THE RICH GET RICHER AND THE POOR GET...

I usually wouldn't use charts this big on this page, but the dates under each segment are important. As the chart title says, this is the distribution of average income growth during periods of economic expansion. What makes these data interesting is not so much that between 2009 and 2012 the top 10% grew massively while the other 90% had negative income growth. No, what makes this interesting is when you look at the top individual income tax rate during the early time periods.

In 1949 the top tax rate was 82.1%. In 1951 the top rate grew to 91% and stayed at 91% until 1963. Notice anything different about income growth during those years compared to the 21st century? Ya, the lower 90% of earners had actual significant growth in their income during those periods of incredibly high tax rates. Why was this so? Because the economy between 1951 and 1981 grew at an average rate of 3.7%, but between 1981 and 2013 it has grown by an average of only 2.8%.

So lets review. Not only do super high tax rates not hurt the middle class, but they also seem to do no harm to the growth rate of the general economy. And what significant event began in 1981, the year the economy and middle class income growth both started down? The so-called Reagan Revolution and the Trickle Down theory of economic growth. Facts is facts. Just sayin'.

MORE MYTHS

As I noted in the last post, our friends on the conservative side of things seem to believe a lot of stuff that can't pass the smell test of logic. That is to say, if it doesn't walk, quack or fly like a duck... it's not a duck, no matter how much you believe it is one.

Our second myth, then, is simply the entire right wing economic plan and answer to the endlessly repeated question, "Where are the jobs?" But don't worry about it being a long, dry list of policies. Here's the whole thing from a USAToday piece by Cal Thomas.

"Cutting taxes, lowering government spending and reducing the size of the federal bureaucracy would improve the economy... "

Ya, that's all of it. The conservative answer to all that is wrong with the Greatest Nation to Ever Grace the Face of the Earth. That, by the way, is yet more right wing clap trap. Here's the logic problem. If the statement is true then how could there be so much wrong with the country? Just sayin'

So let's dig a little deeper into the Great Plan (GP) and see how it would work to solve all of our economic problems. Cutting taxes. I assume that the idea is that leaving more money in the hands of them that earned it will translate into more investment in private sector businesses which will then produce more hiring and greater economic activity. That's the theory, anyway. Let's look at those ever so bothersome facts.

American businesses are, and have been, sitting on over 2 Trillion Dollars of cash. Not capital, not infrastructure, not warehouses full of product. Cash! There is a glut of mergers going on at the highest levels. And notice how often the deal is presented in terms of cash not just stock and other equity. We also have many large companies doing stock buybacks as a way to offer stockholders short term gain and get rid of even more of that pesky cash. What we don't have is hiring of new employees or raises for existing staff. So please, if you can, explain how giving a business even more cash money in the form of a tax cut will induce, encourage or maybe trick those companies into spending that money by creating jobs?

Businesses do not hire people because they have excess cash laying around the boardroom. They hire to satisfy a need brought on by increased demand for whatever it is that they are selling. Look at the last 6 years. Businesses have lots of money but are not hiring. Or look even farther back to 2001 and 2003. The massive Bush tax cuts, directed mostly toward the top 10% of earners did not result in increased hiring as had been predicted... by conservatives. Here's a chart of the unemployment rate since 2000.

Notice how after the 2001 tax cuts the unemployment rate went up, not down. Also notice that after the 2003 tax cuts the rate did start down, but very slowly and barely reached the level of unemployment recorded on the day George W. Bush took office. Oh, and you might want to notice that the huge upward spike starting in 2007 and ending in the first quarter of 2009 was all on Bush's watch.

So, two huge tax cuts... no effect on hiring. Tell me how this works!

Well, surely lowering government spending will do something positive for the economy. Maybe not. As I alluded to in the first myth post, government spending puts money into the economy. The logical extension of that statement is that reducing government spending removes money from the economy. But the conservative theory says that that money will still me spent and invested by the private sector which knows much better than bad old government where to pour that cash. Okay, but there may be a few problems. For example, it may be unstated but the conservative assumption is that money not spent by government will be returned to the taxpayers in the form of tax cuts (see above). This, of course, ignores the other unmentioned part of the right wing GP, the debt and deficit. I would think that any savings of tax dollars brought on by spending cuts should first go to reduce the deficit (the amount of money we borrow and then spend) and then to reduce the debt (the amount of money that we owe to those entities which lent us the money to excessively spend). They, conservatives, wale and moan about the D and D almost as often as they mention Obama's War on Coal. Which is to say, all the time. So I only think it would be fair to use spending reductions for those purposes. Want to bet on that one?

More importantly for our busting of myths (see how I avoided problems with the copyright laws), how would cutting spending, regardless of were any savings is redirected, "... Improve the economy?" I don't think it would. And I'm in agreement with the majority of economists. I'll say it again, government spending puts money into the economy. And, by the way, it also increases the moneys coming in from taxes. No, this is not some perpetual motion machine that runs forever on its own output energy. It is the simple fact that the federal government taxes transactions.

We pretty much only think of the government taxing income, but income, and in the case of businesses, profit, can also be viewed as transactions. Your part of transaction is to put in your 40 hours of working for your employer and your employers part is to give you money for your work. The same, of course, holds true for businesses. Buy 100 widgets from Widget World and they send you widgets and you pay them money. So really, all of what we call economic activity is just one transaction after another. And they're all taxable.

Those who haven't been there might be surprised to learn that unemployment payments are... taxable. Yep, all of those lazy takers receiving unemployment benefits so that they can lay around and play video games all day on the taxpayers dime are, in fact, required to pay taxes on the money they receive. One member of the household working while the other is disabled or retired? Social Security payments are also taxable under certain circumstances.

Grants from the government are generally not taxable, every transaction from that point on, is. So a science grant of say $500,000 to study hens teeth may seem like a half million dollar waste, but just remember that the half million dollars is now buying lab equipment (taxable) lab coats (taxable) paper, pens, computers, cell phones, lab assistants, etc. (all taxable). And the people who are paid for their work or their products take that money and buy bread and milk and shoes and diapers and more lab coats and stuff to sell AND IT'S ALL TAXABLE.

This basic fact is why Europe, which chose spending cutting as their way to recover from the Great Recession, is suffering under double digit unemployment and why the USA, which, by way of the FED, chose stimulus rather than austerity, has an unemployment rate of 6.1%. Facts are facts.

Okay, that's enough for now. The part about reducing the size of the federal bureaucracy is really just reduce spending said in a different way and is, as we've seen, just as meaningless. This stuff sounds good, in a kitchen table, checkbook balancing, kind of way, but the federal budget is not your checking account. The general economy doesn't work like that and believing that it does is a very big part of the problem.

TAXES

I've been working on our taxes this week and if anything can send me into a rant, that's it. Now, I figure that everybody hates paying taxes, but if you listen to conservatives you'd think that the tax man ranks right up there with Hitler, Stalin and Jack the Ripper.

You've heard them, I'm sure. "The government wants to confiscate your hard earned money," or "That government just wants to steal my money." Of course this is usually followed by the words, "And give it to some poor folks," or words to that effect. This echos back to the 2012 Presidential race and the talk of Makers and Takers. But maybe we need to get a bit real.

When you try to define who falls into which camp, either the Makers or the Takers, you run into several, shall we say, problem areas. For example, the fact that the Federal Government pays out huge amounts to subsidize the oil industry. And Agribusiness gets in on their share, as does the renewable fuels industry, including solar, wind, hydro and geothermal. And let's not forget the auto industry, the airline industry and pretty much any other transportation industry you can think of other than the Amish buggy industry. And these and many more are so called Makers!

On the Taker side of the coin one is faced with the uncomfortable truth that both Social Security payments and unemployment benefits are taxable. That's right, every year I have to pay taxes on the Social Security Disability payments which I received during the year. So, does that make me a Taker... or a Maker? Let's see, I earned enough money as a business owner who created and helped to create a couple hundred jobs, and paid into the Social Security and Medicare systems the required taxes so that now, when I need it, I can get a check from Social Security for my disability and receive health insurance by way of Medicare. I guess I went from being a Maker to a Taker. But since I still pay taxes on what I receive I should still be a Maker, right?

And that right there is the part that makes my head explode. People are always changing their status in our mobile and ageing society. It's one of the things that makes this a great country. We just shouldn't label folks with names like Makers and Takers and then try to make those labels a justification for certain policies. It's not fair and it can come back and bite you later in life. Even conservatives get old you know.

CAUSE AND EFFECT

We live in a cause and effect universe. Things don't just happen by themselves. For every effect, there is a cause and without that cause no effect will occur. This is a basic law of physics. Why is this blinding flash of the obvious important, you ask? Because  it seems to me that the Republican Party, and Mitt Romney want to repeal this physical law of the universe. Let me explain.

We have been told, time and again, that the only way out of our current post recession economic doldrums is to cut taxes on the well off and rich, the so called job creators, and eliminate strangling regulations from business. Do that, the GOP says, and the economy will perk right up. Why Mr. Romney has even said that such a course will create 12 million jobs in the next four years! It sounds good, doesn't it? But the same problem keeps nagging at me. How does it work? What is the cause that leads to the 12 million job effect?

For the life of me I can't find one. If the idea is that companies will have more money because they will be paying a lower tax rate and, thus, will use that money for hiring, I remain unconvinced. Look around. Businesses in the USA are posting record profits. And they're not spending much of it either. The last number I heard was $3 trillion. That is, businesses in this country are sitting on $3 trillion in cash money. So seriously now, how much more cash do they need from tax cuts before they start hiring? Will another trillion do it? How about $2 trillion more? See the problem. There doesn't seem to be any particular amount that will cause the effect of more hiring.

We do know that the other guys also have a plan for increasing hiring and creating jobs. They may call it investing in infrastructure, but we all know that means government spending. But guess what? There really is a cause and effect relationship between spending and job creation. One can yell from the top of the highest mountain that "government can't create jobs," but there's no question that government can create demand and that leads directly to...jobs! If government needs 20,000 new hammers you can best believe that some business person will try to sell those hammers to the government. They might be over priced. They might be horribly delayed. But somebody will make said hammers and will sell them to the government. And since hammers don't just grow on trees, somebody will need to be hired to do the making. Government creates a demand that is then filled by the creation of new jobs. Thus, one step removed, government created new jobs.

But the tax and regulation cutting method doesn't have that same connection. What makes Mr. Businessman add workers? Because if what the government does under a Romney Presidency can't cause the desired result, can't make the effect happen after the cause, then Mr. Romney and friends really don't have a plan at all. What they have is Magical Thinking. They believe that a causal link exists, in this case between lowering taxes and job creation, when in fact there is no such connection. But they sure do believe it to be so.

But has anyone actually thought about how this might work in the real world? Because it seems to me that what has to happen is as follows:

First, government cuts taxes on the job creators.
Then, the job creators, having more money than they had before the tax cuts, open wide the factory gates to the hoards of job seekers who will then have jobs, will pay taxes and the country will be back on the road to prosperity. You can almost see the CEOs standing at their penthouse office windows looking down on the masses as they line up to be hired. He, or she, may spread their arms wide in a gesture of welcome, even if the soon to be new workers can't see such a gesture from the ground. That looks to me like the entire Republican job creation plan, at least from the vantage point of the "Job Creators." Because remember, there's no actual cause for the desired effect.

But what does this look like from the people at the gate? It looks like they line up and beg the job creators to grant them a job, doesn't it? Should one approach on bended knee, perhaps? Should one be careful to not look the "Job Creator," in the eye, in case that might offend? Since nothing the government did in cutting taxes actually made a company start hiring, I think some variation on begging for a job may be the only solution.

And if that's the case, would someone please explain how begging rich folks for work offers more freedom than being dependent on government to send out a Social Security check or pay the doctor that you just had to see. Anyone? I didn't think so.

THE MYTH OF THE ZERO SUM ECONOMY

In a prior posting here I talked about the apparent lack of understanding between our political parties. It seems that each side is using different definitions of words and concepts. This becomes clear when one listens to the most basic ideas of how the American economy works. An example might help.

When discussing that most hated of all things government; taxes, politicians on the right will invariably trot out two arguments that they are sure will convince the simpleton asking the question of the, if you'll excuse the pun, rightness of their position.

First, they will tell us that, back home in their district, business people come up to them and tell them that if the incredible tax burden that they are under and the job killing regulations they face were just lifted, why then all would be well and jobs would flow forth as if from a fountain. Or something like that. Bottom line, business people want lower taxes and less regulation. Fair enough. But does it bother anyone else that this is like asking an eight year old if he wants more ice cream. You sort of know what the answer is going to be before you ask the question.

Second, and more to the point of this post, those on the political right will sometimes lecture an interviewer with a little lesson from Econ. 101. It goes like this. " We shouldn't raise taxes on the 'Job Creators'." "When we do that we just extract money from those 'Job Creators' and then redistribute it to poor people." "Since no new money is created in the transaction, the economy gains nothing." "In fact," they will say, "Those extracted dollars are no longer available to create jobs so taxing and redistribution are BAD for the economy." This is usually said with a bit of a smug smirk, as if the speaker is sorry that the interviewer is too stupid to understand such a simple concept.

Now, the problem that I have with this explanation is that it only seems to make sense in an Econ. 101 text book. Or maybe in a game of Monopoly. "Oh my, if you charge me for landing on your Boardwalk I'll be unable to buy a hotel for Illinois Ave. Think of all the hotel workers who won't have jobs." Ya, that makes sense. It's a zero sum game. There's only so much money to go around. If I give it to you, by way of the government taxing me, then I don't have the money to invest.

Back here in the real world things are a bit different. We have to deal with a global economy where rich people and corporations invest in businesses and securities from around the world. Where they park millions of dollars in off shore bank accounts. Where they spend billions on capital investments in other countries. Now just how does any of that square with the zero sum tax and redistribute game that they say explains our economy? Simple answer - it doesn't.

Those off shore or out sourced dollars offer no benefit to the general economy here in the USA. They only benefit the corporation, its investors and the country where the money now lives. So while extracting taxes from the rich for redistribution may look like it takes funds out of our economy, the rich aren't really playing a zero sum game at all. In fact it can be argued that their out of country investing is (one of) the actual reasons for our national unemployment problem. It's those dollars that have been removed from the economy, not the dollars extracted by taxes.

WHY GOVERNMENT SPENDING IS NOT LIKE A BLACK HOLE

I recently heard a conservative make a statement which seems to point out one of the right's biggest fallacies concerning the U.S. economy. After lamenting that it takes until some time in May for an American worker to earn enough to pay his taxes, this fellow says, "(that's) a whole lot of money for the government to be taking out of the economy." The problem with that point of view is that it is 180 degrees from the truth.

Government doesn't take money out of the economy. It redistributes money taken in taxes back into the economy. In fact, since we are borrowing $0.40 of every $1.00 of government spending, the government is putting way more money into the economy than it is taking out in taxes. Now, one can be against redistribution, call it socialism, and demand an end to it, but that's not the same as assuming that money taken in taxes just disappears into some black hole of the Treasury Department.

I think this actually gets to the heart of the American conservative idea of how the economy works and why I find the prospect of turning the keys to the whole thing over to them frightening. In their view, since being made to pay taxes takes money from them, that money is then gone and not available to be used by the "job creators." Since the free market no longer has use of those moneys they see this as a net loss that can only be resolved by cutting taxes. No credit is given to the government's use of the money. Government jobs don't count. Government workers have no worth to the economy and besides, we all know that government can't create jobs. Don't we?

As I said, conservative have it backwards. It's not government which takes money out of the economy, it's private sector investment in foreign companies, out sourcing and just sitting on over $2 trillion in cash which takes money out of circulation. Government, on the other hand spends the money taken in taxes by direct hiring, contracting, or in the form of grants to the states. The states, of course, then do the same. And here’s the real dirty little secret of government spending; they get some of the money back in more taxes.

Never forget, boys and girls, that the government taxes transactions. If you work for the government you pay taxes on your income. If a corporation enters into a government contract that corporation (hopefully) pays taxes on its profits. And that’s just the original transactions. That corporation pays wages which are also taxable. Buys products (taxable), services (again taxable), and perhaps invests some of the money (the profit from which is taxable as capital gains).

So, the next time you hear someone on the conservative side complain that taxes take money out of the economy, ask them if they’re kidding, or just confused. Then tell them why.

THIS MIGHT WORK

In looking back over my growing list of postings I've spotted a scary trend: I've written more posts with the Money label than any other topic. This could be because we are deep into a national financial crisis, or because, just as one thinks a lot about the beach in the dead of winter, I think a lot about money because I don't have much. Whichever it is doesn't really matter. Here's yet another one.

If, as I and a whole bunch of actual experts believe, the country is in a demand crisis not a too high taxes and too much regulation crisis than we need ideas that help create demand for American products and services. The Obama administration is proposing an extension of the 2% reduction in the Payroll Tax passed last December as a way to put more money in the hands of consumers who will, most likely, spend the extra money. This is fine, but since it only extends something already in place it can't really help much more than it already has. It won't create any new spending. We need something more. We need to reform the Usury Laws at the Federal level.

In brief, Usury is the act of charging too high an interest rate on loans and borrowing. Most states have such laws, as does the Federal government. And you would be very surprised to find that the legal limits are far below what Pay Day lenders, sub-prime mortgage lenders and, most importantly for this idea, credit card companies, charge their customers. Why?

Without going all lawyer on you the simple answer is that the U.S. Supreme Court ruled in the 1978 case of MARQUETTE NATIONAL BANK OF MINNEAPOLIS v. FIRST OF OMAHA SERVICE CORP. ET AL.   that National Banks can charge credit card interest based upon the Usury law of the state where the bank is located. They said basically that:

The National Bank Act provision codified as 12 U.S.C. 85,  authorizes a national banking association "to charge on any loan" interest at the rate allowed by the laws of the State "where the bank is located,"

Why does that matter, you ask? Just take a look at the address where you send payments to your credit card company. Delaware and South Dakota seem to predominate. These states, South Dakota in particular, took one look at the Marquette decision and realized that they could attract Credit Card companies who could then charge out of state borrowers based upon South Dakota's Usury rate. Of course, there is no usury limit in South Dakota. That's why so many credit card companies locate there.

So here is my proposal: Congress should amend 12 U.S.C. 85 to allow national banks to charge on any loan interest at the rate allowed by the laws of the State where the borrower resides. That's pretty much it. Of course it would have to apply to all existing balances. The screams of the bankers will be heard throughout the land, but there certainly is precedent for making changes to the terms of a credit card contract after the fact, so to speak.

The credit card contracts themselves provide the answer. They can change pretty much whatever term of the agreement that they want to and we, the borrowers pretty much have to take it. Oh, you don't want to pay the new and improved rate of 26% on your existing balance? Well, just close the account. You can't charge any more on that card, but you do have to pay the balance owed under the original terms. In my proposal the States and the Federal government would be acting for the consumers as their representatives (imagine that) in the clearly unfair and unequal contractual agreements that now exist.

The immediate result would be lower payments on high interest rate cards and other consumer loans which puts more money in the hands of consumers just like the Payroll Tax reduction, but this would act as a new stimulus rather than a continuation of an already in place tax cut. And it really isn't such a big change in the law anyway. Most states have Usury laws and have had them from the beginning. Why, even the hard core of the GOP can't bitch too much. Usury is forbidden by the Bible [Exodus 22:25] [Leviticus 25:36] [Leviticus 25:37]!

OBAMA AND THE DEMOCRATS ARE TRAPPED

It looks to me like the President and the Democrats in Congress have let themselves be pushed into a 2012 election trap. Pretty much any deal made with the GOP on raising the debt ceiling and/or dealing with the deficit will now have to contain provisions which will increase, rather than decrease, unemployment leading up to the election. Why?

Okay, just to review a little: The GOP wants to cut lots of spending and taxes on corporations and wealthy individuals, you know, the groups that they call the "job creators." The Dems for their part now want to cut spending by trillions of dollars and raise some taxes. That's really about all that they can't agree on. The taxes part of the equation. But as far as the President's reelection prospects are concerned either option is equally bad.

I think we have to look at the basic assumptions of each position. The basic assumptions under which the GOP is operating are that:

1. All tax cuts increase revenues, and
2. If we cut taxes on the "job creators," they will, well, create jobs, and
3. Cutting government spending will stimulate, and increase, spending in the in the private sector and thus create jobs.

On the President's side the assumptions are:

1. In order to increase revenues we must increase taxes, and
2. The level of taxation has little, if any, effect on hiring or expansion, and
3. Government spending stimulates the economy, thus helping the creation of more jobs.

Now it's pretty easy to see that the two sides will never really agree on anything since their respective world views are so completely different. But go back and reread the second paragraph. The Dems are willing to ignore their assumption #3 and make massive cuts to spending. This is the President's first reelection hurdle. I've said before, almost redundantly, that I think that cutting spending will cut jobs. My logic goes like this: if you take dollars out of the economy those dollars can no longer be paid as wages.


"But we're broke," screams the GOP, "40% of that dollar was borrowed. From China." "We can't afford that spending." Well okay, for the sake of argument I'll agree with the GOP here. But only for the sake of argument. The point is, they're looking at the wrong side of the equation. At the place were the dollars actually get spent their source matters not one wit. What matters is that somebody got paid with that government dollar and now, after spending cuts, they will not get paid. Of course the GOP counters that, if the program in question has merit, the private sector will step in, make investments and no one will lose their job and everything will work out fine. Back on the farm I used to have to shovel that stuff!

The GOP's reliance on the "private sector" to step in and save us all is a recurring theme. Just look at the GOP #2 above. It's a nice fairy tale. It just has no basis in fact. But it works really well as a political club. And that's where Obama's problems arise.


If the President agrees to huge spending cuts, as seems likely, something like $3 to $4 trillion will be removed from the economy over 10 years. That will, in my opinion, result in a spike in the unemployment percentage of from .5% to 1.5%. Since we are now at 9.2% it doesn't take a rocket scientist to see that this would be very bad news for Obama. But how about that tax increase/tax cut part of the equation?

If the GOP is right, and they get an agreement including tax cuts, then the jobs picture should improve, which is a net plus for the President's reelection hopes. Does anyone believe that the GOP wants that result? And really, what kind of policy is it that gives money to one segment of society and then simply hopes that they will hire more people because of all the extra money they have. Oh ya, it's called a conservative policy.


So, here's my take on all of this. If Obama and the Dems agree to spending cuts (cuts jobs) and no tax increases. The GOP will then point at the unemployment number and claim that it was the failure to cut taxes that caused the problem. Obama loses. Or, the Dems agree to the spending cuts (cuts jobs) and tax cuts. Since I see no real connection between tax cuts and more hiring the result will be the same. Increased unemployment and, Obama loses. See, I think that the GOP knows full well that the surest way to "make Obama a one term president," is massive cuts to spending which will put more Americans out of work. Too bad that that's the one thing both sides seem to be agreeing on.


And one more thing. If Obama were to bring home the troops from Iraq and Afghanistan a great many of those men and women will leave the service for private life. You know, the private life where there are no jobs. Strike Three Mr. President!

A BAD EXAMPLE

Here we are the in spring goofy season, where politicians offer wilder and wilder budget plans to save us from the wild budget plans of their predecessors. I opened the local newspaper today and what should greet me but a front page story about a Chamber of Commerce meeting held last night. One of the speakers was the newly elected Republican Congressman from our district. His words appear regularly in this rag, since I don't think the editors have ever seen a Republican Congressman from our district. Since he not only holds the title but also toes the (tea) party line he stands out as a hero to our local "news" types.

Congressman McKinley, in explaining to the crowd the mysteries of Federal budget making, used an analogy that I've heard from most, if not all, of the current crop of conservatives. It goes something like this. "You see," will say our conservative friends, "our Federal budget is just like your budget at home." "If your family brings in $35,000 each year, but spends $45,000, your family will have to borrow money to get by," they'll explain. "Now that might work for a little while, but sooner or later your little family is going to be BANKRUPT!" After the shock wears off they will go on, "in order for your family to avoid that you'll have to cut how much you spend." This is usually said with a bit of smugness, just to show the listener that the speaker knows something important.

And then comes the zinger! "In the same way, we as a nation must cut our out of control spending or we're DOOMED!" A cheer usually goes up from the attendees at this point followed by much head nodding and conversation in the audience. But something about that nice simple explanation bugs the heck out of me.

You see, the better example might be a family where mom and dad both work, earning $45,000 a year together, but where dad gambles away $10,000 a year leading to the shortfall. This seems to work if you see mom as Main Street or the so called real economy, and dad as Wall Street. But such a construction really doesn't matter. What matters is that part of the "family" isn't contributing to the welfare of the household.

Unlike your families finances, the government has a special, some would seem to think secret, means of balancing the budget that doesn't involve only cutting spending. It's called raising taxes. Mom and dad can't generate their own raises so that more money comes into the family, but the government can.

I'm not going to go into all of the arguments that swirl around talk of tax cuts or tax increases. I've written about the Laffer Curve before and nothing has happened to change my mind. Our citizens are "suffering" through some of the lowest  tax burden in over 60 years. We are not over taxed. Do I like taxes? Hell no. Taxes are, in the main, an immoral burden on the work of some confiscated to benefit others. I don't like taxes at all. But that's the deal we have struck.

The social contract under which we live has to deal with what is, not what we wish was. We burden ourselves (we, the people, remember) with taxes because we need that which only government can provide. Yes, we get programs and projects that waste huge sums and don't benefit "us" but we also get programs and projects to help and benefit many others. It's a tradeoff. At least it's a tradeoff to those who believe in such things as tradeoffs and negotiations and making deals that benefit the largest number of citizens. To the side that believes that the mom and pop story is a real example of how government works, not so much.   

ASK THEM ABOUT THE JOBS

Well now, we've had snow storms, an Egyptian revolution and a very disappointing Super Bowl result so far this month and it's only the 15th. And now even more disappointment blossoms as our elected leaders play fast and loose with the national budget. And part of the reason is that the American people are pretty ignorant of how and where the government spends their tax money.

Bruce Bartlett nicely summarizes some of the many ways that we just don't get it. Case in point:

A Nov. 30, 2010, poll by WorldPublicOpinion.org found that when people were asked what percentage of the federal budget goes to foreign aid, the mean (average) response was 27 percent and the median was 25 percent. When asked how much of the budget should go to foreign aid, the mean response was 13 percent and the median was 10 percent. Actual spending is well under 1 percent.

This is just one small example, but when the public is that far off it says something. It says that either a large part of the public is just, well, dumb, (remember, 1/2 of all the people in your town are below average) or that we have failed miserably to educate ourselves and our children, or that our public servants do a very poor job of explaining just what they do and how they do it. I'm going with all three.


Of course it could be that our elected leaders don't know any more than we do. This is getting on my wires right now in the almost constant chant of, "Cut Spending, Cut Spending, Cut Spending" that we hear from the Right.


Now, no sane person would claim that our mountain of debt is a good thing. Or that running a $1.3 trillion deficit is in any way going to lower that mountain of debt. But, just as the GOP and the Tea Party and right wing radio talkers everywhere can, with a straight face, claim that raising taxes in a recession recovery will kill that recovery, I want to know how cutting government spending during the same recovery won't create even more unemployment. Would someone please explain this to me.


Government spending could just as easily be called government buying. That is, the government uses money collected in taxes and, of course, money borrowed from the Chinese and others, to buy goods and services. Now, before anyone has a fit over the simplistic nature of that claim, let me add that the government does this buying either directly or, sometimes very, indirectly. Let me explain.


Let's say the feds give a community block grant to a small town to help build a much needed sewer system. The town needs to hire and contract for all manner of goods and services in order to complete the job. And, of course as we've discussed before with regard to the Obama stimulus, the money doesn't stop there. The contractor buys some new equipment from a dealer a couple towns over, who then decides to enlarge his showroom with the extra profits by hiring a local contractor, who then employees three carpenters and subcontracts to a tile guy, who then buys a new used truck from a local dealer and...well it just keeps on going doesn't it. And don't forget that every one of those transactions is taxable! In fact, I challenge any of you to come up with a Federal spending line item that doesn't include wages or profit for persons either real or corporate.

Heck, take the most outrageous example of wasteful government spending that you can think of, like studying owl vomit in the Northwest, and somebody is still going to be getting paid, like researchers, their paid staff, the guy who fixes their truck, and on and on. Everything you can think of to do with government spending results in a paycheck for someone. It's just like the point I've made before about our spending on NASA. Honest, they don't pack the shuttle full of $100 bills and release them into orbit. Every dime is spent on earth to pay somebody!

So please, all you folks clamoring for spending cuts during a recovery; how many lost jobs can we afford? Do I think that it's a good thing that we are so far in debt? No! But if we can only stick blindly to our ideologies, even in the face of extraordinary circumstances, then we are well and truly screwed. 

HERE'S A LITTLE BRAIN TEASER

During the recent discussions on the Bush era tax cuts one little thing keeps bothering me. Actually, it's two things.

First, it's absolute Republican dogma that all tax cuts increase revenue flowing into the government doing the taxing. This is, of course, based upon our old friend the Laffer Curve. You remember, right. As tax rates go up one reaches a point at which peoples economic behavior changes and they start to work less, thus lowering tax revenues. 

As you can see, the government gets zero revenue from a 0% tax rate and, according to the theory behind the curve, zero revenue when the tax rate reaches 100%. Now, the problem with this nice simple formulation is that the curve doesn't work to predict anything. See, there's no way to figure out where the actual tipping point (labeled Equilibrium Point on the chart) lands. Are we now at the point that any increase in tax rates means less revenue or are we on the left hand side where increased rates equal increased revenue? There's no good way to know. According to the Republicans, of course, we're always on the right hand side.
 
The second bit of dogma is the Republican concept of "Starve the Beast." The easy definition:

"Starving the beast" is a fiscal-political strategy of some American conservatives to use budget deficits via tax cuts to force future reductions in the size of government.

 We hear this a lot when the conversation turns to those nasty entitlement programs. If the Republicans could just lower taxes that would take care of all our problems because then the Democrats wouldn't have the money to fund their Socialist wealth redistribution programs and so on.

Okay boys and girls, we've learned two political terms. So, would someone please explain to me how they can both be right? How the heck can cutting taxes both increase revenues and starve the beast at the same time?  One or the other (or both?) of these must be wrong. Or maybe I just need to take a nap until my head stops hurting.

WHY THIS RECOVERY IS JOBLESS

The latest employment numbers are out and things are not looking good. The unemployment rate increased last month from 9.6% to 9.8%. While I think everyone can agree that this is not a good thing it surprises me that folks who should have a handle on this don't seem to. For example, Davis Leonhardt in the New York Times, says with regard to the bad jobs numbers, "What’s causing this? No one knows, to be honest."

Okay, so no one knows why hiring has stalled. Now, maybe I'm fooling myself, but it seems to me that the answer is really quit simple. It goes like this:

Before the Great Recession the single biggest driver of the U.S. economy was consumer spending, amounting to over 70% of the total economy. This may, or may not, be viewed as a good thing, but it is what it is. Americans purchase goods and services. Most of us don't manufacture anything, that's done in other countries now. Most of us don't grow things to eat, that's done by factory farms using (illegal) immigrate labor. No, what Americans are good at today is consuming. But the financial meltdown, and resulting recession, put a stop to that in a big hurry. Why, you ask?

Because many more Americans than anyone wanted to admit have been living on debt. Not living in debt, living on debt. Let me explain. It's pretty clear that a calculation of many, if not most, American's net worth would yield a negative number, both today and before the recession hit. When the average home price reached $200,000, while at the same time the average new vehicle costs close to $20,000, it's not hard to see that your average family of 4 making $50,000 was behind on the debt to equity ratio as it applied to their stuff. You could add up the value of everything that family owned, but when you subtract what they owe on just the house, the car, and the credit cards the number, in a lot a cases, is less than zero. Negative net worth. In fact, by most definitions, a lot of folks in this country are bankrupt. But, before the recession, they weren't broke. So how does that work?


It's like I said, we were living on debt. We have, as a nation, been spending more than we make, year in and year out. Today, after seeing what a bad downturn can do, that concept seems, well, silly. But make no mistake, it was happening. Remember, wages have been mostly flat for the past decade. The economy created far fewer jobs over the last ten years than were needed just to break even for those young people just entering the job market. So we borrowed. We borrowed from the banks to finance and refinance our homes. We borrowed to buy that car. We borrowed from our credit cards to buy Christmas presents. We could do this because we all knew in our hearts that our jobs were secure, and our house would only increase in value, so we'd be able to make the payments each month. If an emergency came up we knew that another refinance of the house would put thousands into our hands. No worries, be happy.


So, when the hydra-headed monster of this recession emerged we were faced with a host of insurmountable problems. House values tanked so we couldn't tap the old refinance ATM. More importantly, the so called credit crunch meant that even if you had equity in your home the banks weren't lending. Credit cards? In a totally predictable manner, as soon as the credit card companies got wind of "credit reform" raising its head in Congress they raised interest rates and cut available credit for millions of card holders, bad risk, good risk or whatever. So, that money source also dried up. And then came the layoffs. As the number of unemployed Americans skyrocketed, even the most free spending of us pulled up short. As consumer spending declined that lack of demand for goods and services caused even more job loses. And around and around we go. And, contrary to right wing conventional wisdom, companies are not waiting for an extension of the Bush tax cuts to jump start the economy. They're waiting for demand to come back.

So, why do some say they can't figure out why employment is still down. It beats me. All together now, lets follow along:

• 70% of the economy was consumer spending.
• Much of that spending was fueled by debt.
• Debt was an acceptable way to live because with a good job and increasing home prices debt can be "managed."
• Falling home prices, tight credit and a shaky job market means people don't have the money to spend now or in the foreseeable future.
• Consumers not spending means that the demand for goods and services also stops.

• Fixing just one (say jobs) without fixing the others (real estate values and tight credit) just won't work.

I'm sorry. There isn't any magic answer to this. Until that 70% of the economy gets their hands on some (borrowed) money the problem will continue. I just hope that the dunderheads in the government don't make things worse. Anyone want to bet on that?

SO, WHAT DO YOU WANT TO CUT?

Our friends in the tea parties, and just about every Republican running for office, tell the voting public what is needed to fix the economy: Stop spending and cut taxes. It's a nice, simple, bumper sticker message. Of course, if you ask them where they want to cut spending they; repeat that we must stop spending; or, change the subject, say to repealing every thing the Democrats have done, ever; or, have the person who asked the question "detained" by their very own private security cops. What they don't do is answer the question.

It's easy to see why. Pretty much every dollar of government spending, at every level, has some group of citizens who think that the government funds are just fine by them. Medicare? Seniors and boomers. Money to save the spotted owl? Tree huggers. New weapons systems? The entire military industrial complex. Some one, hopefully a voter, somewhere, really wants (or needs) that government money. So it's pretty easy to see why the politicians don't want to piss off voters by saying, "yes, I will cut aid to (fill in your pet project) and damn the consequences."

The problem is that there is very little that can be cut without major societal disruption. But what about the tax side of the argument? The clear position taken by the right is that the only way to save this great nation is to cut taxes. Home sales in the crapper, cut taxes! Poverty on the rise, cut taxes. Unemployment at 9.6%, cut taxes. But, of course, first we must make the Bush tax cuts permanent. Then all will be well with the world.

But here's the rub. First, if tax cuts are the way to improve the economy and job creation, why hasn't it worked? Remember, these cuts have been in effect for 9 years for some and 7 years for the rest. On top of that the much hated Obama stimulus included $300 billion in tax cuts directed at 95% of the country. People's after tax wages went up immediately after the stimulus bill was signed into law. Where, dear tea party, are the new jobs? But, here's the thing, on the stump the tax cut candidates make the argument that making the Bush cuts permanent will help create more jobs. They speak and act as if these are new tax cuts; something we haven't seen before. They want to have it both ways. They know in their ideological hearts that all taxes are bad so they rant on about health care reform raising taxes. About, in fact, just about every plan or program put forth by Obama and the Democrats in the last 20 months. This or that program will, "RAISE OUR TAXES." 

But wait a minute, claiming that one or another Democratic proposal will result in higher taxes is one thing. Claiming that not extending tax cuts already long in place is a tax increase is also, while a little disingenuous coming from the same people who passed the bill with the sunset included, is at least consistent. But you can't then try to pass off that extension of cuts as new tax cuts that are somehow going to do for the economy what they haven't done for 7 years.

So, the question I have for the Republican candidates is: Given the size of the debt and the deficit, and that extending the Bush tax cuts doesn't count as new cuts, just what the heck taxes do you plan on cutting? And while I'm at it, if you first cut programs, or even whole departments of the Federal government, as a way to help the debt and deficit, and then reduce taxes with any excess left over, how, exactly, does furloughing thousands of Federal employees and contractors lower the unemployment rate?

So, what the heck do you want to cut? I'm just askin'