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Tax Cuts Move US Closer to Fiscal Crisis
President Barack Obama is receiving congratulations for moving to the center on the tax agreement with Republicans last week.
Both sides think they got something: Democrats feel this will nudge unemployment below 8.5 percent in 2012, helping the president get re-elected; Republicans achieved long-standing goals on measures such as the estate tax and think they will get most of the credit for an economic recovery that’s already under way.
The truth is, the deal moved us closer to a fiscal crisis, just as the euro zone now is experiencing.
Who will emerge on top in the U.S. version is harder to predict; at the moment, Republicans have the edge. But it’s not clear even they will be happy with what they wished for -- an opportunity to enact massive federal government spending cuts.
The central conceit behind official thinking about fiscal policy on both sides of the aisle is that investors will buy almost all U.S. government debt without blinking an eye or increasing Treasury yields. This is an endearing and heart-warming notion, rather like a seasonal showing of Jimmy Stewart in “It’s a Wonderful Life.”
What it should do is force us to think about how much the world has changed and how antiquated such ideas are today.
The United States is steadily losing its global economic and financial predominance. To be sure, we offer the largest amount of government debt on the market, but investors have plenty of choices around the world, both in terms of debt and other assets. The idea that our Treasury market will be buoyed by captive investors, whether the Chinese central bank or anyone else, is quaint and at odds with today’s reality.
Remember that we run a large current account deficit, so we need to take in new foreign capital every day just to maintain our lifestyle. So this isn’t just about foreigners refusing to understand the American debt dream.
It’s true that the euro zone has had a rocky ride in recent months and we shouldn’t expect those countries to sort out their problems soon. Another round of serious euro sovereign debt issues is likely as we head into the spring.
But the euro leadership will sort itself out; there is too much on the line. A stronger and more Germanic core of the euro zone will establish its fiscal credibility and its resilience.
The key to debt sustainability isn’t how much revenue the government can raise relative to gross domestic product or some other economic characteristic. It’s whether a country has the political will to raise taxes or cut spending when under pressure from the financial markets.
This is where Greece and Ireland were found wanting in 2010; we’ll see how Portugal, Spain, Italy, Belgium and perhaps even France do in 2011. Then it will be the turn of the United States.
The issue isn’t whether we can muster a bipartisan consensus to cut taxes; this is easy to do. But can our politicians agree on what to do when 10-year Treasury yields surge, interest payments soar and there are concerns about the rollover of our relatively short-term government debt?
One response is: The Federal Reserve won’t let this happen and will use another round of quantitative easing or some other innovation to hold down long rates. Maybe so, but 10-year benchmark rates have spiked in the past month or so, and mortgage rates -- presumed to be the Fed’s target -- have gained more than half a percentage point from recent lows.
At this point, we will have only two choices: Raise taxes or cut spending. Given that the Obama administration is unprepared for this scenario, and has no sensible tax reform plans under way, this gives an opportunity to Republicans intent on big spending cuts. For anyone hoping to “starve the beast,” this will be a historic opportunity.
But there’s a problem. The U.S. government doesn’t take in much tax revenue -- at least 10 percentage points of GDP less than comparable developed economies -- and it also doesn’t spend much except on the military, Social Security and Medicare. Other parts of government spending can be frozen or even slashed, but it just won’t make that much difference.
That means older Americans are going to get squeezed, while our ability to defend ourselves goes into decline. Just because there’s a bipartisan consensus on an idea, such as tax cuts, doesn’t mean it makes sense. Today’s tax cutters have set us up for tomorrow’s fiscal crisis and real damage to U.S. national security.
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64 Comments so far
Show AllI say SS is sacrosanct. That means cut military and bring on the death panels. Of course we could consider taxing the rich a teensy bit more.
The social safety net will be gutted...so the rich may continue to ...get richer...as for the rest of us...don't get too excited about that nice big bridge to live under...it might collapse...
Why would one think they don't WANT a fiscal crisis? We certainly have the weapons and manpower to suppress any uprising, and a fiscal crisis allows them to impose 'austerity'. As long as there's still American wealth to steal, they will keep stealing it.
saras. a nice turn of phrase; "As long as there's still American wealth to steal, they will keep stealing it."
You make it sound like the ruling-elite corporate/financial/militarist Empire here in good old River City has learned quite a bit from their involvement in Afghanistan, and Hamid Karzai in particular with his cartoon answer to the question of how much he will take to go-along with US plans and desires ---- "How much do you have?"
Yes, the ruling-elite's Empire here hiding behind the facade of their fully 'owned' TWO-Party 'Vichy' sham of faux democratic government in the US is showing Karzai how the big boys to it to their own country (as well as they put a good screwing on the whole world). Karzia is a mere piker by comparison with these pricks.
Best,
Alan MacDonald
Sanford, Maine
PS. BTW, here's my comment to the NYT regarding Simon's comments along the line of this OP-Ed, but in the NYT's Economix blog:
"Simon Johnson rightly concludes:
Our leading bankers looted the state, plunged the world into deep recession and cost the United States eight million jobs. Now many of them stand by with sharpened knives and enhanced bonuses – willing to suggest how the salaries and jobs of others can be further cut. Consider the morality of that.
Will no one think hard about what this means for our budget and our political system until it is too late?"
Per today's NYT editorial, "Deficit Hypocrisy", the term, and pain, of 'austerity' will undoubtedly be targeted, by the corporate/financial Empire that now IS the US, to fall mainly on the poor and working-class.
However the antonyms of 'austerity' include: elaborateness, extravagance, indulgence, and the overall sense of luxury.
Thus, calls for non-elite austerity, whether here or abroad, and whether by Republicans or our kinder and gentler economic-oppressor, Obama, should really start by falling on those elitist. looting, 'rose-thorns' who loot and live for "elaborateness, extravagance, indulgence, and the overall sense of luxury".
Let the draconian blossoms of austerity not fall far from the looting tree!"
well said...and absolutely spot on...thanks
al....you had me at "pricks!"
Since we waste about a trillion dollars per year on the costs of War when totally counted across all its hideaways like the
Dept of Energy for nuclear weapons, Homeland Security for CIA and NSA spying, Veterans Administration for billions to care for the poor souls we sent to War and are now maimed for life,
it should be very easy to cut spending.
We do not need almost 1,000 overseas military bases and especially 234 overseas Pentagon golf courses!
Bring the golf course home!
We need the golf courses here!
Actually we DO need to maintain healthcare for Vets along with
ALL Americans! So I would make an exception for the Veterans Administration folded into a Medicare for all health plan.
We do not need Wars in Iraq, Afghanistan, Pakistan and now Yemen, we not need billions for more nuclear weapons we are supposed to be eliminating.
Instead as Seymour Melman suggested before the Cold War ended, let those brilliant people at Lawrence Livermore
focus their efforts on green energy and how we can store
capricious renewables like solar and wind to make a stable
source of energy...
ORBITER: Well done!
Note how the author slides this beauty in:
"That means older Americans are going to get squeezed, while our ability to defend ourselves goes into decline. Just because there’s a bipartisan consensus on an idea, such as tax cuts, doesn’t mean it makes sense."
He's implying that all those bases and all the money LOST on the repugnant wars of choice actually support our ability to defend ourselves. In other words, he supports the militarization of the nation at the cost of EVERYTHING else!
HOG WASH!
That sentence could also mean people defending themselves in terms of health and/or finance. You are correct to point out that defending oneself often implies guns and military in this country.
Edit: The next sentence mentioning national security is also a giveaway even though national security can be redefined in non-military terms.
"That means older Americans are going to get squeezed, while our ability to defend ourselves goes into decline."
Isn't this amazing? I read the above statement to mean that BOTH SS and the military will be unfunded. And...you know, no one in government is taking care of our vets NOW. Large numbers of them...as in past wars...are homeless, and many with brain injuries will always need the kind of care they are not getting. I say, close down the military bases and bring all the military home. But what are they going to do? Please don't jump on me, I'm asking a reasonable question, not suggesting we should keep the military bases.
If we don't bring them home, then we will never know what they will do. It's unwise to assume that they'll all be rambos. As I have mentioned before, closing the bases and the Pentagon would not only reduce our borrowing from China but also make room for improving assistance for returning soldiers. It can be done and it must be done.
Excellent question, and this is the dilemma the USA is facing.
(The phobia against social studies 101).
To be able to do anything anywhere we need to have a planned peace economy... this is the hardest thing to do because that is a form of socialism that the USA is not ready to do with the rich and corporate world able to buy any politician or pay to marginalize those they can't buy.
If we had a real majority ruled Nation that could decide on a planned economy the President and Congress could give the military a new mission to use all of their resources to lead the building of a new sustainable infrastructure and construction for homeless including homeless vets.
We would need to virtually end the drug war or decriminalize pot for the underground economy to be able to adjust to the new opportunities that less crime and more freedom a planned peace economy would bring for the future of Humanity.
It will take first a president with the strength of will and character to give emergency executive orders to all civilian and federal and military personal.
It would be like letting a king or queen run the show for a term to kick start the new peace economy.
And for all to know the commitment it should be done under emergency orders similar to how the planning of the economy was enforced during Wold War Two.
If you can come up with a better or more ideas about what to do with the troops when we bring um home, this is a good time to think about it.
It must be planned not like our economy is planned, if you need to call it that, today.
Since whoever does this will be called Socialists, Commies and Terrorists, It will take a Hell of a lot of luck to get er done.
You have to be kidding--"our ability to defend ourselves goes into decline". If we cut the "offense" budget down to a true "defense" budget there would be actual money left over to pay for the things the people really need like bridges and dams and roads and other infrastructure.
Articles such as this that protect our gross, bloated spending on warfare while claiming fiscal responsibility is necessary are part of the problem. Cutting off SS checks to the elderly and disabled only sounds good to those who already have more than enough to perpetuate their cushy lifestyles and have no idea about the struggles so many go through just to have the basics.
BIRD: I hadn't read your post before adding my own. I see we're on the same page. Since this author was associated with The World Bank, it's easier to understand where his sensibilities and "values" lie.
"Out of control spending" is not nearly as true as you might think, except for military spending. Trying to find other stuff to cut gets surprisingly tough if you're talking serious money.
Please enumerate those items in your out of control spending budget. And too many taxes on whom or what?
So we are taxed when we make money, spend money, save money, invest money -- and die.
Oh here's a few am sure there are many more,enjoy
Utility Taxes
Service Charge Taxes
Workers’ Compensation Tax
Watercraft Registration Tax
Marriage License Tax
Building Permit Tax
Sales Tax
Social Security Tax
Septic Permit Tax
Hotel Tax
School Tax
Liquor Tax
Luxury Tax
Excise Taxes
Property Tax
Cigarette Tax
Medicare Tax
Inventory Tax
Car Rental Tax
Real Estate Tax
Well Permit Tax
Fuel Permit Tax
Inheritance Tax
Road Usage Tax
CDL license Tax
State Income Tax
Food License Tax
Gasoline Tax
Vehicle Sales Tax
Vehicle License Registration Tax
Capital Gains Tax
Dog License Tax
Road Toll Booth Tax
State Unemployment Tax
Court Fines (indirect taxes)
Telephone Federal Universal Service Fee Tax
Telephone State and Local Tax
Trailer Registration
Well you certainly listed a s***load of taxes but I still see nothing about the out of control spending that you want to cut. Seems to me that most of those taxes are used to fund some function of government that you or your neighbors use so show me the cuts...
There are just so many here's one I see affecting my friends and neighbors. The push for increased ethanol use, it eats at us everyday, our cars get less mpg and eats at engine components,it cost more to buy, it ruins small engines causing constant breakdowns, it drives up the cost of our food supply and leaves less for food aid. Wasteful from beginning to end. I am sure there are nuts out there thinking this is a good idea, hence wasteful spending.
Yes, you are more or less right, but if you look at overall government spending this amounts to very little. Without cutting military or medicare, the 'savings' are meager.
It's just one example, it's rampant through out.
IF we leave out military, SS, and medicare, then try adding up all the 'savings' that you can find in fed spending. You will see that the % of potential savings in the fed budget is really quite small.
Dave, many of those items are local or state taxes voted on by your friends and neighbors. You have an opportunity and obligation to exercise your vote and also influence others in your community.
What's interesting is how disconnected most of us are between the funding sources we dislike and public services we expect. For example, someone I know wanted to deliver an old TV set to the county recycling center last week, only to learn that the office was closed. His first reaction was to blame liberal government workers for taking the day off at taxpayer expense. Then I informed him that in our state, Mondays are furlough days because conservatives succeeded in cutting enough funding to force the shutdown. His response to that was, well, silence. We get the government we're willing to work for.
I agree.
So this former IMF dirtbag wags his finger at the US, after his notorious former organization of economic hit-men just finished trashing several European countries and is lining up the next set of victims.
Look at the way Social Security and military spending are lumped together in this analysis. I'm sure he'll be crying more crocodile tears when ordinary Americans get "squeezed" by his elite buddies.
You don't cite any evidence in your character assassination. You may be right, or not. Just because someone rose to the top of an organization with a less than stellar record does not mean he did not seek to make a difference in a positive way.
GREG: Do you get paid extra for kissing ass, or must you prove a loyalty oath by always showing your allegiance to the present powers that be, however corrupt they are? No matter that the trail of their foul plays follows them as does the slime, the snail.
I value logic and fact. Innocent until proven guilty is a good idea also. Slander, assumptions, and other bs is worth pointing out. Fiction is fine in its place, but on a website such as this, I hope to learn, not devolve into fantasy or corrupt thinking.
Fantastic. Respond to my post, and we can delve into some facts and logic.
This is dishonest. Defend the man and his policies and his career if that is where you actually stand.
There is no "character assassination" going on - hell the guy wouldn't deny his allegiance himself - brags about it, is proud of it.
The rights of the accused you are citing apply to those without power whom the powerful go after, it does not apply to those with power over us, it does not protect them from criticism. The concepts behind the rights of the accused do not give the benefit of the doubt to those in power, but rather to the rest of us - protecting us from the people in power. Of course Fox news has turned everything else upside down - promoting "reverse racism," with the endless whining lament about the sufferings of the poor persecuted straight white males, for example - so why not this as well?
We better re-write the Declaration of Independence, the Constitution and the Bill of Rights so that they protect the wealthy and powerful from the poor and powerless. It is so unfair to the wealthy people that the poor suffering people are complaining! What are they trying to do, make "us" (that is always telling when people here use the word "us" in this context) feel guilty??
Poor suffering white boys; poor helpless wealthy people; poor afflicted powerful people: we are trying to force them to feel guilty! Such cruelty!
Defend the IMF if that is what you want to do. There are many here who see the IMF as representing the interests of our enemies, enemies who are trying to destroy us. That has been well presented, documented and supported here many times.
The fact that you refuse to argue your positions fairly and honestly, out in the open, and stand by them and defend them, strongly suggests that you cannot do that, yet still you feel compelled to attack people here and defend those in power. So you do it in an oblique and dishonest way - playing talking points, nitpicking, sniping, and disrupting.
Well, that was a lot of words without ANY evidence supporting any allegations against Simon Johnson. Just because someone is or was in a position of power is not a reason for attack. Those of you who only choose to bitch or wish for leaderless anarchy have my disdain. Perhaps you think you are so pure, you've forgiven yourself for every sin.
Huh?
I am not building a case against Johnson, I am building a case against your ideas.
"Poor suffering white boys; poor helpless wealthy people; poor afflicted powerful people: we are trying to force them to feel guilty! Such cruelty!"
Just because someone's white doesn't make them privileged. There are whites who are just as poor as minorities. If you get evicted for not paying your rent or mortgage, it won't matter if you're black or white. You'll get the same cruel treatment once you're dirt poor. You're right about the stupidity associated with defending the powerful, wealthy, and the IMF but that's different and tying all whites to those groups is wrong.
"We better re-write the Declaration of Independence, the Constitution and the Bill of Rights so that they protect the wealthy and powerful from the poor and powerless. It is so unfair to the wealthy people that the poor suffering people are complaining! What are they trying to do, make "us" (that is always telling when people here use the word "us" in this context) feel guilty?? "
Whoa, take it easy man. No need to do that.
Read my post again. You either misunderstood it, or are seriously misrepresenting it.
You are the one obsessed with race, and with the persecution of the white man, not I. "Reverse racism" is merely one example as to how the right wing propagandists have corrupted people thinking - reversing it so that they see those in power as the persecuted ones and the persecuted ones as the powerful. It is the earliest and best example of that.
These issues are not about individuals, but rather about people as groups, and most certainly are not about you.
"You either misunderstood it, or are seriously misrepresenting it."
Neither.
"You are the one obsessed with race"
The only reason you're saying that is because of my earlier dispute with "ShadowDancer". Do I not have a right to defend myself just like anyone else? If you think I don't, just say so and show your true colors.
"the persecution of the white man"
You're over-assuming that. I said nothing about the persecution of the white man alone. I include everyone, white and minority.
" "Reverse racism" is merely one example as to how the right wing propagandists have corrupted people thinking - reversing it so that they see those in power as the persecuted ones and the persecuted ones as the powerful. It is the earliest and best example of that."
I don't believe in that but if some of my posts gave you that mistaken assumption, then let's get one thing straight. I don't and furthermore, there is no such thing as "reverse racism". Racism is just discrimination against another based on skin color and/or ethnicity and it's not limited to just whites discriminating against blacks. Any person regardless of race that discriminates against another person of a different race is engaging in racism.
"These issues are not about individuals, but rather about people as groups, and most certainly are not about you."
I understand that but I'm just saying that you got it wrong on one of those groups you have an issue with.
No one attacked you. Even if they had, that would not justify the comments you have made.
You say that there is no such thing as "reverse racism," and then defend it - "Any person regardless of race that discriminates against another person of a different race is engaging in racism."
It is not rue that "any person regardless of race that discriminates against another person of a different race is engaging in racism." if it were, we would never be talking about it at all. Racism would not be an issue. What you are parroting os what the right wing mouthpieces have been drilling into people's heads for 20 years or so now. You have never lived in a time when that was no true, but are you willing to learn that this idea you are expressing is very recent and would have been dismissed as lunacy 40 years ago by virtually all thinking people?
"Including everyone" in your sympathies - slave and master - and presenting that as an alternative to siding against the master, is to side with the master. Obviously.
"You say that there is no such thing as "reverse racism," and then defend it"
I see you take what I said and spin it in this one.
"It is not rue that "any person regardless of race that discriminates against another person of a different race is engaging in racism." if it were, we would never be talking about it at all. "
Not talking about it doesn't mean it's not happening.
"Racism would not be an issue."
MLK tried to help end it so that it would never become an issue to play around with, right?
"What you are parroting os what the right wing mouthpieces have been drilling into people's heads for 20 years or so now."
Hardly. The rightwing only talks about discriminating against the whites. I'm for ending all racial discrimination. Isn't that what Martin Luther King Jr. did too? Some say he was colorblind.
"You have never lived in a time when that was no true, but are you willing to learn that this idea you are expressing is very recent and would have been dismissed as lunacy 40 years ago by virtually all thinking people?"
I lived in a time where racism still existed but was also among other races. There was violence such as the NYPD shooting in 2000 and the Rodney King beating in 1994 and there was also multiracial discrimination that's going on today such as Asians vs African Americans. What happened 40 years ago I don't completely know but I know it was different so yeah it was looney tooney then.
" "Including everyone" in your sympathies - slave and master - and presenting that as an alternative to siding against the master, is to side with the master. Obviously."
Not all whites belong to the master class. Are you saying otherwise?
The fiscal crisis has already been going on for those entire 10 years the Bush tax cuts were active. Now about the Eurozone, do any of those countries cut taxes for the wealthy like the US does? If not, this article makes a very poor comparison of the US to the Eurozone.
So short sell US debt: buy the TBT ETF-20Yr US Double Short. The Chinese rating agencies already rate US Treasuries 2 grades below AAA.
Maybe if the gov't defaults it will destabilize the system enough that we'll have a revolution, which is our best hope for ever becoming democratic. Let the whole corrupt system crash and burn, then we can start over new-or flee to somewhere sane like Latin America.
"while our ability to defend ourselves goes into decline." defend ourselves???what??
From the article,
"Remember that we run a large current account deficit, so we need to take in new foreign capital every day just to maintain our lifestyle."
Who's lifestyle is he talking about? Certainly not the average American. What these large deficits are for is to maintain an ever increasing military budget, the financing of our governments military wars of aggression and occupation, and lastly, to maintain the lifestyles of the already too wealthy.
Can't have those hedge fund managers, captains of industry, and plutocratic families loose out on the chance to upgrade to a bigger yacht or miss out on the chance to have a fully furnished luxurious private 747 now can we? And what ever would they do without the ability to buy one of those 15 or 20 million dollar bras for their young sweet thing!
No kidding, 20 Million for a BRA!
http://www.blindloop.com/index.php/2010/02/5-most-expensive-bras/
The biggest % of the current account deficit goes toward paying for imported oil and petroleum-related products, which are directly tied to the overall american lifestyle regardless of class, although the rich have no problem affording it.
Good point.
how is it that there is no talk/buzz/discussion re. the Tobin tax, fee on financial transactions----$.25 on every $100, slows the quick-buck overnight investors & then some!
So silicone or fat on the right person in the right places is worth more then diamonds?
All empires end this way. They overstretch their resources, over-promise the "powerful," and make every attempt to draw all resources from the periphery towards the core. And it does work for a while.
But does anyone here really believe it will fall like Rome, and take 300 years to do so? Not a chance. The world is moving very quickly now. We are fully on the path to global meltdown, and in my opinion it is much closer than most people think. 2-5 years maximum. The center cannot hold. It is already failing. The outright fraud and corruption in plain sight is a reflection of that fact. The people in power have become so drunk on their power, they really believe they can maintain this situation by force, and while it can last for an intolerably long time, it cannot last forever.
Nice analysis; except for the bit about our military spending. We could easily cut the military budget by 60 percent and still be spending more than we need for "defense." Where people get these stupid notions from is beyond me. It is just fear mongering!
"The key to debt sustainability isn’t how much revenue the government can raise relative to gross domestic product or some other economic characteristic. It’s whether a country has the political will to raise taxes or cut spending when under pressure from the financial markets."
That's the way our private financial system works: the financial markets apply pressure, which is to say, the aristocrats demand more unearned income. The peasants must obey, or the hot money goes elsewhere and leaves them high and dry. This obedience Johnson calls "political will", but it is just the old fashioned obedience of debt peons.
An austerity program for this financial elite is what is called for. Their financial markets need to be regulated, their useless speculation must be taxed. A Tobin tax, not merely on currency transactions, but on all speculative buying and selling of "financial products", is called for. And a hefty boost in the income & estate taxes is the sort of austerity the time requires.
We truly are just sheep. Obama is our Shepard. We worship our aristocrats in the vain hope that we may one day join their ranks. We sacrifice for them.
Will it ever change?
I am not an economist and I don't even play one on TV but, here's what seems to work for me. STOP SPENDING MONEY YOU DO NOT HAVE
Two points: First, if the government stops spending too quickly, more people will lose their jobs, either requiring more federal spending for unemployment or telling them to go live under a bridge. Second, once the economy gets going with the private sector hiring again, then we must have the government spend less. This will require cuts in military and/or medicare in order to make a realistic difference.