political convention

political convention

Wednesday, April 13, 2011

A Deficit of Misery

Large numbers of Americans know the following things:
Lindsay Lohan, DUI arrests, substance abuse, multiple trips to rehab. Charlie Sheen, drug arrests, assault arrest, trips to rehab, three unsuccessful marriages and recent big career trouble.  Robert Downey Jr., drug arrests, served a year in lockdown treatment center; now clean.  Reese Witherspoon, no reported drug problem, spotted by paparazzi on her honeymoon with her second husband.. Tiger Woods hit by wife with a golf club when they fought over his extramarital affairs.

Large numbers Americans believe the following things:
Cutting foreign aid will make a significant contribution to reducing the federal budget deficit.  Cuts in food and housing assistance to the poor will also be a big step toward balancing the budget. Cutting funds for Public Broadcasting would save up to 5 percent of the budget, a significant amount. Pensions and benefits for government workers are a major proportion of the federal budget and should be cut. Stopping funding for Planned Parenthood is a serious step toward balancing the budget and will drastically cut the number of abortions nationwide. 

All of the items on the first list are true. Everything on the second list is false. Here are the facts:

•Allocations for foreign aid, assistance to the poor, and public broadcasting are relatively tiny items in the big budgetary picture.
•The public overestimates the cost of public worker benefits. 
•Planned Parenthood spends 97 percent of its funds on a variety of women’s health services and only three percent to provide abortions or abortion counseling. Cutting the organization’s funds will be only a relatively small step towards a balanced federal budget.

Yes, Americans are far better informed about People Magazine style popular culture than they are about the federal budget.  Who can blame them?  The battling back and forth between the parties, the incredibly large dollar amounts in play, and the unpleasant background noise in the media all contribute to drooping eyelids and befuddlement.
But one of the most important discussions that should be within everyone’s grasp is about taxes.  Can new or renewed taxes be safely used to lower the federal deficit and balance the budget? So far the Republicans have dominated the debate with their inflexible stand against new taxes of any kind, especially for the wealthy and corporations.  It’s a message that’s easy to hear because no one likes to pay taxes and no one wants their taxes to go up.
Democrats, on the other hand, seem to be swaying with the wind.  Some new taxes might be a good idea but, then again, perhaps not.   One of the sources of the Democratic quandary concerns the effect new taxes may have on the economic recovery.  Republicans say keeping taxes low will give corporations more resources to grow, thereby creating jobs.  Democrats (and many eminent economists) say it would be a mistake to reduce government spending during an economic downturn because the government helps keep money circulating and helps boost consumer demand and economic growth. 
You may now return to your People Magazine.  Isn’t a royal couple getting married soon?
But wait. Here’s some shocking news.  Did you know that the rich celebrities mentioned in the list above, along with just about every other wealthy American, were given tax cuts during the Bush Administration?  The cuts replaced tax increases imposed when Bill Clinton was President.  When the Clinton tax increases were launched the Republicans went crazy and predicted the economy would go bust.  Just the opposite happened.  Then under Bush, the Clinton increases were repealed and taxes for the wealthy went down. The worst economic recession since the 1930s followed. 
Cause and effect?  Maybe or maybe not.  Nevertheless, we may be getting the Clinton tax increases back and it will happen if Congress and the president do nothing.  According to an analysis in the New York Times, the Bush era tax cuts will expire at the end of 2012.  If the president and Congress keep hands off and allow them to die, taxes for the rich will instantly revert to the higher rates from the Clinton Administration. 
Three things to watch for if Clinton era taxes return:  First, the economy may boom, especially if the current recovery strengthens. Second, the problem of the deficit will miraculously ease: Clinton era tax rates will increase revenue and over five years the deficit could be diminished by as much as 75 percent.  Third, you’ll be reading in People Magazine about all the miserable rich celebrities who are finally forced to pay their fair share of taxes. 

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