Skip to main content

Burning the Midnight Oil for Economic Populism

Crossposted from Voices on the Square

Among the many things entirely lost in the mainstream media coverage of the "fiscal cliff" are the nature and magnitude of the country's fiscal challenge. The magnitude is why it is not a crisis, and the nature is why we would be better off "just doing nothing" ~ letting the whole Bush tax cuts expire and scrapping the zombie spending cuts ~ is better than the vast majority of "fixes" floating around in the mainstream media.

What is the Nature and Magnitude of the Country's Fiscal Challenge

What matters in debt is the size of the debt as a percentage of the Federal budget. Luckily the Center on Budget and Policy Priorities has run the numbers: under the status quo, the share is projected to rise from roughly 72.5 to roughly 82.5% over the coming decade. That is a challenge, but that magnitude of increase in the debt share is no crisis.

And the share will be dropping over the five years ahead, so the challenge is not an urgent challenge. Its something that allows us to pursue policies that require over a full Presidential term to yield fruit. Not only is the challenge not a crisis, neither is it urgent.

How Much Will Be Left After Capping The Bush Tax Cuts

The proposed Bush Tax Cut cap will yield about $1T in deficit reduction, so that's $1T to go, right?

Wrong: cutting $2T can be accomplished by a mix of $1.72T of tax revenues and spending cuts, because cutting the debt ratio will reduce the interest burden, and save $260b in interest payments.


Who has already contributed?

We have already had several years of austerity budgeting, with discretionary, non-defense spending cut by $1.5T.

A truly "balanced approach" of 1:1, that cut 1/3 of that from non-defense spending and 2/3 from defense spending, and matched that dollar for dollar with tax increases, would see $1.365b added in revenue, and $1.365b cut from spending, $0.455b from non-defense and the $0.91T from defense.

Achieving balance would involve the Bush Tax Cut cap, $365b in other tax revenue over the coming ten years ~ converting the biggest income tax deductions into tax credits at the tax rate of middle income taxpayers would likely accomplish that ~ $910b in defense cuts ...

... and $1.05T in increases in non-defense discretionary spending.

You will, of course, hear none of this in the corporate mess media.


But what if we can't do that?

If we can't get anything done except canceling the stupid thing Congress promised to do as a threat in case they didn't get anything done ... and the entire Bush Tax cuts expire ...

... obviously the Republicans will cave on letting the capped Bush Tax cuts get extended rather than getting nothing passed.

If they don't, and we just go back to the Clinton tax rates, that would mean there is even less that would need to be done to get to fiscal balance, so even less need to cut spending.

If they do cave, debt will still be on a track to decline as a share of GDP over the next four or five years, and we might want to do something about spending cuts in 2017.

But its no crisis either way.


Message from Marley: Every little thing, gonna be alright

Anyway, if people try to tell you that it will be a massive economic disaster if we do not urgently "do something, anything about the debt!!!" ...

Originally posted to BruceMcF on Sat Nov 17, 2012 at 10:54 AM PST.

Also republished by Community Spotlight.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  Obama promised not to raise middle class tax (0+ / 0-)

    Letting all the Bush cuts expire will violate that pledge. (Even if it is Congress that lets/makes it happen.)

  •  Hate to burst your bubble. (7+ / 0-)

    But, the whole fiscal crisis is a scam.  It is something the Congress has manufactured to let them control who gets money and who doesn't (the people who support incumbents and the people who promote government by the people).
    Universal suffrage, together with government in the sunshine and the access to information, has made government BY the people are real possibility. But, when there is government by the people, then the representatives, the agents of government, end up being demoted from law-giver and ruler to public servant. Naturally, there's resistance to that happening, from both sides of the aisle. The traditional separation between people who punish and people who hand out bribes had one thing in common -- to control the populace. So, neither the Democratic nor Republican elites are keen on what they refer to as populism.
    The great unwashed actually governing! God forbid! And, if they can keep control of money and the law, it won't happen!

    While the law has been somewhat undermined by individual rights creeping into decisions (e.g. the Citizens United decision), keeping control of the currency seemed secure, until people figured out that organizing themselves and sharing their resources doesn't require money. Barack Obama spent or had spent on his behalf as much money as the Republicans could muster for Willard. But, much of Willard's cash leaked into the pockets of consultants and advisers, while Obama's was augmented by a whole host of volunteers.

    We organize governments to provide benefits and prevent abuse.

    by hannah on Sat Nov 17, 2012 at 11:18:52 AM PST

  •  Repeal the Reagan tax cuts (13+ / 0-)

    39.6% is all nice and everything, but reality tells us 39.6% aint gonna cut it.

    Even revenue neutral, how much tax relief for the working and middle classes can we get out of 39.6%?

    And add 6 brackets, 4mil, 6mil, 8mil, 12mil, 24mil, 60mil.

    Update the 86 TRA, bring back the 70% top bracket, and incentivize emerging tech and markets, ALA the 86 TRA, like Wind, Solar, HVDC suprgrid, Renewable storage like pumped hydro and solar thermal.

    Thats about 3-4 million jobs.

    Spend 5% of GDP on infrastructure again, not 1.3%. 14-18 million jobs.

    17-21 million jobs, a solution that is marginally in scale with the problem.

    I dont want to raise taxes on the rich to increase revenue, thats just silly. I want to move tax burden off of working and middle class families so they are again allowed to keep what they earn.

    Then stim the economy, expand US energy portfolio to the point where energy(oil depletion) is no longer a drag on the economy as it is today .

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Sat Nov 17, 2012 at 12:02:42 PM PST

    •  Why do we have to raise taxes ... (7+ / 0-)

      ... on the middle class to do all of that? I don't think that there is the slightest need to raise taxes on median incomes back up to the levels they were at the start of the Reagan presidency.

      You say

      39.6% is all nice and everything, but reality tells us 39.6% aint gonna cut it.
      39.6% is what is on the table with a Republican majority in the House, precisely because to game the reconciliation system in the Senate in the early naughties, Bush had to put a sunset into his tax cuts.

      I'd be happy to put a 4% levy on all incomes over 10x median individual incomes ~ earned or unearned ~ to refill the Disability Insurance trust fund, but to do that requires winning not just a non-Republican majority in the House, but an actual progressive majority.

      You ask:

      how much tax relief for the working and middle classes can we get out of 39.6%?
      How much tax relief we can get for working and middle classes? At a minimum, we can make the Bush tax cuts under $100,000 permanent, in and of itself that is substantial tax relief.

      But people on the lower rungs of the income ladder do not need more "tax relief". They need some fracking income stagnation relief. All too often they have been sold two cents of "tax relief" as political cover for giving $1 of their income to the corporate aristocracy.

      As far as growing government investment in infrastructure by an additional 4% of GDP, elections have consequences. People staying home in 2010 resulted in Republican control of the gerrymander, on balance, resulting in a Republican House majority even if there is a 1% or 2% advantage to Democrats in the upcoming midterm elections. And with the Republican party being deep in the pocket of the vested interest in climate suicide, we are going to have to fight tooth and nail for each and every useful investment in the infrastructure required for a sustainable economy. It may take until the last election or two of the decade for demographic change to once again turn that gerrymander into a dumbymander in enough states to level the playing field.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Sat Nov 17, 2012 at 12:38:39 PM PST

      [ Parent ]

      •  Well if you want to argue see ya later (0+ / 0-)

        If ya actually want to talk policy I'll be around.

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Sat Nov 17, 2012 at 02:12:30 PM PST

        [ Parent ]

        •  Its a policy argument ... (3+ / 0-)
          Recommended by:
          FishOutofWater, ozsea1, UFOH1

          ... you seem to be arguing that there are policy actions available that I did not include as being available because I do not think they are available and have argued that they are available.

          Now it goes without saying that deficit cutting at this point in time is a globally foolish policy objective, but the winner of the Presidential campaign ran on a policy of cutting the deficit, so its very difficult in the short term to reverse that globally foolish policy objective.

          The topic of this diary is how the "debt cliff" is a scam even given that objective. As a policy argument: the purported objective of cutting $4T from the deficit over a decade is to "stabilize national debt". That is a load of bullshit, since $1.72T in deficit cutting over the course of a decade will accomplish that objective. And we can achieve that with both the greatest ease and causing the least economic damage by first capping the Bush tax cuts.

          How to get the rest ~ that is where I argue that under the mantra of a "balanced approach", a balanced approach would be $1 revenue for $1 spending cuts, and given that defense is 2/3 of our federal government spending on good and services, a "balanced approach" would call for $1 in revenue, $0.67 in defense cuts, and $0.33 in non-defense cuts.

          Since non-defense spending has already given up $1.5T of the total of $3.2T required, we've overshot on its share ~ under a "balanced approach", and undershot on Defense's share.

          Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

          by BruceMcF on Sat Nov 17, 2012 at 04:22:43 PM PST

          [ Parent ]

  •  Good post, Bruce. (8+ / 0-)

    I'm glad Barack Obama is our President.

    by TomP on Sat Nov 17, 2012 at 12:05:48 PM PST

  •  Its important to remember (13+ / 0-)

    that in 1947 we had a much higher deficit to gdp ratio, more than 125%, and we did not cut spending to fix it. We rebuilt Europe and Japan and built schools and roads and bridges and dams like we had never done before and the Deficit/gdp ratio went down as gdp went up. Austerity s stupid and counter productive.

    "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

    by johnmorris on Sat Nov 17, 2012 at 01:34:46 PM PST

    •  Well, we did cut total government spending ... (4+ / 0-)
      Recommended by:
      ozsea1, triv33, NoMoreLies, priceman

      ... as a share of GDP, but we were spending around 50% of our GDP on the military budget at the height of WWII spending, so we cut military spending and increase non-military spending simultaneously, cutting military spending faster than we increase non-military government spending.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Sat Nov 17, 2012 at 04:24:38 PM PST

      [ Parent ]

      •  Why don't you try (0+ / 0-)

        to justify that with data. It seems pretty outrageous to me. Are you absolutely certain that the spending on the Marshall plan, the Japan support, public schools and the interstate highway system exceeded the growth in gdp?  Show me.

        "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

        by johnmorris on Sat Nov 17, 2012 at 07:06:53 PM PST

        [ Parent ]

        •  Chart (2+ / 0-)
          Recommended by:
          Van Buren, BruceMcF

          Deficit as a percent of GNP

          FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

          by Roger Fox on Sat Nov 17, 2012 at 09:09:34 PM PST

          [ Parent ]

        •  Its readily available data ... (1+ / 0-)
          Recommended by:
          RandomNonviolence

          ... but if you want me to look up the information for your claims instead of looking them up yourselves,

          At the bea website, in the GDP section, interactive tables, click "begin using data" and pick table 1.1.6a, real GDP, 1937 prices.

          1944:
          GDP $181.9b
          Personal consumption: $80.7b
          Gross investment: $6.8b
          Net exports: -$1.9b
          G: State and Local: $6.5b
          G: Federal non-defense: $2.6b
          G: Federal defense: $98.8b

          1947:
          GDP $158.7b
          Personal consumption: $98.2b
          Gross investment: $22b
          Net exports: $6.1b
          G: State and Local: $8.4b
          G: Federal non-defense: $3.4b
          G: Federal defense: $13.3b

          Though the fact that US federal government spending on goods and service for national defense was 54% of GDP in 1944 should actually suffice to establish the point for anyone with a notion of the size of Federal government spending as a share of GDP during the 1950's ... go to Table 1.6.1b, and even in 1952 prices, total federal spending never reaches the $98.8b through the entire 1947 to 1962 period of that table, and as a secular trend declines as a share of total GDP through the entire period.

          Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

          by BruceMcF on Sun Nov 18, 2012 at 06:21:01 AM PST

          [ Parent ]

          •  And in every year (0+ / 0-)

            from 1948 to 1960 the budget was in deficit and the debt/gdp ratio declined.

            "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

            by johnmorris on Sun Nov 18, 2012 at 06:38:48 AM PST

            [ Parent ]

            •  But your claim was ... (0+ / 0-)
              that in 1947 we had a much higher deficit to gdp ratio, more than 125%, and we did not cut spending to fix it.
              We cut spending, massively, in the 1946 and 1947 budgets. But it was defense spending that we cut massively, and we increased non-defense spending ~ both Federal non-defense and state and local spending increase between 1944 and 1947, but by much less than Federal defense spending on goods and services drops.

              Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

              by BruceMcF on Sun Nov 18, 2012 at 07:10:11 AM PST

              [ Parent ]

              •  I said (1+ / 0-)
                Recommended by:
                Roger Fox

                we did not cut spending to fix it and we didn't. The war was over so a lot of spending was no longer needed. but we continued in deficit, a necessary state in an industrial economy. The current obsession with balanced budgets is misplaced. Balanced budgets cause recessions. Deficits cause growth.

                "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

                by johnmorris on Sun Nov 18, 2012 at 09:42:06 AM PST

                [ Parent ]

  •  The most common deductions (1+ / 0-)
    Recommended by:
    BruceMcF

    If not all deductions should be made credits instead, at the same  rate,  (some with a cap, some not).  Capital gains should just be plain income, and a cap should be put on tax exempt income.  

    This, to me, is just a matter of fairness and equity.  If it raises more tax money to benefit America as a  whole, that is a bonus IMHO.

    Beyond reasonable limits, People should have to work harder to accumulate more.

    •  I heartily agree with that ... (0+ / 0-)

      ... getting traction in the Congress could take some doing, but if we get even one substantial tax deduction converted to a credit at the middle class marginal tax rate, it would be a great start.

      Its both fairness and its good macro economic policy: it improves the progressiveness of the tax system, which is good for economic stability.

      The only things I'd leave as tax deductions if it was up to me would be the ones that are tax deductions for Constitutional grounds ~ state bond interest income, and church contributions for churches that are not political organizations.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Sun Nov 18, 2012 at 08:31:37 AM PST

      [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site