Fact-free fiscal farce
By David Cay Johnston
The author is a Reuters columnist. The opinions expressed are his own.
The Washington debate over whether to voluntarily default on the U.S. government’s obligations revealed a serious political ailment in Congress: mass economic amnesia.
Just 11 years ago, Republicans insisted budget surpluses were bad for the economy, while Democrats told us surpluses would make the economy flourish. Al Gore said pay off the federal debt; George W. Bush said cut taxes so people would have more money.
During the Bush years Democrats decried the red-ink budgets, while Republicans assured us that no real harm would come from a $5 trillion borrow-and-spend spree.
Yet last weekend it was the other way around. The Democrats described a few more years of deficit spending as vital to making up for massive loss of jobs, while Republicans warned that any more red ink would destroy America as we know it. Feeling confused? You should be. And maybe, like the Beijing government, you see the checks-and-balances the framers of the U.S. Constitution put in place to provide sound government replaced by farce.
There is a cure for bad political posture. Just dose yourself with the best elixir ever for manufactured crisis: facts. The posturing in Congress having stretched any sense of reality beyond recognition, here are 10 facts that would have informed the debate on Capitol Hill and can certainly inform your understanding of the federal fiscal follies:
COUNT TO 10
1. No sovereign government with monopoly control of its currency can go broke in its own currency. Since the Constitution gives Congress a currency monopoly it is axiomatic that talk of our government going broke is nonsense unless we have a revolution, in which case federal bonds won’t be worth the electrons used to keep digital track of them.
2. Gross federal debt today is up 250 percent from when President Bill Clinton left office, and up 35 percent from when President George W. Bush left office, but the government’s blended average interest rate has fallen 54 percent since Clinton and 22 percent since Bush, suggesting that the bond rating agencies’ warnings about the chances that federal debt will be serviced as promised are as reliable as their estimates of the likelihood that all those mortgage bonds would be Triple A investments.
3. Had America stuck by the tax-and-restrained-spending policies of President Clinton, and his budget projections proved reliable, the government today would have no debt. Instead it would have a surplus of $2.1 trillion, or nearly $7,000 per American.
4. President Obama’s first budget, for fiscal 2010, that began on Oct. 1, 2009, had a smaller deficit than President Bush’s last budget, which promised a $407 billion shortfall, missing the mark by only a trillion dollars.
5. Those Wall Streeters President Bush bailed out in his final days continue with their risky bets because, being too big to fail, they sense Washington is ready to bail them out by swapping their red ink for government black ink, a belief reinforced with campaign contributions to make sure the government spends little on banking regulators.
BOTH POLITICAL PARTIES
6. President Obama’s original budget ended a host of Bush-era devices that understated budget deficits, while at the same time laying out a plan to cut the deficit he inherited by half, partly by raising taxes on the top two percent of earners, but the Republicans most worried about red ink worried even more about taxing billionaires too much.
7. Federal budget deficits as far as the eye can see would be significantly smaller but for Obama acquiescing to Republican demands to extend the temporary Bush tax cuts for all and Democrats, who also rely on rich donors, meekly going along with it.
8. Federal individual income tax revenues in 2010 were smaller than in 2001, the recession year when the Bush tax cuts began. Revenue was down by $330 billion or 27 percent. Because America’s population keeps growing, income taxes per capita fell 32 percent from $4,310 per American to $2,910, making it harder still to balance the budget.
9. Healthcare costs rose just 3.9 percent in 2010, the smallest annual increase in modern times, according to the federal Center for Medicare & Medicaid Services actuary, while by 2020 the Affordable Care Act (what critics call Obamacare) will add just a tenth of one percentage point to healthcare costs while adding 30 million more Americans to health insurance rolls.
10. The deal to avoid voluntary default calls for squeezing Medicare and Medicaid spending even more while making sure the richest among us enjoy lower tax rates than the middle class do. A result will be more luxuries at the top, while pushing 40 percent of hospitals toward bankruptcy, though not until 2050 when about 40 percent of Americans living now will be beyond any benefit from hospital care.
Both political parties contributed to our federal debt. Manufactured crises like the debt ceiling vote mask the real issue, which is our desperate need for prudent policies that create broad prosperity by taxing, spending and managing debt for the good of country, not party. (Editing by Howard Goller)