TWILIGHT OF THE AMERICA GOD?

It is said that democracies contain within themselves the seeds of their own destruction. Which means that in striving to curry favor with voters, elected officials habitually spend more and more of our government's money (OUR money) for more and more projects that appeal to more and more constituents, all with the aim of gathering in more and more votes for the officials' re-elections. Or they cut taxes far below spending levels. In the case of the USA, this has led so far to 10 consecutive years of record-breaking budget deficits and ballooning Federal debt -- a sure recipe for eventual financial ruin.

This budget-busting process has nowhere been seen more clearly than in the recent passage of the Obama-GOP tax-cut/spending bill, which will add hundreds of billion$ to our national debt. All in the name of stimulating our sick economy. Instead of rubbing their hands over this new flow of money from Washington, however, recipients should be counting each dollar as another nail in the nation's coffin.

Ironically, Washington politicians and pundits are now hailing this bill as a standout example of cooperation between the two parties. Which you might say it is, BUT more like two gangs that, in order to get everything each wants, combine forces to rob the public treasury.

One of the chief beneficiaries of this government largesse is the SuperRich, who need no stimulant whatever but who will now be cashing in handsomely on continuation of the Bush tax cuts of 2001-3 -- which have disproportionately enriched the wealthy. Not surprisingly, many of these just happen to be major contributors to our political leaders' re-election campaign funds.

Another group applauding Washington's idiotic economic policies must surely be the leaders of China, who are not only a major source of loans to cover our horrendous budget deficits but who also are driving relentlessy to displace the USA as the world's No. 1 economic power.

And after that, what?

TAMING THE DEFICIT MONSTER!

MINUS 6%=BALANCE PLUS 5%

What kind of strange equation is THIS? It's really not that strange. This singular formula is a practical, workable guide for coping with recurring Federal budget deficits and the government's horrendous backlog of debt. It states that when the national unemployment rate drops below 6%, the President and Congress MUST balance the budget. Balance must ALSO include an extra 5% over and above the operating budget devoted to reducing the national debt. So this is a flag around which concerned Americans can rally as they try to get government back onto the track toward fiscal responsibility. Will it work? It's GOT to!

As a scarred veteran of 40 years of Washington news reporting and public affairs work, I take my hat off to the Tea Party movement and other concerned citizens for their efforts to return government to those values that created a great nation.

Experience tells me, however, that we face a long, uphill battle—one that will require not only dedication and enduring effort but also the setting of ONE overriding clear-cut goal. In short, let’s not scatter our shots…but, like Alexander the Great confronting a vastly more numerous Persian army, let’s direct our resources and vote-power into an all-out drive straight into the heart of the enemy.

What is this heart? It’s the SPEND/ELECT fever that seems to grip every new President and Member of Congress (MC) coming to Washington. Or, more precisely, it’s the OVERSPEND/BORROW/RE-ELECT fever. For the dominant symptom of this malady is a feverish obsession with staying in office. This leads our elected officials to vote repeatedly for programs government doesn't have the revenues to cover...and to spend untold hours raising campaign funds from lobbyists and special interests and preparing for the next election, raising serious questions about who’s governing whom.

Sadly enough, we-the-people then abet this mockery by playing up to our representatives as though they are royalty. And once in office that’s exactly how they live…on OUR money. Small wonder our public servants are becoming our public masters!

It is said that democracy has built within itself the seeds of its own destruction. Meaning that our elected officials cannot seem to resist the temptation to dole out tax cuts to favored groups while ALSO borrowing vast sums from nations like China to pay for whatever spending scheme might win them votes at the next election. The result: Massive Federal budget deficits—growing by nearly $2 TRILLION a year and now topping $13 TRILLION-- that overhang America like a disaster just waiting to happen.

Consider this an overstatement? Then picture the unbearable increase in Federal outlays for interest charges that will come with a significant rise in interest rates accompanying economic recovery. Or the shock that would come if China decided to jerk the chain we’ve wound around our neck through runaway borrowing from that nation. And you wonder, how could our “leaders” have allowed the horrendous deficits of recent years to pile up, even in boom times? Were these a result of economic ignorance on their part? Or plain old voter-pandering politicking?

THIS is the curse that we-the-voters must put an end to. And the simple equation set forth in the title of this commentary is THE way to do it. What does it mean? Simply that whenever the national unemployment rate drops below 6%, we-the-people DEMAND that our government adopt a balanced budget--which must include an EXTRA 5% over and above the operating budget devoted directly to paying down those horrific deficits.

In short, let’s tell the New Washington Royalty: Cut spending or raise taxes or do whatever it takes to give America a balanced budget now and every year hereafter. And if you fail to deliver, we demand you take a 50% cut in your inflated pay. THAT should get their attention! The main point: Political incentives are now all on the side of spending. So let’s alter this bankrupting system and add counter-incentives with teeth to CUT spending.

Where can government outlays be cut? The President's Commission on the deficits has recommended a long list of deep budget cuts that can be made across the entire Federal structure. These could serve as a veritable blueprint for action by the next Congress. -- IF the people demand our representatives ACT.

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On a more personal note, every MC and White House official knows where there is government aste…as I myself found out when serving as Director of Public Affairs for Treasury during the Ford Presidency. For example, they can start by making deep reductions in their own bloated salaries, plus those of all Federal employees making more than $100,000 a year. Then, they

could also strike a rare blow for economic justice by distributing the savings to recession-hit state and local governments to help them re-hire laid-off employees (like teachers, social workers, policemen and firemen).

They can also outlaw “earmarks”-- amendments that MCs love to hang onto various bills to fund pet projects back home, and which add billion$ to each annual budget. Earmarks may be the ultimate Capital con game--an underhanded way to bypass normal congressional approval processes and tap the public treasury (OUR money) to show constituents their MCs are “bringing home the bacon”…when, in fact, they’re robbing the rest of the USA to do so.

The truly ultimate disgrace regarding earmarks, however, is that we-the-voters put up with this charade. Let’s STOP it!

A word about my equation: The nation’s unemployment rate right now is hovering around 10%. It’s tough to bring this rate down even when economic activity picks up, since businesses are understandably hesitant about hiring new employees until the economy’s rebound looks assured. When this rate drops below 6%, however, the US will be moving toward full employment, with consumer purchasing power and tax revenues both rising. It’s possible THEN—indeed, imperative—to balance the Federal budget. Let’s INSIST on it!

Increasing each annual operating budget by an extra 5% to begin paying down the national debt is going to be painful for taxpayers and risky for politicians. The reason is that this “harder road to travel” will probably require higher taxes, at least on upper-end incomes (see Post-Note at end of this article).

But what if the President and leaders of Congress proclaimed BALANCED-BUDGETS-PLUS as our national goal? What a fantastic signal this would send around the world! People everywhere would applaud that, finally, America is rejecting years of suicidal self-indulgence and fiscal irresponsibility and “biting the bullet.”

One thinks of those telling lines from Longfellow's "The Village Blacksmith":
His brow is wet with honest sweat.
He earns whatever he can,
And looks the whole world in the face...
For he owes not any man!

Wouldn't it be wonderful if this could be said of America?

At the same time, elected officials who support the crucial changes needed to restore world confidence in America will need all the help that Tea Parties and responsible voters everywhere can give them. Let’s NOT let them down!

Significantly, my Minus 6%=Balance PLUS 5% equation comes close to fulfilling the political scholars’ dream of having government adopt a “cyclical budget.” This holds that government should run a surplus in boom times to dampen inflationary pressures…but allow a deficit during recessions to stimulate the economy–like now. Good idea! BUT it hasn’t worked…so far. The reason is that politicians can’t resist the temptation during boom times to devote ANY surplus to a zillion “worthy” purposes. And so they do….

Does this unique formula have any chance of being adopted by Washington? Well, why not! It's GOT to be better than the present approach. All agree, in any event, that suspension of a balanced budget requirement could be needed in times of a national emergency.

[Some may argue that in fighting international terrorism the United States faces an ongoing national emergency NOW. Which our beleaguered troops in Afghanistan would certainly confirm in spades. Even so, we cannot let terrorist fanatics prevent us from putting our financial house in order; that would give them as near a victory as our physical destruction.]

The lesson in this overview? If this approach had been in place during the years leading up to the current recession, there would have been NO string of record-breaking budget deficits and escalating indebtedness. And who knows: If our political leaders had set a standout example of fiscal integrity and common-sense budgeting in Washington, would the explosion of unrestrained real estate borrowing across the country and irresponsible lending in Wall Street have occurred? Or the banking crisis and the bail-outs? Or the recession?

Are you listening, Washington? We-the-people hope so…for we desperately want you, our political leaders, to do better.

We know you CAN.

And so can we-the-voters…

By James N. Sites

POST-NOTE: Those interested in that most painful aspect of government, TAXES, may want to visit this blogsite for another jolting analysis--this time of basic changes in the US economy that are producing a dangerous new concentration of wealth among the wealthiest...and the need this poses for parallel changes in tax policy. Stay on this blogsite and click on to MEET AMERICA’S NEW GENERATION OF "ECONOMIC ROYALISTS" (my report, updated, of MAY 8, 2010).

MEET AMERICA'S NEW GENERATION OF 'ECONOMIC ROYALISTS'

MEET AMERICA'S NEW GENERATION OF "ECONOMIC ROYALISTS"


Outside of fighting international terroism, the biggest single problem facing America today may well lie in the increasing concentration of national wealth in the hands of a fraction of 1% of the population. This has accelerated under the tax cuts of 2001-3, posing profound threats not only for the effective functioning of our economy but also for the future of American democracy itself. Thus, despite the recent election's evidence of widespread popular pressure for tax cuts, reduced taxes for the SuperRich would be a grave disservice to the public. Cashing in on their 2001-3 investment and other tax breaks, the SuperRich are already paying far lower effective rates of taxation than other taxpayers. Taxes for this one segment of the population must therefore be INCREASED if our towering deficits and national debt are to be brought under control. This report deals with the origins of the problem and its impact.

While most of America slept, business interests have been quietly carrying out a radical restructuring of the US economy during the past half-century. The result is a startling jump in the share of national wealth going to upper-income groups. Simply put, the rich are getting richer while virtually everyone else is either standing still or losing ground. The recession has sharply widened this ominous gap.

One revealing statistic underscores this seismic shift: National wealth held by the richest one percent (1%) of the population almost doubled from 1976 to 2007--from 19.9% to 34.6%. That’s right: 1% of the population now owns MORE THAN ONE THIRD of the nation’s wealth.

Equally revealing, in 1960 chief executive officers (CEOs) at leading corporations were making 42 times the average worker’s pay; by 2007 this had multiplied by nearly nine. To 344 times the average worker’s pay!

Translating their rising economic power into political clout, the New Rich simultaneously got Washington to cut the top marginal rate levied by the Internal Revenue Service (IRS) on taxable income from 91% in 1963 to 39.6% in 2003. Under President Bush this was then cut further to the present 35%. The Bush tax cuts also brought the rate on dividends down from 39.6% to 15%, and on capital gains from 20% to 15%. These cuts were made despite steeply rising government spending for the wars in Iraq and, later, Afghanistan, leading to massive budget deficits.

How these tax cuts work in practice is shown in a Tax Foundation study of the 2007 tax returns of 141,000 people (the top one-tenth of one per cent of taxpayers). This shows that the average of these taxpayers had income of $7.4 million ($7,400,000) yet paid $1.6 million, or just 22 %, in Federal income taxes. This left $5.8 million, or 78%, for other purposes (which certainly included state and local taxes).

Why 22% and not 35%? Because the Super-Rich steer much of their money into investments yielding capital gains and dividends, which, as noted above, are now taxed at far lower rates than work-related earnings. Thus, despite the contention that 1% of the population now pays 40% of Federal income taxes, the wealthy can hardly be said to be suffering from over-taxation as compared with others--and certainly not when compared with taxpayers deriving most of their income from work-related earnings.

Indeed, the wide spread between the SuperRich's 22% effective tax rate and the 39.6% existing before the Bush tax cuts underscores the enormous gift that Washington awarded wealthy taxpayers via the 2001-2003 tax cuts -- a tax-saving gift made all the more mysterious because our deficit-ridden government was forced, in effect, to borrow the money to grant it, thereby adding billion$ each year to America's overhanging national debt.

This dismal deficit record also raises questions of the validity of claims put forward by "supply side" and "trickle down" taxation advocates who loudly proclaim the merits of cutting taxes for the wealthy on the basis that economic growth spurred by their new investments will eventually add more tax revenue than is lost. The past 10 years of record-breaking budget deficits, conversely, indicates that the only ones who appear to be gaining from this dubious strategy of cutting taxes for the rich are the rich themselves. Small wonder their lobbies are fighting to hold on to their present tax breaks!

Put another way, the US today finds itself in the peculiar position of a pig farmer whose prize hog has become so big and fat that he’s able to root everyone else away from the national money trough. Meanwhile, politicians who should be helping the farmer control the hog, flee in fear over the hog’s lobbying clout...even while they plead for his lavish contributions to their re-election campaigns.

While the public has come to expect this kind of behavior from politicians, what are we to make of the profound silence from thought leaders and the normally outspoken news media on this grave problem of concentrated wealth? One wonders: Have the wealthy become so dominant over all aspects of national life that no one dares speak up on this issue for fear of somehow incurring their displeasure...and retaliation?

AS FOR THE FEDERAL BUDGET DEFICIT, despite all the differing contentions the election produced over how to handle this recurring national nightmare, there IS a practical, workable approach. Employment is the key. Deficit spending may be necessary now to help stimulate economic recovery...BUT once the national unemployment rate falls below 6%, it is IMPERATIVE that the President and Congress pass a balanced budget. THIS MUST INCLUDE AN EXTRA 5% over and above the operating budget to be devoted solely and directly to paying down the horrendous backlog of national debt. This action formula can be expressed in this simplified equation: MINUS 6% = Balance PLUS 5%.

This approach will require spending cuts or increased tax revenues, or, more likely, a combination of both. As for a first step in controlling spending, the new Congress convening in January can show it really intends to meet public demands for more efficient government by making deep cuts in its own inflated salaries and benefits...AND by outlawing EARMARKS -- which can only be described as the ultimate Washington con game. (Tax policy changes are covered in this report's conclusion.)

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How did the New Rich manage to pull off its portentous economic retro-revolution? The answerlies in a classic case of greed-driven demand for CEOs colliding with limited supply. A few corporate boards started the ball rolling by looking for and paying almost any amount to land an executive who could cut a firm’s costs, raise profits and pump up its stock price. Management and compensation consultants and headhunters then merrily joined the bidding. Yes, merrily…since the higher these people pushed CEO salaries, the higher the fees they received. The result: A nationwide CEO feeding frenzy. And thus was born a new generation of “economic royalists,”asPresident Franklin D. Roosevelt could have called them.

Under today’s winner-take-all approach, predatory CEOs simply hog the profits that once were shared more evenly with investors, customers, employees and the broader community the firms are supposed to serve. Remarkably, however, protests from these shortchanged groups are hard to find.

Moral issues clamor to be addressed here. Ordinary people finally woke up to the problem of runaway executive compensation when Washington in 2008 began bailing out failing big banks with taxpayer money, only to discover that the firms (think AIG, etc) blithely continued to pay their leaders and other “experts” millions in pay and bloated bonuses. All the while millions of fellow Americans were (and are) losing their jobs, their homes, their savings, their businesses.

So much for calls for sharing the burdens of recession! One thinks of the exasperated comment made by besieged attorney Joseph Welch during the McCarthy era...that could just as well be directed at today's businesss executives: Have you no sense of decency, sir?

Ordinary people cannot comprehend how ANY business executive or expert of ANY kind can so contribute to the common weal or general public interest as to justify salaries and bonuses of $10 million or $50 million or $100 million a year. People are shocked and howling mad…not only at the public-be-damned businessmen who plunder their firms of these startling sums but also at political leaders who they feel do nothing to curb such outrages.

Unprecedented concentration of wealth also raises grave operating questions for our economy. Mass production with full employment requires mass purchasing power. As more and more of the benefits of production go to fewer and fewer people (and often wind up in secret foreign bank accounts), mass purchasing power now seems to come mainly through massive expansion of consumer debt. When this reaches its inevitable limit, economic collapse follows--like NOW!

Meanwhile, one wonders if the US is drifting into a dangerous rich-poor class structure and the rising social instability this could bring. Political democracy cannot exist for long without what ordinary people feel is economic justice. Is the New Rich unwittingly creating the kind of conditions that could one day end in a demagogic political reaction? Does anyone remember the lessons of the class struggles that led to the bloody French Revolution of the late 1700s or the calamitous Communist Revolution of 1917 in Russia? Or are the New Rich so preoccupied with their luxury life on the top deck of the Ship of State that they’re unaware that, like the Titanic,the ship's hull has sprung massive leaks below the water line?

The longterm decline of labor unions, from one third of the work force in WWII to the present 12% (with half of these in the public service sector), has contributed subtly to the rise of the New Rich. Strong labor unions once served as an indispensable “countervailing” force in curbing management excesses. This is now largely gone. So where in the unions’ place are the counter-forces that should be wielded by big pension funds or by far-sighted business leaders? Or by an outraged news media? Or by popular revolt like that posed by the Tea Parties (whose anger seems aimed not at business excesses but at government)?

Contrary to Adam Smith's contention that the entire society benefits when each person is free to pursue his own self-interest without hindrance, it now appears that our capitalist/free enterprise system has worked well only so long as those in decisive positions exercised self-restraint in their own demands for rewards. But what happens when the winners persist in taking all? What can America do to stop the plundering? Obviously, one cannot legislate away larcenous conduct...but the nation CAN turn to its tax system as a way to provide for the public's sharing in at least part of the plunderers' loot.

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America’s one hope of correcting the concentrated wealth propblem may well lie in the hands of the President, Barack Obama. Will he have the insight and courage--the statesmanship—to push basic changes in tax policy through a Congress notoriously reluctant to act in this area? After his party's recent election losses and the bruising battles fought over health-care and financial reform?

The Bush tax cuts of 2001-3 are to end late this year, setting the stage for a Washington showdown on this issue. As shown earlier, these cuts were weighted heavily in favor of wealthy taxpayers, who appear to be gearing up to lobby fiercely for their continuation. This overview, however, shows this would be a grave disservice to the public, especially in this dangerous new era of unprecedented Federal spending and towering budget deficits. Another raw disservice would be any attempt to pass a national sales or Value Added Tax (VAT), which would be highly regressive, hitting low-income groups the hardest.

Indeed, if the New Rich are able to prevent an increase in high-end income taxes, many will take this as proof that America has finally passed the point of no return on the road to government of the wealthy, by the wealthy and for the wealthy.

This overview also shows what should be done to return to a national policy of levying taxes on those most able to pay:

1. Allow the IRS rate on that portion of taxable income exceeding, say, $250,000 annually, to return from the present 35% to the pre-Bush level of 39.6%. The same with the tax rate on dividends.

2. Retain the current capital-gains tax rate at 15% as a needed spur to investment in modernized plant and equipment, economic expansion and new jobs

3. Enact a new top marginal tax on that portion of a person’s taxable income exceeding $1 million a year. This should be set as high as politically possible--and as high as "yield efficiency" permits. (Remember, the top marginal tax rate of the Truman-Eisenhower-Kennedy years, 1950-1963, was 91%.) ALL of the additional money thus raised should be devoted directly to CUTTING tax rates for those making less than $100,000 per year.

This approach would not only correct today’s badly unbalanced distribution of tax burdens but it would also singularly stimulate consumer spending and economic recovery AND the general tax receipts needed to start bringing down the government’s huge budget deficits. It would also help rein in on the runaway pay and bloated bonuses of Wall Street financiers, bankers and corporate CEOs, returning some of the vast sums they are now taking from their firms to use by the general public.

The Tea Party movement, along with everyone else except the New Rich, should rejoice at this third proposal. However, Tea Partiers seem obsessed with demanding across-the-board tax cuts…which would only perpetuate present inequalities and leave the New Rich laughing all the way to the bank. One can sympathize with Tea Partiers’ opposition to big government, which has indeed become too unmanageable, too bureaucratic, too intrusive into our lives and too subject to waste, graft and corruption (as this one-time Federal appointee can personally attest to).

Yet, Tea Partiers appear painfully unaware of the past half-century’s radical restructuring of our economy and its dangerous concentration of wealth at the top...AND of the need this poses for parallel tax policy changes. Or that taxes can and should be raised on a few so that taxes can be cut for the many. Perhaps they should read this article!

Good luck, Mr. Obama! In the coming showdown on this issue, you will have tremendous support from a deeply concerned American people…IF you inform them of the facts and mobilize them. In the process, you may well save not only the remaining remnants of our competitive enterprise system but also American democracy itself.

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PS, January 2011: As the record shows, President Obama did nothing of the above, even though he said repeatedly he wanted to see the Bush tax cuts rescinded for upper-income groups. What he did, in fact, was to cave in to GOP demands to extend ALL the Bush tax cuts for another two years, thereby piling up huge new Federal budget deficits and contributing new billion$ to the national debt. So what will the new Congress, with its many new Tea Party and other conservative members, do? YOU can help them decide....

POST-NOTE: Those interested in the crucial parallel subject of Federal budget deficits may want to note another jolting analysis. Stay on this blogsite and click on to TAMING THE DEFICIT MONSTER (my report of July 4).