Wednesday, February 25, 2009

Real World Finances

The scenic disarray of the Party of Nope was an astonishment to many as last night's rousing address by President Obama was followed by a specious rationale for more tax cuts by LA Gov. Jindal. It is past tense in every way, as eight years have shown even the doddering recidivist element that tax cuts aren't working, don't work, and won't work in the future.

Refreshingly enough, this morning NYT has an article that gives an honest admission of reality, calling for the tax hike that must come to pay for our present spending. Writing it out of the budget didn't avoid paying for the stupid war on the Middle East. Borrowing from China didn't pay for the huge subsidies to failed financial institutions.

We have reality back in the saddle with our month-old Democratic administration. The return of reality means that all the fantasies have to be paid for now.

Toward the end of Monday’s meetings on fiscal responsibility at the White House, Senator Kent Conrad stood up and produced a little bolt of honesty. “Revenue is the thing almost nobody wants to talk about,” said Mr. Conrad, the chairman of the Senate Budget Committee. “But I think if we’re going to be honest with each other, we’ve got to recognize that is part of a solution as well.

Mr. Conrad’s frankness was delivered in the cryptic language of budget experts, and many people might have missed the point. So allow me to translate:

Your taxes are going up.

They will probably go up in the coming decade, and the increase will be permanent. For a half-century, federal taxes have remained fairly constant relative to the size of the American economy — equal to about 18 percent of gross domestic product. But the 18 percent era has to end soon.

It won’t end because President Obama is some radical tax and spender, either. It will end because of a basic economic reality.

Americans have made it clear that they want a certain kind of government, one that can field a strong military and also maintain popular programs like Medicare. Yet we are not paying nearly enough taxes to maintain those programs. Even major changes to the health care system — the single most important step for closing the budget gap — will not close it entirely. Taxes must rise, too.

This is a point on which serious Democrats and serious Republicans agree, even if they do so with euphemism. “We are on an unsustainable path,” says Peter Orszag, Mr. Obama’s budget director. Judd Gregg, the ranking Republican on the Senate Budget Committee, has said, “Revenues are going to have to go up.” Douglas Holtz-Eakin and Dan Crippen, budget experts who advised the McCain campaign, have quietly acknowledged the same.

Fortunately, the coming tax increase does not have to be economically ruinous. Despite all the scary stories you’ve heard, the evidence that higher taxes necessarily cripple an economy is somewhere between thin and nonexistent.

When over the past 60 years did the American economy grow fastest? The 1950s and 1960s, when the top marginal tax rate was a now-unthinkable 90 percent. And when over the past generation did the economy grow fastest? The late 1990s, when President Bill Clinton briefly took federal taxes to 20 percent of the G.D.P.
(Emphasis added.)

This is a subject mentioned in the cab before, under the name of Sharing the Responsibility. For too long, the right wing has convinced business interests that they can shovel their buden onto the consumer, the same consumer they expect to support them again in the stores where their goods are sold. To no sane person's surprise, that hasn't worked out. We are in economic meltdown, because the consumers have been played like the goose laying golden eggs. The ones killing the goose haven't got any more of those golden eggs to go in their bank accounts.

The public has been showing a great deal of rational behavior and opinion lately. It is good timing to let them know now, that a return to prosperity will necessitate responsible financing. The money fairy - a.k.a. 'pony' - was made up by the past occupier of the White House, and never existed. We are the source of our prosperity, and putting ourselves back to work will work the magic we want. Paying for things has come back onto the table.

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Anonymous Harold Shaw said...

I have been saying for the past 4 years that we are going to have to increase our taxes in order to pay for the level of government that Americans believe that we need to have.

I am willing to pay my share, I just want to ensure that everyone else does also, rich, poor, corporate, politicians, etc.

Tax cuts almost always benefit those who actually have money whether they are Corporations or Individuals. They do not really help the middle class or working poor. What is an extra 20-30 dollars in our pockets a pay day actually going to do anyway, that doesn't even fill my gas tank.

This is a touchy subject though and I hope that people actually understand that we can't keep cutting taxes and keep the level of government that we expect.


5:10 PM  
Blogger Terry Ott said...

I watched the 30-minute abbreviated version of the movie, "I.O.U.S.A.". It is alarming; kind of "cold sweat" alarming. There is an even shorter (11-12 minutes?) version you can find where Steve Kroft talks about the film and shows some excerpts, etc. I suggest you all look at it, or (better, I suppose) see the full-length documentary when it comes out on DVD in April (per Netflix).

We need to do LOTS of things to dig out of the whole, if we even can.

But to the subject at hand, taxation (or "revenue", euphemistically): We need more tax dollars, and it would be nice if such a big chunk of them didn't go to paying interest on trillions.

Of course, we think "higher rates" and that will happen, no doubt. But there is another aspect here, too. If we were not to increase rates, but had a rousing economy where people were making more income, and companies were making more taxable profits, and tax-generating capital gains were the order of the day and people were buying more and therefore paying more sales taxes to states, we ALSO increase revenue to the government entities.

Something I am looking for Obama to do, and he promised it during the campaign, is start whacking at the cash gobbling bureaucracy created by previous administrations. Look at the value of various agencies and departments and programs, their effectiveness and at their cost. Then take action wherever we can; cleanse the arteries and colon of of the Federal Govt. Will that solve our financial problems? No. but it would send a strong message that this administration does indeed have the same kind of cost-effectiveness mindset that businesses MUST have in order to avoid their demise. I think the markets would LIKE that, out of all proportion to the actual dollars saved and bureaucratic brush clearing.

I am resigned to higher tax rates, but that medicine won't taste quite so bad if we see some other things happening simultaneously in terms of fiscal common sense.

Too much to ask? Probably, but I can fantasize anyway, and hope.

9:11 PM  

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