Six Myths Explained About Taxing The Wealthy

Six Myths Explained About Taxing The Wealthy

On Saturday, the Obama administration unveiled the "Buffett Rule [1]," a proposed tax on millionaires and billionaires named after celebrity investor Warren Buffett, who has long argued that the federal government should demand more of the wealthy. The millionaires tax is certain to become a major point of contention in the 2012 presidential campaign, and Republicans have wasted no time in heaping it with calumnies. Here are the six most popular conservative arguments against a progressive tax code, and why they're wrong:

It's class warfare! [2]
Yeah right. Three decades of laissez-faire economic polices have allowed the rich to double their share of the national income while paying tax rates a fifth lower than before. The result, notes Kevin Drum [3], was "wage stagnation for everyone else, a massive financial collapse that ravaged the middle class, an enormous deficits that they'll be asked to pay off eventually." If the millionaires tax is the only blowback, the wealthy should count their blessings.

It's a tax on small business [4]
"Don't forget that most small businesses file taxes as individuals," House Budget Committee Chairman Paul Ryan (R-Wis.) said on Fox News Sunday. "So when you are raising top tax rates, you are raising taxes on these job creators." Except when you aren't. ThinkProgress's Pat Garofalo points out [5] that fewer than 2 percent of the nation's small businesses fall into either of the top two tax brackets. Plus, many of the small business filers in the upper brackets are merely investors who have nothing to do with running the business. And if small businesses don't want to pay taxes as individuals, they can file as corporations.

It reduces incentives to work and invest [6]
Experience shows otherwise. As Nancy Folbre points out [7] over at Economix, "average annual rates of growth in gross domestic product in the high tax era between 1950 and 1980 exceeded those of the last 30 years. Increases in the top tax rate under President Bill Clinton were followed by robust economic expansion."

It's an unstable source of revenue [8]
A recent essay [8] in the Wall Street Journal argued that the high volatility of upper-level income makes it impractical to rely on taxing it. But this concern is vastly overblown [9] and can be easily dealt with by establishing rainy day funds.

It's unfair [10]
In the libertarian view, the rich are entitled to their gains because they worked for them. But this ignores how structural changes in the economy such as globalization, financial deregulation, and the rise of the knowledge-based economy have disproportionately rewarded the wealthy [11]. At the same time, we've failed to reinvest in government programs that once leveled the playing field, such as financing for community colleges and public universities [12].

The rich will leave the country [13]
Good riddance, writes [14] Don Peck in a recent Atlantic essay on how to save the middle class: "America remains a magnet for talent, for reasons that go beyond the tax code; and by international standards, none of the tax changes recommended here would create an excessive tax burden on high earners. If a few financiers choose to decamp for some small island-state in search of the smallest possible tax bill, we should wish them good luck."
Source URL: http://motherjones.com/mojo/2011/09/6-dumb-arguments-against-taxing-rich-explained

Links:
[1] http://www.nytimes.com/2011/09/18/us/politics/obama-tax-plan-would-ask-more-of-millionaires.html?pagewanted=2
[2] http://www.outsidethebeltway.com/obamas-millionaires-tax/
[3] http://motherjones.com/kevin-drum/2011/09/paul-ryan-insults-our-intelligence-yet-again
[4] http://www.foxnews.com/on-air/fox-news-sunday/2011/09/18/rep-paul-ryan-rips-obamas-jobs-plan-herman-cain-defends-his-999-tax-proposal
[5] http://thinkprogress.org/economy/2011/09/19/322193/small-business-taxes-lies/
[6] http://spectator.org/blog/2011/09/18/thoughts-on-obamas-buffett-rul
[7] http://economix.blogs.nytimes.com/2011/04/11/taxing-the-rich/
[8] http://online.wsj.com/article/SB10001424052748704604704576220491592684626.html
[9] http://www.remappingdebate.org/article/wsj-story-exaggerates-price-taxing-rich-cherry-picks-data
[10] http://reason.com/archives/2010/09/30/taxing-the-rich
[11] http://motherjones.com/politics/2011/02/income-inequality-labor-union-decline
[12] http://motherjones.com/mojo/2011/09/why-expanding-colleges-wont-fix-income-inequality
[13] http://www.ronpaulforums.com/showthread.php?193824-Maryland-Tax-Raise-Backfires-When-Millionaires-Flee
[14] http://www.theatlantic.com/magazine/archive/2011/09/can-the-middle-class-be-saved/8600/?single_page=true

Perhaps the biggest myth surrounding the wealthiest 10% of U.S. citizens is that they are the "producers". Most of us have little problem with a business owner taking large compensation if earnings are high. Yet those owners and everyone else needs to keep one fundamental fact in mind - all capital starts with and is perpetrated by some doing some labor - in modern times that means making a product or providing a service. Take away labor and those so-called producers are just people with day dreams. The wealthy and conservatives especially have gotten very arrogant about how valuable they are. They'll be shocked to find that if they packed and moved to some no tax island tomorrow not only will America survive, we'll be better off without them.

Much of the World, Including The U.S., Does Does Practice Capitalism, They Practice Greed

Much of the World, Including The U.S., Does Does Practice Capitalism, They Practice Greed

For those looking for signs of how globalization has woven the world into a web of unexpected vulnerability, 2011 offered a bumper crop.

An earthquake in Japan sent the global auto manufacturing industry into a conniption.

A flood in Thailand drastically reduced supplies of computer hard drives, forcing even a titan like Intel to swiftly reduce revenue forecasts.

State-subsidized solar panel production in China crushed a U.S.-subsidized solar start-up, thereby igniting a Washington political scandal.

It is child’s play to find further examples. The underlying reality is that unexpected consequences make everyone nervous. Sensibilities are on hair trigger. Just two weeks ago, the New York Times captured the new jitteriness in a single quote. In a story reporting how U.S. stock traders were increasingly setting their alarm clocks for the middle of the night, in order to absorb the latest news from Europe as soon as it started to break, one stock analyst, Michael Mayo, complains in a tone of bemused wonder: “Who would have thought we would have to be looking at Italian sovereign debt yields to figure out what Morgan Stanley’s stock will do?”
For those who haven’t been living and dying on every twist and turn of the European financial crisis, some unpacking of that sentence may be in order. Most modern governments routinely auction some form of state-backed bonds or other securities in order to raise cash. If the bond investors aren’t excited about the opportunity — let’s suppose, just for argument’s sake, that they’re afraid the Italian economy is about to collapse — then Italy must offer a higher interest rate, or yield, on those bonds to attract buyers. The higher the yield, the more negative the bond market’s judgment is assumed to be.

But for most of November and December, the health of Italy’s debt sales became not merely a judgment on Italy’s economic health and fiscal stability, but a swiftly translated proxy for investor sentiment about the state of all Europe. If Italy ran into real trouble, so the theory went, France and Germany would soon be swept into the vortex. And a European recession would obviously be bad news for the rest of the world. So one unsuccessful auction in Rome becomes immediate cause for bearish sentiment in New York and Tokyo and Shanghai.

And no one wants to be caught more than one nanosecond out of the loop. If the orders go out to sell or buy, you want to get there first. Since now, more than ever, bad news travels fast, everyone’s got to be quick on the trigger.

It doesn’t seem healthy, but we’re going to have to get used to it. Volatility and vulnerability are built into the infrastructure of our modern world. The jury may still out on the chaos theory question of whether a single butterfly flapping its wings in Botswana can cause a typhoon in the Philippines, but we now know without a shadow of a doubt that the relative success or failure of a troubled European government’s attempt to raise cash can send instant shock waves across financial markets across the globe.

And we know, intimately, that it doesn’t take much to set off a cascade of trouble — after the great global crash of 2008, traders everywhere are in a state of permanent PTSD. Beyond the obvious surface connections between markets — that European recession slowing U.S. economic growth — there are abundant linkages beneath the scenes that are obscure and hard to unravel, interconnections woven by complex derivatives and hedging strategies and computer-driven high-speed trading algorithms that instantly translate woe in one market to panic in another.

The inescapable conclusion: Our modern high-tech markets, in which more money than ever before swirls around the globe in a blink of an eye, are better at transmitting panic and fear than anything heretofore created by humans. If civilization is supposed to imply progress, then something has gone very awry: In the second decade of the 21st century, our infrastructure is increasingly fragile, increasingly prone to disruption. The sword of Damocles hangs above everyone’s head, and the thread that keeps it from falling is fraying perilously thin.

What is perhaps most fascinating about this state of affairs is how it has arisen as a consequence of global capital’s relentless quest for lower operating costs and greater efficiency and flexibility. The better we get at extending supply and production chains across the globe, the more vulnerable those chains become to a disruption at any given point. The faster we enable the transmission of information around the world and through the financial markets, the more volatile those markets become, as every new headline sends a different trading signal.

 If you want to fix this, guess what, according to right-wing conservatives, you're a socialist. If you want a capitalist system, a free market system that does regularly crush the middle and blue collar class, you're a stinking commie. In America we just do not have adult conversations about how to make things better because any talk of making things better, more fair, less catastrophic gets you labeled a communist. Do you hope your kids will live in a fair enlighetned societyand does not have to go through the economic insecurity you have to live with? Forget it. The powers that be have decided that greed is good. The powers that be have decided any attempt to bring back regulations like Glass–Steagall Act to protect average Americans is Marxism on wheels.

Conservative Republicans Subscribe to Trickle Down Supply-side Economics - An Economic Theory That Has Never Worked Anywhere in the World, Ever

Conservative Republicans Subscribe to Trickle Down Supply-side Economics - An Economic Theory That Has Never Worked Anywhere in the World, Ever

In 1910, former President Theodore Roosevelt gave his rousing “New Nationalism” speech in Osawatomie, Kansas, where he called for new approaches to dealing with the problems the nation faced. President Obama visited Osawatomie today, and in his own speech — his first major economic speech since Occupy Wall Street protests began highlighting income inequality and corporate greed — Obama called for a new approach to addressing America’s current economic challenges.

In the process, Obama fired a shot across the bow of 30 years of conservative economic theory, a shot that was sorely needed but has been left in the chamber by Democratic presidents and political leaders, Obama included, far too often. Trickle down economics, the conservative theory embraced by Ronald Reagan and virtually every conservative since, “doesn’t work,” Obama declared. And even as conservatives have clung to the idea in the face of overwhelming evidence against it, “it has never worked,” Obama added:

    Now, just as there was in Teddy Roosevelt’s time, there’s been a certain crowd in Washington for the last few decades who respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If only we cut more regulations and cut more taxes – especially for the wealthy – our economy will grow stronger. Sure, there will be winners and losers. But if the winners do really well, jobs and prosperity will eventually trickle down to everyone else. And even if prosperity doesn’t trickle down, they argue, that’s the price of liberty.

    It’s a simple theory – one that speaks to our rugged individualism and healthy skepticism of too much government. And that theory fits well on a bumper sticker. Here’s the problem: It doesn’t work. It has never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war boom of the 50s and 60s. And it didn’t work when we tried it during the last decade.


Obama is right. The trickle-down policies put in place since the Reagan administration haven’t brought prosperity to the middle- and working-classes; if anything, they have made prosperity an illusion for the vast majority of Americans who don’t directly benefit from them.

Tax cuts for the wealthy, primarily those passed by Republicans in 2001 and 2003, lowered rates for the richest Americans to historically low levels — but those cuts were followed by massive deficits and weak job growth, not the economic boom conservatives promised. Anti-regulatory policies helped lead to a predatory financial system that busted the housing market, nearly collapsed the financial industry, and threw America into a recession that largely spared — and even enriched — the nation’s wealthiest. At the same time, millions of lower- and middle-class Americans lost jobs, retirement funds, and any hope of economic prosperity in their lifetime. Under 30 years of trickle down policies, wage growth has stagnated even as CEO pay has boomed.

Unfortunately, Obama’s speech won’t be enough to make such policies disappear. Republicans continue to espouse the same ideas — loosening regulations and cutting taxes on the rich while slashing programs that benefit the working- and middle-classes — in their attempts to bring about recovery. If history is any indicator, however, those policies would again fail to boost job creation and economic growth. As Obama noted today, those policies don’t work, and they never have.

The Bush tax cuts were supposed to be like rocket fuel for the economy. We've had them for 10 years. Anyone from blue-collar working class to middle-class can look around and tell you those jobs were just unicorns and magic rainbows, not reality.

Conservatism Down The Rabbit Hole - America deserves better from its business leaders: Making a profit shouldn't be the only bottom line

Conservatism Down The Rabbit Hole - America deserves better from its business leaders: Making a profit shouldn't be the only bottom line

Do corporations have a social responsibility to be decent, upstanding citizens? Is there a moral imperative that the likes of Bank of America, General Electric and Apple should boost employment, refrain from contributing to inequality, or restrain themselves from despoiling the environment, simply because those are the right things to do?

If you spend even a cursory amount of time investigating this question, you will speedily find yourself reckoning with the answer delivered four decades ago by the economist Milton Friedman: A most emphatic no.

In “The Social Responsibility of Business Is to Increase Its Profits,” originally published in the New York Times Sunday Magazine in 1970, Friedman, the arch-deacon of free market economics, declared that any businessman who thinks a corporation should take “seriously its responsibilities for providing em­ployment, eliminating discrimination, avoid­ing pollution and whatever else” was “preach­ing pure and unadulterated socialism.”

    Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades … In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.

The great irony of Friedman’s hard line is that in 1970, his words probably sounded much more extreme than they do today. Despite decades of lip service to the idea of “corporate social responsibility,” the notions that corporations do best when most untrammeled by regulatory constraint or that they should only be guided by a desire to generate the maximum return on investment for their shareholders are now bedrock ideological fixations of the contemporary Republican Party.

In fact, one could well argue that we are currently closer to Friedman’s utopia than during any other period in living memory. The Supreme Court has vastly loosened restrictions on corporate spending on the political process, trade policy has supported a decades-long trend toward foreign investment, offshoring and outsourcing, corporate taxes are at a historic low, and even the worst financial crisis in decades has hardly resulted in more than a slap on the regulatory wrist for the guilty parties.

America had at least five decades of that shrill, pompous and self-righteous messaging from conservatives about "values". Where are they? America keeps waiting and getting screwed over by the "values" party. Maybe they meant they had the values of despots, plutocrats or Medieval monarchs. When is middle-class America going to wake up and stop getting the shaft from people who think think values are the same thing as economic tyranny.

Over The Last Forty Years America Has Often Followed The Path of Conservative Economic Policy - That Path Has Come Back to Haunt The Middle-Class

Over The Last Forty Years America Has Often Followed The Path of Conservative Economic Policy - That Path Has Come Back to Haunt The Middle-Class

A few weeks ago, as the Occupy Wall Street protests were first spreading, something amazing happened: For 10 whole seconds, the local reporter on my TV screen actually talked about the realities of the recession. He even uttered the phrase “economic inequality.”

My guess is that you’ve seen something similar on your local affiliate — and that’s no minor event. When even the most local of television journalists are compelled to acknowledge this crushing emergency in a country whose media aggressively promotes American dream agitprop, it means the Occupy protesters have scored a monumental victory. You can almost imagine a Wall Street CEO turning to an aide and muttering a slightly altered riff off LBJ: “If we’ve lost Ron Burgundy, we’ve lost Middle America.”

In response to this stunning turn of events, conservative politicians are retreating to non sequiturs. They seem to think that if they shout the phrase “class warfare” enough, the nation will go back to not caring about the divide between the rich and poor.

But something has changed.

For most of the post-World War II era, we tolerated relatively high inequality because we envisioned it as a necessary side effect of an exceptional economy that (supposedly) guaranteed opportunities for advancement. As the Wall Street Journal put it, we believed that “it is OK to have ever-greater differences between rich and poor … as long as (our) children have a good chance of grasping the brass ring.”

However, the last three decades have invalidated our standing hypothesis. After the conservatives’ successful assault on the New Deal, America has lived a different reality — one perfectly summarized by a new Federal Reserve study revealing that today’s increasing inequality accompanies comparatively low social mobility.

“U.S. family income mobility has decreased over the 1969-2006 time span, and especially since the 1980s,” notes the Fed paper, adding that “a family’s position at (the) end of (the) 2000s was … more correlated with its start position than was the case 20 years earlier.”

Of course, some class mobility still exists. The trouble is that it’s primarily of the downward kind. As the Pew Charitable Trusts reports, roughly a third of those who grew up in the middle class have now fallen below that station in adulthood.

This is why, for all the right-wing mythology about “Eurosocialism” snuffing out upward mobility, data from the Organization for Economic Cooperation and Development show that social mobility in uber-capitalist America is actually lower than in most industrialized countries.

This is why almost three-quarters of respondents just told the Hill newspaper’s pollsters that income inequality is a problem.

This is why my local TV news is suddenly airing pieces on economic inequality between sports, weather and all the “you stay classy” small talk.

And this is why, among all the fights over economic policy, the debate about taxes is the most crucial of all.

As the Fed noted in a separate report, the federal tax code — which remains vaguely progressive — has been the one proven way to “mitigate income inequality.” But with congressional Republicans gradually flattening federal income tax rates and with already-regressive state tax rates in GOP bastions like Texas, Wyoming, Tennessee, South Dakota and Mississippi, the tax system has lately been preserving or exacerbating existing inequality.

David Sirota is a best-selling author of the new book "Back to Our Future: How the 1980s Explain the World We Live In Now."

Conservatives have been hyper shrill lately. Claiming that a return of the tax rates of the prosperous Clinton years will be a return to Marxism or even the end of our civilization. You can't reason with people like that, people who have clearly gone off the deep end. They seemed to have taken the zealotry of some religious cults to and applied it to economics. They believe what they believe and they want no part of being rational adults.

The Conservative Redistribution of Income is Grand Theft for Plutocrats

Here(chart), from the CBO report, are the changes, in percentage points, of the shares of income going to three groups. The top quintile excluding the top 1 percent – which is basically the abode of the well-educated who aren’t among the very lucky few – has only kept pace with the overall growth in incomes. Just about all of the redistribution has taken place from the bottom 80 to the top 1 (and we know that most of that has actually gone to the top 0.1).

 Oligarchy, American Style

Inequality is back in the news, largely thanks to Occupy Wall Street, but with an assist from the Congressional Budget Office. And you know what that means: It’s time to roll out the obfuscators! [Here, from the CBO report, are the changes, in percentage points, of the shares of income going to three groups. The top quintile excluding the top 1 percent – which is basically the abode of the well-educated who aren’t among the very lucky few – has only kept pace with the overall growth in incomes. Just about all of the redistribution has taken place from the bottom 80 to the top 1 (and we know that most of that has actually gone to the top 0.1).]

Anyone who has tracked this issue over time knows what I mean. Whenever growing income disparities threaten to come into focus, a reliable set of defenders tries to bring back the blur. Think tanks put out reports claiming that inequality isn’t really rising, or that it doesn’t matter. Pundits try to put a more benign face on the phenomenon, claiming that it’s not really the wealthy few versus the rest, it’s the educated versus the less educated.

So what you need to know is that all of these claims are basically attempts to obscure the stark reality: We have a society in which money is increasingly concentrated in the hands of a few people, and in which that concentration of income and wealth threatens to make us a democracy in name only.

The budget office laid out some of that stark reality in a recent report, which documented a sharp decline in the share of total income going to lower- and middle-income Americans. We still like to think of ourselves as a middle-class country. But with the bottom 80 percent of households now receiving less than half of total income, that’s a vision increasingly at odds with reality.

In response, the usual suspects have rolled out some familiar arguments: the data are flawed (they aren’t); the rich are an ever-changing group (not so); and so on. The most popular argument right now seems, however, to be the claim that we may not be a middle-class society, but we’re still an upper-middle-class society, in which a broad class of highly educated workers, who have the skills to compete in the modern world, is doing very well.

It’s a nice story, and a lot less disturbing than the picture of a nation in which a much smaller group of rich people is becoming increasingly dominant. But it’s not true.

Workers with college degrees have indeed, on average, done better than workers without, and the gap has generally widened over time. But highly educated Americans have by no means been immune to income stagnation and growing economic insecurity. Wage gains for most college-educated workers have been unimpressive (and nonexistent since 2000), while even the well-educated can no longer count on getting jobs with good benefits. In particular, these days workers with a college degree but no further degrees are less likely to get workplace health coverage than workers with only a high school degree were in 1979.

So who is getting the big gains? A very small, wealthy minority.

The budget office report tells us that essentially all of the upward redistribution of income away from the bottom 80 percent has gone to the highest-income 1 percent of Americans. That is, the protesters who portray themselves as representing the interests of the 99 percent have it basically right, and the pundits solemnly assuring them that it’s really about education, not the gains of a small elite, have it completely wrong.

If anything, the protesters are setting the cutoff too low. The recent budget office report doesn’t look inside the top 1 percent, but an earlier report, which only went up to 2005, found that almost two-thirds of the rising share of the top percentile in income actually went to the top 0.1 percent — the richest thousandth of Americans, who saw their real incomes rise more than 400 percent over the period from 1979 to 2005.

Who’s in that top 0.1 percent? Are they heroic entrepreneurs creating jobs? No, for the most part, they’re corporate executives.

 Republicans - who really should be called the Right-wing Elitist Party - tells us that to complain about this redistribution of income from the working class to millionaires is socialism. Don't fall for that old canard. America has become an economy that gives rich people money just for being rich not because they worked for it. They get that wealth from where all wealth starts, from average Americans producing goods and services. The 1% are the leeches and the 99% are the producers.

Did Fannie Mae, Freddie Mac Or The Community Reinvestment Act Cause the Recession

Private lenders issued vast majority of sub-prime loans

Did Fannie Mae, Freddie Mac Or The Community Reinvestment Act Cause the Recession

In the four years since the housing bubble burst, triggering a collapse in global financial markets whose value had been propped up through the repackaging and trading of home loans via complex financial instruments, there's been plenty of blame to go around. The Occupy Wall Street protests have called new attention to the root causes of the crisis, and led Republicans to reiterate their claim that government-backed lenders Fannie Mae and Freddie Mac were the primary villains. The facts about the subprime mortgage market prove that claim false: Private firms dominated the subprime market boom of 2004-06, and were not even subject to the 1977 Community Reinvestment Act some Republicans vilify. Thanks to decades of financial deregulation, capped by President Bush's decision to appoint Wall Street regulators who believed their job was to help banks rather than curb banking abuses, financial giants were able to turn the mortgage market into a high-stakes casino. As investigative reporters and Congress' Financial Crisis Inquiry Commission have all shown, it was deregulation mixed with irresponsible and potentially illegal practices by private firms on Wall Street that caused both the bubble and the collapse.

Republicans Blame The Financial Crisis On Fannie Mae, Freddie Mac, And Government Policy

Facts Show Private Lenders Who Were Not Subject To CRA, Not Government-Backed Ones Who Were, Drove The Subprime Mortgage Market

Deregulation Of Financial Markets And GOP-Appointed Absentee Regulators Paved The Way For The Subprime Bubble To Cause A Broad Collapse

"Financial Crisis Inquiry Commission" Expert Panel Found Wall Street Recklessness Caused The Crisis

Author Of Top Book On Financial Crisis Says There Is No Evidence For Blaming Either The CRA Or Fannie And Freddie

Republicans Blame The Financial Crisis On Fannie Mae, Freddie Mac, And Government Policy

Speaker Boehner: "Government Mortgage Companies...Triggered The Whole Meltdown." From House Speaker John Boehner's (R-OH) May 9, 2011, speech on Wall Street: "And the government mortgage companies that triggered the whole meltdown went untouched." [Boehner Remarks, 5/9/11]

Sen. Graham: "Fannie Mae And Freddie Mac" Were Behind "The Problem That Got Us Into This Mess." On the January 2, 2011, edition of NBC's Meet the Press, Sen. Lindsey Graham (R-SC) said: "[T]he financial regulation bill really left unattended Fannie Mae and Freddie Mac, and when you have government entities this large who own this much of housing, who've been pushing mortgages on people who couldn't afford to pay them, and you do nothing about it, it's pretty hard for me to say you've reformed the problem that got us into this mess. [...] To me, [the solution] is to get Fannie Mae and Freddie Mac in a, in a more privatized environment where risk/reward is, is, is more traditionally accepted. That--the American dream is to own a home you can afford. And to look at these entities and get more private-sector involvement and control who they lend money to and basically wind them down and make them more private." [Meet the Press, 1/2/11]

Sen. DeMint: "Liberal Housing Goals...Fueled The Housing Crisis." From Sen. Jim DeMint's (R-SC) blog: "Senator McCain has offered an amendment that would repeal their liberal housing goals that encouraged more risky lending and fueled the housing crisis, as well as end their dominance of the mortgage market and let the private sector back in. While more needs to be done to quickly end the permanent bailout of these mortgage giants, the McCain amendment is an important first step. True financial reform must include Freddie Mac and Fannie Mae. Congress cannot pretend to have ended 'too big to fail' without ending these out of control institutions." [DeMint.Senate.gov, 5/11/10]

Rep. Hensarling: "The Financial Crisis Was Caused By Failed Federal Policies" With Fannie And Freddie "At The Epicenter." From Rep. Jeb Hensarling's (R-TX) website: "The financial crisis was caused by failed federal policies that strong-armed, incented, and cajoled financial institutions into loaning money to people to buy homes that they couldn't afford to keep.  At the epicenter of this were Fannie Mae and Freddie Mac." [Hensarling.House.gov, accessed 10/13/11]

At GOP Presidential Debate, Rep. Bachmann Blamed The Community Reinvestment Act And Fannie Mae And Freddie Mac For The Crisis. At the October 11, 2011, GOP presidential primary debate, Rep. Michele Bachmann (R-MN) said: "I think if you look at the problem with the economic meltdown, you can trace it right back to the federal government, because it was the federal government that demanded that banks and mortgage companies lower platinum-level -- level -- lending standards to new lows. [...] It was the federal government that pushed the subprime loans.  It was the federal government that pushed the Community Reinvestment Act.  It was Congressman Barney Frank and also Senator Chris Dodd that continued to push government-directed housing goals.  They pushed the banks to meet these rules.  And if banks failed to meet those rules, then the federal government said, we won't let you merge; we won't let you grow.  There's a real problem:  It began with the federal government, and it began with Feddie and -- Freddie and Fannie." [GOP Debate, 10/11/11, via CFR.org]

Facts Show Private Lenders Who Were Not Subject To CRA, Not Government-Backed Ones Who Were, Drove The Subprime Mortgage Market

Private Firms, Not Fannie And Freddie, Dominated The Subprime Mortgage Market

2007: The Collapse Of The Housing Bubble And Widespread Defaults On Subprime Loans Triggered A Banking Crisis That Led To A Massive Recession. From Slate: "The only near consensus is on the question of what triggered the not-quite-a-depression. In 2007, the housing bubble burst, leading to a high rate of defaults on subprime mortgages. Exposure to bad mortgages doomed Bear Stearns in March 2008, then led to a banking crisis that fall. A global recession became inevitable once the government decided not to rescue Lehman Bros. from default in September 2008. Lehman's was the biggest bankruptcy in history, and it led promptly to a powerful economic contraction. Somewhere around here, agreement ends." [Slate, 1/9/10, emphasis added]

The Subprime Market Surged From 2004 To 2006. As reported by McClatchy: "Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006." [McClatchy, 10/12/08]

From 2004 To 2006, Fannie And Freddie's Share Of Subprime Market Fell From Almost Half To Just Under One-Quarter. As reported by McClatchy: "But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership. Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication." [McClatchy, 10/12/08, emphasis added]

    Fannie And Freddie Faced Tougher Regulatory Standards Than The Private Firms. As reported by McClatchy: "One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble." [McClatchy, 10/12/08]

2006: Private Firms Issued About Six Out Of Every Seven Subprime Mortgages. As reported by McClatchy:

    Federal Reserve Board data show that:

        More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
        Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
        Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics. [McClatchy, 10/12/08, emphasis added]

2008: The 15 Largest Subprime Servicers Were All Private Companies, Despite Large Drops In The Volume Of Their Subprime Business Compared To 2007. McClatchy prepared a graphic based on Inside Mortgage Finance data showing the 15 largest subprime service companies in 2008:

     [McClatchy, 10/12/08]

"Conservative Campaign That Blames The Global Financial Crisis On A Government Push To Make House More Affordable" Is Disproved By The Data. As reported by McClatchy: "As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail. Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems. Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis." [McClatchy, 10/12/08, emphasis added]

Fannie And Freddie Don't Issue Loans, But Buy Them From Private Banks So Banks Can Continue Lending. As reported by McClatchy: "Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages. [...] Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans. It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more." [McClatchy, 10/12/08, emphasis added]
The CRA Didn't Apply To The Private Firms That Inflated The Subprime Bubble

Conservatives Blame The Community Reinvestment Act Of 1977 (CRA) For The Subprime Boom Of The Early 2000s. From former Director of the U.S. Treasury's Office of Thrift Supervision Ellen Seidman:

    It has lately become fashionable for conservative pundits (Larry Kudlow, George Will) and disgruntled ex-bankers (Vernon Hill, for example, in his March 7 American Banker editorial) to blame the current credit crisis on the Community Reinvestment Act. This is patent nonsense. The sub-prime debacle has many causes, including greed, lack of and ineffective regulation, failures of risk assessment and management, and misplaced optimism. But CRA is not to blame.

    First, the timing is all wrong. CRA was enacted in 1977, its companion disclosure statute, the Home Mortgage Disclosure Act (HMDA) in 1975. While many of us warned against bad subprime lending before the turn of the millennium, the massive breakdown of underwriting and extension of risky products far down the income scale-without bothering to even check on income-was primarily a post-2003 phenomenon. To blame a statute enacted in 1977 for something that happened 25 years later takes a fair amount of chutzpah. [...]

    Second, CRA does not either encourage or condone bad lending. Bank regulators were decrying bad subprime lending before the turn of the millennium (see Interagency Guidance on Subprime Lending), and warning the CRA-covered institutions we regulated that badly underwritten subprime products that ignored consumer protections were not acceptable. Lenders not subject to CRA did not receive similar warnings. [New America Foundation, 9/22/08, emphasis added]

The CRA Did Not Affect The Vast Majority Of Subprime Loans. From Businessweek: "The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly.

Republican Presidential Candidates Offer America More Voodoo Economics and No Solutions

Republican Presidential Candidates Offer America More Voodoo Economics and No Solutions

Key proposals from the Republican presidential candidates might make for good campaign fodder. But independent analyses raise serious questions about those plans and their ability to cure the nation's ills in two vital areas, the economy and housing.

Consider proposed cuts in taxes and regulation, which nearly every GOP candidate is pushing in the name of creating jobs. The initiatives seem to ignore surveys in which employers cite far bigger impediments to increased hiring, chiefly slack consumer demand.

"Republicans favor tax cuts for the wealthy and corporations, but these had no stimulative effect during the George W. Bush administration, and there is no reason to believe that more of them will have any today," writes Bruce Bartlett. He's an economist who worked for Republican congressmen and in the administrations of Presidents Ronald Reagan and George H.W. Bush.

As for the idea that cutting regulations will lead to significant job growth, Bartlett said in an interview, "It's just nonsense. It's just made up."

Government and industry studies support his view.

The Bureau of Labor Statistics, which tracks companies' reasons for large layoffs, found that 1,119 layoffs were attributed to government regulations in the first half of this year, while 144,746 were attributed to poor "business demand."
Mainstream economic theory says governments can spur demand, at least somewhat, through stimulus spending. The Republican candidates, however, have labeled President Barack Obama's 2009 stimulus efforts a failure. Instead, most are calling for tax cuts that would primarily benefit high-income people, who are seen as the likeliest job creators.

"I don't care about that," Texas Gov. Rick Perry told The New York Times and CNBC, referring to tax breaks for the rich. "What I care about is them having the dollars to invest in their companies."

Many existing businesses, however, have plenty of unspent cash. The 500 companies that comprise the S&P index have about $800 billion in cash and cash equivalents, the most ever, according to the research firm Birinyi Associates.

The rating firm Moody's says the roughly 1,600 companies it monitors had $1.2 trillion in cash at the end of 2010. That's 11 percent more than a year earlier.

Small businesses rate "poor sales" as their biggest problem, with government regulations ranking second, according to a survey by the National Federation of Independent Businesses. Of the small businesses saying this is not a good time to expand, half cited the poor economy as the chief reason. Thirteen percent named the "political climate."

More small businesses complained about regulation during the administrations of Bill Clinton and George H.W. Bush, according to an analysis of the federation's data by the liberal Economic Policy Institute.

Such findings notwithstanding, further cuts in taxes and regulations remain popular with GOP voters. A recent Associated Press-GfK poll found that most Democrats and about half of independents think "reducing environmental and other regulations on business" would do little or nothing to create jobs. But only one-third of Republicans felt that way.

The GOP's presidential hopefuls are shaping their economic agendas along those lines.

Former Massachusetts Gov. Mitt Romney says his 59-point plan "seeks to reduce taxes, spending, regulation and government programs."

Businessman Herman Cain would significantly cut taxes for the wealthy with his 9 percent flat tax plan. Rep. Michele Bachmann of Minnesota said in a recent debate, "It's the regulatory burden that costs us $1.8 trillion every year. ... It's jobs that are lost."

The candidates have said little about another national problem: depressed home prices, as well as the high numbers of foreclosures and borrowers who owe more than their houses are worth.

After the Oct. 18 GOP debate in Las Vegas, a center of foreclosure activity, editors of the AOL Real Estate site wrote, "We didn't hear any meaningful solutions to the housing crisis. That's no surprise, considering that housing has so far been a ghost issue in the campaign."

To the degree the candidates addressed housing, they mainly took a hands-off approach. "We need to get government out of the way," Cain said. "It starts with making sure that we can boost this economy and then reform Dodd-Frank," which is a law that regulates Wall Street transactions.

Bachmann, in an answer that mentioned "moms" six times, said foreclosures fall most heavily on women who are "losing their nest for their children and for their family." She said Obama "has failed you on this issue of housing and foreclosures. I will not fail you on this issue." Bachmann offered no specific remedies.

Romney told editors of the Las Vegas Review-Journal: "Don't try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up."

Perry spokesman Mark Miner said the Texas governor's "immediate remedy for housing is to get America working again. ... Creating jobs will address the housing concerns that are impacting communities throughout America."

Bartlett, whose books on tax policy include "The Benefit and the Burden," recently wrote in the New York Times: "People are increasingly concerned about unemployment, but Republicans have nothing to offer them."

The candidates and their supporters dispute this, of course. A series of scheduled debates may give them chances to explain why their proposals would hit the right targets.


A recent study published by Bloomberg shows that the elitist conservative presidential candidates are either out of touch with reality or are lying to the American people about business regulation. Obama Wrote 5% Fewer Rules Than Bush

President Barack Obama’s “tsunami” of new government regulations looks more like a summer swell.

Obama’s White House has approved fewer regulations than his predecessor George W. Bush at this same point in their tenures, and the estimated costs of those rules haven’t reached the annual peak set in fiscal 1992 under Bush’s father, according to government data reviewed by Bloomberg News.

The average annual cost to businesses under Obama is higher than under his predecessors, the Bloomberg review shows. The increase is estimated to total as little as $100 million or as much as $4.1 billion, or at most three one-hundredths of a percent of the total economy.

The scope of government regulation has emerged as a major issue in the 2012 presidential race and on Capitol Hill. Republican presidential candidates have accused Obama of stifling job creation by imposing rules on businesses, and House Republicans have vowed to rein in proposed regulations on everything from the environment to health care to banking.

“This is getting picked up and talked about, but not for any good reason,” Michael Livermore, executive director of the Institute for Policy Integrity at the New York University School of Law, said in an interview. “There’s nothing new about this attack: It comes and goes in good times and in bad.”

How Obama Compares

Obama’s White House approved 613 federal rules during the first 33 months of his term, 4.7 percent fewer than the 643 cleared by President George W. Bush’s administration in the same time frame, according to an Office of Management and Budget statistical database reviewed by Bloomberg.

The number of significant federal rules, defined as those costing more than $100 million, has gone up under Obama, with 129 approved so far, compared with 90 for Bush, 115 for President Bill Clinton and 127 for the first President Bush over the same period in their first terms. In part that’s because $100 million in past years was worth more than it is now due to inflation, Livermore said.

Is Herman Cain an Anti-American Snake-oil Salesman

Is Herman Cain a Delusional Anti-American Nutbag

“9-9-9 will pass, and it is not the price of pizza because, it has been well-studied and well-developed… The problem with that analysis [that it will not raise enough revenue] is that it is incorrect. The reason it's incorrect is because they start with assumptions that we don't make. Remember, 9- 9-9 plan throws out the current tax code. ... Now, what 9-9-9 does, it expands the base. When you expand the base, we can arrive at the lowest possible rate, which is 9-9-9.” — Herman Cain, Washington Post-Bloomberg debate, October 11, 2011

 A family of four making $50,000 a year “are still going to have some money left over.”— Cain, on MSNBC, October 12, 2011

It almost sounds like something out of the movie “Dave,” in which the accidental president enlists his accountant friend, Murray Blum, to help him figure out the federal budget.

 During Tuesday’s Washington Post-Bloomberg debate, Herman Cain, the former chief executive of Godfather’s Pizza, named Rich Lowrie of Cleveland as “my lead economist” who helped develop Cain’s signature “9-9-9” plan for overhauling the federal tax system. “He is an economist, and he has worked in the business of wealth creation most of his career,” Cain said.

 Actually, according to Lowrie’s Linked-In profile, he has a bachelor’s degree in accountancy from Case Western Reserve University, not economics. Lowrie, in an e-mail, said he did not consider himself an economist, just “senior economic advisor” to the Cain campaign. Donor information maintained by Opensecrets.org shows he has donated $1,500 to Cain in 2010 and 2011, but also contributed $2,300 to Mitt Romney in his first run for the presidency in 2007.

Okay, so Cain may have exaggerated the qualifications of his economic guru. But he has forcefully defended his ‘9-9-9’ plan, both during Tuesday night’s debate and on MSNBC’s “Daily Rundown” on Wednesday. Many readers have asked us to examine the plan and explain it, so let’s take it for a test drive.


The Facts

 The “9-9-9” label is actually a bit of misnomer. Cain would toss out much of the current federal tax code and replace it, eventually and only temporarily, with three taxes — a 9 percent income tax, a 9 percent business transactions tax and a 9 percent federal sales tax. On paper, the first two look like cuts, because payroll taxes for Social Security and Medicare (now nearly 15 percent, including corporate contributions) would be repealed. The sales tax would be new, on top of existing state sales taxes. 

 But note that we said the “9-9-9” would happen eventually — and then only temporarily. That’s because it is only the second step of a planned three-step process. The first step would cut individual and corporate tax rates to a top 25 percent rate (down from a current high of 35 percent). Then the final step would replace all of the taxes — even the 9s — with a national sales tax, known by proponents as a “Fair Tax.”

 (As denizens of Washington, we find this three-step process to be highly dubious. It takes years, even decades, to fundamentally overhaul the tax code. Herman Cain is going to do this three times in his presidency? But we digress.)

 Much attention has focused on whether Cain’s plan, in its 9-9-9 stage, would raise as much revenue as the current tax system. Bloomberg News had calculated it would collect about $2 trillion, thus falling short by about $200 billion a year. But Lowrie sent Bloomberg an analysis on Wednesday that asserted “9-9-9” would actually collect slightly more — $2.3 trillion.

 We think the revenue question is beside the point. Anyone can turn the dials in their computer models to generate the assumptions they want.

Michael Linden of the left-leaning Center for American Progress, for instance, estimates the plan would generate just $1.3 trillion. The biggest difference between the two estimates is that Linden thinks the 9 percent business tax would yield $112 billion a year, and Cain says he would get $862 billion — a gap that simply demonstrates how a few different assumptions can generate extremely different results. (Linden on Thursday updated his analysis, saying he had underestimated how much revenue the business tax would raise.)

 Cain’s proposal is so radical that it makes more sense to examine the potential impact on taxpayers. A key part of Cain’s pitch for the plan during the debate was this: “When you expand the base, we can arrive at the lowest possible rate, which is 9-9-9.”

“Expand the base” really means that more taxpayers will pay taxes under his plan.

Right now, nearly half of taxpayers don’t pay income taxes, but they do pay their share of payroll taxes, which amounts to 7.65 percent of wage income (though much of it is capped at $107,000). Cain would also eliminate the earned-income tax credit, which is intended to lift working Americans out of poverty. Many of these workers currently receive tax refunds.

On top of that, Cain would introduce the new sales tax, which would affect lower and moderate-income people who spend most of their income on purchases, not savings and investments. Depending on how you do the math, people now paying zero or negative taxes might be faced with a 27 percent tax on income.

In other words, while on paper Cain is promising a tax cut, in reality tens of millions of lower-income Americans would face tax increases. People in high tax brackets — 28 percent and higher — would likely see big tax cuts. (As part of his plan, Cain would also eliminate estate taxes and capital gains taxes, which, again, mostly affect higher-income people with stock and real estate investments.)

There have been several interesting analyses done on the “9-9-9” plan. Edward D. Kleinbard of the University of Southern California School of Law identifies several unusual quirks, including a “disguised one-time 9 percent tax on existing wealth — no doubt much to the surprise of Mr. Cain and his followers.” Kleinbard, former chief of staff of the nonpartisan Joint Committee on Taxation, says that “contrary to casual impressions, the Plan could be expected to raise substantial amounts of revenue, but does so largely by skewing downwards the distribution of tax burdens when compared to current law.”

Bruce Bartlett, a former Reagan administration official who now calls himself an independent, also offered a critical examination this week on the New York Times Economix blog. He (as did Kleinbard) noted that the business tax allows for no deduction for wages, which he said  “is likely to raise the cost of employing workers, even with abolition of the employers’ share of the payroll tax.”

In other words the working poor - generally people making under $9 an hour would have a huge increase in their federal tax rate. People making over $100k a year would get a huge tax break on their investment income - thus yet another tax break for the well off. Though those people would also lose individual deductions which may have ultimately made their federal taxes lower. Cain will not and cannot give many details because he has never had the plan submitted to a team of independent tax experts to see the effects. Almost 51% of Americans would pay more in federal taxes - those living just below the median, while the wealthy would get even wealthier. As we have all seen the past twenty years wealthy people do not take their extra wealth and create jobs they just bank the money or get more free money from their capital gains. Cain is just bamboozling America with a slightly newer version of voodoo trickle down economics. The kind of economics that are partly responsible for our current economic problems. Herman Cain is just another crazy conservative nutbar who likes to hear the sound of his own delusional and arrogation voice. His supporters are just rubes who want to get through life not paying their fair share for the cost of infrastructure that makes a healthy economy possible.

Taxes Are Not a Barrier to Job Growth

Taxes Are Not a Barrier to Job Growth

The new congressional committee on deficit reduction (the so-called "supercommittee") not only can consider revenue increases, but must consider them — as well as spending cuts — if it's going to produce a balanced plan. [1]

There are five main reasons why.

    Spending cuts alone can't do the job. The key fiscal policy goal is to reduce deficits sufficiently to stabilize the debt relative to the size of the economy. The only way to accomplish this without severe cuts that would hit low- and middle-income Americans hard — in areas ranging from Medicare, Medicaid, and possibly Social Security to basic assistance for the poor — and weaken core government functions like education, scientific research, and ensuring safe food and water, is through revenue increases.
    The 2001-2003 tax cuts are a significant contributor to projected deficits. Letting some or all of those tax cuts expire would make a significant contribution to reducing the deficit.
    Higher-income people can and should share in the sacrifices needed to reduce long-term deficits. Low- and moderate-income households shouldn't be forced to bear a disproportionate share of the burden through cuts in Medicare, Medicaid, Social Security, and programs targeted on people who are poor or near-poor.
    Taxes are low both in historical terms and in comparison with other countries. By either standard, the United States has significant room for increasing tax revenues.
    Higher taxes are not an inherent barrier to economic growth. In fact, the Congressional Budget Office (CBO) has said that tax increases used to reduce budget deficits can improve long-term economic growth and job creation. The experience of the 1990s shows that claims that reasonable revenue increases will sink the economy largely reflect politics and ideology, not solid analysis.

Spending Cuts Alone Can't Do the Job

The recent debt ceiling legislation (the Budget Control Act) calls for the Joint Select Committee on Deficit Reduction to propose, by November 23, steps to reduce the deficit by $1.2 to $1.5 trillion or more over the next ten years, in addition to the approximately $1 trillion in savings from reducing discretionary spending that has already been agreed to. Achieving this amount of deficit reduction solely by reducing spending would result in deep cuts in Medicare, Medicaid, and other federal programs, including programs targeted on the poorest Americans.

As a first step, the Budget Control Act has placed binding limits or "caps" on annual appropriations (which cover "discretionary" — or non-entitlement — programs such as defense, education, low-income housing assistance, national parks, the FBI, the EPA, medical research, and many others) that reduce projected funding for these programs by somewhat less than $1 trillion through 2021. Under these caps, CBO estimates, discretionary spending will shrink from about 9 percent of gross domestic product (GDP) in 2011 to 6.2 percent in 2021, "well below the 8.7 percent average over the past 40 years."[2]

Meeting those caps will pose a great challenge.[3] The federal government's responsibilities have grown in recent years, with developments at home and abroad pushing spending above the average for earlier decades. These responsibilities include medical care for veterans of the Iraq and Afghanistan wars, homeland security (in the aftermath of September 11, 2001), and education (with the federal government providing more resources to improve educational quality and outcomes). Additional discretionary funding is also needed to implement recent bipartisan Wall Street reform and food safety legislation and to provide adequate administrative funding to serve the growing numbers of Social Security and Medicare applicants as the population ages.

If the joint committee recommends less than $1.2 trillion in additional deficit-reduction measures, across-the-board reductions in spending would be automatically triggered to make up the shortfall. In 2013, about 85 percent of these automatic cuts would fall on discretionary programs, which would be cut by about 9 percent (if the committee achieves no savings) below the already-low levels mandated by the Budget Control Act caps. [4]

If the joint committee chose to reach its $1.2 trillion goal entirely through cuts in mandatory programs (such as Medicare and Medicaid), the cuts there would have to be harsh, as well. The deal that President Obama and Speaker Boehner were negotiating in July would have raised Medicare's eligibility age,[5] increased Medicare cost-sharing charges, shifted significant Medicaid costs to states,[6] lowered inflation adjustments in Social Security (and the tax code), and instituted a wide array of other entitlement savings, alongside revenue increases. Those cuts in entitlement programs would have saved $650 to $700 billion over ten years. To meet its target solely through entitlement cuts, the joint committee would have to produce cuts twice as deep as these — and roughly twice as deep as those in the plan of the "Gang of Six" senators and in the proposal by Fiscal Commission co-chairs Erskine Bowles and Alan Simpson.[7]

While policymakers will need to take additional steps over the long term to slow the growth of health care costs in the private and public sectors alike, the Affordable Care Act includes most of the good ideas we know now for slowing the growth of Medicare spending. Achieving large additional savings over the near term will therefore be difficult. Studies have shown that proposals such as replacing Medicare with vouchers that don't keep pace with health costs or raising Medicare's eligibility age would generally shift costs to beneficiaries, states, and employers — and in many cases, would increase total health care spending and thus add to the burden that high health care costs place on the economy.

This is why every recent bipartisan proposal, including Bowles-Simpson, the Bipartisan Policy Center panel chaired by Pete Domenici and Alice Rivlin, and the Senate's "Gang of Six," has called for a balanced package that includes both substantial budget cuts and substantial revenue increases. The report of a panel on deficit reduction convened by the National Academy of Sciences and the National Academy of Public Administration also concluded that putting the budget on a sustainable path without increasing revenues is likely to require large cuts in Social Security, very large cuts in Medicare and Medicaid, and cutting all other programs by about 20 percent overall (with deeper cuts in all other areas if one or more of these categories were protected).[8]

The joint committee needs to develop a balanced deficit-reduction package, including significant revenues, to reach its target. Only by proposing substantial increases in revenues can the committee avert automatic cuts in discretionary spending and overly harsh cuts in Medicare, Medicaid, and Social Security.
2001-2003 Tax Cuts Are a Significant Contributor to Projected Deficits

As recently as 2001, the federal government was running large surpluses, and CBO and the Office of Management and Budget were projecting surpluses for years to come. What explains the sharp deterioration in the budgetary outlook? Just two policies dating from the Bush Administration — the 2001-2003 tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs. By 2019, these two policies will account for almost half — nearly $10 trillion — of the $20 trillion in debt that will be owed under current policies (see Figure 1).[9]

Although the temporary policies adopted to stabilize the economy and financial system during and after the recent recession added to budget deficits in 2009 through 2011, their effects will fade quickly thereafter, and they do not contribute much to the long-run budget shortfall. Nor are the projected deficits caused by a temporary large increase in discretionary spending instituted to respond to the recession. As noted, discretionary spending in 2011 is estimated to total about 9 percent of GDP — only slightly above its historical average even though some areas of discretionary spending are temporarily elevated now due to the wars and the Recovery Act — and is slated to decline markedly over the next decade.

Letting part or all of the 2001-2003 tax cuts expire would make a significant contribution to reducing projected deficits. Letting all of the tax cuts expire — as former Reagan economic adviser and Harvard professor Martin Feldstein, former OMB director Peter Orszag, and we (among others) have recommended — would save about $3.6 trillion over the next ten years, including the resulting savings in interest payments, and (in conjunction with the savings in the Budget Control Act) stabilize the debt-to-GDP ratio in the years ahead, which most economists consider the key intermediate goal for fiscal policy. Letting only the high-income tax cuts expire would save about $830 billion....

Of course this would be the sane approach. Yet Washington with the help of a media who only seems able to report the complexities of the latest sex scandal, seems sold on the insane idea that the U.S. can cut spending as the only road to economic recovery. We do not have a spending problem, we have a revenue problem and a lack of courage by conservative Republican to do the right thing.

Obama, Taxes, Spending And How to Stimulate The Economy

Obama, Taxes, Spending And How to Stimulate The Economy

Not just the U.S. but the entire world has bought into economic snake-oil. No country, including and especially the U.S. can cut spending as the road to reviving the economy. President Obama is not on a spending spree. On the contrary, as a percentage of GDP Obama is actually more conservative than G.W. Bush. Obama has offset all new spending with cuts, while Bush and a Republican Congress just spent like crazy and put it all on the national debt card.

The Crumbling Case for Cutting Spending to Stimulate the Economy, by Chad Stone, CBPP: Empirical support for the view that sharp, immediate cuts in government spending would be good for the U.S. economy was never strong, and it’s getting weaker.

    The Economist is on the case, highlighting two new studies showing that austerity and growth don’t mix in the short term. ...

    The first new study is from the International Monetary Fund.  In its 2010 World Economic Outlook, the IMF put the kibosh on the idea that deficit reduction would boost economic growth in the short run.  IMF researchers have now presented a revised and extended version of that analysis reaching the same conclusion.

    The second new study, by Roberto Perotti, backs up those of us who have been arguing for some time that these international examples have little in common with current U.S. budget and economic conditions.  What makes the Perotti study so significant is that he has been one of the leading researchers cited by advocates of sharp, immediate cuts in government spending.

    Perotti conducted detailed case studies of the four largest multi-year deficit-reduction efforts that researchers have commonly regarded as spending-based.  He found that they were actually much smaller, and much less tilted toward spending cuts, than previous studies had assumed.

    Perotti also found that all four countries’ economies benefited from a rapid decline in interest rates and a moderation of wage growth, which in turn made domestic firms more competitive internationally; an expansion of exports was key to economic growth in three of the four cases. ...

    In short, the more closely you look at the evidence for the claim that cutting federal spending dramatically right now would be good for the economy, the less convincing that claim becomes.

Interest rates are already at rock bottom, and wage growth is not a problem, so the key conditions for austerity to work -- if it ever works -- are not present in the US economy.

Myth of the Month - Higher Taxes on The Rich Kills Jobs

6 Dumb Arguments Against Taxing the Rich, ExplainedDebunking the conservative case against making the rich pay their fair share

On Saturday, the Obama administration unveiled the "Buffett Rule [1]," a proposed tax on millionaires and billionaires named after celebrity investor Warren Buffett, who has long argued that the federal government should demand more of the wealthy. The millionaires tax is certain to become a major point of contention in the 2012 presidential campaign, and Republicans have wasted no time in heaping it with calumnies. Here are the six most popular conservative arguments against a progressive tax code, and why they're wrong:

It's class warfare! [2]
Yeah right. Three decades of laissez-faire economic polices have allowed the rich to double their share of the national income while paying tax rates a fifth lower than before. The result, notes Kevin Drum [3], was "wage stagnation for everyone else, a massive financial collapse that ravaged the middle class, an enormous deficits that they'll be asked to pay off eventually." If the millionaires tax is the only blowback, the wealthy should count their blessings.

It's a tax on small business [4]
"Don't forget that most small businesses file taxes as individuals," House Budget Committee Chairman Paul Ryan (R-Wis.) said on Fox News Sunday. "So when you are raising top tax rates, you are raising taxes on these job creators." Except when you aren't. ThinkProgress's Pat Garofalo points out [5] that fewer than 2 percent of the nation's small businesses fall into either of the top two tax brackets. Plus, many of the small business filers in the upper brackets are merely investors who have nothing to do with running the business. And if small businesses don't want to pay taxes as individuals, they can file always as corporations.

It reduces incentives to work and invest [6]
Experience shows otherwise. As Nancy Folbre points out [7] over at Economix, "average annual rates of growth in gross domestic product in the high tax era between 1950 and 1980 exceeded those of the last 30 years. Increases in the top tax rate under President Bill Clinton were followed by robust economic expansion."

The other reasons are at the link. Below are some links to the citations in the article.

[2] http://www.outsidethebeltway.com/obamas-millionaires-tax/

http://motherjones.com/kevin-drum/2011/09/paul-ryan-insults-our-intelligence-yet-again

5] http://thinkprogress.org/economy/2011/09/19/322193/small-business-taxes-lies/

[7] http://economix.blogs.nytimes.com/2011/04/11/taxing-the-rich/

Let's all ask ourselves a basic question - how did the wealthy get their money. The micro details may differ but the macro reasons are the same as they have always been. A big complex infrastructure such as the one the USA has makes it possible for business to do business. That infrastructure - roads, air traffic control, higher education, etc has to be paid for. Conservatives do not want the people who have become the richest to pay for their share of that complex infrastructure. The other big part of the macro picture is labor. If you're not an executive you're labor. Business cannot make money without labor. part of labor's compensation in a big free market like ours is roads, schools, firefighters, nurses, libraries, national parks and teachers. Those people and institutions must be paid for. Conservatives want it all for free. last I heard getting a lot of stuff for free was the worse kind of welfare.

Three Economic Charts To Email To Your Right-Wing Brother-In-Law

Three Charts To Email To Your Right-Wing Brother-In-Law

Problem: Your right-wing brother-in-law is plugged into the FOX-Limbaugh lie machine, and keeps sending you emails about "Obama spending" and "Obama deficits" and how the "Stimulus" just made things worse. Solution: Here are three "reality-based" charts to send to him. These charts show what actually happened.

Spending
Bush-Obama Spending Chart -3rd chart down



Government spending increased dramatically under Bush. It has not increased much under Obama. Note that this chart does not reflect any spending cuts resulting from deficit-cutting deals.

Deficits
Bush-Obama Deficit Chart -2nd chart down

Notes, this chart includes Clinton's last budget year for comparison.

The numbers in these two charts come from Budget of the United States Government: Historical Tables Fiscal Year 2012. They are just the amounts that the government spent and borrowed, period, Anyone can go look then up. People who claim that Obama "tripled the deficit" are either misled or are trying to mislead.

The Stimulus and Jobs
Bush-Obama-Jobs-Chart -1st chart at top

In this chart, the RED lines on the left side -- the ones that keep doing DOWN -- show what happened to jobs under the policies of Bush and the Republicans. We were losing lots and lots of jobs every month, and it was getting worse and worse. The BLUE lines -- the ones that just go UP -- show what happened to jobs when the stimulus was in effect. We stopped losing jobs and started gaining jobs, and it was getting better and better. The leveling off on the right side of the chart shows what happened as the stimulus started to wind down: job creation leveled off at too low a level.

It looks a lot like the stimulus reversed what was going on before the stimulus.

Conclusion: THE STIMULUS WORKED BUT WAS NOT ENOUGH!

More False Things

These are just three of the false things that everyone "knows." Some others are (click through): Obama bailed out the banks, businesses will hire if they get tax cuts, health care reform cost $1 trillion, Social Security is a Ponzi Scheme or is "going broke", government spending "takes money out of the economy."

Why This Matters

These things really matter. We all want to fix the terrible problems the country has. But it is so important to know just what the problems are before you decide how to fix them. Otherwise the things you do to try to solve those problems might just make them worse. If you get tricked into thinking that Obama has made things worse and that we should go back to what we were doing before Obama -- tax cuts for the rich, giving giant corporations and Wall Street everything they want -- when those are the things that caused the problems in the first place, then we will be in real trouble.

Why doesn't the mainstream media explain these facts as simply and straight forward as these charts and a few paragraphs. besides leaning conservative, the media gets more eyeballs on the TV screen if they talk about the latest sex scandal or fall fashions. They could care less how informed the public is.