Relevant and even prescient commentary on news, politics and the economy.

Red-Ink Republicans, Revisited and Reviled

The post-New Deal Republican party has delivered endless strings of deficits and debt. That is their historic legacy to America, the bare fact on the ground that unfortunately requires endless repetition to impart the reality, and counter the tea-party fantasy of fiscally irresponsible Democrats.
Also required is a catchy moniker that encapsulates that reality:

Red-Ink Republicans

Use it. Everywhere. Make it a meme. Republicans are irresponsible profligates. We can’t afford them anymore. We’ve run their experiment. It failed. Disastrously.

With the ever-vigilant likes of The Heritage Foundation continuing to promulgate debt/deficit hysteria using what they openly call “A toy economic model,” ”a back-of-the-envelope calculation,” stating outright that “the numbers and events used in this model were made up” (they call themselves an academic think tank?), it seemed like time to revisit the big picture of American government debt and deficit since the last great depression.

Here’s the make-believe story Heritage wants to tell:

Here are the actual facts on the ground over eight decades:

In the 35 years following World War II, (some) Republicans and (mostly) Democrats steadily and responsibly reduced government debt from 130% to 45% of GDP. (And worth noticing: that 130% figure preceded two decades of the fastest prosperity growth in American history.)
Then came 1980. The Reagan/Republican revolution. Aside from a brief respite under Clinton, government debt has been heading rapidly north ever since.

Debt was reduced under every president since World War II, with three exceptions: Reagan, Bush, and Bush. (And Obama, who had the numerator, GDP, pulled out from under him before he even set foot in the oval office.)

Eighty years of history tells us one thing for certain: if you want to get debt under control, don’t rely on the Red-Ink Republicans.

Cross-posted at Asymptosis.

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Andrew Sullivan reviews "Red Ink"

Andrew Sullivan reviews the book Red Ink.

Here are some shocking facts that I learned from “Red Ink: Inside the High-Stakes Politics of the Federal Budget. Where the Trillions Come From, Where They Go, and Why Inaction Imperils Our Future.”

  • An amazing 64 percent of the 4.4 million employees on the federal payroll are either uniformed military personnel or work for Defense, Veterans Affairs and Homeland Security. The U.S. defense budget is “greater than the combined defense budgets of the next 17 largest spenders.”
  • In 1981 Medicare and Medicaid accounted for 9.5 percent of all federal outlays. Twenty years later, that number had jumped to 25 percent. By 2021, if current trends continue, it will probably hit 31 percent.
  • “Today, Americans pay less of their income in taxes than citizens of nearly every other developed country.”
  • “In the early 1950s more than 30 percent of federal revenues came from the corporate income tax — in 2011, 7.9 percent.”

“Red Ink” is an extraordinarily useful book. It is exactly what author David Wessel, economics editor for the Wall Street Journal, claims it to be: “a collection of uncomfortable, indisputable facts showing the unsustainable fiscal course the U.S. government is on.”

Perhaps asking clearer questions might help? How does a person ask clearer questions?

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Robert Reich and Sandy Weill

From Robert Reich on Sandy Weill:

If any single person is responsible for Wall Street banks becoming too big to fail it’s Sandy Weill. In 1998 he created the financial powerhouse Citigroup by combining Traveler’s Insurance and Citibank. To cash in on the combination, Weill then successfully lobbied the Clinton administration to repeal the Glass-Steagall Act – the Depression-era law that separated commercial from investment banking. And he hired my former colleague Bob Rubin, then Clinton’s Secretary of the Treasury, to oversee his new empire.

Weill created the business model that Wall Street uses to this day — unleashing traders to make big, risky bets with other peoples’ money that deliver gigantic bonuses when they turn out well and cost taxpayers dearly when they don’t. And Weill made a fortune – as did all the other executives and traders. JPMorgan and Bank of America soon followed Weill’s example with their own mega-deals, and their bonus pools exploded as well.

Citigroup was bailed out in 2008, as was much of the rest of the Street, but that didn’t alter the business model in any fundamental way. The Street neutered the Dodd-Frank act that was supposed to stop the gambling. JPMorgan, headed by one of Weill’s protégés, Jamie Dimon, just lost $5.8 billion on some risky bets. Dimon continues to claim that giant banks like his can be managed so as to avoid any risk to taxpayers.

Sandy Weill has finally seen the light. It’s a bit late in the day, but, hey, he’s already cashed in. You and I and millions of others in the United States and elsewhere around the world are still paying the price.

What’s the betting that one of the presidential candidates will take up Weill’s proposal?

(I also wonder who will be shorting said banks if Weill’s words do not just disappear into the void)

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Posts somewhat thin

Posts have been a bit thin lately and will be from me a few days more.  I have run into being busy in a major way and am too tired to be conscientious, even though there is a lot going on.  I hope to be back to a more regular schedule next week…even vacation posting is easier than this.  Thanks for your patience.

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Screw the Clinton tax rates. Lets party like it’s 1936!

Update: *Additional numbers added

Digby wrote a few days ago about the“grown-up” people coming to town to save America from the deficit. She listed a few of those people and their annual income.

Also, a few days ago the Senate had a vote on the tax cuts. Letting the Bush cuts go (I’m all for it and we can stop the payroll tax cut too as it is all stupid policy when the problem is declining wages/income going to labor) will return us to the Clinton years rates. People have noted just how little such a rise means to those at the top.
Well, in keeping with my define rich series and my series looking at the purpose of taxation, I thought wouldn’t it be interesting to see just what these 1%’ers might be paying if we went back to the beginning of the last great period of mass prosperity: 1936.
Yes indeedy, I say go for the brass ring. Let’s show our maturity and actually implement the lesson learned from our history, that period from around 1906 to 1932 and then 1936 to 1979.
While we’re at it, let us stop pretending that global trade is something new with an unknowable to man exotic force that we just have to accept as part of the expression of our DNA. There is RNA also (look it up).

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New Estimate of Offshore Wealth Shows Big Increase Since 2004

by Kenneth Thomas

New Estimate of Offshore Wealth Shows Big Increase Since 2004

A new report by the Tax Justice Network, “The Price of Offshore Revisited,” shows that the amount of wealth held in tax havens has increased enormously since 2004, and confirms what I previously wrote about the huge cost to tax coffers of money hidden offshore.

The report was authored by the former Chief Economist of McKinsey and Company, James Henry. Its findings advance our understanding of tax havens and demonstrate that typical estimates of wealth inequality are significantly understated.

The major finding is that offshore financial holdings now come to some $21-32 trillion, compared with the estimate in TJN’s 2005 report of $9.5 trillion (this excludes non-financial wealth, such as real estate). James makes a very conservative estimate of how much governments lose in taxes of $189 billion a year, based on earning just 3% on this $21 trillion, taxed at 30%. How conservative? This is actually less than the $255 billion annually estimated in the first TJN report, but that is based on earning 7.5% annually on offshore wealth. We can get an idea of how conservative this estimate of lost taxes by seeing how sensitive it is to changing the rate of return and wealth estimate used:

Rate of Return Wealth Estimate Lost Taxes
3% $21 Trillion $189 billion (Henry’s actual estimate)
4% $21 Trillion $252 billion
5% $21 Trillion $315 billion
6% $21 Trillion $378 billion
3% $32 Trillion $288 billion
4% $32 Trillion $384 billion
5% $32 Trillion $480 billion
6% $32 Trillion $576 billion

Note that none of these hypothetical estimates use an earnings rate for offshore wealth as high as the original TJN report’s 7.5%.

Since these assets are hidden, we of course have no way of knowing how much the money is earning. I think it is fair to say that Henry’s estimate is more likely low than high.

On the inequality of financial wealth, Henry says:

By our estimates, at least a third of all private financial wealth, and nearly half of all offshore wealth, is now owned by world’s richest 91,000 people – just 0.001% of the world’s population. The next 51 percent of all wealth is owned by the next 8.4 million, another trivial 0.14% of the world’s population.

In the companion report on inequality by Nicholas Shaxson et al., the authors asked a number of well-known experts on inequality if they thought these data showed inequality has been underestimated. The answer from Thomas Piketty (of Piketty and Saez, the most widely quoted set of papers on inequality that I know of) was blunt: “Yes, definitely.”

Despite Felix Salmon’s characterization of the report as “long on hyperbole,” I find no reason to disagree with its conclusion that tax havens are a “black hole,” one which costs the middle class (through uncollected taxes on the super-rich) untold billions of dollars and increases inequality around the world.

cross posted with Middle Class Political Economist

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Energy Bulletin…impact of oil prices on advanced countries

Spencer England writes:

This article is worth reading – it is at two sources:  Energy Bulletin and Financial Times…is peak oil dead?

The marginal price of new oil is now in the $70 to $90 — where WTI has bottomed at its last three corrections. If we are at a bottom for the real price of oil and the real price will have to rise as we go forward to assure adequate supply for the third world countries like China and India. The important question may not be what will be the supply of oil, rather the important question is what will be the impact of rising real oil prices on growth in the advanced countries of Europe, Japan and North America. Will this be the driving force behind the Great Stagnation?

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Euro Area Crisis Hits Confidence in the Core

by Rebecca Wilder

Euro Area Crisis Hits Confidence in the Core

France’s INSEE business confidence, Germany’s Ifo business climate, and theNational Bank of Belgium’s business survey demonstrate ongoing infection as the Euro area debt crisis hits business expectations in the core. Through July, business confidence in Germany and France continued to slide while that in Belgium rebounded, albeit from a low base.

Of note, the service industries in both Germany and Belgium may offer a “ray of hope” (the Ifo Institute puts it.), as these large economic sectors are perhaps stabilizing in the surveys.

Furthermore, consumer confidence in the Netherlands and Italy remain depressed. Notably, the July prints increased 8 and 1.1 points, respectively, over the month – is this the start of a trend, or rather a dead-cat bounce? If I were a betting girl, I’d go with the latter, given the weakness in labor markets and election cycles coming up (September in the Netherlands and TBA in Italy).

In Germany, the Ifo survey has deteriorated swiftly in recent months. This now brings this survey more in line with other business surveys, such as the German PMI, which had shown a more pronounced economic decline.

The Ifo Business Climate survey contains a wealth of information, but is generally dissected into assessment of the current business situation and expectations of the future business environment. The current environment survey, 111.6 in July, fell over the month but remains above the longer term average, 102. In contrast, expectations as regards the future business environment are falling swiftly. The Euro area crisis is impacting the business decision process.

Finally, as demonstrated in the Ifo Business Climate survey that highlighted its ‘significant deterioration’, the manufacturing base is leading the way down. In France and Germany, Markit Manufacturing PMIs hit the low 40s, 43.6 and 43.3, respectively in July. This implies a quickening of the pace of contraction across the French and German manufacturing bases with not much hope of near-term relief, neither from domestic nor foreign demand. The Dutch Statistical Agency, CBS, today reported further decline of Dutch manufacturing opinions in July, as manufacturers anticipate layoffs.

My only question becomes how much weakness is needed in the core (Germany) to get a(nother) significant response from the ECB?

Rebecca Wilder

cross posted with The Wilder View…Economonitors

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Taxes and tax effects from the tax cut extensions

Update: (hat tip Robert Waldmann) voting record on middle class tax cut bill

Excerpted from Linda Beale’s piece (7/25) on the numbers for the action taken by the Senate:

…After threatening to filibuster the Obama tax cut proposal, Mitch CcConnell pulled back.  See Lori Montgomery, McConnell pulls back from filibuster on Senate tax-cut vote, Washington Post, July 25, 2012. The Republicans want to pass a deficit-expanding tax cut for the wealthiest Americans who have garnered the most from this lopsided economy in which companies lay off workers to diminish service but achieve ever greater (short-term?) profit margins for those at the top.

(Aside:  That’s not the only way that megacorporations are trying to syphon off all the productivity gains for the few at the top.  See the story about a bank analyst’s conclusion that Wells Fargo was making more money for shareholders by providing lousier service to its customers.  Nathaniel Popper, Bank Analyst Sees No Payoff in Customer Friendly Focus, New York Times (July 24, 2012).)
If the Bush tax cuts were to be extended without modification (as the GOP proposal would have it), the average reduction in taxes for Americans in the three lower quintiles (who make less than 75 thousand a year) would be considerably less than $1000.  See Citizens for Tax Justice, U.S. Taxpayers and the Bush Tax Cuts: Obama’s Approach vs. Congressional GOP’s Approach (July  2012).  So the typical American who earns between 40 and 50 thousand dollars a year will get less than a thousand dollars from an extension of the Bush tax cuts.

Compare the result for the wealthiest Americans under the GOP proposal. 

Another year of the Bush tax cuts for the wealthiest taxpayers in the richest 1% would give them an average tax cut of about $71,000.  See Citizens for Tax Justice, U.S. Taxpayers and the Bush Tax Cuts: Obama’s Approach vs. Congressional GOP’s Approach (July  2012).   That means that the Republican plan gives a 7000% larger tax cut to the wealthy than to those ordinary folk making 40-50 thousand.

Note that the wealthy still get a tax cut of about $20,000, even under Obama’s plan to cut the additional breaks at $250,000.  That’s because of the way the graduated income tax brackets work.  Everybody–rich or poor–is taxed at the 10% rate on the first $17,400 of income in 2012.  Everybody, rich or poor, is taxed at the 15% rate on any income they earn above $17,400 up to $70,700.   The rate increases to 25% for income in excess of $70,700 up to $142,700 (already in the upper middle class quintile) and to 28% for income above that up to $217,m450, with the rate going to 33% on the excess up to 388,350 (obviously now we’re talking about only the marginal income earned by the wealthy) and then 35% on the excess above that, to whatever millions or billions it may reach.  Accordingly, the very wealthiest millionaries would get the same tax break ordinary folk do on the income they receive in the lower rate brackets up to $250,000.  And as a result, only 1.9%–the very few richest Americans in the ultra-elite–would have less of a tax cut than otherwise under the Obama proposal.

from cross post with ataxingmatter

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