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

Dr. Richard Wolff on the Sequester

I watched  Dr. Wolff (Professor emeritus, UMass) on this past week  episode with Bill Moyers.   At the end of this show, Mr. Moyers invited the viewers to submit questions to Dr. Wolf who has agreed to return in a couple of weeks to answer them.

Here is he with an interview by Julianna Forlano of Absurdity Today report.  If you are not familiar with Julianna, she does a very funny short news broadcast on the issues of the moment.  I am a subscriber.  It’s is worth your time for sure.

This is the first part of 4.  It is about 12 minutes.  I want to say, at the end, Dr. Wolff is also pointing out that the cuts do not come all at once.
    

I figure this video is also posted in response to the video rjs linked to in comments to Bev’s post.

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Cut now has a plan, revenue increases have wishful thinking…Supercommittee

by Linda Beale

GOP two-step approach problematic

Discussion continued apace yesterday about the “supercommittee” and the idea of agreeing to agree someday on some revenue increases while going ahead with cuts.

This approach is a terrible one since it gives the obstructionist GOP members just another setting in which to refuse to go ahead with tax increases and to “negotiate” yet again over just what counts as a revenue increase.  Like the gimmicks that became so overused in the 2001, 2003, 2004 Bush tax bills, this “deal” is just another gimmick for the radical right to get its way–cuts to Social Security and Medicare, cuts to all programs intended to help the vulnerable, no cuts to military programs, and no tax increases–especially not for the rich.

Republicans on the right are already arguing for applying “dynamic analysis” which tends, in their versions, to be rosy scenarios of increased growth due to tax cuts:  this is a cop-out way to claim revenue increases that won’t materialize while making actual cuts to much needed social programs.  They are also arguing for dramatic changes in the way the earned benefits programs work–such as means-testing for recipients–as first steps in working towards outright elimination of those programs.  You get comments like those of Jim Jordan (Republican of Ohio) who wrote in an op-ed in USA Today that taxes “should not punish success to satisfy some false definition of balance.”  See Rubin,  Debt Accord May be Two-Step Process, Hensarling Says, Bloomberg (Nov. 14, 2011).

Meanwhile, Jim Jordan (Republican of Ohio) said in a USA Today piece that taxes should not be raised because they “should not punish success to satisfy some false definition of balance.”  Id.

This is a wrongheaded view of taxes.  The radical right uses language about taxes “punishing success” because they see defending the rich from  taxation as their mission.  The rich are defined as “successful”–even if the wealth is merely built on top of inherited wealth and position, and even if the rich did nothing at all to earn the wealth.  Taxes do not punish success.  Taxes are the way that we cooperate together to fund important government programs that serve all of us.  Even when they act as transfer programs that transfer resources to the poor and elderly, they are serving all of us by making our society work better.

originally published at ataxingmatter

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The right’s smoke and mirrors scam about Social Security–it ain’t broke (unless China is too)

by Linda Beale

The right’s smoke and mirrors scam about Social Security–it ain’t broke (unless China is too)

We’ve noted in these postings the growing inequality between rich and the rest of us in America, and that is the appropriate backdrop against which to investigate further the right’s smoke-and-mirrors scams about tax policy and earned benefits.  Let me remind you with Kevin Drum’s Mother Jones article on The Price of Plutocracy: “For all practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich.” (That sentence is illustrated with a great chart, with data drawn from Joseph Hacker of Yale and Paul Pierson of Berkeley, the authors of Winner-Take-All Politics, a book I highly recommend.)

The national debate about deficits has been part of a relentless push by the right to reduce as much as possible the New Deal earned benefit programs of Social Security and Medicare. The right twists the facts to suit the arguments it wants to make.  Krugman hones in on this issue, noting Dean Baker’s similar anger at the Washington Post’s inconsistency in considering Social Security in a recent article by Post writer Lori Montgomery, who seems to be miming for the hard right, anti-New Deal crowd in Washington .  See Krugman, Social Security, Bait and Switch, a Continuing Series, New York Times (Oct. 30, 2011).

Social Security is a program that is part of the federal budget, but is by law supported by a dedicated source of revenue. This means that there are two ways to look at the program’s finances: in legal terms, or as part of the broader budget picture.

In legal terms, the program is funded not just by today’s payroll taxes, but by accumulated past surpluses — the trust fund. If there’s a year when payroll receipts fall short of benefits, but there are still trillions of dollars in the trust fund, what happens is, precisely, nothing — the program has the funds it needs to operate, without need for any Congressional action.

Alternatively, you can think about Social Security as just part of the federal budget. But in that case, it’s just part of the federal budget; it doesn’t have either surpluses or deficits, no more than the defense budget.

Both views are valid, depending on what questions you’re trying to answer.

What you can’t do is insist that the trust fund is meaningless, because SS is just part of the budget, then claim that some crisis arises when receipts fall short of payments, because SS is a standalone program.  Id. (emphasis added).

Further, the right refers to these programs as “entitlements”, a term that is meant to dredge up resentments against those who have some rights to benefits from these programs.  The right uses “personal responsibility” and “entitlements” as though they refer to two non-intersecting worlds, whereas in fact the opposite is true.

Workers pay into Social Security to support current workers who paid into it in the past.  The trust fund was established, and amended with a good deal of actuarial research under Reagan in 1983, with the knowledge that the baby boom generation would be passing through and create a bulge of benefit needs and that US birth rates tended to be smaller now than they were a century ago.  In other words.  what is happening now in terms of the baby boomer population reaching retirement age and the decline in US birthrates was exactly the information on which the Social Security changes made in the 1980s were predicated.  Either we believe that these kinds of predictions are reasonable (in which case it is utterly silly to raise nightmare scenarioes about bankruptcy, because there is nothing of the sort) or we believe that it is impossible to predict for sure what will happen (in which case it is utterly silly to raise nightmare scenarios about Social Security bankruptcy, because GDP could grow just a little faster than predicted, easing all future problems, or boomer needs could grow just a little less than predicted, easing all future problems).  Either way, the crisis-bell ringing being done by the right as a way to attribute deficits to Social Security is a smoke and mirrors scam.

It is even more so since the Social Security trust fund is invested in US Treasuries and those Treasuries plus new tax funds coming in pay all the benefit costs.  Is the US going to default on Treasuries.  Well, if so, we have a bigger problem with Japan and China not liking that–not just the Social Security trust fund.  The hard right seems to think it is okay to play political games with US debt, but American citizens should be aware that this is what they are doing.

For a good overall exposition of these issues, see the article in  Salon by Gene Lyons, How the Rich Created the Social Security ‘Crisis’ (Nov. 3, 2011) (noting the “decades-long propaganda war against America’s most efficient, successful and popular social insurance program”).

[T]his is the beneficiaries’ money, invested by the Social Security trustees in U.S. Treasury bonds drawn upon “the full faith and credit of the United States.” Far from being “meaningless IOUs” as right-wing cant has it, they represent the same legally binding promise between the U.S. government and its people that it makes with Wall Street banks and the Chinese government, which also hold Treasury Bonds.

A promise not very different, the Daily Howler’s Bob Somerby points out, from the one implicit in your bank statement or 401K (if you’re lucky enough to have one). Did you think the money was buried in earthen jars filled with gold bullion and precious stones?  Id. (emphasis added).

One might add that many of our multinational corporations that are currently lobbying heavily for yet another tax break in the form of a “repatriation holiday” for their offshored, untaxed profits actually have the substantial portion of those profits invested in those same U.S. Treasury notes.  So, as ataxingmatter has noted before, much of that money is already in the US and repatriation will generally not be of much benefit merely from bringing cash back to go through the US economy.  As the article notes, allowing repatriation would lead to corporations dumping about a trillion of US Treasuries on the market, and likely cause a rise in the interest rate the US government must pay to borrow.  Not a win-win situation.  IN fact, clearly a loss for the US government and the majority of US taxpayers, both in Treasury interest rates and in lost corporate tax revenues.

 

originally published at ataxingmatter

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The Republicans have a savings plan. Gut the Nation’s Personality

by: Daniel Becker

Well, the repubs finally have put up.  They have a $2.5 trillion, ten year savings plan.  No, don’t worry.  You will be kept safe as all national security is untouched.  However, you can expect to wake up the next day from passage in a nation with an completely different personality.  As in 180 degree different.

Here is the overview provided by the Republican Study Committee:

FY 2011 CR Amendment: Replace the spending levels in the FY 2011 continuing resolution (NYSE: CR – News) with non-defense, non-homeland security, non-veterans spending at FY 2008 levels. The legislation will further prohibit any FY 2011 funding from being used to carry out any provision of the Democrat government takeover of health care, or to defend the health care law against any lawsuit challenging any provision of the act. $80 billion savings.

Discretionary Spending Limit, FY 2012-2021: Eliminate automatic increases for inflation from CBO baseline projections for future discretionary appropriations. Further, impose discretionary spending limits through 2021 at 2006 levels on the non-defense portion of the discretionary budget. $2.29 trillion savings over ten years.

Federal Workforce Reforms: Eliminate automatic pay increases for civilian federal workers for five years. Additionally, cut the civilian workforce by a total of 15 percent through attrition. Allow the hiring of only one new worker for every two workers who leave federal employment until the reduction target has been met. (Savings included in above discretionary savings figure).

“Stimulus” Repeal: Eliminate all remaining “stimulus” funding. $45 billion total savings.

Eliminate federal control of Fannie Mae and Freddie Mac. $30 billion total savings.

Repeal the Medicaid FMAP increase in the “State Bailout” (Senate amendments to S. 1586). $16.1 billion total savings.

The 100 item list is below

Some of the items, cutting them, you just have to ask: How are they going to get the job done?  Like cutting by 20% the federal vehicle budget or cut in half the congressional printing and binding budget?  What, we’re going to suddenly seen legislation that is only 1/2 the size of pages?  I’m sorry folks, but this list is nothing but an ideological hit list.  There is not thought at all regarding intergration as it relates to investing in this country or even governing.  Can you say: New York snow storm clearing disaster?

Here is the full list of cuts:

Additional Program Eliminations/Spending Reforms

Corporation for Public Broadcasting Subsidy. $445 million annual savings.
Save America’s Treasures Program. $25 million annual savings.
International Fund for Ireland. $17 million annual savings.
Legal Services Corporation. $420 million annual savings.
National Endowment for the Arts. $167.5 million annual savings.
National Endowment for the Humanities. $167.5 million annual savings.
Hope VI Program. $250 million annual savings.
Amtrak Subsidies. $1.565 billion annual savings.
Eliminate duplicative education programs. H.R. 2274 (in last Congress), authored by Rep. McKeon, eliminates 68 at a savings of $1.3 billion annually.
U.S. Trade Development Agency. $55 million annual savings.
Woodrow Wilson Center Subsidy. $20 million annual savings.
Cut in half funding for congressional printing and binding. $47 million annual savings.
John C. Stennis Center Subsidy. $430,000 annual savings.
Community Development Fund. $4.5 billion annual savings.
Heritage Area Grants and Statutory Aid. $24 million annual savings.
Cut Federal Travel Budget in Half. $7.5 billion annual savings.
Trim Federal Vehicle Budget by 20%. $600 million annual savings.
Essential Air Service. $150 million annual savings.
Technology Innovation Program. $70 million annual savings.
Manufacturing Extension Partnership (MEP) Program. $125 million annual savings.
Department of Energy Grants to States for Weatherization. $530 million annual savings.
Beach Replenishment. $95 million annual savings.
New Starts Transit. $2 billion annual savings.
Exchange Programs for Alaska, Natives Native Hawaiians, and Their Historical Trading Partners in Massachusetts. $9 million annual savings.
Intercity and High Speed Rail Grants. $2.5 billion annual savings.
Title X Family Planning. $318 million annual savings.
Appalachian Regional Commission. $76 million annual savings.
Economic Development Administration. $293 million annual savings.
Programs under the National and Community Services Act. $1.15 billion annual savings.
Applied Research at Department of Energy. $1.27 billion annual savings.
FreedomCAR and Fuel Partnership. $200 million annual savings.
Energy Star Program. $52 million annual savings.
Economic Assistance to Egypt. $250 million annually.
U.S. Agency for International Development. $1.39 billion annual savings.
General Assistance to District of Columbia. $210 million annual savings.
Subsidy for Washington Metropolitan Area Transit Authority. $150 million annual savings.
Presidential Campaign Fund. $775 million savings over ten years.
No funding for federal office space acquisition. $864 million annual savings.
End prohibitions on competitive sourcing of government services.
Repeal the Davis-Bacon Act. More than $1 billion annually.
IRS Direct Deposit: Require the IRS to deposit fees for some services it offers (such as processing payment plans for taxpayers) to the Treasury, instead of allowing it to remain as part of its budget. $1.8 billion savings over ten years.
Require collection of unpaid taxes by federal employees. $1 billion total savings.
Prohibit taxpayer funded union activities by federal employees. $1.2 billion savings over ten years.
Sell excess federal properties the government does not make use of. $15 billion total savings.
Eliminate death gratuity for Members of Congress.
Eliminate Mohair Subsidies. $1 million annual savings.
Eliminate taxpayer subsidies to the United Nations Intergovernmental Panel on Climate Change. $12.5 million annual savings.
Eliminate Market Access Program. $200 million annual savings.
USDA Sugar Program. $14 million annual savings.
Subsidy to Organisation for Economic Co-operation and Development (OECD). $93 million annual savings.
Eliminate the National Organic Certification Cost-Share Program. $56.2 million annual savings.
Eliminate fund for Obamacare administrative costs. $900 million savings.
Ready to Learn TV Program. $27 million savings.
HUD Ph.D. Program.
Deficit Reduction Check-Off Act.

TOTAL SAVINGS: $2.5 Trillion over Ten Years

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What caused the Budget Deficit (Before the Financial Crisis)?

by Linda Beale
crossposted with Ataxingmatter

What caused the Budget Deficit (Before the Financial Crisis)?

Kash on Angry Bear put together a really good graph in 2006 comparing where we might have been if Clinton policies (bad as they were in many cases) had stayed in place compared to where we were and expected to be with the Bush tax cut and spend policies. Responsibility for the Federal Budget Deficit, Angry Bear 2006. Deficits under Bush were projected for more than $500 billion annually. Of course, that was before the greedy, reckless banks threw the financial system into a tizzy with too much credit invested in too many houses by people with too little income to pay for them. Add the costs of backstopping the Big Banks, and we end up with the trillion dollar hole we are currently in.

Answer would seem to be–1) make the banks pay with a tax based on leverage and 2) end the tax cuts or at least a goodly share of them and 3) reinstate an estate tax that has some bite, so that those at the top who can afford to pay do pay.

Seems like there are at least a few in Congress realizing that item 3 makes some sense. Sanders, Harkin and Whitehouse have proposed that the estate tax should have a $3.5 million exemption and a graduated rate, with those at the top paying a rate of 65% (a base rate of 55% and a surtax of 10% on the amount above $500 million or above $1 billion for a couple). The surtax would mean that the estate tax would hit the 403 billionaires who have a net worth of $1.3 trillion harder than it hits the smaller estates. See Janet Novack, Three Senators Call for Billionaires Estate Tax, Forbes.com, June 24, 2010. Now that makes some sense.

Senators Kyl and Lincoln are pushing the so-called “compromise” that would eviscerate the estate tax by creating a $5 million exemption and lowering the rate to 35%. That is a step in the wrong direction. Especially when Congress is making such big noises about the deficit that it is unwilling to pass stimulus funding for unemployment benefits to support Americans hard hit by the Great Recession.

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Debt, Deficits, and Defense

Debt, Deficits, and Defense…The Sustainable Defense Task Force set in motion by Rep. Barney Frank has comprehensive suggestions. It is more specific than other suggestions I have read.

David Ignatius of the Washington Post sees deficits concern as a possible unifying process among right/left thinking. I don’t see it.

Bruce Bartlett comments on deficits and defense spending here and here.

Concerns about budget deficits and rising debt levels are leading to fractures in the heretofore unified conservative support for ever-higher defense spending. At least a few Republicans are now openly suggesting significant cuts in the defense budget, raising concerns among conservatives primarily concerned about national security. I believe that ultimately national security conservatives will be forced to choose between cuts in the defense budget and tax increases to reduce deficits.

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Final destination “rising public deficits” with a stopover in “falling public deficits”

Brad DeLong and Mark Thoma posit that a falling US public deficit is bad news – they are right!

Deficit hysteria is now mainstream thinking, while the more appropriate hysteria should be “jobs hysteria”. How in the world is nominal income growth expected to finance a drop in consumer debt leverage if the government supports a smaller deficit? TARP costs less and tax receipt growth is beating expectations. But that’s all it is, beating expectations.

This only proves the endogeneity of the deficit: the sole reason that the private sector is producing stronger-than-expected growth in tax receipts is BECAUSE the government ran large deficits.

Put it this way: as long as the US is running current account deficits, then a shrinking government deficit will, by definition, squeeze liquidity from the private sector. During a “balance sheet recession”, the government should be growing its balance sheet not shrinking it.

An excerpt from the Japan’s Quarterly Economic Outlook (Summary*) (Summer 1997):

“Thus, recovery in personal consumption is expected to continue after the reaction to the rise in demand ahead of the consumption tax hike subsides in the near future. However, the pace of recovery is likely to be moderate considering the increases in the tax burden, such as the rise in the consumption tax.”

RW: Boy were they wrong – moderate?

GDP fell 2.0% in 1998 (from +1.6% growth in 1997) and consumption growth turned negative over the year, -1.1% (from +0.8% in 1997). Please see slide 9 from one of Richard Koo’s presentation in 2008; he highlights the policy-mistake-induced “unnecessary government deficits”. The point is: the government deficit is not some exogenous “thing” that the government controls; it’s very much endogenous and a function of private demand.

We’re on this road now: squeezing liquidity out of the private sector; supporting minimal wage growth; and imminent deleveraging is on the horizon(more likely the default route). And Congress is happy that they are squeezing private sector liquidity? I guess so, as reported by the Wall Street Journal yesterday:

“Like a number of Democrats, Mr. Blumenauer said he’s “intrigued” with the consumption-tax idea. Tax experts say consumption taxes are regressive, because lower-income people tend to spend more of their income. But a consumption tax could be designed with offsetting breaks for lower-income Americans, to shield them from its impacts.”

Rebecca Wilder

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War taxes?

by Linda Beale
(cross posted at ataxingmatter)

One can question the timing of implementation, but can one argue against the financing? …Rdan

War taxes?

Since Bush invaded Afghanistan in 2001 (and then, Iraq), we have been paying for war as an afterthought. In the Bush era attempt to treat war as something that happened “over there” and didn’t disrupt the credit-fed consumer binging happening “over here,” there were no pics, no war bonds, and certainly no war taxes to pay for it. Instead, we actually cut taxes year after year after year, reducing government revenues at a time when we were passing supplemental appropriations year after year after year to pay for the war. With reduced taxes and increased military spending, that meant we borrowed to pay for the war of choice that Bush led us into.

In most wars, this country’s citizens and leaders have been somewhat wiser on the fiscal score. In the past, we generally raised taxes to pay for the huge expenditures that war necessitates–for caring for soldiers overseas and after they come home, for tanks and trucks and planes and drones and all the guns and missiles, not to mention warships and fuel, the construction of bases and building of roads and provision of power and all the other expenses of going to war (including, increasingly under Bush, the privatization of the military and the much higher costs of contracted mercenaries compared to Army soldiers and of Halliburton cafeterias that, in quite a few cases, didn’t serve the food they charged the US for).

Now that Bush and much of the Bush Congress are gone from office, it’s time to look at the costs of war when we think about what our tax burden should be. As one writer notes:

[O]ne thing literally everyone agrees Vietnam showed, from flaiming liberals to fire-breathing neocons, is that it’s a very bad idea to get involved in a long, grueling, expensive war without explaining to the American people how much they will have to sacrifice, and securing their support.” The Economist, David Obey’s war tax (Nov. 27, 2009).

David Obey, chair of the House Appropriations Committee, introduced on Nov. 19–with 10 Dems as co-sponsors–the “Share the Sacrifice Act of 2010” to do just. See Pincus, If It is to be fought, it ought to be paid for, Wash. Post, Dec. 1, 2009. How? by adding a graduated surtax, in 2011, to the income tax for those earning more than $30,000 a year. The rate would be 1% on incomes up to $150,000 and more above that–generally, a few hundred dollars, with the rate on higher incomes set to generate enough revenues to pay for the prior year’s cost of being at war, with returning GIs and families of those killed in combat exempt. And the surtax could be delayed (from 2011 to 2012) if the economy is weak.

The article notes an irony that has been mentioned also in the context of the health care reform debate about paying for government action. IN health care, many of those (especially republicans) who argue that “oh no, we can’t do this to fix the health care system, it costs too much and will create deficits” are the same ones who supported the series of Bush tax cuts that led to huge deficits, and their argument was “deficits don’t matter.” In the war tax debate, many of those most eager for further commitment to Afghanistan are unwilling to support taxes to pay for the conflict rather than living on borrowed money. (Or, they’d probably be willing to cut various “entitlements” for the vulnerable amongst us, even while extending even more “entitlements” to corporate taxpayers those who own significant financial assets in the way of further tax cuts.) Note the article quotes Lindsey Graham as saying spending has been out of control “since the administration came into power.” Funny–the spending that has happened was necessitated by the economic mess left by the Bush Administration, that fought wars and INCREASED SPENDING while cutting taxes. Was it spending out of control? or was it spending while going on a multi-year tax cut binge that was out of control? I’d say the latter.

If you want the right’s take on this, read Amy Ridenour–a self-admitted Rush Limbaugh enthusiast. She thinks Rush’s “logic” is fine. By the way, his argument translates to: we’re in debt [implying it’s all Obama’s fault and not because of the Bush screwups of the economy and the huge amount of borrowing already committed under Bush] so this argument about paying for the war is silly when we already have so much debt; and/or yeah, well, just cut the spending on all those silly programs that progressives have put in place since Roosevelt (Rush calls it the “Fair Deal, New Deal, Rotten Deal, Raw Deal and Great Society”)–ie, the programs (subtracting out Rush’s trash talk) that we as a people have decided over many decades to use to support the vulnerable and improve opportunities for decent living standards for all. And like many right-wingers, Ms. Ridenour claims that her goal is supporting “principles of a free market, individual liberty and personal responsibility, combined with a commitment to a strong national defense.” Amy, how do not paying for the wars we CHOOSE to wage add up to either “personal responsibility” or “commitment to a strong national defense” or even “free market”–since there is no such thing as a “free” market without the stability, institutional structure, and legal forms provided by a stable and functioning government?

At any rate, mainstream commentators seem to think the bill wouldn’t pass, which means that they seem to think that it won’t get substantial Republican support, which the Rush-Ridenour excerpt surely suggests is correct. See David Obey’s war tax, Economist (Nov. 27, 2009). Those very people who are gung ho for war (“commitment to strong national defense”) and gung ho for not having deficits aren’t likely, that is, to vote to pay for the war in which they are so gung ho for others to fight. As the Economist article hints, how better to support the troops than paying for their fight?

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