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Obama’s Next Budget: Why More Cuts Are Coming

Posted in Uncategorized, tagged , , , , , on June 7, 2013| 3 Comments »

With Obama’s publication of his 2014 budget proposals this past April 2013, the current round of deficit cutting set in motion by Obama’s Simpson-Bowles Commission four years ago may be coming to a conclusion of sorts by this September 2013. The important question is: why now a conclusion after four years of deficit cutting negotiations by Obama and Congress? And what might this last act—the final phase in what has been a negotiations farce aimed at creating the appearance of major differences between the two sides—actually produce in terms of federal government spending and tax changes?

To understand the proposals in Obama’s budget it is useful to compare those proposals, and their economic impact on the deficit, with the Congressional Budget Office’s ‘baseline’ budget estimates. The CBO’s baseline represents estimates of the spending and tax revenue levels for the coming decade prior to Obama’s 2014 budget. The differences thus reveal how much Obama is proposing in his 2014 budget to cut (or increase) spending on programs andto raise (or cut) in taxes, as well as when (in what years).

Since Obama himself has been quoted as indicating Medicare is the main cause of future deficits, we can begin with that program.

Medicare in the 2014 Budget

The Medicare program has five basic spending categories: hospitals (Part A), doctors (Part B), nursing homes, prescription drugs (Part D), and government payments to private insurance group plans including the private insurance subsidy to ‘Medicare Advantage’.

The CBO baseline costs for Medicare for 2012-2023 shows Medicare costs for Part A (Hospitals & Nursing homes) and Part B (Doctors fees) rising by an increment of $195 billion from 2012 to 2023. However, receipts and revenues will rise by $227 billion. In other words, the two main programs will continue to show a net surplus of receipts over expenditures by 2023. So where’s the cost crisis?

The answer to that lies with the Prescription Drug program (Part D) and the Medicare program’s subsidies to Group Plans including Medicare Advantage private insurance supplement.

The Prescription Drug program (Part D) was introduced by George Bush in 2005. The legislation provided for no payroll tax to cover the cost of the program. From the very beginning of the program and continuing today, it has been totally paid for out of the general US budget—i.e. out of deficits. It has cost more than $500 billion since its initial passage, and is still rising in costs terms as pharmaceutical companies continue to inflate prices for their products at double digits every year. The Bush law specifically prevents any limits on drug company cost increases. States and cities cannot even negotiate drug price reductions. Nor can they legally purchase the same drugs from outside the US, often produced by the same company. Nor can individuals buy drugs legally from Canada. Free trade is ok for businesses, but not for government or consumers, in other words!

Part D cost increases in the CBO baseline are projected to rise by an additional $114 billion over the coming decade. But there are no receipts or revenues whatsoever to pay for the program for the next decade. That results in a negative incremental cost of $114 billion for the program through 2023. Similarly, Medicare program subsidies for group plans are projected to rise by an additional $127 billion by 2023. That’s a combined total of$241 billion in increased costs for the Medicare program overall through 2023. Subtract the $32 billion in excess receipts over cost for Hospital and Doctors fees (Part A and B), and the shortfall declines to $209 billion. Subtract further the $90 billion in cost cutting for Medicare called for in the March ‘sequestered’ spending cuts, and the result is a net shortfall in Medicare of $119 billion.

In other words, the total additional cost for the Medicare program in general over the coming decade is approximately equal to the cost for prescription drugs. The Medicare cost problem is therefore essentially the refusal to enact a payroll tax for prescription drugs and to allow drug companies to price gouge the public and government. So why not finally pass a tax to pay for Part D? Why not introduce some price cost limits on prescription drugs?

In short, if Prescription Drugs were properly funded by a payroll tax, as Hospital and Doctors have been from the beginning of the Medicare program, there would be no net cost increase in Medicare through 2023. Fund part D and there’s no Medicare cost crisis whatsoever. Even if not funded, the $209 billion shortfall hardly constitutes the ‘primary cause’ of the $7 trillion projected deficits through 2023, that Obama and others are claiming is the root problem with the deficits.

The root cause of the $7 trillion projected deficit is not Medicare; it’s not even prescription drugs. The root cause of the $7 trillion in projected deficits is the $4 trillion extension of the Bush tax cuts, plus the continued trillion dollar a year U.S. defense spending program.

Another simple solution to the $119 billion total incremental cost for Medicare over the decade is that proposed by the Trustees of the Social Security program themselves in their 2011 annual report. According to their own calculations, a mere 0.25% increase in the payroll tax for Medicare (now at only 1.45%) would solve all Medicare cost issues through 2022. Another 0.25% after 2022 would solve all shortfalls for a further second decade. But you won’t hear that mentioned in the press or media.

To summarize, even according to government estimates (CBO and Trustees), there is no Medicare cost crisis. There is a problem with escalating prices for prescription drugs. With no price controls, as is presently the case, Part D costs are projected in the CBO baseline to rise by 17% a year for the next four years and by 19% a year on average over the coming decade. And there is a problem with no tax to fund the Part D program. A simple addition to the payroll tax to cover Part D and some reasonable price controls on drugs would resolve the problem.

Up to now, the Obama administration’s solution to the ‘problem’ of runaway drug costs and escalating subsidies to Medicare Advantage and other group plans—which together are the true source of Medicare cost problems—has been to cut payments to Doctors and to draw down the surplus in the Part A hospital fund. Unlike the projected 17% a year increase in payments to drug companies, payments to doctors in the CBO baseline are to decline from current $68 billion in 2012 to $61 billion in 2016 when Obama leaves office. Cutting payments to doctors will mean more leaving the Medicare system and refusing to take medicare patients. That will accelerate the creation of a two tier health care system in the US already well underway.
But even cutting doctors payments and drawing down the surplus in the medicare trust funds are not long term solutions. Drawing down the trust fund surplus to pay for prescription drugs and group plans will exhaust the remaining trust funds by the end of this decade. Obama and Republicans know this and are therefore preparing to implement major cuts in medicare coverage and to raise Medicare recipients ‘out of pocket’ costs for reduced Medicare coverage. That comes next in the Medicare cost cutting plan that neither Republicans or Obama are ready to make public. Recall the Simpson-Bowles solution: make medicare recipients pay 20% more of Part A hospital coverage, pay more deductibles, and raise the eligibility age beyond 65. Or, as the Business Roundtable and Teaparty radical, Paul Ryan, have proposed: privatize medicare starting in 2022 and provide vouchers. Obama prefers the former; Republicans in the House prefer the latter. But whichever the case, it all amounts to rationing of health care services for all but the wealthy who can afford to pay out of pocket. That further rationing of health care services for seniors is implied in Obama’s 2014 budget.

In his Budget Obama has proposed to cut Medicare by $364 billion over the decade. Not included in that is a second proposal to freeze payments to doctors over the decade at 2013 payment rates, starting with an immediate 24% reduction in doctors payments in 2014 followed by a slow adjustment to the 24% cut thereafter. Unfortunately, the Obama 2014 budget does not indicate the total ‘savings’ from this reduction and freeze. But one can probably assume the total is somewhere around $100-$150 billion cumulative over the decade. The total cuts to Medicare alone are thus at least $500 billion in Obama’s 2014 budget.

Social Security in the 2014 Budget

To begin with, it is essential for readers to understand that the Social Security retirement trust fund (OAS) currently has a $2.77 trillion surplus, whose arguing social security is going to go broke soon conveniently ignore. Nor does the press and media bother to note that fact much. Like Medicare, the truth about the condition of Social Security lies in understanding the financial condition of its separate programs.

Like Medicare, Social Security is composed of several programs. There’s the retirement program (OAS) and there’s the disability insurance program (DI). The OAS has the massive $2.77 trillion surplus and, in addition, remains virtually fully funded from payroll taxes through 2023 without having to draw down the surplus. It is the DI program, on the other hand, has a funding trouble. Since the economic crisis erupted in 2007-08, approximately 2 million more workers went on disability. The lack of real job recovery has meant fewer payroll tax contributions to the DI fund. The result has been a shortfall in the DI fund of about $30 billion every year.

But the shortfall in the DI fund is used by opponents of social security to argue the entire program is in trouble. They then also use a base year of the recession and poor job recovery and extrapolate out for decades to create the false impression that social security revenues are insufficient while costs rise. That dishonest approach to calculating costs and revenues creates a false picture of tens of trillions of false liabilities for social security in general, requiring the major cuts to benefits that both Republicans and Obama now propose.

But here are the facts: For the OAS program, benefit payments are projected to rise at a rate of 11% a year from 2012 to 2023, from $773 billion in 2012 to $1.422 trillion in 2023. But revenues from the payroll tax are projected to rise at nearly the same annual rate, of 10.5%, from $570 billion to $1.125 trillion. Other revenues (interest, taxes on benefits, etc.) increase the revenue total by 2023 to $1.320 trillion. So we’re talking about a $100 billion shortfall at most by 2023, which is not bad considering 77 million babyboomers are expected to retire starting 2013.

So why not start drawing on the $2.77 trillion surplus, instead of making retirees pay the difference? After all, the payroll tax rate was increased in 1986, justified at the time as necessary to create the surplus in anticipation of the boomers retiring.
Another simple solution is to raise the annual income ‘cap’ to cover the 15% of wage earners whose income has risen faster than the income base since 1986. Currently, the payroll tax covers only 85% of wage earners, when the law intended 100%. Raising the cap would generate revenue by 2023 well in excess of the $100 billion shortfall, and do so for several additional decades to come with money left over.

But none of these, or other simple solutions, are being considered by Obama or House Republicans. Instead, both sides are in agreement to cut retirees annual cost of living adjustments to retirement benefits by changing the cost of living adjustment formula. And both continue to agree to raise the eligibility age for social security retirement benefits.
The first of these two alternatives—reducing the cost of living adjustment—is already baked into Obama’s 2014 budget. The second—raising the retirement eligibility age to 68 or higher—will likely come as part of the deal later in 2013 deal on the deficit.

The device by which Obama in his budget proposes to reduce annual cost of living adjustments for retirees is by changing the price index by which the adjustments are calculated. Instead of using the Consumer Price Index, he has proposed to substitute it with a ‘Chained CPI’ index. The latter will reduce the deficit by $232 billion, bringing the total deficit reduction from Medicare and Social Security retirement to more than $700 billion. (The amount Obama offered to cut the programs initially back in the summer of 2011). But this $700 billion is just the beginning offer to cut social security spending. Additional DI program spending cuts are being worked out administratively and through court action as well—all off budget. Eligibility for DI is being raised and benefits are being reduced in parallel. That will add at least another $100 billion in benefit reductions over the coming decade. So Obama is offering and presiding over no less than $800 billion in social security-medicare cuts. And that’s before further cuts are part of the final deficit cutting deal later this year, integrated with corporate tax cuts and the tax code revision.

It is clear, in other words, that both Republicans and Obama are targeting about $1 trillion in social security-medicare spending cuts over the decade. That $1 trillion, plus the $2.8 trillion already obtained in deficit reduction from the Fiscal Cliff and Sequestration, means only another $500-$600 billion in deficit cutting remains for a final deficit deal later this year.
But that is not quite accurate either. The tax code revisions will result in hundreds of billions more in corporate tax cuts that will have to be offset by further tax hikes and/or additional spending cuts. There is also the restoration of defense spending cuts of $500 billion required by the March 1, 2013 ‘sequestered’ spending provisions. Another $1 to $1.5 trillion will have to be extracted in tax hikes and/or spending reductions. Which raises the question of what does Obama’s 2014 budget suggest in terms of tax changes and additional spending cuts?

Tax Proposals in the 2014 Budget

Throughout the 2012 election period Obama was explicit in advocating a major reduction in the corporate tax rate, from current 35% to 28%. In that regard, his position was essentially that of Republican candidate, Mitt Romney. Obama also favored publicly working some compromise for Multinational Corporations, reducing their offshore tax liability to entice them to pay some part of the current $1.9 trillion they are hoarding in offshore subsidiaries without paying taxes. (Actually, the ‘offshore’ accounts are located in New York). His budget proposes taxing ‘international income’ only at the rate of $15 billion a year. At that rate it will take more than 50 years to tax the current $1.9 trillion.

Obama has also been an advocate of even more generous tax cuts for smaller businesses and for Research & Development. His budget proposes raising the business R&D credit to 17%, resulting in a tax cut of $118 billion, and allowing small businesses to write off equipment investment immediately, resulting in another $69 billion in revenue loss. Just these two items, plus the corporate tax rate reduction and letting multinational companies off the tax hook, will cost the US budget at least $700 billion to $1 trillion, and likely much more.

To pay for the tax cuts for corporate America coming later this year, Obama’s budget proposes to limit tax deductions and exclusions for businesses, especially for employer health insurance and pension contributions. That is projected to raise $493 billion. It will also mean the acceleration of employers abandoning their health insurance and pension plans for their workers and further exacerbate those crises and costs to workers. Minimal added taxes on tobacco would raise another $83 billion. An increase in the Estate Tax would only take place after Obama leaves office, which politically means not at all. A token ‘financial responsibility’ tax on banks is also another proposal likely ‘dead on arrival’ given the Republican dominated US House, as will prove similar for the proposal for a token ‘fair share’ tax on millionaires.

Netting out the tax cuts and the tax hikes, it means a net gain for businesses in terms of tax cuts of about $400-$500 billion, for which other tax hikes on the middle class and spending cuts will have to occur. That’s $500 billion plus the roughly $600 billion gap ($4.4 trillion minus $3.8 trillion). In short, another minimal $1 trillion in tax hikes and spending cuts—apart from and in addition to the social security-medicare cuts already proposed—will become part of a final deal later this year when the tax code revisions are integrated with the deficit cutting.

The additional, final $1 trillion will likely come from two general sources: eliminating deductions, credits, and exemptions for middle class tax payers and cutting further discretionary spending programs like education, transportation, and other non-defense discretionary programs.

Defense Spending in the 2014 Budget

Almost $500 billion in defense related spending was cut in the March 1 ‘sequestered’ provisions that went into effect. Obama has vowed to restore at least $400 billion of that. For 2013, the sequestered discretionary spending cuts amount to $64 billion. Obama has proposed restoring $40 billion of that $64 billion in defense spending.

Over the decade it is clear that the budget strategy involving defense is to ‘move the money around’. Spending for what is called ‘overseas contingency operations’ (which means for wars in Iraq and Afghanistan) would be reduced. Much of the reduction would be in turn transferred to spending on new military equipment, earmarked largely for the US Navy and Air Force, as US military strategy ‘pivots’, as they say, to the western Pacific. The US Army had its land wars in the middle east; now the money goes to the Navy and Air Force. US military equipment suppliers simply get to change their ‘product mix’ sales to the US government and the military industrial complex continues virtually unaffected.

Obama is engaging in what might be called a strategy of ‘moving the money around’. Defense spending on middle east wars are to be shifted to defense spending increases for the pacific region. Social Security retirement benefits are to be cut in order to offset the rising costs of disability benefits. Medicare benefits for hospital, and doctors fees, are reduced and costs shifted to retirees in order to offset continued runaway prices and costs for prescription drugs. Simple solutions like raising the cap on social security payroll tax, implementing a token percentage tax to cover prescription drugs, placing some kind of controls on runaway drug prices, addressing the reason why so many workers are now going on disability, etc., are totally ignored and boycotted in the press and media as alternatives for consideration. Instead, the focus is on reducing benefits and making retirees and workers pay more for less. What all these Obama-Republican measures represent is a shifting of the cost burden of social security, medicare, and other discretionary social program in the budget from one sector of the working and middle classes to another; from the wealthiest households to the remaining 95% rest. Meanwhile, the wealthiest households and their corporations continue to get still further tax reductions and the Pentagon and war corporations get to shift their profits from the middle east conflicts to the western pacific to address a ‘threat’ from China that doesn’t exist.

Jack Rasmus
Copyright June 2013

Jack is the author of the 2012 book, “Obama’s Economy: Recovery for the Few”; host of the weekly radioshow, ‘Alternative Visions’, on the Progressive Radio Network; and ‘shadow’ chairman of the Federal Reserve in the recently formed Green Shadow Cabinet. His website is: http://www.kyklosproductions.com, his blog: jackrasmus.com, and twitter handle: #drjackrasmus. (A longer version of this article summarizing the history of US austerity programs and deficit cutting since 2009 will appear in the June 2013 issue of ‘Against the Current’ magazine; also available on the author’s website in July).

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From Fiscal Cliff to Debt Ceiling Debacle 2.0′

Posted in Uncategorized, tagged , , , , on December 31, 2012| 2 Comments »

COMMENTARY: THE FOLLOWING IS THE LATEST DECEMBER 31 UPDATE TO THE TERMS OF THE FISCAL CLIFF PENDING DEAL IN CONGRESS.

In a press conference concluded today, December 31, 2012, just hours ago, President Obama reported a partial agreement on the Fiscal Cliff was very near.  To hold a conference and report such at this stage, means the major sticking points have been settled and just the details are now being worked out.

The agreement, as this writer has been predicting, will be only a partial one. Fiscal cliff (aka ‘Austerity American Style’) negotiations on unresolved matters will continue for the next several months.

According to today’s press conference by the President, the agreement about to happen today will reportedly include the following main elements: first, an extension of the tax cuts for roughly 98% of households. Tax rates on the 2% will apparently rise. So too apparently will payroll taxes rise back to their 6.2% rate. In a concession to Republicans, the tax cuts will now be made permanent instead of having an expiration date, as has been the case since 2001, and the cutoff for the top 2% will be raised from $250k income per year to $450k, thus making the increase on the top 2% in effect a tax hike on the top roughly 1.5% instead of top 2%. Second, the partial deal will include an unspecified extension of unemployment insurance benefits. Not part of the deal, however, are cuts involving the approximate $1.2 trillion in sequestered defense and non-defense spending, agreed to last August 2011, which are scheduled to start taking effect this January 1, 2013. However, there is also talk that the sequestration will be postponed for two months as part of the deal. Nor is there a settlement of the debt ceiling issue as part of the pending deal.

The agreed upon deficit reduction target of $4 trillion over the coming decade is not resolved by the pending agreement. The tax hikes on the 1.5% will provide only $600 billion in additional tax revenue for the coming decade. That amount, by the way, is well below Obama’s previously offer a few weeks ago of tax revenue generation of $1.2 trillion, and Boehner’s earlier December counteroffer of $1 trillion. To get some kind of partial agreement, Obama in effect reduced his tax revenue demand in half, from $1.2 trillion to $.6 trillion, raised the cutoff from $250k to $450k, and agreed to make the tax cuts permanent. Republicans thus get a reduction of $400 billion below their last $1.0 trillion position plus a $200k increase in the cutoff to $450k. Both those points amount to major ‘wins’ for the Republicans. Nonetheless, there is consequently still a long way to go in deficit cutting negotiations, which will occur over the next two months. In short, deficit cutting has not concluded; it has only just begun. And Republicans will be in an even stronger bargaining position going forward.

The focus from this point will be even more heavily on spending cuts and the Republicans will have the upper hand in spending cut negotiations for the following two reasons: the tax issue is largely out of the way and the debt ceiling coming up allows them, the Republicans in the House, to once again engineer a repeat of the debt ceiling debacle of August 2011. We are now headed toward a ‘Debt Ceiling Crisis Redux’, which will peak sometime in late February-early March 2013. The original debt ceiling debacle of August 2011, to recall, resulted in all spending cuts of $1.2 trillion. Version 2.0 will almost certainly result in something similar, with perhaps a couple hundred billion more in token revenue generation, if even that. Expect spending cut proposals approaching twice that $1.2 trillion agreed upon in August 2011.

The August 2011 debt ceiling deal amounted to a ‘trade off’ by Obama and the Democrats of $1.2 trillion in spending only reduction in exchange for an agreement from the House radical Republicans not to play the debt ceiling card until after the November 2012 negotiations. It’s likely another such deal will occur—i.e. Democrats trading spending cuts for a halt to debt ceiling brinkmanship by the Republicans until after the 2014 midterm elections.

In terms of bargaining strategy, Obama and the Democrats are cutting a deal today, December 31, that will prove disastrous for them over the coming months. They have conceded on several major points just to try to get an agreement today—i.e. $600 billion in total revenue, $450k cut off increase, and making cuts permanent.  Republicans will get several more ‘bites at the tax apple’ in coming months to offset the tax hikes on their 1.5% richest friends.  In addition, Democrats are passing their bargaining leverage to the Republicans. Democrats should have allowed the fiscal cliff to happen, then later this week proposed a 98% tax cut for the middle class and tied that to a proposal for no debt ceiling brinksmanship for the next two years. Republicans would have been put in the position of having to vote AGAINST a middle class tax cut to keep their debt ceiling leverage. They no doubt realized this and, as this writer has previously predicted. Republicans conceded little in order to retain their debt ceiling leverage for future negotiations.

To sum up, in today’s pending deal, the House Republicans get a $600 billion concession by Obama in total tax revenue generation, a bigger hammer in the debt ceiling, an increase in the threshold for the top 2%, from $250 to now $450k a year (reducing the top 2% to in effect 1.5%), making the tax cuts permanent, and greater future control of the debate agenda. Obama and the Democrats get a continuation of middle class tax cuts, some kind of unemployment insurance, and a loss of bargaining leverage for the next phase of continuing deficit reduction negotiations.

The second phase of fiscal cliff negotiations will focus on reducing sequestered defense cuts, more emphasis on cutting social security, Medicare, Medicaid and the like, and a return to playing chicken and brinksmanship once again on the debt ceiling. Republicans now have the bargaining agenda where they want it: almost totally focused on spending cuts. And they have their big stick again to whip the Democrats with—i.e. the debt ceiling.

Jack Rasmus

Jack is the author of the April 2012 book, “Obama’s Economy: Recovery for the Few”. Chapter 7 of that book, ‘Deficit Cutting on the Road to Double Dip Recession’, is available for free on his website, http://www.kyklosproductions.com. Visit the website also for Jack’s 7 recent radio interviews on the fiscal cliff negotations, at http://www.kyklosproductions.com/interviews. For updates daily on the fiscal cliff negotiations, follow Jack at twitter, #drjackrasmus.

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The Coming Obama-Romney Economic Debate-Economic Program Similarities and Differences

Posted in Uncategorized, tagged , , , , , , , , on September 30, 2012| 1 Comment »

This week the first presidential candidates’ debate will be aired on television. A good part of the topic of the first debate will focus on economic programs of the respective candidates. They will say they represent fundamental differences. This is in part true. But equally true is that their positions on the economy in many important aspects are strikingly, and disturbingly, similar. Read the following except from my just published article on this topic in Z magazine.

This week the first televised debate between the two presidential candidates will be held and a good part of the debate will address programs for economic recovery for the next four years. Both parties and candidates are now proclaiming there are historic, stark differences and choices between them; that this election will mean choosing two fundamentally different paths for the country for years, and perhaps decades, to come with regard to the future of the economy in terms of jobs, taxes, deficits, housing, state and local governments, and other economic indicators. A closer examination reveals, however, that while there are some clear differences between the two candidates on economic matters, the similarities in their economic proposals are both striking and disturbing.
JOBS
OBAMA
Upon entering office in 2009 Obama promised to create 6 million jobs if his $787 billion stimulus bill of (mostly business) tax cuts and spending subsidies to states and unemployed were passed. But after 18 months neither the tax cuts nor subsidies resulted in any appreciable job creation. Between June 2009 when the recession was officially declared over, and 18 months later in December 2010, an additional 1.1 million private sector jobs were lost. By year end 2010 the president had to resort to the claim he had at least had ‘saved’ further millions of jobs. With the effects of the $787 billion stimulus mostly spent, his job creation strategy then shifted mid-2010. A second recovery program passed late 2010 composed totally of an additional $800 billion in tax cuts—including $450 billion in extended Bush tax cuts Obama promised in 2008 he would not do.
This $800 billion more in tax cuts was supplemented by a new policy focus on manufacturing and promoting exports as the primary program to create jobs. Multinational corporate CEOs , like General Electric’s Jeff Immelt, were put in charge of his job creation program. That meant more free trade agreements, more deregulation for business, and more subsidies for U.S. export companies.
In 2011-12 still more business tax cuts were proposed as the way to create jobs. In 2011 tens of billions more for small business to hire unemployed and a so-called ‘JOBS’ (Jump Start Our Business Startups). JOBS was nothing more than a cover for more tax breaks and financial deregulation for start up companies, but Obama praised it as ‘a game changer’ for employment. More subsidies to the states to hire teachers and emergency responders, now being laid off in the hundreds of thousands, was also proposed but never passed Congress.

Obama’s Jobs Programs over the past 42 months therefore amount to the following:
• Tax cuts and more tax cuts for businesses
• Manufacturing-centric policies driven by more Free Trade agreements, more manufacturing export subsidies, and more business deregulation
• More subsidies to the states to hire teachers and emergency responders
These programs have proved pretty much a total bust, however: After $3 trillion in tax cuts and spending, total private sector employment has risen by only 2 million, or about 50,500 per month, which is well less than half that needed just to even absorb new entrants to the labor force. Total unemployment, as measured by the labor department’s U-6 rate, has fallen by a mere 1.3 million—from 24.6 million in June 2009 to 23.3 million in July 2012. Between June 2009 and July 2012 a paltry 200,000 manufacturing jobs were created, for an average of a mere 5,000 per month. And Obama’s much vaunted recovery of the Auto Industry has produced 157,000 auto jobs, which is still 180,000 fewer than existed at the start of the recession in December 2007.
Despite this embarrassing record on job creation, the President in his September 6 convention speech indicated clearly he would ‘stay the path’ with this business tax cuts + manufacturing promotion + free trade as his basic approach to job creation. He made it clear his second term’s strategy would be to “export more products” and that he would continue to work with business leaders to “create 1 million more manufacturing jobs over the next 4 years”. In his speech he also proudly proclaimed he had signed free trade agreements “bringing jobs back” and declared he would sign still more—a clear reference to his proposal for creating a ‘Trans-Pacific Partnership’ (TPP), a free trade agreement with all the countries of the pacific rim which Obama has been promoting for several months and an even bolder goal than George W. Bush’s Free Trade of the Americas that was proposed in 2005 to create a free trade zone throughout all of north and south America. In other words, in terms of jobs creation programs don’t expect much different from his first term in either job creation programs or results in an Obama second term.
ROMNEY
Romney’s view on how to create jobs focuses even more heavily on tax cuts as the primary approach. Romney proposes to create 12 million jobs by 2017. The primary engine would be extending the entire $3.4 trillion in Bush tax cuts of the last decade as is for another decade (minus extending the cuts for those households earning less than $40,000 a year). Obama would extend the Bush tax cuts for all but the top 3% households. So Obama cuts out part of the ‘top tier’ of households from the Bush tax cuts extension, while Romney cuts out the ‘bottom tier’ of households. (Both support, however, reducing the top corporate tax rate from current 35%, as noted below).
To create the 12 million, however, Romney proposes more than just extending the Bush cuts: he calls for even more tax cuts for corporations (as does Obama), reduced business regulations and more Free Trade agreements (ditto Obama), but adds more oil drilling and some token worker retraining as addenda to his jobs program.
However, Romney’s 12 million jobs goal is somewhat of a sham. It amounts to creating only 180,000 jobs a month on average, i.e. just 50,000 more than needed for new entrants to the labor force each month. That means reducing the current 23 million jobless by only 50,000 a month, which would leave 20 million still unemployed by 2017. So the Romney program is not really a program to eliminate the massive jobless overhang today—apart from the question of whether more business tax cuts, free trade, oil subsidies, etc. will even create the 12 million jobs in the first place.
In short, the relationship between job creation programs and business tax cutting is just a matter of degree between the two presidential candidates. Romney advocates ‘Bush tax cuts on steroids’ to create jobs, while Obama exempts the top 3%. Both strongly propose Free Trade and more business deregulation as job creation measures. Obama proposes subsidies to states to hire teachers and firefights, while Romney doesn’t and proposes token job retraining. Romney wants still more cuts and subsidies to oil companies; Obama does not. Both support multiple handouts to small businesses. But all these programs have been proven failures to date, so the unemployed have little to expect from either candidate once elected.

TAXES
OBAMA
As previously mentioned, Obama proposes to discontinue the Bush tax cuts for the wealthiest 3%. The top marginal tax rate for individuals would be allowed to rise from 35% to the 39.6% level of the Clinton years, impacting wealthiest households earning more than $250,000 a year. Taxes on the wealthiest 1% (earning more than $600,000 a year) would rise $93,000 a year. (For millionaires a tax hike of $296,000 a year). The tax on capital gains, now at only 15%, would also increase to 20% under Obama proposals. Oil and gas industry tax breaks would be reduced.
But what Obama proposes to ‘taketh away’ from the top tier of the personal income tax he proposes ‘to giveth’ to their corporations. His proposals include reducing the top corporate tax rate from current 35% to the 28% it was under Reagan. This shift is proposed despite the fact that in 2011 corporate taxes amounted to only 12.1% of profits—compared to the 1987-2008 period when corporate taxes averaged 25.6% of profits. For all businesses, corporate and non-corporate, the super-generous ‘bonus depreciation’ provision of the past two years, in which businesses can write off the cost of all capital investment in the first year of purchase, would also be continued despite its costing a whopping $55 billion a year.
Obama also favors changing the taxing of U.S. multinational corporations, reducing taxes on their offshore profits, even though that group today is hoarding $1.4 trillion of in their offshore subsidiaries and refusing to pay US taxes on it. In exchange for this tax reduction, Obama proposes to raise taxes in a yet unspecified way on those multinationals that offshore jobs.
ROMNEY
Romney’s tax program is once again an extreme version of Obama’s but with many content similarities. In addition to extending all the Bush tax cuts of the past decade, for yet another decade, which would cost the US Treasury another $4.6 trillion according to the Congressional Budget Office research arm, Romney proposes the following tax changes:
• Cut the personal income tax rate for the rich even further than Bush, by 20% across the board.
• Cut the top corporate tax rate from 35% to 25% (vs. Obama’s 28%)
• Introduce a ‘territorial tax’ for US multinational corporations, which would in effect end the current foreign profits tax they pay (or in fact now refuse to pay)
• Repeal the Medicare 2.9% additional tax on the wealthy contained in Obama’s 2010 ‘Affordable Care Act (Obamacare) by repealing the entire Act.
• Allow tax credits for those earning less than $40,000 a year to expire (i.e. earned income, child care, and other tax credits).
• End all taxation on capital gains, dividends and interest income for households earning less than $200,000 a year.
• Keep the capital gains, dividends and interest income taxed at current 15%.
• Bigger tax cuts for business research and development
• End the Alternative Minimum Tax (AMT) altogether, which impacts those earning around $150,000 a year and above
• End the Estate Tax altogether
In summary, apart from their respective positions on extending the Bush tax cuts, both Obama and Romney are largely in synch on introducing more massive cuts in corporate income taxes, reducing corporate taxes to the 25%-28% range from current 35%–despite corporations today paying the smallest share of taxes from profits. Both have plans as well to provide multinational corporations even more tax concessions. Romney differs in proposing to give upper middle class households bigger incentives to invest in stocks, bonds and other interest bearing securities—an ultimate boon to his stock-bond market buddies. He also proposes to give the wealthy big tax bonuses by ending the Estate, Alternative Minimum, and forthcoming Medicare 2.9% taxes. Both propose more tax cuts that will not reduce the projected US budget deficits over the coming decade, but actually make them worse—and much, much worse in the case of Romney—leading in both cases to even more massive cuts in spending programs than either candidate is so far admitting to.
BUDGET DEFICITS
OBAMA
Obama’s policy with regard to US deficits is his pledge to reduce the deficit by $4 trillion over the next decade. That has been Obama’s stated goal since the deficit debates in 2011 leading up to the debt ceiling crisis of August 2011. That $4 trillion goal, moreover, is the same as proposed by his Deficit Commission (Simpson-Bowles), Paul Ryan in the House of Representatives, and various other Senate and ex-government officials. Details of the president’s $4 trillion deficit reduction plan are to be found in his 2012 budget. It is perhaps of some interest to note that Obama’s budget projections include a $5.8 trillion bill for defense spending over the decade, an amount which is 23% greater on an annual average than defense spending during the Bush years, 2001-2008.
The Congressional Budget Office has issued a different estimate of the likely budget deficits over the next decade. Given current tax cuts and spending projections, the CBO estimates the Obama deficits will amount to $6.4 trillion from 2013-2022. In January 2013 government spending will decline by $1.2 trillion over the coming decade, based on the debt ceiling deal agreed upon by Obama and the Republican House of Representatives in August 2011. Raising the debt ceiling once again will therefore become a major issue in early 2013. That means major tax increases and/or further spending cuts will be on the agenda immediately after the November 2012 elections regardless who is elected president (the challenge sometimes referred to as the coming ‘fiscal cliff’ by the media). Republican insistence on no tax increases and on raising defense spending even higher than projected by law or in the Obama budget, will mean an historic confrontation between deficit reduction and massive cuts in social program spending, including not only Medicaid but Medicare, Education, Social Security, and other discretionary spending programs. As this writer has been predicting, the confrontation will start immediately, within days, of the upcoming November 2012 elections—again regardless of who is elected president.
ROMNEY
As frightening as the upcoming budget deficit confrontation following the elections will be with the Obama budget as starting point, the Romney budget-deficit proposals represent a deficit crisis of even far greater magnitude.
Romney tax cut proposals include the major elements of a continuation of the Bush tax cuts for another decade, at a cost of $4.6 trillion, plus adding trillions more in business-investor tax cuts. The result is deficits for the next decade equivalent to approximately $10 trillion! To address this massive deficit Romney proposes cutting federal spending from its current 24% of GDP to 18%-20%. That 6% of GDP in 2013 equals an immediate reduction in spending and/or increase in working poor and middle class tax cuts amounting to $300 billion. By 2015 the estimate is $500 billion, presumably rising further thereafter. In addition, he proposes to reverse the sequestered scheduled $500 billion in defense spending cuts agreed to in Congress in August 2011. The increases in working poor and middle class tax cuts were noted above. The spending cuts would mostly come from discretionary non-defense spending on items like education, transportation, healthcare, etc., for which Romney proposes a 5% cut across the board. The 5% represents no more than $60 billion a year. As others have pointed out, the Romney proposals do not add up and it is unclear how the 5% discretionary cuts, no defense cuts, retaining Bush tax cuts, adding trillions more in corporate-wealthy individual tax cuts can cover the $10 trillion. Proposing to reduce federal spending by 6% of GDP means spending cuts and/or tax increases totaling at least $900 billion a year. It can only mean unmentioned additional massive cuts in Medicaid-Medicare-Social Security and historic reversals in middle class tax breaks that are left conveniently unmentioned.
The Romney deficits therefore mean not only massive social spending cuts but hundreds of billions more in middle class tax increases as well. High on the list of the latter would have to include the elimination of tax deductions for health care and pension contributions by workers, virtually ending the mortgage interest and state income tax deductions, new taxation on Medicare benefits, and ending most of the earned income tax deduction for the working poor. Sharply reducing, or even ending, these deductions would be necessary to accommodate Romney’s proposed business and investor tax cuts. Romney would additionally end Obama’s Affordable Healthcare Act, reducing the deficit by another $.9 trillion. The rest presumably would come from other spending cuts in education, Medicaid, Medicare, and Social Security.
In summary, whoever wins the election, get ready for massive social spending cuts and a fight over how little to raise taxes. The deficit reduction proposals of both candidates envision historic cuts in social spending. Both envision more tax cuts for corporations that would additionally have to be made up from spending cuts and/or middle class tax hikes. Obama’s deficit reduction plan envisions some tax increases on the wealthiest individuals, while Romney’s envisions trillions of dollars more tax cuts for the wealthy, paid for by tax hikes by the poor and middle class as well as historic cuts in social spending of even greater magnitude than Obama’s.
FREE TRADE
There is virtually no difference between the two candidates on trade policy, and free trade agreements in particular. Both strongly supported recent free trade agreements with Panama, Columbia, and South Korea. And Romney supports Obama’s current drive to implement the biggest expansion of free trade with the ‘Trans-Pacific Partnership’ (TPP) pacific rim free trade policy, a development that will dwarf in scope and magnitude even Bill Clinton’s passage of NAFTA and his opening of China trade. According to the Economic Policy Institute, China trade alone has cost the US 2.7 million jobs just in the past decade. NAFTA millions more. Neverthless, both candidates unreservedly advocate accelerating free trade agreements.
The battle between Romney and Obama on trade amounts to token differences on how to show they are ‘tough on China’. Romney accuses Obama of being ‘too soft’ on China and demands more punitive action. Both candidates talk in vague generalities about the ‘offshoring’ of US jobs that has occurred by the tens of millions in recent decades, but neither offers any specific proposals for addressing the issue.

HEALTHCARE-MEDICARE/MEDICAID
OBAMA
The heart of Obama’s Healthcare policy is, of course, the retention of his 2010 Affordability Care Act. Costing nearly $1 trillion over the rest of the decade, the Act does provide a number of meaningful benefits for the general populace. However, it has two great flaws: first, it amounts to a health insurance company subsidy bill. Health insurers will receive hundreds of billions of dollars of extra business. The second flaw is that it fails fundamentally to control health insurance and other health care costs. The problem of runaway healthcare costs will thus re-emerge and continue under the ACA, a problem which has already emerged as health insurance premiums and other costs have once again begun surging in 2011-12.
On the positive side, the ACA raises taxes on the wealthy by another 2.9%–which is the real source of much of the opposition to the ACA by the wealthy, transmitted through their manipulation of the Teaparty on the issue. But it also includes a reduction in payments to doctors and health providers in the amount of more than $700 billion. That will inevitably lead to doctors and providers refusing increasingly to provide services to Medicare patients. The ACA is thus a form of income shift that promises to reduce health care access. That is the price to be paid for the subsidization of health insurers and coverage extension to the tens of millions without any coverage.
It should further be noted, that Obama has signaled in July 2011, as he sought desperately an agreement with Republicans on the debt ceiling debate, that he was willing to cut Medicaid and Medicare by $700 billion despite the proposed expansion of Medicaid in his ACA. That public proposal provoked a near revolt by Democrats in Congress and was withdrawn. Nevertheless, it remains ‘on the table’, as they say, and will most certainly arise again immediately after the November elections. Voters will not hear of this during the election campaign, but will most certainly once the election is over.
ROMNEY
Romney’s program with regard to health programs and policy top priority is to repeal Obama’s health care act of 2010. Next in priority is his complete embracing of his Teaparty Vice President, Paul Ryan, view for Medicare. The Ryan plan is to voucherize Medicare, provide payments to senior to then go and buy private health insurance—an even bigger windfall for insurance companies than Obama’s subsidies to insurers in his ACA. Ryan has projected this will ‘save’ the federal government $700 billion. However, not all seniors will receive the same voucher payment. Some will get less than others, thus creating a kind of ‘two tier’ voucher system. Moreover, there are no assurances the value of vouchers will increase annually with the rising cost of healthcare services, thus requiring seniors to increasingly pay more out of pocket for healthcare insurance. The main beneficiary from this, apart from health insurance companies, is the federal government which Ryan estimates will save $700 billion in government spending over the next decade. The Romney-Ryan Medicare voucher plan thus represents an income transfer of hundreds of billions from seniors to both insurers and the government.
Romney-Ryan are also major proponents of massive reductions in the Medicaid program, proposing to cut federal and state Medicaid costs by turning it into block grants to the States—many of which would refuse to participate or would take the money in the block grant and spend it elsewhere.
SOCIAL SECURITY
Proposals by both candidates are almost identical with regard to social security. Both are purposely saying little before the election about how they would address social security. Romney proposes vaguely that the age for eligibility for retirement benefits should be raised, as does Obama. Neither say raised to what or how quickly. Both suggest cost of living adjustments annually should be lowered. Obama implies by changing the way the consumer price index is applied. Romney goes further and recommends the creation of a ‘two tier’ system in the future (similar to Medicare) in which seniors with a certain level of retirement income would receive less social security benefits. What’s left unsaid by both is their agreement to target social security disability benefits for major reductions.
HOUSING CRISIS
OBAMA
Apart from the failure to create jobs, the next greatest economic policy failure of Obama’s first term has been his reluctance to direct confront the housing crisis. The housing sector has languished in a veritable depression for three and half years, with home building and jobs stuck at only a third to half of pre-recession levels. More than 12 million of the 54 million mortgaged homeowners in the US have been forced into foreclosure, often illegally by the banks. More than 8.5 million on Obama’s watch, while than 10 million similarly languish with mortgages in ‘negative equity’.
From the beginning in 2009 Obama’s policies have focused on subsidizing mortgage lenders and mortgage servicers (big 5 banks), to help them move foreclosed homeowners out of their homes and to resell to new buyers. Early 2009 Obama programs like HAMP (Home Affordability Modification Program) are acknowledge failures, providing tens of billions of dollars of subsidies to banks and homebuilders and token assistance to homeowners.
In 2010 Obama then ignored the ‘robo-signing scandal’ that broke that summer, leaving it to state attorneys general to deal with. However, when it appeared legal suits would cost the banks potentially hundreds of billions of dollars, only then did the Obama administration intervene in 2011. That intervention was designed to help the banks—not homeowners—by limiting banks’ liability to homeowner and state legal suits. As part of that compromise, banks’ liability from legal suits arising out of robo-signing illegal foreclosures was capped at a mere $25 billion. Payments to homeowners illegally foreclosed have averaged only $1,500 each in the settlement and less than a billion of the $25 billion. Recent reports are that the $20 billion is not going to reducing loan balances for homeowners in ‘negative equity’ but is being deducted by banks against the $25 billion in the form of charges against short sales of homes in negative equity. In other words, homeowners are not being assisted to remain in their homes, but assisted in vacating them—which the banks then resell to new buyers at still further profit.
In exchange for the limits on liability, the banks were ‘encouraged’ to participate in latest OBAMA housing recovery program, his 2012 program called HARP 2.0. The HARP program was a ‘quid pro quo’ for relieving from pending massive liability action by the States. But HARP 2.0 is, in final analysis, just another ‘banker subsidy’ program. Not only are the big mortgage banks protected from further legal suits, but they are profiting nicely from the program. In exchange for refinancing homeowners in negative equity, the banks involved receive a commission of 5 ‘points’ (each point=1% of the value of the mortgage) from the quasi government mortgage agencies, Fannie Mae and Freddie Mac. Five points on a $500,000 mortgage refinancing amounts to a generous $25,000 fee paid to banks by the federal government for each refinancing. In turn, these costs incurred by Fannie and Freddie will have to be restored with funding from Congress and thus the taxpayer. HARP 2.0 remains as Obama’s latest centerpiece program for rescuing the millions of homeowners illegally foreclosed or in negative equity.
ROMNEY
Romney’s program for ending the Housing crisis includes the following measures: first, to sell the 200,000 estimated local government owned homes. Somehow that is supposed to help raise home values, according to Romney, but will actually increase the excess supply of homes on the market and thus further depress home prices in most cases. Another Romney proposal is a vague demand to ‘restart lending’ to credit worthy borrowers. How to force banks to lend to homeowners, when they have been clearly reluctant to lend to small-medium businesses, is not explained in the Romney proposals. Romney’s Housing solution also calls for major reform of the Fannie Mae-Freddie Mac government mortgage institutions as well as still further deregulation of mortgage lenders and banks—i. e. two long time conservative demands designed to further privatize and deregulate the housing market.
CONCLUSIONS
While there are several dramatic differences between the Obama and Romney economic programs, there are also several almost identical programs shared by both. Both favor major reductions in corporate taxes. Both advocate hundreds of billions in social spending cuts, including entitlement programs. Both are almost identical in their positions on Free Trade.
Concerning tax policies, both propose to extend much of the Bush tax cuts—Obama suspending the cuts for the top 3% and Romney eliminating tax credits for the working poor and lower middle class. Obama has proposed some minor tax loophole closings, while Romney proposes additional, massive tax cuts for investors and businesses on top of the Bush tax cuts. Obama’s deficit over the decade amounts to a sizeable $4-$6 trillion but Romney’s more than $10 trillion. Both mean massive cuts in social programs coming immediately after the November elections, with Romney requiring major middle class tax hikes as well. Obama’s budget is very generous to Defense, and Romney’s even more so. A big difference between the two exists with regard to healthcare programs, including Medicare and Medicaid. Romney wants to destroy Obama’s ACA immediately and Medicare eventually. Both appear quite willing to gut Medicaid spending, with Romney cutting other discretionary spending by additional trillions over the decade.
These comparisons mean that, regardless who is elected president, an historic reduction in social program spending is on the agenda for the weeks immediately following the November 2012 elections. Defense spending will be either totally or partly protected from the cuts. And taxes will be further reduced for corporations, tokenly raised for wealthy individuals, and most likely significantly raised for middle class and the working poor. Nothing of any significance will be done to address the Housing crisis and programs to create jobs will continue to fail to have much impact.
It is this scenario that has prompted this writer repeatedly to predict the likelihood of a double dip recession in 2013, especially if the Eurozone crisis continues to deteriorate and China and the rest of the global economy continue on a path to an economic ‘hard landing’. It is possible, if Obama is re-elected, the fiscal austerity coming in early 2013 may be delayed a year and effectively ‘back loaded’ to start taking its greatest effect a year later in 2014. But if Romney is elected and Republicans control either, or both, houses of Congress the more draconian austerity programs will take effect earlier in 2013. That alone will ensure a double dip recession. And if the Eurozone slides deeper in recession and banking instability, virtually guarantee a double dip.
Dr. Jack Rasmus
Jack is the author of the new book, “Obama’s Economy: Recovery for the Few”, April 2012, and host of the radio show, ALTERNATIVE VISIONS, on the Progressive Radio Network, PRN.FM, in New York, on Wednesdays at 2pm. His website is http://www.kyklosproductions.com and blog, jackrasmus.com. Copies of the book can be purchased at the website or blog bundled with a DVD and a 66 slide powerpoint slideshow on the current state and future direction of the US economy.

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AMERICA’s TEN CRISES: Part 7: Inevitable Decline of US Global Economic Dominance

Posted in Uncategorized, tagged , , , , on August 17, 2012| Leave a Comment »

COMMENT: DESPITE PROBLEMS IN THE EUROZONE AND GENERAL SLOWING GLOBAL ECONOMY IN THE SHORT TERM, THE DAYS OF US ECONOMIC DOMINANCE ARE NUMBERED OVER THE LONGER TERM. HAVING DOMINATED THE WORLD ECONOMY SINCE 1944, SIGNS ARE EMERGING THAT THE FORCES BEHIND THAT DOMINANCE ARE BEGINNING TO WANE. THE FOLLOWING IS A BRIEF ANALYSIS OF THOSE FORCES AND THEIR NEW LONG RUN TRAJECTORY OF DECLINE.

From 1944 to 1973 the U.S. maintained economic hegemony in the global economy. The U.S. dollar was the prime currency for trading and reserve purposes. This dominance was challenged in the post-1973 period briefly, however, as the U.S. economy experienced an economic crisis at that time. The institutional arrangements by which the U.S. retained dominance from 1944 to 1973 were restructured and rearranged. The U.S. economy and its world dominance was restored in a new set of arrangements and relationships with other states and economies starting in the 1980s. The U.S. led a drive to end controls on international money capital flows and the rest of the world followed. That event made possible in turn free trade, rapid growth of U.S. foreign direct investment offshore, globalization and the financialization of the U.S. economy. The symbol of that economic dominance, the U.S. dollar, after having seriously weakened in the 1970s was restored again to unchallenged status as the global currency in the 1980s and after.

Another consequence of these new structures, relationships, and arrangements was the rise of the U.S. twin deficits—the trade deficit and the U.S. budget deficit. Beginning from the early 1980s, under Reagan and subsequently every president thereafter, the U.S. ran growing trade deficits. These trade deficits made possible and enabled corresponding chronic and ever growing domestic budget deficits. The trade deficits meant U.S. dollars flowed out of the U.S. economy at an accelerating rate. But new arrangements meant the dollars would flow back to the U.S., as foreign economies and governments recycled the dollars back to the U.S. to purchase U.S. government bonds. First European and Petro-economy allies. Then Japan. Then via North American free trade agreements with Canada, Mexico and others, and not least, after 1999, increasingly China as well.

The growing trade deficits financed the U.S. budget deficit in the following manner: because the new post-1980 arrangements between the U.S. and other economies meant the dollars from the trade deficit that accumulated offshore would be consistently recycled back to the U.S., policy makers could now count on spending those dollars above spending based only on U.S. tax revenues. The recycling grew and was so large by the 1990s and after, that the deficit-recycled dollars permitted massive tax cutting for businesses and investors and the funding of wars in the middle east since 2001 without paying for them through taxation. $3.4 trillion in tax cuts after 2001 were passed, 80 percent of which accrued to the wealthy and corporations. And $2.1 trillion in excess war spending was paid for out of deficits—the first time in U.S. economic history wars were financed only by deficits.

The restructuring of the global economy in the 1980s, led by the United States (and a junior partner the UK) has now run its course. Once the unchallenged global currency, the U.S. dollar is once again facing challenge as the dominant global currency. The focal point of that challenge, today and in the years ahead, is China and its currency, the Yuan.

Already China’s share of global manufacturing is at least equivalent to the United States, about 25 percent each. China has currency reserves approaching $3 trillion and is matching the U.S. in foreign direct investment around the world. The Yuan is becoming a de facto global trading and reserves currency. Initially, it is doing so with its main economic partners, Russia, India, Brazil, and South Africa (i.e. the BRICS), but will soon do so with Europe as well. China is also slowly but steadily extricating itself from the twin deficits and recycling dollars to the U.S. arrangements. It is recycling fewer and fewer dollars back to buy U.S. government bonds. As that arrangement declines, the U.S. economy will not be able to deficit spend on as massive a scale as it has been over the past decade. It will have to either cut social spending or defense spending on a massive scale or retract the equally massive multi-trillion tax cuts for the wealthy, investors, and their corporations. Corporate America and its investors are intent upon cutting social spending, including entitlements, to avoid having to give up their tax cuts of the past three decades. That is the fundamental, driving force behind emerging austerity proposals in the U.S. today.

Jack Rasmus, copyright 2012

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