Budget Reality

Part 1 - The Bush Tax Cuts

 

Neither party is serious about reducing the annual federal budget deficits, or the national debt.

 

People who do budgets usually focus on the big ticket problems. We don’t cut out the peanut butter when we want to buy a new car: we focus on things which can make a difference. Both Republicans and Democrats are fighting over the peanut butter, and hoping that we won’t notice that it all is a sham. Let’s look at what created the problem, and ways to deal directly with the causes.

 

The Bush tax cuts have not paid for themselves, as many Republicans seem to believe: they have added 3-4 trillion to the national debt in the last decade. That’s a big number. Using projections of surpluses over the next ten years, Bush thundered, “It’s the people’s money,” and we should give it back to them. Unfortunately for the people, the projections proved wrong, and the vision of a surplus vanished. No income to give back. Thus, the trillions added to the national debt.

 

Tax cuts are spending: they give money away that otherwise would be income for the government. Covering this 400 billion annual deficit means either raising taxes, cutting the budget by more than 400 billion a year, or a combination of the two. Even this number would barely break even for the future, not even reducing the national debt. Is anyone proposing reducing the federal budget by 400 billion a year? If not, the Bush tax cuts will continue to add to the national debt.

 

This is not about left or right. It is about paying our way instead of passing huge debts on to our children. It is about economic health instead of weakness. It is about responsibility instead of selfishness. It is about getting control of deficits and reducing the national debt. It is about dealing with reality, instead of rhetoric.

 

Two steps right now: first, if we are to be fiscally responsible, we have to take a pledge to introduce no new tax cuts, tax breaks, or tax incentives, unless fully paid for by budget cuts or new income.

 

Second, we have to phase out the Bush tax cuts: dropping 20% of the cuts a year over five years would ease the impact on the economy, even while adding perhaps a trillion to the debt over this period. After five years, and assuming a recovered economy, this income would substantially reduce the national debt.

 

Next, the military budget...

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22 March 2011

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Published on Huffington Post

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Budget Reality
Part 2 - The Military Budget

 

The military budget prior to 9/11 was under 300 billion a year. This core budget now is over 500 billion, and when the costs of Iraq and Afghanistan are added, the total is nearly 700 billion this year. This increase of 400 billion a year has never been paid for, adding another 3-4 trillion to the national debt over the past ten years.

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Has the increase in the core military budget made us stronger and safer? Not much evidence in favor. Would we be fatally weak if the core budget shrank by 100 billion to 400 billion a year, still the biggest military budget in the world by far? Shouldn’t we pay for the Iraq and Afghanistan occupations, rather than pass on the costs to our children? Isn’t this the moral thing to do? Simply put, shouldn’t we pay-as-we-go for our national security?

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If we are serious about the budget, then we need a Security Surtax to pay for the military, and to pay back the costs of the last ten years: say 100 billion this year, adding 100 billion each year for the next six years. The surtax would be phased out as Iraq and Afghanistan phased out. Even this would add another trillion or so to the debt, before reducing it.

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Next, health care costs...

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1 April 2011

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Published on Huffington Post

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Budget Reality
Part 3 - Health Care Costs

 

National health care costs continue to increase without limit, and neither party has proposed effective controls. This is the third “third rail” of our political system, not to be touched for fear of the consequences to the parties.

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The health care system is too complex to find only one or two areas for action which will solve the problem. Nonetheless, here are a few steps which could begin moving in the right direction.

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A. Doctors who receive federal funds or reimbursements need to be on a fixed salary, like the civil service system. This would eliminate the piece-work incentive they now have to perform more procedures to increase their income. And, referrals to clinics or laboratories in which they have financial interests have to be banned, as the conflicts of interest they are.

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B. We need more doctors and medical professionals, to improve services in urban areas, poor communities and rural towns. We should finance medical educations for those who agree to serve the under-served for a period equal to their medical education years.

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C. Hospital and clinical overhead needs to be reduced to no more than 15%. This will take some study and some time, but is essential.

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D. Most important, and most dangerous to touch, is changing the concept that we all are entitled to every possible medical procedure without limits. No society can afford to promise unlimited medical benefits, but whenever this subject is touched, the cry of “rationing” fills the airwaves. This is both false and misleading. “Rationing” is about distributing resources which are in short supply. We don’t have a short supply of medical resources in the U.S. It may be too expensive, unequally distributed, and often ineffective, but it is abundant.

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The question is not whether we all want unlimited benefits, but whether we can afford unlimited benefits. The answer is “no.” We can’t afford to promise unlimited benefits.

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So, the real question is how to set fair limits for medical care.

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Should we pay tens of thousands for cancer drugs to extend life by a few months for someone in their 80’s? Should we pay for most prescriptions for erectile dysfunction drugs for otherwise healthy men? Should there be a lifetime dollar or procedure limit for each of us? Should we pay for lung cancer treatments for long-term smokers? Each of these examples is a medical, ethical and budgetary question.

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The answers are not clear, but the need to ask the questions and to find the answers is essential. We need to act like adults and face these questions through an open and public process. It is time to get real on controlling health care costs, even if it affects some one’s profits. In the meantime, we need to set limits on the growth of health costs, and let the private sector sort out how to comply with these limits.

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Next, corporate tax breaks...

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1 April 2011

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Published on Huffington Post

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Budget Reality
Part 4 - Corporate Tax Breaks

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In the 1950’s, Federal taxation resulted in about a 40:60 split between corporate taxes and personal income taxes. Over the last 30 years, however, there has been a steady shift reducing corporate taxes more than personal income taxes, so that corporations now pay around 20% and individuals close to 80%. This needs to be shifted back toward the 40:60 split.

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While nominal corporate tax rates may be higher than those in many other countries, the effective corporate tax rate is quite low. Nominal rates are those on the last income over a certain limit. Effective rates are the net rates on total income. Right now, the average effective corporate tax rate is about 15%.

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While shocking, this is no surprise. It is the result of the army of lobbyists and their Congressional friends working year after year to place thousands little breaks, shelters, subsidies, and incentives into the tax code. While the worst of these will continue to need fixing, fighting these one-by-one is not going to work, even if the effort is worthwhile.

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We need to enact a more rigorous Alternative Minimum Tax code for corporations, which brings their share into better balance with personal income taxes. What this means is that no matter what the tax code allows in preferences and deductions, a minimum tax has to be collected. The current AMT system needs to be revised to ensure that corporations pay their fair share of federal income. Over the next five years, we should start with a real AMT of 15%, rising each year by 2% to reach a long-term AMT of 25% on corporate income. This would result in a few hundred billion a year in income to reduce the national debt.

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In sum, these four major budget areas, the Bush tax cuts, the military budget, the costs of health care, and corporate tax breaks, add up to well over a trillion a year in unpaid-for debt. Anyone who wants to distract us by fiddling with small change needs to be laughed out of the room, or recalled, or otherwise ridiculed and and labeled not serious about the debt.

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We have been borrowing from the future for our current excess spending. This is not wise. This is not fair to our children. This is not right. This is not sustainable.

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If we are to begin to grow up and really deal with deficits and the national debt, the focus has to be on the big ticket areas discussed in these four articles. The serious work on deficits and the debt is clear. What is not clear is who in Congress and the White House has the courage to start on this work...

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1 April 2011

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Published on Huffington Post

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A New Year’s Resolution:

Fixing the Mortgage Mess, And More

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Proposition: There is a way to stabilize the housing market, end foreclosures, provide several trillions in stimulus funding, and NOT add to the federal debt. Read on...

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There is an eternal puzzle in the world of politics. How is it that individuals of high intelligence and principle, when joined in groups, make such dumb decisions? Examples are all around us, including the Kennedy/Johnson/Nixon administrations on Vietnam, Reagan on tax cuts, and the Bush/Obama administrations on Iraq and Afghanistan. The latest is Bush/Obama and the financial crisis triggered by mortgage derivatives.

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Mr. Obama inherited the financial crisis, and in most respects has continued the policies laid out by the Bush administration. These were bold and radical interventions on Wall Street, providing billions in direct aid, protecting institutions deemed “too big to fail,” moving “toxic assets” off balance sheets, taking direct ownership or control over firms, and finally taking over two of the big three auto companies.

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The emphasis has been on stabilizing the banks, investment, and auto sectors, through direct aid and indirect loans and guarantees, with a total commitment adding up to many trillions. These actions appear to have avoided a massive collapse of the financial sector, but they have not brought us easily out of the Great Recession.

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As radical and bold as the Wall Street and Detroit interventions have been, both Bush and Obama have been equally timid in direct aid to Main Street. Many millions have lost their jobs, and virtually every home owner has lost a great deal of equity. Millions of homes have gone into foreclosure, and millions more are threatened. Job growth coming out of the recession has been tiny, and a full employment recovery may take five or more years.

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Mr. Obama and his advisors continue to believe that he just did not explain his decisions and accomplishments well enough. In fact he did explain them well, but it is the substance of his decisions that has been lacking. His focus from the start has been on Wall Street, with little but rhetoric for Main Street.

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Wall Street received a lot of support, without many conditions, such as commitments from the banks to make loans to small businesses, tracking where the money went, reduction or elimination of big bonuses, and so on. Wall Street has not been grateful to the nation for the assistance it received. Main Street has waited for something to be grateful for.

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What Mr. Obama has done, in effect, is endorse “trickle down” economics, and just as this did not work the first time around, it is not working now. The public rage which led to the Republican gains in November’s elections is a rational response to Mr. Obama’s policies. He and Congress have ignored the fundamental question in national politics: “What’s in it for me?” Main Street needs direct aid, not trickle down.

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A solution to this problem really is not hard to find.

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Accountability is the key to the solution. Those who created and abetted the financial crisis have to do more than accept our trillions, and continue business as usual. Those who cost the taxpayers so much need to be held accountable. Wall Street needs to pay back its debt to the country.

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Here is what we can do for Main Street:

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First action: an immediate freeze on all foreclosures based on adjustable mortgages, going back to 2005 mortgages.

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Adjustable rate mortgages are a large part of the problem. In essence, they are a bet that the mortgagee will move before rates reset, and that at that time the value of their home will have increased. We have seen that this really is a bet, and the gamble finally did not pay off.

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Second action: new adjustable rate mortgages have to be prohibited.

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Third action: Those now holding adjustable mortgages on their principal homes will be offered the option of a no-cost conversion to a 30 year mortgage at current rates, say 4.5%. If they can’t make the payments on the new mortgage, then foreclosure could proceed. Many others, though, will be able to keep their homes after the conversion.

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Fourth action: Those who have lost their homes to foreclosure will be refunded their equity, including down payments, principal payments, and associated fees.

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While millions would be helped by these four actions, the majority, the rest of the country, also needs compensation for the losses created by the recession. This includes those who have continued to make mortgage payments on time, but who still have suffered loss of equity. Everyone needs compensation.

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Fifth action: Every adult should be given a one-time payment of $5,000.

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The result of these actions would be a major stimulus directly to our people, with direct benefit to the economy. Wall Street would pay, not the government.

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But how to pay for all of this? While the cost would be several trillions, there is a way to pay for it: federal loans to Wall Street, the banks and investment companies. These would be 50 year loans at 3%, structured as mortgages, with accelerated interest payments up front. The industry can afford a 50-year loan. In the event of a bankruptcy, the federal loan would be the most senior debt, first in line for compensation. If bankruptcy assets were not enough, the government could either take over the company, or amend the law to allow it to seek repayment directly from its officers and directors.

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The principles at work are fairness, equity, accountability, and responsibility. These are not partisan issues. Main Street needs bold actions. Wall Street has benefited from public assistance. Now, Main Street needs Wall Street’s assistance. It’s payback time.

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28 December 2010

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Published on Huffington Post

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A Modest Proposal: The Corporate Control Act Of 2010

 

The Corporate Control Act of 2010

1. No corporation or other business entity engaged in interstate commerce shall be established, deemed, recognized, defined, or otherwise accepted as a "person" under the U.S. Constitution, Federal Law, or Federal regulations.

2. No corporation or other business entity engaged in interstate commerce may influence or appear to influence any Federal election, law or regulation, using any corporate or business personnel, fiscal or material resources. For the purposes of this paragraph, "influence" means any actions taken or any resources used to influence, either directly or indirectly.

3. Any provisions of current Federal law or regulation in conflict with, or which appear to conflict with paragraphs 1 or 2 are hereby repealed, stricken and voided.

4. Any violation of paragraph 2 shall be considered a felony. The officers and directors of any corporation or other business entity engaged in interstate commerce convicted of violating paragraph 2 shall be subject to imprisonment of a minimum of one year, and a maximum of five years. Any corporation or other business entity engaged in interstate commerce convicted of violating paragraph 2 shall be subject to fines of up to $1,000,000/day for each separate day and each separate act violating paragraph 2.

5. The provisions of this Act shall be construed broadly, so as to deter both direct and indirect violations of this Act.

Tuesday, December 1, 2009

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Financial Bailout Principles

 

o If it is too big to fail, it is too big: break it up.
o Corollary: No more giant international investment houses.
o Corollary: No more national media conglomerates; the media need to be local and independent.
o Restore the barrier between banking and investment houses.
o Protect the public over failed management: fire the executives and managers who created the mess.
o Get serious about freezing foreclosures
o Eliminate adjustable mortgages completely.
o Restore the laws against usury.
o Stop protecting shareholders in failed financial firms.
o Stop the fear of letting large firms go bankrupt: let the market clean itself up.
o If necessary, let the government be the lender to the people, until the system stabilizes.

We voted for change; we voted for bold; it is time for the President to take charge and show true leadership.

Wednesday, March 18, 2009

 

Taxing The Rich, Slowly

 

Mr. Obama has proposed eliminating the Bush tax cuts for the rich, which is fine. However, not for another two years! Let's see now: the wealthy have enjoyed lower taxes for over six years, reducing Federal income and increasing the deficit by several hundred billion dollars a year. 

Even with the global financial collapse, the wealthy can afford to pay taxes, but we will be giving them two more years of windfall. With an enormous deficit this year, can we really afford to be so generous to those who need it least? Restore tax progressivity to those making over $250,000 per year, NOW!

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Saturday, February 28, 2009

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Bank Bailout Principles (Lost)

 

Recently, the NY Times reported that Treasury Secretary Tim Geithner had prevailed in Administration debates over the shape of the bank bailout plan. His victories included:

o reducing limits on executive pay for companies receiving federal aid
o giving banks flexibility on how they spent the money
o protecting the jobs of current executives
o preserving share value by avoiding bank nationalization

So, he appears to have succeeded in resisting calls for more government control of the banking/investment business. How does this differ from the Bush approach?

Under Bush, banks took the money, and refused to report how they may have used it. The government refused to publish a list of those which had received federal aid. Acquisitions and mergers took place, instead of business and consumer loans. Accountability was lost in the fog.

The public charade of yelling at the managers who created this mess, yields to the reality that they will keep their jobs, and much discretion in using the money.

The Administration also appears to have decided to do nothing about the Bush giveaway. Why not go after the huge bonuses (tax them at high rates?), require aid money to be passed through as loans, condition aid on replacing the directors and executives who failed, let fail those banks deemed too weak to survive, and nationalize banks which refuse to serve the public?

Mr. Geithner is not "change." He is not protecting the public interest. Mr. Obama should fire Geithner, appoint a truly progressive Treasury Secretary, and most important, listen more closely to David Axelrod: dance with the one who brought you to the party. His principles are more in tune with the change we need.

Friday, February 13, 2009