenues. Most analysts believe that estate tax revenue will grow significantly as the population ages and the stock market’s value increases.
  • Charitable Giving Incentives: The deduction in the estate tax for charitable contributions generates a significant increase in contributions to the nonprofit sector, especially among the wealthiest households. Studies conducted at various times over the past decade suggest that outright repeal of the estate tax would reduce charitable bequests by as much as 37%. A CBO study in 2004 estimates the effect of total repeal to be between a 16% 28% decrease in charitable bequests and a 6% to 12% decrease in all charitable giving.

Status of Legislation: The House of Representatives passed HR 4154 on December 3, 2009. A provision within the legislation amends the Internal Revenue Code of 1986 to permanently extend the estate tax at 2009 levels ($3.5 million individual exemption; 45 percent rate). Legislation including a similar provision (S. 722) was introduced in the Senate by Chairman of the Senate Finance Committee, Max Baucus (D-MT) but has not passed. The president’s 2011 budget request proposes to permanently extend the estate tax at the 2009 levels. (Candidate Mitt Romney’s so-called “economic plan” (sic) proposed the outright elimination of the Estate Tax but would preserve the gift tax rate at 35%.)

Jim Cramer thinks that the estate tax should be retroactively reinstated: In Cramer’s Mad Money – 8 Ways to Create a Free Stimulus (Seeking Alpha, 9/7/10), Miriam Metzinger recapped Jim Cramer’s comments regarding the federal estate tax to get the economy moving again:

Not one thinking person in this country can understand why the President and Congress have not tackled this issue. This is the most painless form of tax, goes right with the surety of the other constant, death, and allows for a huge pick-up in revenue, a reduction in the deficit, and no damage done to the economy.

Obama’s Plan Doesn’t Go Far Enough: Furthermore, Congress could institute more progressive estate tax reform that closes loopholes and raises additional revenue from those able to pay. The Responsible Estate Tax Act would establish graduated tax rates, with no tax at all on estates worth under $3.5 million ($7 million for a couple), and include a 10% surtax on the value of an estate above $500 million ($1 billion for a couple). This Act would raise $264 billion over ten years, and would provide an appropriate means to raise needed federal revenues while still permitting every American family to leave significant resources to their heirs tax free.

 10 Myths About The Estate Tax

The Center on Budget and Policy Priorities updated a paper that corrects the 10 most common myths about the Estate Tax:

  • Myth 1:  The estate tax is best characterized as the “death tax.”
    Reality:  Everybody dies, but only the richest 2 in 1,000 estates pay any estate tax.
  • Myth 2:  The estate tax forces estates to turn over half of their assets to the government.
    Reality:  The few estates that pay any estate tax generally pay less than one-sixth of the value of the estate in tax.
  • Myth 3:  Weakening the estate tax wouldn’t significantly worsen the deficit because the tax doesn’t raise much revenue.
    Reality:  Extending the temporary estate tax cut enacted in 2010 rather than restoring the 2009 rules would add billions of dollars to deficits.
  • Myth 4:  The cost of complying with the estate tax nearly equals the amount of revenue the tax raises.
    Reality:  The costs of estate tax compliance are relatively modest and are consistent with the costs of complying with other taxes.
  • Myth 5:  Many small, family-owned farms and businesses must be liquidated to pay estate taxes.
    Reality:  Only a handful of small, family-owned farms and businesses owe any estate tax at all, and virtually none would have to be liquidated to pay the tax.
  • Myth 6:  The estate tax constitutes “double taxation” because it applies to assets that already have been taxed once as income.
    Reality:  Large estates consist to a large degree of “unrealized” capital gains that have never been taxed; the estate tax is the only means of taxing this income.
  • Myth 7:  If policymakers decide to retain the estate tax, the logical top rate would be 15 percent, the same as the capital gains rate.
    Reality:  To match the effective tax rate on capital gains, the top estate tax rate would need to be about 45 percent.
  • Myth 8:  Eliminating the estate tax would encourage people to save and thereby make more capital available for investment.
    Reality:  Eliminating the estate tax would not substantially affect private saving, and it would greatly increase government dissaving (i.e., deficits); as a result, it would more likely reduce the capital available for investment than increase it.
  • Myth 9:  The estate tax unfairly punishes success.
    Reality:  The estate tax affects only those most able to pay, and the funds it raises help support a range of programs that benefit the nation.
  • Myth 10:  The United States taxes estates more heavily than do other countries.
    Reality:  Measured as a share of the economy, U.S. estate tax revenues are below the international average for taxes on wealth.