Sunday, June 19, 2011

Ever Wonder Why the MSM Won't Show Us the True Deficit/Debt Charts (And REAL Options That Will Actually Strengthen Our Country)?

Cause this is the story they would tell (see essay and charts below).

And because this will contradict EVERY ECONOMIC NEWS STORY you will see until Election 2012, you can bet on NEVER SEEING IT ON TV (or in any major media source).

From the Center on Budget and Policy Priorities we learn the facts that we've either been sheltered from by our betters or that they don't want us to know.

Shouldn't WE get the word out? (And make a donation to this blog.)

Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits

Economic Recovery Measures, Financial Rescues Have Only Temporary Impact

By Kathy Ruffing and James R. Horney

May 10, 2011

Some lawmakers, pundits, and others continue to say that President George W. Bush’s policies did not drive the projected federal deficits of the coming decade — that, instead, it was the policies of President Obama and Congress in 2009 and 2010. But, the fact remains: the economic downturn, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years (see Figure 1).

The deficit for fiscal year 2009 — which began more than three months before President Obama’s inauguration — was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), the largest deficit relative to the economy since the end of World War II. At $1.3 trillion and nearly 9 percent of GDP, the deficit in 2010 was only slightly lower. If current policies remain in place, deficits will likely resemble those figures in 2011 and hover near $1 trillion a year for the next decade.

The events and policies that pushed deficits to these high levels in the near term were, for the most part, not of President Obama’s making. If not for the Bush tax cuts, the deficit-financed wars in Iraq and Afghanistan, and the effects of the worst recession since the Great Depression (including the cost of policymakers’ actions to combat it), we would not be facing these huge deficits in the near term. By themselves, in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019. The stimulus law and financial rescues will account for less than 10 percent of the debt at that time.

President Obama, however, still has a responsibility to propose, and put the weight of his office behind, policies that will address our key long-term fiscal challenge — preventing the relentless rise of debt as a share of GDP that will occur under current policies. The President and Congress could make major progress toward stabilizing the debt for the coming decade by letting all of the Bush tax cuts expire on schedule at the end of 2012. That would just be a first (although a substantial) step. To keep the debt stable over the longer run, when the fiscal impacts of an aging population and rising health care costs will continue to mount, policymakers will need to take large additional steps on both the expenditure and revenue sides of the budget.

Having said that, policymakers should not mistake the causes of the swollen deficits that we face in the decade ahead — nor make policy based on mistaken impressions.

Recession Caused Sharp Deterioration in Budget Outlook

Whoever won the presidency in 2008 was going to face a grim fiscal situation, a fact already well known as the presidential campaign got underway. The Congressional Budget Office (CBO) presented a sobering outlook in its 2008 summer update,[1] and during the autumn, the news got relentlessly worse. Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that became embroiled in the housing meltdown, failed in early September; two big financial firms — AIG and Lehman Brothers — collapsed soon thereafter; and others teetered.

In December 2008, the National Bureau of Economic Research confirmed that the nation was in recession and pegged the starting date as December 2007. By the time CBO issued its new projections on January 7, 2009 — two weeks before Inauguration Day — it had already put the 2009 deficit at well over $1 trillion.[2]

The recession battered the budget, driving down tax revenues and swelling outlays for unemployment insurance, food stamps, and other safety-net programs.[3] Using CBO’s August 2008 projections as a benchmark, we calculate that the changed economic outlook alone accounts for over $400 billion of the deficit each year in 2009 through 2011 and slightly smaller amounts in subsequent years. Those effects persist; even in 2018, the deterioration in the economy since the summer of 2008 will account for over $300 billion in added deficits, much of it in the form of additional debt-service costs.

Financial Rescues, Stimulus Added to Deficits in Near Term

The government put Fannie Mae and Freddie Mac into conservatorship in September 2008.[4] In October of that year, the Bush Administration and Congress enacted a rescue package to stabilize the financial system by creating the Troubled Asset Relief Program (TARP). Together, TARP and the GSEs accounted for almost $250 billion (including extra debt-service costs) of fiscal year 2009’s record deficit. Their contribution to deficits then fades quickly, however (see Figure 1).

In February 2009, the new Obama Administration and Congress enacted a major package — the American Recovery and Reinvestment Act (ARRA) — to arrest the economy’s plunge. Mainstream economists overwhelmingly argued that to combat the recession, the federal government should loosen its purse strings temporarily to spur demand, with a mix of assistance to the unemployed, aid to strapped state and local governments, tax cuts, spending on infrastructure, and other measures.

By design, this package added to the deficit. Since then, policymakers have enacted several other measures — including tax cuts for businesses, modest additional temporary aid to states, a partial payroll-tax holiday for workers, and further extensions of unemployment benefits — to spur recovery and aid the unemployed.[5] By our reckoning, the combination of ARRA and these other measures account for $1.4 trillion of the nearly $13 trillion in deficits over the 2009-2019 period (including the associated debt service costs). Their effects are highly concentrated in 2009 through 2011 and fade thereafter, delivering a boost to the economy during its most vulnerable period.[6]

Tax Cuts, War Costs Do Lasting Harm to Budget Outlook

Some commentators blame major legislation adopted in 2008-2010 — the stimulus bill and other recovery measures and the financial rescues — for today’s record deficits. Yet those costs pale next to other policies enacted since 2001 that have swollen the deficit. Those other policies may be less conspicuous now, because many were enacted some years ago and they have long since been absorbed into CBO’s and other organizations’ budget projections.

Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs. [7] By 2019, we estimate that these two policies will account for almost half — nearly $10 trillion — of the $20 trillion in debt that will be owed under current policies.[8] (The Medicare prescription drug benefit enacted in 2003 also will substantially increase deficits and debt, but we are unable to quantify these impacts due to data limitations.)

These impacts easily dwarf the stimulus and financial rescues, which will account for less than $2 trillion (less than 10 percent) of the debt at that time. Furthermore, unlike those temporary costs, these inherited policies (especially the tax cuts and the drug benefit) do not fade away as the economy recovers.

Without the economic downturn and the fiscal policies of the previous Administration, the budget would be roughly in balance over the next decade. That would have put the nation on a much sounder footing to address the demographic challenges and the cost pressures in health care that darken the long-run fiscal outlook.[9]

A Simple Step to Stabilize the Fiscal Outlook

The key question is: where do we go from here? It’s too late to undo the damage caused by the tax cuts and wars over the last decade, which have left us with a large overhang of debt. (In fact, that debt legacy — and the resulting interest costs — are a key reason, along with an aging population and rising health-care costs, that it’s unrealistic and ill-advised to restrict total federal spending to the average outlay levels that prevailed over the 1970-2008 period, as some have proposed.[10]) But it’s feasible to enact measures now — to take effect once the economy has recovered more fully — that would put the budget on a sustainable path without jeopardizing the economic recovery.

The most pressing need is to arrest the relentless rise in the ratio of federal debt to GDP. One simple way to make significant progress toward that goal would be to let the 2001 and 2003 tax cuts expire after 2012.[11]

Congress should either let these tax cuts lapse when they are scheduled to expire — for everybody, not just for people with incomes over $200,000 for an individual or $250,000 for a couple — or pay for those portions it wishes to extend. (It would, in fact, be desirable to continue some elements of the tax cuts, while offsetting their cost.)

The economy should have recovered sufficiently by the end of 2012 to absorb the reduction in purchasing power. By that one simple step, Congress would put deficits and debt on a sustainable path for the next decade, as Figure 2 shows.

So we need to demand from our representatives to let those tax cuts expire (and the sooner the better), and although this isn't the end of the "tax cut and spending" story as the savings of the lower classes have almost been wiped out by the cost of these wars and tax cuts for the wealthy (and the housing crisis scam which enriched the banking/investment interests almost immeasureably) . . . It's a very good start. And has nothing to do with destroying our evidently much-needed social safety nets like Medicare, Medicaid and Social Security, which has been an almost sacred/profane object thought to need destruction by much the same investment interests (which hated the "saving" of the elderly part of the population by FDR (and later children and those on Disability) and the progressives of that day (1935)). Click here for the rest of the article. Case closed? As horrors(!) abound in the wake of this shameful economic history, I saw yesterday that an AARP spokesman has announced that Social Security, etc., could be reduced (in the far, far away future, of course) as part of the debt ceiling/deficit current package being considered by the Obama administration! Who are these people (and what lobbyists do they pay that have led to yet another bad decision by the AARP (owned by United Health Care who make a mint off of the Medicare Part D coverage they advocated earlier to the detriment of their members))? Don't they know that Social Security pays among the lowest benefits found in other advanced countries already (and that it doesn't pay nearly enough to people at the bottom of the economic ladder* who've been pummeled by the unnecessary spending (including the AARP's Medicare Part D supported program) of the last decade)?

Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare, an advocacy group in Washington, said the timing of AARP’s statements was particularly bad because it came in the midst of deliberations between the Obama administration and Congressional Republicans about the debt ceiling and overall deficit reduction.

AARP insisted that the Social Security trust funds should not be raided to reduce the deficit and that the two issues were separate. But Mr. Richtman said the group’s openness to considering future cuts would no doubt be used by deficit hawks to push for immediate cuts in Social Security benefits as part of the debate over deficit reduction.

“I think it’s tragic that AARP would, wittingly or unwittingly, play into the hands of people who have never really liked Social Security and want to decimate it,” Mr. Richtman said. “AARP is the 800-pound gorilla, but they do not speak for seniors."

_ _ _ _ _ _ _ * . . . Social Security actually averages about 2/3rds of the international average - around 40% of wages compared to about 60% as the international average. That's a tremendous shortfall. Meanwhile, our super-rich continue making far, far more than similarly-situated individuals in other countries, while contributing nothing extra at all to Social Security.

. . . Clearly, we should be talking about increasing Social Security benefits, rather than cutting them. If most other countries find a way to make their retirement insurance programs 50% more generous than ours (60% = 1.5 * 40%), then surely we can too. Our greatest deficit is a deficit of political will.

This website has some terrific ideas about Social Security that will actually strengthen our country. Go there as quickly as you can and read. _____________________

4 comments:

Tom Harper said...

From what I understand, letting the Bush tax cuts expire -- for everybody, not just the richest 2% -- would save the same amount of money (about $4 trillion) as Paul Ryan's plan to eliminate Social Security, Medicare and all the rest of the safety net.

I was really hoping the Democrats would man up and let all of the tax cuts expire. Sure it sucks to pay higher taxes, but I never heard of anyone going bankrupt because their income taxes were too high.

Suzan said...

Yes, Tom.

Exactly.

And if it means a stronger country and a vibrant marketplace, wouldn't it be worth the small sacrifice by those who have income on which to pay taxes?

I worked for 20+ years at some very decent jobs and never thought anything about paying my taxes except that they were an investment in my country (and one I was proud to be able to make).

Ah. Those were the days.

Does anybody else even remember "that" country?

Love ya,

S

Teeluck said...

If we just end the Bush Tax cuts, and recall those teabagger bastards who were just elected, we will be well on our way to financial redemption. The republicans are trying to suck the very life blood out of our economy by strangling growth and making America a Fascist Nation run by the Walmarts of the world and subject us to their version of "heaven" on earth; with no abortions, marriage equality and the privatization of everything under the sun.

Suzan said...

Thanks for responding, T!

Glad you're still around and kicking.

As for my viewpoint? I'd like to see us get rid of all the Blue Dogs and Rethugs too.

And then start electing people who actually loved and worked hard for the original concept of "a land of the free" governed without corruption/conflict of interests.

A tall order today I know.

Loved ya,

S