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Up Is Down: Michele Bachmann Distances Herself From Reality

Talk about cognitive dissonance. I went to a breakfast this morning with Alice Rivlin and lunch with Michele Bachmann. How to put this politely? If men are from Mars and women from Venus, Rivlin is from Earth, Bachmann is from Saturn. Someplace way out in the solar system and removed from reality.

Rivlin, a Democrat, is a former director of the Congressional Budget Office, former director of the Office of Management and Budget, and former vice chairman of the Federal Reserve. She is, in short, a Very Serious Person and, like every serious person around, finds herself somewhere between disbelieving and aghast at the current crisis over raising the debt ceiling.

“Putting a limit on the debt and saying, ‘Hey, we made these decisions but we didn’t really mean it, we’re not going to pay our bills,’ is just an unthinkable thing to do,” Rivlin said at an event sponsored by Atlantic Media.

“This is outrageous, folks,” she told interviewer Linda Douglass. “The greatest democracy, oldest democracy in the world should not be behaving this way.…It’s embarrassing for us to have a government that is so dysfunctional and that has created this artificial crisis.”

And the consequences could be catastrophic. “Suppose the world has decided that [debt ceiling crisis] might happen again and this democracy isn’t quite as solid or thoughtful as we thought it was, so we not going to stop lending to the United  States but we’re going to charge more interest. As the interest bill goes up, two things happen. One is it’s must more expensive for the government to carry this large debt….But more seriously it means that everybody’s interest payment goes up….So we would be paying more on our mortgage, more on our car loans, more on our credit cards, more for business loans and that’s not good for the economy.

It takes nothing away from Rivlin’s considerable intelligence and insight to say that she is expressing the conventional wisdom.

Fast forward a few hours to Bachmann, a congresswoman from Minnesota and Republican presidential candidate, addressing the National Press Club. Bachmann’s position is two-fold:

First, the debt ceiling should not be raised, under any circumstances. No deal could be good enough, Bachmann said, to induce her to do so. “I won’t raise taxes. I will reduce spending and I won’t vote to raise the debt ceiling,” she said. “And I have the titanium spine to see it through.”

Second, the United States will not default. “I want to state unequivocally I think for the world as well as the markets as well as for the American people, I have no doubt that we will not lose the full faith and credit of the United States,” Bachmann said.

Huh? Bachmann accused President Obama of employing “scare tactics” in warning of “catastrophic results for our economy.” But what do she and others in the titanium spine caucus think is going to happen when the United States can’t pay its bills?

Sure, Treasury Secretary Tim Geithner could manage to pay off bondholders. But as Rivlin and others explained, it won’t be too long before the checks due exceed the amount in the coffers.

An analysis by former George W. Bush administration Treasury official Jay Powell by the Bipartisan Policy Center shows that if the administration prioritizes payments to bondholders, Social Security recipients, Medicare and Medicaid providers, defense contractors and unemployment benefits (total $172.7 billion for the month) then it wouldn’t be able to pay another $134 billion worth of bills, including military active duty pay, veterans affairs programs, federal salaries and benefits, food stamps and Pell grants. You can shift around the numbers all you want but the bottom line is that refusing to increase the debt ceiling is not a sustainable option.

Bachman said that “saying no” to an increase in the debt ceiling would be “saying yes to job creation and to the next generation.” Up is down in Bachmann-world. The credit rating agencies are already threatening a downgrade. The grave implications of that are clear, for jobs now and stretching into the next generation with the hangover of higher interest rates.

Bachmann spent a lot of time invoking Ronald Reagan, so here’s one from the Gipper back at her. “The full consequences of a default—or even the serious prospect of default—by the Untied States are impossible to predict and awesome to contemplate,” he wrote to then-Senate Majority Leader Howard Baker in November 1983. “Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar in exchange markets. The nation can ill afford to allow such a result.”

By: Ruth Marcus, The Washington Post, July 28, 2011

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July 29, 2011 Posted by | Budget, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Jobs, Medicaid, Medicare, Politics, Public, Republicans, Right Wing, Social Security, Taxes, Teaparty | , , , , , , , , , , , , , | Leave a comment

Danger Of Default: Three Bad Right-Wing Arguments

President Obama went to St. John’s Church on Lafayette Square on Sunday for the first time since Easter. No doubt to seek divine intervention. The way things are going, that’s what it might take to conclude a deal by the end of this week that will not only raise the debt ceiling but also will not freak out the markets. The problem is that there is a sizable faction within the Republican Party that doesn’t think all the hair-on-fire warnings from the Obama administration are real.

Some argue that the nation’s credit card needs to be ripped up or that Washington cannot be given another blank check to spend, spend, spend. So a national default is what’s needed to snap some fiscal discipline into the federal government. Some argue that a short-term default wouldn’t be so bad, that there’s plenty of money for the nation to meet its obligations to bondholders and as long as they are taken care of everything would be okay. Some argue that there’s no way they go along with an increase in the debt limit without a balanced-budget amendment. And some are making all three arguments in one form or another.

Folks, all three arguments are a recipe for disaster. You better pray something gets worked out.

The debt ceiling. Raising the debt ceiling is not — I repeat, IS NOT — like giving Washington a blank check or adding more to the national credit card. Increasing the legal limit the federal government can borrow allows it to pay for things it has already bought. In short, the money’s been spent. For the United States to not meet its obligations for the first time in its history would destroy the full faith and credit of this nation and could irreparably damage our economy and financial standing in the world.

Prioritization. A default by the United States would force the Treasury to rob Peter to pay Paul. And it’ll be ugly. Meeting obligations to holders of U.S. treasuries is one thing. It’s paying all the other bills that will come due in August that will send the American people into apoplexy.

The federal government will have $306 billion in bills (including $29 billion in interest on Treasury securities) in August and only $172 billion in its wallet to pay them. The remaining $134 billion will have to come by denying checks to seniors, active-duty military, federal workers, etc. Such prioritization has been called unworkable by the Obama administration. And the Wall Street Journal reported Thursday that a Standard & Poor’s official told Senate Democrats that failure of the United States to pay any of its bills on time could lead to a loss of the nation’s precious AAA bond rating. This comes despite an intense lobbying by the Obama administration to persuade the bond rating agencies not to issue threats against the nation’s creditworthiness.

Balanced-budget amendment. This week the House will vote on the Cut, Cap, Balance Act.Cutting and capping budgets is a matter of political debate. But given that there are two weeks before the nation runs out of cash to pay all of its bills, requiring passage of a contentious balanced-budget amendment before raising the national debt limit is lunacy. A Post editorial on Thursday made the rational argument for why this perennial “solution” for fiscal promiscuity is a bad idea.

The constitutional cure, while superficially tempting, would be worse than the underlying disease. A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies. It would revise the Constitution in a way that would give dangerous power to a congressional minority.

This bad policy prescription won’t pass the Senate. But many Tea Partiers in the House won’t vote for a debt-ceiling increase without it. Combine them with the Tea Partiers who signed pledges not to raise the debt ceiling under any circumstances, and you have the makings of a willful fiscal train wreck.

The full faith and credit of the United States, a precious asset that took more than two centuries to build, is seriously at risk. To whatever prayer Obama might have said at St. John’s related to the wrangling over a debt-ceiling deal, may I add, “Lord, hear his prayer.”

By: Jonathan Capehart, The Washington Post, July 17, 2011

July 19, 2011 Posted by | Budget, Congress, Conservatives, Constitution, Consumers, Debt Ceiling, Deficits, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Middle East, Politics, President Obama, Public, Republicans, Right Wing, Senate, Seniors, Tea Party | , , , , , , , , , , | Leave a comment

The Incredible Crazies: Finding Someone The House GOP Will Listen To

Negotiating with House Republicans isn’t just difficult because they refuse to compromise; it’s also because they don’t even appreciate the point of the exercise. Told, for example, that failure on the debt ceiling would lead to a disaster, the House GOP simply doesn’t believe the evidence.

It’s challenging enough trying to craft an agreement when the parties have the same goal. But what happens when the crew of the Titanic says, “The captain’s wrong; icebergs are no big deal”?

The trick is finding someone the crazies find credible. (thanks to T.K.)

Republican leaders in the House have begun to prepare their troops for politically painful votes to raise the nation’s debt limit, offering warnings and concessions to move the hard-line majority toward a compromise that would avert a federal default. […]

At a closed-door meeting Friday morning, GOP leaders turned to their most trusted budget expert, Rep. Paul D. Ryan of Wisconsin, to explain to rank-and-file members what many others have come to understand: A fiscal meltdown could occur if Congress fails to raise the debt ceiling. […]

The warnings appeared to have softened the views of at least some House members who, until now, were inclined to dismiss statements by administration officials, business leaders and outside economists that the economic impact would be dire if the federal government were suddenly unable to pay its bills. [emphasis added]

Right-wing freshman Rep. Steve Womack (R-Ark.) said he found the presentation, particularly the parts about skyrocketing interest rates, “sobering.”

Oh, now it’s “sobering”? We’re 17 days before the drop-dead crisis deadline, and now it’s dawning on some House Republicans that they’re not only playing with matches, but may actually torch the entire economy?

At this point, of course, I’ll take progress wherever I can find it. If some of the House GOP’s madness is “softening,” maybe they’ll be slightly more inclined to be responsible.

But I can’t help but find it interesting the limited pool of individuals Republicans are willing to listen to. The Treasury tells the House GOP caucus members they have to raise the debt ceiling, and Republicans don’t care. The Federal Reserve tells them, and they still don’t care. House Speaker John Boehner tells them, and that doesn’t work, either. Business leaders, governors, and economists tell them, and Republicans ignore all of them.

But Paul Ryan warns of a meltdown and all of a sudden, the House GOP is willing to pay attention.

I guess we should be thankful the radical House Budget Committee chairman is only wrong 90% of the time, and not 100%.

 

By: Steve Benen, Contributing Writer, Washington Monthly-Political Animal, July 16, 2011

July 17, 2011 Posted by | Budget, Businesses, Class Warfare, Congress, Conservatives, Consumer Credit, Corporations, Debt Ceiling, Deficits, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Middle Class, Politics, Republicans, Right Wing, Taxes, Wealthy | , , , , , , , , , , , | Leave a comment

To Fix The Budget Deficit, Raise Corporate Taxes

Washington is a town currently gripped by deficit hysteria. Various commissions and congressional “gangs” have formed (and broken up) with the goal of crafting a plan to bring the nation’s budget into balance. Even the media has been sucked into this vortex, dedicating far more of its time to covering the deficit than other economic issues, such as unemployment.

At the same time, both parties seem to agree that the nation’s corporate tax code needs to be reformed. President Obama and House Budget Committee Chairman Paul Ryan each dedicated a portion of their respective budget plans to overhauling the federal corporate income tax, which is high on paper, but so riddled with loopholes, deductions, and outright giveaways that few corporations pay the full statutory rate (and several corporations pay no corporate income tax at all).

This, then, should be an excellent opportunity to kill the proverbial two birds with one stone: cleaning up the corporate tax code, lowering the corporate tax rate, and still raising more revenue that can be put towards deficit reduction.

But no.

Despite all the hyperventilating over the deficit, both Republicans and Democrats have said that they want corporate tax reform to be revenue neutral, meaning no more or less revenue will be raised by the new system than was raised by the old. President Obama and Treasury Secretary Tim Geithner have each extolled the virtues of deficit-neutral corporate tax reform. But if this is actually the road that’s taken, it will constitute a colossal missed opportunity.

At the moment, corporate tax revenue has plunged to historic lows. In 1960, the corporate income tax provided more than 23 percent of federal revenue; the Office of Management and Budget estimates that it will provide less than 10 percent this year.

During the 1960s, the United States consistently raised nearly 4 percent of GDP in corporate revenue. During the 1970s, the total was still above 2.5 percent of GDP. Now, the U.S. raises less than 1.5 percent of GDP from the corporate income tax. As the Congressional Research Service put it, “Despite concerns expressed about the size of the corporate tax rate, current corporate taxes are extremely low by historical standards.”

The United States effective corporate tax rate is also low by international standards (though the 35 percent statutory rate is the second highest in the world). There are plenty of reasons for this drop, but chief among them is the proliferation of loopholes and credits clogging up the corporate tax code (alongside the growing use of offshore tax havens and the ability of corporations to defer taxes on offshore profits indefinitely).

Huge corporations, such as ExxonMobil, have recently had years where they paid literally nothing to the U.S. Treasury, despite making huge profits. The New York Times made waves by finding that General Electric paid no federal income tax last year, instead pocketing hundreds of millions of dollars in tax benefits. Mega-manufacturer Boeing has done the same, paying no federal taxes in 2009 while collecting $132 million in tax benefits. Google last year had a 2.4 percent effective tax rate, while California-based Broadcom’s rate was just 1.4 percent, far below the rate that the average American pays.

The Treasury Department estimated in 2007 that corporate tax preferences cost $1.2 trillion in lost revenue over a decade. So there is ample room to remove credits and deductions (like those that benefit, amongst others, hugely profitable oil companies and agribusinesses), lower the statutory rate, while still bringing in more revenue. Some companies would see their taxes go up, but others would see their tax bills drop, and the corporate tax code would be more fair, efficient, and competitive, while ensuring that all corporations pay their fair share.

As the Center on Budget and Policy Priorities put it, “corporate tax reform is a solid candidate to make a contribution to fiscal improvement … Taking a major revenue source off the table for deficit reduction at the outset would be ill-advised.” Indeed, with corporate profits skyrocketing—up 81 percent over a year ago—and corporations sitting on trillions in cash reserves, there is no reason that corporate tax reform should be done in a way that is deficit neutral, besides the fact that raising more revenue will be politically difficult, as corporations will likely throw their considerable lobbying weight against such a move. But in the end, failing to raise additional corporate tax revenue will simply shift more of the deficit reduction burden onto a middle-class already battered by the Great Recession.

By: Pat Garofalo, U. S. News and World Report, May 25, 2011

May 25, 2011 Posted by | Big Business, Budget, Class Warfare, Congress, Conservatives, Corporations, Deficits, Democrats, Economy, GOP, Government, Ideologues, Ideology, Income Gap, Lawmakers, Media, Middle Class, Politics, Press, Pundits, Regulations, Republicans, Tax Credits, Tax Evasion, Tax Loopholes, Taxes, Unemployed, Unemployment, Wealthy | , , , , , , , , , , , , , , , , , | Leave a comment

John Boehner’s Unreality Check On The Deficit

The news out of House Speaker John Boehner’s speech to the New York Economic Club was his demand for “cuts of trillions, not just billions” before the debt ceiling can be raised. Not just broad deficit-reduction targets, the Ohio Republican insisted, but “actual cuts and program reforms.”

That’s alarming enough. It is all but impossible to get this done in the available time. It certainly can’t be accomplished on Boehner’s unbending, no-new-taxes terms. And if the speaker truly believes that it would be “more irresponsible” to raise the debt ceiling without instituting deficit-reduction measures than not to raise it at all, we’re in a heap of trouble.

Even more alarming, because it has consequences beyond the debt-ceiling debate, is the incoherent, impervious-to-facts economic philosophy undergirding Boehner’s remarks.

Reporters naturally tend to ignore this boilerplate. Journalistically, that makes sense. Boehner’s economic comments were nothing particularly new. Indeed, they reflect what has become the mainstream thinking of the Republican Party. But that’s exactly the point. We become so inured to hearing this thinking that we neglect to point out how wrong it is.

My argument with Boehner is not that he believes in a more limited role for government than I do, not that he is more skeptical of government intervention and regulation, and not that he is more worried about the economically stifling implications of tax increases. Those are legitimate ideological differences. American politics is better off for them.

I’m talking about statements that are simply false.

“The recent stimulus spending binge hurt our economy and hampered private-sector job creation in America.”

Reasonable economists can disagree about the effectiveness of the stimulus spending and whether it was worth the drag of the additional debt, but no reasonable economist argues that it hurt the economy in the short term.

The Congressional Budget Office estimates the stimulus added, on average, about one percentage point annually to economic growth and reduced the unemployment rate by half a point between 2009 and 2011. And that’s the low-end estimate. The high-end numbers show the stimulus spending adding more than 2 percentage points annually to economic growth and cutting the unemployment rate by more than 1 percentage point.

The CBO is not alone. Economists Alan Blinder and Mark Zandi estimated in a July 2010 paper that without the stimulus spending, the unemployment rate would be 1.5 percentage points higher.

“The massive borrowing and spending by the Treasury Department crowded out private investment by American businesses of all sizes.”

Crowding out occurs when government spending drives up interest rates and makes borrowing unattractive to the private sector. As economist Joseph Minarik of the Committee for Economic Development explains, “When interest rates are on the floor, you can’t say federal government borrowing is crowding out business investment.” The lackluster investment climate reflects low consumer demand and underutilized capacity. You can’t be crowded out of a room you’re not trying to enter.

“The truth is we will never balance the budget and rid our children of debt unless we cut spending and have real economic growth. And we will never have real economic growth if we raise taxes on those in America who create jobs.”

Never? Under President Clinton, taxes were raised, primarily on the wealthy. During the eight years of his administration, the economy grew by an average of close to 4 percent.

“I ran for Congress in 1990, the year our nation’s leaders struck a so-called bargain that raised taxes as part of a bipartisan plan to balance the budget. The result of that so-called bargain was the recession of the early 1990s. It wasn’t until the economy picked back up toward the end of that decade that we achieved a balanced budget.”

Boehner blames the budget deal for tanking the economy, but the recession actually started in July 1990, two months before the agreement was reached. And that revived economy? It came despite the supposed dead weight of the Clinton tax increase.

“A tax hike would wreak havoc not only on our economy’s ability to create private-sector jobs, but also on our ability to tackle the national debt.”

During the early 1980s, taxes were cut and public debt ballooned, from 26 percent of GDP in 1980 to 40 percent by 1986. In 1993, taxes were increased (and spending cut); debt as a share of the economy fell, from 49 percent to 33 percent. In 2001 and 2003, taxes were cut. By the time President Obama took office, debt had climbed to 40 percent of GDP.

Listening to Boehner, I began to think the country suffers from two deficits: the gap between spending and revenue, and the one between reality and ideology. The first cannot be solved unless we find some way of at least narrowing the second.

By: Ruth Marcus, Opinion Writer, The Washington Post, May 10, 2011

May 15, 2011 Posted by | Budget, Class Warfare, Congress, Conservatives, Debt Ceiling, Debt Crisis, Deficits, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Income Gap, Journalists, Lawmakers, Media, Middle Class, Politics, President Obama, Press, Regulations, Republicans, Right Wing, Tax Increases, Taxes, Unemployment, Wealthy | , , , , , , , , | Leave a comment

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