Did Republicans Deliberately Crash the US Economy?

Saturday, June 09, 2012

Did Republicans Deliberately Crash the US Economy?

Michael Cohen [w/ Mark Thoma commenting]

Did Republicans deliberately crash the US economy?, by Michael Cohen, CIF:

So why does the US economy stink?

Why has job creation in America slowed to a crawl? Why, after several months of economic hope, are things suddenly turning sour?

The culprits might seem obvious – uncertainty in Europe, an uneven economic recovery, fiscal and monetary policymakers immobilized and incapable of acting. But increasingly, Democrats are making the argument that the real culprit for the country's economic woes lies in a more discrete location: with the Republican Party.

In recent days, Democrats have started coming out and saying publicly what many have been mumbling privately for years – Republicans are so intent on defeating President Obama for re-election that they are purposely sabotaging the country's economic recovery ... in order to hurt Obama politically. Considering that presidents – and rarely opposition parties – are held electorally responsible for economic calamity, it's not a bad political strategy.

Then again, it's a hard accusation to prove: after all, one person's economic sabotage is another person's principled anti-government conservatism.

Beyond McConnell's words, though, there is circumstantial evidence to make the case. Republicans have opposed a lion's share of stimulus measures that once they supported, such as a payroll tax break, which they grudgingly embraced earlier this year. Even unemployment insurance, a relatively uncontroversial tool for helping those in an economic downturn, has been consistently held up by Republicans or used as a bargaining chip for more tax cuts. Ten years ago, prominent conservatives were loudly making the case for fiscal stimulus to get the economy going; today, they treat such ideas like they're the plague.

Traditionally, during economic recessions, Republicans have been supportive of loose monetary policy. Not this time. Rather, Republicans have upbraided Ben Bernanke, head of the Federal Reserve, for even considering policies that focus on growing the economy and creating jobs.

And then, there is the fact that since the original stimulus bill passed in February of 2009, Republicans have made practically no effort to draft comprehensive job creation legislation. Instead, they continue to pursue austerity policies, which reams of historical data suggest harms economic recovery and does little to create jobs. In fact, since taking control of the House of Representatives in 2011, Republicans have proposed hardly a single major jobs bill that didn't revolve, in some way, around their one-stop solution for all the nation's economic problems: more tax cuts.

Note to self: 
Here, there needs to be a discussion of the empirical historic track record [and theoretical underpinnings] for tax cuts as a job creation policy.  Based on the evidence I have seen to date, along with the plethora of known fatal flaws in the macroeconomic underpinnings of mainstream neo-liberal/neo-classical theory, tax cuts - alone - as a solution for job creation/restoring & sustaining full employment is at best inadequate and at worst may be wholly self-destructive for modern American capitalism.  But, lacking the data at my fingertips, it will have to wait for a later post.

Still, one can certainly argue – and Republicans do – that these steps are all reflective of conservative ideology. If you view government as a fundamentally bad actor, then stopping government expansion is, on some level, consistent. ...

It is also completely destructive of the very idea of democracy... even for our inspired Constitutional Republic. Those who do not believe in governance cannot but be bad at it.  See Thomas Frank (e.g.,  'The Wrecking Crew' and/or 'What's The Matter With Kansas?').

Presidents get blamed for a bad economy... The obligation will be on Obama to make the case that it is the Republicans, not he, who is to blame – a difficult, but not impossible task.

In the end, that might be the worst part of all – one of two major political parties in America is engaging in scorched-earth economic policies that are undercutting the economic recovery, possibly on purpose, and is forcing job-killing austerity measures on the states. And they have paid absolutely no political price for doing so. If anything, it won them control of the House in 2010, and has kept win Obama's approval ratings in the political danger zone. It might even help them get control of the White House.

Sabotage or not, it's hard to argue with "success" – and it's hard to imagine we've seen the last of it, whoever wins in November.

[Here Mark Thoma comments:

Has the Republican Party's strategy been deliberate? Yes, of course, the things the Party proposes do not fall randomly from the sky, they are the result of GOP choices. So the question of whether they did this on purpose is easy to answer, it's yes.

Is it intended to undermine the president's agenda? Again, of course it is. The alternative would be to support Obama's policies, and they aren't about to do that. So Republicans have been deliberately obstructive, and it would be hard to argue otherwise.

Have they intentionally done harm? This is where flip-flops from what Republicans supported in the past matters.

If they truly believed that all Keynesian type policies are harmful, then blocking them, and in the process blocking any policy at all -- which is essentially what they are doing since they surely know their pet policies have little chance of escaping a veto -- could not be considered an act of sabotage.

The policies may be quite harmful in reality, but if they truly believe they are avoiding harm by blocking stimulus policies it would be hard to accuse them of sabotaging the economy in order to make political gains.

But the fact that they have flip-flopped time and again on policies they supported when Republican presidents were in office and the economy needed help leads to the strong suspicion that blocking Obama's policy initiatives is a political strategy. The strategy is justified by a story about Keynesian economics being harmful that they clearly do not believe in their heart of hearts (witness, for example, Romney worrying about the consequences of the fiscal cliff, or their knee-jerk appeal to Keynesian principles when defense cuts are proposed). They have also concocted a story where a confidence fairy can make austerity work to support their ideological pursuit of smaller government.

But this is quite a departure from the stimulative polices that Republicans presidents have pursued in recent years giving it every appearance of a belief of convenience rather than of true conviction. To me, the refusal to support policies they would have supported had the president been a Republican tells me everything I need to know about whether this is strategic or a true belief.

Posted by Mark Thoma on Saturday, June 9, 2012 at 10:36 AM]

Why I Cannot Vote for Mitt Romney

#1. His actual policies suck.

Romney's tax policy is to:
- lower & flatten personal income tax rates,
- lower corporate tax rates,
- eliminate the "death tax" (i.e., the estate tax), and
- reduce [if possible, eliminate] taxes on capital income...

Ostensibly, he claims these policies would make the tax system "fairer" & "simpler".

But, effectively it is just another another thinly-disguised round of tax give-aways to the upper class at the expense of lower classes [who, assuming budget neutrality, either have to make up the lost revenues by higher taxes -or- receive reduced government transfers & benefits].  And/or a continuation of the "Starve the Beast" strategy for ridding society of publicly-purchased social insurance. 

The same exact policy trajectory of the movement conservative, government-is-bad, pro-business, free market fundamentalist Republican party of the last 30 years.  The same exact policy trajectory that [in conjunction with deregulation, cheap credit & privatization policies] led to asset bubbles and financial crises and the Great Recession that we are only now beginning to climb out of.

Haven't we learned anything?

By the way:  Flat is NOT [I repeat: NOT] Fair.
Even Adam Smith recognized the need for generally progressive taxation. 

Beyond the usual vertical equity arguments, there are many other principles & arguments for a progressive tax system:

- Dimininshing Marginal Utility 
The value of the next dollar to a high-income earner is less than the value of the next dollar to a low-income earner (because low-income earners generally have more basic human needs that remain unmet), so a higher tax on a high income earner's dollar produces the same pain/dis-utility of a lower tax on a low income earner's dollar.  (note: I am not a marginalist, which usually implies being an equilibriumist; but for those enamored of equilibriumist thinking, it has some suasion)

- Relative Socio-Economic Benefit
Those who benefit most [economically] from a society should contribute relatively more towards the support of government (incl. social insurance). 

- Relative Risk (Taxes as Insurance)
Those who have the most to lose [economically] should pay relatively more. 

For me, ultimately, the most persuasive argument is Adam Smith's:  Those who can most afford the tax burden (i.e., the rentier class) can & should pay a progressively higher tax rate than those whose means barely affords the costs of living (if that). 

You can't squeeze blood from a rock.

"Flat" is actually quite Un-Fair. 

A flat federal personal income tax rate would result in an overall national tax structure that is actually regressive - i.e., places the burden disproportionally on the lower income classes (mostly because the rest of the national tax system is based on sales taxes that fall disproportionally on the middle class and lower).

As a result, flat tax proposals -- e.g., Herman Cain's 9-9-9 plan being the most recent famous example -- inevitably result in a larger tax burden for the bottom 90% or so, and a lighter burden for the top 10%. 

And Flat is not to be conflated with Simple. 
Flat is NOT necessarily simple. 

Think loopholes:  all the deductions & exemptions & preferences & credits & accelerated write-offs & who-knows-what-else that riddle the tax code, e.g., the home mortgage interest & state/local tax deductions, the earned income credit, or the tax-free treatment for employer-paid health care benefits. 
The complexity of our tax code comes from these 'loopholes', NOT from the flatness or steepness of the slope of the marginal tax rate line. 

Changing to a single flat rate does NOTHING, in and of itself, to cure the underlying cause of tax code complexity. 

Romney, if allowed, would grant tax-free treatment to capital forms of income, which shifts the burden to labor income (wages & salary).   Guess who gets most of their income from capital forms of income?

If you guessed "Capitalists", ding ding sing we have a winner! 

Guess gets most of their income from labor forms of income?
The remaining 99% of us. 

Can anyone tell me why income earned as labor should be taxed at rates higher than income earned from capital? 

And simple need not be flat.
A progressively sloped tax rate is no more difficult to use to compute one's tax liability than a flat one... to repeat:  the complexity comes from the loopholes, not the number of brackets or rates!

And corporate taxes ~ or, alternatively, taxes on dividends & capital gains ~ are NOT a form of double-taxation, which is one of Romney's 'fairness' arguments.  Corporate income taxes are the price that corporations pay for the priviledge of personhood with limited liability.  And that's coming from a Republican (Taft, during the debates over instituting a federal income tax).
 
Ask any thoughtful capitalist if the price is worth the benefit.  If the price were truly too high, then capitalists would not choose corporate forms to organize their businesses. 

The truth is that the corporate form & limited liability provide such shockingly enormous efficiencies for capital formation, investment liquidity & wealth creation that modern capitalism literally could not exist without it. 

The question has to be asked:  Wealth creation for whom?  Those who benefit the most...

Besides tax policy, what's he got?

Jobs?  Romney's jobs plan is...  non-existent? 
Austerity is NOT Prosperity. 
It is, in fact, Anti-Prosperity, particularly at a time when:
- unemployment is stubbornly high,
- median wages/incomes are stagnant, and
- lost wealth effects & heavy private sector debt & tight credit [not to mention Euro zone problems, slowing Chinese & Indian economies, and high energy prices] all continue to drag on the recovery. 

Concern about far-term structural budget deficits seems misplaced (at best) when the near-term problems are so potentially dire. 

It's a bit like the doctor who, upon arriving on the scene of a multi-car accident and seeing blood & broken bones all around, starts dispensing warnings about cholesterol intake & smoking to the victims:  The advice is, perhaps, all well and good & worthy of attention at some point down the road, but not particularly relevant to the challenge at hand. Or worse, it might constitute negligent malpractice... if the accident victim dies as a result of injuries that the doctor should have addressed via the accepted standard of care.

Romney's embrace of Austerity (and its cousin, the Confidence Fairy) is a continuation of conservative economic policy malpractice that led to disasterous consequences in 2007-2009.  It is idiotic, it is bad economics, and it is bad for America.

Speaking of bad economic timing:  Mitt seems to want to launch a trade war with China.  Didn't we learn anything from the disaster of the Smoot-Hawley tarriff acts? 

Then there's his saber-rattling over Iran.  If he's serious, he's dangerous; if he's not, then he's lying about the efficacy & wisdom of Obama's Iran policy.  There is not a single thing that Romney would do about Iran that Obama is not already doing... short of, perhaps, launching a Dubya-esque premature pre-emptive airstrike.  I for one am very unhappy about the prospect of another ill-conceived war in the Middle East. 

On social issues, he's gone off the deep-end in his hunt for primary voters. 

Marriage Equality has already been decided (14th/16th Amendments).  If the State (or Feds) conveys benefits on its citizens, it cannot discriminate in the grant of those benefits. Bigotry and discrimination should not be the subject of [another!] Constitutional amendment.  Nor should basic human rights - esp. the rights of a minority group! - be subject to the vote of a majority... even if the tide of history ultimately brings the majority to support marriage equality.

On health care, he wants to gut the Affordable Care Act [even though it mirrors his own Massachusetts plan?], yet has no credible plan to actually bend the medical care cost curve.  The free rider problem & cost-shifting means that we are all effectively paying a tax now to cover the un- and under-insured, whether we recognize it directly as such or via higher insurance premiums & out-of-pocket deductibles. 

We, as a country, pay roughly twice as much more for health care than the next closest OECD/developed nation peer, and yet we get outcomes that are not demonstrably better (and in some cases, are demonstrably worse)! 

The only way to tackle the health care problem is to go to a single-payor system with capitated payments to providers based on outcomes (not fee-for-service).  Romney is going exactly in the opposite/wrong direction.

#2.  Romney is inauthentic.  Which leads him to make all sorts of astonishing lies.

It's worse than mere flip-flopping (Romney makes Kerry look like the epitome of constancy). 

Romney has no soul;  he is a mercenary, a hired gun whose allegiances shift with the political winds.  Can anyone tell me what Romney's "Vision" is?  I doubt it, since so far not even Romney's been able to voice it.

He makes it up as he goes along, and consistency & reality be damned.  Don't ruin a good story with facts. 

And so he makes all sorts of bullshit claims about how Obama has only made things worse, when clearly that is not the case. 

Obama's stimulus measures didn't prevent peak unemployment over 8% (*sigh* what adviser thought it was a good idea to voice a particular target?), but it did arrest the freefall and replaced some of the demand lost from the private sector.  We have seen steady, albeit still insufficient, job growth for more than 2 years now, corporate profits and profit margins are at historic levels, private credit has stopped contracting, and the housing market seems to have bottomed and begun a slow recovery. 

Not great, but not another Great Depression, either.

Which is what we would have had if the austerity-loving Hooverites -- like Romney (and Rand Paul, Paul Ryan, etc.) -- were in control of fiscal policy.

#3.  Romney is uniquely ill-equipped to deal with the biggest problems that face us as a country.

Modern, free market fundamentalist financial capitalism & the conservative corporatist plutocracy it disproportionately serves has failed to deliver widely-shared economic growth. 

The rising tide has not lifted all boats... just the yachts.

Which, in turn, has led to historic, unsustainable inequalities that threaten to evolve us towards a brave new world of economic feudalism.  Mitt Romney is the very poster-child for economic feudalism:  born into wealth, Bain Capital, tax-avoiding complicated trust funds, $10,000 bets, let Detroit go bust, liquidate the homeowners, end Medicare, yadda, yadda, yadda.

Supply-side economics does not work (if it does at all) when the fundamental problem is insufficient aggregate demand.  Romney's policy proposals are not even aimed at the right target.

#4.  Governance is not like running a business. 

Romney's unique selling proposition is that he has successful, executive-level business experience.  But, it's not IMHO relevant. 

Stimulating job creation economy-wide is a vastly different thing than earning outsized returns from making private equity investments.  Tackling the enormous income & wealth inequality gap requires different skills than those required to offshore jobs, close plants or negotiate LBO financing terms.

#5.  I'm holding fast to my vow to never vote for a Republicon again.

When Republicons abandoned their responsibility for governing in the best interests of the people as a whole (by refusing to allow anything to pass the Senate in order to deny Obama a second term), I vowed I would never vote for a Republicon again. 

And I mean it.

Gathering Clouds – Poverty, Banking, and Debt Limits « Real-World Economics Review Blog

Gathering Clouds – Poverty, Banking, and Debt Limits « Real-World Economics Review Blog

Peter Radford, over at the Real World Economics Review blog, encapsulates nicely my current criticism of Republicons:

"... we are fast approaching doomsday on the US budget negotiations. As you know there is a super secret and totally undemocratic committee studying ways to reduce the US federal budget. This committee consists of twelve members of Congress, six from each party. They have a target of $1.2 trillion in budget cuts to be spread over the next decade.  If they fail to come up with a program to reach that goal by November 23rd a series of automatic cuts come into play slashing away at the budget across the board.

The odds of an agreement coming from this group is close to zero. Although we hear constant rumblings of side deals and temporary fixes.

The problem – no prizes for guessing the answer on this – stems from Republican intransigence.

Oh what a shock.

The GOP has refused to countenance any tax increase as part of the deal. Not a single dollar of an increase. In their view the entire burden of reduction must come from spending. But not offense-defense spending. They are adamantly opposed to any cuts in our bloated offense defense budget. This presents them with a major quandary: the automatic cuts that will come into being if no agreement emerges from the secret committee includes a major cut in that hallowed offense defense budget. The idea of this draconian measure was to force the Republicans into being a tad more flexible over taxes.

So far it hasn’t worked.

Such is their attachment to low taxes for high income taxpayers that the GOP is actually contemplating allowing the automatic cuts to kick in. This is terrifying their own hawks. They imagine all sorts of terrible things happening if we cut so much as a dime from our offense defense budget. Imagine the fits that they are all throwing at the prospect of the 10% cut in offense defense spending in 2013 alone that the automatic cuts imply. Yes 10%. Followed by a further 10% over the next nine years. That’s a lot of plum jobs lost in a lot of Republican leaning Congressional districts.

Oh the dilemma.

In a sensible world – by which I mean one not infested with ideological sharks – the secret committee would be able to conjure up enough cuts mixed with tax increases to hit the target. We could allow the Bush tax increases to come into effect for the wealthiest taxpayers. We could impose a surcharge on higher incomes. There are all sorts of things we could do, most of which the voters tell pollsters they would accept, but which we cannot do because the Republicans have backed themselves, and thus all of us, into a corner.

So, at present anyway, this entire budget cutting effort, which was forced on us unnecessarily in the aftermath of the budget ceiling epic, looks as if it will fail.

America has rarely, if ever, sunk this low in its ability to mange itself."

Progressive and Regressive Taxation in the United States: Who’s Really Paying (and Not Paying) their Fair Share?

Progressive and Regressive Taxation in the United States:

Who’s Really Paying (and Not Paying) their Fair Share?

A long-standing political debate in the United States has focused attention on the fairness of taxes. While conservatives, Republicons, free market fundamentalists & Tea Party types claim their tax-cutting reforms make taxes fairer, critics counter that the majority of the tax cuts accrue to the

wealthy.

Conservatives like to portray proposals to raise marginal tax rates on the upper end of the income scale as an effort to "soak the rich".  They cite cherry-picked statistics:  most often, e.g., findings from the non-partisan Tax Policy Center -or-  Congress’ Joint Committee on Taxation that 47% ~ 51% of households did not owe any net personal income taxes in 2009.  Then they use such 'evidence' out of context to convince low-information voters to support regressive tax policies -- e.g., "Flat Tax" & "Fair Tax" proposals, extensions of the Bush tax cuts on the top 2%, proposed cuts to the Earned Income Tax Credit, or Herman Cain's 9-9-9 tax plan -- even when such policies are empirically at odds with such voters rational self-interest. 

Let's purge some of the miasma on the issue... Brian Roach, in this seminal analysis from Tufts University's Global Development & Environment Institute, perhaps sums the issue up best by saying:

While the fairness of the federal income tax is an important issue, little attention has been paid to a more important issue: the fairness of the entire U.S. tax system. The federal income tax is one of the most progressive elements of the U.S. tax system; other taxes are regressive including sales and social insurance taxes. Analysis of any particular tax reform proposal is incomplete without consideration of its impact on the overall distribution of taxes. 

[Brian Roach, Global Development and Environment Institute Working Paper No. 03-10, 2003;  see here.]

The paper goes on to conclude:

The current trend towards a less progressive federal income tax and more regressive state taxes suggests that in the foreseeable future the United States could have a tax system that is regressive overall.

...

This illustrates that distributional analysis of tax proposals needs to be assessed in light of the entire tax system if inequitable policies are to be avoided. In particular, claims that we are “soaking the rich,” supported with data on federal income taxes, are clearly misleading. One could make a comparable claim that we are “soaking the poor” with reference to state sales taxes or federal social insurance taxes. What constitutes a fair overall tax system can not be settled by objective analysis. However, the basis for an honest debate on tax issues must be an accurate and complete perspective on the entire U.S. tax system.

And things have not changed much since Roach's 2003 study.  For instance, see the Center on Budget & Policy Priorities' updated tax fairness analysis entitled "Misconceptions and Realities About Who Pays Taxes" (May 31, 2011; see full report .pdf here), which is summarized below:

A recent finding by Congress’ Joint Committee on Taxation that 51 percent of households owed no federal income tax in 2009 is being used to advance the argument that low- and moderate-income families do not pay sufficient taxes. Apart from the fact that most of those who make this argument also call for maintaining or increasing all of the tax cuts of recent years for people at the top of the income scale, the 51 percent figure, its significance, and its policy implications are widely misunderstood.

• The 51 percent figure is an anomaly that reflects the unique circumstances of 2009, when the recession greatly swelled the number of Americans with low incomes and when temporary tax cuts created by the 2009 Recovery Act — including the “Making Work Pay” tax credit and an exclusion from tax of the first $2,400 in unemployment benefits — were in effect. Together, these developments removed millions of Americans from the federal income tax rolls. Both of these temporary tax measures have since expired.
  
  In a more typical year, 35 percent to 40 percent of households owe no federal income tax. In 2007, the figure was 37.9 percent.

• The 51 percent figure covers only the federal income tax and ignores the substantial amounts of other federal taxes — especially the payroll tax — that many of these households pay . As a result, it greatly overstates the share of households that do not pay any federal taxes. Data from the Urban Institute-Brookings Tax Policy Center show only about 14 percent of households paid neither federal income tax nor payroll tax in 2009, despite the high unemployment and temporary tax cuts that marked that year.

• This percentage would be even lower if federal excise taxes on gasoline and other items were taken into account.

• Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers. (In a year like 2009, this group also includes a significant number of people who have been unemployed the entire year and cannot find work.)

• Moreover, low-income households as a whole do, in fact, pay federal taxes. Congressional Budget Office data show that the poorest fifth of households as a group paid an average of 4 percent of their incomes in federal taxes in 2007 (the latest year for which these data are available), not an insignificant amount given how modest these households’ incomes are — the poorest fifth of households had average income of $18,400 in 2007. The next-to-the bottom fifth — those with incomes between $20,500 and $34,300 in 2007 — paid an average of 10 percent of their incomes in federal taxes.

• Even these figures understate low-income households’ total tax burden, because these households also pay substantial state and local taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2010.

• When all federal, state, and local taxes are taken into account,the bottom fifth of households paid 16.3 percent of their incomes in taxes, on average, in 2010. The second-poorest fifth paid 20.7 percent.

It also is important to consider who the people are who don’t owe federal income tax in a given year.

• Some 70 percent of people who owe no federal income tax in a given year are low-income working households. These people do pay payroll taxes, as well as federal excise taxes (and, as noted, state and local taxes). Most of these working households also pay federal income tax in other years, when their incomes are higher — which can be seen by looking at the low-income working households that receive the Earned Income Tax Credit (see next bullet).

• The majority of EITC recipients receive the credit for only one or two years at a time, such as when their incomes drop due to a temporary layoff; they pay federal income tax in other years. In fact, EITC recipients pay much more in federal income taxes over time than they receive in EITC benefits. A leading study of this issue found that taxpayers who claimed the EITC at least once during an 18-year period paid a net $473 billion in federal income tax over that period (in 2006 dollars). This finding shows that — while in any single year some taxpayers will receive refundable tax credits whose value may exceed their payroll tax liability — EITC recipients as a group pay significant federal income taxes over time in addition to the payroll and state and local taxes they pay each year.

• The fact that most people who do not pay federal income tax in a given year do pay substantial amounts of other taxes, and also are net federal income taxpayers over time, belies the claim that households that don’t owe income tax will form bad policy judgments because they ostensibly “don’t have any skin in the game.”

• The federal tax system is progressive overall, but state and local tax systems are regressive and undo a significant share of that progressivity. There is nothing wrong with having one part of the overall tax system shield low- and moderate-income households, who pay substantial amounts of other taxes and who generally pay federal income tax as well in other years.

To significantly increase the share of households that owe federal income tax, policymakers would have to take such steps as lowering the personal exemption or standard deduction — which would tax many low-income working families into, or deeper into, poverty; weakening the EITC or Child Tax Credit, which would significantly increase child poverty while reducing incentives for work over welfare; or paring back the tax exclusion for Social Security benefits, which would subject more seniors with small, fixed incomes to the income tax.

This analysis now explores these issues in more detail.

Oft-Cited 51 Percent Figure Is Temporary Spike Caused by Recession

In a typical year, roughly 35-40 percent of households have no net federal income liability; in 2007, the figure was 37.9 percent. In 2009, however, two factors combined to cause a large, temporary spike in the share of Americans with no net federal income tax liability — the recession, which reduced many people’s incomes, and several temporary tax cuts that have now expired. The 51 percent figure reflects these temporary factors.

• Recession-induced decline in incomes. In 2009, unemployment was at its highest level in decades and rising sharply, and incomes were falling. Income tax liabilities are designed to adjust to these cyclical factors, rising when the economy is strong and falling when it is weak; this automatic adjustment helps to stabilize the economy by cushioning the drop in people’s after-tax incomes — and thus their spending — during a downturn. One consequence of the economic downturn was a sharp decline in both federal and state tax receipts, as millions of workers lost their jobs or had their work hours reduced. For many Americans, the loss of income meant that while they owed federal income taxes in 2008, they did not in 2009.

• Temporary tax cuts. Policymakers responded to the deep economic contraction by enacting policies to stimulate consumer demand, including targeted public investments and temporary tax cuts that removed millions more Americans from the tax rolls. Roughly 95 percent of working families benefited from the Recovery Act’s Making Work Pay tax credit, which reduced their federal income tax liability by $400 for individuals and $800 for married couples. For some of these people, the tax credit eliminated their federal tax liability. Other temporary income tax cuts, including the exclusion of the first $2,400 in unemployment insurance benefits and a first-time homebuyer tax credit, eliminated federal income tax liability for additional taxpayers.

In other words, the federal income tax system did what it is supposed to do during the recession — take a smaller bite out of people’s incomes. As the temporary tax cuts expire and the economy and incomes strengthen, people’s tax liabilities will rebound (see Figure 1).

Lower-Income People Pay Considerable Payroll, State, and Local Taxes

The notion that “half of Americans don’t pay taxes” not only overstates the share of households that do not pay federal income taxes in a typical year. It also ignores the other taxes people pay, including federal payroll taxes and state and local taxes.
Policymakers, pundits, and others often overlook this point. At a hearing last month, Senator Charles Grassley said, “According to the Joint Committee on Taxation, 49 percent of households are paying 100 percent of taxes coming in to the federal government.” At the same hearing, Cato Institute Senior Fellow Alan Reynolds asserted, “Poor people don’t pay taxes in this country.” Last April, referring to a Tax Policy Center estimate of households with no federal income tax liability in 2009, Fox Business host Stuart Varney said on Fox and Friends, “Yes, 47 percent of households pay not a single dime in taxes.” None of these assertions are correct. As the Tax Policy Center’s Howard Gleckman noted regarding TPC’s estimate that 47 percent of Americans owed no federal income tax in 2009, “rarely has a bit of data been so misunderstood, or so misused.” Gleckman wrote:
Let me explain — repeat actually — what [the 47 percent figure] means: About half of taxpayers paid no federal income tax last year. It does not mean they paid no tax at all. Many shelled out Social Security and Medicare payroll taxes. In fact, only 14 percent of Americans didn’t pay either income or payroll taxes. Some paid property taxes and, it is fair to say, just about all of them paid sales taxes of one kind or another. So to say they pay no taxes is flat wrong.

The reality is that the income tax is one of a number of types of taxes that individuals pay, both over the course of their lifetimes and in a given year, and it makes little sense to treat it as though it were the only one that matters. Some 86 percent of working households pay more in payroll taxes than in federal income taxes. In fact, low- and moderate-income people pay a much larger share of their incomes in federal payroll taxes than high-income people do: taxpayers in the bottom 20 percent of the income scale paid an average of 8.8 percent of their incomes in payroll taxes in 2007, compared to just 1.6 percent for taxpayers in the top 1 percent of the income distribution (see Figure 2).

In addition, Congressional Budget Office data show that lower-income households pay a significantly larger share of their incomes in federal excise taxes (levied on goods such as gasoline) than middle- and upper-income households do.

When all federal taxes are considered, it is clear that the overwhelming majority of Americans pay such taxes. The poorest fifth of households paid an average of 4 percent of their incomes in federal taxes despite their low incomes in 2007, while the next fifth paid an average of 10 percent of income in federal taxes.
Low-income families also pay substantial state and local taxes. Most state and local taxes are regressive, meaning that low-income families pay a larger share of their incomes in these taxes than wealthier households do. The bottom fifth of taxpayers paid 12.3 percent of their incomes in state and local taxes in 2010, according to the Institute on Taxation and Economic Policy (ITEP) model. That was well above the 7.9 percent average rate that the top 1 percent of households paid (see Figure 3).

Considering all taxes — federal, state, and local — the bottom 20 percent of households paid an average of just over 16 percent of their incomes in taxes (12.3 percent in state and local taxes plus 3.9 percent in federal taxes) in 2009. The next 20 percent paid about 21 percent of income in taxes, on average. In fact, when all taxes are considered, the share of taxes that each fifth of households pays is similar to its share of the nation’s total income. The tax system as a whole is only mildly progressive.

Policy Options to Force People with Low Incomes to Pay Federal Income Tax Are Unsound
Some have implied or suggested that people who do not owe federal income tax are “freeloaders” who don’t have a “stake in the system” and that making them pay federal income taxes would improve the tax code. Yet the vast majority of the people who owe no federal income taxes fall into one of three categories (see Figure 4):

• Approximately 70 percent are working people who pay payroll taxes. As noted above, even the low-income households in this group pay substantial federal income taxes over time. The main options to force these people to pay federal income tax in years when their incomes are low include cutting the EITC or the Child Tax Credit, which would tend to reduce work incentives and increase child poverty and welfare use, and lowering the standard deduction or personal exemption, which could tax many low-income working families into, or deeper into, poverty.

• An additional 17 percent of people who did not pay federal income taxes in 2009 are people aged 65 or older. The main option to make these individuals pay federal income tax would be to subject their Social Security benefits to taxation.

• The remaining 13 percent consists largely of students, people with disabilities, the long-term unemployed, and others with very low taxable incomes. To make these people pay federal income taxes, policymakers would have to tax disability, veterans’, and similar benefits or make full-time students and the long-term jobless individuals borrow (or draw from any available savings) to pay taxes on their meager incomes.

In short, the kinds of policy changes that would impose federal income taxes on these groups of people would make the overall tax system less fair and less sensible, not more so. An examination of the EITC illustrates this point, as the next section explains.

Corporations and Small Business Owners Also Pay No Income Tax During Bad Years

As this report notes, in addition to paying other taxes each year (many of which involve significant tax burdens), most people who do not pay federal income tax in a given year do pay that tax over time. For example, more than half of the tax filers who received the EITC between 1989 and 2006 received the credit for no more than a year or two at a time and generally paid substantial amounts of federal income tax in other years.^* In fact, the taxpayers who claimed the EITC during this 18-year period paid $473 billion in net federal income tax over that period (in 2006 dollars) even after taking the EITC payments they received into account.

The tax-paying record of both large corporations and small businesses follows an analogous pattern — in some years no taxes are paid, while in other years substantial taxes are paid. During the years when they have net operating losses, companies that are subject to the corporate income tax generally have no tax liability.

A GAO study found that in every year from 1998 to 2005, approximately 55 percent of large corporations paid no corporate income tax. ^** But just 2.7 percent of large corporations reported no net tax liability in all eight of those eight years. This reflects a similar pattern as applies to families and individuals — those who do not pay income tax in a given year often do pay income tax over time.

This pattern also applies to small business owners and others who deduct business losses from their taxable incomes and thereby eliminate their income tax liability in some years.

* Tim Dowd and John B. Horowitz, “Income Mobility and the Earned Income Tax Credit: Short-Term Safety Net or Long-Term Income Support,” Public Finance Review (forthcoming).
** Large corporations are those with at least $250 million in assets or $50 million in gross receipts. Government Accountability Office, “Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1998-2005,” July 2008, http://www.gao.gov/new.items/d08957.pdf.

Cutting the EITC Would Discourage Work and Increase Poverty

From its roots as an idea from conservative economist Milton Friedman several decades ago, the EITC has become an increasingly important tool to make work pay more than welfare and enough to lift people working full time at the minimum wage out of poverty. Research has demonstrated the EITC’s effectiveness. Nobel laureate (and noted conservative economist) Gary S. Becker has written, “Empirical studies confirm . . . that the EITC increases the labor force participation and employment of people with low wages because they need to work in order to receive this credit.” (Becker also has applauded the EITC for being “fully available to families with both parents present, even where only one works and the other cares for their children [i.e., for being available to low-income working families with stay-at-home mothers].”)

Studies of the EITC expansions of the 1980s and 1990s found those expansions induced more than half a million people to enter the labor force. One prominent study identified the EITC as “a particularly important contributor to both the recent decrease in welfare use and the recent increase in employment, labor supply, and earnings” among female-headed families. The creation of the refundable component of the Child Tax Credit, which like the EITC is available only to families that work, has complemented the EITC’s pro-work efforts. Moreover, the EITC and the refundable Child Tax Credit together lifted 7.2 million people out of poverty in 2009, including 4 million children. These refundable credits lift more children out of poverty than any other program or category of programs at any level of government.

Several factors reinforce the importance of these credits in promoting and rewarding low-wage work. In recent decades, incomes in the United States have grown increasingly unequal, with the lion’s share of the economic gains from globalization, advances in technology, and the like accruing to those on the upper rungs of the income ladder. CBO data show that the average income among people in the lowest income fifth was $17,700 in 2007; if all incomes had grown at the same rate since 1979, that figure would have been $6,000 higher. Our economy benefits from globalization and technological change, but there are winners and losers. The refundable tax credits help to offset a portion of the effects of the stagnation of wages at the bottom of the income spectrum.

In addition, the weak labor market is likely to continue exerting downward pressure on wages over the next several years. The unemployment rate remains stubbornly high, at 9 percent in April 2011. CBO projects that it will not drop to under 6 percent until 2015. Taking note of the current bleak employment picture facing out-of-work men, columnist David Brooks recently wrote that “wage subsidies” should be on the list of future policy responses. The EITC is a much-needed wage subsidy for low-income workers (although the EITC for poor workers without children remains very small and could be strengthened).
Finally, over the past several decades, policymakers have essentially relied more on the EITC to supplement low wages and less on the minimum wage, which they have allowed to decline by 19 percent in purchasing power since 1970 (i.e., the minimum wage has fallen by 19 percent in inflation-adjusted dollars).

For all of these reasons, scaling back the EITC in order to require more low-income working households to pay federal income taxes would be a significant step backward, discouraging work and increasing poverty.

The Baseline Scenario Agrees: Republicons are Inveterate Turd-Polishers

 

 

 

 

 

 

 

 

Providing evidence for my thesis that Republicons either simply do not know what they are talking about -or- engage in Orwellian NewSpeak in an effort to obfuscate lies they want to tell to ignorant and/or low-information voters, this from The Baseline Scenario:

Black Is White

with 29 comments

By James Kwak

I wasn’t sure what the Social Security wage base was (it’s $106,800, by the way), so I Googled “payroll tax cap.” The number one hit is a post at a blog modestly called The American Thinker. I wouldn’t ordinarily want to bring more attention to it, but it was the #1 hit, and according to Quantcast it has a million unique visitors per month, so nothing I do will affect it one way or another.

Anyway, the thrust of the argument is that we shouldn’t eliminate the cap on wages subject to the payroll tax because “America simply can’t afford it.”

Such plans for expanding an already-huge entitlement are beyond irresponsible, they’re frightful.  Klein and Weller aren’t serious men.  When reading their ideas for Social Security expansion in this time of trillion-dollar federal deficits, one realizes that progressives are unconcerned about America’s fiscal crisis.

You read that correctly. The argument is that increasing the wage base, which would bring in more revenues and reduce the deficit, is a bad thing—because of our fiscal crisis.

This claim is based on the idea that uncapping the wage base would also mean that benefits would have to be uncapped. That does seem like the sensible way to do it. But the way the benefit formula is written, when you increase the wage base, revenues go up much more than benefits. That’s because after the second breakpoint your monthly benefit is only 15 percent of your average indexed monthly earnings. So raising the wage base reduces the deficit, which is a good thing in a “fiscal crisis.”

Austerity is NOT Prosperity.

And modern capitalist markets fail... often in terms of distributional equity.  Economic returns to scale (among other things) ensures that - if left unchecked - modern financial capitalism will over time result in the top income/wealth groups earning/owning an ever increasingly disproportionate share of the economic pie.  Whether income/wealth inequality is a feature or a bug of the system depends upon how extreme the imbalance is - in either direction:

• excessive inequality results in socio-political instability & misallocated investment that impairs sustainable long-term economic growth; 
• insufficient inequality results in inadequate incentives to sustain optimal long-term economic growth.

Raising the base wage not only reduces the deficit -- which the Republicons claim to desire, but don't really [else they would not resist lifting the base wage cap to reduce the deficit] -- but also, if inequality is excessive (and by virtually any & all measures available [r.g., Gini coefficient], it IS), then raising base wgaes mitigates political instability & investment misallocation.

My All-Time Favorite Anti-Republicon Rant

Joanne98

Thu Sep-03-09 04:55 PM Original message

Dear Republicans FUCK YOU!

Dear Republicans, Fuck you. No, I'm not joking. I'm sick of this bullshit. I'm sick of the way you've corrupted the public discourse. The way you've made it acceptable to hurl any insult you like at public officials. The way you blame us for the current atmosphere of hatred by accusing us of starting it with hating Bush. Like Bush didn't come on the heels of eight years of your tireless efforts to destroy Clinton by any means necessary, like Bush didn't give us good reason to complain. A couple of posters on a website compared Bush to Hitler and you've used it as free license to compare Obama to Hitler 24/7 and I'm sick of your hypocrisy, where it's acceptable to say shit about Obama that you would have had an apoplectic fit (and did) if anything remotely similar had been said about your guys. Keith Olbermann calls Cheney a fascist when he was actually using fascist tactics and you think that gives you the freedom to call Obama a fascist, socialist, Marxist constantly for no reason at all. Fuck you and your bullshit false equivalency. I'm sick of the way you've made the populace stupid. Around a fifth of your populace thinks the sun orbits the earth, over half think evolution never happened. Your populace actually believe the media has a liberal bias. Not because it has, you have the most conservative media in the free world, but because you've shouted it so loud and so often that you've brainwashed the public into believing it, like the battered wife who parrots her husband's insults. You've got a whole segment of the populace shouting about socialism and fascism and none of them know what the fucking words mean. You've convinced them that fascism is a left-wing thing. You've got them so turned around that some of them actually believe global warming isn't happening. Fuck you. I'm sick of the way you try to destroy the whole concept of government. You've tricked the people into believing that government can't do anything right, always being careful to exclude the army because you love your bullets and bombs but you've so destroyed the public's ability to reason that they don't even think of interstate highways, the space program, the national parks program, etc. Government is always great when it's doing what you tell it and inevitably corrupt when it isn't. Fuck you. I'm sick of your rewriting of history. You've bleated so loud and long that Reagan was a great president, that the New Deal didn't work, that cutting taxes increases revenues, that you actually have the people believing this bullshit. And these are the same people who will go on to become teachers and fill their student's heads with this self-same bullshit. Reagan was a mediocre president at best who had the good fortune to be in power when the USSR collapsed under it's own weight and you bastards have turned him into the Second Coming. You've rewritten history so that everything foul and hateful and wrong can be attributed to a Democrat while everything worthwhile is a Republican's glory. Fuck you. I'm sick of your dragging the center ever further to the right. How many whackjob fringe ideas have you dragged into the mainstream? The aforementioned idea that tax cuts increase revenues, the Laffer Curve, the idea that Welfare harms the poor, the idea that there's rampant fraud in Welfare, the idea that whatever is good for corporations is good for the country. And you push these ideas through your corporate media and you do it so long and loud that they become part of the accepted political landscape and because it is easier to tell a lie than to debunk one, we never get away from this rancid shit. Fuck you. I'm sick of your casual criminality. Teddy Kennedy, a man who's boots you were not worthy to lick, was just buried and all I've heard from my rightist friends for days is Chappaquiddick, Chappaquiddick, Chappaquiddick. Your fucking golden boy raped the Constitution, mainly because he wanted to; tortured random people (and waterboarding is torture, fuck you too) essentially because he wanted to; spent like a drunken sailor, essentially because he wanted to; invaded a sovereign nation, essentially for the loot and destroyed people's lives, essentially for the evilulz and you bastards are obsessed with a fucking accident a Democrat had decades ago? You don't go on about Laura Bush killing some guy decades ago. Fuck you. I'm sick of you praising pure evil. You're letting Dick Cheney be the standard-bearer for Republicanism. Dick Cheney, a man so nakedly evil that even his friends call him "Darth"; a man so callous that Lex Luthor would recoil in terror; a man who probably has dismembered hitchhikers in those man-sized safes and kills plants by his mere proximity. Fuck you. I'm sick of your attempts to tilt the playing field permanently in your favor. Democrats filibustered a few of Bush's most hateful judicial picks and you pricks started screaming about doing away with the filibuster but now you're in the minority, you're filibustering absolutely everything you can and whining when you don't get the chance. You ignored everything the Democrats had to say when you had power and now that you don't, you scream that everyone must be bipartisan. You don't budge a fucking inch on anything but you insist that everyone must compromise to meet you. That's your idea of politics: Don't move an inch, force the other guy to come to the right to meet you and call the result a "compromise". Fuck you. I'm sick of your corporatism. You dress it up in false populism but anyone with half a brain can see that you're the brought and paid for subsidiary of big business. You keep pushing tax cuts as the answer for absolutely everything, you keep sabotaging every attempt to control the excesses of big business. You genuinely think the world would be a better place if it was a combination of Bill Gibson's dystopian vision of a corporate dominated world and Ayn Rand's bullshit Objectivism, yet another entry in mankind's endless attempts to find a moral justification for naked greed. You've taken the clinically insane spewings of a woman literally to the right of Hitler (pardon my Godwins) and the 1984-like vision of a dystopian author and convinced yourselves that would be a good place to live. Big business is the enemy of the people, always has been. The ideal for the corporate class is to have a small pool of people rich enough to buy their fucking crap and a much larger pool of people so poor and with so few options that they can be used and abused at the corporation's whim. A corporation's objective is not to look after you, it is to make ever-larger profits by any means necessary. You bastards want to reinstate fucking slavery to the corporate class and you've made the public so fucking stupid that they actually swallow the bullshit you're serving up, they actually want to enslave themselves to the corporations that abuse them at every turn. They actually care more about the corporations right to make obscene profits than they care about their child's right to live on a habitable planet. Fuck you. Fuck you, you scumridden shitehawks, you make me sick. Just fuck off and die.

Austerity as Prosperity: The Orwellian Doublespeak of the Right

Have you ever noticed that the language of conservatives increasingly takes on aspects of Orwellian Newspeak?  Like Nazi propagandists teaching slaves that work makes them free, the rhetoric of the right turns the plain meaning of words on their head.  Arbeit macht frei... except when it's forced labor, which is slavery.

How else do you explain the notion, apparently all the rage inside the Washington beltway, that Austerity = Prosperity?

Every single Republicon and Tea Bagger, as well as most Blue Dog Democraps and many clueless so-called pragmatic moderates, has endorsed the idea that in an economic recession/contraction the federal government must "tighten its belt" and "live within its means".  The federal government deficit needs to be reduced [if not closed entirely], and the public debt needs to start being paid down. The social safety net must be shrunk,

Doing so, they assert, will remove uncertainty from the marketplace & restore business/investor confidence.  Investors will invest in businesses, who will in turn open the jobs floodgates, thereby unleashing pent-up consumer demand that will encourage business to further expand, provide more jobs, yadda, yadda, yadda.  America will enter a new Gilded Age of glorious prosperity that would make JP Morgan jealous.  All this economic booming will eventually fill government coffers with sufficient revenues to retire its massive public indebtedness.  Another supply-side love story.

Too bad it's a complete fantasy.  Austerity is not Prosperity... as any sane English speaker might suspect.

In the real world in which we live today, austerity still means... well, austerity. You know, rice and beans for dinner, rags for clothing, that sort of thing.  Prosperity, on the other hand, means lobsters & filet mignon, Armani suits, etc.  Ne'er the twain shall meet.

Austerity policies do not produce prosperity results, at least in the real world situation we find ourselves in today.  The central economic problem facing the country today, tomorrow and for several years hence is NOT government debt & deficits.  It is, rather, the lack of aggregate demand relative to productive capacity, which is being driven by the debt deflation & private deleveraging occurring as a result of the bursting of the housing bubble. 

Unless and until the deleveraging - which typically takes many years - is complete, consumer demand will remain depressed.  As long as demand remains depressed, businesses have little incentive to invest or expand or hire workers, resulting in continued long term unemployment.

Further compounding these depressing dynamics by shrinking government expenditures can only add to the misery.  Reducing discretionary expenditures means less money flowing into the economy, less demand for the goods & services of government contractors & suppliers, less demand for college education (think Pell grants), less demand for basic scientific research, less demand for all the sorts of things that government buys or provides. Shrinking the federal workforce only adds to unemployment.

You can't fix a demand problem by further reducing demand! 

This isn't to say that government deficits and debt aren't a problem in the long run.  They are.  Over the long run, we DO need to address our structural deficit problems and begin reducing the public debt to a more sustainable percentage of GDP. 

But it isn't anywhere near the most important problem facing us today...

We have time, and the solution - a reasonable combination of:

• program changes (e.g., a de minimus 1 year increase in the retirement age, federal negotiation of prescription prices, capitated payments for health care outcomes rather than fee-for-service),
• spending cuts (winding down the Afghan & Iraqi war efforts, elimination of ag subsidies to big business, ) and 
• revenue raisers (a financial transactions tax, a financial services tax, broad-based individual & corporate tax reforms, removal of the income cap for the SocSec payroll tax, sharply higher/more progressive tax rates on [adjusted] taxable incomes over $100K/$1MM/$10MM/$100MM/$1B) 

- is well known. 

Better yet: it is supported by a broad & substantial majority (roughly, 70%, depending upon the specific poll) of the American voting public.

 But the Tea Party trolls and Republicon corporatist plutocrats are not listening.  Unable to speak their Bizzarro world native language, apparently they cannot hear us.

Everything You Need to Know About Conservative Economic Policies: Interactive | State of Working America

Interactive State of Working America

The last 30 years of US economic policy can be largely characterized as a triumph of conservative free market fundamentalism.

It started with Reagan, who wrote the foreword to an edition of Milton Friedman's smug "Free To Choose", thereby endorsing the core themes of modern movement conservatism:

• Government is, for the most part, inept, and therefor bad; 
• Ergo, progressive policies economic policies (strong business regulation, minimum wage laws, strong labor rights, Keynesian counter-cyclical fiscal spending & monetary policy, graduated taxes, a broad social safety net to offset negative externalities & other market failures) represent little more than governmental interference that, at best, achieve less optimal results than the market.
• Private enterprise in unfettered free markets is optimally efficient, and therefor good;
• Ergo, conservative policies that limit government's "interference" in the marketplace (minimal to no business regulation, anti-minimum wage laws, anti-labor rights, ever lower taxes [esp. on capital forms of income],  Austrian or Chicago School fiscal & monetary policy,
• Rational self-interest - "greed" in the language of most religions; "objectivism" in the words of its crackpot philosopher-apologists - represents the highest moral aspiration, and therefor there is no such thing as the "common good" or the collective welfare.

Bush the Elder, of course, continued the dialogue (the tax increase sin notwithstanding).  Among other things, the S&L scandal - a classic example of conservative regulatory policy coming to its logical conclusion - occurred on his watch.

Even Clinton ultimately seems to have been won over to the cause.  Pushed by a militant group of Republicon freshmen that seized both houses of Congress, Pres. Clinton enacted NAFTA, implemented anti-progressive Welfare reforms, dismantled the last vestiges of the Depression era legislation separating commercial from investment banking, blocked regulatory oversight of derivatives, and ultimately accepted the "starve the beast" strategy of shrinking government via deficit reduction. He also employed the likes of Larry Summers, Bob Rubin and Roger Altman, and left a lifelong friend and fan of Ayn Rand - Alan Greenspan - in charge of the Federal Reserve.

Finally, conservatism saw its most fullsome, climactic expression in the tax-cutting, [phony] war-fighting, business-friendly anti-government administration of Bush the Younger.

Even Obama appears to have bought into the basic premise of conservative economics: make the rich business interests happy (they are, after all, givernment's primary customer).

What then is the empirical result?

Everything you need to know is right here:
Over the last 30 years, 98% of the growth in national income has been captured by the top 10% (most of which actually goes to the top 1%, actually)... leaving only 2% to be shared amongst the bottom 90%.

A rising tide does not, apparently, lift all boats. It only lifts the yachts.

The rest of us are bailing furiously, trying to stay afloat.

Interestingly, during the preceding 33 years of the post WWII era - which can be characterized as the era of liberal progressivism and Keynesianesque government intervention & regulatory oversight (e.g., the New Deal, the GI Bill, Civil Rights, enhanced labor rights, LBJ's Great Society & War on Poverty, etc.) - yielded dramatically different results:

- Average incomes grew faster (+$19K from 1945~79 versus +$11K during 1980-2008), and
- the richest 10% only got 31% of it,
- while the bottom 90% got 69% of the income growth.

Which era would you prefer to have lived in?

Economic justice is not only morally superior, it yields greater economic growth & national income.

Take that, Ayn Rand. Fuck John Galt and anybody who looks like him. The problem with Galt's enclave of ubermen is that  there aren't enough 12-year old girls to kidnap, murder & dissect for the assembled sociopaths... lacking sufficient victims, eventually they must turn on themselves;

Take that, Hayek and von Mises and Rothbard and all you other anti-scientific Austrian School tautologists. You lost the debate during Keynes' lifetime, and could only score points after he was dead. And even then only because ideological allies (such as Patinkin at Chicago) misconstrued & bastardized Keynes' thought.  Empirical evidence matters; logic fails when the experiment disproves the hypothesis.

Take that, Paul Ryan. I have to wonder what traumatic event triggered your sociopathic inability to feel empathy for -or- understand the suffering of others?

Obama needs to fire all of his Council of Economic Advisers, and start over with, e.g., Dean Baker, Joseph Stiglitz, Emmanuel Saez, George Akerloff and Mark Thoma..If not, soon there's going to be a revolution, with mobs in the street wearing "Eat The Rich" T-shirts.

New Economic Perspectives: The Financial Road to Serfdom: How Bankers are using the Debt Crisis to Roll Back the Progressive Era

Meanwhile... <-- The title of one of my favorite sci fi novels when I was a teen

Over at New Economic Perspectives, Michael Hudson says what's on his mind [and mine!]:


The Financial Road to Serfdom: How Bankers are using the Debt Crisis to Roll Back the Progressive Era

Financial strategists do not intend to let today’s debt crisis go to waste. Foreclosure time has arrived. That means revolution – or more accurately, a counter-revolution to roll back the 20th century’s gains made by social democracy: pensions and social security, public health care and other infrastructure providing essential services at subsidized prices or for free. The basic model follows the former Soviet Union’s post-1991 neoliberal reforms: privatization of public enterprises, a high flat tax on labor but only nominal taxes on real estate and finance, and deregulation of the economy’s prices, working conditions and credit terms.  

What is to be reversed is the “modern” agenda. The aim a century ago was to mobilize the Industrial Revolution’s soaring productivity and technology to raise living standards and use progressive taxation, public regulation, central banking and financial reform to distribute wealth fairly and make societies more equal. Today’s financial aim is the opposite: to concentrate wealth at the top of the economic pyramid and lower labor’s returns. High finance loves low wages.  

The political lever to achieve this program is financial. The European Union (EU) constitution prevents central banks from financing government deficits, leaving this role to commercial banks, paying interest to them for creating credit that central banks readily monetize for themselves in Britain and the United States. Governments are to go into debt to bail out banks for loans gone bad – as do more and more loans as finance impoverishes the economy, stifling its ability to pay. Yet as long as we live in democracies, voters must agree to pay. Governments are sovereign and debt is ultimately a creature of the law and courts.  

But first they need to understand what is happening. From the bankers’ perspective, the economic surplus is what they themselves end up with. Rising consumption standards and even public investment in infrastructure are seen as deadweight. Bankers and bondholders aim to increase the surplus not so much by tangible capital investment increasing the overall surplus, but by more predatory means, headed by rolling back labor’s gains and stiffening working conditions while gaining public subsidy. Banks “create wealth” by providing more credit (that is, debt leverage) to bid up asset prices for real estate and enterprises already in place – assets that either are being foreclosed on or sold off under debt pressure by private owners or governments. One commentator recently characterized the latter strategy of privatization as “tantamount to selling the family silver only to have to rent it back in order to eat dinner.” [1]  

Fought in the name of free markets, this counter-revolution rejects the classical ideal of markets free of unearned income paid to special interests. The financial objective is to squeeze out a surplus by maximizing the margin of prices over costs. Opposing government enterprise and infrastructure as the road to serfdom, high finance is seeking to turn public infrastructure into rent-extracting tollbooths to extract economic rent (the “free lunch economy”), while replacing labor unions with non-union labor so as to work it more intensively. 

This new road to neoserfdom is an asset grab. But to achieve it, the financial sector needs a political grab to replace democracy with financial technocrats. Their job is to pretend that there is no revolution at all, merely an increase in “efficiency,” “creating wealth” by debt-leveraging the economy to the point where the entire surplus is paid out as interest to the financial managers who are emerging as Western civilization’s new central planners.
Frederick Hayek’s Road to Serfdom portrayed a dystopia of public officials seeking to regulate the economy. In attacking government so one-sidedly, his ideological extremism sought to replace the checks and balances of mixed economies with a private sector “free” of regulation and consumer protection. His vision was of a post-modern economy “free” of the classical reforms to bring market prices into line with cost value. Instead of purifying industrial capitalism from the special rent extraction privileges bequeathed from the feudal epoch, Hayek’s ideology opened the way for unchecked financial power to make a travesty of “free markets.” 

The European Union’s financial planners claim that Greece and other debtor countries have a problem that is easy to cure by imposing austerity. Pension savings, Social Security and medical insurance are to be downsized so as to “free” more debt service to be paid to creditors. Insisting that Greece only has a “liquidity problem,” European Central Bank (ECB) extremists deem an economy “solvent” as long as it has assets to privatize. ECB executive board member Lorenzo Bini Smaghi explained the plan in a Financial Times interview: 

FT: Otmar Issing, your former colleague, says Greece is insolvent and it “will not be physically possible” for it to repay its debts. Is he right?

LBS: He is wrong because Greece is solvent if it applies the programme. They have assets that they can sell and reduce their debt and they have the instruments to change their tax and expenditure systems to reduce the debt. This is the assessment of the IMF, it is the assessment of the European Commission.

Poor developing countries have no assets, their income is low, and so they become insolvent easily. If you look at the balance sheet of Greece, it is not insolvent.
The key problem is political will on the part of the government and parliament. Privatisation proceeds of €50bn, which is being talked about – some mention more - would reduce the peak debt to GDP ratio from 160 per cent to about 140 per cent or 135 per cent and this could be reduced further. [2] 

A week later Mr. Bini Smaghi insisted that the public sector “had marketable assets worth 300 billion euros and was not bankrupt. ‘Greece should be considered solvent and should be asked to service its debts,’ … signaling that the bank remained firmly opposed to any plan to allow Greece to stretch out its debt payments or oblige investors to accept less than full repayment, a so-called haircut.” [3] Speaking from Berlin, he said that Greece “was not insolvent.” It could pay off its bonds owed to German bankers ($22.7 billion), French bankers ($15 billion) and the ECB (reported to be on the hook for $190 billion) by selling off public land and ports, water and sewer rights, ownership of the telephone system and other basic infrastructure. In addition to getting paid in full and receiving high interest rates reflecting “market” expectations of non-payment, the banks would enjoy a new credit market financing privatization buy-outs. 

Warning that failure to pay would create windfall gains for speculators who had bet that Greece would default, Mr. Bini Smaghi refused to acknowledge the corollary: to pay the full amount would create windfalls for those who bet that Greece would be forced to pay. He also claimed that: “Restructuring of Greek debt would … discourage Greece from modernizing its economy.” But the less debt service an economy pays, the more revenue it has to invest productively. And to “solve” the problem by throwing public assets on the market would create windfalls for distress buyers. As the Wall Street Journal put matters bluntly: “Greece is for sale – cheap – and Germany is buying. German companies are hunting for bargains in Greece as the debt-stricken government moves to sell state-owned assets to stabilize the country’s finances.” [4] 

Rather than raising living standards while creating a more egalitarian and fair society, the ECB’s creditor-oriented “reforms” would roll the time clock back to oligarchy. Not the post-feudal oligarchy of landlords owning land conquered militarily, but a financial oligarchy accumulating banking claims and bonds growing inexorably and exponentially, leaving little over for the rest of the economy to invest or consume.

The distinction between illiquidity and insolvency
If a homeowner loses his job and cannot pay his mortgage, he must sell the house or see the bank foreclose. Is he insolvent, or merely “illiquid”? If he merely has a liquidity problem, a loan will help him earn the funds to pay down the debt. But if he falls into the negative equity that now plagues a quarter of U.S. real estate, taking on more loans will only deepen his net deficit. Ending this process by losing his home does not mean that he is merely illiquid. He is in distress, and is suffering from insolvency. But to the ECB this is merely a liquidity problem.

The public balance sheet includes land and infrastructure as if they are surplus assets that can be forfeited without fundamentally changing the owner’s status or social relations. In reality it is part of the means of survival in today’s world, at least survival as part of the middle class.

For starters, renegotiating his loan won’t help an insolvency situation such as the jobless homeowner above. Lending him the money to pay the bank interest (along with late fees and other financial penalties) or stretching out the loan merely will add to the debt balance, giving the foreclosing bank yet a larger claim on whatever property the debtor may have available to grab.

But the homeowner is in danger of being homeless, living on the street. At issue is whether solvency should be defined in the traditional common-sense way, in terms of the ability of income to carry one’s current obligations, or a purely balance-sheet approach taken by creditors seeking to extract payment by stripping assets. This is Greece’s position. Is it merely a liquidity problem if the government is told to sell off $50 billion in prime tourist sites, ports, water systems and other public assets in order to pay foreign creditors?
At issue is language regarding the legal rights of creditors vis-à-vis debtors. The United States has long had a body of law regarding this issue. A few years ago, for instance, the real estate speculator Sam Zell bought the Chicago Tribune in a debt-leveraged buyout. The newspaper soon went broke, wiping out the employees’ stock ownership plan (ESOP). They sued under the fraudulent conveyance law, which says that if a creditor makes a loan without knowing how the debtor can pay in the normal course of business, the loan is assumed to have been made with the intent of foreclosing on property, and is deemed fraudulent.

This law dates from colonial times, when British speculators eyed rich New York farmland. Their ploy was to extend loans to farmers, and then call in the loans when the farmer’s ability to pay was low, before the crop was harvested. This was indeed a liquidity problem – which financial opportunists turned into an asset grab. Some lenders, to be sure, created a genuine insolvency problem by making loans beyond the ability of the farmers to pay, and then would foreclose on their land. The colonies nullified such loans. Fraudulent conveyance laws have been kept on the books since the United States won its independence from Britain.

Creditors today are using debt leverage to force Greece to sell off its public domain – having extended credit beyond its ability to pay. So the question now being raised is whether the nation should be deemed “solvent” if the only way to carry its public debt (that is, roll it over by replacing bad old loans with newer and more inexorable obligations) is to forfeit its land and basic infrastructure. This would fundamentally alter the relationship between public and private sectors, replacing its mixed economy with a centrally planned one – planned by financial predators with little care that the economy is polarizing between rich and poor, creditors and debtors.

The financial road to serfdom
Financial lobbyists are turning the English language – and economic terminology throughout the world – into a battlefield. Creditors are to be permitted to take the assets of insolvent debtors – from homeowners and companies to entire nations – as if this were a normal working of “the market” and foreclosure was simply a way to restore “liquidity.” As for “solvency,” the ECB would strip Greece clean of its public sector’s assets. Bank officials have spoken of throwing potentially 150 billion euros of property onto the market.
Most people would think of this as a solvency problem. Solvency means the ability to maintain the kind of society one has, with existing public/private checks and balances and living standards. It is incompatible with scaling down pensions, Social Security and medical insurance to save bondholders and bankers from taking a loss. The latter policy is nothing less than a political revolution.

The asset stripping that Europe’s bankers are demanding of Greece looks like a dress rehearsal to prevent the “I won’t pay” movement from spreading to “Indignant Citizens” movements against financial austerity in Spain, Portugal and Italy. Bankers are trying to block governments from writing down debts, stretching out loans and reducing interest rates.

When a nation is directed to replace its mixed economy by transferring ownership of public infrastructure and enterprises to a financial class (mainly foreign), this is not merely “restoring solvency” by using long-term assets to pay short-term debts to maintain its balance-sheet net worth. It is a radical transformation to a centrally planned economy, shifting control out of the hands of elected representatives to those of financial managers whose time frame is short-term and extractive, not long-term and protective of social equity and basic needs.

Creditors are demanding a political transformation to replace democratic lawmakers with technocrats appointed by foreign bankers. When the economic surplus is pledged to bankers rather than invested at home, we are not merely dealing with “insolvency” but with an aggressive attack. Finance becomes a continuation of war, by economic means that are to be politicized. Acting on behalf of the commercial banks (from which most of its directors are drawn, and to which they intend to “descend from heaven” to take their rewards after serving their financial class), the European Central Bank insists on a political revolution to replace democratic government by a technocratic elite – not of industrial engineers, but of “financial engineers,” a polite name for asset stripping financial warriors. If Greece does not comply, they threaten to wreak domestic financial havoc by “pulling the plug” on Greek banks. This “carrot and stick” approach threatens that if Greece does not sign on, the ECB and IMF will withhold loans needed to keep its banking system solvent. The “carrot” was provided on May 31 they agreed to provide $86 billion in euros if Greece “puts off for the time being a restructuring, hard or soft,” of its public debt. [5]

It is a travesty to present this revolution simply as a financial exercise in solving the “liquidity problem” as if it were compatible with Europe’s past four centuries of political and classical economic reforms. This is why the Syntagma Square protest in front of Parliament has been growing each week, peaking at over 70,000 last Sunday, June 5.
Some protestors drew a parallel with the Wisconsin politicians who left the state to prevent a quorum from voting on the anti-labor program that Governor Walker tried to ram through. The next day, on June 6, thirty backbenchers of Prime Minister George Papandreou’s ruling Panhellenic Socialist party (Pasok) were joined by some of his own cabinet ministers threatening “to resign their parliamentary seats rather than vote through measures to cut thousands of public sector jobs, increase taxes again and dispose of €50bn of state assets, according to party insiders. ‘The biggest issue for the party is stringent cuts in the public sector ... these go to the heart of Pasok’s model of social protection by providing jobs in state entities for its supporters,’ said a senior Socialist official.” [6]

Seeing the popular reluctance to commit financial suicide, Conservative Opposition leader Antonis Samaras also opposed paying the European bankers, “demanding a renegotiation of the package agreed last week with the ‘troika’ of the EU, IMF and the European Central Bank.” It was obvious that no party could gain popular support for the ECB’s demand that Greece relinquish popular rule and “appoint experienced technocrats to half a dozen essential ministries to implement the EU-IMF programme.” [7]

ECB President Trichet depicts himself as following Erasmus in bringing Europe beyond its “strict concept of nationhood.” This is to be done by replacing elected officials with a bureaucracy of cosmopolitan banker-friendly planners. The debt problem calls for new “monetary policy measures – we call them ‘non standard’ decisions, strictly separated from the ‘standard’ decisions, and aimed at restoring a better transmission of our monetary policy in these abnormal market conditions.” The task at hand is to make these conditions a new normalcy – and re-defining solvency to reflect a nation’s ability to pay debts by selling the public domain.

The ECB and EU claim that Greece is “solvent” as long as it has assets to sell off. But if populations in today’s mixed economies think of solvency as existing under existing public/private proportions, they will resist the financial sector’s attempt to proceed with buyouts and foreclosures until it possesses all the assets in the world, all the hitherto public and corporate assets and those of individuals and partnerships.

To minimize opposition to this dynamic the financial sector’s pet economists understate the debt burden, pretending that it can be paid without disrupting economic life and, in the Greek case for example, by using “mark to model” junk accounting and derivative swaps to simply conceal its magnitude. Dominique Strauss-Kahn at the IMF claims that the post-2008 debt crisis is merely a short-term “liquidity problem” and one of lack of “confidence,” not insolvency reflecting an underlying inability to pay. Banks promise that everything will be all right when the economy “returns to normal” – as if it can “borrow its way out of debt,” Bernanke-style.

This is what today’s financial warfare is about. At issue is the financial sector’s relationship to the “real” economy. From the latter’s perspective the proper role of credit – that is, debt – is to fund productive capital investment and spending, because it is out of the economic surplus that debts are paid. This requires a financial regulatory system and tax system to maximize growth. But that is precisely the fiscal policy that today’s financial sector is fighting against. It demands preferential tax-deductibility for interest to encourage debt financing rather than equity. It has disabled truth-in-lending laws and regulations to keeping interest rates and fees in line with costs of production. And it blocks governments from having central banks to freely finance their own operations and provide economies with money. And to cap matters it now demands that democratic society yield to centralized authoritarian financial rule.

Finance and democracy: from mutual reinforcement to antagonism
The relationship between banking and democracy has taken many twists over the centuries. Earlier this year, democratic opposition to the ECB and IMF attempt to impose austerity and privatization selloffs succeeded when Iceland’s President Grímsson insisted on a national referendum on the Icesave debt payment that Althing leaders had negotiated with Britain and the Netherlands (if one can characterize abject capitulation as a real negotiation). To their credit, a heavy 3-to-2 majority of Icelanders voted “No,” saving their economy from being driven into the debt peonage.

Democratic action historically has been needed to enforce debt collection. Until four centuries ago royal treasuries typically were kept in the royal bedroom, and loans to rulers were in the character of personal debts. Bankers repeatedly found themselves burned, especially by Habsburg and Bourbon despots on the thrones of Spain, Austria and France. Loans to such rulers were liable to expire upon their death, unless their successors remained dependent on these same financiers rather than turning to their rivals. The numerous bankruptcies of Spain’s autocratic Habsburg ruler Charles V exhausted his credit, preventing the nation from raising funds to defeat the rebellious Low Countries to the north.

The problem facing bankers was how to make loans permanent national obligations. Solving this problem gave an advantage to parliamentary democracies. It was a major factor enabling the Low Countries to win their independence from Habsburg Spain in the 16th century. The Dutch Republic committed the entire nation to pay its public debts, binding the people themselves, through their elected representatives who earmarked taxes to their creditors. Bankers saw parliamentary democracy as a precondition for making sound loans to governments. This security for bankers could be achieved only from electorates having at least a nominal voice in government. And raising war loans was a key element in military rivalry in an epoch when the maxim for survival was “Money is the sinews of war.”

As long as governments remained despotic, they found that their ability to incur more debt was limited. At this time “the legal position of the King qua borrower was obscure, and it was still doubtful whether his creditors had any remedy against him in case of default.” [8] Earlier Dutch-English financing had not satisfied creditors on this count. When Charles I borrowed 650,000 guilders from the Dutch States-General in 1625, the two countries’ military alliance against Spain helped defer the implicit constitutional struggle over who ultimately was liable for British debts.

The key financial achievement of parliamentary government was thus to establish nations as political bodies whose debts were not merely the personal obligations of rulers, but truly public and binding regardless of who occupied the throne. This is why the first two democratic nations, the Netherlands and Britain after its 1688 dynastic linkage between Holland and Britain in the person of William I, and the emergence of Parliamentary authority over public financing. They developed the most active capital markets and became Europe’s leading military powers. “A funded debt could not be formed so long as the King and Parliament were fighting for the mastery,” concludes the financial historian Richard Ehrenberg. “It was only after the [1688] revolution that the English State became what the Dutch Republic had long been – a real corporation of individuals firmly associated together, a permanent organism.” [9]

In sum, nations emerged in their modern form by adopting the financial characteristics of democratic city states. The financial imperatives of 17th-century warfare helped make these democracies victorious, for the new national financial systems facilitated military spending on a vastly extended scale. Conversely, the more despotic Spain, Austria and France became, the greater the difficulty they found in financing their military adventures. Austria was left “without credit, and consequently without much debt” by the end of the 18th century, the least credit-worthy and worst armed country in Europe, as Sir James Steuart noted in 1767 [10]. It became fully dependent on British subsidies and loan guarantees by the time of the Napoleonic Wars. 

The modern epoch of war financing therefore went hand in hand with the spread of parliamentary democracy. The situation was similar to that enjoyed by plebeian tribunes in Rome in the early centuries of its Republic. They were able to veto all military funding until the patricians made political concessions. The lesson was not lost on 18th-century Protestant parliaments. For war debts and other national obligations to become binding, the people’s elected representatives had to pledge taxes. This could be achieved only by giving the electorate a voice in government.

It thus was the desire to be repaid that turned the preference of creditors away from autocracies toward democracies. In the end it was only from democracies that they were able to collect. This of course did not necessarily reflect liberal political convictions on the part of creditors. They simply wanted to be paid.

Europe’s sovereign commercial cities developed the best credit ratings, and hence were best able to employ mercenaries. Access to credit was “their most powerful weapon in the struggle for their freedom,” notes Ehrenberg, in an age whose “growth in the use of fire arms had forced them to surround themselves with stronger fortifications.” [11] The problem was that “Anyone who gave credit to a prince knew that the repayment of the debt depended only on his debtor's capacity and will to pay. The case was very different for the cities, who had power as overlords, but were also corporations, associations of individuals held in common bond. According to the generally accepted law each individual burgher was liable for the debts of the city both with his person and his property.”

But the tables are now turning, from Icelandic voters to the large crowds gathering in Syntagma Square and elsewhere throughout Greece to oppose the terms on which Prime Minister Papandreou has been negotiating an EU bailout loan for the government – to bail out German and French banks. Now that nations are not raising money for war but to subsidize reckless predatory bankers, Jean-Claude Trichet of the ECB recently suggested taking financial policy out of the hands of democracy.

But if a country is still not delivering, I think all would agree that the second stage has to be different. Would it go too far if we envisaged, at this second stage, giving euro area authorities a much deeper and authoritative say in the formation of the country’s economic policies if these go harmfully astray? A direct influence, well over and above the reinforced surveillance that is presently envisaged? …

At issue is sovereignty itself, when it comes to government responsibility for debts. And in this respect the war being waged against Greece by the European Central Bank (ECB) may best be seen as a dress rehearsal not only for the rest of Europe, but for what financial lobbyists would like to bring about in the United States.

[1] Yves Smith, “Wisconsin’s Walker Joins Government Asset Giveaway Club (and is Rahm Soon to Follow?)” Naked Capitalism, February 22, 2011.
[2] Ralph Atkins, “Transcript: Lorenzo Bini Smaghi,” Financial Times, May 30, 2011.
[3] Jack Ewing, “In Asset Sale, Greece to Give Up 10% Stake in Telecom Company,” The New York Times, June 7, 2011.
[4] Christopher Lawton and Laura Stevens, “Deutsche Telekom, Others Look to Grab State-Owned Assets at Fire-Sale Prices,” Wall Street Journal, June 7, 2011.
[5] Landon Thomas Jr., “New Rescue Package for Greece Takes Shape,” The New York Times, June 1, 2011.
[6] Kerin Hope, “Rift widens on Greek reform plan,” Financial Times, June 7, 2011.
[7] Ibid. See also Kerin Hope, “Thousands protest against Greek austerity,” Financial Times, June 6, 2011: “‘Thieves, thieves ... Where did our money go?’ the protesters shouted, blowing whistles and waving Greek flags as riot police thickened ranks around the parliament building on Syntagma square in the centre of the capital. … Banners draped nearby read ‘Take back the new measures’ and ‘Greece is not for sale’ – a reference to the government’s plans to include state property and real estate for tourist development in the privatisation scheme.”
[8] Charles Wilson, England’s Apprenticeship: 1603-1763 (London: 1965), p. 89.
[9] Richard Ehrenberg, Capital and Finance in the Age of the Renaissance (1928), p. 354.
[10] James Steuart, Principles of Political Oeconomy (1767), p. 353.
[11] Ehrenberg, op. cit., pp. 44f., 33.