Why Mitch McConnell Should Avoid Discussing The Debt
Senate Minority Leader Mitch McConnell (R-Ky.) was asked about an extension of the payroll tax break yesterday, but instead of answering the question, the Republican changed the subject. The subject on McConnell’s mind was the debt.
“We have this problem at the risk of being repetitious, because we spend way too much. We now have a debt the size of our economy. We look a lot like Greece. We’re heading toward western Europe. If you want to see what happens, just look across the Atlantic. That’s the direction we’re headed in.
“Under this administration, we’ve run the national debt up 43 percent in just three years.”
McConnell first started equating the U.S. and Greece last summer, and the argument is not improving with age.
In every meaningful way, the comparison is just silly. The U.S. has extremely low interest rates and foreign investors are happy to loan us money; Greece has extremely high interest rates and no one is eager to loan the country money. The U.S. has its own currency; Greece has the euro. We have a manageable debt; Greece has a debt crisis. We’re a large country with an enormous economy; Greece is a small country with a small economy. We have one of the world’s most stable systems of government (at least for now); Greece’s government structure is suspect.
For a leading senator to tell a national television audience that the United States looks “a lot like Greece” is a clear reminder: McConnell is not to be taken seriously on these issues.
Incidentally, there’s also the matter of McConnell’s credibility on fiscal issues, or in his case, the lack thereof. The Republican leader voted for the Bush tax cuts, and added the costs to the national debt. He voted to finance the war in Afghanistan by adding the costs to the national debt. McConnell voted to put the costs of the war in Iraq onto the national debt. He supported a massive expansion of the government’s role in health care (Medicare Part D) and voted to pile all of its costs right onto the national debt. The GOP leader even backed the Wall Street bailout and added the bill to the national debt.
Perhaps Mitch McConnell should choose something else to complain about.
By: Steve Benen, The Maddow Blog, January 30, 2012
Nobody Understands Debt
In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.
This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.
Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring.
Any day now!
And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.
But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.
Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.
This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.
But isn’t this time different? Not as much as you think.
It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.
Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.
And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.
Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 1, 2012
Why GOP Voters Love Irresponsible Newt
Newt Gingrich has done it again. With his new tax plan he has raised the bar from irresponsibility to recklessness.
Every dollar estimate I’m about to share with you comes from the independent, non-partisan Tax Policy Center – a group whose estimates are used by almost everyone in Washington regardless of political persuasion.
First off, Newt’s plan increases the federal budget deficit by about $850 billion – in a single year!
To put this in perspective, most forecasts of the budget deficit cover ten years. The elusive goal of the White House and many on both sides of the aisle in Congress is to reduce that ten-year deficit by 3 to 4 trillion dollars.
Newt goes in the other direction, with gusto. Increasing the deficit by $850 billion in a single year is beyond the wildest imaginings of the least responsible budget mavens within a radius of three thousand miles from Washington.
Imagine what Standard & Poor’s or Moody’s or Fitch would do if it became law. We’d go directly from a triple-A credit rating to triple X – the veritable porn star of fiscal mayhem. Interest on our debt would become larger than most of the rest of the budget.
Most of this explosion of debt in Newt’s plan occurs because he slashes taxes. But not just anyone’s taxes. The lion’s share of Newt’s tax cuts benefit the very, very rich.
That’s because he lowers their marginal income tax rate to 15 percent – down from the current 35 percent, which was Bush’s temporary tax cut; down from 39 percent under Bill Clinton; down from at least 70 percent in the first three decades after World War II. Newt also gets rid of taxes on unearned income – the kind of income that the super-rich thrive on – capital gains, dividends and interest.
Under Newt’s plan, each of the roughly 130,000 taxpayers in the top .1 percent – the richest one-tenth of one percent – reaps an average tax cut of $1.9 million per year. Add what they’d otherwise have to pay if the Bush tax cut expired on schedule, and each of them saves $2.3 million a year.
To put it another way, under Newt’s plan, the total tax bill of the top one-tenth of one percent drops from around 38 percent of their income to around 10 percent.
What about low-income households? They get an average tax cut of $63 per year.
Oh, I almost forgot: Newt also slashes corporate taxes.
I’m not making this up.
This might be amusing if Newt were just being old Newt – if this were another infamous hot-air bubble emerging from an always provocative, sometimes clever, often bizarre mind.
But it’s the tax plan of the leading candidate for president of one of the two major political parties of the United States.
And it comes at a time when America’s super rich are raking in a larger portion of total income and wealth than at any time over the last 80 years, and when their marginal taxes are lower than they’ve been in three decades; a time when the nation’s long-term budget deficit is causing cuts in education and infrastructure which will impair our future and that of our children, and when safety nets and social services are being slashed.
Can Newt get away with this?
Probably — because his plan also comes at a time when Americans are so cynical about the major institutions of our society that someone who offers huge, outrageous plans holds a special fascination: The whole system is so awful, people tell themselves, why not just jettison everything and start from scratch? Let’s throw caution to the winds and do something really big – even if it’s colossally stupid.
This is why the more outrageous Newt can be, the better his polls. The more irresponsible his bomb-throwing, the more attractive he becomes to a sizable portion of Americans so fed up they feel like throwing bombs.
History is full of strong men with dangerous ideas who gain power when large masses of people are so desperate and disillusioned they’ll follow anyone who offers big, seemingly easy solutions.
At times like this a nation must depend on its wise elders – people who have gained a reputation for good judgment and integrity, and who are broadly respected by all sides regardless of political affiliation or ideology – to call out the demagogues, speak the truth, and restore common sense.
The great tragedy of America today is the paucity of such individuals when we need them the most.
By: Robert Reich, Published in Salon, December 14, 2011. (This originally appeared on Robert Reich’s blog, December 13, 2011)
Sen. Olympia Snowe Does Not Understand Budgets
It seems Sen. Olympia Snowe (R-ME) isn’t even trying to make sense any more:
Fiscal shenanigans such as permanent tax increases to pay for one-year temporary measures are precisely the problem that drove our nation into a $15 trillion debt crisis.
Huh? Passing a permanent tax increase to pay for a temporary measure would, logically, decrease debt, not increase it.
And, indeed, if we look back over history, we don’t see “permanent tax increases” as drivers of debt. Tax cuts, on the other hand — like those signed by Ronald Reagan and supported by Olympia Snowe and those signed by George W. Bush and supported by Olympia Snowe — have contributed to increasing deficits and debt. Meanwhile, tax increases — like those signed by Bill Clinton and opposed by Olympia Snowe in 1993 —reduced deficits.
Given Snowe’s ongoing embrace of Tea Party Economics and shunning of basic economic concepts —not to mention her record of supporting measures that increased the deficit and opposing things that cut it — it isn’t surprising that she’d adopt the up-is-down, black-is-white economic fantasy that tax increases cause deficits and tax cuts increase revenue. But it should help put to rest the notion that she’s some kind of “moderate” or “sensible” Republican.
By: Jamison Foser, Media Matters Political Corrections, December 7, 2011
With “Radicalized Right-Wing Obstructionism”, Divided Moderates Will Be Conquered
The deficit that should most worry us is a deficit of reasonableness. The problems the United States confronts are large but not insoluble. Yet sensible solutions that are broadly popular can’t be enacted.
Why? Because an ideological bloc that sees every crisis as an opportunity to reduce the size of government holds enough power in Congress to stop us from doing what needs to be done.
Some of my middle-of-the-road columnist friends keep ascribing our difficulties to structuralproblems in our politics. A few call for a centrist third party. But the problem we face isn’t about structures or the party system. It’s about ideology — specifically a right-wing ideology that has temporarily taken over the Republican Party and needs to be defeated before we can have a reasonable debate between moderate conservatives and moderate progressives about our country’s future.
A centrist third party would divide the opposition to the right wing and ease its triumph. That’s the last thing authentic moderates should want.
Let’s look at the record, starting with the congressional supercommittee’s failure to reach agreement on a plan to reduce the fiscal deficit. It’s absurd to pretend that we can shrink the deficit over the long term without substantial tax increases.
No matter how hard policymakers try to trim spending on Medicare, its costs will go up for many years simply because so many baby boomers will be retiring between now and 2029. Moreover, employers will keep cutting back on coverage for their workers as long as the price of insurance continues to go up.
However we manage it, in other words, government will be required to pay an ever larger share of our nation’s health-care bills. That means the government’s share of the economy is destined to rise — unless we decide to leave a large part of our population with little or no protection against illness.
The least we can do under those circumstances is to repeal the tax cuts for the wealthy enacted under President George W. Bush. Yet the only revenue conservatives on the supercommittee put on the table involved $300 billion, most of it from ill-defined tax reforms, in exchange for lower tax rates on the rich and making something like $3.7 trillion worth of tax cuts permanent.
Progressives have already made clear that they are willing not only to increase revenue but also to cut Medicare costs. The Obama health-care law did both, and it was attacked by Republicans for doing so. Democrats on the supercommittee offered substantial entitlement cuts. But they rightly refused a deal that would squander years of future revenue in the name of keeping taxes low on the wealthiest Americans.
What might a reasonable budget argument look like? Progressives would propose fewer spending cuts in exchange for tax increases that would fall mainly on the wealthy: higher rates on top incomes, capital gains and estates, along with a financial transactions tax. Conservatives would counter with larger spending cuts coupled with taxes on consumption rather than on investment. Out of such a debate might come a sensible deal, based on a shared acknowledgment that long-term balance requires both thrift and new revenue.
In the meantime, a broad range of economists agree that America’s sputtering jobs machine needs a sharp and quick jolt. It is unconscionable that in the face of mass unemployment, Republicans continue to foil measures to spur employment, including an extension of the payroll tax holiday. How can conservatives declare simultaneously that (1) it would be a terrible crime to raise taxes on the rich in the long term, and (2) it is an act of virtue to raise taxes on the middle class immediately? Has class warfare ever been so naked?
Then there is immigration. Common sense says there is no way the United States can or should deport some 11 million illegal immigrants. But when Newt Gingrich spoke of this reality — and suggested that conservatives ought to worry about how deportations would break up families — he was said to have committed a gaffe that will end his ride as the Republican front-runner. In today’s GOP, it’s becoming dangerous to be sensible.
We need moderation all right, but a moderate third party is the one way to guarantee we won’t get it. If moderates really want to move the conversation to the center, they should devote their energies to confronting those who are blocking the way. And at this moment, the obstruction is coming from a radicalized right.
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