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Saturday, March 21, 2015

The GOP Budget Proposal, March 2015

The Republicans in the House and Senate presented their budget for the next 10 years. I hope here to clarify the main goals.  First you can read my summary and then I explain a second time with a few details about the Progressive Caucus budget, also released this past week. The last deserves more discussion. One commenter said that she searched Google for articles and found five references for it, while the Republican plan got over 1,300. You can read the Progressive Caucus budget at this site.
               Hold the Presses.
The Best Summary and Advice Essay to Appear in Years 
can be found at the Economic Policy Institute, here, titled
                  "How to Raise Wages". 
Also look here for the rest of the program from EPI. The first one I linked to describes things to do as well as things to avoid; this is foundational to understanding how everything fits together. I found this one day ago, so it is new. It is not difficult reading; it shows the entire economic plight of our nation, in about 15 pages.


Why the Republican budget plan is objectionable

1) It cuts the tax burden for the richest 1% of households by about half. (Also see here.) This trickle down magic has not worked in the past. The 2000 to 2010 period brought the slowest growth in 70 years. The top-earning 1% managed to accrue over 50% of all growth during the past 3 decades. See here and here "The top 1 percent of earners saw cumulative gains in annual wages of 153.6 percent between 1979 and 2012—far in excess of economy-wide productivity."

2) It is Robin Hood in reverse. To adjust for the loss of revenue due to the large tax cut to the richest, they eliminate government programs that serve the poorest. Two thirds of programs cuts come from programs that serve the poor. (And see here.) 

3) It doesn’t balance. The revenue cuts are greater than the program cuts, so tax deductions called tax expenditures must be eliminated. But the Republicans refuse to specify which deductions will be abolished. “We’ll show you how later,” is their position. The CBO has stated that the national debt would rise to 150% of GDP by 2050 as no new revenues compensate the net loss derived from the tax cuts. While their main selling point is a balanced budget, their budget does not balance. At the CBPP its president stated last year
" No one should take seriously its claim to balance the budget in ten years."

4) Obamacare is repealed. In the past year 24.4 million American adults between ages 18 and 65 obtained health insurance coverage — either through the expansion of Medicaid or through subsidies towards health insurance or through being connected to their parents’ insurance plan until age 27. (See the facts at Obamacare Facts.) In 2012 47 million such adults had no insurance, so Obamacare has reduced that number in half. The Republican plan would  eliminate that improvement. The revenue funding that pays for the ACA coverage originates mostly from a surtax on high income households, those whose incomes have tripled in the past 30 years. 

5) Social Security and Medicare will be substantially altered. 

6) It doesn’t address the economic needs of the nation. The chronic decline in wage income affecting 80% of workers who are non-supervisory employees would worsen. Their average weekly and annual income has grown by 3% in the 50 years since 1964, while the nation’s per person disposable income and worker productivity have increased by 155%. After-tax income, called disposable income, has increased by 177% since 1964, average wages by 3%. The wealthiest have more than tripled their incomes. Prosperity has left the majority of the nation behind. Rewarding the rich with tax cuts and ignoring the needs of the lower-income majority is bad policy in the era of record high corporate profits and increasing inequality. (See the previous essay for a list of graphs from the Federal Reserve making this point.) 

Some sources I draw upon are the Center for Budget and Policy Priorities, the Center for American Progress, the Campaign for America’s Future (and here), and the Economic Policy Institute that has just released the 2016 budget proposal of the Congressional Progressive Caucus. The last source describes a different vision from the voodoo economics of the Republican plan. 
Here's a radio interview that summarizes the budget issue, also at  Between the Lines online . org. ---

An excellent comparison study comes from The National Priorities Project. It compares four budget plans (Obama's, the Republican Senate and House plans, and The People's Budget) with a survey of popular priorities. This link takes you directly to the comparison. For example:
"For example: 67% of Americans say improving the job situation is a key priority. Here's how each of the four major budget proposals tackles job creation:
  • President Obama would invest $478 billion over six years into job creation initiatives.
  • The House Budget includes no new funding for job creation.
  • The Senate Budget includes no new funding for job creation.
  • The Congressional Progressive Caucus would invest $1.3 trillion over 10 years in job creation initiatives."
  • And an inspiring 12 minute video about the national budget, here.
  • ___________________________________
  • ___________________________________

A second explanation: 

The economy generates about $73,000 of income per worker per year. (This $73,000 figure comes from this report, page 2. I converted average income for all households, $93,900 before tax income, into the average for all workers, $73,000.) Yet half of U.S. workers earn less than $28,031 a year according to the Social Security Administration. Half of U.S. workers earn in annual wage income less than 8% of the national income -- you can add the amounts from the SSA report and divide by the national income amount obtained here: (personal income). The $73,000 figure derives from this CBO report on income for 2011

The national debt is not the problemDistribution of income and wealth is our problemWithout healthy growth, the federal debt problem is hopeless, absolutely beyond help. Healthy growth involves re-employment, and the economy must grow employment directly through direct government job creation, and finance that by a Fed/Congress "dual-mandate transfer" as recommended by 
Lawrence Seidman's "Stimulus Without Debt" proposal. (Read the essay that is linked. Seidman is a professor of economics at University of Delaware. I'll write more about this in future posts.) To fund the employment of millions we need not resort to either borrowing (and more government debt) or raising taxes. We may fund the program without risk of higher inflation through a joint process with the Congress and the Federal Reserve of "direct money creation" to fund the program, what Seidman calls a "dual-mandate transfer", involving Congress and the Fed. This argument in the coming years will reeducate us all on the possibilities of managing the economy. 

This is similar to the Congressional Progressive Caucus budget that would  directly employ the under- and unemployed. Direct job creation has been shown to be 10 to 20 times more effective than a tax cut at getting money into the economy. The Bush era tax cut resulted in the slowest 10 year growth period in 70 years. Direct jobs provides more employment per dollar spending. Since 1964, 51 years ago, non-supervisory workers have increased by 3% their average weekly wage income while the economy has grown by 155% per person. Prosperity has by-passed lower-paid workers. Wages have been frozen while the top 1% of households has tripled its income. The 3% figure comes from the Federal Reserve,

The GOP budget cuts the highest income tax rate from over 40% to 25%. It also reduces taxes on capital income, and all in all reduces the burden by half. In short, the top-earning one percent minority tripled their incomes and now the GOP reduces their taxes by about half. This GOP budget reduces all federal expenditures (excluding Social Security) by about 20%, and this means that programs serving the poor are reduced by about 25%; two-thirds of the program cuts come out of programs serving the poor according to the Medicaid will be cut by 26%. But the budget still does not balance, and they plan to cut some tax deductions, but they refuse to specify which will be cut. 

The plan is Robin Hood in Reverse. 
Healing the economy will involve revamping income distribution more equitably. Here's an example of this imperative need, the United Nations' Human Development Index Adjusted for Inequality. Note that the U.S. is ranked #5 before adjusting for inequality, and then drops 23 places to #28 after adjusting. Then look at the Gini Coefficient, 40.8, in comparison with other countries, and look at the "Inequality of Income" column (fifth from the right), and compare, again, with other countries. Iran is the only country among 184 countries that exceeds the drop of 23 places; Iran drops 34 places. 
Another study, by the OECD (page 23), shows that in 33 years, 1995 to 2008, annual income in the U.S. increased by 0.9 overall, but the lowest 10% increased their income by 0.1%, the highest 10% by 1.5%. And comparing (on the final page of the report) the ratio between the 20th percentile and the 80th, the "Inter-quintile share ratio 20/80", shows among 34 nations the U.S. tied with Israel for 3rd worst place, only Turkey and Mexico being more unequal.  

Greater income equality will in turn help re-employ those who want full-time work, about 20 million workers. This assertion is open to argument, but the main issue is whether the economy is meant to serve the society or the other way around, society and humans are meant to serve, fit in, and submit to the capricious demands of the capitalist economy that serves the most avaricious who live in the society; and that wages should be a race to the bottom so as to promote greater profits. It is a subject worthy of debate. 

There are also about 12% (or 18 million) who work full-time and year-round for less than poverty wages. In all, about 25% of the work force are either 1) unemployed, 2) under-employed, 3) dropped-out and discouraged, or 4) working full-time year-round for poverty wages --- 25%, or 40 million out of 160 million. (see the link to below) About 80% (or 128 million) are poorly payed. Remember that $73,000 is near the average worker income for all 160 million in the workforce, which includes all unemployed, under-employed, partial year, dropped out and discouraged workers. Half the workers earn less than $28,031 and less than 8% of total income. Multiplying $73,000 by 160 million yields $11.6 trillion, while total national income is almost $13 trillion. (See Joint Committee on Taxation, page 30) So the $73,000 average income figure is likely below actual average income. Full employment, or jobs for all, will raise the wage income of all employees and better achieve fair distribution of total income. 

Healing this economy will take major reforms, and it will require massive citizen involvement, and reconceptualizing basics ideas about how to make the economy the servant not the master will take precedence. It will take decades. The GOP budget is a diversion from real improvements that must be done, and it appears to be fraudulent in that its principal aim is to enrich the wealthiest (who are campaign donors). Make the wealthy even wealthier is the main objective, don't be fooled. Its victims are the poorest who are elderly, disabled and children. It is confusing because they are afraid that you, the citizen, might understand it. 

The National Jobs for All Coalition ( the unemployment numbers I cite here, and it proposes full employment plans. 

The other posts below are helpful to fill out the story of the economy and I recommend them. 

Monday, March 16, 2015

All the Puzzle Pieces Together

My Congressman, a Tea Party person, visited the local community. I handed him this essay because, I told him, he needed to take a closer look at the other side of his argument. This essay is both problem and solution; I hope readers will gather a useful, hopeful, and comprehensive overview.


            Inequality Devastates Social Norms
What if the total national income was $100 a year, and $50 went to just 10% of the population? What if  $20 went to only 1% of the population? What if the lower-earning half, 50%, received just 16% of all income? Every worker, on average, contributed over $70,000 a year to the national income, but half received less than $28,000 a year and half also average less than $10,000 a year in wage income (that would include all the unemployed, part-time and partial-year workers)? What if half of U.S. workers earned in wage income less than 8% of the total national income? As for savings, what if the average household held over $650,000 in assets? And still, what if the lower-saving half of all households owned just 1.1% of total private net worth, about $14,000 per household, not the $650,000 average for all? What if 1 in 7 in the population survived through the charity of food coupons to purchase their food? What if 40% of the richest nation on earth reported their status as “low income or poor”? What if candidates for public office, both national and state, depended almost entirely on the wealthy minority to fund their  election campaigns? What if only 4% of the national income was devoted in charity, through government programs, to the alleviation of poverty afflicting the elderly, the disabled, and poor children? (see here, Table 3, page 10)  Here is the Economic Policy Institute's report on lop-sided income growth. This report states that in the past 33 years, 1979 to 2012, the top-earning 1% increased its income by 180%, the rest by 3%. This graph shows 9% income growth at the median while total economy growth was 72%, 1979 to present; while between 1949 and 1979 all income groups grew at the exact rate.


The above describes the U.S.A in 2015. Furthermore, what if much of the great private annual income and most of past savings were mostly diverted into a large international gambling casino with no productive purpose? For instance, JPMorganChase, one of the largest banks, reported that 46% of its assets were “trading assets” or stock brokerage accounts, not loans to business. Loans to business was less than 12%. Reputable  economists (William Lazonick, here) report that between 2001 and 2010 corporate profits were not directed to improve productive facilities or research or to raise workers’ incomes, but that 94% of record profits went to shareholder dividends and stock buy-backs. From Lazonick's article, " For 2001-2010, 459 companies in the S&P 500 Index in January 2011 distributed $1.9 trillion in dividends, equivalent to 40 percent of their combined net income, and $2.6 trillion in buybacks, equal to another 54 percent of their net income. After all that, what was left over for investments in innovation, including upgrading the capabilities of their workforces? Not much.

How, then, can the majority of Americans appropriate the vast surplus, the non-productive gambling funds, and convert these resources into productive uses that would generate employment, create useful services and products, establish financial security for most households, and even provide more leisure and vacation time for the majority of the population?  

“What is an economy for?” is the general question. What is the goal of coordinated economic activity? Should it be coordinated? How? I argue that an economy should organize human talent and potential to serve society while preserving basic rights and freedoms. The economy should serve. It should raise minimum social standards gradually as techniques and tools, often called productivity, improves. Since 1964 the U.S. economy on a per person basis has increased its output by 155% (see here and do your own calculation, from $19,455 to $49,584 per person), yet the weekly and yearly wage income of 80% of its workers, the non-supervisory workers, has actually increased by 3% — this is a Federal Reserve data fact. 
Median usual weekly real earnings: since 1979, wage and salary workers, employed full time
Median usual weekly nominal earnings, full time, wage and salary workers, since 1979
Share of National Income going to Employees as wages and salaries
Per capita disposable income
This shows that while after-tax, or disposable, income has tripled since 1964, up almost 200%, the average wage income is up 3%, and the share of income going to wages and salaries has dropped from 50% to 42%, a difference of $11,000 or more to each of the 96 million households in the lower-earning 80%, those who are employees. Evenly distributed, this rebalancing would eliminate poverty.

The economy has not shared its prosperity. The Economic Policy Institute reports that in 28 years, 1979 to 2007,  the top one percent increased its income by 200.5% (a tripling) while the average income of the lower-earning 99% increased by 19%. The per capita GDP expanded by 72% in this 28 year period (read the EPI report “The Increasingly Unequal States of America”). Only 5% of households matched the pace of the economy’s growth. There are many scholarly sources supporting this conclusion. 

To right the imbalanced distribution of income and wealth a practical first step would be to tax financial transactions, stocks and bonds, derivatives and futures trading -- (called an FTT). Since 75% of all financial assets are owned by 5% of the population this would not affect 95% of the population. Congressman Chris Van Hollen recently proposed this measure in February 2015 (see link below). Also income from capital and capital gains could be taxed at the nominal personal income tax rate, and the top income tax rate, say on income that exceeds $1 million a year, could be set at the level of all 8 years of the Eisenhower presidency, at 90%. During those Eisenhower years the economy grew rapidly and shared its prosperity. 

Explaining the need for a FTT, the Chicago Political Economy Group recently wrote a reply to an editorial in a local Chicago newspaper. Here's an excerpt: 
The Sun Times endorses the notion that more trading 

is always better, worrying that the LST [the FTT] 

would drive trading volume down and/or away from 


There is a huge amount of trading occurring on the 

Chicago derivative markets: more than $900 trillion 

in underlying value in 2014. Bear in mind, world GDP 

is $70 trillion and the US GDP is about $17 trillion. It 

is obvious that most of this trading is of the “socially 

useless” type described by Andrew Haldane, the 

leading UK regulator during the Great Recession. 

Further, there is evidence that such misdirection of 

resources hampers growth in the real economy.


Without increasing the national debt a multifaceted public jobs program could be initiated to end unemployment and under-employment. See the plan "Stimulus Without Debt" by University of Delaware economist Lawrence Seidman. And also see Rutgers University economist Philip Harvey's plan Back to Work to understand how at a price of about $30,000 per job, about 10 million jobs could be created for $300 billion per year. This would employ full-time all the unemployed and about half of those who are involuntarily employed in part-time work. About 20 million jobs are needed, but this $300 billion per year plan coincides with the Congressional Progressive Caucus plan. The Federal Reserve would advise the Congress on the ongoing danger of inflation growth. See the Economic Policy Institute on the the acceptable wage growth and inflation growth target.

Remember, 1 in 4 (or 40 million) American workers are either 1) out of work, 2) working involuntarily at part-time work,  3) dropped out of the labor market, or 4) working full-time and year-round at less than poverty level wage income. This should end. See the National Jobs for All Coalition's report on employment. Just as during the Great Depression, 1933 to 1937, when unemployment dropped from 25% to below 10%, (see the article supporting this finding here) or during the war period 1940 to 1946 when the number employed increased by a near-miraculous 40% and annual output increased by an astounding and record breaking 75%, public employment is effective in spurring an economy. This would tighten the labor market which would raise wage income for over 80% of workers. Presently wage income as a percentage of total income stands at 42%, down 8% from its historical norm between 1950 and 1980. (see Fed. Reserve graph here) This represent an income loss of about $13,000 per year for all employees (non-supervisory workers) in the lower-earning 80% of workers, perhaps $20,000 per household. If this difference were rectified and spread evenly among all households in the lower-earning 80%, 
then poverty would be eliminated

Capitalism must balance the distribution of its economic surplus, which is often called income or profits. Labor cannot receive excess income without destroying necessary corporate profits, and vice versa, excessive corporate profits decreases private purchasing demand, which in turn lowers employment. A balanced distribution is requisite, and presently corporate profits are at a historical high. 

Many sidewalks in San Leandro are clearly marked “WPA, 1937”. Many public bridges, dams, electrical installations, roads, trails, national parks, court houses, airports and seaports, schools and universities that were built in the 1930s are still functioning. Today’s needs are no less than before. We need to convert our transportation system to a renewable energy source, electric or hydrogen. Providing subsidized home energy retrofitting for energy efficiency is needed nationally. Improved childcare, public education, and expanded services to the infirm elderly and disabled are needed. The reestablishment of municipal and local recreational departments would greatly improve the developmental opportunities of the nation’s youth. And if we should find a paucity of work to perform, vacation time could also serve to maintain high employment ratios. Presently the labor force participation ratio is at a 37 year low and the employment to population ratio is at a 31 year low. Today we are about 8 million jobs below the historical 20 year (1989 to 2009) average E/P ratio. The nation needs jobs. And surprisingly, by creating public jobs the demand for products and services increases, and this in turn reduces and removes the need for public jobs. See the Philip Harvey report, below.

These goals are simple, comprehensible and within reach. The national debt need not be increased, either through the FTT or the Stimulus Without Debt approach. All capable adults could find employment, needed public services and infrastructure would be upgraded, financial security for most would cease to be an unobtainable dream, working paycheck to paycheck would disappear, and families would find time for leisure and vacation. This is        the View of the Future.           

Additional reading: 

For public job creation see 
Chicago Political Economy Group, Working Papers, and Reports
“A Better Off  Budget” from the Progressive Caucus of Congress, at 
Philip Harvey, Back to Work: A Public Jobs Proposal for Economic Recovery
Nouriel Roubini, et al, The Way Forward

Congressman Chris Van Hollen’s proposal for a Financial Transaction Tax at The Center for American Progress

See also my web page, Economics Without Greed            
Thank you for reading. 

Ben Leet                   
Here's a recent example of Paul Buchheit's writing, where he states,
1 "138,000 Kids Were Homeless while 115,000 Households Were Each Making $10 Million Per Year.
2. The Average U.S. Household Pays $400 to Feed and Clothe Walmart, McDonalds, and Other Low-Wage Workers
3. As $30 Trillion in New Wealth was being Created, the Number of Kids on Food Stamps Increased 70%
4. Despite the Decline in Food Security, the Food Stamp Program was Cut by $8.6 Billion and the Money Paid to Corporate Agriculture"