Obama's Budget Banter Omission: The Banks Broke the Bank
Monday, February 14, 2011 at 11:27AM Since the White House announced its 2012 budget, the requisite punditry stream has been breaking down its specific pluses and minuses. I could grab illustrative quotes from various places and people, or add to the analytical details, but for the most part, it boils down to something like this:
GOP and GOP supporters: Obama didn't make enough spending cuts, he's not taking this whole budget thing seriously. Oh, and about the cuts he did suggest with regard to corporate tax benefits, high-end mortgage-holder deductions and (his-own) extension of wealthy individual Bushian tax breaks - well, that's just plain anti-American and - will kill jobs. (The fact that corporations were contributing just 6.6% and 7.2% in 2009 and 2010, of the total federal tax receipts, a 50% drop relative to the rate before the financial crisis, or about $150 billion per year, isn't relevant in the scheme of things.) Now, where can we cut another $100 billion?
DEMs and DEM supporters: Obama inherited a bum economy, bum budget and bum deficit from Bush. And, he's turning around the crap hand he was dealt, slowly. That means he has to cut back on some important programs, but he's gonna champion a high-speed railway, electric cars (to drive along side the high-speed railway?), and clean energy initiatives, and those will most certainly put millions of people back to work. Yes, he appointed Tim Geithner, one of the lead bank bailout builders, whose Treasury department colluded with the Fed, under Ben Bernanke, the other guy Obama kept on deck to help the economy, to increase the amount of US Treasury debt to $9.4 trillion from $5.4 trillion since the financial system began inhaling subsidies in the fall of 2008, and went on to post record bonuses and profits. But, he had no choice.
The intent of the actual discourse kind of makes me imagine a burning building across the street, raging flames, engulfing smoke, crumbling over its foundation, and there are two people watching, one's a Democrat and one's a Republican. While the fire intensifies, they are arguing over whether it's better to use a thimble or a teaspoon of water as an extinguisher aid. Somewhere, off in the distance, is an engineer trying to figure out how to rebuild the building over its ashes.
The sad truth is that the budget deficit is a direct outcome of the economic policies that were adopted by both parties over the years. National debt nearly doubled under Bush, and continued to grow under Obama, while the financial system pillaged the country for trillions of dollars twice - first, during the leveraged build-up to the economic collapse, and then, via a stockpile of creative subsidization awards afterwards, the underlying debt build-up for which, lingers like a bad hangover.
Unless the real economy becomes healthier, more people are employed and we institute a far more progressive tax and distribution structure, there is simply no mathematical way, to balance this budget.
So, there is no silver bullet amount of spending cuts that is sufficient to balance it either, particularly as long as we are only looking at, and debating about, the spending side of the US balance sheet, and only a portion of the non-discretionary component, at that. Quibbling over whether Obama is cutting enough or not enough, is quibbling over the wrong question. Obama showcasing just the cuts as these 'hard choices' that will get us more towards balance, is meaningless. It is equally misleading for the GOP to focus on a separate subset of potential spending cuts, and conclude that this extra $100 billion will do the trick. Making $1.1 trillion of cuts over ten years, all things equal, with a projected deficit per year that's higher than that, won't balance any budget, for any political party.
You know what would have been really cool?
If Obama had just said - you know what - the budget can't be balanced, deal with it. And you know why? Because over the past two years, the economy, that was trashed by the banking sector, still sucks. And, during the entirety of the Bush administration, while prepping the economy to suck, debt to pay for wars and tax cuts kept growing. And, when the banking system was facing the abyss, we opened our checkbooks, we stimulated the hell out of it, but we did it mostly through issuing Treasury debt and the magical Fed printing machines - so it doesn't show up in the budget that we're all debating, except for a couple hundred billion to Fannie and Freddie and what remains of the stellar TARP project. And you know what? I admit that was a stupid thing to do. It was stupid when it started under Bush, and it was stupid when it continued under me and the economic team I appointed to keep it going. The bailout binge increased our public debt by 50% under my reckless economic advisors, Treasury Secretary, the Federal Reserve. And, hell if other countries decide to dump Treasuries in bulk, and their interest rates rise, and Bernanke can't QE them down fast enough, our budget deficit will gap like the Grand Canyon.
Meanwhile folks, we need revenue. Just like banks need profits to pay bonuses. And, that's something that can only be remedied through a healthier economy - not just for corporations, stock market investors and banks - that are sitting on $2 trillion in cash, with $1 trillion parked at the Fed - but for the general population that still counts 26 million people under or unemployed, not to mention a historically high 48.9% unemployment rate for youth, rising food and basic needs costs, continued foreclosures on entire families, and health insurance rates that will double within the next three years. You know what, when this country needed revenue in the past, Republican presidents and congresses did the math. Now, it's my turn. Let the GOP explain exactly how a lower corporate tax contribution created more jobs in the past two years, and while they're trying to figure that out, I'm gonna show some real leadership, and do everything I can - not to balance the budget - but to balance our economy.
Oh well.
Reader Comments (10)
Are you sure you don't have a cape? Because you are a super hero in our eyes. And I wouldn't expect anything less from you as you jumped on this right when the budget came out. Kudos! I hope one day I'll be as proud of my daughter as your parents must be. Your kind of tough love is just the slap we all need to wake up and fly straight. Thanx a million
well said: both the critique of obama and his predecessors and the hopey changey alternative for which, i fear, we wait in vain.
Sorry Nomi, but as it stands, 47% of households pay NO federal income taxes (CNNmoney.com). That has to stop. We don't need a more progressive tax system, because that kills a feedback mechanism whereby people that want stuff have to pay for it. It's time to take a chainsaw to the federal budget. Government should not be a jobs program.
Thanks Keith.
That may be true, but half the country represents 2.5% of its wealth, and with the median wage nowhere near keeping up with the inflation of basic needs costs, the alternative to that half is that they all go bankrupt, which would be worse for the the country overall.
http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#half-of-america-has-25-of-the-wealth-2
My point is that without revenue increases, spending cuts of the current nature aren't mathematically sufficient to alter this kind of budget deficit, given the reasons that it exists, and given the unequal economic landscape of our country, the future won't change that.
Thanks Nomi.
I don't believe the chart. The 2.5% data comes from the "Working Group on Extreme Inequality". That sounds like a title looking for a problem. "Racial dimensions of inequality is on their front page".
http://extremeinequality.org/?page_id=3
It's another agenda driven outcome. That's really bad journalism.
Tell you what: we have about 68% home ownership in the country. Nearly everyone has a car and a large percentage have a flat screen hanging on the wall. I think "poverty" has been redefined for convenience.
As far as government spending cuts if done properly really should be sufficient. Think about it. I'm going off the top of my head now.....
During 2001-2007, the yearly deficit under Bush we spent was something like 300-400 billion a year. In 2008, Bush spiked it for bailouts (a FAILED plan by the way) to something like 1.5 or 2 trillion, 4 or 5 times the norm of 2007, and what a failure that was! Now Obama comes along and keeps that spike at 1.5 or 2 trillion for the last 2 years with stimulus packages, cash for clunkers, and a massive spending spree for ballooning the government through "green shoots" that haven't materialized and he wants it the same way next year too. In fact, he's looking at 1.5 or 2 trillion a year deficit spending as the new "benchmark". Why?
Do you think we could go back to the 300-400 Billion a year deficit per year and be happy with that?
Let's go back to the 2006 or 2007 spending numbers and not think of 1.5 or 2 trillion as a new benchmark. Otherwise, this mentality of the "new norm" will sink us.
You want to see some scary government numbers... www.usdebtclock.org
You can't possibly collect enough taxes to fix those numbers. In fact, you could confiscate most of what everyone owns today and not meet those numbers, especially when the "off balance sheet" numbers ($62 Trillion) are figured in! The problem isn't revenue, it's spending and especially entitlements.
Keith,
Hey Keith, We may have to agree to disagree. Like, you - I believe that a significant portion of the deficit and all of the portion of increased debt in the past two years, was related to the bank bailout and subsidization extravaganza, though we may disagree that the activities of the banks spawned a general economic downturn that dampened revenues, and people's personal financial prospects, which hurt our country across the board, but was felt more by people that had less to begin with. Obama's fiscal stimulus was $787 billion, a portion of it, but by no means all, or even half of the increased debt and deficit figures, and I think it could have been executed much better and more tactically that it was, but that's another analysis entirely. Still, cuts on the spending side, in the non-discretionary bucket will not make up for it and near record low receipts from corporate America (including corporate-bank America) is a definite problem on the revenue side. There was a disproportionate benefit of the bank bailout program to financial corporations, and related ones, without a similar requirement for make-whole tax contributions.
As for the business insider's charts and their origins, they may be off by a few percentage points - the bottom 40% according to the way the Census Bureau buckets things, is shown as having received 13% of the income, instead of 2.5%, but their reports don't show the actual wealth distribution, which is more skewed towards the wealthier people in the country than income is (for obvious reasons), so maybe the real number is somewhere in between, plus, one could question whether those bottom 50% pay identically no taxes, or some taxes depending on what you count. But, the larger point is that tax receipts on people that make significantly less, should be significantly less, and vice versa. And, given the bank gifts, even more progressive taxation won't get us to even either, but it will be a start towards balance from the revenue side.
Simply put, you can't cut debt (deficit) only by cutting spending, you also have to increase income. I learned that after my divorce, and I became a single parent. Yes, there was child support but that didn't cover much, neither did my meager salary. (No alimony.) Daycare was $200 something a week for 2 children and child support was only $360 a month. Many times I worked both a full-time and a part-time job just to make ends meet.
Something else that bothers me is that they are making cuts in places/programs that don't add that much to the deficit instead of making cuts in the higher expenditures. This "deficit" will not be corrected overnight for sure, but the way the government is doing things, I'm beginning to wonder if it will ever be balanced and if they are even really serious about lowering the deficit, or are they just trying to get rid of the programs that help people.
@Keith. No, government should not be a jobs program - all the time, but sometimes government has to step in and help get the ball rolling, then step out once it is rolling. That's one of the things government's are supposed to do - help. Also I don't, for one minute, believe that 47% of households don't pay any income tax, unless they are referring to those who are desperately poor and those in the higher income brackets who have all sorts of deductions that the middle class and poorer people don't. Seems to me that the middle class are the ones who have been supporting this country for many decades now. Even the unemployed are required to pay income taxes on unemployment, however, unemployment is not considered "earned income" so the unemployed are not able to utilize the earned income credit, and the single unemployed person (kids grown, spouse deceased, never married) is worse off because they don't have dependents to claim either.
Interestingly, that is the speech I recently told one of friends I'd like to hear from Obama. Unfortunately, surrounded as he is by Wall Street alumni and as beholden as he is to the financial lobbyists that won't happen. The recap of the Dem/Rep "he said/ she said" is right on. They all suck and they have all sucked for a long time. Plenty of blame to go around and feel free to point fingers. Your main problem is that you need about 100,000 fingers to do the job properly.
For those who say Obama is trying to channel Reagan, they are right but for the wrong reason. Reagan, the Dem Congress, and the Greenspan Commission lit the fuse for the Social Security time bomb back in the 80s. I liked Reagan but he was not much better than the rest when it came to kicking the can down the road. He got away with it though - it is so remote in the American political past that no one seems to remember it.
However, I think we're past the point where it matters. For 40 years the global economy has worked like this: The U.S. lives beyond its means, the other countries lend us money to pay for the goods we buy, and then we buy their goods. They also loaned us the money to fight all the wars for them and be the world sheriff.
We are pretty much at the saturation point where we can't live beyond our means any more - partly because our means have shrunken and partly because what means are left are increasingly spent on debt service. So no more buying stuff which makes the countries who rely on selling us the stuff crater too. And let's not forget all the debt that can't and won't be paid back. It's like a game of musical chairs but there are no chairs and everyone is desperately trying to avoid stopping the music.
I think we had our window of opportunity in 2008 to go the Iceland route and let the banks go under, let the strong eat the weak, and move on. We blew it and the same people who led us into this mess claim to be the ones who will lead us out.
And nobody is going to jail. Can we get William Black to be like Cincinnatus, leave his academic job and pick up his sword again?
"Economics" is a lot like religion, it is all make-believe.
Make believe "money", which does not represent wealth, but rather debt.
The usury game, that pretends we all owe something for the nothing the banking cartel have "loaned" us on "credit".
It is a Monopoly Game run by crooks. This is not "government" this is predation.
All of this yada about the details is like counting the number of angels that can dance on the HEAD of a pin--which obviously is not the POINT.
ww
Wow, it's like you have no idea how money is actually created, that you have no clue what Congress did in Nov 2007 to re-enact the Mark to Markets Rule or even how the Fed actually works.
I feel sorry for your worshipers, if they just did simple research they could easily find out why we are in this mess & to blame Bush is like being a spoiled child who blames an imaginary friend for the destruction that they are sitting in.