COMMENTARY: Despite the contentious debates over deficit cutting in Congress, all parties are in agreement with the deficit reduction target of a minimum $4 trillion. The following article explores the ‘magic number’ of $4 trillion, showing how it is not only the consensus deficit target but also the amount by which taxes have been cut for the rich and corporations. $4 trillion is also the amount big banks, multinational corporations, and large businesses in general have been hoarding in cash since the bailouts and not using to invest and create jobs. $4 trillion is also the approximate cost over the last decade in extra war spending, runaway healthcare cost run-ups for medicare-medicaid, bailouts of banks and businesses, and interest on the debt for the same. Who’s going to pay the next $4 trillion, according to Obama-Deficit Commission-Supercommittee-Republicans, is the central issue in US politics as the ruling elites see it today. It’s not jobs, foreclosures,broke states and cities, students indentured with debt for life, or seniors struggling to stay alive.
‘The $4 Trillion Income Shift’ by Jack Rasmus, copyright September 2011
With national elections less than a year away, corporate elites and their political representatives in government are at each others throats as never before over how much to cut deficits and the federal debt. But at a deeper, more fundamental level there is virtual agreement between them. They may be fighting over the details of where and what to cut, but they are in virtual agreement over how much to slash deficits and the debt. Their consensus, magic number is $4 trillion, give or take a few hundred billion $ here or three. And that’s been that number for more than a year now.
Whats the evidence there’s a consensus $4 trillion? Consider the original Simpson-Bowles deficit commission report issued last December 2010. It called for about $4 trillion in deficit reduction over the coming decade. Then last spring, Republicans demanded that same amount. Even Teaparty Congressman Paul Ryan’s budget last spring proposed $4 trillion in cuts. It s just that he wanted the lions share taken out of the hides of seniors and Medicare. After that, in June, Vice-President Joe Biden held his then secret backroom negotiations with Republican leaders on behalf of the Obama administration. When news of the negotiations leaked out, it was reported Biden had agreed to a $3 trillion deficit reduction, with 87% composed of spending cuts, including Social Security and Medicare, and 13% in tax loophole closings. The Democrat Party base choked when it found out what was going on. The negotiations blew up and Republican House leader, John Boehner, walked out. In July, the magic number of $4 trillion was once again quickly re-introduced by the gang of six senators. President Obama then directly jumped into the public negotiations in July and proposed his grand deal of $4 trillion of deficit cuts, composed of 75% spending reduction and 25% tax loophole closing.
Chronologically, this brings us to the debt ceiling deal this past August. That agreement amounted initially to $1 trillion in immediate cuts with a further minimum $1.2 to $1.5 trillion guaranteed cuts by end of this year. Thats $2.4 trillion. But wait! Obamas recent proposed $450 billion jobs bill will raise that $2.4 to $2.85 trillion, since Obama has publicly said the Congressional supercommittee (now gang of 12) working on the coming December deficit cuts must add his so-called jobs bill cost of $450 billion to the $1.2 to $1.5 trillion cuts mandated by year end. The same supercommittee, moreover, is already talking about cutting more than the additional $1.2 to $1.5 trillion. So to the $1 trillion cuts this past August will be added at minimum another $2 trillion by December and possibly more. This writer predicts the eventual final deficit cutting package agreed upon by year end will add another $1 trillion. So here we are, back to the magic $4 trillion number.
But the magic $4 trillion has several other dimensions to it. Its not just the approximate deficit cutting target number well see by year end. It is also roughly equal to the $4 trillion in tax cuts that have been passed by Congress since the current crisis erupted in 2008the lions share of which went to business, corporations, investors, and the wealthiest 10% households.
For example, there was $90 billion in tax cuts in Bush spring 2008 stimulus package. There was another $300 billion minimum in Obama’s February 2009 original stimulus package. Add at least another $30 billion in supplemental tax cuts and corporate subsidies that were added to the $300 billion subsequently in 2009-10. Then there was last December 2010s additional $802 billion in Bush tax cut extensions, estate tax and investment tax cuts, and the initial 2% payroll tax cut. Now, September 2011, Obama is again proposing as part of his mis-named 2011 jobs bill another minimum $270 billion in tax cuts. That’s a total $1.5 trillion tax cuts passed in just the past three years. To this add the $3.1 trillion in Bush tax cuts between 2001-10, 80% of which accrued to the wealthiest 20% households and corporations. That 80% amounts to roughly $2.4 trillion. Now add it up: $2.4 trillion under Bush and $1.5 trillion since Obama. Voila!just about $4 trillion.
The $4 trillion approximate target in deficit-debt reductions agreed by Simpson-Bowles, Paul Ryan, Gang of Six, Biden-Obama, and the Supercommittee is therefore really just about equal to the $4 trillion in tax cuts introduced over the past decade, almost half of which was introduced in just the last three years.
The $4 trillion in 2008-2011 tax cuts were supposed to create jobs but they didn’t. We had 25 million jobless when Obama came in office. We have 25 million jobless today. Those aren’t my numbers; they’re the US labor departments U-6 unemployment rate number from its latest, August 2011 report.
But there’s still more. That $4 trillion in deficit target and tax cuts is also just about the amount that big business, multinational corporations and banks have been hoarding in cash since they were bailed out during 2009-10.
According to various sources and estimates, large US corporations–not small businesses–are sitting on a cash hoard of $2 trillion and refusing to invest it and create jobs in the U.S. Multinational corporations are reportedly hoarding another $1.2 to $1.4 trillion in their offshore subsidiaries, refusing to return it to the U.S. and pay the normal 35% corporate income tax rate. And U.S. big banks are sitting on an excess cash reserves hoard of at least another $1 trillion. That’s all just about…guess what? $4 trillion.
There’s still another way to look at the $4 trillion magic number.
In 2001 the total federal debt as George W. Bush entered office was approximately $5.5 trillion. That total debt accelerated to $14.5 trillion today. So the run-up in the total federal debt over the last decade was about $9 trillion. As already noted, about $4 trillion attributable to tax cuts. Another $1 trillion in lost revenue due to chronic joblessness. That leaves$4 trillion of the $9 trillion debt run-up due to excess spending over the decade. So where does this $4 trillion in excess spending derive from?
$2.1 trillion was from escalating defense spending and wars. Defense spending rose at an annual rate of 8.2% over the decade. If it had just risen at the normal consumer price rate over the decade of roughly 2%, instead of the 8.2%, it would have lowered the deficits over the past decade by $2.1 trillion. Add at least another $500 billion in the Medicare Part D prescription drug program introduced by Bush that was not funded but paid for by borrowing plus runaway, double digit, annual health care cost increases that have pushed government Medicare and Medicaid payments through the roof. Add the $700 billion cost of the TARP bailouts of banks in 2008, and the $500 billion in non-tax spending provisions in Obama’s 2009 stimulus package. Now include about $300 billion in interest on the debt from the $9 trillion total debt increase over the decade. The total in spending to the $9 trillion debt comes to roughly $4.1 trillion–the magic number.
Summing it all up, about 55%-60% of the $9 trillion debt run-up since 2001 is the result of tax revenue loss–i.e. mostly tax cuts that were supposed to create jobs but didn’t. Not under Bush; and thus far not under Obama either. The remainder of the $9 trillion is the result of wars and escalating Defense spending over a decade, the failure to control runaway health care costs, the recent bailouts of banks and big businesses, and interest payments on it all.
So why are politicians, Republican and Democrat alike, Obama and Teapartyers, liberals and libertarians, all so focused on cutting $4 trillion at the expense of seniors and retirees, students, and middle-working class households when they had nothing whatsoever to do with the deficits and $9 trillion debt run-up? They didn’t cause the economic crisis and weren’t bailed out even to this day. They are the 25 million unemployed. They are the 11 million foreclosed homeowners. They are the 20 million with homes under water. They are the 44 million seniors who will soon have to pay twice as much for their Medicare and receive no cost of living increases in their social security checks. They are the tens of millions of children of the poor who will soon be denied Medicaid. They are the millions of students now facing decades of financial indenture due to accelerating college debt.
Who will speak for them, as the politicians cut their $4 trillion from social programs by year end and as we are offered yet another tax-cut heavy jobs bill that wont work?
The past decade has witnessed at minimum a $4 trillion income shift from 2001 to 2010. The beneficiaries have been defense contractors, health insurance companies, big banks, large corporations (in particular big multinational corporations), their CEOs and stock and bond holders, and the wealthiest 10% households who have received the lions share of more than $4 trillion in tax cuts. Now another $4 trillion is on the table today, 2011, to determine who will pay for the past two and a half years of bailouts, more tax cuts, continuing wars, incessant runaway healthcare costs, the deficits, and the debt.
Jack is the author of the book, Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, May 2010; and the forthcoming Obama’s Economy: Recovery for the Few, same publishers, 2011. His blog is jackrasmus.com and website: http://www.kyklosproductions.com.