Dec 102010

President Obama set off a lively week for a lame duck Congress when he announced a tentative tax cut deal on Monday. Meeting without Democratic representation, the President carved out a hostage-release deal with Republicans that would give them the cuts they want for the top 2% in exchange for the extension of unemployment benefits and tax cuts for 98% of Americans. The President says this is the best deal that could be made, but many Democrats disagree.

Sadly, while the issue of tax cuts for the rich was a centerpiece of President Obama’s election campaign, he has yet again caved to the Republicans and decided to feed the rich. The Obama “deal” will not only break his campaign pledge and extend the Bush cuts for the top 2%, but it will also create a nice sweetener for the uber-wealthy in the form of an $88 billion tweak to the estate tax. Under the Obama deal, estates up to $5 million will be exempted from the tax, and the rate for those over will be 35%.

The President wants us to believe that a deal that will add nearly $900 billion to the deficit, with almost all of it in temporary relief, is a positive step for America. He wants us to believe that an estate tax measure that benefits only the top one-tenth of 1% is a legitimate price to pay to get a 1-year extension for unemployment benefits. He contends that the only way to get continued tax relief for 98% of Americans is to cave into Republican demands that serve millionaires and billionaires.

Most Republicans are already doing a victory dance over the Obama deal, which might help explain why congressional Democrats are finding some backbone in opposition. Many Democrats are incensed that in order to get assistance for those harmed most in the economic collapse, the President has given into Republican blackmail. They contend that for 40 years, all extensions have been granted when unemployment was above 7.2%, and they find it immoral that extensions are now being used as a bargaining chip with the rate currently at 9.8%.

Another bone of contention in the deal is a 2% cut to the payroll taxes paid by employees. The reduction will provide $100 billion in relief in 2011, which will put money in pockets where it’s likely to be spent and stimulate the economy. But it will do so by further shorting Social Security and potentially opening the door for Republican advances toward dismantling and privatization.

There are some additional measures in the package, like the extension of certain tax credits for which the Democrats are in support. There’s also some acceleration of business expensing that will move forward deductions for investments — a move that would normally receive widespread support. Taken as a whole, the package has some reasonable stimulus that’s mixed with a distasteful wad of non-stimulating fat for the rich, but like the individual elements or not, the inescapable problem with the entire proposal is that it’s $900 billion in additional deficit.

The entire Obama deal is debt financed temporary relief that does nothing to address the structural issues of our financial crisis. It’s another massive round of spending that will have to be financed by China or somebody else. And if you think we have trouble now with jobs being drained out of the country, with American business investment and jobs going to China, think about how another $900 billion in Chinese owned debt will tie our hands when it comes to trade reform.

President Obama’s tax deal isn’t a solution; it’s a perpetuation of the system that’s responsible for the mess we’re in today. It offers temporary relief for structural problems and serves to exacerbate the issue of massive concentration of wealth — the very dynamic that brought us to this point in the first place. It does nothing to actually change the system, while potentially opening the door to further chipping away of our social safety net. This deal is at best a short term remedy where the proceeds are split 50/50 amongst the two sides, but where 98% of Americans are on one side and only 2% on the other.

Democrats are right in rejecting this bill. It’s being sold as the best deal the President could get, that the Republicans wouldn’t budge. But the truth is that the Caver in Chief telegraphed compromise before negotiations ever began and then he finished by punting on third down. The Republicans stand their ground against this president because they know that he will always make a deal. He’s given them no reason to change their minds.

The President’s rationale for capitulation rests on the premise that we can ill afford to see taxes rise on the middle class, and he may be right. But we can no more afford for either the present trend toward concentration of wealth or for swelling deficits to continue. He tells us that this is only a two-year deal, and that he’s itching for a fight going forward. Are we to believe that he will suddenly develop courage and become a skilled negotiator? Are we to believe he has the intestinal fortitude to promote tax increases during a presidential election?

The odds are that the answer to both questions is a resounding “NO.” This whole deal is a Republican Party delight and an abomination for Democrats. It’s another maintain the status quo, kick the freaking can down the road “deal” that will, in the long run, only worsen the situation and further deteriorate the quality of life for the majority of Americans.

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Dec 022010
Economic growth for the 2001 to 2005 business ...
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Article first published as Why Don’t the Facts Seem to Matter Anymore? on Technorati.

How do Americans make up their minds on political issues? Some, I’m sure, simply echo the positions of trusted friends. There are people who are persuaded by specific arguments that just seem to personally resonate and still others who simply adhere to strict party lines. Such practices are understandable in the fast paced world of 21st Century America. But understandable or not, one has to wonder if a more deliberate approach might be warranted.

Take for instance the current debate over the extension of the Bush tax cuts. Most polls previously showed that the majority of voters support extending the cuts for only the middle class. But the margins were remarkably thin and continue to shrink.

The most recent Gallup poll shows only 44% of participants in favor of extensions depending upon income level and tallied 40% in support of cuts regardless of income. An Associated Press poll of 1,000 people, taken just before Thanksgiving, showed a slightly larger margin, with 50% in favor of cuts for income up to $250,000 and only 34% favoring cuts for all income.

Division of this sort is typical on political issues, but what’s interesting about these results is that, while only 2% of Americans would benefit directly from cuts on income above $250,000, a third or more of those polled consistently support those very cuts. This is an atypical disparity that surely must have some explanation.

One possible motivation could be that people are concerned about jobs. According to that same AP poll, 82% of participants cited unemployment as an “extremely” or “very” important issue. Perhaps these people believe that extending tax cuts to the wealthy will result in job creation. After all, anyone who’s listened to the media has heard this argument. It’s a favorite of congressional Republicans, who regularly cast any tax increase as “job killing.”

But the fallacy of such a premise is immediately evident in even the briefest moment of serious contemplation. The fact is that employers simply don’t hire based on their personal income tax treatment. The formula for staffing is strictly limited to the number of employees required to produce the product or provide the services necessary to meet demand while maintaining a profit — period. Profits must be made before taxes even come into play. The fundamental rule is that, if demand goes up, businesses must hire more people, and if demand wanes, there will be layoffs.

I’m afraid that while the don’t-tax-the-job-creators line seems to have some legitimacy on the surface, nobody who’s actually studied the issue believes it. Economists are all forced to agree with Cornell University’s Robert Frank, who sums up the present situation with “Businesses aren’t investing because they can already produce more than people want to buy.” Indeed, the nonpartisan Congressional Budget Office (CBO) produced a report on the matter and concluded that, of the top 12 suggestions for spurring job creation, income tax cuts was the least effective option.

So, maybe jobs aren’t the primary concern. Could it be that people are moved to support tax cuts, even for millionaires and billionaires, out of a general concern over the economy? The economy was the highest priority issue amongst those voting in the AP poll. A full 90% of participants ranked it at one of the two highest levels of importance.

There has certainly been enough rhetoric flying around about the detrimental effects of raising taxes on anyone to give ample cause for alarm. Republicans are unified on the topic. The new Speaker of the House, John Boehner, voiced this conservative wisdom in an interview last August, “You cannot get the economy going again by raising taxes on those people who we expect to create jobs in America.” It sure sounds good, but once again there’s no evidence and only rare opinion to support the conclusion.

The fact of the matter is that the American economy is driven by consumer spending. To put that in perspective, around 70% of our GDP is generated thusly. So, it’s actually lack of demand that’s the key issue with the American economy today. Too many people are either without jobs and unable to spend or holding onto what money they have because they’re worried about the future. Businesses are flush with cash but aren’t investing for the same reason. They’re not refraining from hiring because they may have to pay more in taxes. They’re not hiring because there’s insufficient demand.

Tax cuts for the top 2% will stimulate the economy, but the sad truth is that pretty much any other practical option would be more effective. Numerous studies have been completed, and virtually all agree that general tax cuts are the least effective form of stimulus, and those applied to the very rich are the worst of the worst. The CBO study mentioned above again rates tax cuts at the bottom of the heap with regard to impact on the GDP, with a best case of returning $0.40 for every dollar invested. Compare that to $1.90 for increasing unemployment aid, and you might glimpse the insanity of the conservative argument.

Although concern over the deficit is also high on everyone’s list, it’s difficult to see how anyone can argue that extending tax cuts that would trim $700 billion from federal revenue could help the deficit. So, if it’s not jobs, and it’s not the economy, what is the explanation for as much as 38% of Americans supporting tax policy from which they will not personally benefit?

There is one other possibility. It could just be that good old American sense of fair play. When asked how they felt the spending cuts and tax increases needed to address the deficit should be applied, the majority (54%) of participants in the AP poll thought they should “Be spread out so that all Americans share evenly in the costs.” A truly admirable position to take.

But then, just what is it that constitutes an even share? It’s hard to believe that there’s any such equity in extending tax cuts that already provided 52.5% of the benefit to the top 5% of taxpayers. The stark truth is that you cannot achieve an “even share” by extending that which is, by design, extremely uneven.

The facts about the Bush tax cuts are dramatic. They were touted to create jobs and stimulate the economy, yet they did neither. With regard to the economy, the Bush era netted the slowest average annual growth since World War II, averaging only 2.39% per year. And that doesn’t even take into account the economic crash of 2008. The next worst period was 1971 to 1980 at 3.21%. On the job front, the results were even worse, with the Bush era producing the slowest rate of average job growth of any cycle since 1945.

In the final analysis, the Bush tax cuts served but one purpose — to accelerate the concentration of wealth in America. Things have now become so lopsided that the top 1% of Americans now have more financial wealth than the bottom 95%. When the portion of wealth held in home equity is discounted, the top 1% holds 48.4 percent of the wealth compared to 20 percent retained by the bottom 95% — and that gap is growing at an alarming rate.

By 2001, the share of financial wealth had already grown to a 39.7% – 32.5% split, but ramped sharply upward under the policies of George W. Bush. The fact is that the wealth of the very rich is being extracted by squeezing the overwhelming majority of Americans to the point of collapse. The situation is so bad today that 23.5% of overall income belongs to that top 1%.

According to Bloomberg, during the period that followed the first of the Bush cuts, up until the financial meltdown, the average annual income of the top 1% grew from $1.08 million to $1.87 million, an increase of 73%. Meanwhile, according to the U.S. Census Bureau, the Bush economic cycle was the first since tracking of the data began in 1967 to produce a decline in median household income — focusing specifically on working-age household data, real incomes dropped by a whopping $2,176.

This is a sad and unethical story, and it’s not representative of the America that most Americans have grown up to love and respect. Our nation was founded on the principles of equality, of shared prosperity and shared burden — principles to which the policies of deregulation and tax cuts for the rich that have dominated the political landscape for the past 30 years are diametrically opposed.

There’s no guesswork here; we already know the outcome of the Bush policies. If the tax cuts are allowed to be extended intact, we will maintain the present trajectory. Poverty will continue to climb; the rich will get much richer, and any balance achieved will be on the backs of the middle class. Make no mistake about it; this is unfair, unethical, immoral, and completely un-American.

Welcome to the real-life tragedy of the commons in America, where the very wealthy have chosen to bleed the country dry, because regardless of the eventual outcome — they will already have their riches. It’s a game of squeeze-all-that-you-can while the squeezing is still possible; it is in essence the great national Ponzi scheme.

America’s economic elite have no interest in reforming the system to achieve sustainability. Our nation, its people and natural resources are nothing more than fodder for the mill of exploitation. And as with any Ponzi scheme, the sustainment of the system matters only to those who have not yet reaped their reward from the extraction.

The American people are the proverbial frogs in the kettle: they continue to support their own demise because they fail to recognize that the heat is still being turned up. If the American middle class is going survive, we will need a 21st Century awakening. And that awakening must begin with people rejecting the self-serving sound bites of those with their hands on the thermostat.

In the end, the inescapable truth is that, whether the American people choose to recognize the facts or not — the facts do matter. We are presently in a race to the bottom for the vast majority of Americans — and that’s a fact. We can continue this march into oblivion or we can stop the hemorrhaging and restore some semblance of shared prosperity — and that too is a fact. The choice lies with the American people, and the future of our nation depends upon which way they choose — and that’s the most important fact of all.

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