Image by Mike Licht, NotionsCapital.com via Flickr
If somebody told you that they wanted to lose weight, but they wouldn’t increase exercise or cut their caloric intake, would you believe they were being earnest? How about a friend who says he seriously wants to get out of debt but has no plan to increase income and is only willing to trim the most marginal of expenses? If these cases seem to be obviously insincere, then why does anyone believe that House Republicans have any real interest in addressing the deficit?
Reuters reported shortly after 4:00pm EST on Friday that House Republicans have sharpened their pencils with further slashing in their spending-cut plan that will now total $60 billion. But even at this higher level, which is nearly double their total announced earlier this week, how serious is a plan that will trim the $14 trillion debt by only 4-tenths of 1%? The Republicans are already patting themselves on the back, but since $60 billion in cuts amounts to less than 3 months of interest payments on the debt, should Americans really join the celebration?
The specific problems with the Republican plan are many, but they really all emanate from the conservative framework on which the plan is based. First, and most obvious, is their ridiculous premise that the deficit must be addressed while simultaneously lowering taxes for everyone, including the very wealthy. This is analogous to that person who claims they want to lose weight but won’t exercise — they’ve cut the options in half and in turn doubled the stress on what’s left. With all trimming reliant upon appetite control, dieting starts to look a lot like starvation.
This is far from the way America handled this issue in our glorious past. While climbing out of the Great Depression, our country was hit with the expense of World War II. The economy was invigorated (from forced government spending) and unemployment turned to overemployment. But the national debt, which had been around 43% of GDP, did climb to more than 121% by the end of the war. Undeterred, a united America shared the burden and that debt was steadily paid down post-war, with the debt reduced every year through 1974 (except a slight bump in 1949).
Federal debt bottomed in 1981 at below 32% of GDP, and the remarkable recovery was achieved almost entirely without cuts in spending. In fact, federal spending has increased in all but 4 years since 1947. The solution to the huge debt brought about by WWII was not austerity, but exactly that which Republicans have removed from the table — high top marginal tax rates. The 24% rate in effect when the market melted down in 1929 was raised to 63% in the early 1930s and sat at 81% when the nation went to war. It spent many years over 90% and never dropped below 70% until 1982.
The notion in post-war America was that those who benefited most from our society should give back accordingly. It was an ethic based on the premise of unity, of patriotism and the greater good. The wealthy were taxed heavily on their top marginal dollars, but contrary to the scary scenarios of economic ruin predicted by contemporary Republicans, the economy flourished.
Our economy boomed into the mid 1970s, bringing about a sort of golden age of American capitalism. During that period the GDP multiplied many times over, the middle class swelled, unemployment remained low, and prosperity was shared by most Americans. The rich still got richer, but not at a rate significantly faster than the rest of the populace. Massive concentration of wealth was avoided, and the bottom 90% of Americans enjoyed their peak income year in 1973. Through it all, we remained a country united.
But the sense of unity that had thrived for more than 30 years was lost in the early 1980s. The oil crisis of the 1970s, coupled with a massive influx of imported goods, brought about extremely high inflation and resulted in the heavy loss of jobs. This confluence of events caused the American people to lose faith in the government programs that had given us decades of prosperity, and laid the groundwork for the presidency of Ronald Reagan.
Reagan was elected president by running on a government-is-the-enemy platform. He cut taxes, slashing the top rate first to 50% and later to 38.5%, while also dropping the bottom rate from 14% to 11%. Unemployment was slowly improved, averaging 7.5% for his eight year term, and the economy did recover. But before Reagan left office, he made the unprecedented move of lowering the top tax rate to 28%, while simultaneously raising the bottom rate to 15%.
So began the era of Reaganomics. Hacking the top tax rates while raising the bottom, along with huge increases in military spending and cuts to Medicaid, food stamps, education and the EPA, the pendulum had swung. America became a nation divided between the haves and have-nots, and the national debt began to swell. While the federal deficit had never climbed over $80 billion prior to Reagan, it never dropped below $128 billion during his term. After decades of paying down the debt, it soared from $1.1 trillion under Reagan’s first budget to $2.9 trillion for his last.
Deficit spending had existed under previous presidents, but for Reagan, it was the core of his budget policy. When Reagan left office, he left behind the budget framework for the new Republican Party. That framework is still being followed by John Boehner’s Republican House: lower the top rate, feed the corporations, cut the estate tax, deregulate anything and everything, protect defense spending, and cut whatever else remains. It is under the umbrella of these mutually exclusive objectives that Boehner’s House has created their plan to address the deficit.
The problem with the Republican budget planning process is not just that it exacerbates the deficit problem by insisting on tax cuts for the top 2% of Americans; it’s also the narrow slice of expenditures that they will even consider to subject to their budget knife.
Our federal budget for 2011 amounts to $3.64 trillion. That total is split between $247 billion of interest payments on the debt, $2.1 trillion in mandatory spending (consisting mostly of Social Security, Medicare, and pensions), and $1.2 trillion of discretionary spending. Since the vast majority of mandatory spending comes from entitlements, which are by definition funded outside of income tax revenues, this leaves the substantially smaller discretionary pie from which to cut — and once the Republicans protect their sacred cows, few slices are left on the table.
At approximately 58% of discretionary spending, the price tag for the military accounts for the lion’s share of the pie. This includes around $550 billion for the Department of Defense and another $170 billion for the Nuclear Security Administration, Homeland Security, Veterans Affairs and related programs. Add another $159 billion for “Overseas Contingency Operations” (our Middle East wars), and the Republicans have stashed away all but 4 pieces of that 10-piece pie before it gets served up for cutting.
So, using the Republican framework for deficit reduction, the process starts with tax increases and military cuts pulled completely off the table. That leaves around $441 billion in government spending that’s subject to the Republican axe. Remove from that other Republican pet pots, like the $20 billion or so in oil company and other corporate subsidies, and it becomes evident how much the Republicans are like that person who allegedly wants to lose weight but won’t exercise. It is true that they’re willing to do some dieting, so long as they don’t have to give up any carbs or fat.
The result is a Republican budget proposal that leaves their campaign benefactors happy and instead cuts deeply into programs that benefit the needy and the nation as a whole. Their latest plan cuts billions from education and HUD, slashes more than $3 billion from the EPA, cuts from the FBI, reduces state and local law enforcement assistance, cuts from the FDA, trims nearly a $1 billion for energy efficiency efforts, cuts into science funding, NASA, the GSA, IRS and Treasury, trims the Army Corp of Engineers, slashes over $1 billion from FEMA First Responders, takes nearly $2 billion from job training, and drains billions more from the DOT. At a time of high unemployment and a decaying national infrastructure, over half ($33 billion) of the Republican’s planned cuts are at the expense of labor and transportation/housing.
This is Republican economics at its finest. Their practices seem more consistent with some sort of Bizarro World Robin Hood, where the hero is actually a villain, and he steals from the poor to give to the rich. This is not the ethic upon which America was conceived. It is precisely the evil of elitist selfishness that the Founding Fathers strived to defeat.
Our present economic woes are not the result of over-taxation or excessive regulation. No, the causes of our nation’s ills are exactly the opposite. Our ailment is rampant greed and a steady decline in the middle class that stems largely from the massive concentration of wealth that’s occurred over the past 30 years. Today, the top 1% of Americans holds more financial wealth than the bottom 95%, and this Republican budget plan is nothing but another dose of the poison that brought us this disease.
Americans do need to be concerned about the federal debt, but the way to address it isn’t on the backs of the poor, working and middle classes. Our shared debt has been much larger as a portion of GDP in the past, and the formula for recovery and prosperity has already been proven. The Republicans refuse to follow that formula because their plan isn’t about the debt. If it was, tax increases and cuts in military spending would still be on then table.
The wellbeing of our nation is at stake, and the Republican House has proven itself to be either disinterested or completely incapable of prescribing the necessary action. It’s time for the American people to stand united and tell these thieves that we’ll no longer stand for their hypocritical nonsense. If they believe the deficit to be a major issue, then address it in earnest. If not, then abandon the false focus and help with the programs we need to create jobs and restore prosperity to the middle class.
Whatever the case — it’s time for all of our elected officials to cease their infernal shell game, stop the finger pointing, and for once dispense with the snow-job and TELL THE FREAKING TRUTH!
- Image via Wikipedia
Like all good Republicans, in order for Meg Whitman to execute her tax-reduction-for-the-rich strategy, she must reduce spending. According to Whitman’s campaign, this has to be done regardless. Citing recent spending increases, they claim that in the decade preceding the recession, “State spending had increased by nearly 80 percent.” This is true, but it’s also disingenuous. What Whitman fails to mention is that while spending did increase, so did the GDP. The whole truth is that spending rose a much more modest 30 percent when viewed as a portion of the GDP.
Of course, citing the gross increase in spending isn’t, in and of itself, a big issue. But, when it’s used to substantiate their indictment of what they term, a “spending binge,” and then they turn around and offer a GDP-based cap as the solution — well . . . the smell of burnt rubber flowing from the spin is stifling.
But, spin aside, nobody can deny that the State budget needs serious work. Pushing forward the deficit has become standard procedure, and Whitman has a plan to address it. She will “defend the two-thirds budget requirement,” her logic being that to require only a simple majority would be “nothing more than a license for Sacramento to raise our taxes.” The potential for tax increases being Whitman’s number one concern, she’ll fight to keep it from happening, even if it means perpetuating the State Legislature’s inability to develop a budget in a timely fashion.
Judging from her plan, Meg Whitman seems to be oblivious to the detrimental effects of running a state without a budget. Most people would like to avoid the State paying its bills with IOUs or cutting 200,000 worker’s salaries to minimum wage. Does Ms. Whitman understand the situation? Does she care? Maybe it’s just the fact that she had no interest in state politics prior to deciding to run for governor that leaves her so naïve. Perhaps she just didn’t notice that the state had missed its constitutional deadline for a budget 19 times in the past 25 years. It is possible, since she’s rarely even bothered to register to vote for that entire period of time, and more.
Whitman’s prior disregard to fulfill her duty as a voter might also help explain her naïveté concerning California’s budget woes. The state really had no trouble developing budgets prior to 1978 and the passage of Prop-13, which has reduced local tax revenues by an estimated $200 billion over time. These cuts hit education hard and eventually brought about Prop-98, which requires a complex calculation that typically commits 40% of the budget to education. But even though California has the 13th lowest property tax rate in the country, Whitman, and conservatives in general, adamantly oppose any increase in taxes, even one that often results in one neighbor paying 20 times more for identical property.
No, Whitman insists that the only path to a balanced budget is through the unholy pair of both spending and tax cuts. If this seems a bit contrary, especially amidst a recession, it’s because it is. Nobel Prize-winning economist, Joseph Stiglitz, provided his analysis on the matter in 2008. According to Stiglitz, when the economy is weak, “Economic theory and evidence gives a clear and unambiguous answer: It is economically preferable to raise taxes on those with high incomes than to cut state expenditures.”
Stiglitz is very clear about state spending: “Every dollar of state and local government spending enters the local economy right away, generating a greater economic impact. The impact is especially large when the money goes for salaries of teachers, policemen and firemen, doctors and nurses and others that provide vital services to our communities.” Yet Whitman’s plan is 180 degrees off from the sage advice of this renowned economist, and most others.
Whitman will lower taxes on the rich instead of raising them, and will trump that action with deep spending cuts. Little detail is available regarding the cuts she will target, but when employee compensation and retirement forms the largest single piece of the budget pie, there’s no doubt where her axe will have to cut. One such cut that may not break the hearts of many Californians is her planned initiative for a constitutional amendment to make the State Legislature part-time. Such a move is obviously more political than practical, as the savings would be minimal.
But never fear, Queen Meg will get that budget balanced no matter what sacrifice has to be made by average Californians. She has yet to tell anyone which programs will suffer, but the Red Queen has at least given us some notice — she will be ordering “off with their heads” for more than 40,000 state employees.
So, Whitman will create jobs and balance the budget by lowering taxes on the rich and cutting workers from the state payroll. Then, with lower revenues and fewer people, she will move on to her third priority — to “fix education.” More about that in the next part of the Whitman story.
- Image by Speaker Pelosi via Flickr
Democrats are now starting to support the Republican call to extend the Bush tax cuts. In a recent interview, Sen. Kent Conrad (D-ND) stated that, “The general rule of thumb would be you’d not want to do tax changes, tax increases … until the recovery is on more solid ground.” I’ve got to ask, what effing “recovery” is Conrad talking about? Is he referring to the Dow being over 10,000? He’s sure not talking about the 30 million Americans who are unemployed or the countless others who are underemployed, threatened, or who have seen their nest eggs decimated.
The thing that most revolts me about this “you can’t raise taxes in a recession” pitch is that it’s spoken by the same folk who are suddenly budget conscious and focused on the deficit. Most recently, Republicans fought the extension of unemployment benefits because the $34 billion price tag was not offset with corresponding spending cuts. Now those same “leaders” are fighting for a $678 billion reduction in revenue by maintaining the Bush tax cuts for the top 2%.
To support their case, they offer the same voodoo economic tenets that supply side crooks have been spewing for decades: they claim that “tax cuts pay for themselves.” Of course, nobody actually believes this — not even the liars who say it’s so. Everyone knows that there’s ZERO empirical evidence to support this claim. In fact, all evidence supports exactly the opposite.
In a 2005 Congressional Budget Office study looking at the macroeconomic impact of an across-the-board 10% tax cut, the CBO estimated that the BEST CASE return was an offset of the loss in revenue by 22% over the first 5 years and by 32% over the second 5 year period. And those were their most optimistic projections. Their more conservative assumptions concluded that the offset over the first 5 years would be only 1%, and that the second period would actually experience a 5% increase in lost revenue. Also, it’s important to keep in mind that this study looked at across-the-board cuts, for rich and poor alike. If the cuts were isolated to only the top rates, even less of the money would find its way back into the economy.
Mark Zandi, head economist for Moody’s, provided analysis in 2009 that supports a similar conclusion. His study of the Fiscal Stimulus of 2008 shows that general tax cuts will increase the GDP by only $1.03 for every dollar of tax relief. The increase in GDP would then theoretically be taxed at some marginal rate, which at present would return no more than $0.36 in tax revenues. The bottom line is that while economists might debate whether or when tax cuts are good for the economy, they virtually all agree that cuts don’t pay for themselves.
But, where tax cuts have questionable impact, government spending provides a much better return. In stark contrast to the weak stimulus provided by tax cuts, the Zandi study concluded that an extension of unemployment benefits would grow the GDP by $1.63 for every dollar spent. The same study estimated every dollar of increased infrastructure spending would return $1.59.
So, why is it again — that we have to offset increased spending, but we don’t have to cover tax cuts?
Oh yeah . . . I remember — it’s because we need jobs, and those tax cuts for the rich are supposed to produce them.
But, wait a minute. Haven’t we tried that before? Weren’t the Bush tax cuts supposed to produce millions of jobs?
Actually, the Bush administration sold the tax cuts of 2003 by claiming they would create 1.4 million new jobs. These jobs were supposed to add to the 4.1 million jobs “expected” from earlier efforts. But in the end, only 2.4 million jobs were ever created. Of course, this shouldn’t come as a surprise, since the entire boom cycle of the Bush years only produced 5.6 million new jobs. In fact, the Bush era had the slowest rate of average job growth of any cycle since 1945, and it was even worse for those in their prime work years (ages 25 to 54), where only 1.8 million jobs were added throughout the Bush cycle.
The sad truth is that we spent most of the past decade testing the effectiveness of growing the economy and creating jobs by cutting taxes, and the entire process has been proven to be an abysmal failure. The first decade of this century produced ZERO net job growth, while no other decade going back to the 1940s produced less than 20%. Do we really want more of this medicine?
What the supply-side fallacy of tax cuts for the rich actually produces is intuitively obvious to even the most conservative observer — it’s more money for the rich. Those very same Bush policies that added all those jobs also brought the after-tax income of the top 1% to it’s highest level since 1979 (17.1%), concentrated more wealth in the top 1% than the bottom 90%, and gave average Americans the first decline of median household income of any cycle since 1967.
There’s only one reason that Republicans, and some Democrats, support tax cuts for the rich, and it’s best summed up by none other than G.W. himself: spoken at the Al Smith dinner in 2000, “This is an impressive crowd — the haves and the have mores. Some people call you the elite — I call you my base.” They owe their allegiance to the wealthy; they willfully sacrifice the average American for the top 2%; they paint government as the problem, knowing that it’s the only hope of The People, and they will do or say anything to serve themselves and further their elitist goals.
The American middle class was created through a system designed to effectively and ethically share the wealth of our great nation. At the core of that system was a structure of progressive taxation that provided the revenue required for it to function. That progressive structure once asked much of those who gained the most, and for decades it worked well. It worked to pay off the war debt and create the programs of the New Deal. But it stopped working in the 1980s, when movement conservatism worked to cut the top rates in half. It doesn’t work today for the same reason. Now those same conservatives are at work again — working to save money for their elite, working to starve government, working to end the American middle class.
