Captain Obvious (S&P) vs. Captain Oblivious (Tim Geithner)

Last week, President Obama driveled on about nothing of consequence in his budget speech. Yeah, he said he’d push to roll back tax cuts for the wealthy and close some off-shore corporate tax loopholes, but he’s said both (many times) before and neither happened, so in terms of revenue enhancement, it’s a non-starter.

Today, S&P – that beacon of toxic asset rating foresight (which has yet to be slapped with any monetary accountability for its collusive role in bringing down our economy) came to the astonishing conclusion that the United States has a debt problem, and tagged the country with a 'negative watch' label. The S&P report proceeded to highlight fiscal spending issues, related political debating, and our ridiculously high debt vs. GDP percentage, which is only a few points below 100, as points of main contention. It paid minor lip service to the ‘financial crisis’ as being a factor. It shied away from blaming ongoing and potentially further devastating fallout from the overleveraged mortgage-related assets still clogging the books of the Fed, housing agencies and financial firms. It ignored the fact that the banking system maintains the appearance of solvency only through federally supported accounting gimmickry and an exceedingly generous and ‘easy’ Federal Reserve keeping assets bid and rates low in the face of inflation it chooses to ignore.

Meanwhile, the media and Washington have been laser focused on $38 billion worth of budget cuts, a whopping 1 percent of the entire budget, which as slight as it is in the scheme of things, disproportionately chops public good buckets. Rather than the excruciating time sink and mind-numbing arguments, it might have been best to just lop 1% off the top of everything proportionately, but that would have been too easy, and not political enough. Maybe then we could have shifted focus to the real cause of our budget woes – which is that our economy continues to deteriorate and the people with the power to do something about it are lying about its very cause and thus its remedies.

The flashing fuchsia elephant at the core of our economic, and thus budget problems – remains the response to the financial homicide imparted by the big-banks and abetted by the Federal Reserve and the Treasury Department. There was a choice to be made in Washington in the fall of 2008 - smack Wall Street into place, do a good-ole free-market – you fail if you deserve to fail, we’ll protect consumer assets and that’s it maneuver - and deal with possibly intense, but definable fall-out for a short period.  Or - lavish bailout upon guarantee upon subsidy upon asset purchase upon the lowest rates in our nation’s history on Wall Street, and wring the very possibility of a recovery out of the general economy from the get-go. Of course, the brilliant minds of our exceedingly-privileged, out-of-touch, economic leadership decided on the latter, and are acting their asses off to pretend that that decision, in itself, wasn’t the cause of the economic problems that followed, from Main Street anemia, to commodity inflation to international disdain and a weak currency that has no right to even have the purchasing capacity it still does.

And, yet Tim Geithner had the audacity of job-security to take his debt ceiling ‘plea’, on the Sunday Morning talk show circuit – really, we will be in crisis and other countries will think poorly of our ability to pay our debts if we don’t raise the ceiling and increase our debt. In truth, it is Tim Geithner’s ego on the line, while his boss, through staggering absence of mention, is fine with assuaging it. Federal Reserve Chairman, Ben Bernanke remained silent about the topic, not least because between the Fed and the Treasury department, more debt has been racked up and issued in the past two years than ever before.  Of course, the debt cap will get raised, just as it got raised under Treasury Secretaries Paul O’Neil, John Snow and Hank Paulson.

When Geithner got elevated from the NY Federal Reserve head position of aiding Wall Street in its time of need to the Treasury Department, from where he could rubber stamp the entire bailout notion as being essential to our survival as a nation, the amount of Treasury Security debt outstanding was $5.7 trillion (in tradable securities, and $591 billion in nonmarketable ones.)  In August 2008, just before the most powerful banks sucked the soul out of the country in every manner possible, Treasury debt outstanding was  $4.9 trillion.

Today, outstanding Treasury debt stands at $9.1 trillion, an increase of $4.2 trillion since the big bailout began, most of which occurred under Geithner, though it started under Hank Paulson, who in 2007 and recently on Tim's behalf, has used all of Geithner's current arsenal of reasons to request a sizeable debt cap increase. All of it, allegedly to avoid a Depression and propel us to what has been deemed a slow recovery by none other than the Treasury Department, the White House and the Federal Reserve.

Geithner can (and will) keep pretending that this seismic debt increase was a requirement to fix our main economy, even though the actual fiscal stimulus package of the Obama administration accounts for only 18% of this increase, so the numbers just don’t fly.  Indeed, they only make sense if you take into consideration other diversions, like the $1.37 trillion of Treasuries, about a trillion of which is in excess bank reserves, and the nearly $1 trillion of mortgage-related securities parked at the Fed, the $142 billion of mortgage-related assets at the Treasury deparment, and various remaining FDIC guaranteed bank debt hangover from the bailout period, and sundries like JPM Chase’s ongoing Fed backing for its Bear Stearns’s acquisition.

Meanwhile, our debt interest will be more than $430 billion this year, or more than ten times the amount being quibbled about by the elected partisan politicians that are debating it, as the value of our debt and debt-worthiness diminishes.

Anyone can make promises that at some time in the future, some of any budget will be more in check, or even that unicorns will overtake the oval office and do a better job running the economy, but the fact remains – misguided, larcenous policies created a boatload of debt to float a financial system that continues to suck us dry (near zero borrowing costs from non-zero lending through mortgage, personal loans, credit cars, or whatever), and until this fact is given even an iota of a percentage of the time that the smaller bantering is given, we will continue to sink further into a financial abyss of the Fed’s, Treasury department’s, bi-partisan Congress’ and executive leadership’s making, no matter who’s in charge. For now, there are those excess reserves at the Fed - just saying.

Paul Ryan's Budget Arithmetic Makes no Sense

Leaving aside for the moment the petty let's be children and see if we can grind the government to a halt game going on amongst parties and sub-parties, and the fact that both parties blessed every single debt cap increase placed before them in equal measure over the past decade of Bush *2 + Obama * 1/2,

I just want to focus on House Budget Chairman, Paul Ryan's, corporate tax decrease proposal for a second - because the math is so bizarre.

Looking at 2010 - the Federal government took in about $2.1 trillion worth of tax revenues, 8.9% of those came from corporate taxes, or about $187 billion. That left individuals footing 41.5% of the bill through individual income tax and another 40% through social security and retirement taxes (get it - we do pay into the system, $840 billion dollars in 2010 to be exact), with the remainder of tax receipts coming from excise and 'other' sources. (The percentage of federal tax revenues that corporations paid in 2009 was 6.6% - the lowest on record.)

The notion that slicing the corporate tax rate from 35% to 25% would spur large corporations to either:

a) fire their accounting staffs and do their returns on Turbo Tax 

b) willfully bring all their relevant earnings onshore

c) engage in major hiring sprees or

d) pay rank-and-file workers proportionately more and CEOs proportionately less  than in the past 

is obviously ludicrous, though not to Ryan or the GOP or apparently, the portion of the Dems that aren't spitting at them with their calculators. 

Besides that, it's not supported by fact. To the contrary, since the 1930s, each year in which corporations paid less than 10% of the overall federal tax receipts, coincided with recession and unemployment spikes. The last time that the overall percentage of corporate tax receipts was greater than that of individual ones was in 1943. In other words, when things are shaky for the overall economy, corporations bear a proportionately lower share of tax revenues than individuals. This is not exclusively, but certainly probably, due to their ability to move stuff around their books and hire scores of CPA's to help.

During the 1920s, Treasury Secretary, Andrew Mellon substantially hacked tax rates for companies and the general public under the premise that a magical 20% tax rate would discourage the rich and the corporate from seeking off-shore tax havens and on-shore loopholes. Though Mellon did manage to balance the budget after World War I, the tax practice led to an over-bloated and over-leveraged financial economy during the 1920s followed by the Great Depression. It didn't make charities out of companies. Even though it was more progressive than what we have today.

Sure, the budget stands a bloated mess. But the revenue side and mechanism is far more broken than the spending side, which itself grew due to the cost of wars, weapons and financial subsidies to the nation's richest people and corporations (especially the Wall Street ones). Lowering the corporate tax rate would merely reduce the share of corporate taxes getting to the federal till even further. 

Companies like GE may operate under a 35% tax rate in theory, but in practice that rate could be 50% or 0% and the result would be the same, not only because of the complexity of the loopholes in the corporate tax code, but also because there is no wherewithal in the government, or the Treasury department to do anything about it. Hell, the Treasury Department assisted GE Capital, GE's financial, er - hedge fund - arm, when it needed a 'crisis' bailout. The FDIC stepped in with a $140 billion guarantee for their debt in 2008 and 2009. Not only didn't GE pay any taxes during those years, but for 2010, the company managed to manufacture its largest tax refund - $4.1 billion.

How is lowering the corporate tax rate going to change that exactly? Uh, it's not. What it would do, is create a wider budget gap and send more politicians scratching their heads over why. So, it's really just a super-bad and dumb idea.