Deficit Reduction: Cleaning Up After the Bush Tax Cuts Part One

Time To Set Aside the Hard Feelings

 After the "Screw Job"

While we may retrieve some "cold comfort" with our constant lament about the "rich getting richer" while the rest of the country stagnates, we must resist the impulse to simply stop there.  Quite aside from all the slow festering resentment and the grumbling, stoic, "lower caste" complacency, there really is another side.

Because this post's topic is deficit reduction, we must set aside all the outrage we have quietly endured for the last ten years since the W. instituted his economy wrecking looting scheme and concentrate on the almost immediate benefits to the national economy which can still be accomplished by simply reversing it.

The now infamous tax cuts have generated their desired results -- cataclysmic wealth redistribution to the highest income bracket Americans.  Yet, when we move away from the very reasonable "class outrage" we experience looking at our individual injuries and take a sterile, unemotional look at the economic impact, we see that quite beyond the ideological insult, these tax cuts have mortally wounded the US economy.

By moving huge amounts of money to the 1% class the commerce which ultimately supports the national GDP is straggling along with a "half empty cash register."  The Congress can no longer obscure the abundantly clear reality that its highest short sighted priority is the protection of these tax breaks -- at any cost.

Added to this, the current grotesque tax code -- which essentially insulates this "profitable largesse"  of the top 10% of income earners -- from the more normal revenue gathering of the federal government is sucking away our national capacity to do just about anything -- from repairing bridges to starting job creation policies to feeding the children left hungry by the engineered collapse of the national economy.

We can look at the ugly and appalling details of this "tax cut monster" further along in this post, but "in the big picture," obliterating these crippling Bush tax cuts would make a tremendous positive difference in the finances of the federal government and the finances of the country.

So, with cooler heads and a good dose of our traditional American optimism, let's have a look at the necessary recipe for "making lemons into lemonade."

Fair warning, this post is "stuffed to the gunwales" with some excellent charts and graphs MeanMesa found while sniffing around some Huffington Post and Mother Jones reporting on the subject.  Even if you have a psychological aversion to this type of graphic data, steel yourselves to spend a few minutes examining each of these charts.  The information they provide has everything to do with your future!

Separating the Myth From the Math

We simply can't afford any more fairy tales.

For a brief moment in the flurry of Bush era propaganda about the tax cuts you might have heard the old JFK phrase "a rising tide lifts all boats."  Well, the tax cuts did, actually, at least slightly lift some boats in the finances of middle and lower class Americans, but they didn't lift them very much higher and they didn't lift all that many of them.

At the top end, things were, of course, quite a different story.

[image: Huffington]

This explains the "half empty cash register" crack from above.  It fits right in with the "job creators" myth which was also flying around at the time.  According to the "inescapable facts" of the day, the "job creators" would use the extra money to create jobs.

We all know how that turned out, but more importantly we also know that there is no possible reason not to undo this mistake as quickly and decisively as possible.

There was an actual "economic expansion" after the tax cuts hit the moneyed class in 2001, but it was historically one of the most feeble and -- also historically -- unquestionably the most expensive.  Also notable, the "expansion" had an even more feeble positive impact on employment than it did on GDP growth rates.

[image: Huffington]

The message is clear.  If you want to repair the finances of the US government, the only way to accomplish such a task is to repair the US economy, measured here by the percentage of economic growth in the GDP.  Sooner or later, you will realize that Reagan era "supply side" voodoo has nothing to do with establishing a sustainable, successful US economy.

The idea of "repairing" the US government's finances doesn't include introducing massive federal debt.  During the Bush W. debacle his powerful cronies managed to create the image of a growing economy by borrowing and borrowing.  In the short term this seemed to be working, but in the long term the massive top end tax cuts only made this worse.

How much damage did the tax cuts cause to the deficit and national debt levels?

This chart shows a "toad strangling" sea of ochre -- the portion of debt caused by the tax cuts -- as compared to the, more or less, "normal other debt" based on the records from 2009 and estimated ahead to 2019.  The vertical axis [on the left hand side of the chart] is measured in $ Tns of dollars worth of "economic downturns," a Bush era phrase which means "how much these debts will vaporize from the GDP."

[image: Huffington]

In 2013 the US had around $415 Bn dollars worth of all sorts of different "borrowing" on which we paid around $38 Bn in interest. [Source: Treasury Direct.gov]  We operate at a GDP level of roughly $17 Tn annually, so the $1.1 - 1.5 Tn dollar "debt ding" shown on the chart explains plenty about our current, precarious situation.

Although the snarky comment at the bottom tells us what the deficits would be without all the other stuff, most of this expense is already rolling down the tracks.  There is nothing we can do now about the cost to the GDP of the Bush oil wars in Iraq and Afghanistan or the cost to the GDP of the "economic downturn," but the "yellow ochre" part of the debt in this chart is what cost to the GDP could be eliminated with a reversal of the Bush tax cuts.

When we begin to once again collect these taxes, the billionaires will almost certainly threaten to "take their marbles elsewhere," but these plutocrats are over looking the dismal fact that their looting not only wrecked the US economy, but it also left most of the rest of the industrialized world in the shambles of economic mayhem, too.

That's why foreign money is still flowing eagerly into US Treasury bonds which are now paying only around 1% - 2% interest.  Also, they probably shouldn't consider Iceland for their next home, either.  The bankers who steered that country off the precipice are now in Icelandic prisons.

A New Appetite for Economic Sustainability

Okay, now that we've already tried it the other way...

It may not be intuitively obvious in the short term, but the debt load on our economy is "deep and broad."  It isn't something that can be remedied at once by simply changing this or that element of expense.  The US economy is a big ship -- a very big ship, and it doesn't "turn easily."  Just as importantly, it doesn't turn on tweeks and adjustments.

[image: Huffington]

Two decades ago the American economy -- even with cyclical booms and recessions -- was so robust that it unlikely the concept "sustainable economy" meant very much.  Now we've been painfully educated.

We don't need to drop the deficit and debt levels to zero to resuscitate our economy, but we will need to stabilize our federal expenditures to a stable percentage of our GDP and collect reasonable taxes.  That is not too great a task, and it is one we can actually accomplish once we set such a target as a goal for our taxing and our spending.

If we were to manage to reach an stable on-going position of debt as a percentage of GDP [green line on the graph], all sorts of things would gradually emerge as new possibilities.  Suffering from the blinding psychological impact of the media's trained "mouth junk" experts, we have inadvertently slipped into a mind set that a successful restructuring of the debt and the economy means a declining spending level in a chillingly austere nether world of frozen revenue -- forever.

As Americans, we really don't have to put up with this at all.  Unless you have grown fond of the punitive, imaginary Republican austerity -- imaginary because it isn't actually anything similar to austerity at all -- don't allow yourself to go drifting passively into the dim history of failed economic civilizations of the past.

Although dated, this Mother Jones graph [below] shows the origin of the problem we face now.  For decades -- since Reagan began the descent years ago -- we have been missing the obvious.

There is a "price" to be paid by anyone wishing to "do business" in the United States, and that price is paid in taxes.

The History of Tax Rates [Mother Jones: Plutocracy Now]

The Second Part of This Post

MeanMesa is going to "delay" the usual "Deficit Reduction - Mechanism" part of this post until the second part can be published -- just be reassured that the deficit reduction plan will have a great deal to do with that descending "red line" across the bottom of the Mother Jones graph.

The sordid "history" of the Bush tax cuts is just a little too long to be effectively handled in one MeanMesa posting, so we'll revisit the topic to finish up in the next post.   

The good news is that all this CAN have a happy ending!  Once we Americans get past the crazy notion that we can simply let the coarsely elected and a few media nobodies determine the political and economic destiny of our country all on their own, ritually complaining when things turn South, we are TOTALLY able to make OUR OWN FUTURE.

The 2014 mid-term elections are less than one year from now.

Watch this blog.