What caused the Budget Deficit (Before the Financial Crisis)?
by Linda Beale
crossposted with Ataxingmatter
What caused the Budget Deficit (Before the Financial Crisis)?
Kash on Angry Bear put together a really good graph in 2006 comparing where we might have been if Clinton policies (bad as they were in many cases) had stayed in place compared to where we were and expected to be with the Bush tax cut and spend policies. Responsibility for the Federal Budget Deficit, Angry Bear 2006. Deficits under Bush were projected for more than $500 billion annually. Of course, that was before the greedy, reckless banks threw the financial system into a tizzy with too much credit invested in too many houses by people with too little income to pay for them. Add the costs of backstopping the Big Banks, and we end up with the trillion dollar hole we are currently in.
Answer would seem to be–1) make the banks pay with a tax based on leverage and 2) end the tax cuts or at least a goodly share of them and 3) reinstate an estate tax that has some bite, so that those at the top who can afford to pay do pay.
Seems like there are at least a few in Congress realizing that item 3 makes some sense. Sanders, Harkin and Whitehouse have proposed that the estate tax should have a $3.5 million exemption and a graduated rate, with those at the top paying a rate of 65% (a base rate of 55% and a surtax of 10% on the amount above $500 million or above $1 billion for a couple). The surtax would mean that the estate tax would hit the 403 billionaires who have a net worth of $1.3 trillion harder than it hits the smaller estates. See Janet Novack, Three Senators Call for Billionaires Estate Tax, Forbes.com, June 24, 2010. Now that makes some sense.
Senators Kyl and Lincoln are pushing the so-called “compromise” that would eviscerate the estate tax by creating a $5 million exemption and lowering the rate to 35%. That is a step in the wrong direction. Especially when Congress is making such big noises about the deficit that it is unwilling to pass stimulus funding for unemployment benefits to support Americans hard hit by the Great Recession.
What caused the deficit, aside from too low taxes: too much government demand in unproductive sectors: military industrial complex, NASA, much of DoT etc. About a third of US spending drives up labor costs and retards US productivity.
The US raced the USSR to bankruptcy, came out of it exhausted then began racing itself to militarist bankruptcy to fight isolated bogey men in remote caves using “defend the US by occupying the rest of the world” craziness.
The plan to defend everywhere with the most expensive, useless tools is bankrupting the US.
About a third of US G outlays does more damage to the economy than good and only benefits a percent or so of the population with dividends for work contracted by the US G.
Worse the militarist program is so whacky no one would pay taxes for it.
So, the US leveraged itself for counter productive investment.
No wonder.
Never forget that the budget deficit is the product of a deliberate republican policy called starve the beast.
Liberals should keep yelling this from the top of our lungs in every venue we have and insist that the republicans and the people who voted for them should pay the price to resolve the problem that they deliberately created.
Maybe we should do thing like reminding people that Greenspan claimed that if we did not pass the Bush tax cuts that we would have budget surpluses are far as the eye could see — or at least until social security had to start cashing in some of the special treasury debt that the large social security surplus forced them to buy. Moreover, Greenspan though the surpluses were bad because they would lead to unemployed bond traders at Goldman Sachs. Maybe some reporters should be reminded of this every day.
IT IS STILL BUSH’s FAULT.
I am forever amazed at the cognitive dissonance of the LEFT. Kash had this to say: “Second, it is quite clear that the deficit is entirely due to specific decisions made by the Bush administration and Congress. External, “ungoverned” forces have not caused our budget mess. That honor belongs entirely to our policy-makers in Washington.”
Sopencer has theis to say: “Never forget that the budget deficit is the product of a deliberate republican policy called starve the beast.
…
IT IS STILL BUSH’s FAULT.”
QWhile the reality is shown in the graphs below.
But Y’all keep on believing you have a handle on this set of problems with your selected politicians’ policies. I beleive the following to be true (copied from Confederte Yankee):
“Everything about this administration is historic — and none of it in a good way.
Should, heaven forbid, the world’s first Oilcane (a hurricane and the oil spill) wreak havoc in the Southeast, one man will have to shoulder substantial blame. One man’s legacy will be utter economic and environmental ruin. One man’s unsuitability for the highest office in the land will be crystal clear even to the most obtuse observer.”
November’s a cummin!
OK, COV REV, who gutted the regulatory apparatus and changed the rules so that BP could operate its penny pinching drilling that even the other oil men recognized as a disaster waiting to happen. It sure as hell was not the liberals.
The Federal Deficit was over 10% of GDP when Obama took office and it is now lower than when Obama took office. Try looking at the data behind the chart you are citing. It shows that the deficit peaked under Bush and is actually on a path towards a lower deficit. The deficits in the out years your chart is showing is actually smaller than the deficit was in the out years of the Reagan administration.
You level of ignorance is unbelievable– you have fallen for the republican propaganda hook, line and sinker. Come on, you are smarter than that.
CoRev,
So November is a cummin’. And what then do you suggest is going to be a better way to go? What Republican administration policy should we fall back to? Are you concerned that the Obama administration has not taken sufficiently severe steps to effectively over come the disaster of the Bush administration? So too am I, but what is it you’re suggesting is the best alternative? Which Republican idea would be better? Which Republican would be better? You’re complaining about the “cognitive dissonance of the Left?” What left is that? Is that the Left of Larry Summers and Rahm Emanuell? You’re talking trash. Have you nothing of value to add? What better would John McCain have done? Spencer thinks that you’re smarter than that. I’m wondering what you’re smarter than if all you can do is cry about some left wing policy that issnt actually in place, and offer no alternative other than to say, no, don’t do that!
“…so that those at the top who can afford to pay do pay.”
It is not only a matter of who can afford to pay. It is more a matter of who hasw benefited most from the government policies that have wrought the economic structure of our country. Those who have benefited most have been able to excape their responsibilities to support that government that supports and rewards them so generously. The very wealthy owe that support to their government, and their government is truly is. Unfortunately income distribution and tax responsibility will not be altered from its current structure without a significant ideological and representational change in our government. That ends up at the ballot box, but it begins with dramatic re-education of the masses of voters. Was it Dorothy Parker who coined the phrase, “The masses are asses,” ? It’s a bleak reality without a better view to the future.
The republicans are running on the Coolidge platform, do as little as you can get away with. Coolidge was very effictive at this policy, deciding that prohibition did not need money to be enforced, it would just happen. On this the dirtly little secret of our government from 1920 on is that we do not have a large enough court system to prosecute all the crimes that exist. So prosecution is by its nature a make an example of the bastard thing. In particular we have decided that people seeking to flee the depression that is their lives thru drugs need to be in prision, rather than saying if the mass of men lead lives of quiet despartion, let them seek oblivion, legalize weed and opiates. Pierre Dupont went for repeal of prohibition on an idea that it would give the government more revenue which it did, so lets legalize these drugs. We can spend some of the proceeds to bring back hospitals for those who want rehab. (The drug users are paying for it in their taxes)
Spencer, this time I will better proof read my comment, so it doesn’t read so poorly. Anyway, since you asked who changed the regs both parties.
Perhaps a better question is why are we drilling in such an inhospitable place as 5K deep in the Gulf. What set of regs has caused oil companies to drill in such environs when much easier, closer, cheaper, and even safer areas are still available in the US?
Jack, give me a break! saying this: “Are you concerned that the Obama administration has not taken sufficiently severe steps to effectively over come the disaster of the Bush administration?” is just another example of the cognitive dissonance.
I gave my solution for balancing the budget last week. That’s simple.
What’s not working is the stimulus. Yes, there are many ways to do a better job than the current package. Why do you think extending the pain and suffering for several years was a good policy? That’s what this package was designed to do from the very beginning.
Who care who caused it because the cure is the same, tax the super rich. It won’t ruin the economic because it never did. Return the tax rate to what it was when America had the highest per capita income and America will again have the highest per capita income.
it would do no good to remind the reporters and columnists who cover them. they are like ducks. every time they blink their eyes it’s a whole new world.
CoRev
back in the day, i learned that cognitive dissonance was what happened when two conflicting ideas found themselves occupying the same attention span. it’s not enough that they co-exist quietly in the same brain. the subject has to be aware of them, at least long enough to come up with a rationalizatioin or denial.
words change, of course, but i don’t think this is what you mean.
and since i got this far, none madder at Obama than me. but your charging him with causing the gulf disaster and the deficit simply destroys your credibility.
jack
again, i agree with you. but as long as we keep playing “no, YOU go first.” “it’s no fair!” we are not going to get anywhere. a general tax raise, on the poor as well as the rich would rob the rich of their stupid excuses. they ought to be competing to see who has the biggest tax bill, instead of who has the biggest yacht, or whose girlfriend has the biggest… you know, show a little patriotism guys.
that’s right CoRev, why pollute the gulf, when you can pollute your neighbor’s bedroom.
Peter John
let me say it again. i’m all for taxing the rich. but will you show good faith by agreeing to a proportionate tax increase for yourself?
Dale care to show us where I made these claims? “but your charging him with causing the gulf disaster and the deficit simply destroys your credibility.”
BTW, your comment is and example of cognitive dissonance. Dem/leftist Prez’s good. OMG, Obama is in office and things he implemented are in chaos.
Obama is the best example of what we conservatives have said re: Dem/liberal policies for generations. And, what we said was not good!
Dale, when you are constantly demonized by the compassionate and caring party, what’s the point of supporting them by being patriotic?
Dale, the answer is in your example. Gulf coast versus a bedroom size impact. One area nearly unbounded the other clearly bounded.
Memorial Day and July 4th are sustained by Lockheed Marting war machine ads.
Militarism is patriotism.
What has patriotism to do with paying for the governance that benfits the rich?
And who cares if they wander off to foreign tax shelters, when they leave the US will stop policing the world and the US emigre’s can deal with the locals themselves.
You should not argue patriotism, it is the realm of militarists and fascists.
The answer to the deep water is:
Drilling royalties inUS waters were suspended when oil was $30 a bbl, so that they might be motivated to explore.
When oil was $140 a bbl the royalties were ignored and remained off.
It is rather disingenuous to say ‘there is so much easy oil near’, when the motives were to go for the big fields in deep water and enjoys cuts in the financial risk (more returns) with no royalties.
Indeed, under Bush/Cheney if there were better gambles near they would have been done.
Lobby expenses for oil and gas:
Total for Oil & Gas: $38,178,838
Total Number of Clients Reported: 150
Total Number of Lobbyists Reported: 609
Loby expenses for those radicals:
Total for Environment: $5,495,200
Total Number of Clients Reported: 92
Total Number of Lobbyists Reported: 314
Seems to me the oil companies spoke loud and well, and came up with deepwater drilling.
CoRev
we are not going to get very far this way. “cognitive dissonance” does NOT mean that “you disagree with me.”
And you have never heard me say Dem or even leftist pres good. I thought Johnson was bad. And I thought Ike was good. I even thought Kennedy was bad. And I have a pretty low opinion of both Clinton and Obama. So spare me the stereotype. It seems to be you who is touting the stereotype, just witht he good-bad reversed. As for my opinion of Republicans, it has gone from bad to worse. Whatever I think of the last two or three democrats, the Republicans on offer have scared me.
YOu are on record here as blaming Obama for the oil spill… seems the dems forced the poor oil companies into drilling in the ocean by placing the school playgrounds, where they would be safe, off limits. and you have been yelling and yelling about the Obama deficit on a daily basis, as if the Previous (deficits don’t matter) Administration had nothing to do with the deficit. I won’t take the trouble to find exactly where you said it, but if you can’t remember, it doesn’t say a lot for the future of trying to talk to you about it.
CoRev said
“Should, heaven forbid, the world’s first Oilcane (a hurricane and the oil spill) wreak havoc in the Southeast, one man will have to shoulder substantial blame. One man’s legacy will be utter economic and environmental ruin. One man’s unsuitability for the highest office in the land will be crystal clear even to the most obtuse observer.”
well, perhaps not to this obtuse observer.
co rev
i was suggesting they be patriotic by paying back the money they borrowed. i dont see how this supports one party or another.
yep
the exxon valdez was clearly a bounded disaster. but to tell you the truth, i don’t remember attending a rally of environmentalists were they chanted “drill baby drill.”
I think a famous Englishman once said, “A fanatic is someone who can’t change their minds and won’t change the subject.” I say this in reference to Linda’s obsession with the estate tax. But she’s in good company with Sanders, Whitehouse and Harkin. Of course what these four cannot understand is that even pro-estate tax billionaires like Buffet and Gates will not leave an estate over $500 million. Why do you think they are so focused on their foundations? Because all the donations by their estates to said foundations reduce the donor’s estate. In addition the donors get hefty income tax deductions. And you can put your sister and kids on the boards of those foundations and they can draw abscene salaries for “managing” the foundation. I am working with the advisors of a man in his 70’s who is/has been between 200 and 300 on the Forbes wealthiest Americans for the past 15 years. His advisors say his taxable estate at life expectancy will be between $100 and $200 million due largely to his donations to the family foundation. I guess he’d escape Tom, Linda, Sheldon and Bernie’s great idea. So will Warren and Bill.
Dale, care to show us where I said: “YOu are on record here as blaming Obama for the oil spill…”?
Dale, in this one comment you have made several unsubstantiated claims of what I have said. I’ve already caught Spencer with exagerations and less than absolutley truthful statements. I doube seriously your memory is better than mine re: what I have said.
Here’s what: “Cognitive Dissonance is the feeling of uncomfortable tension which comes from holding two conflicting thoughts in the mind at the same time.” means.
And here’s the example: “(Idea 1) none madder at Obama than me. (idea2 but not as bad as CoRev says) but your charging him with causing the gulf disaster and the deficit (rationalization it’s him not me) simply destroys your credibility.
ilsm
i wish you could recognize bitter irony when you see it.
CoRev, in answer to what we can expect of the Republicans as an improvement in regards to budget deficits specifically and running the country in general given that I questioned his referednce to changes that are “a cummin’ in November:”
“I gave my solution for balancing the budget last week. That’s simple.” CoRev.
That’s an answer to a question regarding the benefits of regime change? Are you so egotistical as to think that your personal recommendations for government action are a sufficient answer? Are you likely to serve in a Cabinet post under a new
Republican regime? Have you been tagged as likely to succeed Geithner at Treasury or Beranake at the Fed?
You suggested that a change in November was upon us. Fine. So how does that improve the country, its economy or any small aspect of its over all functioning. No, I’m not interested in what CoRev’s personal opinion may be. I want to know from you how the Republicans are likely to improve anything.
They are drilling in the gulf for one reason, THEY WANT TO! They have been applying for these permits for decades because there is a LOT OF OIL there. Putting this on environmental policies is complete bullshit.
jack
i think you are being a little unfair. CoRev’s opinions are as relevant here as yours and mine… maybe more so since he seems to be in agreement with what “they” want him to believe.
But I would suggest that if he wants us to know his opinons he may need to restate them and not expect us to remember what he said last week.
God knows I have to keep repeating myself.
How smart someone might be is irrelevant when they are blinded by ideology.
Should, heaven forbid, the world’s first Oilcane (a hurricane and the oil spill) wreak havoc in the Southeast, one man will have to shoulder substantial blame. One man’s legacy will be utter economic and environmental ruin. One man’s unsuitability for the highest office in the land will be crystal clear even to the most obtuse observer.”
Evidently CoRev believs that this isn’t charging Obama with the Gulf disaster.
And he doesn’t understand cognitive dissonance, either.
He’s really good a spouting right wing talking points, though.
Cheers!
JzB
Jack, you ask a good question. So what will be the almost immedaite difference between a Republican versus the current regime, if changed? A shift to pro-business growth, policies from the current anti-business, business sector demonization after demonization, pro-labor policies.
Business growth produces more jobs, investment, and increasing revenue streams. Today’s pro-labor causes business uncertainty due to increased conflict (read the comments, some of your own here), demonization and anti-business legislation slows growth, causes businesses to save and not invest, and forces them to move overseas to better (pro-growth/business) environments.
BTW, how can a Dem. rationalize St Bill’s economic preformance, which resulted in budget surpluses, versus Bush’s economic performance? I refer you, even again to that infamous chart, below. I equate it to good luck and pro-growth more than any other set of polices in St. Bill’s case and bad luck and pro-growth policies in Bush’s case.
Yes, that is a too simple explanation, but, as always YMMV.
Getting your gloat on early, I see. Although I have to wonder why you take such pleasure in the prospect of a bunch of red states getting whacked by a combination hurricane and oil spill.
little john,
This is a subject that Linda can never get by. She thinks an estate tax will actually get real money. It won’t – even at 100%. Bill Gates isn’t going to let his money go to the Gov if he dies today.
I also no of a very wealthy family, who’s benefactor died a long time ago, and he made sure that his estate wasn’t touched by the tax-man (and will not when his wife dies). Its all in a non-profit foundation, with his children as boardmembers making good money basically voting for what the operating trustees want. The IRS gets its cut of the income, but won’t ever get a slice of the big money.
This goes back to the re-accurrent theme to “soak the rich”. BUt in reality they just want to soak people who WANT to become rich. (High incomes). People with high amounts of wealth don’t get touched. The effect is to entrence the current rich in place.
Islam will change
Well, it looks like this board has its resident Villager idiot.
OK CoRev
How would they be pro growth? By promising them they have to pay no taxes on any money they earn? More specifiically how has Obama been anti growth? He’s raised no ones taxes (yet) and has given NUMEROUS tax incentives to businesses for hiring (ALL have been endorsed by the conservatives).
The problem with supply side thinking is that it thinks only from the supply side. It believes demand will follow supply which is absolutely absurd. Businesses arent “not hiring” because their taxes are too high, they’ve never been lower in the last few decades, they arent hiring because too many people who used to have jobs and buy their products NO LONGER have jobs. This is the basic reality that modern republicans refuse to understand. Cutting peoples salaries only results in someone elses income falling as well. Its a race to the bottom. Employees are NOT costs, they are customers (for someone else) and someone elses employees are YOUR customers.
Your whining about Obama demonizing business is ridiculous. He’s pointed to the excesses of bankers, brokerage houses, health insurers and now BP all of which were justified. None of these sectors deserves any sparing of criticism. Did he put any out of business? NO! Has he nationalized any of them? NO! They deserved more criticism than he’s given them, I THINK, but he has ALSO criticized teachers unions and encouraged UAW to rework their contracts.
The problem is not the price of labor in this country, not with unemployment at over 10%, the problem is the cost of CEOs like Blankfein and Dimon. The FIRE sector rising to 40% of corp profits from around 10% in the late 80s IS problematic. Deal with THAT!
Totally agreed.
The problem is not just “who changed the regs” but rather how did an ideology of deregulation, tax cuts, and “the government is the problem” (quoting Reagan) become the way government works. As considerable money was spent to instill that ideology at every level of American society (think Olin Foundation dollars, George Mason Law School “seminars” for judges, Cato Institute, Claremont Institute, etc. etc.) what we ended up with (even in the short 8 years of a Democratic administration) was a pervasive view among political heads of regulatory agencies that regulation was the problem and that “free enterprise” meant that corporations should be able to take care of themselves. No need to enforce driling rules–let Big Oil define the demands on itself and then perform accordingly. No need to think about pushing down the costs of military goodies–it’s great for business, and besides we want to “starve the beast” anyway. What better way to ruin government than to get it to pay you “rent” while you do so…..
That’s not an issue of “good faith” and attempting to cast it as such seems to be merely a way to postpone or prevent a fair adjustment to the burden of the rich. That is a claim that the rich (by which I mean at least anyone in the upper quintile of the income distribution) shouldn’t have to shoulder their fair share of the burden unless everybody else who is already paying more than their fair share shoulders more too.
Before the Bush gradual phaseout (and reinstatement) of the estate tax, it pulled in at least $20 billlion a year–at times around $30 billion, in spite of all the valuation dodges, partnership and trust schemes and vigorous tax planning for the very wealthy that went on. Fixing the tax dodges is a relatively simple proposition if Congress has the will. It is the height of absurdity to claim that because there are currently well-known loopholes that save some wealthy families a good deal of estate tax we should therefore eliminate the tax. A more reasoned response is to fix the loopholes, and garner even more than the $20 billion or more that we have consistently raised with the tax even with the loopholes. It would be relatively simple to require that any estate worth more than, say, $10 million at the time of the estateowner’s death be subject to a minimum level of estate tax, calculated BEFORE any charitable designations/foundation bequests are taken into consideration, for example. In that way, the megamillionaire/billionaire estates would not be able to avoid their responsibility to pay. Since those estates likely are made up primarily of financial assets and since much of those financial assets likely has never been subject to tax, this would be an extraordinarily fair way to deal with this issue.
(One of the loopholes I’d get rid of is the ability of family members to get paid a significant salary out of an estate via service on the board of a family foundation. Set up an independent trustee, set the goals of the foundation, and then that’s it. But it should be observed that chilren as board members are at least being taxed on compensation, rather than getting that income from the estate tax free.)
The Republicans just refused to provide additional unemployment benefit for those who were devastated by the financial crisis–such as my friend who was laid off and has sought whatever job he can do since. The cost of the additional unemployment benefit was $35 billion. But the Republicans said that increase in the deficit was unacceptable. The cost of the research & development credit–which most likely doesn’t increase research expenditures more than a trivial amount and most likely merely gives a tax break for activities that businesses would undertake anyway, is just under $20 billion. But the Republicans insist that we really need to pass that. So the amount of money raised in the estate tax is not trivial, it is a reasonable and relatively painless way to raise revenues compared to many other ways to raise revenues, and those who reject supporting admittedly needed unemployment compensation because of a similar dollar amount of deficit certainly can’t think that the amount is inconsequential.