Federal money for airports without planes

As the federal government howls over the impending spending cuts that go into effect tomorrow, we learn about some of the appropriations that the sequester will not touch.  That right-wing rag The Washington Post tells about an airport in my native Oklahoma that gets $150,000 of federal money a year even though it has no planes.  There are actually 88 airports like that throughout the country.  (This one is over by where my brother lives.  I wonder if he has been there to see his federal tax dollars at work.) [Read more...]

Government debt now greater than the whole economy

Factoid buried in a Washington Post graph caption:

The federal debt of the United States — including debt owed to the public and to parts of the government itself, such as the Social Security Fund — climbed to $15.22 trillion on Dec. 30. That marked the first time since the 1940s that the national debt was larger than the American economy, as measured by the gross domestic product. Since Dec. 30, the debt has increased an additional $4 billion.

via New year, more debt – The Washington Post.

From giveaway to takeaway

Economy columnist Robert Samuelson sees our government having to transition from a “giveaway” mode, which dominated over the last half century with politicians doling out benefits and tax breaks, to a “takeaway” mode, in which many of such goodies have to be taken away.  Samuelson says, however, that the politics of doing so are just not possible.

Any resolution of the budget impasse must repudiate, at least partially, the past half-century’s politics. Conservatives look at the required tax increases and say, “No way.” Liberals look at the required benefit cuts and say, “No way.”

Each reverts to scripted evasions. Liberals imply (wrongly) that taxing the rich will solve the long-term budget problem. It won’t. For example, the Forbes 400 richest Americans have a collective wealth of $1.5 trillion. If the government simply confiscated everything they own, and turned them into paupers, it would barely cover the one-time 2011 deficit of $1.3 trillion. Conservatives deplore “spending” in the abstract, ignoring the popularity of much spending, especially Social Security and Medicare.

So the political system is failing. It’s stuck in the past. It can’t make desirable choices about the future. It can’t resolve deep conflicts.

An alternative theory is that we’re muddling our way to a messy consensus. All the studies and failed negotiations lay the groundwork for ultimate accommodation. Perhaps. But it’s just as likely that this year’s partisan scapegoating implies more partisan scapegoating. Political leaders assume that financial markets won’t ever choke on U.S. debt and force higher interest rates, stiff spending cuts and tax increases.

At best, this is wishful thinking. At worst, it’s playing Russian roulette with the country’s future.

via A country in denial about its fiscal future – The Washington Post.

 

Just printing more money

Historian Richard Striner proposes a solution for our economic woes:

Using the monetary methods of Lincoln, updated to employ the inflation-fighting tools of the Federal Reserve, we could pay for a faster recovery and a great many worthy projects without higher taxes, without more national debt, and believe it or not, without inflation. How? By letting Congress exercise a little-known power that is used (very quietly indeed) by the Federal Reserve: the power to create new money.

If you’re skeptical about this assertion, ask Federal Reserve Chairman Ben S. Bernanke. In an interview with 60 Minutes on March 15, 2009, Scott Pelley asked Bernanke to state the cost to American taxpayers of the Fed’s attempts to prop up banks.

Bernanke: “It’s not tax money. The banks have accounts with the Fed … so, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money.”

Pelley: “You’ve been printing money?”

Bernanke: “Well, effectively.”

If the Federal Reserve can create new money, couldn’t Congress do the very same thing? The answer is yes, and here’s the precedent: the Legal Tender Act of 1862, in which the Republican-controlled Congress authorized creation of “United States Notes,” known as greenbacks, that were printed up and spent into use.

via The American Scholar: How to Pay for What We Need – Richard Striner.

He is serious.  His reasoning about how this could work defies excerpt, so read it yourself.

The Penny Plan for deficit reduction

Florida Republican congressman Connie Mack has put forward an ingenious approach to deficit reduction:  cut one penny (1%) from every dollar spent for six years.  This modest across the board reduction would be in place of the percentage increases every year that have become the norm (so that even talk of reductions are actually reductions in the rate of growth).   Even some liberals are coming out in favor of this option.   One of them, ex-Clinton official Lanny Davis, explains how it would work:

Mr. Mack’s bill, H.R. 1848, would cut one-penny-out-of-every dollar actually spent by the federal government from year-to-year for the next six years, from FY 2012-FY 2017. Beginning in FY 2018, there would be a budget cap of 18% of GDP (the average federal revenue as a percentage of GDP over the past 30 years). And by FY 2019 America would finally have a balanced budget – that is, assuming revenues naturally increase from the current 14.8% of GDP to 18% of GDP by 2019, after which the budget would be in surplus.

There is an automatic spending cut “trigger” under Mr. Mack’s plan – one he came up with well before the trigger used in the recently passed national debt ceiling bill. If congress failed to enact a budget implementing the one-percent-actual-spending cut required under Mr. Mack’s measure, then there would be automatic, across-the-board actual cuts in all federal programs to meet the one percent reduction, and that means all: in defense, Social Security, Medicare, Food Stamps, defense and national security spending, everything.

Mr. Mack’s plan may seem draconian to some. It would cut the accumulated budget deficits by an estimated $7.5 trillion over ten years – more than three times the amount achieved by the debt ceiling deal congress approved last Tuesday. . . .

Democrats need to find a spending cut formula that they can live with. The Mack Penny Plan seems a good place to start — it is simple, it makes common sense, and with some adjustments protecting the poor and the unemployed, it could be seen as fair even to many of the most liberal Democrats.

via Why Rep. Connie Mack’s Penny Plan Is Worth A Second Look | Fox News.

What do you think of this idea?

Both sides are wrong

Robert Samuelson is an economics columnist who has tended to be sensible over the years.  (The Washington Post classifies its columnists online as either “tending left” or “tending right.”  Samuelson shows up on neither list.)  He makes the case that both liberals and conservatives are wrong on the economy:

Let’s banish the budget fictions of left and right.

The supercommittee — the 12 members of Congress charged with devising a plan to close mammoth deficits — cannot succeed without public support for its proposals. And public opinion won’t come along if it embraces fairy tales.

The conservatives’ fiction is: We can reduce deficits and cut taxes by eliminating “wasteful spending.”

The liberals’ fiction is: We can subdue deficits and raise social spending by taxing “the rich” and shrinking the bloated Pentagon.

You will notice one similarity. Both suggest that reducing deficits involves little real pain. No one, after all, favors “wasteful spending.” Similarly, taxing “the rich” doesn’t threaten most people who aren’t rich. Liberals and conservatives alike can reconcile all good things: fiscal rectitude (for both), tax cuts (for conservatives) and high social spending (for liberals). I wish it were so.

It isn’t.

Before explaining why, here’s a caveat. Liberal and conservative budget experts generally don’t endorse these myths. No one who studies the budget could. Still, politicians and partisan propagandists popularize them.

Start with conservatives. Where exactly is all the waste?

True, many government programs deserve the ax. I’ve railed against some for years: farm subsidies (food would be produced without them); Amtrak (it is non-essential transportation); public broadcasting and culture subsidies (these are unaffordable frills); community development block grants (they generally don’t enrich poor communities).

Entitlements — mainly Social Security and Medicare — should be trimmed. I’ve also made that a crusade. We need higher eligibility ages to reflect longer life expectancies. Wealthier retirees should receive less Social Security and pay more for Medicare.

But plausible savings don’t match conservative rhetoric. All the suspect “discretionary” programs come to tens of billions, not hundreds of billions. Culture subsidies total about $1 billion annually; community block grants in 2010 were $4 billion. Meanwhile, total federal spending was $3.5 trillion. Do conservatives really want to eliminate the national parks? The FBI? Highways? Food inspections?

Social Security and Medicare savings could be greater. In 2010, these programs cost $1.2 trillion. But there’s a catch. Savings from lower individual benefits will be offset by more beneficiaries: retiring baby boomers. By 2025, Medicare and Social Security enrollment will rise 50 percent from 2010.

Next, the liberal fiction. Contrary to liberal dogma, the rich already pay plenty of taxes. Indeed, they pay for government. In 2007, the richest 1 percent of Americans paid 28 percent of all federal taxes; the richest 10 percent (including the 1 percent) paid 55 percent.

For most millionaires, federal tax rates — the share of income taxed — exceed 30 percent. Some rich have lower rates. Raising these rates is justified but wouldn’t balance the budget. The plan by Senate Majority Leader Harry Reid for a 5.6 percentage point surtax on incomes exceeding $1 million would raise an estimated $453 billion over 10 years. Deficits over the decade are realistically projected at $8.5 trillion.

As for the Pentagon, the military was cut sharply after the Cold War. Combat forces are half to two-thirds of 1990 levels. Defense spending as a share of national income is headed toward its lowest level since 1940.

What liberals don’t say is this: Unless Social Security and Medicare benefits — the bulk of the budget — are reduced, we face three dismal choices. Huge, unsustainable deficits. Massive tax increases on the middle class, as high as 50 percent over 10 to 15 years. Or draconian cuts in the discretionary programs that liberals accuse conservatives of wanting to gut.

Since 1971, federal spending has averaged 21 percent of national income (gross domestic product). Even with aggressive cuts, spending may never again fall this low. The reason: the surge in retirees. Meanwhile, taxes averaged 18 percent of GDP over those years, leaving average annual deficits of 3 percent. The take-away for both liberals and conservatives is repugnant: They need to identify the most justifiable spending cuts — lots of them — and the least damaging tax increases, which will still be sizable.

They need to come clean with reality. For years, they’ve exuded self-serving platitudes. Conservatives should acknowledge that Big Government is a permanent part of the social fabric and that much of what it does is popular. It needs to be financed. Liberals should concede that Big Government can become so big that its crushing taxes weaken the middle class and economic growth. Government then promotes conflict and degrades social justice.

via Busting the budget myths – The Washington Post.

What if he is right?  Would a program of cutting government AND raising taxes be politically possible?   If not and assuming he is right, what does that mean for our capacity to solve our problems through self-government?


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