Weekend Reading – Deal or No Deal?

July 23, 2011

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Good golly, what a mess!

John Boehner walked out of the debt negotiations yesterday afternoon and wrote an angry letter because the President wouldn't bend over and take the "Cut, Cap and Balance" Act that would take away the President's power to adjust the budget, "Cut" social and regulatory programs across the board (except military spending and other pet projects the House wanted to exempt), "Cap" spending along unrealistic inflation measures (setting up the poor for a total screw-job as inflation kicks in) and Balance – well, only the kind of people who think Fox news is "fair and balanced" could have the nerve to use the word balance in a bill that would cut $400Bn of annual spending – EVENTUALLY (just $144Bn is saved in 2012 in this joke of a bill) and raise not one penny of revenues.

Keep in mind that we have a $1.4 TRILLION Dollar deficit this year so even cutting $400Bn off that figure leaves us with a $1Tn revenue shortfall so this plan, and all plans put forth, are not in the least bit serious about balancing a budget as THE INTEREST ALONE on a $1Tn shortfall over the next decade would add another $350Bn a year of mandated interest payments, causing the CUT of yet another $350Bn in spending until, eventually, the sole purpose of the US Government is to pay the interest on our debt.

You can't run a country based on "No New Taxes – EVER" the same way you can't run a home budget or a business saying you never, ever, ever intend to increase your income enough to pay your debts or even keep up with inflation. What happens to a business like that?

As the NYTimes points out, Obama, in fact, had already gone much too far in trying to make his deal palatable to House Republicans, offering to cut spending even further than the deficit plan proposed this week by the bipartisan “Gang of Six,” which includes some of the Senate’s most conservative members. The White House was willing to cut $1 trillion in domestic and defense spending and another $650 billion from Medicare, Medicaid and even Social Security.

Much of that savings would have come from raising the eligibility age for Medicare benefits and reducing the cost-of-living increases that elderly people depend on when receiving their health and pension benefits. It could have caused significant damage to some of the nation’s most vulnerable people.

The White House deal for the House would have required that alongside these cuts, tax revenues would go up by $1.2 trillion, largely through a rewrite of the tax code to eliminate many deductions and loopholes. That’s substantially less in revenue than the $2 trillion in the “Gang of Six” plan. The problem is that while much of the cutting would start right away, most of the revenue increases would be put off, in part because a tax-code revision would take months, and in part to allow spineless House Republicans to say they did not agree to any specific tax revenue increases (ie. they planned on lying to their constituents – as usual).

Democratic lawmakers were rightly furious when they heard about these details this week, calling the plan wholly unbalanced. But, in the end, it was Mr. Boehner who torpedoed the talks. He said Friday evening that he and the President had come close to agreeing on $800 billion of the revenue increases (the equivalent of letting the upper-income Bush tax cuts expire as scheduled next year — not much of a heavy lift) but could not stomach another $400 billion ($40Bn a year!) the White House wanted to raise through ending tax loopholes and deductions.

So, on the eve of economic calamity, the Republicans killed an overly generous deal largely over a paltry $40 billion in annual deductions (aimed at people who made over $3Tn last year in income). Mr. Obama was willing to take considerable heat from his liberal critics over the deal, and the Republicans were not willing to do a thing to anger their Tea Party base. As the president forcefully said, there is no evidence that House Republicans are capable of making those tough decisions. If last-ditch talks beginning Saturday fail, they will have to take responsibility if the unimaginable — a government default — happens in 10 days and the checks stop going out.

Sunday night update: NO DEAL!

It would be great to say they were close but, like children that have each stormed off to their rooms, the Reps and Dems have left the table to work on their own plans – as if one of them will magically present something that will make the other party go "Oh I LOVE that idea!"

Congressional leaders from both parties were developing competing deficit-reduction plans, but they released only broad outlines and few details. Several aides stressed the plans were still evolving.

One currently under discussion, a plan from House Speaker John Boehner (R., Ohio), would cut the budget deficit by $1.2 trillion over 10 years and raise the debt ceiling in two phases—one that would enable the government to cover its bills through the end of the year, and a second in January 2012 depending on recommendations from a congressional commission. "I would prefer to have a bipartisan approach to solve the problem," Mr. Boehner lied Sunday on Fox News. "If that is not possible, I and Republican colleagues are prepared to move on our own."

Democrats say a six-month increase in the government's $14.29 trillion debt ceiling will introduce too much uncertainty into financial markets and they insist on a deal that would raise the cap by $2.4 trillion immediately, which would carry the government through the end of 2012.

Senate Majority Leader Harry Reid (D., Nev.) said in a written statement Sunday evening he is pushing ahead with a plan for $2.7 trillion in spending cuts over 10 years, along with an increase in the debt limit sufficient to carry the government through the end of 2012 and no increase in tax revenue. The details of the cuts had not been finalized, but none of them would be to entitlement programs like Medicare, a Democratic aide said. One option being discussed was $1.5 trillion in cuts that were identified by a bipartisan group led by Vice President Joseph Biden, and another $1 trillion in savings from winding down the wars in Iraq and Afghanistan, the aide said.

If the next few days play out that way, with the House and Senate on separate paths toward a debt deal, it doesn't bode well for a bipartisan agreement—or for legislation to clear Congress before Aug. 2.

Look at the above chart! Non-Security Discretionary Spending is $507Bn out of a $1.645Bn deficit. WHEN WILL WE BEGIN TO HAVE A SERIOUS DISCUSSION? Any child can see that we are not COLLECTING enough revenues, notably from Corporations, who are paying just 5.2% of all taxes in 2011 vs. 94.8% paid by their employees. Corporate News is preventing America from having a real discussion while their pet politicians, other than our President, don't even dare mention what the real problem is in this country as we barrel along a highway to Hell – this is truly ridiculous folks!

Banks paid an average tax rate of 8.5% while Oil Companies paid an average 2.04% tax rate!. WAKE UP AMERICA – you are being screwed – not just by the Corporations but by anyone who pretends this is not the number one issue! Even if you use the official total of $1.66Tn in US Corporate Profits, which is net of losses by other Corporations, net of deductions and loopholes and net of another $2.7Tn of overseas profits – EVEN using JUST the $1.66Tn official net profits – $198Bn in taxes collected is just 11.9% of the total.

Google is a great example of a US company that not only declares the majority of their earnings to be overseas but uses loopholes to declare their US earnings to be overseas as well, cutting their effective tax rate to 2.4% of earnings, shaving $3.1Bn off their annual tax bill using tax-avoidance strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich.”

Apparently, Google's policy of "Don't Be Evil" includes some sort of side note about "Paying No Taxes"… Of course, GOOG is amateur-hour compared to GE, who booked $490Bn in revenues over the past 3 years with $39Bn in DECLARED profits and paid a grand total of $1Bn in taxes (2.5%). They also paid out $26Bn in dividends, mainly to the top 1%, who paid just $3.9Bn in taxes on that income.

The most amazing thing about GE is that, despite earning "just" $39Bn in profits since 2008 and paying out $26Bn of that money in dividends, they also managed to add $73Bn to their Cash and Short-Term Investments, in fact adding $65Bn to their total current assets while simultaneously paying off $24Bn in liabilities AND paying off $61Bn in debt for a net improvement of $223Bn! No wonder Jeff Immelt is Obama's Economic Adviser – that guy REALLY knows how to stretch a Dollar (a declared one, that is).

Don't worry though, it will all be over shortly – an not in a good way as the one thing the House Republicans have managed to take an axe to is our nation's defenses against nuclear terrorism. That's right, in an effort to please their Koch Masters, the House has trashed the budget on the Energy and Water Bill, slashing the country’s defenses against nuclear terrorism — a threat both parties have long recognized as one of the most serious facing America.

This is the second time in six months that Republican lawmakers have voted to cut funding for programs to prevent nuclear terrorism. Such programs have removed several tons of plutonium and highly enriched uranium from countries that might otherwise be unable to prevent those nuclear materials from falling into the hands of terrorists, made more than 1,000 buildings housing dangerous fissile and radioactive materials across the world more secure and strengthened security at many foreign ports and border crossings.

The House budget cuts come on top of the unprecedented 14 percent reductions made to those programs in the current federal budget. By comparison, from 2001 through 2010, Congress cut the budget by a cumulative total of slightly less than 1 percent. The House Republicans also eliminated a program that seeks to remove and secure 1,900 radioactive sources — sealed containers holding radioactive material — throughout the United States. Those radioactive sources are no longer in use, but they remain dangerous. Is it possible the Republicans WANT to invite a nuclear incident so they can "prove" Obama is soft on terrorism? According to the NYTimes:

Beltway budget battles always produce a lot of game-playing. But protecting America’s security is not a political game. The programs the House has cut are proven, effective and prudent national security investments to prevent nuclear terrorism and its devastating consequences. Slashing America’s best defense against nuclear terror will not make us safer or richer. In fact, it could invite the opposite result.