Citizens for Tax Justice — Could Cut the Deficit by Long-Term Budget Deficit

The American Prospect Summer 1994 The False Messiah Pete Peterson’s Revelations Are Not Gospel By Robert S. McIntyre eter G. Peterson, as he cheerfully admits, is not Republican John Danforth, who want both big cuts in a member of the middle class. He’s a rich federal transfer payments and major tax changes that Republican Wall Street investment banker. But encourage savings and investment. in his crusade against deficits and entitle- The 67-year-old Peterson, who served Richard Pments, he adroitly poses as a champion of the middle Nixon as a White House staffer and then Secretary of class. Commerce, has emerged as perhaps the leading Given his circumstances, it’s not entirely surprising spokesman for what remains of the anti-deficit wing of that Peterson is an outspoken opponent of the federal the Republican Party. For example, Peterson is the government’s two most progressive (and successful) founding president of the nominally bipartisan programs: the graduated income tax and Social Concord Coalition, chaired by former Senators Warren Security. What is odd is that his pose as a friend of the Rudman and Paul Tsongas. Senator Tsongas, who common American succeeds; that he publishes in began his electoral career as a Republican, declared in liberal journals like the Atlantic and the New York 1992, “Of all the Democratic candidates, I have the Review; and that he enjoys a largely uncritical press. strongest appeal among Republicans.” The Coalition Even odder is the fact that Bill Clinton, after wants to eliminate the deficit by the year 2000 by presiding over the most progressive tax reform in two cutting entitlements and raising consumption taxes. decades, would name Peterson as one of his ten ap- Peterson has helped fund “Lead . or Leave,” a group pointments to the newly formed Bipartisan Com- with a similar entitlement-bashing agenda that claims mission on Entitlement and Tax Reform. Peterson is at to represent Generation Xers. He and his staff have the epicenter of a growing network dedicated to written a number of books and articles, most recently demonizing entitlements. Facing Up (1993), excerpted in the Atlantic under the In order to squeeze his 1993 budget plan through same title and adapted in a New York Review article the Senate last year, Clinton had to appease Nebraska called “Entitlement Reform: The Way to Eliminate the Democrat Bob Kerrey, who in an emotional, late-night Deficit.” speech on the Senate floor complained bitterly that the Kerrey and Danforth apparently hope their plan was not tough enough on the middle class. To Entitlements Commission will provide a quasi-official secure Kerrey’s reluctant vote, Clinton agreed to form endorsement for the Peterson program. Most GOP a commission to study possible cuts in entitlement leaders fear that calling directly for entitlement cuts, programs and new taxes. Congress was awarded 22 of namely in Social Security, is political suicide; they have the 32 seats on the commission, 12 Senators and 10 instead stuck with vague recommendations for less Representatives, each split evenly between Democrats “wasteful spending.” Likewise, while they may favor and Republicans. The remaining 10 choices were lowering taxes on the wealthy, they are reluctant to call reserved for the President. directly for higher taxes on middle- and low-income But when it came time to make appointments, families to replace the lost revenue. Peterson is more House Republicans, led by GOP Whip Newt Gingrich, forthright. Along with tax cuts for the rich, he explicitly refused to fill their five designated positions unless endorses tax increases for the poor and the middle class Clinton conceded some of his slots as well. After as well as sharp reductions in what average families months of delay and with his promise to Kerrey on the receive from the government. line, Clinton caved in and named several Republicans, But because Peterson cloaks his goals in the rhetoric including Pete Peterson. Although Peterson’s views are of progressivity, the press has fawned over him. The antithetical to much of the Clinton agenda, he will fit in misleading notions that entitlements are running up well with several other members of the commission, the deficit, stealing from future generations, and including the two co-chairmen, Senators Kerrey and maintaining the elderly in affluence while young people suffer, have become received wisdom for many. amount to only about 4 percent of its $200,000-plus Much like Tsongas, Peterson has cultivated a reputa- average income. tion as someone who is above politics and willing to But Peterson continues his populist rhetoric. face the hard truth. “Middle-class Americans today feel hard pressed and beleaguered — and they are.” Peterson promises to Seductive Rhetoric wring revenue from the “genuine upper class” through higher tax rates, lower tax subsidies, and greatly re- s outlined in his 1993 book, Facing Up, Peterson duced entitlement benefits. would tinker with various federal spending Alas, having piqued middle-class interest, Peterson A programs from defense to welfare, with little switches his message. Stripping the big fish of federal net change in the total spent. The heart of his agenda is benefits won’t do much for the budget, he asserts, the following: because the rich don’t really get much in the way of • Cut Social Security and Medicare by $135 billion a government subsidies: year by the year 2000 — a reduction of 21 percent that As for direct entitlement benefits, . not much help year and more thereafter. Both the Concord Coalition is available from the rich. The maximum entitlement and “Lead . or Leave” endorse similar proposals. savings obtainable from the 1 percent of households • Enact vast new federal taxes on consumption. enjoying incomes of more than $200,000 are . about Initially, Peterson would generate $220 billion in $5 billion if we took away all their benefits (something additional annual revenue (in the year 2000) by that even Bill Clinton . has never dreamed of imposing a national sales tax and a stiff tax on suggesting). employee health benefits, as well as tripling or qua- Nor, he claims, can we get much from eliminating drupling selected federal excise taxes. He would use the tax breaks of the rich. “For all the subtle subsidies part of the money to pay for $30 billion or so in new that help the wealthy borrow huge sums for home loopholes for corporations and the wealthy. Eventually, mortgages and take unlimited health-care deductions,” he hopes to raise about a trillion dollars in new he says, “just 7 percent go to the Americans whom the consumption taxes, so that he can eliminate personal President calls `rich.’ ” and corporate income taxes entirely. The Concord In truth, the wealthy get far more in tax breaks than Coalition endorses the same plan. Peterson admits. Hence, the bait-and-switch. Despite Peterson’s bottom line is that the middle class gets his rhetoric, Peterson apparently doesn’t want the too much from government and pays too little for it, wealthy to relinquish anything. On the contrary, he while corporations and the rich deserve a break. would have the middle class suffer and the rich get tax Curiously, that’s not how he sells his program. cuts to more than offset any reductions in their direct Peterson frames his case by contending that well- federal benefits. off people get too much from government. “Counting both direct benefits and the value of entitlements Rich Ironies conveyed through the tax code, the aggregate amounts received by people above the national median are nlike some of my Wall Street colleagues,” simply staggering,” he complains. “In 1991 nearly half Peterson wrote in the October 1993 Atlan- of all entitlements went to households with incomes “U tic, “I see absolutely nothing wrong with over $30,000. One quarter went to households with imposing higher tax burdens on the wealthiest in our incomes over $50,000.” Peterson takes into account all society.” That may be, but Peterson’s tax program is direct-benefit outlays and tax expenditures, then about the most pro-rich approach imaginable. concludes that “On average, a household with an Peterson harps on the “shocking” regressivity of income under $10,000 collected roughly $5,700 in 1991. various federal income tax breaks that he says provide On average, a household with an income over $100,000 an unfair advantage to the wealthy. Yet his ultimate collected $9,300. This distribution of benefits by income goal is to repeal all personal and corporate income . clearly . has nothing to do with economic taxes. He is enamored of the so-called “progressive equality.” consumption tax,” which would be levied on incomes To be a bit churlish, these figures don’t necessarily after a deduction for money saved. By definition, seem all that bad. By Peterson’s arithmetic, the lowest corporations would pay no tax at all. income group he cites gets almost its entire $6,000 Since rich people can save a far higher share of their average income from government assistance, while the income than average families, a tax limited to spending high-income group’s “benefits,” mainly tax breaks, would require extraordinarily high rates at the top to avoid providing huge tax cuts to the wealthy. Indeed, Well, suppose that tomorrow the price of everything only consumption tax rates of more than 100 percent you buy went up by 5 percent but your income for the very highest earners could approximate the remained the same. It’s unlikely that your first reaction progressivity of the current system. Enacting such rates would be to eat less, drive less, and move to a cheaper would, of course, be impossible; as a result, Peterson’s apartment so that you could save more.

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