tax cuts

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Federal Deficit – The Ugly News

Just a quick note. The Congressional Budget Office published their estimate of the Federal deficit for the fiscal year just ended. The details are sparse, but the news is ugly. Given what we know so far the deficit will come in at around $1.4 trillion for fiscal year 2009. That’s awful. It represents an astounding 9.9% of GDP which makes it the largest deficit, proportionately, since 1945. So in a year of records, most of them unwanted, we can chalk up another.

Both sides of the Federal ledger have been hammered – there was no single cause for the deficit. Except of course for the recession.

The CBO estimates that spending rose about 17.8% year on year. Three culprits can readily be identified: TARP, which contributed an increase of $154 billion; support for Freddie Mac and Fannie Mae, which added $91 billion; and the stimulus plan which has added over $100 billion so far in spending.

Revenues dropped drastically too: personal income tax receipts fell $230 billion, or 20.1%; while corporate income tax receipts fell $166 billion, or over 54%. Overall revenues were down about 16.6%, from $2.5 trillion to $2.1 trillion.

What do we make of this?

Well I think we shouldn’t panic.

These are indeed terrible numbers if they were sustained over a few years. They highlight the need longer term for policy changes to control spending and increase revenues. I have said it before: there are tax increases down the line. Having said that, we should not imagine that future deficits will be anything like last year’s. There are massive extenuating circumstances. As there should be in a recession. Tax revenues are very sensitive, obviously, to employment levels and profits. It is no surprise that receipts have shrunk dramatically. But they will naturally increase, also dramatically, as the recovery gathers momentum [if it does]. Similarly 2009’s spending is an aberration: we layered on a huge one time stimulus plan, and we have had to finance the bail out of the failure of our banks to manage themselves as adults. The budget was hit by a near ‘perfect storm’ of fiscal maladies. Add in the increase in the costs of government programs that are supposed to be natural ‘counter-cyclical’ measures – things such as unemployment assistance – and it is easy to understand why the deficit mushroomed the way it did.

Now is not the time for fiscal conservatism. Nothing could be more damaging to the economy than an attempt to get the budget back into balance. As I have siad here many times: the private sector has collapsed in our economy, without government spending we would almost certainly have fallen into the abyss of a fully fledged Depression. The cost of avoiding that dire result is the current deficit. The cost of going into the abyss would have been far, far greater.

Plus not all the deficit is attributable to the current crisis. We had opened up a structural deficit previously. Those failed Bush tax cuts knocked a hole in tax receipts, but the then Republican administration failed to cut spending. On the contrary it added hugely to spending. The failed Medicare legislation is a good case in point: by biasing that extension of care in favor of the health insurance and drug industries the Bush administration deliberately added several hundred billions of expenses to the program’s cost. This was after having cut revenues. It was an act of fiscal recklessness we had not seen since Reagan. Recall it was Reagan who set us on this path of fiscal imbalance: he also failed to rein in spending. It is an irony of epic proportions that the two worst offenders with respect to fiscal wantonness were the two most conservative presidents of the modern era. Long gone – or should be – is the notion that the Republican party is the party of sound fiscal management. Their efforts to destabilize the Federal government, what they called ‘starving the beast’ was always half hearted. they could easily sell the tax cut half. But they always lacked the political courage to sell the spending cut half. They refused to rein in defense spending, and they avoided coming clean on their desire to eliminate the entitlement programs that comprised a large part of the rest of the budget. They realized that Americans actually like those entitlements. So the GOP was reduced to a one dimensional and therefore dishonest and reckless manager of our national finances.

The echo of that dishonesty is still with us: are large part of the current deficit has nothing to do with the crisis, bail outs or the stimulus. It is the result of the Reagan/Bush ideological attack on government. That we have yet to clean up that mess is lost within the larger story. The failure of the entire GOP ideological enterprise – that free market mentality – has left future generations an expensive burden. Today’s CBO report merely outlines this year’s accounting of that failure.

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There Are No Moderates

Can we just all get over this.

I am sick and tired of the media breathlessly reporting every word of supposed moderates in Congress. It is an astonishing oddity that these self-proclaimed middle of the road nonentities can get so much attention. They are simply annoying.

Take the ‘Gang of Six’ who exploded onto the scene last week. Their notoriety comes from their ‘moderate’ suggestion that we delay working on health care until the government’s budgetary situation becomes clearer. How very ‘reasonable’. How very ‘centrist’.

My father used to have words for people like these, and none of them can I use here.

Suffice to say that there is nothing either reasonable nor centrist about these six senators. Their obvious objective is to delay health care reform in order to kill it off. There is nothing unknown about the government’s fiscal condition: it sucks. There is a sea of red ink as far as anyone who cares to do the analysis can see. And the situation is getting much worse.

In fact the US government’s fiscal balance is truly awful and needs radical surgery.

There I said it: we need fiscal reform.

So are the ‘centrists’ just being ‘cautious’ and ‘reasonable’ in calling for a ‘sensible’ hiatus while we get to grips with the budget?

Not on your nellie.

In fact they are being extremely duplicitous, and if not that, simply stupid.

During the First World War a famous French general is reputed to have urged all out attack despite the very obvious fact that his army was in full retreat and total disarray. The quote goes something like this”Hard pressed on my right. My center is yielding. Impossible to maneuver. Situation excellent. I attack.”.

Now that’s bold. And it worked. Even a catastrophic problem can be averted by decisive, bold action, focused clearly on the center of that problem. We need health care reform because our current system is outrageously costly, fails to deliver health care to tens of millions of people, undermines wage growth, and ultimately is eroding the fabric of our economy. No analysis shows our current path to be sustainable. Something has to give. Marshal Foch would order an attack. That’s what Obama is – kind of – doing also.

Enter the Gang of Six who are advocating exactly the opposite: give in before the battle has been fought for fear of taking a little damage along the way.

But, and here’s the sneaky part, they are taking this position in order to kill reform, not to support it. This is clear from the simple fact that four of the six were ardent supporters of the notorious Bush tax cuts that are the predominant cause of our fiscal problems today. Anyone who supported Bush’s lunacy lost forever the ability to argue in favor of fiscal prudence: his policy was a recipe for fiscal disaster from the get go. Everyone knew it at the time. Senators like Susan Collins, who aggravates me more than most, hid behind the very thin veil of ‘trickle down’ economics in order to vote in favor of Bush’s reckless effort to destroy the Federal government’s finances.

Lest you think I am indulging in hyperbole about Bush’s intentions: recall that it was the mantra of right wingers back then to talk of ‘starving the beast’. Grover Norquist, the shady leader of the GOP think tank efforts in those days, used those exact words frequently. As did other right wingers.

Susan Collins and the others knew precisely what they were voting for: the crippling of government revenues.

Their position was a logical extension of the hateful Reagan intonement: government is the problem. Ergo kill it off by starving it of revenues.

Why were they so urgent in their desire to neuter the federal government?

Fast forward to last week: there are the Gang of Six proclaiming their ‘caution’: they argue that we need to get our budget sorted out before we talk of health care reform. The beast has been sufficiently starved that it cannot be used to solve this problem. Which is exactly the objective the extreme right wingers had in mind with their starvation policy: cripple the progressive agenda by creating a faux fiscal crisis in advance of any potential reform efforts. The New Deal cost money, if there is no money there is no addition to the New Deal. Simple.

In other words Bush and the extremists like Norquist will win – if the Gang of Six prevail.

And Collins and her fellow travelers have the gall both to enable the Bush victory and then to stand up as if they are innocent and use the very ‘starvation’ that they helped foist on us as the reason that we cannot afford to get decent health care for millions of Americans.

In simple language: the current fiscal mess is caused by these things:

  1. The Bush tax cuts, that cost us trillions of revenues permanently
  2. The recession, that has cost us hundreds of billions temporarily through lost tax revenues, and which will come back as soon as the economy recovers … so no loss long term
  3. The costs of the bail outs and stimulus, which have piled up debt whose interest we need to pay for and then whose face amount we need to repay

Of these the Bush tax cuts will eventually be the largest.

According to the now infamous Congressional Budget Office report the cost of health care reform is less than the cost of the Bush tax cuts.

So anyone who supported Bush has no problem with deficits as far as the eye can see. In fact they like them.

In which case the cost of health care reform shouldn’t worry them one jot.

That it does is a reflection of their innate conservatism, and their strong objection to reform.

Beware conservatives dressed in moderate’s clothing. They are always peddling that sensible sounding smooth ‘pragmatic’ elixir. And it always turns out to be poison.

Susan Collins and her buddies are liars and should be exposed as such.

As I said: there are no moderates.

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Budget Woes

This analysis, by the Center on Budget and Policy Priorities, highlights the hole the Republicans have dug for us over the past few years: Budget Deterioration from 2000-2006
One of the Largest Ever

The deterioration in America’s budget is both startling and historically huge. Yet the public rarely focuses on it. The year on year damage is bad enough, but the comparison with the 1990’s is downright depressing.

The rhetoric that “the tax cuts pay for themselves” is blown away by study after study. Even the Treasury’s latest effort which you can find an anlysis of here: Analysis of Tax Cuts shows that, at best, only 10% of the tax cuts will ever be paid for by economic improvements resulting from those same tax cuts. On the contrary the evidence is overwhelming that unless the tax cuts are paid for immediately by offsetting cuts in government spending they end up hurting by reducing employment and investment levels later on.

There is no other way to put it: the Republican policy of the last few years has been an unmitigated disaster.

Our kids will look back at these years and ask why we hated them so much that we voted for Bush and his cronies.

And why do the Republicans hate the middle class so much?

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The Republican Budget Deficits – Plutocracy on The Rise?

I originally posted this as a response to a comment to my note yesterday abouty the US budget deficit. My correspondent was advocating “pro-growth tax cuts as a restraint on government spending”. Here is my post:

Your argument is the traditional right wing one of small government advocacy. I don’t buy it. Because you don’t really mean it. Look at the deficits you Republican folks have been running. There is no small government there at all. You sell small government to your hard line voter base, then actually run big spender programs to woo the center. It’s called switch and bait.

Besides small government is mean-spirited government. It implies walking away from the poor, the young and the elderly. And this in the world’s richest nation! Your moral values are showing through a little too red blooded for my liking.

My larger point is that if you right wingers truly wanted small government you have had your chance: you ran the country unopposed for the past few years. Did you squeeze spending? No. Why? Because you know that the average voter wants those social programs you despise so much. So what did you do? You cheated America. You slashed taxes for your very wealthy friends in order to “starve the beast” then borrowed billions each day to avoid going public with your anti-social policies. You stuck future generations with the consequences of your ideological failure.

The current government has indeed been biggest spender in history. I am shocked that Republicans have embraced the big spending habit. I am shocked at the cowardice of the right wingers who shout about “responsibility” and then run up a profligate spending tab and shrink from a public debate about which programs they’d like to cut. Why can’t the red staters just come out in the open and let America know what they want to eliminate? Social Security? Medicaid? Medicare? Come on now, don’t be coy: have the courage of your supposed convictions and tell us which child, sick, poor, or elderly group you want to go after first.

As to your specific points: the surplus in 1998-99 was small as a percentage of GDP. Good since a larger surplus would have been a drag on the economy. It existed because of the overall health of the economy which was reflected, inter alia, in the stock market, so capital ghains were indeed high. So what? Are you suggesting that we should somehow dismiss that success simply because of that? If so we should dismiss the very slight reduction in the massive Republican deficits in this last year becasue it too was founded on non-recurring items such as abnormal corporate tax collections in 2005.

And no, the run up in defense spending does not account for the entire shift from Clinton surplus to Bush deficit. The tax cuts to the wealthy account for the majority of the shift into red ink. The stimulus those tax cuts produced was anemic: the number jobs created this business cycle has been pathetic by historical standards, and wages have been virtually flat. Your corporate friends have done well however: profits have been extremely strong. That’s what comes from ideologically rather than economically driven tax cut. Lastly, and at the risk of repeating myself: you advocate tax cuts as a way to restrain government spending. Huh? Then how do you account for the explosion of debt under Bush and the Republicans. Exactly where is the restraint? And exactly where is the conservatism?

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Do Tax Cuts Pay for Themselves?

No they don’t. Not all the spin in the world can conjure something out of the snake oil that is supply side economics. I know that the facts don’t get in the way of George’s rhetoric, when have they ever? But this stupid notion that tax cuts “pay for themselves” is, well, a flat out lie. Our friends at the Center on Budget and Policy Priorities debunk the idea [again] in this analysis: Data Show No “Free Lunch”

The headlines of their analysis are: that revenues have been $316 billion lower than the adminstration projected; that the recovery has been weak even though the tax cuts were supposed to stimulate it; and that revenues have fallen, in real terms, during this economy. That just about says it all. The stimulus failed; revenues have fallen [the only time that’s happened since the Depression]; and even the administration’s own projections acknowledge that tax cuts don’t pay for themselves.

So why does Bush keep blabbing on about this? Because he’s a liar? Because his die hard base can’t stomach the fact that supply side economics is a sham? Because he never admits a mistake? Because he doesn’t give a damn about the economy?

Yes.

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