Tag Archive: Economy


After a long hiatus due to spring job searches and summer moves, we are back to continue the blog! It has been quite a summer at that, with a lot of political action at the state, national and international levels and with intrigues within an empire decaying from the inside out as one half of its duopoly fiddles while the rest of the nation burns.

The story of protests and recalls continues from Wisconsin, where
Governor Scott Walker has continued his pogrom against state employees, including teachers and nurses. Despite the Republicans setting fake Democratic candidates against real Democrats to force primaries, and despite attempts to recall Democratic Senators with the help of convicted felons from out of state, Walker lost two of his cohort in the Republican-led State Senate to recalls. While the Republicans were able to retain a one-seat majority, Governor Walker lost a natural majority, due to the fact that one Republican, Sen. Dale Schultz (R-Richland Center), had voted ‘No’ on Walker’s Budget “Repair” Bill and has sided with the Democrats on a number of issues since. The process continues, of course, as Scott Walker himself now faces recall. Petitions are already canvassing the state that should force a January recall election on the Governor.

Elsewhere in the United States, Tea Party-led legislatures have enacted a number of pieces of legislation that have attack workers, women, immigrants, education and voters. Many of these measures are facing public backlash. Perhaps the drive in a number of states to reinstitute child labor was a bit much.

Yet the greatest spectacle within the country must have been the summer budget debates in which numerous Republicans lined up on the airwaves to proclaim that allowing the United States to default on its debt was a good thing. Of course some Republicans, such as Eric Cantor, were found to have hedged against the collapse of the American economy that would surely have resulted from such a default.

Progress has continued to pick up pace, however. First blood was drawn in Wisconsin with the recall of two State Senators, but a number of Tea Party provisions were overturned during the elections last week as well. Across the world, the Occupy Wall Street protests have given publicity to issues affecting the majority of Americans, whose voice has not been heard on the airwaves or in print among the media elites. For their part, major news sources have seen the Occupiers as a curiosity – in a predictable and curious way. One can now begin to see clues that might indicate that the thundering herd of regressive legislation that has been written by wealthy CEOs and dropped on the public by the Tea Party may be reversed.

Sure, there is certainly a lot of material to report on, but it is becoming clearer and clearer as time goes on that the state of affairs in the United States will not improve so long as its public continues to use mass media as its primary source for news. So – we’re back.

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Enron Complex, Houston, TX (Alex, via Wikipedia)

A national debate has been raging for thirty years now regarding whether to allow the national economy o become unregulated. The Government has historically policed corporations in order to ensure that they adhere to laws and regulations that protect the environment and your pocketbook. The current crop of Tea Party Republicans would like to see the Government removed from the process of regulating commerce. Yet, when we take a look at a list of recent Corporate Scandals, we can instantly see why this is a bad idea. It just happens that with corporations required by law to maximize profits, there is very little a corporation is likely to do in order to police itself.

Wikipedia: List of Corporate Scandals

Minnesota State Capitol (rbw)

Good news and bad news: Bad news first

As part of the nationwide Republican efforts to undermine public education, Minnesota House Member Pat Garofalo (R-Farmington), who is Chair of the House Education Committee, plans to eliminate state funding for programs that promote racial integration in Minnesota schools. The programs, which in Minneapolis provide some $480 per year per student, are intended to close the achievement gap between racial minorities in the classroom. Worse, Garofalo’s plan would re-work the formulae used to determine funding levels in state schools. The results could end up taking money from under-funded schools and give that money to schools that are already well-funded.

MinnPost reports:

Speaker Kurt Zellers said House Republicans are working “hand in glove” on both the state’s $5 billion budget deficit and on a “fundamental change in how we deliver government.”

Republicans highlighted efforts to streamline state agencies, improve the use of technology and consolidate operations, but the only specific figure was a $172 million savings from a proposed 15 percent state workforce reduction.

Indeed. The Republicans in Minnesota, just as in many other states are seeking to end government’s ability to deliver services.

In fact, the Minnesota State Government has published its bi-annual Tax Incidence Report. It reports a heavily regressive tax burden within the state, even when compared with historical averages. According to the report, the effective state tax rate for a member of the top 1% of income earners within Minnesota was 9.7% in 2008. Meanwhile, the effective tax rate for the poor is 32.5%. Hence, the wealthy are not paying their fair share in taxes.

Yet, the Republicans are also looking to slash funding for the state Medicaid programs, especially programs geared toward the poor and the infirm.

But that is not all. The Republicans are waging all-out war on the poor. Representatitve Kurt Daudt (R-Crown) has introduced a bill that would prevent those who use government assistance EBT cards from withdrawing cash on the cards at ATMs above – get this – $20 per month. The bill, H.F. 171, would also create problems because one of the reasons that people are now able to use the cards to withdraw cash is that many stores are not connected to the state EBT system.

$20 is not even enough to purchase a Minnesota Drivers license (current price – $43). And there are already Republican proposals to require a photo-ID in voting.

In addition, the bill appears to make it illegal for people under the Minnesota Family Investment Program (MFIP) to carry cash at all! Nor could they put any money into a checking or savings account.

Crooks and Liars relates testimony of Angel Buechner, from the Welfare Rights Committee, referring to the efforts of the Republicans on the House Health and Human Services Reform Committee:

“We’ll leave you with this. It is not right to punish a whole group because of the supposed actions of a few. You in this room could have a pretty rough time if that was the case. It is not right to stigmatize and dehumanize women living the hard life of trying to raise children while living 60% below the poverty level. It is not right to use racist, bumper-sticker hate to inflict human misery for political gain.”

Where would the sort of thinking that would make it illegal for poor people to carry cash come from? Well, let’s take a look at a Republican strategy meeting that too place at the conservative Hudson Institute to find out. There, National Review editor Kate O’Beirne suggested that the parents of children on school lunch programs were “child abusers”, because they can not afford a meal. “What poor excuse for a parent can not put together a bowl of cereal and a banana?” as she puts it. She argues that despite the fact that more and more families across the nation are finding it difficult to make ends meet (due to conservative economic policies), that there is no national solution to the problem because it is not “in Washington’s interests” to solve the crisis of child poverty. Perhaps that is because for her, national interests are solely geared toward tax cuts for the wealthy and wars abroad to fight over resources.

Republicans discuss public education and decry school lunch programs (Crooks and Liars)

Another panelist at this hearing said that safety in schools could not be guaranteed because, despite the national scope of the problem, it should not fall under the purview of the federal government. Yes, he essentially makes those two very statements one right after the other. That is the sort of callous bastard that is driving the economic and educational policy of the Republican Party right now.

Some good news…

Luckily, the press is beginning to ask some pointed questions, because Republican Party policies are currently being driven by their corporate benefactors who believe that the sole reason for the existence of the government is to load their own coffers. That is precisely why Republicans would begrudge the poor of any money to spend and why they believe that school lunch programs as a waste of money, despite the fact that they have been shown to improve student performance and help to increase upward mobility in society. There is a way to prevent corporations from holding such a grip on the political process that the process would realign itself to work against the interests of citizens.

Minnesota Democrats have introduced bills in the House and the Senate to rectify the problem. The bills, S.F. 683 and H.F. 914 would amend the Minnesota Constitution to define “person” to mean a “natural person”.

The distinction between “person” and “natural person” is vitally important. British common law has always made a distinction between “natural persons” (meaning people) and “artificial persons” (meaning organizations like churchs, businesses, etc.). Well, the Citizens United decision effectively eliminated the many of those distinctions by allowing corporations to spend an unlimited amount of money on elections. And they did. Now we can see how that has effected the political process. We now have people cutting back on schools so that big companies – already earning record profits – can earn more in tax breaks.

Minnesota is no different in this regard than other parts of the country. A recent article by the Star Tribune highlights the largest lobbying efforts in Saint Paul for 2010. More than $3 million in big business lobbying expenses arose that year and $1.8 million (60%) was due to the Minnesota Chamber of Commerce alone. Big business is trying to buy the political process.

Author Thom Hartmann discusses corporate personhood (The Daily Take, RT)

So be sure to contact your Minnesota State Senators and House Representatives to give support to S.F. 683 and H.F. 914 in order to help the constitutional amendments to come to fruition. You had better believe that they will meet with strong resistance from the Republicans who currently hold majorities in the House and Senate.

“They are patriotic in time of war because it is to their interest to be so, but in time of peace they follow power and the dollar wherever they may lead.”
– Henry A. Wallace

The actions by the Republican Party in Wisconsin since January have been playing out across the country at the same time. In Wisconsin, the attack was led by stripping public unions, the strongest remaining unions, of their right to collectively bargain. Hidden in the budget bill are provisions to sell state assets so that they can be purchased by large companies and their services can be sold back to the state at a higher price. In Michigan, the Republicans are passing unconstitutional laws that can be used to eliminate elected local governments, fire all union staff and give control of the municipality over to large corporations under the guise of a fiscal crisis. Arizona sold their statehouse so that they can rent it for a higher price in perpetuity! The current political instability in the US is due to a coordinated attack on American public institutions and infrastructure by billionaires and the companies that they run. What is playing out is an attempt to replace representative democracy with corporate control of the like we have not seen since the time of the Robber Barrons during the Gilded Age. During the past few evenings, Rachel Maddow has aired a number of pieces that make an excellent primer to what is taking place, who is funding it, and what the outcomes are. These pieces are a must see for anyone in the middle class that cares about their own standard of living, the future for their children, access to education, and the rights of human beings.

Part I: The Koch Brothers – the billionaires who are funding the Tea Party and directing Republican policy.

The Koch Brothers are behind the Tea Party and they are pulling strings, 7 March, 2011 (The Rachel Maddow Show)

Part II: One of the things that the Right does when they receive hundreds of million dollars from billionaires is to hire people to misinform people on internet discussion sites and to place attack ads on air against popular causes and liberal politicians.

Rachel Maddow discusses Astroturf campaigns, 7 March, 2011 (The Rachel Maddow Show)

Part III: Despite the fact that all of the Republican Governors and Congressmen claim that the problem is one of fiscal insolvency, the actions that are taking place right now have very little to do with the budget and everything to due with taking political control from the people. All of the fiscal problems in the country are easily fixed by raising taxes on the wealthy (the people who created the problem) and state and national budgets are being used as a ruse.

Rachel Maddow on the Tea Party's use of financial crises to drive draconian legislation, 8 March, 2011 (The Rachel Maddow Show)

Part IV: Naomi Klein discusses how the Right uses the threat of disaster to gain control all…the…time. She describes how the current state and federal budget crises are no different.

Naomi Klein discusses Disaster Capitalism and Michigan's Financial Emergency Law with Rachel Maddow, 8 March, 2011 (The Rachel Maddow Show)

Part V: Rachel Maddow announces the Wisconsin State Senate’s illegal vote on collective bargaining rights.

9 March, 2011: Wisconsin Senate illegally votes to remove collective bargaining rights (The Rachel Maddow Show)

Part VI: How did this mess all begin? Remember when a group of billionaires collapsed the economy through their own financial irresponsibility and criminal behavior? Well, neither the irresponsibility nor the criminal behavior have stopped, but now the billionaires want control.

We should focus on the people who created the current economic crisis: The billionaires. 9 March, 2011 (The Rachel Maddow Show)

Part VII: Rachel Maddow announces the new Michigan law that allows the Governor to choose which local governments are in financial crisis… and to pick which corporation can run the town once he invalidates the local elected governments.

A new Michigan law gives the governor the power to overturn local elections and grant control of municipalities to corporations. 9 March, 2011 (The Rachel Maddow Show)

Part VIII: Michael Moore discusses the pro-labor and pro-democracy movements in Wisconsin and how people can rise up against the class war and the loss of democracy in their own state.

Michael Moore discusses the current attack on the Middle Class and what can be done about it. 9 March, 2011 (The Rachel Maddow Show)

Part IX: What is at stake and the need to act to stop the corporate takeover of the country.

Michael Moore: "We can win this, but we have to do something" 9 March, 2011 (The Rachel Maddow Show)

Wisconsin State Capitol (rbw)

After a Dane County Court ruled that the State was violating a prior ruling to allow protesters into the State Capitol, the scene at the Capitol was quiet once protesters left peacefully in accordance with the part of the ruling that prohibits nighttime sleepovers in the building. However, the cynical action by the Governor was not finished. Members of the Walker Administration claimed that it may take as much as $7 million to repair the damage done during the 2-week sleepover in the building. Though when pressed by the media, the Walker Administration was forced to backtrack, indicating that there was no damage to the building and all that was necessary was a through cleaning, including removing signs taped to the marble interior.

That was not all. The police presence at the State Capitol remains strong, though many officers are working during the day, only to join the protests after their shifts are complete. Democratic Assemblyman Nick Milroy of South Range was tackled to the ground when he tried to enter his office to get his coat. Video of the incident can be seen on WISN.

Because of the lockdown earlier this week, Democratic Legislators moved their desks outside so that they could meet with their constituents. Republicans did not apparently want to meet their constituents, in contrast, because they kept their desks inside during the lockdown. The Dems have kept their desks outside, even after visitors could enter the Capitol again.

After .22 caliber bullets were found in several locations around the State Capitol Thursday, visitors to the Capitol were screened heavily for weapons. Because of the incredibly peaceful nature of the protests so far and because Governor Walker has already admitted to considering to bring thugs in to create trouble, the discovery of the bullets has prompted Wisconsin ex-Attorney General Peg Lautenschlager to say:

“For all we know somebody planted them there — we don’t know if it was a protester.”

Thanks to the 14 Democratic Senators who are still in Illinois on their own dime, under the threat of an unconstitutional arrest, more details of the Koch-supported Budget “Repair” bill are coming to light. The ramifications are profound, including a $1billion cut to education across the state, the budget could end interlibrary book loans, it would force local referendums in order to maintain services, and strip collective bargaining rights for union employees, as well as end their subsidized child care. In a nod to the insurance companies that backed his campaign financially, the bill would also gut the self-supporting Wisconsin State Insurance Fund. This is a crystal clear example of companies giving candidates contributions for political services.

It would not be the only corruption on the part of Scott Walker. The Milwaukee Magazine has outlined cronyism and corruption that occurred in the Milwaukee County pension system under Walker’s watch. He has violated a Dane County judge by refusing entry for demonstrators into the Capitol. He has apparently lied to the press, who are now suing, over the notion that he had received a large number of emails in favor of his budget proposal. He likely broke the law when he mentioned that he had considered sending thugs to create trouble to discredit the protests and he is clearly in the pocket of the Koch brothers, given his friendly relationship with them, and he has been threatening state workers with pink slips if he does not get his way, a form of political coercion. In addition to all of that, Walker likely broke state labor laws by refusing to negotiate with the unions. Laura Flanders discussed these legal issues with Lautenschlager.

With his legal exposure, the story gets worse for Walker. Recall efforts are underway for 8 Republican Senators and they are going swimmingly. The recall of three senators gives the Democrats a majority and the recall of all 8 gives them a 2/3 majority, which they could use to bring about impeachment hearings. Scott Walker’s window to pass his budget is closing and he knows it: Some Republicans may even break with the party if it comes up for a vote.

So do the mainstream media William Rivers Pitt discusses why the mainstream media has not been reporting the huge crowds in Madison, preferring to discuss Charlie Sheen instead. In short, he says “I think they’re scared.” More on media coverage later!

For those of you who are interested in perusing the draconian Wisconsin Budget “Repair” Bill, like all other bills under consideration, it can be found with a search on the Wisconsin Legislature website. Here is a hard link to the document itself: Wisconsin Budget “Repair” Bill, full text. Enjoy the reading, it is surreal.

War Room (Clay Bennett, Chattanooga Times Free Press)

This article is Part III in a series of articles regarding government spending. To read the other related pieces, go to my U.S. Federal Debt: Sources and Solutions page.

The Gripes and Wrath

Of all of the portions of the longstanding American dissonance over the U.S. Federal Budget, the king of all disagreements lies in taxation. It should not be a surprise then to understand that it is in taxation where the information regarding the Federal Budget is the most suspect due to all of the myriad political influences involved.

During the 2010 election cycle, the airwaves were filled with Tea Partiers railing against government spending and the need for lower taxes. We often heard of corporate taxes being too high and how they should be lowered. We heard of the economic benefits of reducing taxes. The Tea Party floated on a crimson tide of red ink into Washington D.C. and is now trying to drive the Republican agenda even further toward tax decreases, regardless of what happens with federal spending.

What is the current status of taxes in the United States? Who pays taxes in the U.S.? How do various taxes affect the population and job growth? We will investigate each of these questions in this article. These are rarely addressed in the news, despite the fact that the current budget battles are on the TV all of the time. We will address some of the political motivations of the Media that prevent them from accurately reporting issues of federal finance in a later article.

Tax Rates: The U.S. vs. the World

Considering the invective that can be overheard at any Tea Party rally, one would think that the people in the crowd are being taxed within an inch of their lives. The mere mention of the word ‘tax’ results in a bitter, emotional spew of slogans and booing – a visceral, angry reaction that is fueled by the rhetoric of Republican political candidates. It is one version of their five-minute hate. But is it realistic?

Figure 1 shows the 2006 rate of taxation in the U.S. relative to the world. This includes the total federal, state and local taxes or their equivalents in each case.

Fig. 1: Total Tax Burden by Country (OECD, via Get Rich Slowly)

As you can see, the total tax rate is much lower than that of most other developed countries, and it is roughly half that of nations like Denmark and Sweden.

“Ah, that’s SOCIALISM!”shouts the Tea Partier. Yes, Denmark and Sweden do have socialist economies. But given that information, we should at least see whether there is a benefit. Below are lists of the top 10 nations in terms of Gross Domestic Product (GDP) per capita from the International Monetary Fund (IMF). Other lists can be found as well on Wikipedia.

Rank IMF (2010) GDP per capita ($)
1. Luxembourg 104,390
2. Norway 84,543
3. Qatar 74,422
4. Switzerland 67,074
5. Denmark 55,113
6. Australia 54,869
7. Sweden 47,667
8. United Arab Emirates 47,406
9. United States 47,132
10. Netherlands 46,418

Excepting Qatar and the United Arab Emirates which do not have income taxes due to the fact that those nations are run on revenues from their oil reserves, each of the countries with a higher GDP per capita has higher taxes than the United States.

In addition, as we will find, considering the higher tax rates, each of those countries has a lower Gini Coefficient, a measure of income inequality. World Gini Coeffficients are found in Figure 2.

Fig. 2: Income disparity (dark red =worst, dark blue = best) (Wikipedia)

Economies with higher Gini Coefficients can face instability and corruption in government as lower classes tend to be crowded out of the political process by wealthy and powerful individuals. Considering that the Gini Coefficient of the United States is actually worse than that of nations like Egypt, there should be no surprises that labor demonstrations are taking place in America.

The Purchasing Power Parity (PPP) index is a measure of the relative purchasing power of currencies around the world. This index is dependent on the development in an economy, the strength of the currency and also on the wages of the people. Nations with a higher Purchasing Power Parity are able to more easily afford a similar, pre-described “basket” of everyday goods (food, clothing, etc.) and services in countries with lower PPP indices. In essence, the PPP is one measure of the wealth of a country in slightly different way than GDP per capita. The GDP per capita describes how much money someone earns on average in a country where the PPP indicates how much one could do with that money.

Remember those countries whose citizens earn more than Americans? All of them – and even the Netherlands, which also has far higher tax rates than the U.S. – have higher PPP than the U.S. This can be seen in Figure 3. It essentially means that when someone travels from Norway to the U.S., they consider prices to be cheap in the way Americans find prices to be lower in Mexico.

Fig. 3: 2003 Adjusted Purchasing Power Parity (Wikipedia)

There are several great reasons for this. Well, taxes actually raise incomes. Progressive radio host Thom Hartmann explains:

When I was in Denmark in 2008 doing my radio show for a week from the Danish Radio studios and interviewing many of that nation’s leading politicians, economists, energy experts, and newspaper publishers, one of my guests made a comment that dropped the scales from my eyes.

We’d been discussing taxes on the air and the fact that Denmark has an average 52 percent income-tax rate. I asked him why people didn’t revolt at such high taxes, and he smiled and pointed out to me that the average Dane is very well paid, with a minimum wage that equals roughly $18 per hour. Moreover, what Danes get for their taxes (that we don’t) is a free college education and free health care, not to mention four weeks of paid vacation each year and notoriety as the happiest nation on earth, according to a major study done by the University of Leicester in the United Kingdom.

But it was once we were off the air that he made the comment that I found so enlightening.

“You Americans are such suckers,” he said. “You think that the rules for taxes that apply to rich people also apply to working people, but they don’t. When working peoples’ taxes go up, their pay goes up. When their taxes go down, their pay goes down. It may take a year or two or three to all even out, but it always works this way—look at any country in Europe. And that rule on taxes is the opposite of how it works for rich people!”

My Danish guest was right. So before we get into the larger consequences of tax increases or tax cuts for the nation’s economic health, let’s parse this business about what tax increases or cuts mean for the rich and for the not-so-rich.

Why is this so? It is a matter of an economic phenomenon called tax incidence that essentially describes how the laws of supply and demand work with taxes on wages. If a government introduces a tax on worker salaries, it happens that those workers will need a little more money in order to be able to purchase food and supplies necessary for daily life. In the very short term this can be a slight problem, though after about a year it means that a number of workers who are taking new jobs would have negotiated higher wages than they would have without the tax increase. The increased wages they receive mean a higher demand for jobs, and that increases wages even more. When all is said and done after a year or two, wages more than make up the amount of money lost to the tax increase!

Companies in the United States understand this quite well – why else do you think that the “business-friendly” party, the Republicans continually asks for tax cuts? Not only does this help Republicans pretend they are on the side of workers, but it is one way of forcing labor prices lower for the wealthy while being able to retain more money for themselves.

But taxes are not fun to pay, you say. Well, then one would expect that people who live in countries with high tax burdens would be unhappy. Yet in 2011, Forbes reported a survey conducted by the Legatum Institute in which they asked citizens around the world about their happiness and standards of living and compiled these into a “Prosperity Index”. Their results were interesting. The United States fared alright at #10. But it was beaten by strong social democracies that each have higher taxes! Here is the top ten, with total tax rates listed just for fun:

Rank Legatum Prosperity Index Rank (2011) Total Tax Rate (%)
1. Norway 43
2. Denmark 49
3. Finland 42
4. Australia 31
5. New Zealand 38
6. Sweden 49
7. Canada 32
8. Switzerland 30
9. Netherlands 39
10. United States 28

Sure, the United States did alright, but the odds are very low that every country ranked higher than the U.S. would have higher taxes by coincidence. In fact the U.S. is ranked more highly than it otherwise would be due to the fact that it holds the world’s reserve currency, which offers the U.S. a extra wealth that other countries do not have access to.

A Tea Party person might interject here once again: But the U.S. has FREEDOM! Let us take a look at that idea a little bit more carefully. What does freedom mean? Of course it can mean things like freedom of speech and freedom of assembly, but it can also mean upward mobility. After all, failing other freedoms, being wealthy can often result in a very different perception of a person by the government. How likely is it for a person in the lower classes to rise up to the higher classes? Two Social scientists, Dorling & Henning have done a study on the relative (im)mobility of citizens in a variety of nations, especially the U.S. and other countries that are listed in the lists above. Their results are in Figure 4, where it can be seen that

Fig. 4: Upward immobility (higher numbers = lower mobility) (Views of the World)

the countries that pay higher taxes all have greater ease in moving from the lower classes to the higher ones in economic status and this may be correlated with income disparity. The U.S. does shine here in terms of educational mobility, though this amazing feature of American society is currently under attack.

At this point, the recalcitrant Tea Partier mutters, “Well, you still have not talked very much about taxation.” This is largely true, though so far we have discussed some of the possible results of taxation when it is done right. We will discuss taxation itself and some more of the side-effects in the next section, in which we specifically look at the history of taxation in the United States.

Taxes in the American Economy

Another farce about taxes, yet it is a commonly held belief that taxes in the United States are high right now even when compared to historical rates. In a recent article, Richard Wolff shows a plot that displays the historical income tax rates in the highest and lowest tax brackets in the U.S. (Figure 5).

Fig. 5: Highest and lowest bracket income tax rates in the U.S. (Richard Wolff)

Taxes on the wealthy had been at recent lows just prior to the Great Depression, but one of the policies that the Roosevelt Administration pursued was to raise income taxes on the wealthiest Americans to 90%. “How draconian!” you may say, “How could he do that?” Roosevelt was quite wealthy himself but his relationship with organized money was quite different from that of President Obama’s. For example, on the eve of the 1936 election FDR gave a speech at Madison Square Gardens. Here is a quote:

For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

(This speech is truly worth a listen as the mere words do not quite carry FDR’s oratory. He knew how to give a speech. Here is the link once again.)

Can you imagine President Obama saying something similar? During the week before an election?!! He had the perfect opportunity to do so when he was elected. Instead, he hired Timothy Geithner, one of the people who created the mess as his Secretary of Treasury and kept Ben Bernanke on at the Federal Reserve. The Tea Party may not believe so, but Obama is owned by Wall Street. Goldman-Sachs was one of his largest benefactors during his election.

The 90% tax rates on the wealthy by FDR were intended in part to break the political power of the most wealthy individuals in the country, whose unregulated financial speculation resulted in the Great Depression. (Sound familiar?) In part, the taxes were high in order to fund programs like Social Security and, yes, to redistribute wealth.

But wait a second! Redistributing wealth is bad for the economy, right? Well, let’s take a look. Figure 6 shows annual growth in U.S. GDP since 1929.

Fig. 6: Annual U.S. GDP growth rate, 1929-2009 (Wikipedia)

GDP growth rates in the United states were far higher during the times when the top income tax rates were REALLY high than they are today. In fact, the growth rates tend to be highest when top income tax rates are also highest. This is primarily due to two things.

First, the high tax rate created the Middle Class. With many more people able to purchase products that American companies produced, the economy boomed during the 40’s, 50’s and 60’s.

Second, it turns out that productivity increases during times when the top tax rate is highest. Higher taxes mean higher federal spending and higher spending boosts the economy.

Of course there is that caveat that one can not allow the federal debt to go too high, otherwise it is possible to create stagflation as I mentioned in Part II. Considering this, I was excited to see the correlation between National Debt and the income tax rate that Greg Hollingsworth put on his blog, shown in Figure 7.

Fig. 7: Income Tax Rates and National Debt (CBO data, via Greg Hollingsworth)

Did you notice how as the top income tax rate drops, the U.S. Federal Debt skyrockets? Well, the top tax rate on the wealthy seems rather high, but recall that wealthy people only earn a portion of their money in the form of income. They also earn a lot of money through capital gains. Those taxes are rather low, too. But as you can see lowering taxes has had a profound effect on the American economy. Not only is it running less efficiently than it once had, but the national debt is going through the roof, too.

There is also a growing problem of the income disparity that we mentioned earlier. One problem with having a billionaire is that the billionaire does not invest all of his or her money into the economy. Rather, there is always a sizable portion of those assets that is rather illiquid, meaning that it does not circulate through the economy. This effectively reduces the money supply for everyone else and a BILLION is a very large number, so it represents a rather large loss of capital in the economy. The more billionaires, the greater this problem becomes and this is a motivating factor for the high tax rates on the highest income brackets. The wealthy are, after all, most able to afford the taxes and they have certainly benefitted from having been born and raised in the American economy, so it is a way of paying back to society.

Still, the income disparity is continually growing. In fact, thanks to tax loopholes that are available to the wealthy (but not the Middle Class), the world’s third richest man, Warren Buffet, famously complained that he pays a lower tax rate than his middle-class secretary. He has class, so he asked the Bush Administration and the Obama Administration after that to raise his taxes. He even argued that it would be good for the economy. He is still waiting for that to happen. In fact, the disparity in incomes in the U.S. is at its greatest size ever – bigger than the disparity at the beginning of the Great Depression, as is seen in Figure 8.

Fig. 8: Share of pre-tax household income received by the top 1%, 0.1% and 0.01% incomes, 1917-2005 (Wikipedia)

Right now 1% of the population earns more than 20% of all of the income in the country. Much of that money sits idle when it could be re-invested into the economy.

Figure 9 shows just how bad the situation is. The three bars in the plot show the Real, Estimated and Ideal fractions of income held by each quintile of the population according to a survey of the U.S. population by Michael Norton of Harvard Business School.

Fig. 9: U.S. Income Distribution: Real, Estimated and Ideal (The Atlantic)

The results show that the actual income disparity is far worse than the perceived one, and very very far from the ideal held by the average American. In fact the American ideal has the top 20% of income earners only earning 30% of income! That is even more socialist than Denmark!!

People are beginning to realize this and they are beginning to wake up out of the hypnotized slumber they have felt since Ronald Reagan and they are getting angry about this. Especially when they take a look at the relative growth rates of each income bracket over time (Figure 10) But there is one more thing that REALLY makes people mad.

Fig. 10: Growth in US Wages by Tax Bracket (Discover Magazine)

Something is still missing, though… Hmm…

Corporate Taxes

…and that missing thing is the corporations. Now I know what a Tea Partier would say: “We can’t have high corporate taxes because companies will just move away.” Regulations could prevent that, and corporations should pay their share because they use and abuse our natural resources and national infrastructure all of the time.

If you were to ask the Heritage Foundation, they would show you this diagram (Figure 11):

Fig. 11: Corporate Tax Rates in OECD Countries (Heritage Foundation)

Oh no! America’s corporate tax rates are among the highest in the world! America is doomed!! All the companies will move away!

Not so much… Those are the official tax rates, not the actual ones. There are lots of tax loopholes for companies. Rachel Maddow did a great piece in October, 2010 in which she mentioned that GE, Bank of America and Citigroup (the latter two playing a significant role in starting the Great Recession) paid $0 in corporate taxes. Yes, companies that earn billions of dollars per year pay less than you do in taxes and that is closer to the rule than the exception, though most small businesses do not share in those benefits. And yet, the Republicans keep asking for tax breaks for the rich and for corporations – out of fear that tax loopholes might be closed. It is possible for them to make the argument for lower taxes because the current tax rate is ostensibly so high. That is why the difference between the official tax rate has not been lowered so that it reflects reality.

There is more.

The pre-New York Times FiveThirtyEight blog posted an entry with a plot, Figure 12, that is the coup de grace.

Fig. 12: Taxes as share of GDP by type, 1935-2014 (Tax Policy Center, via FiveThirtyEight)

Look at Figure 12. Look at the Corporate Tax Rate. Look at the Social Security Income & Retirement Tax Rate. The reason that corporations now pay very little in actual taxes now is that since the time of Eisenhower, the decrease in the corporate tax rate has been funded by the increase in taxes on entitlements as a direct result of Republican federal policy.

Corporations extract resources that are owned by the public. They make a profit for themselves from those resources and they do not repay the public. That is where tax policies are today. So when you see that the budget deficit has swelled and that the middle class is doing poorly, it is a direct result in the drop in high-income taxes and corporate taxes. The effect is so profound that wealthy industrialists like the Koch brothers will save money by spending hundreds of millions of dollars to corrupt the political process so that they can buy the policies that they would like. They get a free ride with billions of dollars in the bank, but you get to pay for their exploits with middle class wages. Isn’t it about time that we had a discussion with our Tea Party friends? I thought so.

References and Links

Views of the World: Income Mobility

Wikipedia: Income Disparity

Wikipedia: Legatum Prosperity Index

Wikipedia: GDP per capita

Wikipedia: Purchasing Power Parity

Wikipedia: Tax Incidence

Wikipedia: U.S. Recessions

Danish Flag

According to Sarah Palin, American is at risk for falling into SOCIALISM! Oh no! Oh the humanity!
Oh if only everyone had the same problems as Denmark….

A Scandinavian-style social welfare state, the nation routinely ranks ahead of the United States in terms of Human Development, Health and Healthcare, Education and Take-home pay (even after their ~55% tax rate!) With such high taxes, you may think that the people are impoverished and miserable. But no – Denmark is routinely considered the Happiest Nation in the World. Of course, that could be due to their 6 weeks of paid vacation per year or due to the fact that low-income groups receive 120% of their pre-retirement incomes for their pensions. This country with few natural resources has invested heavily in its own citizens. As a result, Denmark holds the most Nobel Prizes per capita of any nation. It also has one of the most uniform distributions of wealth in the world, coupled with a standard of living that is higher than that of the U.S. (a seemingly good mix). Yet with all of that social spending, in fact because of it and because everyone is on board, the nation has been able to create a national budget surplus, its unemployment is at an all-time low, and the Great Recession (now long gone) barely left a mark due to a strong regulatory environment in finance. In fact, there is currently a shortage of skilled labor. As you can see, Sarah Palin has been right all along – who in the U.S. would want any of those problems that are the scourge of the Danish state?

Budget Battle (Clay Bennett, Chattanooga Times Free Press)

This article is Part II in a series of articles regarding government spending. To read the other related pieces, go to my U.S. Federal Debt: Sources and Solutions page.

Current status

Buoyed by their 2010 election success, the Republicans (who ran on jobs and the economy) have come to Washington to take it down. House Majority Leader, John Boehner (R-OH), has called for $100 billion in cuts to discretionary spending. Ron Paul has suggested not raising the U.S. federal debt limit, which would precipitate a worldwide crisis as the nation defaults on $14.3 trillion in debt. The fervor does not end there: Iowa’s Steve King (R) even suggested we should “kill the government” should Obama fail to kill health care reform – a move that would add up to $1 trillion to the federal debt after 10 years. The cuts that are proposed are standard: Education, unemployment benefits, housing and (oddly) also cuts to entitlements that are not discretionary spending. Social security and Medicare have long raised the ire of Republicans who would love to privatize the systems and transfer the wealth they contain to the private sector. The largest portion of federal discretionary spending, the military, remains largely untouched through all of this.

So where do all of these cuts leave the jobs issue? Well, the “strange” unemployment numbers from January were not strange at all. The current situation is entirely consistent with the viewpoint in which so many people have been unemployed for so long that not only are they no longer eligible for unemployment benefits, but they are also giving up their jobs searches. That is prior to pending federal budget cuts. The forecasts for the currently proposed GOP cuts will involve the layoff of around 650,000 federal employees alone and the decrease in federal spending will bring the total to nearly 1 million jobs after 2011. This clearly does not jive with the Republican platform of helping jobs, but it is entirely consistent with the Republican mantra of “small government” that has been sweeping that nation and is most evident in the events taking place in Wisconsin.

We will take a look at the history of federal spending in order to find new methods to reduce the federal budget deficits in a what that will encourage growth in the national economy.

U.S. Federal Spending

Fig. 1: US Federal Outlays and GDP since 1901 (Wikipedia)

The U.S. Federal Government spent roughly $3.6 trillion in 2010. Big Government, you protest? Figure 1 shows the history of federal spending since the beginning of the 20th Century (please note that this is a logarithmic plot). The spending on the federal budget has grown in rough proportion to the growth of the economy since the time of FDR, though GDP numbers were not taken prior to that time and the rate of growth of government spending was much lower prior to 1900 because government undertook very few social spending initiatives before then. Also note the point of inflection at 1980. Prior to that time, the rate of GDP growth was accelerating as opposed to the deceleration we have seen since Reagan’s election.

Fig. 2: U.S. Spending and Revenue in %GDP (Bureau of Economic Analysis, via Carried Away)

Figure 2 shows the full level of spending by state and federal governments in the U.S. as a fraction of GDP since the beginning of the Great Depression. It clearly demonstrates that while there is growth in spending during the expansion of the military and programs such as Social Security, the overall spending per GDP by states has held roughly steady since the early 1970s and in the federal government since the election of Ronald Reagan in 1980. This essentially means that the cost per person of the federal government would have remained constant since the early 1980s, provided that middle class incomes would have tracked with the growth of the economy. This has not been the case. As a result, federal programs since the time of Reagan have become more expensive for the middle class while the middle class receives fewer services.

Fig. 3a: Total U.S. Spending, 2010 (Congressional Budget Office, via Wikipedia)

Fig. 3b: U.S. Discretionary Spending, 2010 (National Priorities Project)

That last point on the middle class receiving fewer services is doubly demonstrated by the proportion of military spending relative to total discretionary spending. I will discuss that in a moment, but I will first make a side observation. While researching U.S. discretionary spending, I noticed that the spending is usually displayed either of two ways. The first is the “Federal Pie Chart” in Figures 3a and 3b that show the relative sizes of various categories of total and discretionary spending respectively. The second form of presentation can be found in Figure 4. In short, the portrayal of discretionary spending in either mode is almost always the same and it has the effect of creating a politically expedient frame within which to understand the data.

Figures 3a and 3b represent to shares of total and discretionary spending (respectively) that are spent on a number of different budget categories. This is useful if you were concerned about how much money is spent on programs such as entitlements like Medicare, Medicaid and Social Security or how much is spent on paying off interest on the debt. But the pie charts do not indicate what fraction of the “Discretionary Budget” in Figure 3a are actually spent on Homeland Security or other non-Department of Defense national security areas however. So one gets the impression that defense spending is not so large relative to the entitlement programs shown in 3a.

Figure 3b show us a little more detail, essentially expanding the blue and orange sections from Figure 3a. Here we see just how much of the discretionary budget is taken up by the military but it does not include, say transportation programs that are geared to beefing up Homeland Security. This leads one to the conclusion that military spending is somewhat lower than it really is.

Furthermore, the pie charts only represent funding from a single year. It is impossible to tell how much spending might have changed either from the previous year or from a time several decades ago. And if the accounting is done right, then as I mentioned in the previous two paragraphs, it is easy to give the impression that everything is normal and there are no imbalances in the budget.

Nor would we get that that impression if we were to look at the other way in which the data is displayed: Historically. Figure 4 shows the relative proportions of military and non-military spending, with the caveat that the data is broken down in essentially the same way that it was in Figure 3b (the Department of Homeland Security is not part of the Department of Defense). However, the earliest date for the data is very important. It occurs at a time when the U.S. was in an arms race with the Soviet Union and at a time when it was becoming actively involved in the Vietnam War. The center panel of Figure 4 gives the strong impression that defense spending is under control, but only because it ignores the times prior to 1962 (the 1950s and prior to World War II when the fraction of military discretionary spending was about 30%) when spending on defense was much lower. And keep in mind that we are not including all national security spending in the defense sector – a trend that became worse and worse during the 2000’s. In fact current national security spending comprises nearly half of the “non-defense” discretionary outlays.

The bottom panel in Figure 4 drives home another convenient point that mandatory spending is out of control as well, but this is only due to the fact that defense spending has been considered a high priority among neo-conservatives. But the story behind Figures 3a, 3b and 4 is that even among discretionary spending, the military is consuming a larger and larger share even while spending on social discretionary programs becomes more expensive for the middle class and even while the middle class is expected to carry an increasing responsibility for funding these programs.

Fig. 4: U.S. Military and Non-military Discretionary Funding since 1962 (Office of Management and Budget, via Congressional Quarterly)

Another thing to consider is that all of the social programs that make life easier and demonstrably improve the quality of life for people who live in the United States (i.e. Education, Income & Labor Security, the EPA, Transportation and the Federal R&D) make up a very small fraction of the budget overall.

The take away message here is that despite the initial outward appearances, Figure 5 (the misspelling in the Figure is due to the Economist, not me, though the numbers are sound) shows that discretionary social spending has been very squeezed as a fraction of GDP over the past 40 years, ending with a brief and temporary counterpoint that corresponds to President Obama’s stimulus package. This overall decline has been due to the tax cuts that we will discuss later on which have limited the amount of money that can be spent on social discretionary programs, out of deference to mandatory spending and defense and national security.

Fig. 5: Non-defense Discretionary Spending as a function of GDP (The Economist)

Things are no different in either the current Republican or Democratic proposals for the upcoming budget deal. Social discretionary spending, comprising a small fraction of the total budget, will take the biggest lumps in upcoming budget cuts. That means housing programs, unemployment benefits, research and development, infrastructure investments, clean energy and environmental protection are going to lose funding relative to continued spending on the U.S. Military. The Republicans are aiming for broad cuts of $100 billion to the $660 billion non-military discretionary budget but the cuts are not planned to go toward the national security components of that budget.
The Minnesota Independent has a brief summary of some of the expected cuts which correspond to a roughly 30-50% hit to social programs that are used by everyone in the country and the regulatory agencies that protect our physical and fiscal environments, while the military budget of $689 billion will remain virtually untouched even though the U.S. spends the same amount on its military as the rest of the world combined (Figure 6). Feeling safe yet?

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

–President and Five-Star General Dwight D. Eisenhower, From a speech before the American Society of Newspaper Editors, April 16, 1953

Fig. 6: World military expenditures of every nation in the world, 2009. The tall bar on the far left is the United States, which spends more than 6 times as much as its nearest rival, China. Click to access a larger version. (Global Security, via Think or Thwim)

Impacts of Federal Spending on the Economy

Despite conservative beliefs and mantras, government spending has a legitimate place in the national economy if for no other reason than the fact that, according to the U.S. Census, the U.S. federal government has 2.5 million employees in addition to the military which has 1.5 million active and 1.5 million reserve personnel. That corresponds to nearly 5.5 million total employees, not including part time civilian staff, and that corresponds to more than 3% of the U.S. workforce.

More importantly, Figure 1 shows that current federal spending is at a level of roughly 20% of GDP so it can act as a strong lever arm to encourage economic growth, industrial development, support workers wages and to develop public infrastructure, especially in concert with the government’s regulatory powers. Yet here is what House Speaker John Boehner (R) says about spending:

“This is where cutting spending will create jobs because it is going to bring greater fiscal responsibility here in Washington, DC, end some of the uncertainty, and allow jobs to be created in America.”

Even Cliffs notes will tell you that decreased government spending shrinks the demand for labor in the economy. During times of economic crisis, this can lead to a downward spiral because a smaller workforce leads less consumer purchasing that, in turn, leads to lower corporate profits and less investment and possibly more layoffs which feed back into the system. The Keynesian economic view argues that the Government can borrow money maintain spending levels despite a drop in tax revenue in order make up for the consumer demand that is lost to unemployment.

One could in principle spend money on just about anything, but the most effective approach is to make investments into public infrastructure that essentially build new efficiencies into the national economy that everyone can share in the future. This is the idea behind financial stimulus, but some forms of stimulus are better than others because some forms of spending allow the money to pass through more hands in the economy in a relatively short period of time and that encourages economic growth.

Mark Zandi, Chief Economist for Moody’s, published a study that modeled the effects of various forms of stimulus to see which would provide the greatest impact per dollar invested. You may find the results rather surprising in Figure 7.

Fig. 7: Effective rates of return on each dollar invested in various forms of stimulus (Moody's via Huffington Post)

Surprised? Perhaps it is because the best form of stimulus shown is investing in Food Stamps and Extending Unemployment Benefits! These are anathema to the laissez-faire Trickle Down Economics favored by the Republicans, who tend to be acolytes of Milton Friedman. The Bush Administration, in contrast, strongly favored Capital Gains Tax Cuts, Tax Rebates and Tax Cuts on the wealthy, in keeping with the notion of Trickle Down.

So why would food stamps be better stimulus than tax cuts on the wealthy? The reason is that poor people will spend the money as soon as they get it while wealthy individuals will typically save a windfall for a rainy day. In the latter case money is taken out of circulation so it does not typically provide a positive economic benefit. But there is another important benefit. When people become unemployed and can not feed themselves, they die. When that happens, not only does society lose their productivity, skills and knowledge that those people once had, but society also loses the investment it made to train and educate them. That was the situation in the United States during economic disasters like the Panic of 1893 and the early years of the Great Depression, before Roosevelt’s New Deal. Other forms of stimulus are not listed.

The military, for example returns roughly $0.40 on every dollar because every dollar spent on a bomb is a dollar spent on something that was designed to be wasted. Scientific research provides a quick infusion of cash with a return to the tune of approximately $1.60 on the dollar.

One is forced to wonder why the Bush Administration supported non-stimuli such as tax cuts because, despite the conservative propaganda, Friedmanian economics tends to lead to a reduction in tax revenues over the long term. (This is an indication that the middle class becomes poorer over time.) Nevertheless, the Friedmanians do (rarely) have a point. In the event of too much borrowing, there can be a set of diminishing returns. If the federal debt levels require steep payments on the debt, the government can respond by making money to pay it off. This results in depreciation, which if taken too far can drastically increase interest rates and lead to accelerated depreciation in the value of the dollar and a sticky mess for the economy: Stagflation. That was the situation during the 1970s during an economic slowdown that occurred while the U.S. was balancing the debt it racked up during the Vietnam War. War is expensive.

Another way of looking at this is that, as in Figure 8, various forms of stimulus act on the economy over differing lengths of time and some forms even have a longer lasting impact than others. These factors must be considered in preparing a viable stimulus package.

Fig. 8: Cumuluative Effects of Policy Options on Unemployment (Rachel Maddow Blog)

Obama’s stimulus package was considered by some economists such as Nobel Prize Laureate Paul Krugmanas too small to completely repair the economy, and the U.S. economy is still at risk for a double-dip recession as the stimulus has now worn off while unemployment remains quite high. Part of the reason for this is that the stimulus contained a combination of approaches including non-stimulative tax cuts due to political expediency. While enacting the stimulus package, Obama also failed to raise taxes on the wealthy, which would have given more budgetary cover for a larger stimulus package, but it is also unlikely that would have been accepted by Blue Dog Democrats who were already leery about the federal stimulus package.

Obama’s hands are now tied because of the size of the federal budget deficits due to the wars in Afghanistan and Iraq as well as the reduction in tax revenue due to the Bush tax cuts. Having missed his chance and having failed to include enough stimulus required to fix the economy, the U.S. labor force is now locked in a political game of prisoner’s dilemma. If Obama and the House Republicans can find a compromise, then everyone loses (in this version of the game, this is the best possible scenario), but everyone loses a lot if an agreement is not made soon or if Congress fails to increase the federal debt limit. In that case, the U.S. could eventually be forced to use money locked in the Social Security Trust Fund to pay off existing debt. This is considered a goal by some conservatives because it may force the privatization of Social Security.

What to expect from a short-term federal shutdown

Here we are: In a situation in which the recently elected representatives to Congress care far less about stimulus and investment into the economy than spending money on special interests – especially the anti-stimulative military – and ensuring that “Obama fails”.

So if the current budget impasse continues due to the stark divide between the emerging conservatism of the White House and the bottomless pit of nihilism of the Congressional Republicans, what are we likely to see in a short-term federal shutdown? The Minnesota Independent has summarized a 1999 Congressional Research Service report on past federal deadlocks. (Note, there is a typo in he Minnesota Independent report. The November 2005 shutdown should read November 1995.) A 5-day shutdown caused the furlough of 800,000 federal workers while a subsequent 21-day shutdown led to 284,000 furloughs and 475,000 others were forced to work in critical positions without pay. This of course means lost tax revenue for the government in addition to the extra costs that are incurred by the need to pay additional contract extensions and fees. (Cutting programs often results in similar additional costs.)

The Congressional Research Service also described the impact on the public:

“Health. New patients were not accepted into clinical research at the National Institutes of Health (NIH) Clinical Center; the Centers for Disease Control and Prevention ceased disease surveillance (information about the spread of diseases, such as AIDS and flu, were unavailable); hotline calls to NIH concerning diseases were not answered; and toxic waste clean-up work at 609 sites stopped, resulting in 2,400 “Superfund” workers being sent home.

Law Enforcement/Public Safety. Delays occurred in the processing of alcohol, tobacco, firearms, and explosives applications by the Bureau of Alcohol, Tobacco, and Firearms; work on more than 3,500 bankruptcy cases was suspended; cancellation of the recruitment and testing of federal law-enforcement officials occurred, including the hiring of 400 border patrol agents; and delinquent child-support cases were suspended.

Parks/Museums/Monuments. Closure of 368 National Park Service sites (loss of 7 million visitors) occurred, with local communities near national parks losing an estimated $14.2 million per day in tourism revenues; and closure of national museums and monuments (estimated loss of 2 million visitors) occurred.

Visas/Passports. 20,000-30,000 applications by foreigners for visas went unprocessed each day; 200,000 U.S. applications for passports went unprocessed; and U.S. tourist industries and airlines sustained millions of dollars in losses.

American Indian/other Native Americans. All 13,500 Department of Interior Bureau of Indian Affairs (BIA) employees were furloughed; general assistance payments for basic needs to 53,000 BIA benefit recipients were delayed; and estimated 25,000 American Indians did not receive timely payment of oil and gas royalties.

American Veterans. Major curtailment in services, ranging from health and welfare to finance and travel was experienced.

Federal Contractors. Of $18 billion in Washington area contracts, $3.7 billion (over 20%) were managed by agencies affected by the funding lapse; the National Institute of Standards, was unable to issue a new standard for lights and lamps, scheduled to be effective January 1, 1996; and employees of federal contractors were furloughed without pay.”

Some federal agencies such as those related to defense would continue to operate even under a government shutdown.

Coming soon

In the next segment, we will discuss tax policy in relation to the information that we have covered in Parts I and II. Stay tuned.

References and Links

The Economist: “Outrageous Cuts”

U.S. Census: Federal Government Civilian Employment

U.S. Department of Commerce Bureau of Economic Analysis National Income and Product Accounts

Wikipedia: List of countries by level of military equipment

Wikipedia: United States Federal Budget

James Heintz discusses sources of state budget deficits around the country (Real News)

The current economic crisis has led to high levels of unemployment, reducing income and sales tax revenues to the states. Tax rates for the wealthy have also dropped during recent decades. State budgets are therefore hemorrhaging cash due to a drop in revenue. Making the problem even worse, the typical state response to the drop in revenue has been spending cuts without tax increases which leads to another decrease in wages in the states. The Real News has interviewed James Heintz of the Policital Economy Research Institute at the University of Massachusetts to investigate the problems in state budgets as well as to explore possible options available to improve both the budgetary situation and the economy.

It turns out that not all solutions have been tried. Conservatives have continually made the case that ‘we must cut spending’ while completely ignoring the revenue side of the budget. This situation is currently being played out in Wisconsin, where tax rates on billionaires have been cut repeatedly during the past 40 years though it is the workers who are now expected to make up the difference in balancing the budget, both in terms of fewer government services and lower wages.

Recall that one of the problems in the current state budget crisis is the loss of wages in the first place. Forcing state employee unions to accept harsher terms only puts downward pressure on wages across the economy. The state should rather find ways to provide positive support for wages and a simple way to do that is through tax increases on the wealthy. Simply increasing taxes to 2000 levels will restore most state budgets to solvency and it will also help to prevent continued layoffs and unemployment in the states while also providing support for investment in badly needed pubic infrastructure.

Decreases in state revenue due to the economic downturn have left many states short (Real News)

Tax increases on wealthy and support for increased wages can help (Real News)

Billionaire contributions to Wisconsin state tax rolls has dropped quite a bit recently (Real News Network)

The Real News has done a great piece in which they describe the poor conditions that currently face Wisconsin billionaires. Oh sure, they have increased their wealth overall, but their rank on the Forbes 400 list has dropped on average by a couple of places. You can only imagine the difficulties! Since 2001 that the estate tax rates on billionaires has dropped by nearly half though they have found ways around them too. This occurs at the same time that state and federal governments cut back on services for the people who really need them. Did you know that the overall tax burden of billionaires has dropped as well at the same time that we are being told that we must “share the sacrifice”? Watch Real News’ Paul Jay discuss whether billionaires are putting in their fair share and watch to the end to see how simple it would be to balance state budgets across the country.

Ohio state employees pack the Statehouse, Feb. 17 (AP Photo/Terry Gilliam)

Pro-labor protests

Huge rallies, vigils and protests are scheduled across the United States this week as the movement to support the middle class continues to grow. See the bottom of this post for locations and check here for details on the events. Show your support because the Republicans have a national strategy to repeal workers rights state by state. In Wisconsin, Governor Walker threatens dissenting Democratic Senators that the Republicans may pass non-spending bills in their absence. In response, the Dems say they will stay away until Walker decides to negotiate. Protests Sunday were smaller than the roughly 70,000 that showed up Saturday due to a blizzard, but protests will continue through next week. Tea Party counter-protests were outnumbered 35-1 Saturday. One anti-Walker protestor says “Thank you” for bringing back the labor movement.

Protests are scheduled to continue on Tuesday in Ohio, where nearly 4,000
people packed the Statehouse last Thursday.
Floridian teachers begin to weigh their options as their Tea Party Governor once again asks educators to pay for the deficit brought on by bankers and low taxes on the wealthy. Democratic Governor Cuomo is facing rebellion against his budget proposals in New York that could trap him between a Republican legislature and his own supporters. And New Jersey is ripe for new protests to begin as well.

Where the national discussion is not on worker cutbacks, it is on privatization. This includes concerns about the privatization of libraries across the country in which patrons find the standard privatization scenario: Fewer services for a higher price. Check Privatization Watch for more information on corporate attempts to take over public infrastructure near you.

Federal Budget

Robert Reich explains why there is not anything wrong with Social Security and why it should not be cut to help the federal budget deficit. (Cutting Social Security would actually increase the deficit.) The truth is that Republicans have been creating big budget deficits to shrink social programs for years. They want control and they want government to fund corporations, not people (and yes, they are different). Meanwhile, the Republicans are aiming to shut down the Federal Government which will give companies a while to work regulation-free. The House Republicans are looking for draconian cuts to social programs while leaving the military out of the fray while Obama wishes to “out-educate, out-innovate and out-build” the rest of the world. This brings about the prospect of a default on American debt which would usher in a Great-er Depression, according to Timothy Geithner, who also believes the Republicans are pyromaniacs playing with fire on the issue.

International News

Dissidents in China, buoyed by the demonstrations spreading through the Middle East have found it tougher going as the Chinese government begins arresting dissadents as plans begin to get underway. In Egypt, 15,000 are still striking at the nation’s largest factory for better wages as the military warns it may take action. Bahraini demonstrators retake the square in Manama after an attack by government forces kill several and wounded over 100. Libya and Yemen attempt to crack down on protestors in their countries. Museveni wins another election in Uganda, despite a rejection of the result by opposition as ethnic tensions rise and concerns over human rights resurface.

Protests and Demonstrations Monday 21 February – Saturday 26 February. (Sites listed in order by state.)

Show your support, even if you are not in Wisconsin so that the Tea Partiers do not come looking for your benefits too! We’re all in this together!

Monday
Chicago, IL
Indianapolis, IN
South Bend, IN
Helena, MT
Raliegh, NC
Carson City, NV
Las Vegas, NV
Salem, OR
San Juan, PR
Austin, TX
Olympia, WA
Charleston, WV
Madison, WI

Tuesday
Juneau, AK
Phoenix, AZ
Palmdale, CA
Sacramento, CA
San Diego, CA
Denver, CO
Des Moines, IA
Boston, MA
Springfield, MA
Annapolis, MD
Lansing, MI
Saint Paul, MN
Santa Fe, NM
Canton, OH
Cleveland, OH
Columbus, OH
Providence, RI
Salt Lake City, UT
Montepelier, VT
Madison, WI

Wednesday
Little Rock, AR
Hartford, CT
Atlanta, GA
Scranton, PA
Madison, WI

Thursday
Trenton, NJ
Pittsburgh, PA
Statewide, PA
Madison, WI

Saturday
Dallas, TX

Koch Industries (Green Market)

Koch Industries is a private company, the second largest one in the U.S. behind Cargill, and it has revenues on the order of $100 billion per year. Yet you may not have heard of the company because it keeps a rather low profile. Why might this be, you ask? Here is a rundown of the industries they are involved in: Petrochemicals, mining, lumber, fertilizers and distribution (trucking) and several others. You see, Koch Industries is one of the largest, most heavily polluting companies in the world and it is completely wedded to the use of fossil fuels.

According to Wikipedia, their subsidiaries include:

Georgia-Pacific paper and pulp company, maker of Brawny paper towels, Angel Soft toilet paper, Mardi Gras napkins and towels and Quilted Northern toilet paper.

Invista, a polymer and fibers company that makes Stainmaster carpet, and Lycra fiber, among other products.

Koch Pipeline Company LP, that owns and operates 4,000 miles of pipeline used to transport oil, natural gas liquids and chemicals.

Flint Hill Resources LP, that operates oil refineries in six states.

Koch Fertilizer, LLC, owns or has interests in fertilizer plants the United States, Canada, Trinidad and Tobago, Venezuela, and Italy, among others. In October 2010, a plant in Venezuela was nationalized by the government.

The company was founded by Fred C. Koch in 1940 and his sons, Charles G. Koch and David H. Koch now run the company and they are both billionaires. The family has long been very politically active. Fred Koch was a huge ultra-right-wing libertarian and he was an original member of the John Birch Society (now headquartered in Grand Chute, Wisconsin), which worked on things like distributing flyers entitled “What’s Wrong With Civil Rights?” in which it used Red Scare tactics to attempt to convince people that the 1960s Civil Rights Movement was, you know, a bad and scary thing. They said it would lead to Communists infiltrating the highest levels of government. Sound familiar? They also argued against the Civil Rights Act because they claimed that it violated the Tenth Amendment (essentially state’s rights) and that it should be countered by Nullification. So that was the father and the sons have sprouted from the same roots.

Owning a heavily polluting company with a poor record on labor, the Koch Brothers would be forced to pay a few billion dollars in carbon taxes if a carbon regulation mechanism were adopted by the Environmental Protection Agency. As a result, they seek to end the EPA, which regulates companies through the Clean Air and Clean Water acts, among other regulations.

Why do we have the EPA? So that the sky over our cities does not look like this one did circa 1970. It was also because the Cuyahoga River started on fire a few times in Cleveland by the 1960s. Rivers, normally constituted of water are not typically meant to burn.

Anyway, the Koch Brothers have found that it is cheaper for them to wreck the American political system than it is to clean up their companies or to seek to improve labor standards. By simply doling out a few hundred million dollars to PACs and political organizations that intend to create “smaller government”. Otherwise, they would have to pay billions to convert to more sustainable practices. Why do they like smaller government? Because governments that do not have much funding can not regulate wealthy billionaires with highly polluting companies.

The Koch Brothers also hate paying the taxes that they can easily afford. So the Koch Brothers are very active in politics these days. Below is a list of the conservative foundations and political organizations that they have founded, that they fund, and that they run. Each of these organizations hires people to go onto cable TV to misinform the public. If you see a pundit on cable news from one of these groups, you know that they are trying to convince you to agree to something that is bad for you. They talk about “small government”, they spread the lie that Climate Change is not real, to misinform the public on health care by shouting “Death Panels!”, and try to convince people that they should allow Social Security to be handled by the same banks that should have gone bankrupt two years ago, and the list goes on and on.

Americans for Prosperity (David Koch is Chairman of the Board of Trustees, this organization spent $40 million on Tea Party candidates including Scott Walker. They also paid people to shout down Congressional Representatives who were trying to talk about health care reform with their constituents.)

Patients United (Fought against a single-payer health care system)

Citizens for a Sound Economy (Co-founded by D. Koch and funded with millions for activities including campaigns in the 1980s that argued that acid rain was a hoax – this spun off to form Citizens for the Environment)

Cato Institute (The Kochs founded it – this organization intends to privatize Social Security, they oppose the Kyoto Protocol, and claim Climate Change is a hoax)

Federalist Society (The Kochs are key donors for this organization which wants to see an “originalist constitution” – remember the original constitution did not allow women’s suffrage and african americans were slaves, but most of all they like Supreme Court Rulings that claim big companies are people like you and me.)

Mercatus Center (This group believes that truckers should not have limited hours behind the wheel, nor should drinking water have EPA-regulated arsenic limits, and they did not believe the US government should have cleaned up the Gulf Coast after Hurricane Katrina)

Institute for Humane Studies (They think government should not regulate the environment and that private companies can police themselves)

Institute for Justice (They support originalist judges and seek greater rights for private companies)

Alexis de Tocqueville Institution (Fights taxes on corporations, denies climate change, and promotes military spending by the U.S. government)

Institute for Energy Research (Seeks to create a privatized, free market and unregulated energy system in the U.S. they also support off-shore oil drilling)

Foundation for Research on Economics and the Environment (Another group that believes that big corporations can protect the environment on their own, free of regulations that make them do it)

Heritage Foundation (A group that sought to halt nuclear nonproliferation, supports the invasion of Afghanistan, Chile and Haiti, promotes war profiteering, and seeks the privatization of public infrastructure and entitlement programs, they do not like unions either, but they love free, unregulated markets.)

Manhattan Institute (Promotes free-market (unregulated and private) solutions to the economy, energy, education and health care)

George C. Marshall Institute (A conservative think tank – they supported the Star Wars defense initiative, deny climate change, denied acid rain and did not believe in the ozone hole)

Reason Foundation (They believe in free markets, no unions and commercial education)

American Enterprise Institute (They believe in privatized and unregulated everything, war profiteering, ending labor right, they deny global warming, seek to repeal environmental regulations, and for the kicker Dick Cheney is a trustee)

Aspen Institute (here, the Koch brothers wine and dine with politicians in person. After a meeting last year with Supreme Court Justices Antonin Scalia and Clarence Thomas, the two justices wrote an opinion for the Citizens United ruling giving companies the right to spend an unlimited amount of money on public elections. That money, funneled through the U.S. Chamber of Commerce and Americans for Progress gave you all of the Tea Party candidates that are trying to break unions, privatize Social Security, deregulate Wall Street, defund the Department of Education, end the EPA and reinstitute child labor.)

You should do your best to boycott each of the above products and institutions. The only way to regain politcal influence for live, breathing human beings and to eliminate corporate control of elections is to make it more expensive for companies to mess with our political system. If a company supports policies that are bad for the public, the public should make them pay a high premium in the form of lost revenue. Good luck!

CCC Workers Building a Road, 1933 (FDR Library and Museum)

The Civilian Conservation Corps was one of the most popular government programs ever enacted in the United States. It was the brainchild of Franklin Roosevelt. 2.5 million men from the cities and the countryside alike, unemployed due to a lack of available jobs during the Great Depression, constructed public works throughout the country between 1933 and 1942. Rather than suffer from hunger and bankruptcy, they built roads, they reforested America by planting 3 billion trees and they built most of the infrastructure that we still use today in State and National Parks. Just look for the natural stone and wooden park shelter or visitor center or the mountain trails with the CCC plaque at the entrance – they are easy to find because they are everywhere and most have lasted to this day.

The men who participated in the project were able to earn money for their parents all while saving money necessary for college. Literacy centers were also located at most CCC work camps. The investment paid off. The people who went to school after World War II created the greatest economic expansion in US history during the 1950s and 60s. They also paid taxes on the wealth that they generated during that period and that lifted the standard of living in the country. That is what a government that looks after the well-being of its citizens can do, but it is definitely not “small government”.

[blip.tv http://blip.tv/play/gdElgqSmaAI%5D

Laura Flanders of GRIT tv discusses the state of affairs in the U.S. as Tea Partiers begin ideological wars against the middle class.