Statement on “Gang of Six” Deficit Reduction Plan


Statement on Gang of Six Plan

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

For Immediate Release: July 19, 2011
Contact: Alan Barber 202-293-5380 x115

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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