Thursday, May 26, 2011

Some facts that should get in our way

Without a doubt one of the hottest items for public discussion right now is the Federal Deficit.  I think we all agree it's too high.  I think we all know that, at least in the short term, Congress needs to raise the debt ceiling.  I think we all agree that steps need to be taken to reduce it.

Those things we most likely agree on.  Of course, agreement on the need to raise the debt ceiling is being held hostage to related actions, and that's sad.  When the water is rising, it's inappropriate to spend too much time worrying about how we'll pay for next year's supply of sandbags.

There is, however, a need for some serious discussion on the long term solution, and that's where the problem lies.

Serious discussions should always begin with the facts.  If we don't truly know where we are, or how we got there, then trying to go somewhere else is pointless.  It's like saying everything will be fine if we simply go that way while being completely unaware what lies in that direction.  It's also akin to suggesting we go that way, ignoring the precipice that we know is just on the other side of that hill.

We could begin this discussion by debating spending on this project or that project.  We could argue about alternatives to Medicare until we're all over 65, but those discussions are meaningless.  Why?  Well, because they ignore the factual basis for our situation.

So, let's go back a few years and discover how we got Here.  From there, perhaps we can see the most reasonable route to get out of Here.  In the most simple terms, we got here because we spent more money than we had coming in.  Okay, I doubt even the most extreme political animals will agree with that.  But we didn't always do that.

In the last years of the Clinton administration, we actually had budget surpluses, and made some slight progress in paying down the national debt.  Those are facts.

So, it seems reasonable to conclude that something changed that altered that pattern.  Let's look at the facts.  In this case, the easiest way to see them is to create a graph.'s the graph, showing the numbers provided by the Congressional Accounting Office, a non-partisan agency which provides information to Congress.  These folks do the analysis and provide the numbers that Congress uses to measure the impacts of the bills they consider.

Let's look at the specifics.

The bottom gray section shows what would have happened if nothing changed.  As we can see, the debt would have continued to be lowered as annual surpluses would have paid it down.  The Black Line shows where that would have been.  There is a slight rise in 2009-2010, which reflects the general economic downturn, but the downward line quickly resumes.

The light blue section shows the cost of Recovery Measures.  That term includes the things we did to stimulate the economy, along with the general Economic Downturn.

The dark blue section shows the cost of TARP, the program that was passed to keep banks afloat.  This chart does not make or show assumptions about whether or how much of that will be repaid.  It assumes the money spent is not recovered, with or without interest.  As a side note, some of the money has been recovered, and it is likely more will be, often with interest.  How much will be recovered is unknown.

The red section shows the cost of the wars in Iraq and Afghanistan.

The orange or yellowish section shows the impact of the Bush Era tax cuts.

One further note:  This chart does not show Dollars.  It shows the debt as a percentage of Gross Domestic Product, or GDP.  Think of that like this:  A graph that shows your house payment as a percentage of your total paycheck.  If you had a fixed rate loan, then over time the percentage would drop, simply because you are most likely receiving periodic raises.  Well, hopefully you are.  The point is that if you're making more, you are better able to afford the debt load, as long as the debt isn't growing.

In any case, on a national basis, this method is used to demonstrate the credit-worthiness of a country.  Bad situations, such as Greece or perhaps Ireland, are problems because their national debt represents a huge part of their GDP.  Notice that in 2019, our debt begins to approach 100%, a situation that can not possibly be sustained.

Okay, what's my point?

The fact is, and the numbers prove it, that the greatest factor in our debt situation is the continuation of the tax cuts.  We can argue all we want, but let's argue about the Facts!  Right now the tax burden for the top 2% of the population is lower than it has been since 1958.

Now, the argument you hear, often pronounced by...well, we know who's saying it, don't we, is that these people need the lower rates because they are the Job Creators.  We hear that a lot, and it's time to call that line exactly what it is: pure BS!

First, as we can easily see, it's a major part of the problem with the deficit.

But, more importantly, let's think about just that statement by itself.  These so-called Job Creators have been receiving that tax cut benefit for 10 years.  Where are the jobs?  In 10 years, they should have been able to significantly reduce unemployment.

According to the Bureau of Labor Statistics, the unemployment rate in August of 2001 hit a four year high: 4.9%!

According to the Bureau of Labor Statistics, the current unemployment rate is 9%, and much worse in some states and specific regions.

The Facts are obvious.  The tax cuts are the biggest single cause of the increasing deficit, and the concept that they're necessary for the Job Creators is wrong!  Whatever they do, they're not working!

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