The just-released Congressional Budget Office (CBO) report on projections of federal deficits over the next ten years was both infuriating and stomach-turning. It also reinforces David Wessel's WSJ column today ('Tracking Missteps Behind World's Economic Slump', p. A4) that "The U.S. government - congress and the White House- has an incoherent fiscal policy".
By that he means that half the time they blabber about "the risk of rising deficits", but on the other hand seek to make them much worse - such as extending the Bush tax cuts for all back in December. The other half of the time they blabber about "fiscal support" and creating jobs, but then set in motion immediate austerity and spending cuts measures that will have exactly the opposite effect. In any other universe, this behavior would be regarded as the evidence for insanity.
Anyway, the CBO sharply reduced its projections of total deficits over the next decade- reduced to $3.5 trillion up to 2021, BUT with major provisos and qualifiers. The biggest one is that ALL the Bush tax cuts will finally be allowed to expire next year as opposed to once again being re-animated like the Zombies of the 'Walking Dead'.
If this isn't done, and Obama and the Dems punk out again by playing politics (e.g. demanding the tax cuts be extended "only for those earning $250k and under") then we are in deep shit. The CBO then projects $5 trillion additional be added to the deficit to make a total of $8.5 trillion by 2021. Of course, honing in on the fine details not all the $5 trillion would arise from extending all the Bush tax cuts - it would more be like $4 trillion. The other $1 in deficits trillion would come from:
a) not stopping the payroll tax cuts ($115 billion each year, for a total of $230b over two years)
b) Allowing "doc fixes" each year for Medicare, so providers aren't dinged by payout cuts, leading them to dump or deny Medicare patients ($200b)
c) Not getting out of Iraq and Afghanistan by 2014.
The worst travesty of all would be that none of the painful forthcoming $1.3 trillion in spending cuts (due by end of Nov.) will lead to a 'savings' if the Bush tax cuts are re-animated again in December. Doubling down, the higher deficits would bring total public debt to 82% of GDP by 2021 up from 23.8% this year, according to The Wall Street Journal (p.A4)
Most interesting to me, was the same Journal piece noting that revenues were down to historic lows of 15.3% of GDP this year, compared to 18% of GDP historically. Clearly, this shows the need for higher revenues in taxes (at the very least repealing all the Bush tax cuts). Yet oddly, in its editorial ('What Austerity?") the Journal's brain trust makes the claim that not extending the Bush tax cuts would have a deleterious effect on jobs!
And yet the historic evidence shows this to be palpable bullshit. So, the Journal editors can say "Beam us up, Scotty!" all they want (ibid.), but THEY are the ones who need beaming up! I mean, they already conceded (even in the editorial) that revenues are at historic lows! Well, then get rid of the Bush tax cuts, which I for one do not regard as a real tax hike but rather returning to tax normalcy.
It would bring us back to the marginal rates of 39.5% in the Clinton era, during which 20 million decent jobs were created, and more importantly, people feltwealthier. (And this wealth effect was a major reason Clinton's impeachment proceedings over the Lewinsky indiscretion didn't get very far.)
Further, as economists James Medoff and Andrew Harless observed in their excellent book, The Indebted Society, 1995, p. 84, 'Let Them Eat Cake',
"high tax rates are associated with higher productivity growth"
There is a consistent and strong relationship. By contrast, for the years when Arthur Laffer's supply side dogma held, productivity retreated by more than 30% and debt exploded- exactly the opposite of what we've been sold. The classic example was the Reagan era for which Medoff and Harless note (p. 23):
"For the health of the economy, Reagan's policies turned out to be just about the worst thing that could have happened: investment did not increase, growth continued to stagnate, and the federal deficit ballooned to new dimensions."
Meanwhile, a more recent Financial Times Analysis of the Bush tax cuts (9/15/10, p. 24) passed in 2001 and 2003, showed they engendered "the weakest decade in U.S. postwar history for real, non-residential capital investment".
The FT analysis also observed that “during each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 percent and 7.4 percent a decade. During the 2000s it averaged a mere 1%”
This is evidence enough that the Democrats have to stop playing politics with these god damned tax cuts! It isn't good enough to simply pout and whine (as one D-congress critter recently, in an MSNBC interview): "We can't figure out a way to get ahead of the no tax narrative!
Well, too fucking bad! Figure out a way! What are you, imbeciles? Do you need brain transplants?
Start by leveling with your constituents that they can have either tax cuts delivering maybe $400 a year at most now, or their Social Security and Medicare later! BUT ..if they opt for the tax cuts now, they can't depend on getting their benefits later! They can't fucking have their cake and eat it!!!
Got it?
This is not brain science, or rocket science. We're not asking you buttbrains to delineate a trajectory to Mars for a 9-month trip and a payload weight of 20,000 kg. All we're asking is that you craft an efficient and convincing comeback to the Reptiles 'no tax' bullshit and STOP playing into their hands. This you did - whether you realized it or not, when you conceded to allowing "some" tax cuts to go through but not others. You are then defeated! Or, when you blather for a payroll tax cut or holiday when THAT is what helps pay FOR Medicare and Social Security! (Besides which, the evidence so far shows no signficant economic benefit from the payroll tax cut of 2% (WSJ, p. A4, op. cit.).
When the Dems wake up they might be worth more in the way of support. Until then I have to regard them as clueless, incoherent losers - politically deaf and dumb- and who will continue to be beaten like orphaned whelps by the Repups.
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