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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

April 29th, 2010 1:08 PM

Being Rude To The Deficit Hawks

I worked at the Economic Policy Institute (EPI) for 6 ½ years. During this time, the credibility of my work and that of my colleagues was often impugned by describing EPI as "labor backed." This was partially true, we got 20-25 percent of our funding from unions. However, the clear implication of this identification was that our ties to labor called our integrity into question in a way that large amounts of corporate tied money did not affect the integrity of other think tanks.

I am reminded of this because I was at the Peter G. Peterson's Foundation deficit fest this morning. I left as Peter Peterson took the stage with Robert Rubin. The hypocrisy around this sight was more than I could bear. Actually, I left because I had work to do, but this sight was still pretty painful.

Peter Peterson and Robert Rubin are both enormously wealthy men. (They joked about dividing their lunch tab based on their net worth.) They are lecturing the country on the need to cut Social Security and Medicare benefits for retirees who have a tiny fraction of their wealth. Many of the victims of the cuts that they would push are people who are already struggling.

This would be difficult to accept in any case, especially since there are ways to get the long-term deficit down to size that don't involve nailing middle income and/or poor people. However, it would be hard to find two people who have benefited more from taxpayer handouts than these two individuals.

Peter Peterson has been the recipient of tens of millions of taxpayer dollars through the fund manager's tax break. This tax break, which is also known as the "carried interest tax deduction" allows managers of hedge and equity funds to pay tax on their earnings at the 15 percent capital gains tax rate, instead of having it taxed as normal income. As a result, Peterson paid a lower tax rate on much of his earnings than tens of millions of people working as school teachers, fire fighters, and other middle income jobs.

Peterson not only collected the money himself, he came to Washington in 2007 to lobby Congress when it debated ending the tax break. He apparently wanted to make sure that his friends would still be able to benefit from this tax break even after he had retired.

After setting the country on a course for the current crisis with the policies he pushed as Treasury Secretary, Robert Rubin went to work as a top executive at Citigroup. In this capacity, he earned $110 million before leaving the company in the middle of its 2008 meltdown. As we know, Citigroup was one of the major actors in the housing boom. It produced hundreds of billions of dollars worth of mortgage backed securities.

It would have gone belly up in the crisis were it not for tens of billions of dollars in taxpayer loans and hundreds of billions in guarantees. (That the government's guarantees restored Citi to life, which allowed us to get our money back is beside the point.)

Rubin's public line is that he should not be blamed for Citi's collapse or the role it played in bringing down the economy; he really didn't know what they were doing. This is an interesting claim for someone who got paid $110 million by the bank. Presumably Citi could have employed someone who didn't have a clue about what was going on for something considerably closer to the minimum wage. In any case, being at the center of a collapsed megabank that helped bring down the economy would not ordinarily be a credential that would give a person standing to lecture the country about fiscal policy and the need for sacrifice.

Yet, in Washington in 2010, Peterson and Rubin hold the high ground, lecturing the rest of us on the need to tighten our belt. As I said, I have work to do.

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