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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. 

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