Jack Rasmus

COMMENTARY:

While everyone is focusing on the August 2 debt ceiling default deadline looming behind the current deficit cutting debates in Congress, the real blow to awareness how weak the US economy is today may come with the date of August 6 quickly to follow. That’s when the July jobs report is released. July and certainly August reports will reveal the depth of the deteriorating jobs crisis that this writer has been predicting since last January. While the August 2 deadline will certainly impact economic consciousness in a negative way, and already has begun to do so, the August 6 jobs report may just push it over the cliff. Businesses and consumers are already contracting spending and future plans for investment and consumption in the US in anticipation of August 2. But August 6 may have any even greater impact. The US economy has been weakening all year. The deficit cutting debates have added to the decline. The actual cuts forthcoming after the psychological impact of the deficit debates will exacerbate that decline still further. Meanwhile, manufacturing is stagnating as the global economy slows and housing construction remains in depression levels with no sign of any recovery whatsoever. If the deficit cutting is the body blow, ‘left hook’ to the economy, the ‘right cross’ of the jobs markets accelerating decline may just send the economy to the mat.

‘Deficit Debates vs. Jobs Report: ‘Left Hook’ and ‘Right Cross’ to the US Economy’ by Jack Rasmus, July 27, 2011

Why should the Teapublicans agree to Obama and Democrats (aka Timidcrats) offers to settle the debt ceiling issue? Any seasoned negotiator can see that by refusing to agree to all Democrat proposals since last spring Teapublicans have been able to get Obama and the Democrats to offer even more in spending cuts. They have succeeded as well in getting the Democrats to drop all demands for raising taxes on the rich and corporations. So why should they change that strategy?

Here’s a brief history of the past three months of the deficit reduction charade:

Last spring, Obama and the Democrats caved in on retroactive cuts in the 2011 budget. Boehner wanted $39 billion and he got $38. In June, in back door negotiations with Vice-President Biden, the Republicans demanded no tax increases in any package. Biden agreed to $2 trillion in spending cuts with no tax hikes at that point. After that, you could forget any tax hike idea. Republicans knew that the Democrats would drop it in the end.

Obama then jumped into negotiations in July, trying to resurrect the idea of some tax revenue and trying to extend the time limits past the 2012 election period. He upped the ante, trying to entice the Republicans with massive spending cuts and token tax hikes in exchange for taking the deficit cutting subject off the table until after the election. Obama’s July cuts amounted to 87% in a $4 trillion package with doubtful measures about closing tax loopholes for the remaining 13%.

But Boehner still refused and walked out. After all, the walking out tactic worked the month before with Biden. It would work again.

At this point, just a few weeks ago, the Gang of Six jumped in, proposing a package much like Obama’s. The President quickly endorsed it as a way to resurrect his original proposal. The Republicans refused again. Why should they. They already walked out on a similar deal. And Obama offered more.

And so Harry Reid, the lead Democrat in the Senate, has proposed $2.2 trillion in spending cuts, again with no tax hikes, not even loophole closings this time. Of course, the Reid proposal includes $1 trillion in cuts in war spending, which the latest Boehner-Teapublican proposal has adamantly ruled out. In their latest ‘cut, cap and balance’ proposal, Boehner and Teapublicans specifically exclude any cuts in war or Pentagon spending from their deficit spending cuts.

Boehner’s most recent proposal of Monday, July 26, amounted to only $850 billion in spending cuts, according to the analysis of the Congressional Budget Office, while Reid’s was $2.2 trillion. That provided the opening for Teapublicans to demand Boehner up his proposed cuts. Boehner will now demand even more spending cuts.

The Republicans have won the debate over whether tax hikes will be in any spending package. Obama, Reid, and the Democrats have totally caved in on that issue at this point. The debate is now just over how much spending cuts, whether defense will be included or not, and how much will Social Security, Medicare, and Medicaid be cut.

But what do the Teapublicans and Obama really want?

The primary objective in these negotiations for Obama is now clearly his demand that these negotiations conclude further deficit cutting until after the 2012 elections. Obama is willing to cut social programs by massive amounts in order to gain what he perceives is a necessary election campaign period advantage of no more debates or cuts until December 2012.

Conversely, what the Teapublicans want is more. More spending cuts, now that they’ve won the tax hike issue. And no agreement to stop further demands for spending cuts until after the elections. They want to come back to the trough and demand additional spending cuts before the 2012 elections in three more bites: a demand for more cuts as the 2012 budget is concluded October 1; another reopener for cuts in February, and a third go at it in September 2012 as the 2013 budget is being debated by October 1, 2012.

So this is now largely about election year maneuvering. Either way, however, it will mean disastrous consequences for the US economy. The debates on deficit cutting are already producing a serious contraction in consumer and business spending. If business has been hoarding $2 trillion and not spending on investing in the US–which has in fact been the case over the past year–they will now hoard even more. Ditto for banks refusing to lend to small business for investing. And that’s just the impact on the real economy from the debates, not the actual cuts in government spending which, when enacted, will result in even deeper impacts on the economy.

These economic effects, moreover, come at a time when the US economy has been heading toward a double dip anyway due to causes independent of the deficit cutting debates. The jobs markets are entering a triple dip. Housing is declining again. Manufacturing has leveled off. Foreign demand for US goods is rapidly declining, as China, India, Europe periphery slow or sink into renewed recession. State and local governments accelerate their cuts in spending and raise fees. And the American consumer–70% of the economy–faces declining real income as prices for gasoline, food, healthcare, education all continue to escalate.

Everyone is focused on the deficit debate issue as the August 2 default deadline approaches. But that is the wrong date. August 2 will not result in a default, which technically means either the interest or principle on a loan is renegotiated. The US will not technically default. There may be some short delay in payments, but not a true default. That does not mean, however, the stock and bond markets will react negatively. They will. We are about to witness a major contraction of the stock markets and decline in the value of US bonds. That will contribute as well to an economic slowdown and double dip.

But readers should watch what will happen on Friday, August 6, when the jobs numbers for July come out.

The US economy is like a punched-out fighter in the 8th round. He’s been knocked down early in the bout (2008), sent to his knees again (summer 2010), and now the Teapublicans have dealt a left hook to the body (as Obama and Timidcrats dropped their guard) with the debt ceiling debates. But the knock out blow may prove to be the coming right-cross with the August and September jobs reports. The now staggering US economy will drop to its knees yet again, a third time. That’s called a double dip recession.

Jack Rasmus, July 27, 2011

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COMMENTARY:

There has never been a recovery from the current recession, notwithstanding official declarations that the recent recession ended more than two years ago in June 2009. It all depends how one defines and measures recession, and GDP analysis and even the NBER’s broader analyses, are notoriously deficient in defining an end to recession. Since June 2009 the housing market has already experienced a double dip, as has the jobs market. The latter is now well on its way to a triple dip. The jobs, housing, and local government crises have together prevented any sustained recovery. And now Congress and the President, with their myopic fixation on deficit cutting, are all but guaranteeing a double dip. Add to that the progressive slippage of other economies like Japan, Australia, the UK, and Euro periphery deeper or into recession, and the rapid slowdown of growth in China, Brazil, India, plus the EUs slouching toward a banking implosion–and you get the overwhelming drift toward global double dip. Here s the hard, documented facts why the US and global economy are on the road to an inevitable official double dip.

For the full length 5,000 word feature article go to Jack’s
kyklosproductions website:

http://www.kyklosproductions.com./articles.html

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COMMENTARY:

Today, July 22, the press is reporting an pending deal between Obama and Boehner to cut $3 trillion in spending programs only in exchange for raising the debt ceiling and averting default. If Boehner takes it to a House vote, this will represent the total capitulation of Obama to the Teapublicans’ long standing position of spending cuts only (mostly Medicare, Social Security, Education, etc.) with no accompanying tax increases. It appears Obama is about to do this. If he does, it will mean disaster for Democrats in Congress. Should the Teapublicans accept the ‘cuts only’ deal, then the Democrats in Congress will be placed in the untenable position of approving the cuts and ending forever their avowed opposition to cutting social security and medicare; or, they oppose the $3 trillion cuts and they then assume the blame for a debt ceiling default and take this charge from the Teapublicans onto themselves. For Congressional Democrats it’s a ‘lose-lose’ proposition, and they have their President to thank for it. Meanwhile, Obama gets more corporate campaign contributions and appeals to the independent-moderate Republican vote.

‘OBAMA vs. the DEMOCRATS’ by Jack Rasmus, July 22, 2011

Today, Friday July 22, Obama and House majority leader, Boehner, are reportedly about to agree to a $3 trillion spending cuts only deal. Their original agreement earlier this month, which blew up due to Teapublican radicals opposition, called for a $4 trillion combined package of $3 trillion in cuts with $1 trillion from tax loophole closing to raise revenues. Now Obama is about to drop raising tax revenues altogether to get an agreement with Boehner and the Teapublicans to raise the debt ceiling.

Last spring he caved in and gave the House radicals and Boehner $38 of the $39 billion in spending cuts in the 2011 budget they were demanding from a reopening of last years budget. Now it looks like Obama is about to give them exactly what they want yet again! Only now its 100 times as large.

This $3 trillion spending only proposal will likely be agreed to by the House radicals if Boehner takes it back for a vote. After all, it conforms to their central principle all along. Teapublicans and the House have consistently demanded spending only cuts and no tax revenues. Tax revenue discussions will be addressed after the $3 trillion in spending cuts and debt ceiling is raised, according to business press reports. That will require a major revision of the tax code to follow later this year.

But only the naïve can believe that when the tax code revisions are addressed that the House radicals wont demand even further spending cuts. Already some of the most extreme right-wingers in the House, and Senate, among their ranks have introduced proposals to cut spending by $5 and even $9 trillion.

Future tax code revisions will begin with the Gang of Six program that was raised earlier this week. The Gangs deal, by the way, is essentially the Simpson-Bowles Deficit Commissions recommendations on tax code revision published last November 2010. What are these Commission-Gang of Six tax proposals? They arent simply closing tax loopholes. The Simpson-Bowles, now Gang of Six, tax program calls for additional massive tax cuts for the rich and corporations.

For example, the Gangs plan reduces the top marginal personal income tax rate from its current 35% to 23%-29%. Thats hundreds of billions in more tax cuts for the rich, in addition to the roughly $500 billion in continuing tax cuts for the rich and corporations passed less than a year ago as a result of Obama’s two year extension of the Bush tax cuts last December 2010.

But that’s not all. The Gang of Six plan also calls for a similar cut in the corporate tax rate, from 35% to 23%-29%. That adds still more hundreds of billions added to the deficit. Then theres their proposed abolition of the Alternative Minimum Tax that requires those earning more than approximately $150,000 a year to pay some amount of tax despite credits, exemptions, and loopholes. That’s potentially worth another $1.7 trillion. These three measures alone account conservatively for another $2.5 trillion in tax cuts for the wealthiest over the next decade.

How does the Gang of Six plan propose to pay for these additional $2.5 trillion tax cuts for the rich and their corporations? By mostly cutting Medicare, Medicaid and Social Security, plus across the board cuts in virtually all government departments. How much does the Gangs plan call for in defense spending cuts? Only $8 billion a year.

And remember, that’s spending cuts in addition to the proposed $3 trillion in spending cuts that Obama and Boehner today are reportedly about to agree to.

So, after Obama agrees to cut $3 trillion in spending only and kicks the tax revenue can down the road, bargaining begins again on how to cut spending even more to pay for another $2.5 trillion in tax cuts.

By dropping all demands to raise tax revenues now and by agreeing with Boehner to cut $3 trillion in spending immediately, Obama is essentially adopting the Teaparty proposals. But he is also painting himself and the Democratic Party into an impossible corner.

By proposing $3 trillion in spending cuts only, should the House radicals agree to the deal, Obama maneuvers his own Democrats in Congress into a lose-lose position. They either agree immediately to massive $trillion dollar spending cuts (including Medicare, Medicaid, education, etc.), or they oppose the cuts and consequently take the blame for holding up the debt ceiling increase. Instead of Republicans getting blamed for debt ceiling default, now the Democrats will appear to be the cause of holding up a deal and for a possible default.

Obama’s latest move strategically means he has put his own party in a box. Democrats in Congress will take the heat and suffer the losses in the next election if they agree to massive spending cuts that include Medicare and other programs. Democrats will also no longer appear as the defenders of social security and medicare against mercenary Republicans bent on destroying those programs. But Obama by this move gets to appear as the big spending cutter. That will no doubt translate into more corporate campaign contributions. It is a move designed to appeal to the independents and moderate Republican vote in the next election, at the expense of his own base. Obama and his advisers are no doubt betting his own Democratic voter base will stick with him against some crazy right wing opponent in the presidential elections. But the Republicans will not prove so stupid to run a Bachmann type. And Obama’s base, which already last year showed serious signs of being demoralized by the Presidents constant concessions, and stayed home in last years midterm elections, will once again not come out to vote in 2012. They will stay home.

This is 1978-1980 redux and Obama should change his first name from Barack to Jimmy. Or perhaps to Jimmy Bill Obama. That gives him an acronym of JBO, which is jobs misspelled and backwards. But that’s another problem with his administration, as next months jobs data will continue to show.

Jack Rasmus
July 22, 2011

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COMMENTARY:

In the latest twist of the on-going debt ceiling maneuvers between Timidcrats and Teapublicans today, July 19, the Senate’s ‘Gang of Six’ resurrected their proposals for resolving the current debates. Obama quickly embraced their views. What is not generally known is that he, Obama, the ‘Gang of Six’, and even House Teaparty radical, Paul Ryan, have all proposed a $4 trillion package deficit reduction! The only difference is how the amount will be distributed between spending cuts and tax hikes. In the post that follows, I predict the short term, immediate cuts in spending only being negotiated by Reid and McConnell in the Senate will go forward, and the resurrected $4 trillion Obama-Gang of Six proposals will quickly follow or be appended. The likely mix of spending to tax hikes will be 75%-87% in spending cuts and 13%-25% in tax hikes. The tax hikes will be loophole closings, but will be offset by more than corporate tax cuts in top corporate rates. Ditto for personal income tax loopholes and top rate reductions.

What Do Obama, the ‘Gang of Six’, and House Radical, Paul Ryan, All Have in Common?
by Jack Rasmus, copyright 2011

What do Obama, the Gang of Six, and House radical Teapublican, Paul Ryan, all have in common? They’ve all proposed a $4 trillion deficit reduction package. Does anyone think that is pure coincidence?

Obama’s tactical move today, July 19, along with the Senate Gang of Six, is to hitch his (and the gang’s) proposed $4 trillion proposed cuts to the current negotiations simultaneously going on between Reid and McConnell in the Senate to immediately cut spending by $1-$2 trillion in exchange for raising the debt ceiling.

Obama’s move shows clearly he does not want to take on deficit cutting piecemeal. He wants to get it all over at once and behind him before campaigning for 2012 begins in earnest. And he’s willing to offer big cuts in spending to get it done now, before the 2012 election cycle gets seriously underway after this summer.

The likely outcome of this ‘rush to get it done’ will be that the immediate, short term $1-$2 trillion in spending cuts being worked out by Reid-McConnell will still pass, while the longer term $4 trillion, now resurrected grand deal by Obama-Gang of Six will quickly follow. It may even be appended to the short term package.

While the short term package will be all spending cuts, the now revived $4 trillion grand deal package will contain some tax revenue raising. However, as previously noted, the tax revenues will be primarily tax loophole closings that are often difficult to collect and verify, while the tax code revision will include major reductions in the top personal and top corporate tax rates, both currently at 35%.

What might the likely relative proportion between spending cuts vs. tax loophole hikes look like in the final package? If Obama’s previous grand deal is any indication, it could look similar to that prior deal’s 87% spending cuts to 13% tax hikes. Certainly no less than a 75% to 25% mix.

It is no accident that the Gang of Six package is not available to the public yet. It is being kept under close wraps in the Senate. But already it has leaked out that the gang’s proposal includes a reduction in the top personal income tax rate from 35% to 29%. (The House Republicans have been calling for a 25% rate from the beginning. So that’s more than half way there before bargaining even begins.)

Of course, even at the current 35% top personal tax rate, that’s not what the wealthiest 1% taxpayers actual pay in federal taxes. In 2007 their effective income tax rate–i.e. what they really paid–was only 16.6%. This compares to a top rate of 24.2% for the same wealthiest 1% in 2000. Reducing the current 35% to 29%, as proposed by the Gang of Six, will likely therefore reduce that effective top rate even further, to the 12%-14% range.

Its not yet reported what the Gang proposal is for the corporate tax. But it is highly likely it proposes to reduce the top corporate tax rate by at least as much as the top personal income tax rate–i.e. from the current corporate top rate of 35% to a 29% rate; perhaps even lower in stages over several years. Business interests have been consistently calling for a 20% top corporate rate for the past year. If the top corporate rate is reduced to 29%, the net gain in after tax income realized by corporations will exceed the loophole closing measures. And if its reduced to less than 29%, to a low of 20%, it will far exceed the loophole closings.

The Obama-Gang of Six package also closely resembles the original proposals of the Simpson-Bowles Commission made public last November. Obama has always been comfortable with much of their recommendations. The Gang of Six’s original proposals were worked out last December, in an attempt to legislatively operationalize the Bowles-Simpson recommendations in the Senate. But the Gang did not press forward with their proposals while the House radicals were preoccupied with cutting the 2011 budget last spring by $38 billion.

It is likely the intent was to wait until after the debt ceiling was raised to reintroduce the Gangs proposals. But events became telescoped with the House radicals intent on provoking a near-default by playing chicken with the debt ceiling, and both Biden and Obama failing to get a deal with Boehner-McConnell last week.

So now we see the real plan once again emerging. All the House radical, teaparty huff and puff has been mostly theater, from the beginning up to the latest version of their  ‘cut, cap, and balance’ proposal and balanced budget nonsense. That’s been just playing to audience at home. But all the radical theater did conveniently provide excellent ‘crazy rightwing’ cover to Simpson-Bowles-Obama-Gang of Six proposals now once again coming to the fore. It has made the latter’s draconian $4 trillion package that is about to drive through Congress appear rational and reasonable.

In the end, however, the $4 trillion, mostly spending cuts, will devastate the economy. And when combined with the other three still unresolved mini-crises preventing sustained recovery of the US economy–i.e. jobs, housing-foreclosures-fiscal crisis of local government–will all but ensure a double dip recession on the horizon.

Jack Rasmus

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COMMENTARY:

Since submitting to this blog last week the first version of this piece, fast developing events over this past weekend have confirmed some of the speculative points made in the original submission. Obama has reverted back to the original ‘Biden Proposal’ of last June, in which the Vice President agreed with the Teapublicans (new name for the now Teaparty-driven Republican party)to cut $2 trillion in spending–with no accompanying tax increases on the wealthy. Several respected news sources last weekend, like Reuters, report the discussions now underway between McConnell and Reid in the Senate involve a deal to cut spending only, perhaps equal to the size of this year’s budget deficit of about $1.6 trillion. Other spending only cuts may occur over the next year as the debt ceiling may need to be raised further. This represents the complete congruence of Obama and Democrat (now called the ‘Timidcrat’ party)on the budget question. The Teapublican position has always been spending cuts only and no tax hikes. The debt ceiling will be raised no doubt. Never was any that it would. What’s next? Obama thereafter will resurrect his $4 trillion ‘grand deal’, the next front on the budget wars. By the way, did anyone notice the $4 trillion is the same amount as Ryan’s proposed budget-deficit cutting plan last April? Now that Obama will cave in on the debt ceiling issue, the next crisis will be the passage of the 2012 budget due October 1. Meanwhile, the Teapublicans up the ante further, with Coburn proposing a $9 trillion spending only cuts package today.

Reading the Debt Ceiling Debate Tealeaves REVISITED
by Jack Rasmus, copyright 2011

This past June it leaked out that Vice-President Biden had secretly agreed with Republicans to $1 trillion in spending cuts in an effort to get them to agree to raise the debt ceiling. That was soon upgraded in rumors to Biden agreeing to $2 trillion. And there was no agreement by Biden from Republicans in exchange for equal tax hikes on the rich and corporations. It raised political eyebrows. It disconcerted the Democrat political base. Most did not believe it. It must not be correct, many mused. President Obama will straighten this out by taking over negotiations, the presidents supporters retorted.

President Obama did step in and take over negotiations with the Republicans directly. Many assumed when he did so that he did not agree with Biden’s massive concessions. There would be no agreement on cuts in social security and medicare, the Party faithful argued.

However, this assumption proved incorrect. Obama met Boehner on the golf course, and then over a weekend. It leaked a second time that Obama had himself in fact agreed with Boehner, not to $1 or $2 trillion but to a $4 trillion dollar grand deal. $3 trillion of that total was spending cuts, with at minimum $400 billion in cuts in social security and medicare front-loaded. Apparently, House Republican leader Boehner agreed in exchange for the $3 trillion cuts to $1 trillion in tax hikes in the form of closing the most egregious tax loopholes for corporations, investors, and corporate CEOs.

The $4 trillion grand deal blew up in both Boehners and Obamas faces. Both bases rose up. First the Republican and then more slowly the Democrat when the latter began to discover their $3 trillion was heavily social security and medicare cuts. It set off a firestorm within the Democratic party base and even lit some campfires within the moderates in the party in the House. Representing the Democratic mainstream within the House, Nancy Pelosi came out publicly rejecting any cuts in social security and medicare, adding she and her colleagues were not even in the loop as to the Obama-Boehner negotiations.

The Obama team then began back-tracking off its position, hurrying to find formulations that denied its $3 trillion, social security-medicare cuts position in the negotiations.

Enter the weekend of July 9-10 the real power behind the Republican Party–the moneybag campaign contributors–i.e. the powerful big bankers, Chamber of Commerce, Business Roundtable, big corporations and institutional investors. They had most to lose should the debt ceiling not be raised. We re talking real money here if bond prices collapsed and the stock market, already in decline, accelerated. Or if the banks in Europe collapse due to deepening debt problems in Greece, Spain, and now Italy. Pressure on Republican Senate, and to some extent House Republican leadership, intensified this past weekend. House leader Boehner and Senate leader McConnell blinked. In so many words, they today agreed to allow the debt ceiling to be raised and will no longer hold the raising as a tactic to extract no tax hike concessions from Obama.

Over the weekend of July 9-10 Democratic Party spin-doctors also went into action. The explanation over the cable shows and talk radio on Tuesday, July 12–now that the Republicans de facto had backed off their no debt ceiling increase position–was: See, this was all a clever tactic by the President, a real bargaining ploy, a maneuver all the time. President Obama never really meant or proposed to cut spending, social security and medicare in particular, by $3 trillion. The president knew all along the Republicans would not agree to any tax hike as part of the deal. That’s why he offered to cut $3 trillion in spending cuts. Now the Republicans gave up. The President won. Hooray!

As ex-Democratic Senate operative, Larry O’Donnell, now TV political talk show host, declared on his show Tuesday, July 12: Nothing was ever agreed to by Obama. O’Donnells explanation intended to absolve the Presidents offering draconian cuts in social security and medicare in exchange for a debt agreement. As O’Donnell repeated the spin-message: Nothings agreed to unless everything is agreed. And since everything was not agreed to by the Republicans, ipso facto O’Donnell’s contorted logic meant Obama never agreed to sacrifice social security and medicare to get a deal.

Following the collapse of the grand deal over the weekend of July 9-10, McConnell proposed a new solution–i.e. an escape window out of which Obama and the Republicans might scramble to avoid a debt default. McConnell proposed Congress authorize Obama to raise the debt ceiling and then take responsibility unilaterally for doing so. According to the McConnell proposal of last week, if Obama raised the debt ceiling unilaterally, the Republicans would vote against it knowing they could not over-ride a veto by Obama to sustain the ceiling increase. That way, the debt ceiling is raised and the Republicans can campaign they opposed it. Both parties jockeyed back and forth for the remainder of last week over this proposal, with point negotations now undertaken by Reid and McConnell in the Senate.

This weekend, July 16-17, it is becoming clear a deal along the lines of the McConnell proposal is now being crafted by Reid and McConnell. But the deal will have an historic twist, this writer predicts. Obama will try to one up the Republicans by appearing more Republican than the Republicans. He will unilaterally agree to cut the deficit by cutting spending by an amount roughly equal to the debt ceiling increase. The likely range of the spending cuts are $1 to $2 trillion. That’s just about what Vice President Biden had agreed to back in June. Biden’s June deal also proposed all spending cuts and no tax hikes.

Notice that’s all spending cuts with no closing of tax loopholes. This possible scenario–i.e. trillions in spending cuts with no tax hikes in exchange for Republicans allowing the debt ceiling increase–is in the process of confirmation just hours ago. Today, Sunday July 17, a report by the Reuters news agency stated that Reid wants up to $1.5 trillion in mandatory spending cuts, along the lines of those identified by a deficit-reduction group headed by Vice President Joe Biden.

By abandoning tax hikes, Obama in effect positions himself politically as a bigger spending cutter than the Republicans, that is more Republican than Republicans themselves. If this occurs, his policy will have thus shifted so far rightward that it becomes virtually indistinguishable from traditional Republican policy–i.e. no tax hikes and all spending cuts to reduce the deficit.

This will undoubtedly appeal to center-right Republicans and conservative leaning independent voters, as Obama’s current stable of corporate advisors are no doubt recommending. It will also likely result in more corporate campaign contributions. But it will further demoralize his Democratic voter base, who already showed signs of sitting home in the 2010 midterm elections.

Obama will undoubtedly justify this Republican fiscal policy by arguing if he hadn’t done this, a default would mean the economic sky would fall in and send the US into renewed recession. But we’ve heard the sky will fall in scare tactic before, in 2008 when then Treasury Secretary Paulson warned economic Armageddon if he didn’t get a $700 billion blank check from Congress to bail out the banks. Paulson got his check, and then didn’t spend it since the banks would not sell him their bad assets at their collapsed market values. Now the amount is at least double the $700 billion.

Obama’s pending deal to cut spending only by trillions of dollars is only the beginning. It is but the first tranche of more cuts to come between August 2 and the October 1 deadline date for concluding next years 2012 budget. The day after the debt ceiling is raised on August 2 the real negotiations will begin. Those real negotiations will pick up where Obama-Biden will have left off. On the table once again will be the Presidents proposals to cut $3 trillion more in spending.

Moreover, the Obama-Biden deal now in development to cut spending by $1-$2 trillion in exchange for Republicans not opposing the debt ceiling increase conclusively disproves the O’Donnell and Obama apologists spin last week that Obama’s $4 trillion grand deal proposal–including $3 trillion spending cuts including social security, medicare and Medicaid–was only tactical, a maneuver, and that he really never meant to propose to cut social security and medicare. But, yes, he did mean it. Yes, he did propose it. And yes he will propose it again once the debt ceiling is raised.

This writer predicts the coming cuts in social security and medicare between August 2 and October 1 will take the form of raising the retirement age to 70 and sharply reducing social security disability benefit payments as well. For medicare, it will mean retirees will have to absorb all future medicare cost increases for Part B (doctors costs) and pay substantially more deductibles for Part D (prescription drugs). The current monthly fee for Part B will initially double, from the current $95-$115 to more than $200-$250 a month per person. That way Obama can say he never cut medicare benefits and yet get massive reductions in medicare and social security spending ranging from $200 to 400 billion a year for the next decade.

In exchange for these cuts in medicare-social security, this writer predicts the Republicans will eventually agree in the 2012 budget to some token tax loophole closing for the rich and corporations. But the loophole closing will be more than offset in an agreement post-budget to a major overhaul of the general tax code. Tax code revisions are what Corporate America really wants, and they and Republican politicians have been calling for since 2010 as a priority. The tax code revisions, I further predict, will include reducing the corporate tax rate from 35% to 20%, lowering rates for foreign profits tax to placate the multinational corporations, and institutionalizing most of the Bush era tax cuts for investors for the next decade. What the politicians take from corporate interests with one hand, they will give back twice with the other.

This trading tax loopholes for tax rates and vice-versa has been the decades long tax shell game. Eliminate loopholes when they become bad public PR and thereby raise some tax revenue. Then give the tax revenue back to corporations, and then some, by lowering the corporate tax rate. Conversely, when public discontent grows with corporations not paying their fair share in tax rates, raise the rates but open up more tax loopholes. That’s how the net federal revenue from the corporate income tax has been reduced over recent decades from 20% of total revenue to barely 10%.

All these maneuvers are unfortunate and deceitful by both parties. For all it takes to resolve social security issue for the next 75 years is to raise the cap on the 12.4% payroll tax rate to cover all forms of income, capital forms and earned wages. That will not only cover all shortfalls but enable the lowering of the retirement eligibility age. And as for Medicare, all it takes to cover its shortfall is a mere 0.25% increase in the Medicare share of the payroll tax for the next ten years and another 0.25% starting in the eleventh year. But you wont hear that discussed in the upcoming negotiations to make seniors and retirees pay for the deficits they did not create.

To conclude, after agreeing to cut $38 billion from the 2011 budget mid-way in the fiscal year last April, cutting another $1-$2 trillion all but ensures there will be a double dip recession in the US in the next 12-24 months. We are witnessing the almost total morphing and congruence of Obama s fiscal policies with that of the Republican opposition. This shift to classic Republican policy positions is similar to what another Democrat president undertook when facing an earlier economic crisis. Im talking about Jimmy Carter. 1978. And we know what happened to him.

Jack Rasmus
July 17, 2011

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COMMENTARY: Today, Tuesday July 12, with great fanfare the Obama administration and its spin doctors are trumpeting the cave in of House and Senate Republican leaders on the on-going debt ceiling debates. The latter have been holding up raising the debt ceiling, to extract trillion dollar cuts from Obama without any tax increases. In recent weeks in an attempt to move them off this position the Obama administration–first VP Biden and then Obama himself–have been making deep concessions, including offering trillion dollar cuts in social security and medicare spending, to get a debt ceiling deal. However, not wanting to risk a default that would cost them billions in bond losses, big capitalists have now straightened out their political minions in Congress and moved them off holding the debt ceiling hostage. Perhaps the rapidly deepening debt crisis in Europe now accelerating has moved the Republican corporate moneybags off their duffs to get the debt ceiling issue out of the way ‘just in case things get worse fast’ in the Eurozone, leading to a bank crisis that spills over unpredictably to the US? Whatever, the following is my analysis of what’s going on behind the scenes with the latest on the debt ceiling matter in the US, and my predictions where it’s all headed from today to October 1–the real drop dead date.

READING THE DEBT CEILING DEBATE TEALEAVES TO PREDICT THE FUTURE’ by Jack Rasmus, July 12, 2011

A few weeks ago in late June it leaked out that Vice-President Biden had secretly agreed with Republicans to $1 trillion in spending cuts in an effort to get them to agree to raise the debt ceiling. That was soon upgraded in rumors to Biden agreeing to $2 trillion. And there was no agreement by Biden from Republicans in exchange for equal tax hikes on the rich and corporations. It raised political eyebrows. It disconcerted the Democrat political base. Most did not believe it. It must not be correct. President Obama will straighten this out by taking over negotiations.

President Obama did step in and take over negotiations with the Republicans directly. Many assumed when he did so that he did not agree with Biden’s massive concessions. There would be no agreement on cuts in social security and medicare, the Party faithful argued.

However, this assumption proved incorrect. Obama met Boehner on the golf course, and then over a weekend. It leaked a second time that Obama had himself in fact agreed with Boehner, not to $1 or $2 trillion but to a $4 trillion dollar grand deal. $3 trillion of that total was spending cuts, with at minimum $400 billion in cuts in social security and medicare frontloaded in the first few years. Apparently, House Republican leader Boehner agreed in exchange for the $3 trillion cuts to $1 trillion in tax hikes in the form of closing the most egregious tax loopholes for corporations, investors, and corporate CEOs.

The grand deal blew up in both Boehner’s and Obama’s faces. Both bases rose up. First the Republican and then progressively the Democrat, when the latter began to discover their $3 trillion was predominantly social security and medicare cuts. It set off a firestorm within the Democratic party base and even lit some campfires within the moderates in the party in the House. Representing the Democratic mainstream within the House, Nancy Pelosi came out publicly rejecting any cuts in social security and medicare, adding she and her colleagues were not even in the loop as to the Obama-Boehner negotiations.

The Obama team then began back-tracking off its position, hurrying to find formulations that denied its $3 trillion, social security-medicare cuts position in the negotiations.

Enter now the past weekend the real power behind the Republican Party–the moneybag campaign contributors–i.e. the powerful big bankers, Chamber of Commerce, Business Roundtable, big corporations and institutional investors. They had most to lose should the debt ceiling not be raised. Were talking real money here if bond prices collapsed and the stock market, already in decline, accelerated. Or if the banks in Europe collapse due to deepening debt problems in Greece, Spain, and now Italy. Pressure on Republican Senate, and to some extent House Republican leadership, intensified this past weekend. House leader Boehner and Senate leader McConnell blinked. In so many words, they today agreed to allow the debt ceiling to be raised and will no longer hold the raising as a tactic to extract no tax hike concessions from Obama.

Today Democratic Party spin-doctors also went into action. The explanation over the cable shows and talk radio on Tuesday, July 12–now that the Republicans de facto had backed off their no debt ceiling increase position–was: See, this was all a clever tactic by the President, a real bargaining ploy, a maneuver all the time. President Obama never really meant or proposed to cut spending, social security and medicare in particular, by $3 trillion. The president knew all along the Republicans would not agree to any tax hike as part of the deal. That’s why he offered to cut $3 trillion in spending cuts. Now the Republicans gave up. The President won. Hooray!

As ex-Democratic Senate operative, Larry O’Donnell, now TV political talk show host, declared on his show Tuesday night:  “Nothing was ever agreed to by Obama”.  O’Donnell’s explanation was intended to absolve the President offering draconian cuts in social security and medicare in exchange for a debt agreement. As O’Donnell repeated the spin-message: “Nothing’s agreed to unless everything is agreed”.  And since everything was not agreed to by the Republicans, ipso facto O’Donnell’s contorted logic meant Obama never agreed to sacrifice social security and medicare to get a deal.

But the gutting of social security and medicare is not over. The negotiations have just begun anew. All that’s changed is that big money bag corporate campaign contributors arm-twisted their Republican politicians to drop the debt ceiling as hostage factor in the debt debate and negotiations.

The day after the ceiling is raised, and it soon will be, the real negotiations will begin. Those real negotiations will pick up where Obama-Biden left off. On the table once again will be the President’s proposals to cut $3 trillion in entitlements. That will be the start point for negotiations, not the end point.

Once that $3 trillion in cuts and the evisceration of social security and medicare is back on the table, that will conclusively disprove O’Donnell’s and Obama administrations spin message that Obama’s proposals to cut social security and medicare was only tactical, a maneuver, and that he really never meant to propose to cut social security and medicare. But, yes, he did mean it. Yes, he did propose it. And yes he will propose it again. And once its back on the table, that means it was never a mere maneuver, that it was fully intended.

The next act in the cut the deficit follies will begin the day after the debt ceiling is passed. The new deadline will be the deadline for passing the federal budget for 2012, which begins October 1.

This writer predicts the coming cuts in social security and medicare will take the form of raising the retirement age to 70 and sharply reducing social security disability benefit payments as well. For medicare, it will mean retirees will have to absorb all future medicare cost increases for Part B (doctors costs) and pay substantially more deductibles for Part D (prescription drugs). The current monthly fee for Part B will initially double, from the current $95-$115 to more than $200-$250 a month per person. That way Obama can say he never cut medicare benefits and yet get massive reductions in medicare and social security spending ranging from $200 to 400 billion a year for the next decade.

In exchange for these cuts in medicare-social security, this writer predicts the Republicans will eventually agree in the 2012 budget to some token tax loophole closing for the rich and corporations. But the loophole closing will be more than offset in an agreement post-budget to a major overhaul of the general tax code. Tax code revisions are what Corporate America really wants, and they and Republican politicians have been calling for since 2010 as a priority. The tax code revisions, I further predict, will include reducing the corporate tax rate from 35% to 20%, lowering rates for foreign profits tax to placate the multinational corporations, and institutionalizing most of the Bush era tax cuts for investors for the next decade. What the politicians take from corporate interests with one hand, they will give back twice with the other.

This trading tax loopholes for tax rates and vice-versa has been the decades long tax shell game. Eliminate loopholes when they become bad public PR and thereby raise some tax revenue. Then give the tax revenue back to corporations, and then some, by lowering the corporate tax rate. Conversely, when public discontent grows with corporations not paying their fair share in tax rates, raise the rates but open up more tax loopholes. That’s how the net federal revenue from the corporate income tax has been reduced over recent decades from 20% of total revenue to barely 10%.

All these maneuvers are unfortunate and deceitful by both parties. For all it takes to resolve social security’s issue for the next 75 years is to raise the cap on the 12.4% payroll tax rate to cover all forms of income, capital forms and earned wages. That will not only cover all shortfalls but enable the lowering of the retirement eligibility age. And as for Medicare, all it takes to cover its shortfall is a mere 0.25% increase in the Medicare share of the payroll tax for the next ten years and another 0.25% starting in the eleventh year. But you wont hear that discussed in the upcoming negotiations to make seniors and retirees pay for the deficits they did not create.

Jack Rasmus
July 12, 2011

Jack is the author of Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, May 2010; and the forthcoming Obamas Economy: Recovery for the Few, same publishers, late 2011. His blog is jackrasmus.com and website: http://www.kyklosproductions.com.

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COMMENTARY: Last April this writer wrote a blog piece entitled, ‘Why the March-April Jobs Numbers Will Collapse This Summer. In it, an in-depth analysis was made of a serious problem in the Labor Department’s methods for estimating jobs in the spring quarter every year. (see that piece below this blog). Today’s dismal job numbers for June showing only 18,000 jobs created and hundreds of thousands of jobs lost in the public sector, confirms my prior analysis and prediction. More worrisome, there is no light at the end of the job tunnel whatsoever. Meanwhile, Obama and the Republicans move closer to cut a deal on deficit spending that will gouge social security, medicare, medicaid and education in the US while tinkering with raising taxes on corporations. What we are witnessing as part of the deficit discussions is another repeat of the ‘corporate tax loopholes vs. corporate tax rate’ shell game. Token increases in corporate tax from loophole closing will be followed, this writer predicts, by a reduction in the corporate tax rate from current 35% to 20%. Let’s see if that prediction proves correct as well.

The Predicted Job Collapse Now In Progress
By Jack Rasmus, copyright July 2011

While politicians and business press pundits last March-April were proclaiming the jobs crisis was over, this writer predicted that March-Aprils Job Gains Will Collapse This Summer (May 22, Truthout). That prediction is now underway with the latest June jobs numbers from the US Department of Labor reported today, July 8, showing only 18,000 new hires occurring in June. The preceding May jobs report showed an almost as dismal 54,000 jobs created. Thus, this writers May 22 predicted summer 2011 jobs collapse is well under way.

The predicted summer 2011 jobs collapse was based upon an analysis showing that for the last four years every spring quarter, April-June, job numbers are distorted and inflated as a result of certain statistical methods employed by the Labor Departments Bureau of Labor Statistics that artificially boost second quarter job numbers. The cause of the distortion and artificial boost in jobs involves what is called the New Business Birth-Death model. The updated Table 1 from May that follows shows how second quarter numbers are once again typically inflated this year, as in previous years. The May and June jobs reports showing a dramatic decline in job creation in turn strongly suggests a coming jobs relapse this summer and third quarter

TABLE 1
Employment Gains/Losses First Through Third Quarters 2007-2011 (in thousands of jobs created per quarter)
U.S. Bureau of Labor Statistics, CES Database

Years           Quarter 1          Quarter 2          Quarter 3

(Jan.-March)   (April-June)     (July-Sept.)

2007         -2,310               +2,620                -643

2008         -2,033              +1,636                 -1,427

2009         -4,122                  +663                 -1,092

2010          -1,677             +2,517                     -174

2011          -2,385             +2,173                       TBD

Since 2008, the first quarter of the year has shown a significant loss of jobs. Every second, or spring quarter, a falsely inflated job growth is then reported. That inflated reporting does not continue in the summer and third quarter. Over the summer months job creation declines.

The longer term trend behind the annual spring-summer inflation then decline in jobs is a continuing stagnation in terms of job creation that has been going on for at least the past three years. As the economy enters the summer 2011, it is now in effect entering a triple dip in the jobs market–having already experienced a second, or double dip, last summer in 2010 when a net 600,000 additional jobs were lost.

The fundamental reason for three years of job stagnation is not statistical. The statistical problem only falsely obscures the long run job stagnation in the spring, which then reappears in the summer once again.

The fundamental reasons for the Obama job stagnation is the administrations total reliance on the private sector to create jobs and its corresponding refusal in turn to engage in any program of direct government job creation.

As has been pointed out many times by this writer and others, big business America today sit on record $2 trillion in cash and refuse to invest and create jobs in the US. The picture, unfortunately, is not much different concerning job creation for small business, but for different reasons.

Small businesses typically create about half the jobs in the US. But small businesses rely on bank loans for expansion, whereas big businesses finance investment out of issuing corporate bonds or from internal cash (i.e. the $2 trillion hoard on hand). Small businesses aren’t sitting on $2 trillion in cash. In fact, most have been struggling along with workers and consumer households in general. Small business is unable to invest today and create jobs because it is dependent on bank commercial and industrial loans to finance investment and job creation. And the problem is big banks have been reducing lending to small businesses for almost every month since 2009.

As recently reported in a survey by the National Federation of Independent Business (NFIB), a small business trade group, more small business plan to reduce their hiring than say they want to expand them. The NFIBs May report showed the worst hiring plans in eight months, trending down since last year and now turning negative–meaning more layoffs planned than hiring. A recent separate small business survey and report by US Bancorp reveals 78% of small businesses still think the US economy is in a recession and expect it to continue for another year.

In short, neither big business is investing at sufficient levels to increase hiring, nor are banks lending to small businesses to expand and hire. And there is no indication either of these conditions are about to significantly change. The only alternative is for the government to introduce direct government job creation programs.

But government is one of the areas where job cutting has been the strongest in recent months. As the June job reports shows, last month government employers cut 464,000 jobs. Those cuts came at all levels of government. States cut 266,000 jobs. Local governments cut 203,000. And all this before the real budget cutting comes in federal and state governments this coming fall.

Of course, given the total preoccupation of Republicans and Democrats with deficit and debt cutting today, there is little evidence of any interest in government direct job creation programs. So the jobs picture will continue at best to stagnate, and more likely will result in significant more joblessness as government at all levels continue to cut spending. It is not unlikely that as many as 500,000 state-local government workers, and perhaps as many federal government workers, will lose jobs this coming 2011-12 year. That’s a million more net unemployed.

Add that fact to the already loss of nearly 700,000 government jobs over the past year, June 2010 to June 2011. And to the related fact that the private sector over the past has been able to create only a feeble 1,171,000 total jobs–a rate of around 95,000 jobs a month which is about 50,000 less than needed to absorb new entrants into the work force.

The deficit-debt debates now totally preoccupying both parties in Washington not only mean there will be no new stimulus. They mean even the insufficient and ill-composed and poorly targeted stimulus of 2009-11 will be reversed. We are entering an era of negative stimulus.

The Obama-Republican deficit cutting deal now underway will shock people when they see its true dimensions. For every tax dollar raised there will be $3 dollars in spending cuts, mostly targeting social security, medicare, Medicaid, and government aid to education. It appears, according to some reports in the business press, that Vice-President Biden and the Republicans are already agreed on the magnitude of the spending cuts. Whats at issue is only how much (little?) will tax loopholes be closed to raise revenue.

But this is the same old tax rate-tax loophole shell game that’s been going on since the 1980s. Some loopholes will be closed, raising a little revenue, but once the smoke clears on the budget deal the tax code will be revised and the top corporate tax rate will be reduced from the current 35% top rate to 20%, this writer predicts. So a $dollar in tax revenue will be raised and $2 in revenue given back to Corporate America. This political shell game over the past 30 years has resulted in a reduction in the corporate income tax share of total federal revenues from around 20% to today’s average of 10% or less.

Meanwhile, the still bigger reductions in government jobs about to occur will be matched, its beginning to appear, by reductions in private sector job creation as well. U.S. consumer spending by the bottom 90% income households in the US is clearly slowing. Global trade and thus US exports are beginning to level off as China, Brazil and other emerging market economies that were the driving source of trade, and thus US exports, have all taken action to dramatically slow their economies by at least half. Japan, Australia and a good part of the European Union are already in, or heading for recession again. All these developments will result in a slowing of US manufacturing and job creation in that sector. In short, there is no light at the end of the economic growth tunnel for renewed economic growth or significant job creation from the private sector in the U.S. And this comes at a time when the public sector is accelerating its withdrawal from the economy due to its myopic and erroneous preoccupation with deficit cutting.

Jack Rasmus

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COMMENTARY: In his July 4 New York Times column, liberal economist Paul Krugman takes up the matter of pending legislation in Congress that, if passed, will grant US multinational corporations hundreds of billions in additional tax cuts on the more than $1 trillion they are hoarding in offshore subsidiaries and refusing to pay the legal 35% corporate tax rate. Krugman is commended for raising this matter. However, it is strange that he provides no number details on the amount of the potential tax cuts. He correctly raises doubt whether more tax cuts for multinationals, or business in general, will create jobs. He then closes with a vague reference that government direct job creation is the answer. But he provides no details what he means by that. Like most liberal economists, Krugman is pretty good on the facts of what is happening but then comes up short on recommending real solutions to the crisis. Perhaps it’s his New York Times corporate editors who will not allow him to take his analysis to its logical conclusion, and proscribe what is necessary. Or perhaps it is out of concern of not alienating the Democratic party too strongly. Whichever, or whatever, at the top of the agenda today is the need to provide concrete, specific proposals for ending the economic crisis and the once again faltering economic recovery. And to provide details as to how a direct government job creation program or programs might work. Paul has come a long way in recent months, as he sees the folly of current deficit cutting policies in Washington and fears that worst times economically are ahead. He has made the trip from the wilderness to the far side of the economic rubicon, but has yet to cross it and explain what he means by government direct job creation.

PAUL KRUGMAN AT THE ECONOMIC RUBICON?
by
Jack Rasmus
Copyright July 2011

In his July 4 editorial New York Times in-house economist, Paul Krugman, identifies two important facts about jobs and taxes in the U.S. The first is that big corporations are sitting on a record hoard of cash and refusing to use it to invest in the US to create jobs. The second is that the biggest of the big, the multinational corporations, are sitting on the largest tranche of that corporate cash hoard, demanding even more tax cuts while they continue to shift jobs offshore.

U.S. multinational corporations lobbyists the past year have been engaged in a priority effort to lobby Congress and the Obama administration to dramatically reduce their corporate tax rate as a precondition for them bringing back some of their offshore cash which they have been refusing to do at the current 35% corporate tax rate. They want a much lower corporate tax rate, they threaten, or they’ll just keep the money offshore.

Krugman correctly points out this is not the first time this kind of blackmail and shakedown of the public purse has occurred. It happened before, in 2004. The multinationals got away with it then, creating the incentive to do it once again today.

But Krugman ought to have put some flesh on his skeletal argument exposing the multinationals current repeat today of their 2004 tax cut maneuvers. How much are the big corporations hoarding today? How much are the big U.S. multinationals refusing to repatriate to the US and pay taxes on?

In 2004-05 the Bush administration pushed through big corporate tax cuts in a bill misleadingly called The American Jobs Creation Act of 2004, after having passed three packages of cuts in personal income taxes for wealthy investors in 2001, 2002, and 2003 (which were all similarly mis-labled job creation acts). The two sets of tax cuts–Bush’s 2001-03 personal tax cuts and the 2004 corporate tax cut–are linked. Most of the former personal tax cuts were concentrated in capital gains, dividends, inheritance and the like. Capital gains and dividends between 2001-03 were cut to 15%, down from a rate of 77% in the 1960s, a decade which witnessed one of the fasted job creation rates in the U.S. But in order for wealthy investors and households to realize the full benefit of the 2001-03 personal tax cuts, it was necessary to cut corporate taxes in 2004 as well. That would ensure that more corporate cash would be available to pass through to investors in the form of capital gains and dividends. Both were necessary then, as they are again today, if the wealthy were to maximize their tax windfalls.

Three major business lobbying groups drove the 2004 corporate tax cuts. Leading the charge for the multinationals was the Coalition for Fair International Taxation, led by General Electric Corp.whose CEO, Jeff Immelt, now heads up the Obama administrations efforts to curry favor with the multinationals crowd. Multinational corporations lobbyists succeeded in getting Congress to lower the corporate foreign profits tax rate from the normal 35% to only 5.25%. The tax cut was sold with the argument that if the rate was lowered to 5.25%, the multinationals would bring the money back and invest in job creation in the U.S. As Krugman points out, they brought it back, but then used the money for stock buybacks (driving up the value of their stock and rewarding investors with sweet capital gains for which they now paid only 15%) as well as for dividends payout increases (which resulted in similar windfall for investors). The rest that was repatriated was used for buying up competitors through mergers and acquisitions, which usually resulted in corporate consolidations and lost jobs, not new jobs created.

Krugman’s pointing out of this scam that happened, and is about to happen again, is commendable. But he should have put some flesh on these corporate offshore tax avoidance bones. And explain in more detail why those cuts didn’t lead to jobs. So here’s the flesh for those bones.

Back in 2004-05, the amount of cash hoarded offshore by the multinationals was estimated by the investment bank, J.P. Morgan, at about $650 billion. About half that was brought back at the 5.25% rate in early 2005 and invested in stock buybacks, dividend payouts, and mergers and acquisitions. The business press at the time even reported the company by company details for a couple months, identifying how much per company was being repatriated and spent on stock buybacks and dividends. That reporting quickly disappeared in the press as it became apparent what was happening. The immediate tax windfall for the corporations was $193 billion, with another $50 billion per year as long as the 5.25% provisions continued.

In his July 4 editorial Krugman should have also provided data to show how much is at stake today as this corporate scheme is about to be repeated. Big business in general is sitting on a cash hoard of about $2 trillion and multinationals are hoarding between $1 and $1.4 trillion offshore. The latter even admit to $1 trillion, so its undoubtedly somewhat higher. These are the big multinational corporations who blew right past the recent recession hardly experiencing an impact. The stock value of the S&P 500 companies, of which the big US multinationals are the largest segment, rose from $6 trillion to $12.3 trillion between 2007 and 2011. That’s a lot of capital gains income passing through at a mere 15% tax rate to wealthy investors!

Krugman correctly also argues growing corporate calls for more tax cuts has little to do with jobs. To quote him, “claims that a corporate tax holiday would create jobs… are nonsense”. Why corporations would finally begin to create jobs if we gave them still more trillions in tax cuts, when they haven’t done so with their current $2 trillion hoard of cash on hand, is today an exercize in illogic that is totally contradicted by historical facts. But why not report the numbers, and then show there has been a total lack of correlation for more than a decade now between corporate-investor tax cuts and job creation?
Krugman should have put some flesh on the bones of his no tax cuts-jobs link argument. What was the job creation record of the past investor and corporate tax cuts under Bush between 2001-2004? The facts are it took 46 months after the tax cuts began in 2001 just to get back to the level of jobs in the US that existed before the cuts began. That’s roughly the end of 2004. And what happened once the multinationals corporate tax rate was reduced from 35% to 5.25% in 2005? As his own paper, the New York Times, recently reported, multinational corporations over the past decade reduced the number of jobs in the U.S. by 2.9 million, as they hired 2.4 million offshore. Most of the jobs created after 2004 were in housing, commercial property construction, and finance, which had little to do with the multinationals sweet deal reducing their tax rate from 35% to 5.25%.

Yet another proof there is no linkage between business tax cuts and job creation is the recent extension of the Bush tax cuts by the Obama administration last December 2010. Since then, job creation has progressively deteriorated. The private sector has created only about 75,000 jobs a month on average since the June 2009 low point of the recession. That s about half of new entrants into the labor force. US Department of Labor data show that only a net 14,000 full time jobs were created from December 2010 through May of this year. The extension of those Bush cuts cost the U.S. Treasury $270 billion this year, producing only 14,000 full time jobs? Now the multinationals want another multi-billion dollar handout! Meanwhile, the Obama administration is about to cut businesses payroll taxes, and has all but agreed with Republicans to cut all corporations tax rates as part of a comprehensive revision of the US tax code thats coming next year.

Krugman concludes his July 4 editorial with the statement What our economy needs is direct job creation by the government–a proposal this writer has been declaring as necessary for any hope of economic recovery for the past two years. But what does Krugman mean exactly by that direct job creation by the government? That is the key question. And its time he spells it out.

Liberal economists like Krugman have been moving reluctantly and slowly toward this inevitable conclusion slowly over the past two years, as it has become increasing apparent there is no sustained recovery in the US economy happening as a result of failed Obama administration economic policies of the past two years. Krugman and fellow liberal economists like Robert Reich, George Stiglitz and others who know better, see what has happened the past two years as well as what is coming–a possible double dip and a debacle for Obama and the Democrats in the 2012 elections. But Krugman and friends still refuse to cross the economic Rubicon and boldly define and explain in detail what is necessary for recovery, or what they mean specifically by direct government job creation.

To his credit, Krugman at least has now arrived at the bridge even though he still lingers on the other side of the river. Time to cross it, Paul, and explain in detail the direct government job creation programs that are necessary if further economic catastrophe is to be avoided.

Jack Rasmus
Jack is the author of Epic Recesssion: Prelude to Global Depression, Palgrave-Macmillan and Pluto Press, May 2010; and the forthcoming 2011 book, Obamas Economy: Recovery for the Few, same publishers. His blog is jackrasmus.com and website, http://www.kyklosproductions.com

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COMMENTARY: As the deficit-debt debates intensify it is becoming increasing clear that Teapublicans want only draconian cuts in spending, social security-medicare-medicaid and public education in particular. Democrats want cuts but also modest tax increases. Both have agreed already that the cuts will be several times the tax hikes, if any. Democrats are content to pare the edges of the massive tax cuts for corporations and wealthy that have been put in place over the last 30 years, and the past decade in particular, creating a historic ‘Great American Tax Shift’. Working and middle class households, the 90%, are asked to contribute the most to a ‘shared sacrifice’ for an economic crisis, deficits and debt they did not create–in order that the wealthiest 10% can keep the lion’s share of the tax cuts of the past three decades. At the recent Emergency Labor Network Conference held June 24-26 in Ohio, Jack Rasmus proposed the following ‘R.A.T.S. Tax’ Program to make those who created the crisis pay for it.

“The R.A.T.S. Tax Program To Make the Rich and Corporations Pay” By Jack Rasmus, Copyright 2011

The breakdown on debt limit negotiations between Republicans and Democrats last week was over draconian cuts in the social wage (social security, medicare, education, etc.) and tax hikes. Both Republicans and Joe Biden, heading the Democrats team, reportedly agreed on $1 trillion in cuts in social wages, according to the US business press. Where the negotiations broke down was over how much to raise taxes in addition to the trillion dollar cuts in spending.

Republicans, led by House representative, Cantor, refused any compromise on taxes, revealing once again that their real objective is to protect and expand the Bush tax cuts not matter what the cost of deficits or debt. The latter, deficits and debt reduction, are apparently just a cover issue to force reductions in social wages–i.e. social security, Medicare, and the like as a means to continue the tax cuts for corporations and wealthy investors for another decade.

The Biden-Democrats proposals for tax hikes appear focused on tax loopholes more than on restoring top tax rates or reversing the Bush tax cuts that will cost $270 billion a year for the next decade and doom any possibility of deficit or debt reduction and require further cuts in social security and medicare-medicaid down the road.

This writer was recently asked to provide a keynote speech to the important new grouping within the US labor movement called the Emergency Labor Network. About 130 local union officers, organizers, central labor council and state federation of labor activists gathered last week in Ohio to propose an alternative budget and program for action to both the Republican and Democratic versions. He was asked to suggest an alternative tax program that would make the wealthy and corporations pay, and in the process not only resolve the deficit but expand social wage benefits such as social security, medicare, medicaid, and jobs.

The program offered and discussed at the Emergency Labor Network conference was dubbed The R.A.T.S. Tax Program, an acronym which stands for Reverse the American Tax Shift of the past thirty years that has occurred on three levels: a shift in the personal income tax–from the top 10% wealthy households and investors enjoying capital gains, dividends, carrying interest, and rental income–to the 100 million bottom 90% households whose income is almost exclusive earned from wages, salaries and pensions. Since 1980, a tax shift in favor of capital incomes benefiting the top 10% households together with a 50% decline in tax incomes from the corporate income tax (from about 20% to 10% of federal tax revenues), and a doubling of payments into the payroll tax (from roughly 20% to 40% of federal tax revenues)has resulted in a total annual shift in income by 2011 approaching $1 trillion a year. In other words, a Great American Tax Shift.

The RATS TAX Program is the response to this shift. And as the attendees at the conference put it in terms of a slogan: I don’t give a RATS Tax About the Rich! The 10 point RATS TAX program adopted by the conference is as follows:

THE RATS TAX PROGRAM

1. Repeal the Bush Tax Cuts on all capital incomes (capital gains, dividends, interest, inheritance) and related corporate tax cuts for accelerated depreciation and credits.

2. Restore the capital gains and dividends tax rates, from their current 15% to their levels of 70% in 1980.

3. Restore the top income bracket personal income tax rate to the 70% in 1980.

4. End tax loopholes for corporations and millionaires

5. Lift the annual income cap on the social security payroll tax for all earned income (wages and salaries) above its current $106,800 ceiling. Extend the 12.4% payroll tax to all capital incomes over $100,000 per year. (Note: per the Social Security Trustees, this would provide 150% of what is needed to resolve all funding issues for social security retirement and disability benefits)

6. Increase the Medicare payroll tax by 0.25%, from its current 1.45%, for both employee and employers over the next ten years. Add a second 0.25% for each in 2022. (Note: per the Social Security Trustees, this would resolve all funding problems for Medicare).

7. End multinational corporations offshore tax fraud. Make multinational corporations bring back their $1 trillion current cash hoard in their offshore subsidiaries and pay their 35% tax. If they refuse, place a 50% tariff on all their imported goods to the U.S.

8. Repatriate wealthy investors $4 trillion illegally sheltered hoard now in 27 offshore tax havens identified by the IRS and pay their legally required taxes. If they refuse to repatriate within 90 days, impose 10% penalties for consecutive 90 days. If the 27 country tax havens refuse to cooperate in the repatriation, freeze their assets in the US until they comply.

9. Stop the States corporate tax cut competition and tax revenue race to the bottom. Introduce a Federal State Corporate Relocation Equalization tax to even out state-to-state corporate tax differentials. Use the federal revenue from the equalization for State job training.

10. Tax the banksters (commercial and non-commercial banks). Levy a three part financial transactions tax as follows: 1.A tax of 10 cents on all common stock trades. 2. A tax of $1 per $1,000 value for all corporate bond sales. 3. A tax of 5 cents per dollar value on all forms of derivatives trading and swaps by counter-parties.

Jack Rasmus

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COMMENTARY: Worrisome signs are beginning to appear that the Obama administration and Republicans are quietly negotiating a ‘deal’ on cutting social security and Medicare as part of a ‘grand bargain’ in the 2012 budget due this coming October. This moves up the cuts before the 2012 elections, contrary to what was the previous understanding between Republicans-Democrats to wait until after 2012 to go after Social Security and Medicare. Proposals from both Republicans and Democrats almost exclusively focus on benefit cuts and more cost burdens by retirees as solutions to the so-called ‘entitlements funding crisis’. But some very simple solutions can avoid the benefit cuts altogether and, in fact, expand both Social Security and Medicare in the process. The following piece explains the new intensification of attacks on Social Security and Medicare, and contrasts ‘their’ solutions to this writer’s proposals.

THE ATTACK ON SOCIAL SECURITY IS ABOUT TO INTENSIFY

Jack Rasmus
Copyright June 15, 2011

The current offensive underway against Medicare by Paul Ryan and the House Republican majority is well known. Less well known is the somewhat hidden undermining of Medicare in the 2010 Obama health bill, that will take effect in a few more years and cost retirees a significant increase in out of pocket costs and caps on benefits. In contrast to Medicare, Social Security retirement and disability programs were, according to the Washington political consensus, to be delayed from cuts until after the November 2012 elections. But there is new evidence that the growing coziness between Obama and mainstream Republicans, on the one hand, and corporate interests on the other is about to result in a new offensive against Social Security before the 2012 elections. What this means is that the old age retirement benefits fund as well as the disability insurance fund programs of Social Security are now, like Medicare, about to become prime targets for cuts in the 2012 budget this fall.

The assault on the disability fund is already well underway. Disability benefits administrative law judges, who decide on granting long term disability benefits under Social Security, have recently come under intense attack for being too generous in granting permanent benefits to the disabled. The new offensive was initiated in the wake of a May 19 Wall St. Journal editorial attacking disability administrative judge, David Daugherty. In the wake of the Journals opening salvo, Republicans and Democrats in the House quickly joined forces calling for an investigation of disability benefits judges in general. In response to the House investigation, the offensive quickly turned even more aggressive. It has now taken on the character of a criminal probe. All this no doubt will have a chilling effect on decisions to grant benefits by judges.

The disability benefits trust fund is a prime and easy target from which to attack Social Security across the board. The disability fund pays out $124 billion in benefits to 10.2 million in 2010. That’s a juicy cost-cutting plum.

Rumors now abound that Obama’s golf summit with House majority Republican leader, Boehner, will discuss Social Security cuts as part of a larger understanding of broad federal budget cutting in the 2012 budget starting next October. Obama is apparently willing to use Social Security as a bargaining chip now, instead of waiting for a second term.

Obama’s new soft position on Social Security in general was evident in his last December 2010 decision to reduce the payroll tax by 2% for workers. That resulted in more than $100 billion shortfall in revenue for Social Security this year alone, when the chronic jobless problem24 million still out of work for three years now has already meant a major falloff in Social Security revenues for its various funds for the first time in decades. The 2% cut in the payroll tax was supposed to boost consumption, but it hasn’t. Estimates are that 60% of the 2% payroll tax cut last December has already been absorbed by oil companies to pay for $4 a gallon gasoline.

Not deterred by this fact, the Obama administration nonetheless in recent weeks has begun floating the idea of cutting the employers 6.2% share of the payroll tax, giving yet more income to business that has been sitting on a cash hoard of $2 trillion and not investing in the US and creating jobs. The logic why corporations need still more cash from a payroll tax cut in order to invest is unconvincing. This second cut will drive the Social Security retirement and disability funds further in the red, making it even more convenient for those who argue for cuts now instead of after 2012.

With the imminent new offensive against Social Security in the air, groups like AARP last week did an about face. AARP led the defense against Bush Jr. attempts to privatize Social Security last decade. Now, however, they are jumping on the cut Social Security retirement benefits bandwagon. As the Wall St. Journal recently gleefully noted, AARP is dropping its long standing opposition to cutting Social Security benefits, a move that could rock Washington’s debate over how to revamp the nations entitlement programs. Does anyone believe AARP hasn’t discussed this already with the Obama team? That some kind of new consensus to cut early and deep is being formed?

The most recent 2011 report by the Trustees of the Social Security program stated that the retirement benefits trust would run out of revenue to provide full benefits to retirees in 2036, after which only 77% of benefit levels could be paid. The Medicare trust will run out of funds for full benefits earlier, in 2018.

The Obama-Republican-Corporate Solutions

Republicans, Obama and Corporate interests are proposing to solve the Social Security retirement/disability benefits and Medicare benefits problems with the following measures:

1. Raise the retirement age to 70, which would cover 28% of the projected shortfall

2. Eliminate the annual cost of living benefit increases for retirement benefits, which would cover another 23% of shortfall.

3. Make new state and local government workers go into the social security system instead of receiving negotiated state-local pension plans, saving another 7%

4. Reduce benefits for middle income retirees and significantly for higher income retirees, raising another 39%.

Those four measures would amount to 97% of the projected shortfall and make the retirement benefits trust fund solvent past mid-century.

For Medicare, their proposals are not to maintain benefits but to reduce them by various measures while raising the costs for the reduced benefits. These include:

1. Cap government payments while prices are allowed to rise. Or, as in the Ryan plan, give retirees vouchers to buy insurance, which is capped as well while insurance rates rise.

2. Raise the amount of monthly premiums by double or more. Currently retirees must pay between $95-$115 for doctors costs coverage and an additional amount per month to cover only part of prescription drugs. Combined premiums will thus rise to $250-$300 per month. And that’s not counting higher deductibles and co-pays for doctors and drugs.

The Real Causes of the Social Security-Medicare Funding Crisis

The shortfall in the Social Security retirement benefits fund and disability fund are due first and foremost to the chronic lack of job creation, and thus payroll tax revenue generation, for more than a decade now. Today fewer are employed in the US than in 2000. The 2001 recession resulted in loss of jobs followed by weak job creation for the following four years. The 2007-11 recessions resulted in 24-27 million lost jobs and continuing weak job creation for more than three years now. These cyclical job losses were combined with chronic structural job losses at the same time: multinational corporations created 3 million jobs offshore and reduced 2.4 million jobs in the US. In addition, for those with jobs, wage gains have been lagging for a decade as well. That adds up to less payroll tax revenue as well. Then on top if it all, Obama cuts the payroll tax and is about to propose even more cuts in the payroll tax.

As for Medicares shortfall in funding, the problem has several dimensions. First, the payroll tax of 1.45% for the employee and same for employer is ridiculously low. Where else are 47 million recipients of medical care covered for so small a cost? The typical employer provided health insurance, in contrast to 2.9%, costs 20-24% the equivalent of a typical workers monthly take-home pay. Thats almost ten times more expensive. The second major problem with the Medicare funds shortfall is rising health insurance premiums and other healthcare costs for the past 15 years. Unfortunately, there’s no solution to check rising health costs in Obama’s 2010 healthcare bill.

Some Simple Alternative Solutions to the Funding Crisis

Solving either of the funding shortfalls, for Social Security retirement-disability or for Medicare, without cutting benefits or shifting more costs to retirees is not very difficult. A recent Washington Post/ABC News poll conducted last April indicated 65% of the American people opposed Paul Ryan’s plan to cut Medicare. In fact, the poll showed 60% did not want any cuts in Medicare and Indicated they would rather pay higher taxes for Medicare to maintain medical services. Only 17% were willing to cut Social Security, compared to 45% who wanted military budget cuts. This shows overwhelming public opinion support for not cutting these programs and a willingness to pay higher taxes to maintain current benefit levels. To listen to the debates in Washington, Republican and Obama administration and Democrat alike, one would think cuts were the only solution.

But here’s some alternative solutions:

1. Eliminate the current cap of $106,800 on earnings for the 12.4%. This would raise revenue to cover 86% of the projected shortfall for the next 75 years.

2. Raise the payroll tax rate by 1% more both for employee and employer, to 14.4%, in stages over the next 20 years. According to the Social Security Trustees latest 2011 report, the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2085. So items 1 and 2 amount to 186% of needed funded.

3. I then propose to use the excess 86% funding to reduce the retirement age to 64 for everyone, instead of the current 67. Why reduce it 3 years instead of raise the retirement age three years? To open up more jobs for young workers who are suffering the worst unemployment. Today, the fastest growing segment of the work force are those over age 65, as more older workers are forced by economic conditions to continue working past 67 or are forced to re-enter the labor force just to pay their bills. With a decent, higher level of benefits they could retire earlier.

4. As for the Medicare shortfall, that can be solved simply by raising the current 2.9% Medicare payroll tax by a paltry 0.25% for workers and employers each for the next ten years, then another 0.25% each starting year eleven for the second decade. Thats a mere 1% raise over the next 20 years.

5. Better and simpler yet, make everyone pay the 14.4% and 3.4% for the next ten years, not just those earning wages and salaries. Make all forms of capital incomes (capital gains, dividends, interest, rents, etc.) pay the 14.4% and 3.4%. Do that and you not only solve the so-called entitlement funding crisis for the remainder of this century but you have now raised enough additional revenue to pay for single payer health care for all, as well as fix social security retirement and disability for the next 75 years and even increase the level of those benefits and/or reduce the retirement age.

But you wont hear these ideas and solutions coming off the golf course summit between Obama and Boehner this week.

Jack Rasmus
Jack is the author of ‘Epic Recession: Prelude to Global Depression’, Pluto Press and Palgrave, May 2010; and the forthcoming ‘Obama’s Economy: Recovery for the Few’, Pluto and Palgrave, late 2011. His blog is jackrasmus.com and website: http://www.kyklosproductions.com.

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