Donald Trump’s budget priorities

Double click to enlarge

President Trump’s budget calls for tax reductions for the rich, increased spending for the military and police and austerity for everybody else except veterans.

There isn’t enough money for programs of material benefit to the American public (except veterans programs, which I favor), but there is plenty of money for the military and police if the people rise up against the government.

These would be the priorities of an unpopular Third World dictator.  It reminds me of  something the SF writer Charles Stross once wrote about preemptive counter-revolution.

LINKS

White House Says Cutting Meals on Wheels Is ‘Compassionate’ by Eric Levitz for New York magazine.

Putting Trump’s Budget in Perspective by Ruth Cuniff for The Progressive.  (Hat tip to Bill Harvey)

Here’s How Donald Trump’s Budget Screws Over the People Who Elected Him by Tim Murphy for Mother Jones.

Why Trump’s budget may be ‘devastating’ to his supporters by Peter Grier and Francine Kiefer for the Christian Science Monitor.

Trump’s budget would cut funding for Appalachia – and his allies in coal country are livid by Brad Plumer for Vox [Added 3/21/2017]

Charts via The Progressive, Motley Fool.

It’s not just Wall Street

It’s not just the USA that allows bankers and financiers to break the law and get away with it.   Or regards the largest financial institutions as “too big to fail”.

This goes back to Prime Minister Tony Blair, who thought he could make London the world’s financial hub by freeing banks from all regulation.

As in the USA, the government’s priority is to protect the financial institutions rather than to protect the public.

Banking regulation is even weaker in Europe than in the United States, and one of the goals of the proposed Transatlantic Trade and Investment Partnership, the next international agreement in the pipeline after the Trans Pacific Partnership, is to set limits on financial regulation.

That would make banking and finance un-reformable, either in the USA, the UK or other TTIP signatories.

Update 5/22/2015.  The five banks that pleaded guilty to rigging interest rates and the exchange rate for foreign currencies are Britain’s Barclays and the Royal Bank of Scotland, the USA’s Citicorp and JP Morgan Chase and Switzerland’s UBS.

The truth about President Obama’s budget

I like to write good things to write about President Obama.  It helps me to convince myself that I am a fair-minded person, and also convince my friends, most of whom are supporters of the President.

But usually when I do, it turns out there is a catch.  I feel as if I were Charlie Brown in the comic strip once again trusting Lucy to hold the football so he can kick it.

I wrote a post the other day praising the President for budget proposals, which contained some modest tax increases on the upper income brackets and some modest benefits from working people.

But now I realize I missed important parts—more spending for the military, tax reductions for the rich and cuts to Medicare.

Andre Demon, writing for the World Socialist Web Site, pointed out:

Obama’s budget proposal would increase Pentagon spending by 7 percent, adding an additional $38 billion to bring the total defense budget to $534 billion. 

Obama is separately proposing $51 billion in additional funding for the wars in Iraq and Syria, including money to back the so-called “moderate” opposition in Syria, as well for as the ongoing US troop presence in Afghanistan.

The budget calls for the corporate tax rate to be cut to 25 percent for manufacturers and 28 percent for other corporations, down from the current rate of 35 percent.

The proposal would also allow US corporations to repatriate past profits generated overseas at a tax rate of only 14 percent.  Foreign profits would be taxed at 19 percent in the future. 

Currently, US corporations pay a rate of 35 percent on foreign profits, which many corporations avoid by keeping their foreign earnings abroad.

These tax cuts are accompanied by $400 billion in cuts to Medicare, Medicaid and the Department of Health and Human Services. 

The budget proposes to raise $66 billion over ten years by charging higher Medicare premiums to upper-income patients, a move that would undermine Medicare’s status as a universal entitlement and open the door to means testing and the transformation of the government health insurance program for seniors into a poverty program.

The plan would cut another “$116 billion in Medicare payments to drug companies for medicines prescribed for low-income patients,” according to the New York Times. 

It would also slash $100 billion for the treatment of Medicare patients following their discharge from the hospital, affecting primarily the elderly.

via World Socialist Web Site.

Why Republicans are winning: Links 11/15/13

Democrats control the White House and the Senate, but they are on the defensive.   The conservative Republican agenda has become the national agenda.  Why?

Can Obama Reverse the Republican Surge? by Michael Tomsky in the New York Review of Books.

Michael Tomsky wrote that the big mistake of the Obama administration was to agree to the budget sequester as the default position if Democrats and Republicans could not agree.  Unless Democrats can find enough moderate Republicans to help get out of the sequester, there will be more rollbacks not only of social programs and public works, but the ability of government to carry on its normal functions.

Progressives have a “wimp” problem by Michael Lind for Salon.

Michael Lind wrote that Republicans are combative and Democrats are weak because of the structural differences of the two parties.  There is no contradiction between the aims of the Republican rank-and-file want and what the wealthy Republican contributors.  This is not true of Democrats.

Within the Democratic Party, there is a divergence between wealthy Democratic contributors, middle-class Democratic activists and poor and minority Democratic voters.  Democratic politicians often have to strike a balance while Republicans move directly toward their goal.  Democratic politicians are often in the position of appeasing their core supporters rather than fighting for them.

While Republican activists fight for their own perceived interests, Lind says that Democratic activists often are acting out of sympathy for people worse off than they are.  It stands to reason that the Republicans would be more strongly motivated than the latter.

We Americans are writing off the future

The United States will not have a good future unless we Americans today invest in schools, scientific research and physical infrastructure.  The top chart shows how much less we spend today, as a fraction of our national wealth, than an earlier generation did immediately following World War Two.  The “gross” investment is total spending on the future; the “net” investment is what was spent over and above what was needed for maintenance of what we had.

The bottom chart shows the projections of the various budget plans before Congress.  Only the “Congressional Progressive Caucus” proposes an increase in investment.

I don’t have a target figure of what percentage of GDP we ought to be investing in the future, but I think that the “net” figure on the first chart ought to be greater than 1 percent.  It is perilously close to a minus figure, which means we are not spending enough to keep up with deterioration.

The United States as a nation invests a lot in improving our technology for surveillance and waging war.  We need science, education, transportation and communication, and we ought to be investing in that as well.

Crime and justice: Links and notes 11/4/13

British lawyers to get higher legal-aid fees for early guilty pleas by Owen Bowcott for The Guardian.   Hat tip to Boing Boing.

Talk about perverse incentives!  The British Ministry of Justice has announced a new fee schedule for Legal Aid lawyers which will pay them more if they persuade their clients to plead guilty than if they bring the cases to trial.  Fees could be 17 percent to 20 percent in common types of criminal cases.   The overall Legal Aid budget is being cut.

It seems to me that if your assumption is criminal defendants too poor to pay lawyers should be presumed guilty, it would be simpler and cheaper not to have legal aid at all.  In fact, you could save a lot of money by not bothering with the trial.  On the other hand, it costs a lot of money to feed and shelter an innocent person in prison.

I don’t know of anything like this in the USA, but the caseload of public defenders in this country is so great that we might as well have, because they don’t have the time or resources to give most of their clients a proper defense.

Nobody Should Shed a Tear for JP Morgan Chase by Matt Taibbi for Rollilng Stone.

JP Morgan Chase and its CEO Jamie Dimon recently agreed to pay a $13 billion in fines for its part in the sub-prime mortgage fraud which lead to the 2008 financial crisis.  The fraud consisted of writing mortgages for people they knew could not repay, then repackaging the mortgages as securities and selling them to suckers.

The fine seems like a lot of money, but, as Matt Taibbi pointed out, it is a lot less than the $25 billion in TARP funds that JP Morgan Chase received, not to mention other government subsidies.  And it also is a lot less than the $100 billion to $200 billion that JP Morgan Chase might have had to pay if pending lawsuits had gone to trial.

And, unlike with Bernie Madoff, no guilty individual will pay a dollar in fines or spend a day in jail.  It will all be paid by that fictitious person, JP Morgan Chase.

CNBC discovers a firing offense by Alex Pareene for Salon.  Hat tip for this to Bill Elwell.

HHS Secretary Kathleen Sibelius deserves to be fired because of the messed-up rollout of Obamacare, according to CNBC anchor Maria Bartiromo.   When Alex Pareene said on an earlier show that Jamie Dimon should be fired as CEO of JPMorgan Chase for multiple violations of the securities laws, Bartiromo regarded this as crazy talk.  But nobody was bankrupted or foreclosed on because the ACA web site doesn’t work right.

Congress’ Illegal-Immigration Detention Quota Costs $2 Billion a Year by William Selway and Margaret Newkirk for Bloomberg Businessweek.  Hat tip to Kids Prefer Cheese.

U.S. Immigration and Customs Enforcement is locking up and deporting more unauthorized immigrants than ever before.  The late Senator Robert Byrd, a West Virginia Democrat, inserted into Homeland Security’s 2009 budget a requirement that ICE keep a minimum of 33,400 illegal immigrants locked up at all times.

Keeping all those people locked up costs $120 a day each, or $2 billion a year.  Congress has twice rebuffed White House budget requests to cut the quota and use less expensive means, such as electronic ankle bracelets, to keep track of detainees.  I imagine the for-profit private prison lobby was opposed to the change.

Girl smuggled into Britain to have her organs harvested by Steven Swinford of The Telegraph.

British authorities reported a young girl was brought from Somalia for the purpose of having her organs removed and sold to people desperate for transplants.  The World Health Organization estimated that about 7,000 kidneys are obtained for transplant illegally each year.  The transaction requires organization—a recruiter to find a victim, someone to arrange transportation, medical personnel and someone to market the organ.

Crisis in government: Links & comments 10/4/13

Shutdown Standoff: One of the Worst Crises in American History by John B. Judis for the New Republic.

What’s at stake is whether a political bloc has the power to bring the American government to a halt in order to get its way.   If the Tea Party Republicans get their way, Judis warned, the U.S. government could become unable to function, leading to the rise of extremist parties of the right and left.  I don’t think he exaggerates.

Debt Ceiling Chicken and Trench Warfare by “Yves Smith” for Naked Capitalism.

The United States may be in for a longer and more destructive political siege than anyone expected.  Not only are there no plans for the two sides to meet, nothing is being done to prepare for discussions.  The problem is that this is an either-or situation not subject to compromise.  Either you recognize that a political faction has the right to crash the government, or you don’t.

Republicans Are No Longer the Party of Business by Joshua Green for BloombergBusinessWeek.

The government shutdown creates economic uncertainty and hampers the economic recovery.  That’s why the U.S. Chamber of Commerce is opposed to it.

Tea party lawmakers see the culmination of years of effort in shutdown by Zachary A. Goldfarb for the Washington Post.

Since Barry Goldwater ran for President in 1964, members of the right wing of the Republican Party have seen the size of the federal government as the main threat to American freedom.  Ronald Reagan didn’t accomplish this, Newt Gingrich didn’t, George W. Bush didn’t.  Now, at long last, the Republican small-government conservatives think they can accomplish their goal.

The real reason for the government shutdown by Dean Baker for Al Jazeera America.

Baker said the Ted Cruz Republicans see this as their last chance to stop Obamacare, because it will be popular if it ever is allowed to work.

The government shutdown could end today.  All it would cost is John Boehner’s speakership by Chris Gilizza and Sean Sullivan for the Washington Post.

Seventeen Republicans have said they’d vote for a “clean” continuing resolution, which would allow the government to resume normal functioning.  They and the Democrats would be a majority in the House of Representatives.  But if John Boehner allowed that to happen, he would lose his party’s support to be Speaker.

The Shutdown in 10 Infuriating Sentences by Kevin Drum for Mother Jones.

Kevin Drum demonstrated that the shutdown is not a result of equal stubbornness on both sides, but a faction of the Republican Party that intends to rule or ruin.

Even if the shutdown ends, the government is operating under the budget sequester, which is a victory for right-wing Republican priorities in itself.

The budget crisis: Links & comments 10/2/13

What If Voters Don’t Punish Extremism? by Ed Kilgore for Washington Monthly.

Barack Obama has a history of standing aside and giving his opponents enough rope to hang themselves, then jerking on the rope.  I think this is what he is doing in the government shutdown and debt default crises.

Ed Kilgore thinks this might backfire in the current crisis.  Voters are being told by that both sides are equally to blame—even though, in his opinion, the blame rests mainly with the Republicans.

Shutdown Could Last Weeks by Jonathan Strong for National Review Online.

Neither side is willing to back down.  Obama insists on a “clean” continuing resolution to allow the whole government to keep functioning.  Congressional Republicans plan to introduce “rifle shot” bills to keep specific government departments and programs functioning, but President Obama has said he will veto them (although he did sign a bill to continue paying active duty military personnel).

Strong said it is not just a conflict between the President and the House Republican caucus.  The real deadlock is between House Speaker John Boehner and Senate Majority Leader Harry Reid, who detest each other.

The Individual Mandate and the Government Shutdown by Ian Welsh.

Welsh argued that the Republican Obamacare proposal is reasonable.  It did not suspend Obamacare, but only its most unpopular provision, the individual mandate to buy health insurance whether you want it or not.

The problem with Welch’s argument is that, without the individual mandate, the complicated Obamacare system crashes.  If the people who sign up for Obamacare are only people who are poor and already sick, the system cannot pay for itself itself.

What Exactly Did Boehner Promise at Williamsburg? by Jonathan Strong for National Review Online.

The House GOP’s Legislative Strike by Jonathan Chait for New York magazine.

The Republican congressional caucus agreed in January to the Williamsburg Accords, an agreement to use the threat of a government shutdown and debt payment default to force President Obama to agree to their program.  The current crisis is not an accident.  It is part of a planned strategy.

Why Boehner doesn’t just ditch the hard right?, an interview of Robert Costa, the National Review’s Washington editor, by Ezra Klein of the Washington Post.

The Speaker of the House of Representatives has less influence on the Republican caucus than does the Tea Party or Fox News.

Who to blame for the U.S. budget crisis?  Try the Kaiser by Uwe Bott for the Toronto Globe & Mail.

Once upon a time the President had to ask Congress for approval each time the government borrowed money.  In order to pay for the cost of fighting in World War One, President Woodrow Wilson asked for, and got, approval to borrow money, up to a certain limit—the debt ceiling.

Why doesn’t President Obama compromise?

Why doesn’t President Obama compromise with the congressional Republicans on the budget?  As the chart above shows, he already has compromised a lot—more, in my opinion, than he should have.

The congressional Republicans say that the President is more willing to negotiate with the  Iranian government than he is with them.  I would say that the reason is there is more possibility of give and take with the Iranians than there is with the Republicans.

It is the hallmark of a revolutionary party that when it runs candidates for elective office, it is not for the purpose of participating in government, but of undermining it.   Revolutionaries do not regard governmental power as legitimate.  The radical right-wingers in Congress, and their grass-roots supporters do not regard the present U.S. government as legitimate.  They think it is a good thing, not a bad thing, when government ceases to function.

So long as they hold that attitude, there is no point in trying to work with them.  It is necessary to find a way to work around them.

The price of averting a debt payment crisis

Congressional Republicans are threatening to shut down the government unless Obamacare is defunded.  But the real danger to the government’s functioning, as blogger Steve Benen pointed out, is the refusal of the Republicans to raise the debt ceiling unless their demands are made.  These demands are shown in the graphic above.

These demands are basically the Mitt Romney presidential platform, which the American electorate rejected a year ago.   All of them, in my opinion, are bad for the country.  But if I’m wrong about that, then let the proponents enact laws through the regular lawmaking process.

The fact that the Republicans have a majority in Congress at all is due to the way congressional districts are drawn.  Democratic congressional candidates last year got a million more total votes than Republican candidates.

I don’t know what the effect of refusing to raise the debt ceiling would be.  It seems to me that the Federal Reserve Board could solve the problem by creating money to buy up the excess debt.  Maybe this would set a bad precedent.  In any case, I don’t expect this to happen.

One of the big assets of the United States is the world’s confidence that our government debt will be repaid.  To the extent this is damaged, it could add untold billions in the government debt service costs and maybe even undermine confidence in the U.S. dollar as the world’s reserve currency.  Risking this is deeply irresponsible.

The criticism that is made of President Obama is that he refuses to compromise.  But the ordinary meaning of the world compromise is to give up something in order to get something in return.  There is no question of compromise here—only the question of whether and to what degree he will give in to threats.

Six years ago, we had the same political situation that we do now, in reverse.  Republicans occupied the White House and had a majority in the Senate, Democrats had a majority in the House of Representatives.  Congressional Democrats never threatened to close down the government or damage the credit rating of U.S. Treasury bonds in order to get their way.  Nor, for that matter, did Senate Democrats insist on a 60-vote majority for routine business.

When I studied political science in college in the 1950s, I was told of the superiority of the pragmatic American political culture to the ideological French and Italian political parties, who pushed ideology to the limit regardless of consequences.  But that was then.  This is now.

Budgeting government like a family

Click on Leftycartoons for more Barry Deutsch cartoons.

The objective of the ongoing budget crisis

Spending cuts bigger than tax increases

The “fiscal cliff” deal between President Obama and leaders of Congress consisted mostly of restoring Clinton-era tax rates on incomes above $400,000 a year.

But researchers at the Center for American Progress, a liberal think tank, state that since fiscal 2011, reduction in projected spending has been much more than the increase in tax revenues.  The chart below shows the basis of that conclusion.

I didn’t vote for President Obama, but that’s because I don’t think deficit reduction is so important that other issues don’t matter.

Click on The Deficit Reduction We Have Achieved So Far for the Center’s full analysis

Romney vs. Obama on the economy

On economic policy, American voters in November will be offered a choice between Mitt Romney, who is part of the problem, and Barack Obama, who is not part of the solution.

I’m not happy with President Obama, but Gov. Romney is no improvement.  Neither Obama nor Romney have realistic plans for unemployment or mortgage foreclosures.  Both regard the federal budget deficit as a higher priority problem.  But Obama at least has a realistic budget plan, and his record on federal spending is much more conservative than most of his admirers or detractors admit.  Romney proposes further tax cuts for upper-bracket taxpayers, which will make the problem worse.

Obama has not shown the least willingness to curb the irresponsible behavior of the financial elite which has brought on and prolonged the current economic recession.  Romney is part of that financial elite.

Both Obama and Romney regard Social Security and Medicare as “entitlements” which need to be cut back.  Obama repeatedly has offered up cuts in Social Security and Medicare as part of a grand bargain for balancing the budget.  Romney is an admirer of Rep. Paul Ryan of Wisconsin whose ultimate goal is to privatize Social Security and Medicare.

Romney scapegoats poor people, while Obama doesn’t talk about them at all.

President Obama’s economic policies follow in the footsteps of President Eisenhower and the first President Bush.  Governor Romney’s policies, based on his statements and his choice of advisers, would follow the second President Bush and the Tea Party movement.

If Obama and Romney were my only choices, and economic policy the only important issue, I would reluctantly vote for Obama.  But since I live in a state where third party candidates are on the  ballot, I will vote for Gary Johnson, the Libertarian candidate, or perhaps Jill Stein, the Green Party candidate.

Click on How Paul Ryan Captured the G.O.P. for a profile of Rep. Paul Ryan of Wisconsin, the architect of Republican economic policy, by Ryan Lizza in the New Yorker.

Click on Romney Tax Plan on Table, Debt Collapses Table for a report on a bipartisan analysis of Gov. Romney’s tax proposals.  Romney has not given specifics for an excellent reason.  It is mathematically impossible for him to deliver his proposed tax cuts for rich people and still balance the budget by closing loopholes.

Click on Obama spending binge never happened from MarketWatch and Who Is the Smallest Government Spender Since Eisenhower? Would You Believe It’s Barack Obama? from Forbes for President Obama’s record on government spending.  If I were a conservative Republican who believed that cutting government spending was the overriding issue, I probably would vote to re-elect the President.

Click on Obama’s Second Term Agenda: Cutting Social Security, Medicare and/or Medicaid for analysis by Matt Stoller of the Roosevelt Institute, based on the President’s proposals and appointments during his first term.

Click on U.S. poverty heads for highest level in 50 years for a Chicago Tribune article on a subject neither candidate talks about.  The nonsense about Barack Obama being the “food stamp” President reflects the fact that the deep economic recession has made huge numbers of people eligible for the program that was put in place in the 1970s.

What is there for a Republican to dislike?

Senate Minority Leader Mitch McConnell proposed giving President Obama the responsibility for addressing the federal budget deficit.  If I were a conservative Republican banker, I would be very happy to entrust President Obama with that responsibility.

As Jonathan Zasloff, a contributor to the Reality-Based Community web log, commented:

Just a year before a general election,  the country’s unemployment rate is over 9 percent and its effective unemployment rate might be twice that.  Obama’s solution to the searing crisis of the middle class apparently is to raise the Medicare eligibility age from 65 to 67, in exchange for tax increases that will occur anyway.  Oh yes, and $2 trillion of other unspecified cuts, which always figure to work beautifully during a recession. … What is there in any of this that a progressive could possibly object to?

via The Reality-Based Community.

President Obama has managed to make McConnell, House Speaker John Boehner and House Majority Leader Eric Cantor look like fools, by conceding the substance of what they demand.  His characteristic political tactic—giving his opponents enough rope to hang themselves—has worked well for him once again.  At the same time he has abandoned historic Democratic principles and constituencies.  What price victory?

Zasloff sees two ways to interpret President Obama’s actions.

1.  Obama is a Democrat, and he is a political moron.

2.  Obama is a Republican, and he is a political genius.

via The Reality-Based Community.

Taxes, spending and the deficit

Source: Office of Management and Budget. Click to view.

The majority of Democrats say that the federal budget deficit should be addressed by raising taxes and cutting spending.  The majority of Republicans say that the federal budget deficit should be addressed by cutting spending and taxes under no circumstances should be raised.  Based on the chart, I would say the Democrats have the better of this argument.

Notice that the only time in the past 30 years that revenues exceeded expenditures was during the Clinton administration.  This is partly a technicality of accounting; the surplus in the Social Security Trust Fund was used to offset the general government’s deficit, even though Social Security is kept separate from the general budget.  It also reflects the moderate tax increases enacted during President Clinton’s first year, and the work done by Vice President Al Gore to improve governmental efficiency and reduce civilian important.  Even so, President Clinton did not project a budget surplus.  What brought his administration into the black was the economic boom during his second term.

During the George W. Bush administration, spending increased, covering the cost of wars in Iraq and Afghanistan and a new Medicare drug benefit, and taxes were cut.  The recession caused spending to increase and tax revenue to fall during the last Bush years, and the gap has grown even greater during the Obama administration.

The Republican leadership – Senate Minority Leader Mitch McConnell and House Speaker John Boehner – say that the deficit is the overriding problem, and non-military spending can in no way be increased.  But when possible tax increases come up, they say that you shouldn’t raise taxes during a recession—in other words, that the recession, not the deficit, is the overriding problem.

My own view is that as a result of the deindustrialization and financialization of the U.S. economy over several decades, we have to think not just about the deficit and not just about restarting the economy, but about rebuilding the nation’s economic strength.

If you want to balance the budget…

The U.S. Department of Defense budget for Fiscal Year 2011 (which ends Sept. 30) was the highest, in inflation-adjusted terms, that it has been in any year since World War Two, according to the non-partisan Center of Strategic and Budgetary Assessments.

In inflation-adjusted dollars, the total national defense budget request for FY 2011 is at the highest level since World War II.  Even if only the base defense budget is considered, the FY 2011 budget request exceeds the previous peak in defense spending in FY 1985 of $538 billion (in FY 2011 dollars).  …

The president’s budget projects that the deficit will rise to a record level of $1.6 trillion in FY 2010.  In an attempt to address the deficit, the FY 2011 budget request proposes a freeze in non-security discretionary spending, which excludes defense, homeland security, veterans, and other security-related programs.  The proposed freeze applies to less than one sixth of the total federal budget and saves $15 billion, compared to a $45 billion increase in security-related spending.

Click on Analysis of the FY 2011 Defense Budget for the CSBA summary for FY 2011.

Click on Analysis of the FY 2011 Defense Budget PDF for CSBA details for FY 2011.

The base defense budget is projected to rise another 3.6 percent for Fiscal Year 2012, from $526 billion to $553 billion, the CSBA reporter.  But that’s less than the $566 billion the Obama administration originally estimated it would need for 2012.

And spending for Overseas Contingency Operations, mainly the wars in Afghanistan and Iraq, are projected to decline from $159 billion to $118 billion, resulting in a decline of total spending.

However, all this was written by analyst Todd Harrison for the CSBA back in February, before President Obama decided to jump into war in Libya, so the current estimate may be different.

Click on FY 2012 Defense Budget Represents a Turning Point for the CSBA summary for FY 2012.

Click on FY 2012 Defense Budget Represents a Turning Point PDF for CSBA details for FY 2012.

The United States can afford higher taxes

Click to view

When President Obama told Republican leaders that taxes are lower now than they were under President Reagan, they rolled their eyes as if he were crazy.  But in fact, it is true.

Balancing the budget and ending the deficit is supposedly the nation’s highest priority.  How can you do this if taxes are at the lowest level within memory of most living people?  Even tax breaks for special interest are out-of-bounds for discussion.

I don’t like paying taxes any better than the next person.  But if we need to pay higher taxes to maintain essential government services, I’m willing to do my share.   I’d rather pay a modest increase in taxes than cut back schools, libraries, school lunches, medical care for poor people, highway maintenance, and everything else that has to be done to keep taxes abnormally low.  And I’d certainly rather increase taxes moderately on the super-rich than voucherize Medicare or privatize Social Security.

There is, of course, a better way to increase revenues.  That is to re-create the kind of full employment economy that existed in the 1950s and 1960s, and move people from being tax consumers to tax payers.

Click on Ten Charts that Prove the United States is a Low Tax Country for a summary of the facts by the Center for American Progress.   Some of the charts are below.

Why the Senate rejected Ryan’s plan

Click on After Senate’s Medicare Vote, Ryan Remains Unbowed for a National Public Radio interview with Rep. Paul Ryan, the Republican chair of the House Budget Committee.

Click on Ryan Budget Would Increase Health Care Spending for Medicare Beneficiaries for analysis by Paul N. Van de Water of the Center on Budget and Policy Priorities.

Click on Sharing Costs is No Way to Fix Medicare for analysis by Peter Orzag for Bloomberg News.

Shutdown, default and the debt ceiling

Double click to enlarge

The refusal by the Republican majority in Congress to raise the ceiling on federal debt means that, on the one hand, they think this issue is so important they are willing to put the functioning of the federal government at risk, but, on the other hand, they are unable to come up with a plan to actually bring the budget under control, and so leave it to President Obama to figure out.

A lot of people who discuss this issue assume that this would mean that the federal government would default on its existing debt.  A default would be catastrophic.  U.S. government bonds would no longer be considered an absolutely safe investment, which means the Treasury Department would have to pay more interest to attract lenders.  This would not only mean the federal debt would compound at a faster rate.  It would push up U.S. interest rates generally.  It would be more expensive to take out a car loan, a home mortgage or a small business loan.

Fortunately there are other options.

The most likely option would be a partial shut-down of the federal government.  I can’t guess what would be cut.  Presumably the military and Homeland Security would be exempt.  Would the national parks be closed?  Would the Postal Service suspend or reduce mail deliveries?   I don’t know.  Would it be legal to reduce or suspend payments for Social Security, Medicare and other so-called entitlements programs mandated by law? I don’t know.  Would federal employees have to take a pay cut or suspension of wages? Maybe.

Another possibility would be that the Federal Reserve system would simply create money to pay down the national debt.  That, in fact, is the normal mechanism by which money is “printed.”  It is what was done with “quantitative easing.”  I can’t guess the long-term consequences of this would be, but it doesn’t seem like a good idea.  But it is an option (if the Fed agrees – admittedly, a big “if”).  Creating money by buying Federal bonds would provide a means to keep the federal debt within the legal limit while continuing the normal operations of the federal government.

The final possibility is that President Obama would simply refuse to comply with the debt ceiling on Constitutional grounds.  But such a confrontation wouldn’t be his style, and the Constitutional argument seems weak to me.  It rests on Section 4 of the 14th Amendment states that “the validity of the public debt of the United States, authorized by law … shall not be questioned.”  But it is an option.  He could make his Constitutional claim and see what the courts say.

Where the deficit comes from

If you are serious about reducing the U.S. government’s debt, you need to start with the figures shown in this chart.

Click to enlarge

The largest factor in the debt is the Bush-era tax cuts.  If you thought the most important thing is to reduce the government’s debt, you would restore tax levels to the level in the 1990s.  This means middle-class taxes as well as taxes on the rich.  I’m willing to do my share, if the millionaires and billionaires do theirs.

The next largest factor in the debt is the economic downturn.  Government outlays for unemployment insurance and food stamps increase, while fewer people are earning wages and salaries to provide tax revenue.  If you thought the most important thing is to reduce the debt, you would make a plan to put Americans back to work.

The third largest factor in the debt is the wars in Iraq and Afghanistan, now mutating into wars in Afghanistan, Pakistan, Libya and maybe Yemen.  If you thought the most important thing is to reduce the debt, you would make a plan to wind those wars down.

What I would do about the deficit

I would put taxes back to where they were 10 years ago.

I would put military spending back to where it was 10 years ago.

If that didn’t do the trick, I would resurrect the idea of a single-payer federal health insurance plan.

Rep. Paul Ryan

I most certainly would not have the gall to proposed further reductions of the tax burden on the upper 1 percent of the population, as Rep. Paul Ryan and other Republicans do, and call this a deficit reduction plan.

Click on Tax myths and tall tales for an excellent article on taxes by David Cay Johnson in Rochester’s City newspaper.

Click on The Do-Nothing Plan for Annie Lowrey’s article on Slate explaining why doing nothing at all is more fiscally sound than adopting the Republican budget plan.  The do-nothing plan would allow the Bush tax cuts to expire and the Medicare savings under the Affordable Care Act to take effect.  These two things, she wrote, would bring the budget into balance within 10 years.

Click on Medicare Isn’t the Problem, It’s the Solution for Robert Reich’s ideas on how to cut health insurance costs.

Click on Ryan’s Five-Point Plan for a summary by Nobel economist Paul Krugman in the New York Times.

Click on The Budget Speech for Krugman’s views on President Obama’s budget plan.  My reaction is the same as Krugman’s.  I liked President Obama’s rhetoric, as I usually do.  My question is whether he will fight for his plan, which is a flawed compromise to begin with, or treat the points in his plan as bargaining chips to be negotiated away.

Click on Obama, Ryan and the Shape of the Planet for Paul Krugman’s comment on how the Obama and Ryan plans compare.