Tuesday, April 12, 2011

TEN MYTHS ABOUT OUR BUDGET MESS (and Why The GOP Isn't Serious About Solving It)

Imagine what would have happened if after Pearl Harbor the president had declared war on Japan, and then invaded Korea. Most Americans would have thought FDR was crazy. Taking your eye off the ball to pursue monsters that exist only in your world doesn't win you many fans.

But this is precisely what the GOP is doing with our current budget mess. They are taking their eye off the ball, as they pursue monsters in a world that only they believe is real. Below I consider their Monster Myths, and the very real Budget Realities that should be shaping our current budget debate.

We hear it all the time. President Obama is to blame for jacking up our budget. Nothing could be further from the truth.

BUDGET REALITY: Consider this. If it weren't for the Bush era policies - tax cuts for the rich, unfunded wars, deregulation induced market collapse, trillions in bailout costs, etc. - our budget deficits would be right about $100 billion - or less - instead of around $1.3 trillion.

Or we can look at numbers this way ...

Either way you cut it, President Obama isn't to blame for this budget mess.

We've been told this for the better part of 30 years: "We need to cut taxes on the richest Americans so they can invest." The added benefit of increased investments will "trickle down" to the rest of America in the form of economic growth, and more tax revenue.

REALITY: After 30 years of tax cuts for the rich we now have a national debt that's gone from just under $1 trillion in 1980 to $14.3 trillion today. The Republican response after more than 30 years of having their grand theory blow up in their face? They're proposing yet more tax cuts for the rich.

We're told every day about rising Medicare and Social Security costs. Ergo, the argument goes, we need to cut benefits for these programs.

REALITY: After decades of providing favorable legislation for a select few Americans we've created at least $1 trillion in write-offs and charge-offs for corporations and other individuals. The really good part is that you and I pay for it. For example, if you like going to lunch with your business friend, who picks up the tab, guess what? You and I actually help pay for it. It's called a business expense, which the business community gets to deduct from what they pay in taxes. Congress has created so many of these deductions that you and I get to pick up more than $1 trillion in business and other expenses.

The Republican want to ignore that we could go a long way in solving our budget deficits if we went after some of the more than $1 trillion in write-offs and deductions we have in our tax code. Why? Because these deductions help their campaign donors.

One of the things we're told is that spending money on the state is a waste. The state can do nothing right. As such, we need to cut back on wasteful federal and state budgets because they drain revenue.

REALITY: Today there is more than $330 billion in uncollected federal taxes. Yet, the Republicans want to cut the budget of the IRS by $600 million (with even more cuts later). What the GOP doesn't understand is that for every dollar the Internal Revenue Service spends on audits, liens and seizing property from tax cheats they bring in more than $10. This is a 10:1 rate of return. So, to simplify, if we allow the IRS to spend ...

... we get $10 in revenue in return ...

While no one likes paying taxes, this sounds like a pretty good investment to me.

Again, we're told that state spending is a waste. The state can do nothing right. As such, we need to cut back on wasteful federal and state budgets because they drain revenue.

REALITY: According to the Congressional Budget Office (CBO), for every dollar the federal government spends on public work projects, or transfers to ordinary Americans (in the form of unemployment benefits) it generates between $1 and $2.50 in economic activity. This is what it looks like every time we spend money on regular Americans ...

will get us about ...

Like Myth #3 above, for the better part of 30 years we've been told that if we cut taxes on the rich they will invest and generate more economic activity because the rich know what to do with their money. Ergo, we need to provide the rich with more tax cuts.

REALITY: Of all the lies about tax cuts creating more wealth for everyone this one has to be perhaps the biggest lie of all. In fact, according to the Congressional Budget Office, for every dollar in tax cuts we give to America's richest class we only get 50 cents (and perhaps as little at 10 cents) in return. Or ...

in tax cuts for the rich will get us (maybe) ...

A couple of weeks back we heard on "60 Minutes" (from corporate America) that corporate tax rates in America were among the highest in the world.

REALITY: Apart from the fact that corporations should stop whining since they are able to draw from U.S. government funded universities, infrastructures, research centers, its military, legal networks, policing bodies, etc. the reality is corporate tax rates in America are at record LOW levels.

In fact, when we look at what corporations (and what their millionaire CEOs) are paying as a share of tax revenue today versus what they (and you and me) paid years ago, the "high corporate tax rate" meme is, quite frankly, a hoax.

Incredibly, the high tax rate meme gets worse once you understand the difference between the "marginal" tax rate and the "effective" tax rate, which you can learn about here.

We know that Social Security has produced surpluses, and that the federal government owes the system at least $4 trillion from what it has borrowed from the program. The Republican response? Lie, and say our retirement system is broke, and then make misleading proposals to cut or privatize Social Security.

REALITY: As I've been pointing out year after year, social security is not in trouble. In fact, it's one of the few "profitable" government programs we have. Every president knows this because they've been borrowing hundreds of billions from the program for years. We now owe Social Security trillions in back pay. Oh, and federal pensions aren't really underfunded either. We're just getting ripped off by the private sector, in more ways than one.

Remember Sarah Palin on the 2008 presidential campaign trail, telling us how we needed to do what they do in Alaska? Indeed, how many times did you hear Sarah Palin say how much she appreciated being in the American south because the people there reminded her of the rugged individualists in her home state? There's a reason why this was the case. They're a bunch of Red State Welfare Queens too.

REALITY: While Sarah Palin and other Red State politicians likes to wax nostalgic about the rugged individualists they represent, for every dollar most Red Staters pay into our nation's treasury they take out more than they put in. So, for example, for every dollar Alaskans pay into our nation's treasury box they take out $1.84. However, for every dollar California puts in we get 78 cents in return. 

We've all watched as Fox News, Rush Limbaugh, and virtually every Tea Bag groupie has piled on, telling the world that "the State is the problem."

REALITY: OK, time to have a little fun. I posted on this a few years back (and in the fall). Unless you're a conservative, this helps illustrate how intellectually bankrupt the "hate-the-state" mentality really is.

Moral of the story? The Republican party and their Tea Party brethren are not serious about the budget. They never have been. Why else would they have introduced misleading stories and a budget with no numbers? They would rather peddle myths about trickle down economics, and blame President Obama for our budget mess, than deal with our budget realities. It's all about creating a political narrative.

Put more simply, the GOP has no problem with the state appearing bankrupt, or allowing it to go broke, because it makes their "private sector" ideas look better. It's part of their 30 year race to the bottom strategy.

Unfortunately, in spite of overwhelming evidence that debunks their smoke & mirror lies, their strategy appears to be working.

- Mark

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