The Chicken-Little Debt Crisis - The U.S. Has a Revenue Problem Not the Fake Spending Crisis Cooked Up By Republicans

The Chicken-Little Debt Crisis - The U.S. Has a Revenue Problem Not the Fake Spending Crisis Cooked Up By Republicans

Whenever someone like me(Nobel economist Paul Krugman) or Bruce Bartlett points out how little Obama resembles the right’s portrait of a raging leftist, someone is sure to come back with the assertion that Obama has presided over a vast expansion of federal spending. Even people who really should know better, like John Taylor, do it.

So what’s the truth? I’ve written about this before, but here’s another take.

The fact is that federal spending rose from 19.6% of GDP in fiscal 2007 to 23.8% of GDP in fiscal 2010. So isn’t that a huge spending spree? Well, no.

First of all, the size of a ratio depends on the denominator as well as the numerator. GDP has fallen sharply relative to the economy’s potential; here’s the ratio of real GDP to the CBO’s estimate of potential GDP:

A 6 percent fall in GDP relative to trend, all by itself, would have raised the ratio of spending to GDP from 19.6 to 20.8, or about 30 percent of the actual rise.

That still leaves a rise in spending; but most of that is safety-net programs, which spend more in hard times because more people are in distress. The CBO breaks out “income security” (Table E-10 in Historical Budget Tables), which is unemployment insurance, food stamps, etc., and also gives us numbers on Medicaid; here’s what they look like as percentages of GDP:

That’s another 2 points of GDP, or about half the rise.

So we’re still left with a bit, around 1 point of GDP. That’s the stimulus, more or less. And there are two things you need to know about it. First, it’s temporary, and already fading out fast. Second, a large part of the stimulus “spending” was actually aid to state and local governments, intended not to expand spending but to avert a fall — that is, it was about maintaining government, not expanding it.

Now, pointing out the Obama spending binge is a myth generally produces rage: people know that it happened, because Rush Limbaugh and the Wall Street Journal say so. But that doesn’t make it true.

Safety net spending(chart with blue/red waves) because of the recession. The economy was shedding 700,000 jobs a month. It is only fair that people who had little to do with causing the recession, but were victims of it have some unemployment insurance benefits while they try to survive. Most of the spending that occured in 2009 was from polcies Republicans voted into law in 2008 - including TARP and the automakers bailout. Note in the graph at the very top that spending as a percent of GDP dropped back down to perfectly normal historical averages in 2010 and are predicted to remain at that level for years.

The Debt Ceiling Crisis And The Failure Of The Establishment( A crisis mind you invented by Republicans who raised the debt ceiling 7 times during the Bush administration when it was running up the largest deficit in US history)

The political assumptions here turned out to be badly wrong. The main problem is that the Republican Party does not actually care very much about the deficit. It cares about, in order: Low taxes for high-income earners; reducing social spending, especially for the poor; protecting the defense budget; and low deficits. The Obama administration and many Democrats actually do care about the deficit and are willing to sacrifice their priorities in order to achieve it, a desire that was on full display during the health care reform debate. Republicans care about deficit reduction only to the extent that it can be undertaken without impeding upon other, higher priorities. Primarily "deficit reduction" is a framing device for their opposition to social spending, as opposed to a genuine belief that revenue and outlays ought to bear some relationship to each other.

The Post has since published a series of increasingly terrified-sounding editorials pleading for a debt ceiling hike backing away from its bold hopes that the debt ceiling would produce a bipartisan compromise. In retrospect, they now see what should have been obvious: Increasing the political leverage of the Republican Party made a Grand Bargain less, not more, likely. Moreover, the deficit hawks who represent the center of Washington establishment thought badly underestimated the danger entailed by tying high stakes negotiations involving the Republican Party to a cataclysmic event. Happy visions of Bob Dole and Tip O'Neill danced in their heads, oblivious to the reality of what they were facing.

Republicans Are Telling a Dangerous Lie About Obama and Spending

Bush vs. Obama on Spending: It's No Contest - See chart above.

The No. 1 Republican talking point these days seems to be this: Profligate spending by President Barack Obama is the reason we face a debt-ceiling crisis.

Any rational, reasonably well informed citizen should know that is not true. But prominent GOPers still chant it like a mantra. God only knows how many otherwise sane Americans are starting to believe it.

That's why a chart in Monday's New York Times should be sent to every household in the US of A. It shows, in clear, indisputable numbers, that policy decisions by Republican president George W. Bush led to spending that dwarfs financial outlays under Obama. (See the chart at the end of this post.)

In fact, the cost of just the Bush tax cuts ($1.8 trillion) exceeds the costs of all spending under Obama ($1.4 trillion).

The final tally--$5.07 trillion of spending under Bush, $1.44 trillion under Obama. By the way, those figures for Obama are projections from 2009 to 2017. In other words, both presidents are being judged in eight-year time frames. And Bush "wins" the spending contest in a runaway.

If my math is correct, spending under Bush was more than three times greater than that under Obama. Yet we still get bilge like this from the blog of U.S. House Majority Leader Eric Cantor (R-VA): "President Obama Refuses To Acknowledge That His Out Of Control Spending Sparked A Debt Crisis."

In a piece titled "The Chart That Should Accompany All Discussions of the Debt Ceiling," James Fallows of The Atlantic explains why the Times' graphic handiwork is so important:

It's based on data from the Congressional Budget Office and the Center on Budget and Policy Priorities. Its significance is not partisan (who's "to blame" for the deficit) but intellectual. It demonstrates the utter incoherence of being very concerned about a structural federal deficit but ruling out of consideration the policy that was the largest single contributor to that deficit, namely the Bush-era tax cuts.

The chart is titled "Policy Changes Under Two Presidents," and Fallows says it is called that for a reason:

An additional significance of the chart: It identifies policy changes, the things over which Congress and Administration have some control, as opposed to largely external shocks--like the repercussions of the 9/11 attacks or the deep worldwide recession following the 2008 financial crisis. Those external events make a big difference in the deficit, and they are the major reason why deficits have increased faster in absolute terms during Obama's first two years than during the last two under Bush. (In a recession, tax revenues plunge, and government spending goes up--partly because of automatic programs like unemployment insurance, and partly in a deliberate attempt to keep the recession from getting worse.) If you want, you could even put the spending for wars in Iraq and Afghanistan in this category: Those were policy choices, but right or wrong they came in response to an external shock.

The point is that governments can respond to but not control external shocks. That's why we call them "shocks." Governments can control their policies. And the policy that did the most to magnify future deficits is the Bush-era tax cuts. You could argue that the stimulative effect of those cuts is worth it ("deficits don't matter" etc). But you cannot logically argue that we absolutely must reduce deficits, but that we absolutely must also preserve every penny of those tax cuts. Which I believe precisely describes the House Republican position.

In other words, the GOP of 2011 is utterly illogical. But large chunks of the America public still lap up Republican sound bites.

It is dangerous to the economy to make Americans think we're in a debt crisis when we're not. Americans stop spending because they lack confidence in the economy and that lack of spending makes the economy worse. Which is likely the reason Republicans are lying about spending because they want the economy they crashed to crash again under a Democratic president. Conservatives have always put their radical Anti-American agenda before what is best for the nation. So this is nothing new.

The Economic Plan Republicans Hate - How We Could Make The Debt Go Away

The Economic Plan Republicans Hate - How We Could Make The Debt Go Away

Once upon a time in America, back a century ago, our nation's rich paid virtually nothing in taxes to the federal government. And that same federal government did virtually nothing to better the lives of average Americans.

But those average Americans would do battle, over the next half century, to rein in the rich and the corporations that made them ever richer. And that struggle would prove remarkably successful. By the 1950s, America's rich and the corporations they ran were paying significant chunks of their annual incomes in taxes — and the federal projects and programs these taxes helped finance were actually improving average American lives.

America's wealthy, predictably, counterattacked — and, by the 1980s, they were scoring successes of their own.

Today, the rich and their corporations no longer bear anything close to their rightful share of the nation's tax burden. The federal government, given this revenue shortfall, is having a harder and harder time funding initiatives that help average working families. The result: a “debt crisis.”

This “debt crisis” in no way had to happen. No natural disaster, no tsunami, has suddenly pounded the United States out of fiscal balance. We have simply suffered a colossal political failure. Our powers that be, by feeding the rich and their corporations one massive tax break after another, have thrown a monstrous monkey wrench into our national finances.

Some numbers — from an Institute for Policy Studies report released this past spring — can help us better visualize just how monumental this political failure has been.

If corporations and households taking in $1 million or more in income each year were now paying taxes at the same annual rates as they did back in 1961, the IPS researchers found, the federal treasury would be collecting an additional $716 billion a year.

In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade.

Similarly stunning numbers have come, earlier this month, from MIT economist Peter Diamond and the University of California's Emmanuel Saez, the world's top authority on the incomes of the ultra-rich. These two scholars have shared some fascinating “what ifs” that dramatize how spectacularly the incomes of our wealthiest have soared over recent decades.

In 2007, Diamond and Saez point out, taxpayers in the nation's top 1 percent actually paid, on average, 22.4 percent of their incomes in federal taxes. If that actual tax burden were to about double to 43.5 percent, the top 1 percenter share of our national after-tax income would still be twice as high as the top 1 percent’s after-tax income share in 1970.

So why aren't we taxing the rich? Why are we now suffering such fearsome “debt crisis” angst? Why are our politicos so intent on shoving the “fiscal discipline” of layoffs and cutbacks — austerity — down the throats of average Americans?

No mystery here. Our political system is failing to tax the rich because the rich have fortunes large enough to buy off the political system. Again, some numbers can help us better visualize that plutocratic big picture.

In 2008, the IRS revealed this past May, 400 Americans reported at least $110 million in income on their federal tax returns. These 400 averaged $270.5 million each, the second-highest U.S. top 400 average income on record.

In 1955, by contrast, America’s top 400 averaged — in 2008 dollars — a mere $13.3 million. In other words, the top 400 in 2008 reported incomes that, after taking inflation into account, amounted to more than 20 times the incomes of America’s top 400 a half-century ago.

But 1955’s top 400 didn’t just make far less than 2008’s top 400. The rich in 1955 paid far more of their income in taxes than today’s rich. In 2008, the new IRS data show, the top 400 paid only 18.1 percent of their total incomes in federal income tax. The top 400 in 1955 paid 51.2 percent of their total incomes in tax.

The bottom line: After taxes, and after adjusting for inflation, 2008’s top 400 had a staggering $38.5 billion more left in their pockets than 1955’s most awesomely affluent.

Multiply that near $40 billion by the annual tax savings the rest of America's richest 1 percent have enjoyed over recent years and you have an enormous war chest for waging class war, billions upon billions of dollars available for bankrolling think tanks and candidates and right-wing media.

In the face of these billions, should the rest of us, America's vast non-rich majority, just toss in the towel? Our counterparts a century ago certainly didn't. They challenged their rich, on every battlefront imaginable. They eventually prevailed. They sheared their rich down to democratic size.

We can do the same.

Related to this are some tax sound bites from the radical Right: half of Americans do not pay taxes. That is clever. It is true that about half do not pay federal income taxes, but even the poorest Americans pay regressive sales taxes on which states have become more and more dependent. The wealthy pay most of the taxes and that just ain't fair. Well they profit the most from America's infrastructure and take huge cuts of the value added by labor, so they should pay more.

Lying Sleaze Bag of the Week Eric Cantor(R-Va) Opposed Debt Ceiling Increase, Now Calls Obama’s Opposition to Short-Term Increase ‘Indefensible’

Lying Sleaze Bag of the Week Eric Cantor(R-Va) Opposed Short-Term Debt Ceiling Increase, Now Calls Obama’s Opposition to Short-Term Increase ‘Indefensible’

Today, Speaker John Boehner(R-OH) told the House GOP caucus that he is preparing a short-term bill that would raise the debt ceiling for about six months, despite Obama’s pledge to veto such a measure. On the call, Majority Leader Eric Cantor blasted Obama for opposing it. The Wall Street Journal reports:

House Majority Leader Eric Cantor indicated in his remarks during the conference call that Republicans don’t want to give President Barack Obama a debt-ceiling deal that lasts past the 2012 elections. Mr. Cantor called the president’s insistence on a deal that carries through the election purely political and indefensible.

But late last month, Cantor himself vehemently opposed a short term deal:

House Majority Leader Eric Cantor pushed back hard Tuesday against Senate Republican suggestions of a scaled-back, short-term debt deal, saying it’s “crunch time” in White House budget talks and “if we can’t make the tough decisions now, why … would [we] be making those tough decisions later.”

“I don’t see how multiple votes on a debt ceiling increase can help get us to where we want to go,” the Virginia Republican told reporters. “It is my preference that we do this thing one time. … Putting off tough decisions is not what people want in this town.”

Standard and Poors, a credit rating agency, agrees that a short term deal would be bad for the nation’s credit. In a July 14 release S&P wrote “We may also lower the long-term rating and affirm the short-term rating if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering.”

Republicans are playing politics with the debt ceiling - they raised it seven times during the Bush administration without taking the economy hostage. There are currently 130 right-wing nuts in Congress who voted to raise the debt ceiling during the Bush era. Certainly this is all confusing to even those who have been paying attention - some days the debt ceiling is important some days days it is not according to conservative fanatics like Michele Bachmann(R-MN) who has said the debt ceiling should never be raised.

Who Is To Blame For Failure of Debt Ceiling Talks

130 Republicans Who Are In Congress Today Voted To Hike The Debt Ceiling Under Bush Without Hostage Threats

There was a time when House Republicans chose not to threaten the nation with default to get their agenda passed.

White House and congressional negotiators are currently in the process of striking a deficit reduction deal, as most Republicans in Congress are refusing to raise the federal debt ceiling without deep cuts to public investments and social insurance programs like Social Security and Medicare. By doing so, these Republicans are essentially holding the country hostage, threatening the United States with default unless Democrats agree to these cuts.

Yet these Republicans were not always demanding hostages in exchange for allowing the country to pay its own bills. In November of 2004, Congress voted in both the House and Senate to hike the U.S. debt limit by $800 billion, which raised the total ceiling to $8.1 trillion.

A ThinkProgress review of the votes in both the House and Senate finds that a whopping 130 congressional Republicans voted to hike the debt ceiling that November that remain in the U.S. Congress today (either in their same seats or by coming to the Senate). These members of Congress did not demand draconian cuts in public investment that would’ve driven up unemployment and threatened the economy in return.

Of course, there was one other difference between then and today. President George W. Bush was in the White House, and Republicans did not have an incentive to try to politically damage him by holding the debt ceiling hostage. In 2002, during another hike in the nation’s debt limit under Bush, his press secretary Ari Fleischer said it was important to raise the debt ceiling because it was not the time “to engage in activites that could in any way raise questions about the full faith and credit of the United States”:

MR. FLEISCHER: The Senate passed, 68-29, a clean increase in the debt limit. The President praises the Senate’s action. The debt limit is a very important issue. This is not the time to play any — this is not the time to engage in any activities that could in any way raise questions about the full faith and credit of the United States. And the President urges the House to follow the Senate’s action on this matter.

These votes also prove that these Republicans, when faced with the default of their country, are willing to vote to raise the debt ceiling; this indicates that it is perhaps unneccesary to strike any sort of deficit reduction deal at all to win their votes. If Republicans and Democrats want to strike a grand bargain on deficit reduction, they can certainly do that in the context of the budget appropriations process rather than holding the debt limit hostage.

Why increase the debt ceiling under Bush who everyone knew was charging two wars and Medicare part D on the national credit card. Because Bush was one of there own. There s no debt crsis under which we need to get our house in order. We have a revenue problem that is a legacy of most of the same Republicans who spent money like there was no tommorrow during the Bush years. Trying to blame Obama is like blaming the victims of identity theft for the debts rung up by thieves.