Statement on the Gang of Six Plan

    Tax cuts for the wealthy, and Social Security cuts for
    ordinary workers

Center for Economic and Policy Research 
July 19, 2011

http://www.cepr.net/index.php/press-releases/press-releases/statement-on-the-gang-of-six-plan

Washington, D.C.

Dean Baker, co-director of the Center for Economic and Policy
Research (CEPR), issued the following statement on the Gang
of Six deficit plan:

"The budget plan produced by the Senate's "Gang of Six"
offers the promise of huge tax breaks for some of the
wealthiest people in the country, while lowering Social
Security benefits for retirees and the disabled. Despite
claiming that they will "reform" Social Security on a
"separate track, isolated from deficit reduction," the plan
includes cuts to Social Security that would be felt in less
than six months, as the plan calls for a new inflation
formula that will reduce benefits by 0.3 percentage points a
year compared with currently scheduled benefits. The plan
also calls for a process that is likely to reduce benefits
further for future retirees.

"The proposed cuts to Social Security are cumulative. This
means that after ten years, a beneficiary in her 70s will see
a cut of close to 3 percent. After 20 years, the cuts for
beneficiaries in their 80s will be close to 6 percent, while
the reduction in annual benefits will be close to 9 percent
by the time beneficiaries are in their 90s. For a beneficiary
in her 90s living on a Social Security income of $15,000,
this means a loss of more $1,200 a year in benefits.

"The plan also calls for large cuts in tax rates including a
targeted top rate of between 23-29 percent, which will be at
least partially offset by elimination of tax deductions. For
the highest-income people, this is likely to mean a very
large reduction in taxes. For example, Jamie Dimon and Lloyd
Blankfein, the CEOs of J.P. Morgan and Goldman Sachs,
respectively, are both paid close to $20 million a year at
present. If this pay is taxed as ordinary income, then they
would be paying close to $7.5 million a year in taxes on it
after 2012. However, if the top rate is set at 29 percent,
they may save as much as $1.9 million a year on their tax
bill. If the top tax rate is set at 23 percent then the Gang
of Six plan may increase their after-tax income by more than
$3 million a year.

"It is striking that the Gang of Six chose to respond to the
crisis created by the collapse of the housing bubble by
developing a plan that will give even more money to top Wall
Street executives and traders. By contrast, the European
Union is considering imposing financial speculation taxes to
reduce the power of the financial industry and raise more
than $40 billion a year in revenue.

"The plan calls for substantial cuts elsewhere in the budget
which are likely to cut into the incomes of large segments of
the population, especially the sick and the elderly. The cuts
it proposes to the military are just over 1.0 percent of
projected spending over the next decade.

"In short, this is a plan that should be expected to please
the wealthy since it will mean large reductions in their tax
liability in the decades ahead. On the other hand, most of
the rest of the country is likely to feel the effects of
lower Social Security, Medicare and Medicaid benefits, in
addition to other cuts that are not yet fully specified."

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