Thursday, November 17, 2011

NO to Gimmicky, Bogus Deficit Deals!

It was probably inevitable that as the eleventh hour neared in the Supercommittee's deficit negotiations, the feasibility of using tricks and gimmicks - also known as 'smoke and mirrors' - would enter. This is given the fact that we are dealing with professional politicians here, all trained in the dark arts of deception, trickery, bullshit and subterfuge. The warning alarms sounded yesterday when I read The Wall Street Journal article, 'Gimmicks Could Help Rescue Deficit Talks', p. A6.

As the article noted:

"The Congressional Budget Office, the official score keeper, has traditionally measured savings against the cost of continuing policies under current law. Such an approach assumes the Bush-era tax cuts expire at the end of the year, meaning that extending them would add $3.7 trillion to the deficit over ten years.

But both Democrats and Republicans have indicated a willingness to change the baseline to assume the Bush tax cuts are extended with no impact on the deficit."

Of course, this is utter, unmitigated insanity, since these tax cuts - ALL of them - are exactly what's generating a compounding deficit miasma and greater inequality! They have also been shown to be absolutely TOXIC to our long term economic stability and indeed, already have wreaked monumental havoc. So how can these nitwits on this supercommittee even contemplate such a farcical solution?

A Financial Times Analysis done last year (9/15/10, p. 24) on the effects of extending the Bush tax cuts showed that they would be an even bigger calamity than either the GAO or CBO projects (nearly $3.7 trillion in additional deficits piled up over the next ten years).

Given a low aggregate demand environment, and let's bear in mind as one "patriotic millionaire for higher taxes" said this a.m. on CBS, taxes don't bear on job decisions - products and services do- we could easily be down the hole by $5 trillion or more in 10 years. Especially if military spending is allowed to increase without offsetting taxes, including to pay average salaries of $85,000 each per service member (as noted in the recent TIME, Nov. 21, 'The Other 1%', p. 34)

The FT analysis disclosed that the tax cuts, passed in 2001 and 2003 with the latter reducing taxes on capital gains from investments to 15% (thereby delivering an unequal status to rentiers over workers) have been almost totally responsible for the deficit mess we’re in especially since 70% of the hit transpired after 2006.

The Financial Times analysis (by Richard Bernstein) notes (ibid.:

Our own examination of U.S. non-residential investment indicate the reduction in capital gains tax rates failed to spur U.S. business investment and failed to improve U.S. economic competitiveness

In other words, the FT’s findings were exactly opposite to what had been touted by the 2003 cuts’ cheerleaders (many of the same people who claim that extending the Bush cuts to the wealthiest now is critical for job formation, which is total BS).

The FT’s analysis continues:

The 2000s- that is the period immediately following the Bush tax cuts – were the weakest decade in U.S. postwar history for real, non-residential capital investment. Not only were the 2000s by far the weakest period but the tax cuts did not even curtail the secular slowdown in the growth of business structures. Rather the slowdown accelerated to a full decline

Contrast this with the hike in taxes immediately after Bill Clinton took office, leading to the accumulation of more than $600 billion in surpluses by the time he left office, and the creation of 20 million jobs.

Meanwhile, the FT analysis observes 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%

For reference, the top marginal tax rate during the Bush years (for income tax) was reduced to 36% from the 39.5% during the 1990s Clinton Years. Over the 1950s and into the 1960s (until about 1964) the top marginal rate was at 91%, going down to 65% by the mid -60s. The lowest level of 28.5% wasn’t hit until Reagan arrived in 1980, and passed his tax cuts. (With Democratic party help!) And we note here that the debt as a percentage of GDP rose to nearly 30% during the Reagan years, caused by his tax cuts in conjunction with military spending that amounted to nearly $2.2 trillion over his tenure. This was documented in the book, The Indebted Society).

Another telling statistic from the FT study was the finding of a miserable growth rate for investment in equipment and software for business. The FT analysis noted that this ranged from 5.7% a year to 9.9% in earlier decades but was reduced to 1.9% during the 2000s.

Meanwhile, “average growth in non-residential structures ranged from 1.3% to 5.7% from the 1950s through the 1990s but declined 0.8% during the 2000s.”

The conclusion of the analysis is stark and absolutely uncompromising (ibid.):

The stated goal of cutting taxes to spur U.S. capital investment was not achieved.”

So, given this, why on Earth should this ad hoc "Joint deficit reduction" committee be allowed to game the deck and extend them at no cost? This is insanity! This is a symptom of a nation whose political establishment has lost leave of its sense and intelligence!

But I'm not done!

The benefits of the Bush tax cuts were mostly dispatched OUTSIDE the country!

In his analysis, Bernstein was led to ask ‘Where did the benefits of the tax cuts go?’

Obviously, if they didn’t redound to the U.S. benefit they had to go somewhere, right?

The FT found: “an increasing proportion of the benefits of U.S. monetary and fiscal policy are leaking outside the U.S.”

The FT and Bernstein went on to note that the tacit assumption of U.S. policy makers and taxpayers was that the U.S. is a “closed economic system” but in fact, it isn’t. Whatever consequences accrue can often be exploited in ways unseen. Indeed, the FT notes that the Bush tax cuts actually "encouraged “capital flight from the U.S.”

So, let's get this straight: it's not enough that jobs are encouraged to leave the country, but capital too!

The conclusion is clear and obvious: we can’t afford ANY of the Bush tax cuts. Let them all expire. Better that than deficit hawks going after Social Security and Medicare when millions more will need it by the end of the decade. (And meanwhile, instead of cowardly playing politics by separating the tax cuts, for the wealthiest and middle class, thereby ceding ground to House Repukes, the Ds ought to be telling their constitutents that it's either get piddling tax cuts for them of maybe $400 a year, OR keep most of their Social Security, Medicare benefits later! Grow some frickin' balls, Dems! Get your brains and arguments in order!)

At the same time let's not buy into the corporo-media's lazy assessment of any ambiguous "political dysfunction". Columnist E.J. Dionne correctly nails it:

"Sane fiscal policies are being blocked because one party refuses to accept the need to roll back the excesses of the 2001 and 2003 tax cuts. If congress does nothing, those tax cuts go away."

Which is exactly why we need congress to do nothing re: the extension of the Bushie zombie tax cuts, which ought to have long since been interred in the dumpster of dead ideas by now (as per Matt Miller's recommendations, in his 'The Tyranny of Dead Ideas')

This current Joint Reduction Committee is quibbling and fucking around about a $1.2 trillion piddling ass savings, when simply allowing the Bush zombie tax cuts to expire will save $3.7 trillion, and more importantly, be scored as legit by both the CBO and GAO.

But rather than aim for the simplest solution, our dickheads on the supercommitte want to fudge all the numbers, revive the Zombie tax cuts, and make everything much worse.

Sheesh, no wonder other nations believe we're fucking insane!

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