We’ve all heard that China owns a large share of our national debt. In fact, the Congressional Budget Office recently reported that China owns about 9.8% of our $13.5 trillion debt. The good news is that Chinese bankers have shown more confidence in the United States than the economic turncoats in the Republican Party have.
Republican leaders have been exaggerating the impact of the national debt on the economy ever since Barack Obama moved into the White House. (They didn’t care much as long as George W. Bush was piling up the debt, of course.) In a recent talk with National Journal’s Major Barrett about his plans to tackle the debt, House Budget Chairman Paul Ryan (R-Wis.) praised the conclusions of President Obama’s fiscal commission and chastised the president for not endorsing them, especially as they related to proposed cuts to Social Security. But Jamelle Bouie noted at Prospect.org that Ryan also opposed the controversial Bowles-Simpson plan (which failed to get the required majority to send it to Congress). “Not only did he sit on the commission, but he voted against the final report, and called it a step ‘backwards.’
“In short,” Bouie concluded, “when offered a big opportunity to endorse a solution for Social Security, Ryan refused. Between this, and his willingness to mislead the public, I’m continually stunned by the Beltway’s willingness to take him seriously.”
Steve Benen at WashingtonMonthly.com noted that one of House Speaker John Boehner’s favorite phrases is “We’re broke.” That’s the justification for brutal cuts in areas like education, medical research, infrastructure, job training, and national security, all of which would cost the economy hundreds of thousands of jobs. And it’s a lie.
“The US government is not broke,” Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York, told David J. Lynch of Bloomberg News (March 6). “There’s no evidence that the market is treating the US government like it’s broke.”
The federal government today is able to borrow at historically low interest rates, paying 0.68% on a two-year note that it had to offer at 5.1% before the financial crisis began in 2007, Lynch noted. “Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand,” Lynch wrote. “And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.”
Lynch also noted that US federal tax revenue is at its lowest level since 1950. Tax receipts in the 2011 fiscal year are expected to equal 14.4% of GDP. That compares with the 40-year average of 18%. “So if tax receipts return to their long-term average amid an economic recovery, about one-third of the annual budget deficit would disappear.”
Likewise, individual federal income tax rates have declined sharply since the top marginal rate peaked at 94% in 1945. The marginal rate on the wealthiest taxpayers was 91% as late as 1963 and 50% in 1986. For 2011, the top marginal rate is 35% on income over $373,650.
Jeffrey Frankel, an economist at Harvard University who advises the Federal Reserve Banks of Boston and New York, told Lynch, “By the standard of US history, by the standard of other countries — by the standard of where else are we going to get the money — increased tax revenues have to be a part of the solution.”
But the financial market does not believe the US will default on its obligations. The only ones who can force the US to default are the Republican deficit chicken hawks who are insisting that they will shut down the federal government if the Democrats don’t agree to cuts in Medicare and Social Security and lay off hundreds of thousands of federal employees.
There are some revenue sources that would be fairly painless for the middle class if Congress turned to them to avoid further budget cuts. Sen. Bernie Sanders (I-Vt.) has proposed a 5.4% surtax on adjusted gross incomes over $1 million that would raise as much as $50 billion a year. He also would eliminate $3.5 billion in tax breaks for Big Oil, which is enjoying record profits. “It would be morally wrong for the United States to balance the budget on the backs of the most vulnerable people in our society while asking nothing from the wealthiest,” Sanders said in a radio interview with Ed Schultz.
Robert Reich, in the 3/15/11 TPP, noted that the best way to revive the economy is to put money into the pockets of working families. Don’t cut the government services they rely on — college loans, home heating oil, community services and so on. He proposed increasing taxes on people making $250,000 to $500,000 to 40%; between $500,000 to $5 million to 50%; between $5 million and $15 million to 60%; and anything over $15 million to 70%. That would allow taxes to be cut for everybody with incomes under $250,000. It also would allow expansion of the Earned Income Tax Credit all the way up to people making $50,000.
Taxing the rich won’t hurt the economy, Reich noted. “They spend a much smaller portion of their incomes than everyone else,” he wrote.
And squeal though they might, the rich can afford to pay more taxes while working people can’t afford to lose jobs and government services.
Senate Democratic leaders already agreed to cut spending by $41 billion. The president signed into law a short-term continuing resolution that cut an additional $4 billion. Senate negotiators have offered additional $6.5 billion in cuts. That’s more than half of the $100 billion House Republicans have called for in terms of deficit reduction. The rest, Sanders said, must come from additional revenue.
“In the midst of the worst recession since the Great Depression, America’s middle class and working families have already paid a very heavy price in terms of lost jobs, lost homes, lost wages, and lost opportunity,” Sanders said. “The time has come to ask the wealthiest in our society and the most profitable corporations in America to help our nation address its deficit crisis,” he concluded.
Polls have shown that Americans of all ages and ideologies are opposed to cuts in Medicare and Social Security, despite the constant drumbeat from Republicans and the corporate media that an increase in the retirement age and/or cuts in Social Security benefits are needed. Virtually ignored is the more popular alternative to shore up Social Security: lift the cap on taxable income from the current $106,800.
The corporate media also ignores the popularity of a surtax on millionaires (81% support in a February NBC/Wall Street Journal poll) and eliminating tax breaks for oil and gas companies (74% support in the same poll.)
Michael Moore got it right when he told a rally at Madison March 5 that the claim that the nation was broke was “part of the Big Lie. It’s one of the three biggest lies of the decade: America/Wisconsin is broke, Iraq has weapons of mass destruction and the Packers can’t win the Super Bowl without Brett Favre.”
Blaming the schoolteachers, the snowplow drivers, nurses, firefighters and courthouse janitors for Wisconsin’s budget problems was the last straw that woke up Wisconsin’s working class. That revolt has spread around the country and exposed the false populism of the Republican Tea Party.
And Wisconsin isn’t the only state that is under assault from GOP con men. Right-wing governors are pursuing radical changes to crush unions, grant privileges to corporations and exert control over local officials in Michigan, Indiana, Ohio, New Jersey, Florida and other states.
Democrats in the White House, Congress and statehouses must stop going along with Republican talking points on cutting budgets. Instead, Dems need to start calling the deficit chicken hawks out on their lies. Wisconsin shows there is a real popular movement waiting out there to back up progressive politicians who are willing to stand up for the needs of working Americans. — JMC