October 2011, Week 3


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Sun, 16 Oct 2011 23:55:24 -0400
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Progressive Caucus Releases Recommendations to Joint
Select Committee on Deficit Reduction

Identifies more than $4 Trillion in Savings to Create
Jobs and Protect Social Security, Medicare and Medicaid

Progressive Caucus 
October 14, 2011

Washington, D.C. - The Congressional Progressive Caucus
(CPC) today sent policy proposals to Senator Patty
Murray and Congressman Jeb Hensarling, Co-Chairs of the
Joint Select Committee on Deficit Reduction,
recommending that the work of the committee focus on
creating jobs, raising revenues through fair taxation
and protecting Medicare, Medicaid and Social Security.
The CPC identified more than $4 trillion in savings,
which would increase to more than $7 trillion if the
Bush tax cuts are allowed to expire on schedule. The
recommendations direct the savings toward job creation,
the single most important means to reduce the deficit.

"It's way past time to talk big or think big - it's time
to govern big and do what needs doing," CPC co-chair
Rep. Raúl M. Grijalva (D-AZ) said. "The American people
are sick and tired of feeling too few in the government
are responsive to their needs. While Republicans dither
about cutting corporate taxes and dismantling Medicare,
people are losing their homes, losing their jobs and
losing their savings through no fault of their own. As a
government, we need to look at ourselves and offer the
country solutions that match the scope of the problems
we face. Anything less is a waste of time."

"While Republican politicians are busy slashing good
paying American jobs from our economy, the Progressive
Caucus continues to put job creation first with serious
proposals to rebuild America," said CPC Co-Chair Rep.
Keith Ellison (D-MN). "The most effective way to reduce
the deficit is to put America back to work. Creating
good jobs, making sure that everyone pays their fair
share and protecting Social Security Medicare and
Medicaid, are the best ways to ensure that all Americans
are put on the path to prosperity, not just the
wealthiest 1 percent," Ellison concluded.

The proposals would reduce the nation's deficit by
trillions of dollars, put Americans back to work and
protect Medicare, Medicaid and Social Security. Key
recommendations include a responsible end to the wars in
Iraq and Afghanistan, saving $1.6 trillion; enacting the
Fairness in Taxation Act, creating a millionaire tax
that generates $872.5 billion; and allowing Medicare to
negotiate drug prices with pharmaceutical companies,
saving $157.9 billion.

"With the Super Committee, the Republicans have
manufactured yet another budget crisis," said CPC Budget
Task Force Chair Rep. Michael Honda. "We can `go big'
and address our budget deficits by allowing the unpaid-
for Bush tax cuts to expire and ending our unpaid-for
wars on schedule. Anyone who says we need to cut
education, cut the social safety net, cut Social
Security, Medicaid, Medicare or provide more tax cuts to
the rich, is pushing a political agenda, not sound
fiscal policy."


The People's Priorities to Rebuild the American Dream

The Congressional Progressive Caucus would like to
reiterate our support for certain key components to be
included in deficit reduction legislation including job
creation, raising revenue and protecting Medicare,
Medicaid and Social Security.

The number one focus of this Congress must be job
creation. Employing Americans is essential to reducing
our deficit and restoring our economic competitiveness.
The majority of Americans believe that cutting Social
Security, Medicare, Medicaid, unemployment insurance,
education and research is completely unacceptable.  At
the same time, Americans overwhelmingly support a
progressive tax policy. The majority of Americans
support making millionaires and billionaires pay their
fair share in taxes, eliminating unnecessary weapons
systems, eliminating tax giveaways to the oil and gas
industries and phasing out the Bush tax cuts. In a
crisis driven by lack of consumer demand, unemployed
Americans must have the means to create demand for
American businesses while they search for work.

Given the magnitude of the jobs crisis, the Progressive
Caucus job creation framework should be implemented on a
large scale, alongside deficitreduction options from the
CPC People's Budget, to return prosperity and
opportunity to the Americans people. Job creation,
raising revenue and protecting essential programs are
not independent measures. They constitute a
comprehensive policy model that will rebuild an America
that works for everyone, not just the wealthiest one

Job Creation

Make it in America Again

We must begin with a strategy to revive manufacturing in
the United States. This requires developing something
every other industrial nation has - a national plan for
manufacturing. When people see the words "Made in
America" they know that they are getting the highest
quality manufactured goods money can buy. We need a
policy that reopens our factories and lets Americans do
what they do best: produce the highest quality products
in the world.

Rebuild America

With the cost of borrowing near zero, the construction
industry flat on its back, and America's decrepit
infrastructure not only a competitive burden, but a
threat to lives and safety, there is no better time to
launch a major initiative to rebuild America. Create a
national investment bank to leverage private capital and
ensure that major projects are determined by merit, not
by political muscle. Rebuild our half century old roads,
bridges, locks and dams, while spurring creation of the
roads of the future by connecting and empowering our
country with fiber optic cable.

Jobs for the Next Generation

There is no shortage of work to be done in America and
no shortage of workers to do it. One in four teenagers
are officially unemployed, including nearly half of
young African Americans and Latinos. We are witnessing a
generation of crushed hopes, and we are squandering the
talent of young Americans. Destructive cuts in public
education threaten America's economic success and we are
now falling behind. We must increase federal support for
hiring teachers as a catalyst for job creation and
immediate and future economic development. We must
invest in the finest public education and job training
in the world, education is no longer a guarantee of
work. Let us make the guarantee of a good American job
real for every young person. We should provide direct
employment in the public sector and incentives for
hiring in the non- profit sector and private sector. In
addition, the caucus supports a "Train me and pay me"
program which would give stipends to workers and young
people who are enrolled in job training programs.

Lead the Green Industrial Revolution

A centerpiece of our economic strategy must be to create
good jobs now by capturing the lead in the industrial
revolution that is sweeping the world - starting with
clean energy, electric cars, and efficient appliances.
We need to invest in research and innovation so that
America remains on the cutting edge of global
technologies. Provide investment incentives to companies
to create jobs here at home. Build a modern smart grid
that can deliver efficiency and clean energy.

Not Just Jobs - Good Jobs

American workers want good American jobs, not poverty
level wages without benefits that make it impossible to
support a family or save for the future. We can start by
making sure that middle- class Americans are free to
organize and have a voice and a seat at the table again.
If corporations can join together to hire an army of
lobbyists, working Americans must come together and use
their strength in numbers to protect the rights of
middle class Americans. We must ensure that businesses
obey our labor laws and reward those that create good
paying American jobs that protect our rights to equal
opportunity and equal pay. Programs like TANF ECF have
been proven to put people to work. While, we work on
building these good jobs, we must ensure the long-term
unemployed receive the full assistance and services they
need so they can continue contributing to the economy.

Raising Revenue[1]

Replacing Bush Tax Cuts and Estate Tax with Responsible
Policies The Bush-era tax cuts were and continue to be
costly and ineffective at fostering economic growth. Of
all the post-war business cycles, the economic expansion
of 2001-07 saw the worst growth in gross domestic
product, investment, employment, total compensation,
wages and salaries, and labor force participation
(measured trough to peak: 2001Q4 to 2007Q4). The Bush-
era tax cuts were also objectively regressive,
conferring a disproportionate benefit to high earners
capturing a majority of new income. Additionally, the
increased the estate tax exemption to $5 million ($10
million for married couples) and reduced the maximum tax
rate above that exemption to 35% represents a tax cut
that benefited only the wealthiest one-quarter of one
percent of households.   The Progressive Caucus has
longed called for ending this period of irresponsible
spending on tax giveaways to the very wealthiest in our
society.  Unpaid for tax cuts has been the single
largest driver of deficits over the last decade; any
serious deficit reduction proposal must address these
irresponsible policies.

Currently CBO estimates an extension of  the Bush Tax
cuts with the AMT indexed for inflation and an extension
of current estate tax rates would add $3.95 trillion to
the deficit from 2012-21.[ii]

Enact the Fairness in Taxation Act The People's Budget
would adopt Representative Jan Schakowsky's (D.-Il.)
Fairness in Taxation Act (H.R 1124), which would create
several new tax brackets for high-income earners: $1-10
million would be taxed at 45%; $10-20 million, 46%;
$20-100 million, 47%; $100 million to $1 billion, 48%;
$1 billion and over would pay 49%. The bill would also
tax capital gains and dividend income as ordinary income
for those taxpayers with income over $1 million.
Citizens for Tax Justice (CTJ) estimate that the
Fairness in Taxation Act would generate $748.2 billion
over the 2011-20 period.

Extrapolating from this score, Rep. Schakowsky's
Fairness in Taxation Act is projected to generate $401.5
billion in revenue over the 2012-16 period and $872.5
billion over the 2012-21 period. Savings $872.5 billion

Eliminate Fossil Fuel Tax Preferences

The president's budget requests have repeatedly proposed
eliminating a handful of tax preferences carved out for
fossil fuel producers over the years. Eliminating this
tax code spending would help level the playing field
between renewable energy sources and fossil fuels. The
People's Budget would eliminate fossil fuel tax
preferences as detailed by the president's budget.
Specifically, this policy would repeal exploration and
development expensing, preferential tax treatment of
royalties, and domestic manufacturing deductions, among
other tax preferences, for oil, natural gas, and coal

Repeal would save $21 billion over the 2012-16 period
and $41 billion over the 2012-21 period. Savings $41

Reinstate Superfund Taxes

The Environmental Protection Agency's Superfund program,
once largely funded by dedicated taxes, is now largely
funded by general revenue. Having a stable source of
funding, rather than relying on year-to-year
appropriations, would help plan multi-year cleanup of
hazardous chemical waste. The People's Budget would
reinstate the Superfund excise taxes that expired in
1995 in order to finance cleanup of hazardous waste.
Specifically, this policy would re- impose an excise tax
of $0.22 to $4.87 per ton on various chemicals, an
excise tax of 9.7 cents per barrel of crude or refined
petroleum, and a corporate income tax of 0.12% on
modified alternative minimum corporate income above $2

According to the CBO, this policy option would generate
$19.4 billion over the 2012-21 period. Savings $19.4

Financial Crisis Responsibility Fee

The People's Budget would impose a fee on large
financial institutions. Specifically, the budget would
impose a leverage tax (0.15% of covered liabilities) on
large banks with more than $50 billion in assets (as
proposed in the president's budget request). According
to the CBO, imposing such a tax could generate $31.3
billion over the 2012-16 period and $70.9 billion over
the full 2012-21 period, recouping more than three-fold
the net taxpayer cost of the Troubled Asset Relief
Program (TARP).The fee would provide an incentive for
large firms to decrease their liabilities, helping to
rectify the problem of "too big to fail" financial
institutions that was made all too apparent during the
financial crisis. The proposal would also help to level
the playing field between small financial institutions
(which do not benefit from an implicit government
guarantee because they are not viewed as "systemically
important" by credit markets) and larger financial

Savings $70.9 billion

Tax Preference for Municipal Bonds

Bonds issued by state and local governments receive
preferential tax treatment.  The current tax treatment
also confers a disproportionately larger tax benefit for
upper-income earners. The People's Budget would replace
the tax exclusion for interest with a direct subsidy to
borrowers (i.e., state and local governments), which
would be a more cost-effective way of reducing their
borrowing costs. Under this policy, state and local
governments would make taxable interest payments to
borrowers and receive a 15% subsidy from the federal
government for the interest paid on those bonds. This
would simplify the tax code, increase budgeting
transparency, and more cost-effectively subsidize
borrowing by state and local governments.

According to the CBO, this policy would generate $30.5
billion over 2012-16 and $142.7 billion over 2012-21.
Savings $142.7 billion

Derivatives and Speculation Tax

The People's Budget would impose a small tax on
transactions of exotic financial products. Assuming a
25% behavioral reduction in transactions resulting from
a tax, Dean Baker and Robert Pollin estimate that
various taxes on financial derivative products
(financial instruments deriving their value from some
other underlying asset, such as a stock, currency, or
index) could generate upwards of $63.5 billion
annually.Specifically, a tax on swaps (taxed at 0.01%
per year to maturity and assuming an average life to
maturity of 1.5 years)-including credit default swaps-
could generate roughly $34.8 billion. A tax of 0.01% on
each side of futures and forwards transactions could
generate roughly $10.7 billion. A 0.5% tax on option
premiums (the right to purchase a stock at a set price
at a future date) could generate roughly $6.3 billion.
Additionally, a 0.01% tax on all foreign exchange spot
transactions could generate roughly $11.7 billion
annually (this latter option is a proper "Tobin tax,"
rather than a derivatives tax). The tax rates on
derivative and speculative financial products proposed
by the People's Budget would represent a smaller
relative increase in transactions costs, so a 25%
reduction in transactions seems reasonable, if not
conservative. A larger behavioral response would
decrease revenue relative to projected levels, but would
conversely further the policy goal of taming speculation
and encouraging more productive investment.

Assuming a larger 50% reduction in transaction, Baker
and Pollin estimate that these speculation taxes would
raise $43.2 billion annually. Savings $43.2 billion

Responsibly End the Wars in Iraq and Afghanistan

The People's Budget accounts for an end to the wars in
Iraq and Afghanistan. These operations have cost $1.3
trillion, excluding debt service. The People's Budget
provides $161.4 billion in OCO funding for 2012 (the
funding level in the CBO baseline), after which all OCO
funding is ended. The Congressional Research Service
estimates that this sum would be more than sufficient to
safely and deliberately withdraw American soldiers from
Afghanistan and Iraq.

Responsibly ending the wars in Afghanistan and Iraq will
save $1.6 trillion over the 2013- 21 period, relative to
the CBO baseline. Savings $1.6 trillion

Realigning Department of Defense Priorities

Over the last two years, a rare consensus has emerged
among a wide range of Washington policymakers: any
deficit reduction plan must tackle Department of Defense
spending. Specific proposals for conventional forces
include: reducing active duty Army personnel strength to
427,000 by 2014 (a decrease of 120,000); reducing the
Marine Corps personnel strength by 30% to a force of
145,000 by 2014; reducing the Navy by 20% to a fleet of
230 ships; and reducing the Air Force by 15%, reducing
the number of squadrons by 18 of 60. These force
structure savings would total $593.7 billion over the
2012-21 period. Specific proposals for strategic
capabilities include reducing the U.S. nuclear arsenal,
cancelling the Trident II missile, limiting
modernization of nuclear weapons infrastructure and
research, and selectively curtailing missile defense and
space programs. No savings are assumed from TRICARE, the
military health care program for active duty personal,
military retirees, and their dependents. Overall, these
policy proposals would gradually reduce defense
appropriations by $692.2 billion over the 2012-21
period, relative to the CBO baseline. Relative to higher
spending levels in the president's budget request, they
would represent $816.7 billion in savings over the next
decade. In both cases, the savings are well within the
bounds of the savings identified as reasonable by the
Sustainable Defense Taskforce (SDTF) report.

SDTF, a bipartisan group of defense experts, released a
report in June 2010 that detailed a series of options,
which, if taken together, would save $960 billion over a
decade. Savings $692.2 - $960 billion

Protecting Social Security, Medicare, Medicaid[1]

Offer a Public Insurance Option Beginning in 2014,
national health insurance exchanges will be established
(as a result of health care reform) through which
individuals and families may purchase private coverage,
increasing competition in largely fragmented, regional
insurance markets. Under this option, the Secretary of
the Department of Health and Human Services would
administer a public health insurance plan to be offered
alongside private plans through the exchanges. The
public plan would exploit economies of scale to
negotiate payment rates for prescription drugs, would
pay physicians roughly 5% more than Medicare
reimbursement rates, and would pay hospitals and
providers comparable rates as paid under Medicare. Based
on the potential for administrative and other savings,
the CBO estimates that insurance premiums for the public
plan would be roughly 5-7% lower than private plans
offered in the insurance exchanges.

According to the CBO, this option would lower deficits
by $17.4 billion from 2012 to 2016, and by $88.0 billion
from 2012 to 2021. Over the next decade, outlays would
fall by $26.7 billion (a reduction in targeted subsidies
for the purchase of insurance in the exchanges) and a
$61.2 billion increase in revenue (largely resulting
from interactions with the tax exclusion for employer-
sponsored health insurance). Savings $61.2 billion

Negotiate Drug Prices With Pharmaceutical Companies

The Bipartisan Policy Center's (BPC) report, Restoring
America's Future, estimated that negotiating drug prices
would save $100 billion over the 2012-18 period. The BPC
report proposed ending guaranteed Medicare in 2019
(changing the program to a premium support system
similar to vouchers), ending the ability of the
government to harness economies of scale to negotiate
pharmaceutical drug prices. The budgetary impact of this
proposal is extrapolated beyond 2018 by indexing savings
to projected per capita health expenditure.19

Based on this extrapolation, negotiating drug prices
with pharmaceutical companies would save an estimated
$157.9 billion over the 2012-21 period. Savings $157.9

Strengthening Social Security

Millions of elderly Americans rely on the economic
security that comes from the Social Security System. The
People's Budget does not propose any reductions in
benefits. The People's Budget raises the taxable maximum
to include 90% of economy- wide earnings, and eliminates
themaximum that employers pay on behalf of their high-
income employees. Under the current system, income above
a taxable maximum is not subject to any Social Security
tax, meaning that high- income individuals pay less as a
share of their income than everyone else. The CBO
estimates thatincreasing the share of total earnings
subject to the payroll tax to 90% would require raising
themaximum taxable amount to $170,000 in 2012, up from
$106,800 in 2011.The increase in thetaxable maximum on
the employee side is gradually phased in over five
years. The increase inemployer contributions for high
earners (those employees earning more than $106,800)
would bephased in immediately. This option maintains the
benefits structure as is, and benefitcomputations would
reflect all earnings up to the new taxable maximum on
the employee side,although increased employer
contributions would not affect benefit computations.

This policy raises $445.0 billion over five years, and
around $1.2 trillion over 10 years. Social
Securityoutlays would increase by $2.8 billion over 10
years. Additional savings for Social Security trust fund
$1.2 trillion

[1]Economic Policy Institute, directly from technical
analysis of the Congressional Progressive Caucus
People's Budget.

[ii]Congressional Budget Office, based on estimates made
by the Joint Committee on Taxation.  Expiring Tax
Provisions: http://www.cbo.gov/doc.cfm?index=12316


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