How to get deficits to drop: Nix Renewing the Bush Tax cuts!

The new report out of the Congressional Budget Office (CBO) clearly shows the way to get a handle on the mounting deficits: kill the Bush tax cuts, I mean ALL of them - for the middle class as well as the wealthy. If that one step is taken, the deficit - which is projected to be $1.1 trillion this year, will fall to $585 billion next year, and to $345 billion in 2014. Most critically, this falling deficit will keep the bond markets and domestic austerity fetishists at bay, while keeping social benefits sound.

It is very simple to achieve but requires political gumption, and levelling with the American people: telling them they simply can't have their cake (future Social Security, Medicare benefits) and "eat it too" (continued tax cuts). Make a choice, take your pick. You're big people now!

The bottom line is that doing nothing will become the most direct way to slash the deficit, because doing nothing ....as in nada....is all that's required to finally retire or sunset the Bush tax cuts which have already outlived their usefulness and do next to nothing of economic benefit. The Financial Times analysis of Sept. 15, 2010 already showed that, including the observation that;

"“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 (see the one large bump on the accompanying graph near 2000), and the creation of 20 million jobs. Meanwhile, the FT analysis 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%”

Can politicos process this and keep their hands off the extensions triggers, including for the middle class? Who knows? The trouble is there is this hidden demon in all politicos that tempts them to play politics with things like tax cuts instead of levelling.

But, especially in the case of Obama, being serious this time around about not reviving these cuts, including for the middle class, could have salutary effects. Already the likes of The Wall Street Journal ('$5 Trillion and Change' today, p. A14) is trying to pin the record high deficit accumulation on Obama as well as the largest yearly one ($1.1 trillion for 2012). The best way to neutralize such attacks in future would simply be to allow all the Bushie tax cuts to finally meet their end.

Of course, the WSJ indiscriminately uses the graph released by the CBO (attached) but doesn't parse it correctly. For while it shows a major deficit emergence near 2010 (see the high negative gradient dip), this isn't all on Obama. Much of it is a cumulative payment back-log from the Bush 2003 Medicare Modernization Act which delivered a new prescription drug benefit that was never paid for, and which also included yearly deficit creating engines such as "Medicare Advantage" which spends $12-15 billion a year more on services than traditional Medicare. And we won't even go into the corporate welfare bonanza it's become and the disallowance of any demand for the Medicare Part D PhrmA plans to allow the government to bargain for lowest drug prices like the VA does.. So, of course you're gonna get a growing deficit!

Then there has been the additional costs of Iraq (more than $1.3 trillion - including $330b for the pullout prescribed by the Bushies in '08, NOT by Obama last year) and the enormous "supplemental" budgets associated with Afghanistan, in the vicinity of $600b a year. And, of course, the Buish tax cuts extensions - which truth be told Obama did have the chance to stop, but didn't. But in any case, they have added about $300b this past year in extra deficits that only he must take ownership for, while during Bush's rein and under his tax cut decade, they added over $2.7 trillion including interest. (Thus the more realistic graph projections, in red and blue ink- attached, belie the way the WSJ interpreted the CBO data.)

Let us hope that the politicians of both parties commit to doing the right thing this year, and next - and that begins with: 1) no more wars that aren't fully paid for with tax increases and 2) no more Bush tax cuts! For anyone!

When Military Spending Cuts Aren't Really Cuts...

Now that the super committee (aka "Joint Select Committee on Deficit Reduction") has failed - which most of us expected, we are supposed to see about $1.2 trillion in spending cuts automatically triggered by 2013, $600b for military-defense spending and $600b for domestic spending. Even as the triggers were announced one heard the military -defense groupies squealing like stuck pigs. Little Pentagon puppet Leon Panetta (why I ever believed he had principles I'll never know!) has insisted it would "hollow out our military".

Meanwhile, another lackey, House Armed Services Chairman Howard "Buck" McKeon, has caterwauled and denounced any future possible reductions in defense spending. This he's done even as the Repuke candidates - especially Mitt Romney - label Obama some kind of evil doer for pulling out of Iraq (actually he didn't, and if this imbecile had any sense he'd have see it was part of an agreement between the BushCo gov't in 2008 and the Iraqis to withdraw when they demanded it). At the same time, asshole Mitch promises to "double" defense spending if he ever gets in the Oval Office.

Well, let's hope to hell he doesn't! (And btw, this is another warning to the 'Occupy Wall Street' movement that the biggest effect they can have between now and next year is to get out and VOTE in Nov. '12 and prevent a Repuke takeover of the whole government. No, the Dems aren't angels by any stretch, but think of how much worse you will all have it if a firmly 100% pro-corporate personhood, Wall St. party gets in and controls all the executive and legislative branches! The way I usually portray this political choice is simple: You are more likely to live if you get dysentery rather than cholera!)

Anyway, let's get back to the hype about tearing down our military to the bare bones, and leaving the planet at the mercy of modern day Huns. To hear these military defenders blabber, that's what you'd believe. The truth is somewhat different! Not counting the payment of interest on the debt, it means cuts of roughly $55b a year.

But are these really cuts? Consider first, that total or aggregate Pentagon spending has doubled since 2000, to $790 b a year. This number includes both yearly "supplementals" to fund the Afghan conflict and occupation, along with $553b for the base Pentagon budget. Over the past decade this translates into a pure growth factor of nearly $2 trillion. Thus, Repub Tom Coburn (OK) is correct that Pentagon spending today "is higher in constant dollars than at any time in the last 60 years, including the Korean War, Vietnam and all the Defense Dept. spending during the Reagan years ($2.2 trillion)".

It is also more than the next 25 nations' military spending combined. The gist of all this? In fact there are no real cuts to military spending in any absolute terms, but only an estimated "trim down" of roughly 23% in the projected INCREASES in Pentagon spending over the next ten years!

The point here? Contrary to the bloviators' bollocks of "jeopardizing national security", just the opposite is true: the Pentagon base budget will still be larger than it is today by 2021! This necessarily means, given the zero sum resources we have, everyone else will be much poorer. That means an even more shattered and useless infrastructure with crumbling roads, cracking sewer and water mains and collapsing bridges....and a much more likely intolerable domestic environment over all. That's because the primary focus of the immediate domestic spending triggers will be on reducing air traffic controllers, and also regulatory departments in charge of overseeing the quality of our food and water.

In other words, we are on the cusp - unless something is done- of approving an undermining of our domestic security in terms of health and national welfare, at the expense of padding the pockets of the defense contractors, their lobbyists and all the whore congress critters that support them!

Meanwhile also, as the yen to further bloat the military curries more favor from political Jacobins, traitors and numbskulls, the target of austerity hawks will continue to be "entitlements". They won't be satisfied until we're all homeless, sick, dead or maybe ....walking dead.

A country in decline or not?

You figure it out!

"Super Committee" Follies Coming to an End

The sober news coming out of D.C. right now is that the much touted "Joint Deficit Reduction Committee", aka the "super committee", will end up with a big fat nothing to show for its efforts. They would have to finish a deal tomorrow in time for a final vote, because the laws governing its operation demand a 48-hour time interval between said vote and the deadline of Nov. 23rd. This ain't gonna happen, at least not in any valid way that's not based on smoke and mirrors gimmicks.

This means that there will be automatic cuts enacted in 2013, with $600 b for military-defense cuts (at least on paper, though I understand they will have leeway to cut other items in the budget and call it "defense", such as border patrol and immigration, Homeland Security and even Veterans' health care) and another $600b for social spending or what are quaintly called "discretionaries".

Leaving all the bullshit aside, this means the real work of congress remains, which is to establish whether funding continues for several key proposals, or is sliced. Among the items up for addressing: whether or not to adjust the AMT or "alternative minimum tax" levels, else the middle class will be clobbered with a new tax hit originally intended for the wealthy; deciding on whether or not to cut Medicare physicians' pay by 30% ; deciding whether to continue the 2% payroll tax deductions for another year, and deciding whether to extend 99 weeks of unemployment benefits for 3.5 million laid off workers.

If ALL were to be allowed, then we'd see an annual increase of $300b to the budget which is already under fierce scrutiny by Tea Bagger austerity fetishists, and the credit rating agencies and bond markets. But I would argue all need not and should not be allowed.

The ones that merit approval, and the reasons are as follows:

i) Extension of Unemployment Benefits:

Reason: Next to food stamps, this is the most stimulative device to pump up a moribund economy. The reason is people will spend the money right away, for mortgage payments, gas, groceries, school tuition...whatever. It is the ideal fillip in a low aggregate demand environment. Yet the Repuke House is almost certain to kill it or disallow it, unless the Dems cave again like they did last year on the Bush tax cuts. This would set up a near Hobson's political choice: extending the unemployment benefits for a year at a cost of nearly $75 b, or extend all the Bush tax cuts at a cost of $3.7 trillion over ten years.

Unfortunately, if such a Satanic deal is offered, the Dems and Obama have no choice but to eschew the 99 weeks extension this time. In the immortal words of Spock: "The needs of the many outweigh the needs of the few...". Translation: national fiscal stability (affecting over 200 million people) achieved by finally killing the Zombie Bush tax cuts trumps any deal that would disallow it and immediately affects only 3.5 million (or maybe 20 million by higher money circulation).

ii) Adjusting the AMT:

This has been done pro forma the past decade or more and it would be a tragedy of stupendous dimensions if not done again. Adjusting the AMT basically means raising the ceiling at which it is triggered. Recall the AMT is a parallel tax system that kicks in beyond a certain threshold (about $59,000 adjusted gross income last year) . If it kicks in, you have to trash your usual tax deductions etc, and use the higher tax options dictated by the AMT. To see if it's caught you, you need to download form 6251 from the IRS site, http://www.irs.gov/

Since its inception in the 1960s, the AMT or 'Alternative Minimum Tax' has never been inflation adjusted, so will trap as many as fifty million more middle class people by 2012 if not adjusted to a higher ceiling. Only 5% of the AMT comes out of the hides of those earning more than $1 million a year, or those part of the 1%.

Meanwhile, The Brookings-Urban Institute prepared a study that showed that in 2010 some 97% of families with 2 children and whose income is between $75,000 and $100,000 were forced off the regular tax system and onto the AMT system.

But beware! The Repukes may also well try to use this as a chip to get what they want, i.e. in extending the Bush tax cuts.

iii) Nix on any Medicare Physicians' cuts!

This ought to really be a no -brainer. I mean, it's difficult enough as it is for many older folks to find Medicare physicians, that is, the family practice drs. By cutting physicians' Medicare compensation another 30% it will be almost impossible for any new beneficiaries to secure the service of first line doctors.

In other words, they will be left with a hollow benefit.

NO - to the payroll tax 2% cuts for any longer!

On the other hand, the one approval we can do without - and which ought to allowed to expire - is the 2% payroll tax cut. While it's touted as a way to stimulate the economy it is too small for most workers to notice in their paychecks, and hence they are more likely to save it than spend it.

Meanwhile, it is actually eating away at Social Security receipts, you know the monies which pay for current beneficiaries and will have to cover the Boomers. Worse, the GAO has already said that S.S. will be unsustainable even in the short term if this defunding continues along with many more people taking Social Security disability insurance.

What all this means is that if these dire trends continue, the funding of Social Security will have to depend upon congressional appropriations - and we know and have seen how that's worked out.

Let us hope that our congress critters do the right thing in the next few weeks, and we don't have to be subjected to another loud verse of 'Send in the Clowns!'.

As for the super committee, anyone with a grain of sense would know it couldn't succeed when one side- the GOP six- was dug in on no revenue increases, having signed a 'no taxes' pledge compliments of Grover Norquist, i.e.

http://brane-space.blogspot.com/2011/11/wacko-who-has-washingtons-balls-in.html

Let's hope that in the new year more fiscal resposibility prevails than we have recently seen, but I wouldn't hold my breath!

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!

An Unconstitutional "Committee" Poised to Add 40 Million to the Poverty Rolls

Each day as I pick up the papers, or read online news, I say to myself it just can't get any worse. There has to be a bottom, but where is it? When will the leaders in this country cease their destructive pro-party brinksmanship (and I am primarily writing here of the GOP) and work together for the common good of the people. True, every now and then a light emerges from the darkness, such as the vote in Ohio to restore the union rights taken away by Repuke gubernator John Kasich. But overall, the battles still rage, and societal decline remains.

At least as recently as 1996, an actual legislative hashing out was required by numerous congressmen to approve legislation that impacted citizens' welfare. It was only after this was done, that the final law - such as the 1996 Welfare Reform Act- could be brought to a vote. In effect, it was a constitutionally-based legislative process that enabled and validated that Act, an Act which saw the benefits of millions decline and fall into poverty - as welfare was replaced by work which in many states (e.g. in Maryland) allowed less than minimal wage rates. Many welfare to work folks in Baltimore, hired as janitorial or sanitation staff, were barely remunerated at $3 an hour. That this did not constitute a survival wage, far less a living wage never occurred to any of the politicos that endorsed it.

As disheartening as this Act was, it could at least be swallowed (if only half-heartedly) because citizens knew that a legislative process produced it. The outcome of the welfare to work wages was a product of the Welfare Reform Act. Its implementation didn't occur outside the Act, or the committee hashing out leading up to it. Such is not the case with the current "Joint Deficit Reduction Committee" which is a creature not of a legitimate constitutional process, but rather political expediency - in much the same way the "Warren Commission" was a creature of Lyndon Baines Johnson's political expediency in finding Lee Harvey Oswald solely responsible for the Kennedy Assassination. In both cases, a faux governmental veneer was attached to make citizens think there was a valid governmental benediction when there was nothing of the sort (all apologies to Stephen King for his new novel '11/22/63' predicated on a miscarriage of historical facts!)

Thus, in the case of this "Joint Deficit Reduction Committee", it didn't arise out of any formal governmental process that created it, but rather as a reactive concession to hostage -taking of the government by the Tea Party driven goopers. In other words, it marked a surrender concession to the debt ceiling debacle when the GOP House held the country to its demands ....."give in or we allow no increase in the debt" ...making the nation default. There were several options to this criminal ploy, among which I already blogged about was the invocation of the Constitution (Article 4 of Amendment XIV ) by the president:

http://brane-space.blogspot.com/2011/07/time-for-talk-is-over-mr-president.html

This Article (constitutionally mandated - as opposed to being the reactionary fabrication of a special "super committee") states explicitly:

"The validity of the Public Debt of the United States, authorized by law, includes debts incurred for payment of pensions ....and shall not be questioned."

Thus, instead of agreeing to be a williing hostage and to endorse an unelected committee's decisions, Obama could have issued an Executive Order to override a putatively derelict Congress (obviously also out of its mind) and invoke Article 4 of Amendment XIV to raise the debt ceiling himself.

This would have avoided the specious artifact of a "Joint Deficit Committee" and its obvious intent to do an end run around the legislative process.

To be clear, this specious committee is charged with finding at least $1.2 trillion in government cuts by Thanksgiving. If this unelected panel falls short, no resolution by Nov. 23, then deep budget cuts will be automatically triggered to both the defense budget and social spending in the amounts of $600b each.. Here again, the very existence of an automatic "trigger" does an end run around any reflective legislative process. It effectively enables an unthinking, non-debated economic adjustment to be administered with no human control or adjucation. It is, in effect, an abomination! (And no, I don't accept any true reflection inheres in this specious deficit committee, but rather political expediency to come to almost any solution most agree on. Real reflectivity by contrast requires adequate time to attain a rational and equitable solution and no artificial deadlines!)

The pressure is actually even worse than depicted, because the 6 Dems and 6 Repubs on this committee agree that they actually need to resolve their differences this week in order for the Congressional Budget Office to rubber stamp it by Nov. 23rd. The automatic cuts can still be triggered even if this happens if the Tea Party dominated congress fails to bestow its imprimatur by Dec. 23rd.

In other words, this diabolical farce sets us up for yet another hostage taking by the same creeps who perpetrated it during the debt ceiling debate in August.

The sad and sorry news out of this super committee is that the Dems on it are already caving on multiple fronts in return for a minuscule increase in revenues (about $350 b) proposed by the Grover Norquist dominated Rs. Thus, the Rs now "concede" to allowing an increase in revenues by eliminating or lowering itemized deductions for individuals, and lowering the automatic deductions for others, while retaining the Bush tax rates for millionaires and the one percent!

Not to put too fine a point on it, but this is a fucking, outrageous farce! In return for the tiny and major discomfiting revenue adjustments (almost exclusively painful to the middle class) the Dems will agree in return to:

- massive cuts to Medicaid (ensuring the states will have to lower thresholds even further to qualify)

- increasing the eligibility age for Medicare to 67 or 68 (some Rs even proposed 70)

- Allowing a change in the inflation -adjustment formula to "slow the growth of Social Security benefits" - an abomination on which I previously blogged, noting it would rapidly translate into increased poverty among the elderly by essentially removing one whole month of (currently) received benefits every few years.

It's abundantly clear to me that any "solution" approved by this ad hoc, created- under- duress "joint deficit committee", will be no better for the mass of people in our country than a subdued hostage's family's welfare after it gives its life savings to a terrorist or other criminal holding the hostage for ransom.