Jack Rasmus

COMMENTARY:

Current Budget Deficit debates consuming Washington politicians focus on social program spending cuts only. Republicans and their Tea Party allies have declared tax increases on the wealthy and defense spending ‘off limits’ for the deficit reduction agenda. Democrats allow themselves to be increasingly driven to this agenda. A closer look at the $14.3 trillion US debt and annual deficits shows, however, that the real causes of the deficits and debt since 2000 are: escalating defense and war spending, tax cuts for the wealthy and corporations, lost tax revenue due to chronic poor job creation, runaway medical care costs driven by insurers and for profit healthcare providers, Bush’s unfunded prescription drug program, and recent trillion dollar bailouts of corporations and banks. The following article provides the data and details. (This item will appear on the blog, Truthout, in early May)

TEAPUBLICANS, TIMIDCRATS, AND THE $14.3 TRILLION U.S. DEBT

President Obama on April 13 gave another of his now notorious maybe this/maybe that speeches. Raise taxes on the rich, he said. But in the same breath announced everythings on the table. This time the subject was the U.S. debt and deficits, as he responded to the policy gauntlet thrown down by the Teapublican party last week.

Last Friday the Democrats blinked once again and then caved in once more to the Teapublican deficit cutting offensive. After several weeks of so-called hard bargaining between the two parties in Congress, a compromise was reached. Some compromise. Two weeks ago the Democrats moved from their initial position of $6 billion in spending cuts to $11 billion, then moved their position a third time to $22 and finally a fourth time, with no Teapublican counter, to $38.5 billion. They ended up a mere $1.5 billion short of the position of House Speaker, John Boehner, and his fiscal wrecking crews initial $40 billion position at the outset of negotiations, thus earning themselves the new appellation of Timidcrats. As a former union contractor negotiator, this writer would love to face the Timidcrats across the bargaining table.

Smelling blood in the water, the Teapublicans quickly opened a second front as well last week, as the negotiations came down to the wire. Their fiscal darling, Paul Ryan, the likely future Teapublican vice-presidential candidate, hurled his draconian budget proposal across the bargaining table, targeting Medicare and Medicaid as the main source of deficit cutting to come in the next round of debate. Less noticed at the same time was the further Teapublican move that took defense spending off the table in future negotiations, joining their earlier untouchable topic of Bush tax cuts for the rich.

By maintaining momentum and thus control of the budget policy agenda, Boehner and crew have now cleverly succeeded in hedging in the Timidcrats by limiting future budget deficit cutting to Medicare and Medicaid in the short term and inevitably Social Security as well down the road.

But a consideration of the numbers shows conclusively that the current and projected budget deficitsand the current $14.3 trillion U.S. federal debtis the result of the very tax cuts and war and Pentagon spending that the Teapublicans have declared off limits. In fact, more than two-thirds of the increase in the federal debt since 2000 is directly attributable to wars and tax cuts for wealthy households, investors, and corporations. Heres why:

The total federal debt was less than $5 trillion in 2000 when George W. Bush came into office January 2001. Today it is $14.3 trillion, about 97% of the U.S. Gross Domestic Product, estimated to be around $14.6 trillion in 2010. So where did the roughly $9 trillion in additional debt added over the past decade come from?

War Spending As Cause of the $14.3 Trillion Debt

According to the U.S. Bureau of Economic Analysis, which maintains the national income accounts for the federal government, defense spending in 2001 was $342 billion. Thats Pentagon spending and doesnt include direct war funding which has been passed by Congress on a supplemental funding basis. By 2010 it was $698 billion, more than double.

If Defense Department spending had risen after 2001 at a rate equal to the inflation rate the rest of us had to deal witharound 2% per year on average for the decade instead of the actual 8.2% annual rate of increase for Defense Department spendingthen total Defense Department spending would have been a cumulative $1.526 trillion less than it actually was over the past decade. That is, if the Defense Department were limited to a normal 2% per year increase in defense spending from its base year of 2001, the US federal debt would be $12.7 trillion instead of todays $14.3 trillion.

The preceding paragraph does not yet take into account direct war spending on Iraq, Afghanistan, (and now Libya). According to the U.S. Congressional Budget Office direct war spending amounts to an additional $1.3 trillion. Thats a cost per U.S. soldier in Iraq-Afghanistan of $525,000 each. The CBO further estimates that if U.S. troop numbers are reduced to the 60,000 minimum expected to remain as the U.S. pulls out, by 2015 the costs will still continue to rise, to $1.88 trillion, roughly another $600 billion. But lets be good conservatives and not count that. In short, if we didnt have the endless wars, the $14.3 trillion federal debt would be reduced by another $1.3 trillion, lowering it to $11.4 trillion.

The combined $2.826 trillion has, of course, resulted in additional borrowing by that amount by the U.S. government. That means a further cost in terms of interest payments on the debt. Since defense spending runs around 20% of the US annual budget, we can add another $565 billion over the past decade to the total direct cost of 2.826 trillion. That raises the total cost of the wars and Defense Department cost over-runs to $3.381 trillion.

Even so, thats not the total cost of the wars. Theres the cost of Homeland Security, about $40 billion a year for each of the past ten years. The cost of nuclear weapons resides in the Energy Department budget, not in Defense. Thats more. Then theres the costs of CIA and the military component of US Aid. Lets not forget the future costs for vets medical, disability, and education benefits when they return. Thats also in other federal department budgets. And not least, theres the estimated $50 billion plus a year on black budget projects involving super-secret military research and development that isnt indicated in the federal budget. But we wont count any of that either.

Radical Tax Restructuring As Cause of the $14.3 Trillion Debt.

Between 2001 and 2004 George W. Bush pushed bills through Congress every year that cut taxes on wealthy households and investors capital gains, dividends, and inheritance. According to the Center for Budget and Policy Priorities, the total tax cut over the decade amounted to $3.4 trillion. 80% of that, or about $2.7 trillion accrued to the top 20% households and about half that to the wealthiest 5%. These tax cuts were extended by Obama and the Teapublicans last December for another two years, at a further cost to the U.S. Treasury of an estimated $400 billion. Add to this the approximately $320 billion in tax cuts passed in Obamas 2009 stimulus bill, and another $90 billion in Bushs economic stimulus package in the spring of 2008. Thats a total of about $3.5 trillion in tax cuts over the preceding decade lost to the U.S. budget.

The tax cuts were supposed to create jobs. But the Bush cuts between 2001-04 produced the weakest job recovery on record following the mild recession of 2001. It took a then record 46 months simply to recover to the level of jobs that existed in January 2001 before that recession. The period of actual job recovery, from mid-2004 to 2007, was also the briefest on record. Then came the collapse in 2007-09 and the worse job loss record since the 1930s, which some economists estimate will take 8-9 years just to return to employment levels of December 2007. History shows irrefutably that business tax cuts dont create jobs.

The chronic, slow and weak job creation also results in huge tax revenue loss. There are many estimates of what the tax loss from recessions of 2001 and 2007-09 and weak recovery after both recessions amounts to. Its certainly more trillions. But lets leave that out as well for now.

The conservative estimate of $3.5 trillion tax revenue lost to the US budget, plus the $3.4 trillion in war and defense cost run-ups, amounts to a $6.9 trillion contribution to the $14.3 trillion debt from these two sources alone. Thats more than 70% of the $9.3 trillion debt added since 2000.

The Remaining $2.1 Trillion

The two remaining major causes of the debt and deficits today are the recent bailouts of bankers, corporations, and investors by the Obama administration, and the accelerating rise in health care costs for the government (and all of us) that have driven the cost of Medicare, Medicaid, and prescription drugs to record heights.

Concerning bailouts, the 2009 stimulus provided $260 billion in subsidies to the states and cities in 2009-2010. However, it didnt resolve the state-city fiscal crisis that continues to worsen. Now that there is no more stimulus, the fiscal crisis of local government grows progressively worse. Other direct bailout costs include $500 billion in direct grants and aid to major corporations, like AIG, GM, the government agencies, Fannie Mae-Freddie Mac and others. Thats at least $760 billion in direct contribution to the deficit and debt.
Of course the banks got bailed out as well. To the tune of $9 trillion. But that was done through the U.S. central bank, the Federal Reserve, largely by means of 0.25% free money loans. But that $9 trillion does not show up in the federal budget or add to the total federal debt. Its another set of books.

The fourth, and last major cause of federal deficits and debt over the past decade can be laid at the doorstep of the health insurance companies, the for-profit hospital chains, and the prescription drug companies. George Bush s contribution to price gouging by this rentier-capitalist cabal was to pass a Drug Company Subsidy bill and then make sure it didnt get funded. That required borrowing and thus a further debt run-up of at least $500 billion and rising. Obamas contribution to the price-driven deficits in Medicare, Medicaid, and drugs was to utterly fail to control health care costs in his healthcare bill last year once he abandoned the public option. That failure to control costs will eventually doom the 2010 healthcare bill in the long run.

Meanwhile, in the short term, it has ensured the Teapublicans the policy hook with which to deflect the focus from the real causes of the current $14.3 trillion debt and chronic deficits. This failure to control health care costs, combined with the budget deficit and debt caused primarily by wars, runaway defense spending, and radical tax restructuring for the rich, has given the Teapublicans the historic opportunity to blame the retired, the poor, and those in medical need for the very same deficit and debt crisis that their tax cuts, their wars, and their bailouts created in the first place.

I think Ill go and find some Teaparty protesters to see if theyre interested in protesting on behalf of their Medicare again. But I dont expect the billionaires who funded their protests last summer will be willing to pay them to organize protests this time around.

Jack Rasmus
April 14, 2011