The Republican’s Debt and Deficit Blackmail

Tuesday, December 18th, 2012
GOP blackmail

(By The Pragmatic Pundit)

Republicans have been using debt and deficit blackmail as a bargaining strategy since the days of Ronald Reagan.Reagan’s brand of politics was successful at promoting the notion that federal government spending on social programs is mostly wasted on pointless handouts to lazy recipients. He carefully cultivated the impression that “government spending” meant “free money” for people who were nothing more than moochers.  Sound familiar?

Ronald Reagan was swept into office on the same Republican fearmongering-propaganda that grips the country today…”spending is out of control, the country is going bankrupt and government is too big.”

There is no denying Reagan inherited an economy that was in a deep recession, but his response to the debt crisis was far different than Republicans would have us believe.

Despite his “small government” rhetoric, Reagan expanded the federal government by 7%, employing a larger federal workforce (those greedy public employees) than any President in history other than Johnson who presided over the Vietnam War.

He did enact a huge tax cut, but then raised taxes eleven times; increased defense spending; ballooned the federal deficit to the largest peacetime deficit in history; raised the debt ceiling 17 times and accumulated a debt burden that equaled the previous 200 years of American history, turning the United States from a creditor nation into a debtor nation.  For the first time in the history of the nation, the United States borrowed in order to cover federal budget deficits.

David Stockman, Reagan’s economic wizard and the architect of the trickle-down budgets wrote:

“The Reagan deficits were intentional, designed to cut revenue as a way of pressuring Congress to cut programs Republicans wanted to destroy….The plan… was to have a strategic deficit that would give you an argument for cutting back the programs that weren’t desired….”

The “small government” mantra and “debt and deficit” narrative continued after Reagan left office and another Republican, Bush (41)  took the helm.

Daily News 1990:  Legislators Say There’s No Money.

During the tenure of these two Republicans, deregulation and imprudent real estate lending contributed to a Savings and Loan crisis and quite possibly the stock market crash.  Between 1980 and 1994, more than 1600 banks were closed or received financial assistance from the FDIC.  Over 1,000 banks with total assets of over $500 billion failed.  The number of savings and loans declined from 3,234 to 1,645.Taxpayers assumed the bill for a $124 billion bailout, while corporate scandals and bankruptcies made matters worse. Enron represented the biggest corporate scandal in history, while Worldcom MCI filed the largest bankruptcy in history.

That was the economy Republicans left for Bill Clinton and they were singing the same song: “spending is out of control and the country is going bankrupt.”  
CNN – 1995
Americans blame GOP for budget mess

Buffalo News 1995

Then as now, Republicans focused solely on cutting the social safety net and entitlement programs.  Remember welfare reform?  Republicans take credit for Clinton’s 1993 deficit-cutting package, but the truth is the balanced budget passed without a single GOP vote in either house of Congress.   By the time Clinton left office, there was a surplus.Bush/Cheney inherited the Clinton budget surplus and immediately began turning it into a deficit.

Despite their opposition to entitlements, Republicans passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 expanding the program (can’t privatize it, figure other ways for private corporations to extract money from the program).  After being debated and negotiated for several months, the bill finally came to a vote  on a November morning at 3 am while America slept.  Among other things, the bill prohibits the federal government from negotiating discounts with drug companies.  Read the curious legislative history.

Bush launched wars with Iraq and Afghanistan and introduced tax-cuts that primarily benefited the rich.  None of these expenditures were offset and they all were kept off the books, giving the illusion that the country was in a much stronger fiscal position than it was.  Republicans admit under Bush they  “spent like drunken sailors”,   but when the spending was taking place, not a single Republican rebelled.  Remember, running up debt and deficits is a strategy.  
Six weeks before President Obama was sworn in, the economy collapsed and the Republicans began their familiar chant…“spending is out of control and the country is going bankrupt.” 
Newly installed Governors cut the federal workforce; remember, Reagan ( the man Republicans credit with economic problem-solving) increased the federal workforce to one of the largest in history.  They cut employee pay and pensions, while they delivered more tax cuts to the wealthy.  They busted unions, destroying employees last firewall between workers and employers.  All of these acts redistribute the treasury from the middle class and working poor to the wealthy.

It isn’t ideology that drives the Republican insistence on spending cuts, it’s a strategy.  Think about it…the Republicans controlled the House, the Senate and the White House for four consecutive years.  They could have fixed Medicare and Social Security, but for some reason, there’s never a problem unless a Democrat is in the White House.Listen to how fervently they defend cuts to defense.  Why?  Afterall, defense workers are unionized public employees.  Because there isn’t a department that shifts more taxpayer money to the private sector than the Defense Department.  There is no other federal vehicle that allows the wealthy to extract more money from the treasury, convert more taxpayer revenue to the private sector than the Defense Department.

Throughout history, since 1783, tax cuts for the wealthy and increased defense spending and union busting have increased the gap between the revenues and the expenditures. Shareholders and those on Wall Street have enjoyed inflated returns, while the wages for workers have taken a beating.   It’s a 21st century Gilded Age.

In the final analysis, the real targets are Social Security, Medicare, Medicaid; any program that supports the less fortunate.   Republicans have a long-standing, deeply-held  antipathy for both Social Security and Medicare. Not only did Reagan advocate that Social Security should be privatized, he was at the forefront of a coalition against Medicare with the same arguments we hear today.

How did the public ever buy the idea that Republicans are good stewards of the economy?   Studies have been done comparing every phase of economic growth, during Democratic and Republican presidencies and congresses, and they all show stunningly better performance when Democrats are in power.

The trickle down miracle never worked because lower taxes don’t generate more revenue, they generate deficits.  It is a fact that is so mathematically  basic, it borders on common sense.

Solving the Debt Problems

Tuesday, December 4th, 2012

(By Mark Bridger, cross-posted at ThatMansScope)

For the past 40 years or so there has been a de facto class warfare in this country. While workers’ productivity has soared, worker compensation has remained essentially flat. Meanwhile, corporate profits have boomed and the gap between the top 2% of income earners  and the remaining 98% has widened to the largest its been since the gilded Age of the Robber Barons (late 19th century) or the time just preceding the Great Depression.

(There is really no dispute about this; to see some background and charts, here are some from the Economic Policy Institute.  Also check out this discussion of CEO pay increases at the Institute for Policy Studies.)

In spite of this, Republicans and other so-called “conservatives” are suggesting that we somehow must all share equally in reducing the public debt and balancing budgets. What makes this even more outrageous is that they don’t even mean equally. What they mean is that the rich should continued to enjoy tax breaks that are unequally in their favor, while Congress must enact spending cuts that hit programs that the wealthy don’t need or even like — e.g. national parks, protective regulation, healthcare and aid to education. Thus, as Weill/Brecht say in Three Penny Opera “The answer to a kick in the pants is just another kick in the pants.” Thus, the much-vaunted “Simpson-Bowles” prescription for paying down the debt is yet another kick in the pants for working non-rich Americans.

Yet, we can “fix the deficit” and end class warfare simply by cutting away the nonsense about “job creators” and “balanced approaches” and all the rest of that 2% propaganda that even the Democrats are circulating. Several years ago I suggested an alternative tax and spending program that would have balanced the budget (at that time): You can find it here; it has a link to a NY Times “budget calculator” which, though somewhat outdated, is fun to play with; click here (you can use it to check some of the figures for the suggestions I make below).

Here then is my updated program for tax fairness and spending reform.

1. Tax all income equally. In other words, eliminate a special Capital Gains Tax and tax all income including dividends at the same graduated rates. This will prevent Mitt Romney and Warren Buffet from paying at a lower rate than their secretaries.

2. Put a sales tax on sales and purchases of stocks and bonds. Speculators should pay a tax on their sales and purchases the same as most of us do on school books, garbage cans and refrigerators. I discussed this in a previous blog. This tax would be small (¼% on each sale and each purchase) and would not be burdensome to people who are actually investing as opposed to speculating. It could generate as much as $100 billion a year.

3. Cap total deductions for income tax purposes to something around $50,000. This was, in fact, an idea proposed by Mitt Romney near the end of this year’s campaign. I doubt that either he or any Republicans would actually support its implementation since it would do a lot to level the tax playing field.

4. Return the Estate Tax to 1998-2000 levels (around 50% on estates above $3 million — we could raise that to $5 million even).

5. Sell carbon licenses to industry and allow trading of these licenses. This was also at one time a Republican plan, before the party became opposed to everything except showering money on its wealthy patrons.

6. End the state of perpetual war and cut the military budget  to pre-Cold War levels (as percentage of GNP). Bring all troops home from Afghanistan and Iraq. Drastically cut troop levels in Europe, Japan and Korea.

7. End the expensive and ineffective War on Marijuana and redirect most of the rest of the ineffective “War on Drugs” toward treatment of addiction. This would save not just on police time but also help to lower the lavish spending on prisons.

8. Cut agricultural subsidies to big agribusiness (especially ethanol subsidies to “Big Corn”).

9. Cut oil subsidies to companies like Exxon-Mobil.

10. Save Social Security for a century by eliminating the limit on income subject to the FICA tax. Doing this would make raising the retirement age or adjusting the COLAs unnecessary.

Note that I didn’t mention ending the “Bush Tax Cuts.” I am assuming that they will disappear on schedule January 1. Reinstituting them for people earning less than a quarter million dollars a year will probably be one of the few things that will happen in a somewhat bipartisan way: the Republicans can’t afford not to.

This leaves the last and biggest elephant in the tent: Medicare, Medicaid, and healthcare in general. People far more knowledgeable than I have made many suggestions that might be effective. We know that the problem can be addressed effectively because every other advanced industrialized country (and many others besides) have systems that provide better healthcare results than ours and at half the cost. We should have had “Medicare for All” (the “public option”) but that didn’t happen because of the power of the insurance industry. Nevertheless, we can start with substituting “outcome-based” compensation for the current “fee for services” contracts. Instead of doctors and hospitals being paid for the number of treatments and tests they provide, they would be paid for keeping certain numbers of people healthy over certain periods of time. This is part of Obamacare, but needs to be the standard “operating procedure” for all of national healthcare.

The steps I have suggested above would raise far more money in a far fairer way than anything proposed by either political party. Furthermore, they would help reduce the burden unfairly placed on the working people of this country by 4 decades of class warfare against them.

The Reason the Debt Panic is a Fluke

Saturday, December 1st, 2012

(By the Pragmatic Pundit)

The deficit is determined by the amount of money the government spends and the amount of revenues it collects in taxes. Both income and revenue are affected by the state of the economy and both are affected by the tax and spending policies made in the federal budget process.

During difficult economic times, government spending automatically increases because of an increase in the number of people eligible for need-based programs like food stamps and unemployment benefits.  At the same time, tax revenues tend to decrease because fewer people are employed and therefore pay less in taxes. Corporations also earn less profit, and they too pay less in taxes.

Spending and Revenues

Spending can be divided into three groups:

Mandatory spending is what everyone calls “entitlement programs”. The amount of money spent is determined by how many people apply and are eligible for benefits.  So the increase or decrease in these programs is not determined by Congress, but largely by the state of the economy and population.  

Discretionary spending goes through an annual appropriations process  that allows Congress to increase or decrease spending in a given year.  The discretionary budget is usually around one-third of total federal spending.

Interest on the debt that the government pays on its accumulated debt.

 Revenues come from three major sources:

1.   Individual income taxes – 47 percent of tax revenues are spent during the annual appropriations process. More than 100 million American households file a federal tax return each year, making up the federal government’s single largest revenue source. While, the wealthy are meant to pay a larger percentage of their earnings than middle- or low-income earners,  this is not the way it works out.

2.   Payroll taxes – paid jointly by workers and employers become trust funds used to pay for specific programs like Social Security and Medicare.  Established as payroll deductions (FICA), employees and employers each pay 6.2 percent of wages into Social Security and 1.45 percent into Medicare. Clearly, Social Security and Medicare are not “entitlements”, but earned benefits. There is also a contribution for unemployment insurance.

3.   Corporate income taxes paid by businesses receive the same designation as income taxes paid by individuals. They pay a tax rate from 15 to 35 percent.

When you hear Republicans bellyaching about the effects of a tax increase on small businesses, keep in mind that the 35 percent rate applies to taxable income over $18.3 million.  Even then, the percentage varies because of  “loopholes” , deductions, tax credits and tax havens to avoid tax liability.

There are also smaller sources of revenue, like taxes on imports and taxes levied on specific goods, like gasoline. In 2011, individual income taxes made up 47% (there’s that 47 percent, again), while corporations contributed 7.8% of all federal tax revenues.

The Debt to GDP

Politicians, pundits and economist talk a lot about the debt to GDP or gross domestic product.  Simply put, it is a measure of the debt compared to the total output of the economy.  According to the CIA World Factbook, at the end of 2011 the United States had a public debt to GDP of  67.8%.

I concentrate on public debt because it includes Treasury securities held by investors outside the federal government; individuals, corporations, the Federal Reserve System and foreign, state and local governments. Think about that…67.8% of our debt is considered public debt, but only 47% of that total public debt is owned by international investors, which means foreign investors only really account for about 32% of our total indebtedness.  The rest is held by State and local governments, individuals and corporations.  I’m not even certain it should be called debt, but all other obligations are intra-government or debt the federal government has borrowed from itself . These are loans from surpluses  owned by trust funds, such as Social Security, Medicare and the Civil Service Retirement Trust Fund.


One-third of the federal debt is held by our own federal accounts, while two-thirds is held by the public.  When you buy a Treasury bond, you are effectively loaning money to the federal government. There are many different kinds of Treasury bonds, but they all represent a loan to the U.S. government. The greatest percentage of our debt is actually money that we owe to ourselves!  What do you suppose would happen if the government failed to repay itself?  Would Treasury foreclose on the White House and repossess Air Force One?

When you include debt held in government accounts (Social Security, Medicare, etc.), the debt to GDP is approximately 105%.  In simple terms, our indebtedness exceeds the total worth of of our assets by 5%.  Don’t panic.  We’ve been here before.  After World War II in 1945, the debt to GDP reached 122.7%.  How did we overcome?  It didn’t require trimming expenditures, revamping Medicare or Social Security.  The answer was jobs.  People went to work…remember “Rosie the Riveter”?

I Don’t Give a Tinker’s Damn about the Fiscal Cliff

Wednesday, November 28th, 2012

(By The Pragmatic Pundit)

The so-called Fiscal Cliff is a political creation…the cousin to Starve the Beast.  I don’t know why they think everyone is so dumb.  We print our own currency, set the interest rate and owe a third of the debt to ourselves.  Can I rant a little?

Every time I hear politicians say the approach to solving the deficit should be “fair and balanced”, I want to spit.  There was absolutely nothing fair and balanced about its accumulation.  The rich made out like bandits, while the Middle Class struggled.

But, you hear it all the time…”everyone has to sacrifice”.  Really?  Well, the Middle Class has been sacrificing for decades.  Now, all of a sudden, it is fair for “everyone” to feel the pinch?  I don’t think so!  The Middle Class has been slapped, punched and kicked long enough.

The rich have extracted the national treasury and refused to invest in the country and the Middle Class owes them something more?  The so-called job creators, created no jobs.  They just took their tax-cuts and ran.  Not because they are uncertain…because they are greedy, heartless and unpatriotic.

The Middle Class stood in unemployment lines, suffered the humiliation of food stamps and food pantries, dropped out of college or couldn’t go, moved back home, suffered through illness without medical care, watched the value of our homes diminish, moved into our cars and onto the streets.  We already went over the cliff.  We are broke and we should sacrifice more?

I don’t think so.

To whom much is given, much is expected; and that is as it should be.  The rich reaped all the benefits of the downturn, so let them finance the upturn.  Raise taxes on the rich and give the Middle Class the tax cuts for a change.  Raise the minimum wage to $12.00 an hour, so anyone working can earn a living wage. Give everyone access to healthcare and an education.  After a few decades, like the rich had, then we can talk about “fair and balanced”.  Until then, leave the Middle Class alone!

It’s our turn!

Weekend Reading List

Saturday, November 24th, 2012

For this weekend’s reading list, we have articles on bad working conditions in warehouses, climate change, teachers’ unions, security at American embassies, the budget debate, and how war preys on the poor.


I Was a Warehouse Wage Slave – a reporter goes undercover to take a job at a warehouse for an online shipping company and reports back about the low wages and poor working conditions.

Turn Down the Heat – the World Bank’s latest report on climate changes paints a disturbing picture of the devastating impacts of a 4 degree Celsius increase in global temperatures which, unfortunately, is what we are on track to cause if we don’t take serious action soon to curb climate change

Teachers Unions: Scourge of the Nation? – an evaluation finding that the prevalence of teachers unions is positively correlated with higher and more equitable funding of public education but, contrary to the claims of union opponents, is not correlated with lower educational performance

Can America Diplomacy Ever Come Out of Its Bunker? - an essay examining the impacts of ever heightened security at American embassies, which will almost certainly only escalate after the killing of Christopher Stevens in Benghazi, on the ability of American diplomats to do their job of building relationships with the people of other countries

Understanding the Budget Debate - three reports from the Center on Budget and Policy Priorities on deficits, discretionary spending, Simpson-Bowles, and other issues relevant to the debate over the austerity bomb

War Is Betrayal: Persistent Myths of Combat – a powerful essay arguing that war is about “elites preying on the weak, the gullible, the marginal, and the poor.”  For responses from some veterans and others, click here.

The Arithmetic – Democrats V Republicans

Saturday, September 8th, 2012

Republican vs Democrat

(By The Pragmatic Pundit)

Bill Clinton’s convention speech discussion of arithmetic inspired me to rename and repost this information about economic and fiscal performance under Democratic Presidents versus Republican ones.


Debt Reduction

Most government spending occurs automatically, without any action by the Congress or the President.  Since fiscal year 1957, the amount of debt held by the federal government has increased each year.

But Democratic presidents are better at debt reduction.

Balancing the Budget

President Clinton balanced the budget, giving the government a surplus.  Not one single Republican in either house voted for the balanced budget.

Only 5 (five) current Presidents have governed with a surplus.  They were all Democrats!

Recessions and Depressions
Republicans held the presidency at the onset of the last NINE (9) economic downturns, including the two greatest economic collapses in our history.
1. The Great Depression: Herbert Hoover (Republican)
2. Recession of 1953: Dwight D. Eisenhower (Republican)
3. Recession of 1957: Dwight D. Eisenhower (Republican)
4. Recession of 1960: Dwight D. Eisenhower (Republican) *
5. The Oil Crisis: Richard Nixon (Republican)
6. 1980′s Recession: Ronald Reagan (Republican)
7. 1990 Recession: George H.W. Bush (Republican)
8. 2002 Recession: George W. Bush (Republican)
9. The Second Great Depression: George W. Bush (Republican)The Debt Ceiling

The DEBT CEILINGhas been raised 79 times since 1960; 49 times under Republican presidents and 30 times under Democratic presidents.Under Reagan the debt ceiling was raised 17 times in eight years

Under Bush the debt ceiling was raised 4 times in 4 years
Under Clinton the debt ceiling was raised 4 times in eight years
Under Bush the debt ceiling was raised 7 times in eight years
Under President Obama the debt ceiling has been raised 4 times in 3 years

The Federal Workforce

Reagan expanded government more than any modern-day President.  His was the largest non-military workforce in three decades.  The only president who had a workforce that surpassed Reagan’s was President Johnson’s, during the Vietnam War.  Reagan was in office during peacetime.If we combine the totals for all federal employees, including the military:

Reagan began office with a total of 4,982,000 employees and ended his term with 5,292,000 employees.  President Obama took office with a federal employee roster of 4,430,000 employees.  At the end of 2010 President Obama’s federal workforce numbered  4,443,000; that’s 849,000 fewer employees than Reagan, the advocate of small government!  Add to this the fact that President Reagan governed during peacetime, while President Obama inherited two wars.

*through 2010.  Includes temporary Census workers
Job Creation

When it comes to job creation, the Democrats again do a better job than Republicans.
From the U.S. Department of Labor;  data is listed from the best to the worst:

Unemployment Rates
Clearly Democratic Presidents create more jobs per year than Republican presidents.  Unemployment rates are higher under Republicans….it’s just a fact.
Johnson 1966-1969  average unemployment rate of 3.7%.

Clinton 1994-2001 average unemployment rate of 4.9%.
Kennedy 1962-1965 average unemployment rate of 5.2%.
Nixon 1970-1977 average unemployment rate of 6.3%.
Bush 1990-1993 average unemployment rate of 6.7%.
Carter 1978-1981  average unemployment rate of 6.7%.
Reagan 1982-1989  average unemployment rate of  7.3%.

Note:  In most cases I have not listed numbers and percentages for President Obama because agencies take so long to formulate the numbers, I found I was unable to verify any of the figures.