This is my distillation of what the average American should know about the “debate” transpiring in Washington about the deficit.
I. Government spending over the past 20 years has increased at a lower rate than any of the other factors contributing to GDP.
II. The deficit crisis was created by a combination of events, but mostly by:
a. A global financial crisis precipitated by a combination of factors, not the least of which was a bubble in the real estate market which was used to feed the financial markets collateral to include in financial products which the banksters hawked to their customers, while they in turn placed bets that those products would fail. This is called “financialization”. This process was facilitated by deregulation and lax enforcement of existing regulations governing financial markets from the mid/late 1990s onward.
III. The financial crisis reduced government tax collections at all levels.
IV. Individual income tax receipts account for 42% of US tax receipts. Social Security and social insurance taxes account for 40%. Corporate taxes account for 9% of US tax receipts.
V. Once the tax revenue fell off due to the financial crisis, the deficit problem was exacerbated by other legislation of the past 12 years, including:
a. The Bush tax cuts, which favor the wealthy, reduced federal coffers after the surplus of the Clinton years.
b. The launching of a general war on terror/invasion of Iraq and Afghanistan that has helped depleted the national treasury.
c. A defense budget that exceeds the rest of the world combined,
d. But the overwhelming reason for the deficit problem in the US and abroad, is the reduced national revenues due to the financial collapse.
VI. This gap between the US income and its expenditures should be reduced, but doing so should not be done in a way that erodes the economy even further. That is all but impossible to do when private sector spending is decreased as it is now. The Government must spend more at times like these to make up for those missing private expenditures. Europe has been experimenting with deficit reduction techniques through cutting their budgets over the past two years, and those nation’s economies have continued to deteriorate as if they had never approached the problem, or worse, they have served to accelerate their nations economic deterioration.
a. Reducing the gap between national income and expenditures can be approached in three ways.
1. By restoring tax rates on corporations and businesses to the higher pre-Bush levels.
2. By cutting government spending. This approach can backfire depending on which areas of the budget are cut, and in an economic downturn will likely worsen the deficit.
3. Improving the economy so that tax revenues increase due to increased commerce. This of course is tied to #2 above.
VII. Reducing the deficit will not increase the amount of money the treasury takes in. Unless public money is invested in venues that increase household consumption, or otherwise stimulate economic growth, deficit reduction will likely decrease the amount of money the government takes in.
VIII. Our political class believes that taxes cannot be raised on the upper tier of American income earners and corporations, who are now enjoying the lowest rates of taxation in over 50 years, and a wealth disparity between the upper 10% of American wealth holders and the lower 80% that rivals that seen during the Great Depression.
IX. Our government has decided that we “all” must share the burden of the reconfiguration of this dynamic, and sacrifice services which average Americans now enjoy, in order to reduce the deficit.
X. That means public services such as Social Security will be reduced. This removes money from the economy in an all ready faltering market, and will contribute to even greater unemployment.
XI. Reducing the deficit will not create more jobs or wealth for the lower 80% of Americans. Reducing the deficit will benefit major financial players by stabilizing their current portfolios.
XII. Reducing the deficit will only make the economy worse, lowering tax revenues and increasing the lines at the unemployment office.
XIII. The federal budget deficit will not come down significantly until the economy improves.
XIV. Nobody in elected public office is interested in addressing the problem of wealth/income for the man on the street, and truly reducing the deficit by improving the economy. Unless you own a bank, you’re s@#t-out-o-luck.
XV. You should be very angry.
I’m traveling and won’t be around to comment for some time, and f@#k Microsoft Word, and it’s auto-formatting too.