“This “debt crisis” in no way had to happen. No natural disaster, no tsunami, has suddenly pounded the United States out of fiscal balance. We have simply suffered a colossal political failure. Our powers that be, by feeding the rich and their corporations one massive tax break after another, have thrown a monstrous monkey wrench into our national finances.
Some numbers — from an Institute for Policy Studies report released this past spring — can help us better visualize just how monumental this political failure has been.
If corporations and households taking in $1 million or more in income each year were now paying taxes at the same annual rates as they did back in 1961, the IPS researchers found, the federal treasury would be collecting an additional $716 billion a year.
In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade.
Similarly stunning numbers have come, earlier this month, from MIT economist Peter Diamond and the University of California’s Emmanuel Saez, the world’s top authority on the incomes of the ultra-rich. These two scholars have shared some fascinating “what ifs” that dramatize how spectacularly the incomes of our wealthiest have soared over recent decades.
In 2007, Diamond and Saez point out, taxpayers in the nation’s top 1 percent actually paid, on average, 22.4 percent of their incomes in federal taxes. If that actual tax burden were to about double to 43.5 percent, the top 1 percenter share of our national after-tax income would still be twice as high as the top 1 percent’s after-tax income share in 1970.
So why aren’t we taxing the rich? Why are we now suffering such fearsome “debt crisis” angst? Why are our politicos so intent on shoving the “fiscal discipline” of layoffs and cutbacks — austerity — down the throats of average Americans?
No mystery here. Our political system is failing to tax the rich because the rich have fortunes large enough to buy off the political system.”
“In February 1993, Canada was in the midst of financial catastrophe, or so one would have concluded by reading the newspapers and watching TV. “Debt Crisis Looms,” screamed a banner front-page headline in the national newspaper, the Globe and Mail. A major national television special reported that “economists are predicting that sometime in the next year, maybe two years, the deputy minister of finance is going to walk into cabinet and announce that Canada’s credit has run out…Our lives will change dramatically.
The phrase “debt wall” suddenly entered the vocabulary. What it meant was that, although life seemed comfortable and peaceful now, Canada was spending so far beyond its means that, very soon, powerful Wall Street firms like Moody’s and Standard and Poor’s would downgrade our national credit rating from its perfect Triple A status to something much lower…The only solution, we were told, was to radically cut spending on such programs as unemployment insurance and health care. Sure enough, the governing Liberal Party did just that, despite having just been elected on a platform of job creation.
Two years after the deficit hysteria peaked, the investigative journalist Linda McQuaig definitively exposed that a sense of crisis had been carefully stoked and manipulated by a handful of think tanks funded by the largest banks and corporations in Canada…McQuaig went to Moody’s Wall Street head office and spoke with Vincent Truglia, the senior analyst in charge of issuing Canada’s credit rating. He told her something remarkable: that he had come under constant pressure from Canadian corporate executives and bankers to issue damning reports about the country’s finances,
…[F]or the Canadian financial community, the “deficit crisis” was a critical weapon in a pitched political battle. At the time Truglia was getting those strange calls, a major campaign was afoot to push the government to lower taxes by cutting spending on social programs such as health and education. Since these programs are supported by an overwhelming majority of Canadians, the only way the cuts could be justified was if the alternative was national economic collapse – a full blown crisis.
…By the time Canadians learned that the “deficit crisis” had been grossly manipulated by the corporate-funded think tanks, it hardly mattered – the budget cuts had already been made and locked in. As a direct result, social programs for the country’s unemployed were radically eroded and have never recovered, despite many subsequent surplus budgets.”
“The third ranking Democrat in the Senate says a deficit-reduction proposal put forward by Majority Leader Harry Reid has the best chance of ending the political stalemate and avoiding a government default.
New York Sen. Chuck Schumer tells MSNBC he expects the Nevada Democrat to release details of his plan later Monday. Schumer says the deal would last through 2012, cut spending by the same amount as borrowing is increased and contain no new taxes.”
Which is exactly what Boehner wanted from jump street. The Daily Caller, May 11:
“Boehner took the ambitious stand in negotiations to raise America’s debt ceiling while speaking to the Economic Club of New York, saying, “Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase. And the cuts should be greater than the accompanying increase in debt authority the president is given.”
While the Treasury Department has yet to specify exactly the size of the increase Congress will need to approve for the $14.3 trillion debt limit, estimates are currently settling in around $2 trillion. That means, according to Speaker Boehner, that the White House and congressional Democrats would have to agree to spending cuts equal to at least $2 trillion as well. The only thing “off the table” is tax increases, said Boehner.
So after 6 weeks of kabuki, we’re right back where all this began. And unemployment is still our biggest problem. Nice.
Two presidents, two budget messages. One is Herbert Hoover in 1932, the other is President Obama yesterday. Guess which president made which statement. Here’s one:
“For years, the government has spent more money than it takes in. The result is a lot of debt on our nation’s credit card – debt that unless we act will weaken our economy, cause higher interest rates for families, and force us to scale back things like education…
Now, folks in Washington like to blame one another for this problem. But the truth is, neither party is blameless. And both parties have a responsibility to do something about it. Every day, families are figuring out how stretch their paychecks – struggling to cut what they can’t afford so they can pay for what’s really important. It’s time for Washington to do the same thing. But for that to happen, it means that Democrats and Republicans have to work together. It means we need to put aside our differences to do what’s right for the country. Everyone is going to have to be willing to compromise. Otherwise, we’ll never get anything done.
That’s why we need a balanced approach to cutting the deficit. We need an approach that goes after waste in the budget and gets rid of pet projects that cost billions of dollars. We need an approach that makes some serious cuts to worthy programs – cuts I wouldn’t make under normal circumstances. And we need an approach that asks everybody to do their part.”
“In framing this Budget, I have proceeded on the basis that the estimates for [the fiscal year] should ask for only the minimum amounts which are absolutely essential for the operation of the Government under existing law, after making due allowance for continuing appropriations. The appropriation estimates…reflect a drastic curtailment of the expenses of Federal activities in all directions where a consideration of the public welfare would permit it…. The welfare of the country demands that the financial integrity of the Federal Government be maintained…. [W]e are now in a period where Federal finances will not permit of the assumption of any obligations which will enlarge the expenditures to be met from the ordinary receipts of the Government…. To those individuals or groups who normally would importune the Congress to enact measures in which they are interested, I wish to say that the most patriotic duty which they can perform at this time is to themselves refrain and to discourage others from seeking any increase in the drain upon public finances…”
Which one was from President Hoover and which from President Obama? Does it matter? Is there any significant differentiation between the two? Scarecrow at Firedoglake:
“What we now face is a President who insists we are in a debt crisis that reputable economists say is phony, a product of deficit hysteria, political cynicism, and economic ignorance.. And he insists the debt crisis requires we take economically damaging steps that will harm the public by undermining popular and beneficial programs to preserve our future. He’s told us we must do this to achieve economic prosperity and that we can’t even have a meaningful conversation about the jobless until this is done so the debt problem is not just a distraction; solving it is a prerequisite to economic recovery. Eat your peas.
So take your pick. The White House is now occupied by a man who agrees with Herbert Hoover’s economics and is clueless about everything we learned about macroeconomics during or since the Great Depression, and he can’t be trusted with the family jewels . . . Or he should be supported because he’s a cynical liar who is willing to misinform the public, negotiate in bad faith, and mouth economic gibberish just to fool people.”
FYI, the first one is Obama, the second, Hoover.
Asian Markets, Boehner, credit rating downgrade, debt ceiling deal, Giethner, Harry Reid, John Chambers, Medicare, Mitch McConnell, naked capitalism, Social Security, Standard and Poor's, Super Congress, TARP, Yves Smith
I sense that the railroading of the American public will commence shortly. That August 2nd deadline for either raising the debt ceiling or facing economic crisis has now been moved up to 4pm today, so says Speaker Boehner and Treasury Secretary Geithner.
“House Speaker John Boehner (R-Ohio) told his GOP rank-and-file that congressional leaders are working round the clock on a deal set for release before the Asian markets open on Sunday at 4 p.m., a source tells The Hill.”
“The speaker and other leaders started their day at the White House, where Treasury Secretary Timothy F. Geithner warned of possible trouble in the markets if policymakers don’t announce a viable plan for raising the debt limit before Asian exchanges open Sunday evening, according to people familiar with the meeting.”
Add that to remarks by John Chambers, managing director of Standard and Poor’s, in an interview last week:
“Chambers added…that even if the parties agree to raise the debt ceiling, it may not be enough to avert a [credit rating] downgrade. Chambers said the country must implement a plan to reduce the annual budget deficit by roughly $4 trillion over 10 years, which makes the debt manageable over the long term.”
Since when do the ratings agency crooks who aided and abetted the banksters—and profited handsomely from doing so—leading up to the mortgage meltdown, get to dictate economic policy? But I digress.
That sort of ‘we have to do something big and do it now, or else’ mentality leads to “solutions” like proposing a “Super Congress”:
“Debt ceiling negotiators think they’ve hit on a solution to address the debt ceiling impasse and the public’s unwillingness to let go of benefits such as Medicare and Social Security that have been earned over a lifetime of work: Create a new Congress.
This “Super Congress,” composed of members of both chambers and both parties, isn’t mentioned anywhere in the Constitution, but would be granted extraordinary new powers. Under a plan put forth by Senate Minority Leader Mitch McConnell (R-Ky.) and his counterpart Majority Leader Harry Reid (D-Nev.), legislation to lift the debt ceiling would be accompanied by the creation of a 12-member panel made up of 12 lawmakers — six from each chamber and six from each party.
Legislation approved by the Super Congress — which some on Capitol Hill are calling the “super committee” — would then be fast-tracked through both chambers, where it couldn’t be amended by simple, regular lawmakers, who’d have the ability only to cast an up or down vote.”
It would also require only a simple majority vote. Isn’t it amazing how that 60-vote filibuster thingy isn’t an obstruction when it comes to what Congress really really wants to do? Like screw us over.
If this all sounds a bit familiar, it’s because we’ve been here before. Remember TARP? Get ready for TARP 2.0. Yves Smith at naked capitalism:
“We commented last night on the parallels between the pressure tactics used to railroad the passage of the TARP and our current contrived debt ceiling crisis. The similarities have increased in a predictably bad way. Even worse than the economic toll radical budget cutting will impose on ordinary Americans is the continued undermining of basic democratic processes.
The foundation was set with the TARP’s radical power grab…[H]ere is the truly offensive section of an overreaching piece of legislation:
“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
As with the TARP, we have the drumroll of a purported threat to public safety, namely the possible Destruction of the Financial System as We Now Know It. John Boehner is stoking the panic by saying there needs to be a deal by the opening of trading in Asia or the Market Gods will take their vengeance. Turbo Timmie will no doubt warn of dire consequence of the failure to ink a deal by the supposed drop dead date of August 2 when he makes the rounds on Sunday TV.”
“I hear the train a comin’, it’s rollin’ ’round the bend…”
Afghanistan, Boehner, Cisco, claims, debt ceiling, default, Iraq, layoffs, Lockheed Martin, Medicaid, Medicare, mercenary army, Obama, Pelosi, SIGAR, Social Security, spending cuts, State Department, unemployment, Wall Street
“I met a girl who sang the blues, and I asked her for some happy news. She just smiled and turned away.”
“House Minority Leader Nancy Pelosi acknowledged Friday that Democrats may reluctantly accept a last-minute compromise to avoid a default that involves up to $2.5 trillion in spending cuts — without agreed-upon new tax revenues — if Medicare, Medicaid, and Social Security are protected from the debt limit brinksmanship.”
Yes, by all means, let’s cut spending. Never mind this:
“Companies are laying off employees at a level not seen in nearly a year, hobbling the job market and intensifying fears about the pace of the economic recovery.
Cisco Systems Inc., Lockheed Martin Corp. and troubled bookstore chain Borders Group Inc. are among those that have recently announced hefty cuts, while recent government numbers underscore how companies have shifted toward cutting jobs.
The increase in layoffs is a key reason why the U.S. recorded an average of only 21,500 new jobs over the past two months, far below the level needed to bring down unemployment, which now stands at 9.2%.”
“Initial weekly unemployment claims increased to 418,000. The 4 week moving average is 421,250. A weekly average above 400,000 does not indicate job growth and we now have a pattern of perpetual disaster for U.S. citizens trying to earn a living.”
The Money Party has some questions and answers on Obama’s handling of the budget
never let a good crisis go to waste. Here’s just one:
“Question: Why did President Obama put Social Security and Medicare on the table in the budget negotiations when 80% of the people oppose cuts to these programs?
Answer: The president is not in office to represent those people. He was selected, funded and carried over the finish line by corporate America. Look at the appointment of Wall Streeter Timothy Geithner, the bailouts, and the failure to prosecute any of the crooks who caused the current recession. He’s serving the people who put him in office. Those people don’t need Social Security and Medicare.”
Not only serving the people who put him in office, but serving those who he is depending on to keep him there:
“Among big fundraisers, Obama has drawn close to a third of his money from people in the finance industry, up from 20% during his 2008 campaign, according to an analysis by the Center for Responsive Politics.
The amount raised so far is more than two-thirds what Wall Street elites helped Obama raise in his entire 2008 campaign. And it is enough to make the finance world the single largest source of big-ticket donations for Obama.”
While we cut the social safety net out from under our most vulnerable at home, billions are going unaccounted for in Afghanistan:
“SIGAR [Special Inspector General for Afghanistan Reconstruction] found that U.S. agencies have limited visibility over U.S. cash that enters the Afghan economy — leaving it vulnerable to fraud and diversion to the insurgency…”SIGAR auditors found that U.S. agencies have not done all they can to safeguard U.S. funds, and the Afghan government has not provided the cooperation needed to build a strong, secure financial system.”
Also on the Endless War front, the State Department is telling the Special Inspector General in Iraq to mind his own business when it comes to State’s mercenary army in that country:
“By January 2012, the State Department will do something it’s never done before: command a mercenary army the size of a heavy combat brigade. That’s the plan to provide security for its diplomats in Iraq once the U.S. military withdraws. And no one outside State knows anything more, as the department has gone to war with its independent government watchdog to keep its plan a secret.
Stuart Bowen, the Special Inspector General for Iraq Reconstruction (SIGIR), is essentially in the dark about one of the most complex and dangerous endeavors the State Department has ever undertaken, one with huge implications for the future of the United States in Iraq. “Our audit of the program is making no progress,” Bowen tells Danger Room.
For months, Bowen’s team has tried to get basic information out of the State Department about how it will command its assembled army of about 5,500 private security contractors. How many State contracting officials will oversee how many hired guns? What are the rules of engagement for the guards? What’s the system for reporting a security danger, and for directing the guards’ response?
And for months, the State Department’s management chief, former Ambassador Patrick Kennedy, has given Bowen a clear response: That’s not your jurisdiction. You just deal with reconstruction, not security. Never mind that Bowen has audited over $1.2 billion worth of security contracts over seven years.”
To be continued…unfortunately.
Shortly after the New York Times broke the story yesterday that a so-called “grand bargain” (which if reports are accurate is neither grand nor much of a bargain) had been reached between President Obama and Speaker Boehner, White House spokesmen immediately sprang into action. Press Secretary Jay Carney said “there is no deal, we’re not close to a deal” and Dan Pfeiffer tweeted:
“Anyone reporting a $3 trillion deal without revenues is incorrect. POTUS believes we need a balanced approach that includes revenues.”
The Times account may or may not be true, we shall see in the next few days I suspect, but reading a post at AMERICAblog this morning reminded me of previous occasions when the White House kinda sorta fudged a bit on the truth, to be generous.
Like when the same Dan Pfeiffer said in October of 2009 that the rumors about President Obama abandoning the public option as part of health care reform were “absolutely false” and that:
“In his September 9th address to Congress, President Obama made clear that he supports the public option because it has the potential to play an essential role in holding insurance companies accountable through choice and competition. That continues to be the President’s position.”
It was later revealed that in July the president had made a secret deal with hospital lobbyists that a public option would not be included in the final legislation. In March of 2010 Paul Hogarth at Huffington Post wrote:
“In other words, while Obama was still saying in September that he supports the public option (which kept us hopeful) – the President knew all along that it would never make it in the final bill. He never said he’d fight to include the public option, and repeatedly said he was “open” to other ways to achieve the same goal. But little did we know, the fix was in.”
I also recall that there was a similar situation with the pharmaceutical industry. The president continued to voice support for drug importation after another secret deal had already been cut with lobbyists that it wouldn’t be in the final legislation either.
Alternative Minimum Tax, CLASS Act, corporate tax cuts, deficit reduction, economic growth, Gang of Six, marginal tax rates, Medicaid, Medicare, Obama, overseas profits, Pentagon, Social Security, spending caps, supply side
President Obama was quick to endorse the latest deficit reduction plan, the one from the so-called “Gang of Six” released yesterday, calling it a “very significant step” and “broadly consistent with the approach he has advocated.” This without knowing the details. But the details weren’t really important, because all the major elements are indeed consistent with what the president wants in this deficit reduction shell game.
* Medicare, Medicaid, and Social Security cuts.
* Further cuts in the top marginal income tax rates. (So much for that pledge to let the Bush tax cuts expire).
* Corporate tax cuts.
* The continuation of Reaganomics and Bushonomics. That would be the supply-side, tax cuts equals increased revenue and economic growth nonsense that we all know works so well.
The broad strokes of the “Gang of Six” plan (and just as an aside I wonder why Sen. Sanders is never included in any of these gangs? Not bi-partisany enough, I assume) are as follows:
An immediate $500 billion “down payment” on deficit reduction. All spending cuts, all from unnamed programs. A brilliant idea in a recession. The other $3.2 trillion in savings would be decided by various committees at some later date, enforced by spending caps. Congress would be required to get a 2/3 vote to exceed those caps. IOW, when the next recession hits, anybody looking for any assistance is SOL. David Dayen at Firedoglake:
“Simply put, this is a recipe for depression. When the economy suffered and stimulus would be required to increase aggregate demand, the 2/3 vote needed would simply put a stop to it. The New Deal would have been out of order under this regime. Same with the Recovery Act. Any spending from the federal government would be restricted as much as it is in the states. So there could only be the status quo or contraction in fiscal policy in the event of a recession, which is a perfect way to create a depression.”
Also in the down payment would be the institution of chained CPI, aka a cut in SS benefits, and repeal of the CLASS Act, which was a part of health care reform that the insurance lobby fought tooth and nail. From the New York Times, December of 2009:
“The Class Act, which the late Sen. Ted Kennedy considered his legacy, would allow people to buy long-term care insurance through payroll deductions and to receive cash if they’re later disabled, regardless of their age or of a previous health condition. “This is the best chance the baby boomers have to protect themselves from impoverishment if they need long-term care,” Mr. [Jim] Firman [president of the National Coalition on Aging] said.”
That is Part One. Part Two calls for an additional $200 billion in “healthcare savings,” aka Medicare and Medicaid cuts, and an $80 billion cut in the defense budget. That’s $80 billion over ten years, pocket change for the Pentagon. Gotta love that shared sacrifice.
In Part Two, the Finance Committee…
“…would be required to reduce tax rates to three tax brackets of rates: of 8-12 percent, 14-22 percent and 23-29 percent. The current top marginal rate is 35 percent. The corporate tax rate would be between 23 percent and 29 percent…”
And this little goodie for corporations as well:
“…tax reform would cease taxation of overseas profits.”
The corporate behemoths had been lobbying to get the tax on overseas profits reduced, allegedly under the guise of returning these profits for use in job creation, but that’s not how it worked before:
“Congress and the Bush administration gave companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment.
While the tax break lured 800 companies into bringing $312 billion back to the United States, 92 percent of that was used for dividends and stock buybacks, according to the nonpartisan National Bureau of Economic Research. The study concluded the program “did not increase domestic investment, employment or research and development.”
Indeed, 60 percent of the benefits went to 15 of the largest U.S. multinational companies — many of which laid off domestic workers, closed plants and shifted even more profits and resources abroad in hopes of cashing in on the next repatriation holiday.”
So let’s just eliminate the tax entirely. Nice.
More on the tax “reform” aspects of this plan:
“Coburn said the plan would reduce the deficit by $3.7 trillion over the next 10 years and increase tax revenues by $1 trillion by closing a variety of special tax breaks and havens. He also noted, however, that the Congressional Budget Office would score the plan as a $1.5 trillion tax cut because it would eliminate the Alternative Minimum Tax.”
I’m not sure how that works. How is $1 trillion in revenue increases scored as a $1.5 trillion tax cut? But I know for sure how this works, it doesn’t:
“It would generate a significant amount of revenue out of tax reform and reduction of tax rates, which authors believe would spur economic growth.”
And I believe in the Tooth Fairy and the Easter Bunny.
2009, CEO compensation up 18%, duration of unemployment, employee compensation to GDP ratio, employment to population ratio, given up looking, low income jobs, not in labor force, part-time, state and local cuts, unemployment
I know it’s not high on our elected officials’ priority list right now, if it’s even on the list at all, but it’s still around. A little thing called unemployment. Remember that? A few statistics the actors in the debt ceiling soap opera might want to consider during a break from their bickering:
The official unemployment rate, the one juggled to make things look better than they actually are, is currently 9.2%. But that’s just the tip of the iceberg. Not counted in that number are the 8.6 million who are working part-time when they’d rather have full-time work, and the 4 million who have given up looking. Add those to the mix and the number goes to 16.2%,
“As of May, 6.2 million had been out of work for more than six months and more than 4 million haven’t work in more than a year…Of those who had been unemployed for more than six months, slightly more than 10% found new jobs. Nearly 19% dropped out of the workforce.”
Almost twice as likely to drop out of the work force than find a job. How sad is that?
The average duration of unemployment is 40 weeks (click to enlarge):
The number of people not in the labor force is at an all-time high:
If that wasn’t bad enough, state and local governments may cut nearly 500,000 more jobs by the end of this year.
For those fortunate enough to find a job, that job is likely to pay less than what they had.
“Middle income jobs have been replaced by low-income jobs, which now make up 41% of total employment.”
Employee compensation relative to GDP is at its lowest point in over 50 years:
“U.S. workers averaged $46,742 in 2010, up 2.6% from 2009. A June GovernanceMetrics analysis found average compensation among S&P 500 CEOs rose to $12 million in 2010, up 18% from 2009 — and that’s not counting the potential multimillion-dollar value of stock or stock options, which are granted at set prices and provide holders profits as stock values rise.”
We now return you to the regularly scheduled debt ceiling theatrics, joined in progress.
Wasn’t it Moody’s who was handing out AAA ratings like candy on Halloween for Wall Street’s toxic MBS, CDO crap not too long ago?
“The “rising possibility” that the debt limit will not be raised by Aug. 2 has driven Moody’s Investors Service to put the nation’s triple-A credit rating on review for a downgrade.
In a statement, the credit-rating agency warned that the risk of a default on U.S. obligations, while low, had risen. A default would “fundamentally alter Moody’s assessment of the timeliness of future payments, and a AAA rating would likely no longer be appropriate,” Moody’s stated shortly after markets closed Wednesday.
The agency also warned that even if the debt limit was raised in time, the nation’s credit rating would retain a negative outlook if no “substantial and credible agreement” also was struck to reduce the deficit “beginning within the next few years.”
Forgive me if I question your credibility.