The Year of the Beast

The Congressional Budget Office just released a new report, The Budget and Economic Outlook: 2015 to 2025 Report (January 26, 2015). In an article at the New York Times titled "Budget Forecast Sees End to Sharp Deficit Declines", they referenced the report, and then quotes Senator Michael B. Enzi (R-Wyoming), the new chairman of the Senate Budget Committee: “The past will catch up to us no matter how fast we run from it."

Then the New York Times writes: "The forecast might not change President Obama’s policy proposals, but it will fortify a Republican Congress’s resolve to pass budgets this spring that would fundamentally reorder health care spending, preserve tough spending caps and force Washington to at least look at Social Security. Democrats will say those spending plans are contradicted by efforts to overhaul the tax code without producing any more tax revenue."

Representative Tom Price (R-Georgia), the new House Budget Committee chairman, said of the projected budget shortfall (using doublespeak): "There’s no reason it has to be this way. With innovative thinking, real accountability, and more efficient and effective policies, we can solve our fiscal challenges while restoring strength and confidence to our economy.”

Senator Bernard Sanders (I-Vermont), the new ranking member of the Senate Budget Committee, anticipated the change in direction with a new report focused on wage stagnation and the shriveling middle class. His budget report calls for increasing spending:

While we must continue to focus on the federal deficit, we must also be aware that there are other deficits in our society that have been causing horrendous pain for the vast majority of the American people. These are deficits in jobs, deficits in infrastructure, deficits in income, deficits in equality, deficits in retirement security, deficits in education, and deficits in trade. These deficits must be immediately addressed by the Budget Committee.

He and the Democrats believe that this could be paid for by a change in the tax code.

The New York Times goes on to say, "With no changes in policy, aging baby boomers will take more and more of the federal government’s money, with less and less available for anything else. Social Security spending will rise to 5.7 percent of the economy in 2025 from 4.9 percent next year. Health care spending will rise over that period to 6.2 percent from 5.3 percent, while spending to service the national debt will double, to 3 percent from 1.5 percent. All other spending will shrink to 7.4 percent from 9.2 percent."

If the Social Security and Medicare trust funds are "the federal government's money", then it must be old and sick people who are driving the fiscal "crisis". In that case, maybe if we eliminated all our old and sick people, then America's deficit problems could finally be resolved. Or maybe, if we could process them into Soylent Green, we can hope that the U.S. never has any more old retirees or unhealthy poor people (aka "the beasts").

Senator Orrin G. Hatch (R-Utah), chairman of the Senate Finance Committee, said: "The CBO's report is clear — entitlement spending, if not reformed, will drive our deficits and debt to unsustainable levels in the very near future, and unsustainable entitlement spending will continue to crowd out spending in other areas. Leaders in Washington must stop turning a blind eye.” (Other areas, most likely means defense spending.)

The New York Times concludes: "How the parties avoid that situation could dominate much of the political debate over the next two years, as both Republicans and Democrats claim to champion the cause of the middle class, but with very different economic prescriptions." (But only recently did the GOP start claiming to represent the middle-class — and to some extent, the poor.)

Another article at the New York Times (January, 26, 2015) titled "The Shrinking American Middle Class") says that if we defined "middle-class" as households making between $35,000 and $100,000 a year, then since 2000 [the same year that the labor force participation rate and the employment-to-population ratio began its long decline], the middle class has been shrinking for a decidedly alarming reason: Incomes have fallen.

But to dispute their assertion as to what defines "middle-class", according to the Social Security Administration*, as of 2013 the percentile range of wage earners making between $35,000 and $100,000 a year is roughly between 58% and 92% of all wage earners (hardly the middle). And if you divided all wage earners into quintiles (and used the middle three), a broader definition of a "middle-class" income might be those earning between $20,000 to $65,000 a year. Or if one wanted to divide the wage distribution into thirds (rather than quintiles), the real "middle-class" becomes even starker, those earning between $17,000 to $42,000 a year. Or, you can double those numbers for what might be the current middle-class household incomes — even though their standard-of-living may have declined, because a real middle-class income today would be closer to $75,000 a year (regardless of the number of household earners, or what region of the country one lived). So a more true measure of middle-class would be: 72% earn $50k or more, and 92% earn $100k or less — so about 20% of all wage earners are in the actual middle-class; 7% are in the upper-middle-class or wealthy, and 73% are in the lower-middle-class or poor.

The SSA reports that 50% of all wage earners had net compensation of $28,031 a year or less (the median wage). Whereas, 66.9 percent of wage earners had net compensation of $43,041.39 or less (the raw average wage). So in reality, a $100,000 annual income would be light years away from the middle, and this clearly shows just how the media and our politicians can be so out of touch with economic reality. This video at YouTube dramatically demonstrates how most Americans are STILL completely unaware about how the wealth is distributed throughout America.

Another article at the New York Times (January, 25, 2015) titled "Middle Class Shrinks Further as More Fall Out Instead of Climbing Up", says the supposed "middle-class" that Obama identified in his State of the Union speech has been shrinking for almost 50 years — although, the actual middle-class most likely began to decline around 1979 (about 36 years ago). This was not long after the Powell Memo, and when labor union membership began to decline — and because of bad trade agreements, when manufacturing jobs began being outsourced to low wage countries.

The Times article also quotes Michael R. Strain, a scholar at the American Enterprise Institute (a conservative think tank) who said: “In the Great Recession, we lost a lot of middle-income jobs and we gained a lot of low-paying jobs."

A new report from the Economic Policy Institute (January 26, 2015) says: "Between 1979 and 2007, the top 1% took home well over half (53.9 percent) of the total increase in U.S. income. Over this period, the average income of the bottom 99 percent of U.S. taxpayers grew by 18.9 percent. Simultaneously, the average income of the top 1 percent grew over 10 times as much — by 200.5 percent.

As far as shoring up the budget, the Democrats (belatedly) now want to make some changes to the tax code (e.g. by eliminating corporate tax loopholes, such as "inversion" etc.) and raising the tax rate on capital gains; but the Republicans want to tax the wealthy even less than they are currently taxed (which, as a percentage of their income, is already lower than the bottom 99 percent).

The GOP plan is, and has been for decades, to cut taxes for the rich and big corporations so much, that the remaining tax revenues would only be enough to fund defense spending and other government services that big businesses and their execs rely on, without having enough government revenues remaining to fund other programs that the working-class and the poor ("the beasts") primarily rely on — such as Social Security, Medicare, Medicaid, SNAP and TANF.

As for Obamacare, the Center for Public Integrity reports: "Several million previously uninsured Americans now have coverage because of Obamacare, but it could be argued that the people who have benefited most from the law—at least financially—are the top executives and shareholders of the country’s health insurance companies." (Including members of Congress.)

If the top 1% (the job creators, but also includes over 50% of Congress) didn't want to bear any more of the tax burden, they could have raised wages over the past 35 years on par with worker productivity* (because "productively" = "profits"); and during all that time, regular wage earners could have been contributing more to federal tax revenues (to fund infrastructure and defense) and payroll taxes (to fund Social Security and Medicare).

* As an aside, regarding worker productivity (robots, automation, computers, etc). The following paragraph was edited from quotes by readers at Mark Thoma's blog: "If robots took our jobs, what we should do is take the robots. What takes jobs is a social arrangement in which workers are legally assigned a subordinate position to the owners of capital. There is nothing natural about this arrangement — and robots had nothing to do with it. Reagan (the labor leader) got hired by corporations and was convinced by conservatives that economies should eliminate workers to eliminate labor costs and boost profits. But if you eliminate workers, you also eliminate consumers. And if you replace workers with robots, you replace consumers with robots too. We could let the machines do all the work, but only if its not just a few plutocrats that harvest all the profits. If everybody gets a big fat Social Security check (regardless of their work history) after age 30 — then heck, let the tin man do all the work. Or we can give all the wealth from the increased productivity to the top 0.01% and throw ordinary workers into the street."

This is via a recent article by Professor Mark Thoma at the Fiscal Times (January 27, 2015) Taxing the Wealthy Promotes Economic Growth:

"The very thing that conservatives worry about with social programs, the worry that payments to the needy will seriously undercut motivation on a wide scale, is certainly present for those who receive large inheritances ... There are legitimate questions about how much of this wealth is truly the result of an individual’s effort rather than from luck ...A meritocracy is undermined when workers are not paid what they are worth –– when the income workers have earned through hard work is misdirected to those at the top. Hence, there are legitimate questions about how much of the income and wealth of those at the top should be reclaimed and redistributed through taxation ... It’s time to do away with the myth that taxing the wealthy always reduces our economic potential, a myth that serves the ideology of the right. A tax system that reduces inequality of the type that diminishes economic growth reclaims income that should have flowed to workers in the first place ... We should not allow ideological arguments dressed up as economic facts, arguments that serve wealthy interests but have little foundation, to deter us from pursuing what’s best for the vast majority of Americans."

Every year corporations spend billions of dollars on mergers and acquisitions, but very little (if any) is invested in hiring domestic workers or raising employees’ wages — because (the CEOs and their political enablers always say) raising payroll costs would slow hiring, reduce worker hours, cause layoffs, raise consumer prices, destroy the economy, and end life as we know it on Earth. But what those CEOs (and their political enablers) never tell us is, if they did raise workers’ wages, these CEOs might also have to buy one less beachfront mansion, a smaller private jet or a shorter luxury yacht (and the political enablers might receive less as campaign contributions.)

Instead, representatives of the top 1% (the GOP) wants the ultra-wealthy to have their cake and eat it too — while everybody else ("the beasts") can just eat cake. Now the very top income earners have hoarded trillions of dollars and they don't even know where to put it. Yet, despite record profits, the Republicans believe that sharing the economic gains of the U.S. economy (in the form of living wages to their workers) is considered "a redistribution the wealth" and is "socialism" — although, at the same time, they also believe that corporate welfare is perfectly acceptable.

They don't call the GOP's plan Starve the Beast for nothing — the Republicans literally want to starve the American working-class (and the poor) of government revenues that only benefits the working-class and poor. The Republican strategy, basically, is cutting taxes so much that the government would be forced to cut spending. After profiting from workers all during their working lives, the corporate masters don't want to contribute to Social Security and Medicare when their workers become too old and/or sick to be "productive" for them any longer. The GOP calls this "smaller" government (like thinning the heard), even though our population has risen by a third just since the 1970s (by over 100 million people). We are the herd that the GOP wants to thin. We are the government that the GOP wants to cut — We are the beasts that the GOP wants to starve.

From Government is Good:

For decades, a key goal of anti-government agenda conservatives has been to substantially cut spending on social and regulatory programs. Most Americans actually like these programs [and] most of us would like to increase – not cut – spending on social programs like health care and education. So how can these valued programs be cut [by the GOP] without invoking the wrath of the public? The answer the Republicans found is to attack these programs indirectly. The weapon of choice? Tax cuts. The idea is simple: if we keep cutting taxes, eventually there won’t be enough money to spend on these programs and they will have to be reduced. If there simply is not enough money in the budget, even liberal supporters of these programs will have to reluctantly concede that cuts are necessary. Conservatives call this tactic “starving the beast.” Taxes are what nourish government. Take that source of nourishment away and government must inevitably shrink. For anti-tax advocates like Grover Norquist, this is the ultimate purpose of tax cuts: “The goal is reducing the size and scope of government by draining its lifeblood.”

So, with our new GOP Congress, could 2015 be the Year of the Beast? Because if so, I am one of those "beasts" that the Republicans want to starve.

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Comments

spin

check out table 1.1 on page 9 of the actual CBO report: https://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlo...
clearly all the increase in the deficit projected over the next ten years is generated by the CBO's own projections of higher interest rates and hence higher interest on the debt..
there must be a conspiracy to blame it on old people..

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rjs

Two Economists on Budget Report

On the Left: Professor Paul Krugman on CBO report -- "There’s a funny thing about that projected rise in the deficit: it’s not about rising entitlement spending or any of the usual things the [GOP] wants to cut. It’s based on an assumption that interest payments will rise ... CBO shows the ratio of debt to GDP barely rising; just about all the rise in payments comes from an assumption that interest rates will rise ... We don’t really know that; there’s a plausible case that it’s wrong ... But if you read someone trying to resurrect deficit panic, bear in mind that even the modest rise in the new projections is just an assumption, with nothing solid behind it. Oh, and in other news: It appears that Obamacare is coming in 20 percent cheaper than originally projected."
http://krugman.blogs.nytimes.com/2015/01/27/the-debt-non-spiral/

On the Right: Professor Timothy Taylor (The Conversable Economist) on CBO report -- "Federal budget issues are often debated at high volume. It seems like either the all-powerful liberals have been raising taxes and spending to unprecedented and unbearably high levels, or the all powerful conservatives have been slashing spending and taxes to unprecedented and unbearably low levels. Thus, I always smile a bit in looking at actual budget numbers over the last half-century ... In 2014, federal spending was 20.3% of GDP and tax revenue was 17.5% of GDP, almost bang-on their historical averages [from 1965-2014]."
http://conversableeconomist.blogspot.com/2015/01/the-surprising-stabilit...

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92% of couples earn less than $200,000

New York Times - JAN. 29, 2015

"Politicians from both parties have made a point of holding the group you might call the “merely affluent” harmless from tax increases. If you make $150,000 to $225,000, you make about two to three times the national median income for a married couple. The list of occupations that can get you into this income bracket — government official, academic, lobbyist, journalist — can sometimes make it hard for people in political circles to remember that 92 percent of American married couples make less than $200,000 a year . . . This specific controversy involves so-called 529 accounts, named after the section of the tax code establishing them, which allow parents to save for their children’s college tuition and earn tax-free investment returns. Like most tax-preferred accounts, 529s are most useful to affluent people."

http://www.nytimes.com/2015/01/29/upshot/why-obamas-proposal-for-529s-ha...

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Truth

If you believe the current problems are due to GOP policies you are still fully vested in the belief that government can fix the problem. Until we understand that we are only seeing two sides of the same coin we will find ourselves chasing the carrot all the way to serfdom.

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No government at all...

Our Founding Fathers didn't mean to create a government "for the people, by the people". Their true intentions was total anarchy. Since the dawn of early human civilization, mankind wanted chaos — not a world of order and laws. Yes, let's let the Tea Party eliminate Social Security, Medicare and everything else that FDR (etc) created. Survival of the fitness. If you don't learn to fish, prepare to starve. Let's thin the herd. Government (the people we elect to govern) is corrupt. Better that we have no government at all. Let's do away with defense, EPA, FDA, FCC, FBI (and anything else with 3 letters). Who needs government? We don't. Better that we go back to the days of the wild west. To each their own, and may the rest be damned. Let the Koch brothers run this country and put everybody to work. They can keep track of all the government statistics too. --- Opps! No government! No statistics necessary!

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