Economic Rapture Might Be around the Corner

If the deficit disappears, our economic nightmare might finally come to an end.

— By Salvatore Babones

It’s January 25, 2001, the first week of the Bush presidency and more than half a year before the September 11 attacks. Federal Reserve Chairman Alan Greenspan testifies before the Senate Budget Committee, asserting:

“If current policies remain in place, the total unified surplus will reach $800 billion in fiscal year 2011. The emerging key fiscal policy need is to address the implications of maintaining surpluses.”

As the poet William Wordsworth put it, “Bliss was it in that dawn to be alive!”

The 2011 fiscal year ended with a $1.3-trillion deficit. How did America go from a state of “burgeoning federal surpluses” (in Greenspan’s words in 2001) to “extraordinary financial crisis” (the way he put it in 2010) in just one decade? Two words suffice: tax cuts.

Forget the recession and the Bush-Obama stimulus packages. Those are history.

The recession ended three years ago — at least in terms of economic growth. So why aren’t the deficits disappearing?

The problem is that taxes are just too low. Most Americans will shudder to hear those words, but it’s the truth. Taxmageddon? Bring it on.

If Congress does what Congress does best and takes no action by New Year’s Eve, both the Bush and Obama tax cuts will expire. On January 1, 2013:

• The Bush tax cuts on high-income filers will expire, returning the top marginal rate to its 1990s level of 39.6 percent.
• The alternative minimum tax will be restored for a large number of high-income filers that are currently exempt.
• Social Security employee payroll taxes will return to 6.2 percent from their current reduced level of 4.2 percent.

Other automatic mechanisms will result in spending reductions, including the elimination of extended unemployment insurance benefits for the long-term unemployed. Long-overdue Pentagon spending cuts will also go into effect.

The Congressional Budget Office (CBO) projects that these automatic tax increases and spending cuts would immediately cut the federal budget deficit in half, returning it to a manageable level.

The downside? According to the CBO, such a sudden tightening of the federal budget would reduce real economic growth from a projected 4.4 percent to just 0.5 percent in 2013.

I think we can have a lot of confidence in those projections. “Budget,” after all, is the CBO’s middle name.

But economic growth of 4.4 percent if only we keep our current low tax rates? I think CBO economists may be living the same low-tax fantasy as much of the rest of the economics profession.

Some facts: According to data from the Bureau of Economic Analysis, the last time real national income grew at a rate over 4 percent per year was in the high-tax 1990s.

The economy grew by over 4 percent a year four years in a row: 1997, 1998, 1999, and 2000.

That’s right. The last four times the economy grew by 4 percent were the four years before the Bush tax cuts. Go figure.

In the decade since the Bush tax cuts went into effect the highest recorded growth rate was 3.5 percent, in 2004.

Now, it just might be that roaring economic growth is right around the corner. Happy days will be here again if only Congress and President Barack Obama can take the tough actions necessary to prevent tax cuts from expiring.

Keep the candy coming and everything will work out just fine.

On the other hand, this might be the best time in history for a do-nothing Congress to deadlock over the issue and let the tax cuts expire.

It’s hard to know what direction the economy will take. But no one doubts that if the tax cuts expire, the deficit will disappear. And if the deficit disappears, our economic nightmare might finally come to an end.

Economic rapture may be just around the corner.

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Salvatore Babones is an American sociologist at the University of Sydney and an Institute for Policy Studies associate fellow. His book on the American economy, Benchmarking America, is due out in 2013. www.ips-dc.org
Distributed via OtherWords (OtherWords.org)

Ryan-Romney Budget Gives Away the Store

Congressman Paul Ryan has finally endorsed Mitt Romney as his preferred candidate for president.   Yeah, like we didn’t expect that coming.  Thus, it should be no surprise that both Romney and Ryan support the same key budget tenets — massive cuts to programs critical to its economic security of middle class Americans, and ending Medicare for our nation’s seniors as we’ve known it and paid into throughout our working careers — all so they can transform our nation’s wealth into outrageous tax cuts for millionaires and billionaires.

There budget plans would

• Turn Medicare into a voucher program to help pay for massive tax cuts to the wealthiest.
• Turn Medicaid into a block grant program that can easily be underfunded or diverted by states for other purposes.
• Protect tax loopholes that benefit oil companies and hedge fund managers.
• Repeal Health Care Reform, re-opening the do-nut hole, re-instituting pre-existing conditions and increasing health care costs to every American by thousands of dollars for not just medical premiums and services but in increased taxes as well.
• Make arbitrary cuts to programs essential to middle-class families like education, environment and clean energy.
• Provide large new tax cuts for millionaires and billionaires, above and beyond any permanent extension of the Bush tax cuts
• Not balance the budget and in fact, would increase our national debt.

But beyond the deep cuts in programs, those cuts mean some serious job losses in the public sector.  That means the Republicans intend to dump more Americans into the unemployment roles and simultaneously slash the safety net that would have assisted them.

Romney has said he is on the same page as Ryan – even “applauding” Ryan’s budget – so America’s seniors and the middle class need to take note of what this budget means to and for them.  Here’s a press release from the Obama/Biden Campaign that compares the two GOP budgets.  Is that where you think American should be going?  Do those represent your priorities for America?  If not, then get of your duff and get out there and fight for our ticket!

FOR IMMEDIATE RELEASE

Obama/Biden Campaign

THE RYAN-ROMNEY BUDGET PROMOTES GIVEAWAYS TO OIL COMPANIES, WALL STREET, 
AND THE WEALTHIEST WHILE SENIORS AND THE MIDDLE CLASS FOOT THE BILL

“Governor Romney has said he is on the same page as Congressman Ryan, so America’s seniors and the middle class should take note of what that means for them. The Romney and Ryan budgets would turn Medicare into a voucher program, increase health care costs to seniors by thousands of dollars and make arbitrary cuts to programs essential to middle class families like education and clean energy, all while giving massive tax cuts to the wealthiest and protecting taxpayer subsidies to oil companies and hedge fund managers. And by repealing health care reform and cutting over $1 trillion from Medicaid, Governor Romney and Congressman Ryan would deny coverage to approximately 50 million Americans who currently have it, including low-income children, pregnant women, nursing home patients and people with disabilities. We can’t do the same thing and expect a different result – Governor Romney has embraced a carbon copy of the policies that led to the economic crisis.” — Ben LaBolt, Press Secretary

ROMNEY-RYAN BUDGET: TAX CUTS FOR THE TOP, DEEP CUTS FOR THE MIDDLE-CLASS

The budget released today by Rep. Paul Ryan mirrors the radical policies supported by Gov. Mitt Romney: massive tax breaks for millionaires and billionaires, privatize Medicare and deep, arbitrary cuts that hurt middle-class families.

	Ryan’s Path to Poverty	Romney Budget Plan
Mutual Admiration	“Look at what he put out! This is a great development. … This tracks perfectly with the House budget.” — Ryan on Romney’s budget,  Washington Post, 11/4/11	“When Paul Ryan put his plan out in the first place, I said it was a major advance, a big step forward, we were on the same page.”  — Romney on Ryan’s Medicare plan New York Times, 2/1/12
Privatizes Medicare	YES. Turns Medicare into a voucher program that shifts costs to seniors.	YES. Similar voucher plans make seniors pay $6,350 more a year. Charges seniors more for prescription drugs and preventive care. Increases payments to insurance companies by $100 billion and repeals other reforms, accelerating the exhaustion of the Medicare trust fund to 2016.
Breaks Bipartisan Deal on Spending	YES. Deep cuts to domestic spending would break the bipartisan agreement. Cuts would cost jobs and hurt average Americans, slashing investments in education, clean energy and scientific and medical research.	YES. Proposes similarly deep cuts to discretionary spending that would also break the bipartisan deal. Holding true to his promise to balance the budget would require deeper cuts to all domestic spending than the House plan.
Huge Tax Cuts for the Wealthy	YES. Extends all of the Bush tax cuts. Provides trillions more in tax rate cuts weighted towards the rich without specifying how to pay for them.	YES. Extends all of the Bush tax cuts. Provides $5 trillion in tax cuts weighted towards the wealthy without specifying how to pay for them.
Deep Cuts in Medicaid and Healthcare Coverage	YES. Repeals health reform and cuts over $1 trillion from Medicaid over the decade. Deny coverage to up to 60 million people, including low-income children, pregnant women, nursing home patients, and people with disabilities.	YES. Repeals health reform and cuts over $1 trillion from Medicaid over the decade. Deny coverage to up to 53 million people, including low-income children, pregnant women, nursing home patients, and people with disabilities.
Repeals Key Protections in Wall Street Reform	YES. Rolls back key protections in Wall Street Reform designed to prevent future financial crises and end the era of “too big to fail.”	YES. Repeals all of Wall Street Reform,  even though it creates no budget  savings.

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End note:  Absent from the Obama/Biden press release above was the restoration of the sequestration cuts that were made to military spending which takes up, by far, the largest portion of spending in the federal budget.  It is time to put our money “where our mouth is” and stop putting money into more and more weapons of destruction and involving our Country in one armed conflict after another.  Maybe we should mandate that every Republican is required to watch that new “Bully” film and