In the first post of this series we focused on the media's false framing of issues.In this post we will show an example of a true compromise, which is not a capitulation.
The issue is whether or not to allow tax cuts for the rich (which the Republican led congress of the Bush II years passed) expire and fade away.
The Republicans themselves allowed the law to include a "sunset provision" whereby those tax bonuses would cease to be law in December of this year, 2010.
Now, while talking about federal deficits out of one side of their mouths, Republicans want to extend the tax cuts for those upper 2% out of the other side of their mouths, but Obama has taken a stand:
First, the President underscored that middle-class families need permanent tax relief,(White House). That borrowed money ($700,000,000,000) would come from China then go to the upper 2% wealthy who do not need it, then, the taxpayers would pay it back to China on behalf of the rich upper 2%, with interest.so Congress should permanently extend tax cuts for all families making less than $250,000 a year – 98 percent of the American people. And second, he noted that, with the nation’s challenging fiscal situation, the country simply cannot afford to borrow another $700 billion on permanent tax cuts for millionaires and billionaires.
Not a good deal, it would be a capitulation to bad economic policy, as well as being contradictory to decreasing the federal budget deficit.
The compromise is to extend the cuts to Americans who make less than $250,000 annually, which is 98% of the populace, but not to the upper 2%.
Like Kristof said in the NY Times today, we are already a banana republic, so we need to lose the imbalance.
Stopping and changing direction by letting the bizarre tax cuts for the plutocracy cease is the way it should be done.
The Toxins of Power Blog has an interesting post about the source of doomsday scenarios.
ReplyDeleteOne of those scenarios is economic in nature.
Resistance to the tax cuts for the rich meme would be resisting the doomsday spiral.
This one would seem to be a no brainer, but amazingly, even the GOP rank and file (blue collar America) for the most part support permanent tax cuts for the ultra wealthy. How to explain that? I simply have no idea.
ReplyDeleteThere is also a new, very serious economic theory out there that's gaining a lot attention lately on the financial blogs called - aptly enough - Modern Monetary Theory (MMT). Among its tenants:
1. As the de facto issuer of its own currency, a sovereign should never fear for lack of money and by definition should never be forced into or fear default on its obligations. Therefore, debt is largely irrelevant, and in fact is merely a reflection of the size of its overall economy, since the economy itself is debt based (which is true) through the use of a central bank (the Fed Reserve for the US).
2. The only purposes for taxes are to enforce the need for the issued currency itself, since all tax payments to the sovereign will be denominated in its currency, and to control inflation, since tax revenues effectively destroy money. The sovereign has no need for tax revenues to meet its obligations whatsoever(!), and could, if it chose to, meet all of its obligations merely by crediting accounts (printing money).
3. Sovereign debt is not analogous to household, local, state, business, or non-sovereign national debts. As the issuer of its own currency, sovereigns enjoy special priveleges, all enforced by its ability to collect taxes in its very own "coin of the realm."
4. The sovereign has no particular need to use debt when issuing money, it could just as easily credit bank accounts directly. The Fed is therefore essentially superfluous. [They kind of lose me on this one, since it's essentially an attack on Fractional Reserve Banking of sorts - which I would agree with wholeheartedly - although I never see it pursued as such.]
At this point, MMT seems to get kind of mushy. Its adherents will vehemently deny that they support unlimited debt or monetary expansion, but they never really explain how much might be enough. They also support much lower taxes in general, but never really explain how low we could go or who should be targeted. [I have read that some say state and local taxes might be all that's required - federal taxes could be eliminated altogether.] These are pretty serious lapses given the obvious implications of opportunistic pols getting a hold of this theory and running with it.
Nonetheless, expect to hear a lot more about this theory in the coming years, as D.C. looks for any possible way out of what otherwise appears to be a totally intractable financial situation. I'll go out on a limb right now and predict that MMT will be at the forefront of the next great wave of public debt to stimulate the economy, which is the only solution Washington knows and is absolutely the only one that's politically possible.
disaffected,
ReplyDeleteFascinating.
Still, I am not yet willing to adopt MMT unless and until I solve the mystery of the Mystery Dynamic Economic Bubble Theory (MDEBT), as well as the Toxic Doomsday Economic Bubble Theory (TDEBT). ;-)
After all, it was Dick Cheney who said Ronald Regan proved the federal deficit does not matter.
Yes, I remember Cheney's feckless statement all too well. Imagine if that same thinking became official stated policy (although, one might argue it already has, by default at least)?
ReplyDeleteTo my mind, the crucial weakness in the MMT'ers argument is that at some point exponential (compounding) debt simply becomes a runaway equation (an asymptote), and then must either be repudiated/defaulted on, or the currency itself will become worthless. At that point, even the mandate to "render unto Ceasar" will become meaningless, as what will be the point in paying taxes to an entity that is in open default? Not to mention the fact that foreign entities suffer no such compunction to value US dollars, and would doubtlessly have dropped them long before (possibly leading to) any prospective default. At that point, we would indeed be screwed, forced to pay for imports in industries we had long off-shored with a currency that was essentially worthless.