Eliminating our Deficit is Not Doable Without Tax Revenues and Job Creation

The super committee that was formed as a result of the debt ceiling deal to resolve the deficit issue is destined for failure with half of the members already set to deny the use of tax increases as a part of the solution.  Will markets once again tank and the recovery remain a distant hope as a result?

Libertarians, which mainly make up the Tea Party these days along with other uber-conservative groups, assure us that the government is like a family budget;  to reduce our debt we must quit spending more than we bring in.  This over-simplistic approach appeals to many but how well does this jell with the family who borrowed heavily from their bank to fix up their home and pay towards their kids college tuition while both parents were working good paying, full-time jobs and had no health problems?  Will such a practice work if their employment and health condition takes a dramatic change for the worse?

Cutting back spending alone could suffice for this family if one partner loses their job and the other develops health issues that require lots of out-of-pocket expense beyond what insurance will cover, but only for a limited time.  Unless these negative factors reverse themselves in short order, spending cuts alone will not undo the damage that will occur.

To think, as many Republicans do, that these problems can be adequately dealt with if they simply quit buying unnecessary things, forego that vacation this year and see the doctor only when absolutely necessary, is so naive in the long run.

What happens if the other partner loses their job or has to take a 20-50% cut in pay and one of their aging parents becomes terminally ill around the same time and Medicare costs won’t cover much of the expenses?  The kids will obviously have to leave college and return home to find a job and help pay for the growing bills now due.  But with such high unemployment there are few jobs available and those that the children could get are on the other side of town or in another one 30-40 miles away.  The cost of gas today alone would eat most of the minimum wage earnings they would make.

There comes a point when cutting spending alone won’t do it.  All the revenue that they had at one time might have been able to keep such costs under control but conditions have changed now with their job status and the increase with cost of goods and services.  Some source of extra revenue will be necessary if they are to keep their heads above water.  They might have been able to take out a loan but that avenue has obstacles in it with credit tightening restrictions that have been finally imposed after the failed practice of predatory lending by large banking institutions prior to the collapse in 2008.  Their high credit debt that has developed makes them unlikely candidates for such lending.

They could sell off one of the cars and perhaps some other high dollar “toys” but there are outstanding loans on them so they wouldn’t get what they’re worth, thus increasing their debt that much more.  The interest from their credit card debt and bank loans outstanding take a big chunk out of what income they do have and make it difficult to chip away at their debt.

Finally, out of desperation they apply for unemployment benefits because they have gone through their savings hoping to find work before they were forced to go on “welfare”.  But it will be six weeks to 2 months minimum before they can receive that money and only after they have proven that they were steadily looking for work everyday; an act that requires time and money to print and submit resumes and travel to sites where jobs are being offered.  Mental depression begins to set in only worsening physical health.

Meanwhile the doctors bills are stacking up and the mortgage has been late on more than one occasion.  By the time they get the short-term unemployment benefits they need their credit rating has fallen dramatically or maybe even been totally ruined.  The process to correct this credit issue cannot even begin until both get full-time work again with health benefits and a living wage.  The prospects are grim for this to happen anytime soon and the fact that both parents are in their fifties makes it unlikely they will find any jobs comparable to what they had before that gave them a comfortable middle-income life.

From this perspective that over simplistic view of cutting spending alone to stabilize their economic condition seems to fall apart, at least for those willing to look at this issue from beyond the narrow parameters set by Tea Partiers and Libertarians.  This kind of family condition is happening all over this country with millions of people.  When you amplify this deteriorating situation and realize that they are not spending what they used to on consumer goods then you a get better picture of why the economy is going south.

The nonsense that tax increases will hurt economic growth is not borne out by the historical data and in fact shows that tax expenditures have cost the country nearly $1 trillion that could have been used to pay toward the debt George Bush left Barack Obama in January 2009.

Businesses, especially small businesses, are losing their customer base.  As that happens they have to lay off employees or cut back their wages, thus adding yet another family to conditions where attempts to cut back on their spending will further worsen local economic markets as it fails to keep that family afloat until the jobs crisis eases.  When the crisis deepens to the point that people have to give up their homes and their means of transportations, you have in fact added more people to a welfare system that is already stretched to the limit.  More people become homeless and serious illnesses grow exponentially that our over-burdened health care system, public and private, cannot adequately handle.

There is the belief by many on the right that anybody who is unemployed is a dead beat.  This only changes for some as this condition invades their own life or someone close to them.  The 80-year old grandmother on a fixed income, the child in a low-income family too young to work and the disabled father who wants to but can’t are not dead beats, but they do need the things of life that require an income.

All this is going on while a handful of people are seeing some of their greatest income increases in years as most American wages remain stagnant at best.

The income gap in the United States has ballooned: It’s wider than any time since 1928, in the days before the stock market crash triggered the Great Depression.

The numbers are startling: Top CEO salaries were up 23 percent last year, according to the New York Times; the average worker’s pay was up only .5 percent. Meanwhile, the top 0.1 percent of American earners now take in more than 10 percent of the nation’s collective income. That puts the U.S. in the same inequality ballpark as developing countries like Cameroon and Ivory Coast.

“This inequality is destabilizing and undermines the ability of the economy to grow sustainably and efficiently,” says Fed governor Sarah Bloom Raskin . Income inequality, she continued, “is anathema to the social progress that is part and parcel of such growth.”  SOURCE 


Concurrent with this is the news that many businesses are seeing some of their largest profits in years but are reluctant to hire back those they have laid off or even hire new people.   The trend has been to keep as few people as possible and work them longer at stagnant wages while increased production puts greater profits into their pockets for executive bonuses and investor dividends.  Rather than reinvesting this increased wealth to create jobs it is going into personal savings accounts and investments of the wealthy, thus adding to the growing income gap.

We need to be spending money not cutting back, at least for the short-term until the economy begins to heal.  Dealing with the debt is a long-term problem that can be put off for now says Nobel Prize economist Paul Krugman.

“For the fact is that right now the economy desperately needs a short-run fix. When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older. When millions of willing and able workers are unemployed, and economic potential is going to waste to the tune of almost $1 trillion a year, you want policy makers who work on a fast recovery, not people who lecture you on the need for long-run fiscal sustainability.

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.” – SOURCE

But the idiots in the Tea Party camp have shrilled long and loud that it is government waste and spending that has  put us here and as if in a state of denial they say it has all occurred on Obama’s watch, even with evidence to the contrary.    Why the main stream media and Republican politicians give these chicken-little voices the credibility they have is not only puzzling but portends that there may be some advantage they gain either monetarily or politically in doing so.

It may sell copy and air time to talk about the growing economic problems we face while all the time feeding the flames that fuel such conditions.  It may give leverage to those in political office to blame all of our ills on one Party while pretending only the other has the solution.  It may even seem an advantage by some big business to use such anti-government forces to increase their profits through lowered taxes and limit needed regulations that monitor abuses that come from corporate self-interests.

  (AP Photo/Laurent Cipriani)

But such short-sighted, self-serving goals eventually implode and the problems that were lying just over the horizon and have now landed squarely in their own backyard.  When the natives grow restless from spending cuts that impact low-income families and job creation is seen as non-existent, all that power and wealth will do little to offset the chaos that will ultimately result when hope seems apparently gone.

RELATED READING:

GOP on Defensive Over Fiscal Policy

The Tax Gap 

Same Old, Same Old: House Republican Economic Strategy Reprises Bush-era Failures 

The Emergency in Front of Us is Jobs 

Advertisements

23 responses to “Eliminating our Deficit is Not Doable Without Tax Revenues and Job Creation

  1. Larry, there is NOT a reputable economists that thinks a balanced budget can occur on the backs of cuts only……the math is not there ……liberals need to hammer this point over and over until it gets through….

  2. Not to mention that the same people who have lost jobs are not able to save for their retirement while unemployed or underemployed. This is huge, because most do not have pensions, and Social Security is not enough by itself, and the program is shaky.

  3. I hear it every day. I read the same stuff from the ultra conservative idiots on various writings sites such as Yahoo. No taxes and cut spending is their formula for recovery. Do they have any idea what will happen to the people who lose the help in whatever form the government supplies? Funny, that cut spending and no tax people also profess to be so religious. How come they don’t see themseles as the oxymorons they are?

  4. In the late 1940’s, I remember my father and uncle, WWII veterans, grappling with how to pay for their mother’s care. She had stomach cancer. She needed to be hospitalized. Mercifully, she died. There is a reason why Social Security and Medicare were begun. My Republican friends don’t want any social programs. They are women whose time filling jobs provided them with “play” money. Their husbands were lawyers and corporate executives. They see social entitlements as their money going to people who didn’t get a good education and didn’t get good jobs or work hard enough. All of these people are sitting in churches on Sunday. There is a real meanness in their contempt for “lesser” Americans. I don’t know how the people who cut their lawns, do their hair, wait on their tables and clean their houses are faulted for having no 401K. I am so disappointed in the president and
    Democrats. They squandered their majority. They did not explain health care or answer some of the outrageous lies of the Republicans. Last week, Claire McCaskill, my senator, said she did not support extending unemployment insurance. Another Republican posing as a Democrat. The only bright spot for me, my Representative, Emanuel Cleaver. Mary in Missouri

    • Sadly there are those attitudes about “lesser” people that have been around since colonial days. Some were delegates to the Constitutional convention who did not want to give the people direct voter privileges in those areas we do today.

      “I am so disappointed in the president and Democrats. They squandered their majority.”

      Here’s my somewhat humorous thoughts on that.

  5. Donna, it’s not about logic at all. It’s about being right. How much easier it is to have an absolutely correct world-view than to see shades of grey, to see what is real. I think all of us need to try to stay away from getting into an ideology trap where we are bolstered by demagogues and fellows who tell us we are on the only, one true, good side. That goes for right or left. Let’s try to keep our independent, creative thinking.

  6. Thanks for taking the ‘family finances’ argument to it’s logical end. If a family is hurting financially, of course cutting back is a must. But picking up some extra cash always helps too.

    • The GOP lives in a Norman Rockwell fantasy about family life today.

      This is NOT a knock however against Rockwell’s great renditions of early and mid 20th century paintings.

  7. I found your case study to be illuminating and I may have written today’s “Market Volatility” post a bit differently had I read it beforehand. However, it seems to me there’s a large middle ground between what psychologists refer to as having an internal versus external locus of control, meaning I’m responsible for my relative well being versus others are responsible for my relative well being. Early in your case study you write that the couple “borrowed heavily” to which I’d ask why? It’s unclear to me why some families go into serious debt to send their children to exorbitantly priced colleges when community colleges and public schools are considerably less. Why didn’t your couple, given their good paying jobs previously, live within their means pre-crises and build more of a cushion? Too often now, living beyond one’s means and comfort with credit is the status quo regardless of one’s politics. Call me a fiscally conservative liberal.

    • You have made a valid point that only these people can really answer. I don’t think many of them were haphazardly careless. I am not defending them Ron just pointing out that most people who got into debt were perhaps too optimistic about their future prospects, not realizing they might be effected by a damaging economic downturn.

      Many people were caught off guard when things went south in 2008 after they had already borrowed to purchase that new home or made that renovation they had been putting off for years. Their kids were starting college and some like myself did not plan properly and put a college savings account together. None the less they thought they would be secure in their jobs long enough where they could borrow what they needed to help their kids and get it paid back before retirement age hit.

      Borrowing money isn’t really the problem anyway. It’s borrowing it when you don’t have much for security or a job that pays well enough to stay ahead of any serious debt issues. When both adults in a family lose their job around the same time as many did in 2008, what savings they had gets cleaned out pretty quick and though the willingness to work is there, it doesn’t help that you have to compete with 5 other people for the same job.

      These are abnormal economic times Ron as you well know and doing everything you can to buffer yourself from loss of employment with other financial concerns like health issues for you and your parents can create an undue burden on the best of us. That but for the grace of the gods go you and I, no?

      • Yes, definitely. Those fortunate to have work have to contend with stagnant wages which makes for very difficult economic times. I have empathy for the middle-aged and elderly people caught in the downward spiral you describe. I understand you assign blame to the right, but what’s the solution? Can we teach young adults to live within their means (which may mean renting) and save for the future. Can self-discipline and delayed gratification be taught?

      • “Can self-discipline and delayed gratification be taught?”

        Perhaps with more now experiencing this recession. I think our parents learned to save and be frugal following the Great Depression so perhaps this will have a similar impact on many of our youth today.

        However, I say that reservedly because this generation is a consuming, material generation as they have been conditioned by the markets.

    • I’m guessing that you’ve been fortunate enough not to have suffered a severe financial setback such as a catastrophic illness or having to care for a debilitated elder. There are so many reasons why people find themselves in duress – and the people who have the least can least afford a disaster. Furthermore, Americans have been pushed for decades to go after the holy grail of home ownership and unscrupulous institutions made that so possible, beginning with Fannie and Freddie who began the subprime practice – other private institutions of course followed along hoping to get in on the largesse. Greenspan, who admits he made some “errors,” let it happen and encouraged unregulated loan houses and Wall Street. He believed that these greedy souls could regulate themselves. We see now that that didn’t work. So, please try to have a little bit of compassion for your neighbors who, yes, may have made some poor decisions, but in a decent economy they might have been able to save their way out of it.

      • You’re right, I am beyond fortunate on many levels. Born into an economically secure home, healthy family at present, a secure job with health benefits, savings, three well-to-do aging parents. I have a lot of compassion for others not nearly as fortunate as me, but could of course have even more. Thanks for the challenge. And your paintings are fantastic.

  8. I’m going to link this post to a guy who has been commenting over on my blog, claiming that trickle-down economics are the only way to go and that we have a spending problem, etc…. Tea Party nonsense. I want him to read this.

    • I don’t see how anyone can justify trickle down economics Terrence. After the Bush/Cheney years with their lower taxes for the wealthy and ineffective government regulatory agencies being run by corporate-friendly people we saw wages actually lower for many workers while the earnings of the wealthiest 2% skyrocketed. Job growth was sluggish compared to the Clinton years when there had been higher tax rates.

      • I don’t understand it either. I tried explaining to him that there was ZERO sustained growth under Bush, but to no avail.

        Their only argument is an “even if…” bit. Like: “Even if we raise taxes to 30% on the top 10%, we’ll still have a deficit, so ergo, we have a spending problem.”

        Fantastic logic.

      • Sadly, logic is not something that works with these people. The hear what they want to hear and disregard the rest. That doesn’t mean they’re always wrong but it does suggest they are never wrong, as they see it.

  9. Thank you, LB for this. I fear that your words are lost on most of the conservatives in this country who have taken an adversarial view of people who are suffering in this economy. I thank the Tea Party for that – they’ve demonized the poor and disadvantaged as though they are guilty of bringing this country to the place it’s at now. No rational economist disagrees that when the private sector stops spending, the government has to take its place. But ideology and dogma and a need to see the world in black and white drives Republicans and TPs to obstinately hang on to their irrational causes. But where will revenue magically come from if we don’t employ people? They want stagnation at the goal of a reduced debt. It’s all become so crazy and heartless. Look at your neighbors, Republicans!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s