Tag: Committee for a Responsible Federal Budget

— Government’s gain = economy’s loss

An alternative to popular faith

On 4/7/10, The New York Times wrote: “G.M. reiterated a commitment to pay off the balance of its debt to the American and Canadian governments by June. It made payments totaling $2.8 billion, including interest, in December and March toward an initial balance of $8.3 billion.”

That’s $8.3 billion leaving the U.S. economy and disappearing into the American and Canadian governments’ maws, never to be used or even seen, again. Financially, this is an $8.3 billion invisible tax increase – about $28 taken from the pockets of every man, woman and child in America.

The New York Times article continued, “Most of the $50 billion G.M. borrowed was converted to a 61 percent equity stake held by the Treasury Department. The only way the Treasury can recover that debt is through the sale of its stock. (Chief Financial Officer Chris) Liddell said a public stock offering would occur ‘as soon as it makes sense,’ but only “when the markets and the company are ready.”

The private sector will lose whatever the government receives for its stock – another invisible tax increase. The $50 billion will amount to $166 in stealth taxes taken from each American. In addition, the stock sale will depress the value of privately held stock, a loss for American shareholders.

Question: What is the difference between a federal government profit and a tax increase? Answer: Essentially none, if the profit comes out of the U.S. economy.

Moral: The federal government, as the creator of money, never should take money from the private sector. Ask your Congressperson: “If the deficit spending, for which you voted, stimulates the economy, what will be the effect of taking all those billions back out of the economy?”

Amazingly, the media and the politicians, and even some economists, will ignore the pain experienced by people in the private sector and cheer the government’s not taking a loss.

And that is why we have a recession every five or six years, in America.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

–Sabotaging health care

An alternative to popular faith

It has been a disgrace that the world’s leading, industrial nation, the proudest, most powerful nation in world history, has not provided health care for all its citizens.

Yes, I have voted more often for Republicans than for Democrats, because I felt they were better economists. But today I must give the Democrats credit for doing what is morally right, while taking the big political risk to start the ball rolling.

My Republicans, left to their own devices, would have done nothing. They never have been leaders for social improvements, whether Social Security, Medicaid, Medicare or human rights. While Republicans traditionally have been strong for business, they always have had to be dragged, kicking and screaming, into anything that smacks of human benefits for the less fortunate.

That said, the health care plan is far from ideal. Way too many questions to be answered. Consider it only a start, a prototype; you can expect hundreds of changes. My only hope is that the nay-sayers will not try to gut the bill for political advantage.

The question is, and always has been, who will pay for it? I believe the federal government should, and there exists massive evidence on this blog and elsewhere, to prove the government can afford huge deficit increases that will stimulate the economy, and without inflation.

But what if, despite all the evidence, taxes are increased? Economically, a bad idea, no matter what taxes they are. But, which Americans are willing to say, “I’ve got mine and I’m not willing to help those less fortunate than me?” If that’s your attitude, you’re not really an American, although ironically, it seems those who boast loudest about their patriotism often are least likely to extend a hand.

Now we need to see how the program can be improved for the benefit of all. We’ve taken two hundred years to get this far, because that first step always is the hardest. My Republicans, by trying to do everything to sabotage the plan, are on the wrong side of history.

I say now is the time to work with the plan, not against it. Our best minds, cooperating toward on goal, can make the improvements that will protect Americans for decades.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

–How to cure federal tax loopholes

An alternative to popular faith

The March 15, 2010 New Yorker Magazine contained a piece by Mr. James Suroweicki titled “Special Interest.” The article described a quirk of federal tax law in which private-equity fund managers pay taxes on their share of profits (also known as “carried interest”) at the capital gains rate. Mr. Surowiecki says, “If you manage money for a mutual fund or a public company, you pay regular income taxes; do it for a private fund and you pay capital gains.”

Because capital gains are taxed at a lower rate than regular income, Mr. Suroweicki feels this “loophole” is unfair and should be closed. He probably is right, though his solution is maddeningly typical and wholly wrong. He would close this “loophole” by doing away with the tax break, i.e. increasing the tax on carried interest.

Nowhere does Mr. Suroweicki suggest decreasing the regular income tax, though that step equally would close his hated “loophole,” while additionally providing a tax-relief benefit to the public. Instead he follows the popular faith that all our money really belongs to the government, and should any group find a way to send less than others to the government, the solution is to make them pay more, rather than allowing us to pay less.

The very word “loophole” has pejorative connotations: something that begs to be sealed up. Why can’t the carried interest tax rate be considered the “normal” tax, while the regular tax rates are considered the anomaly. Why must every perceived unfairness in taxes be cured by raising a tax rather than by lowering one?

The federal government does not use tax money to pay its bills. It, in fact, destroys all the tax money sent to it, and it creates new money when it credits the bank accounts of creditors. Federal spending is not limited by federal taxes. When your neighbor finds a way to pay less, this does not increase your own tax burden (though the same cannot be said for state and local taxes, as these entities do not have the unlimited ability to create money).

Yes, there is the pathological, human jealousy the have-nots hold for the haves. But, something more harmful exists: The false beliefs that we are the government, anything taken from the government comes from us, and anything given to the government benefits us.

We are not the government. We pay taxes; the government receives taxes. We are limited in our ability to spend; the government is not. We live, lust, feel, fight, work, worry, conceive and care for children. We dream of the future, but eventually we die. The government does none of these things.

It is a giant machine, a remorseless, monster grinder, only more powerful, because it has the unlimited ability to create its own fuel. Some of us fall into the grinder and lose an arm or a leg. Others escape. Mr. Surowiecki would call that escape a “loophole.” His solution: Close that “loophole” by making sure everyone loses and arm and a leg.

How about making sure no one loses and arm and a leg. How about cutting taxes to address unfairness. Has anyone ever thought of that?

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

–Federal Debt: A “ticking time bomb”

An alternative to popular faith

Popular faith holds that the federal debt is a ticking “time bomb,” ready to explode into inflation and high interest rates, and destroy our economy. Here are a few references, beginning 70 years ago. Note that the language remains the same, down through the years — repeated predictions of a disaster that never seems to come.

Even with the end of the gold standard in 1971, arguably the most significant economic event since the Great Depression, the debt-hawk language never changes — as though 1971 were a non-event.

Sept 26, 1940, New York Times: Deficit Financing is Hit by Hanes: ” . . . unless an end is put to deficit financing, to profligate spending and to indifference as to the nature and extent of governmental borrowing, the nation will surely take the road to dictatorship, Robert M. Hanes, president of the American Bankers Association asserted today. He said, “insolvency is the time-bomb which can eventually destroy the American system . . . the Federal debt . . . threatens the solvency of the entire economy.”

Feb 11, 1960, New York Times: Mueller Assails Rise in Spending: The enormous cost of various Federal programs is a time bomb, threatening the country’s fiscal future, Secretary of Commerce, Frederick H. Mueller warned here today “. . . the accrued liability is a ticking time bomb. Some day someone will have to pay.”

Oct 4, 1983 Evening Independent – The United States and the developed world face a “ticking time bomb” because of the huge foreign debt involving loans to Third World nations

Oct 26, 1983, David Ibata: “ . . . home-building officials called for a commission to propose ways to trim the $200 billion federal deficit. The deficit is a ‘ticking time bomb‘ that probably will explode in the third quarter of 1984,’ said Fred Napolitano, former president of the National Association of Home Builders.

Feb 21, 1984, James Warren: “‘We now hear from them (the Reagan administration) that deficits don’t cause high interest rates and inflation,’ AFL-CIO President Lane Kirkland said. ‘If that’s the case, we’ve suddenly discovered the horn of plenty and should stop worrying and keep borrowing and spending. But I don’t believe it. It’s a time bomb ticking away.”

January 12, 1985, Lexington Herald-Leader (KY):The federal deficit is “a ticking time bomb, and it’s about to blow up,” U.S. Sen. Mitch McConnell, a Louisville Republican, said yesterday.

Feb 17, 1985, Los Angeles Times: We labeled the deficit a `ticking time bomb‘ that threatens to permanently undermine the strength and vitality of the American economy.”

Jan 5, 1987, Richmond Times – Dispatch – Richmond, VA: 100TH CONGRESS FACING U.S. DEFICIT ‘TIME BOMB‘

November 28, 1987, The Dallas Morning News: THE TICKING TIME BOMB OF LONG-TERM HEALTH CARE COSTS A fiscal time bomb is slowly ticking that, if not defused, could explode into a financial crisis within the next few years for the federal government and our nation’s elderly. The ticking bomb is the growing cost of long-term care.

October 23, 1989, FORTUNE Magazine: A TIME BOMB FOR U.S. TAXPAYERS The government guarantees millions of mortgages, bonds, deposits, and student loans. These liabilities, now twice the national debt, are growing fast.

May 1, 1992, The Pantagraph – Bloomington, Illinois: I have seen where politicians in Washington have expressed little or no concern about this ticking time bomb they have helped to create, that being the enormous federal budget deficit, approaching $4 trillion and growing now at an annual rate of $400 billion per year.

October 28, 1992: Ross Perot: “Our great nation is sitting right on top of a ticking time bomb. We have a national debt of $4 trillion. Seventy-five percent of this debt is due and payable in the next five years. This is a bomb that’s set to go off and devastate our economy and destroy thousands of jobs.

Dec 3, 1995, Kansas City Star: Deficit is sapping America’s strength. Concerned citizens. . . regard the national debt as a ticking time bomb poised to explode with devastating consequences at some future date.

April 14, 2003: Porter Stansberry, for the Daily Reckoning: The baby boomers are heading into retirement with no savings and no productive companies to support them in old age. Generation debt is a ticking time bomb…with about ten years left on the clock.

October 1, 2004, Bradenton Herald: A NATION AT RISK: TWIN DEFICIT A TICKING TIME BOMB: Lawmakers approved Bush’s request without cutting federal spending by a penny, thereby fattening the country’s projected record deficit of $422 billion by another $145 billion next year.

May 31, 2005, Providence Journal, Defusing the Medicare time bomb, Some lawmakers see the Medicare drug benefit for what it is: a ticking time bomb, set to wreak havoc on the budget and shoot future tax rates sky-high.

April 5, 2006, NewsMax.com, “We have to worry about the deficit . . . when we combine it with the trade deficit we have a real ticking time bomb in our economy,” said Mrs. Clinton.

Dec 3, 2007, USA Today: US debt: $30,000 per American. WASHINGTON (AP): Like a ticking time bomb, the national debt is an explosion waiting to happen.

*September 24, 2010, Email from the Reason Alert: ” . . . the time bomb that’s ticking under the federal budget like a Guy Fawkes’ powder keg.”

*July 7, 2011, Washington Post, Lori Montgomery: ” . . . defuse the biggest budgetary time bombs that are set to explode as the cost of health care rises and the nation’s population ages.

[*Added subsequently]

And on and on and on. You get the idea. That time bomb has been on the verge of explosion at least since 1940. Even today, the media, the politicians and sensationalist economists refer to the debt as a ticking time bomb. Please look at the following graph and see if you can find any relationship between deficit spending vs inflation and/or interest rates.

This graph shows there is no predictable relationship between federal deficits vs. inflation and or interest rates.

If the debt is a time bomb, it surely has the slowest fuse in history. The pundits have been wrong, wrong, wrong, all these years. We should understand federal deficits, even large federal deficits, have not caused inflation or any other negative economic effect, and the debt is not a ticking time bomb? It’s an economic necessity. Let us turn away from faith and start to rely on facts.

The faith healers* are killing our economy by restricting money growth. See: The damage done by deficit cuts.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

*Faith is belief without evidence. Science is belief from evidence.