Showing posts with label fiscal cliff. Show all posts
Showing posts with label fiscal cliff. Show all posts

Friday, July 31, 2020

A Better Way To Solve The Mother Of All Fiscal Cliffs

With the extra $600 per week in unemployment benefits set to expire today, combined with the income tax deadline that just recently passed (July 15), the country faces the mother of all fiscal cliffs.  As a result, the money supply would shrink in August, and millions of Americans would have less money to spend right while the eviction moratorium expires and several months of their rent effectively becomes due all at once.  And the timing could not be worse, given the fact that the GDP apparently shrank by nearly a third (32.9%) in the second quarter of this year, the worst quarter in American history (and even worse than the European average now!), while any hope of recovery is currently sputtering now at best.

That is, the US economy literally shrank by a greater annualized percentage in just three months than in the entire four years (peak to trough) from 1929-1932, the worst of the Great Depression, when GDP shrank by 30.5%.  Let that sink in.  Meanwhile, the UK is currently experiencing their worst recession in at least 300 years.  Now that really says something!

Thus, a very, very big stimulus is necessary right now to prevent a long-term, full-blown depression of epic proportions.  Depressions are fundamentally caused by a shortage of money.  After all, GDP is literally just a spending measure, and most of that is consumer spending and government spending.  The caveat, of course, is that not even all the money in the world could fill (and can barely even briefly paper over) the inherently massive hole left in a shuttered-by-fiat economy until after the economy is fully reopened, at least not for very long.  Thus, the TSAP recommends the following steps be taken, yesterday:
  • Expand the $600 per week to ALL Americans period, not just those receiving unemployment benefits, no strings attached.  Anyone with an SSN or ITIN gets it.  Maintain such payments until at least December 2020.
  • Create a permanent UBI for all Americans, of $230 per week ($1000 per month) for adults and half that amount for children and young people under 18, for when the temporary extra $600 finally expires.  Again, no strings attached.
  • Pass the HEROES Act and all of its associated stimuli, not the cheap Republican knockoff version.  After all, without essential workers, civilization would have collapsed by now, so it is literally the LEAST we can do to thank them.
  • Extend the eviction moratorium until September 1 or until enough of the funds from the above are disbursed into the pockets of the people so they can pay enough to avoid eviction, whichever occurs later.  Consider also cancelling (and directly compensating with federal funds) landlords for all past due rent dating from March 1 until August 1.
  • More funding to shore up small businesses, which are the very bedrock of the economy.
  • Keep the US Postal Service running with whatever federal funds are necessary.
  • Increase aid to the states, and funding for hospitals as well.  And while we're at it, implement Medicare For All as well.
  • Three words:  Green New Deal.
  • And of course, DON'T shut down again!
As for the so-called National Debt, that is really a non-problem for a Monetarily Sovereign government like our federal government, since they can literally just print the money.  And right now we have far more to worry about from deflation than we would from inflation.  Even if inflation did occur, all the federal government would have to do is resolve the shortages in goods and services that caused it, by directly purchasing such goods and services at a premium and selling (or giving) them at a loss.  And failing that, the FERAL Reserve (which, we gotta say, has been doing the heaviest financial lifting in terms of shoring up the economy just enough to prevent a total collapse thus far) can always raise interest rates and/or the reserve ratio (both of which are at rock-bottom levels), sell bonds to shrink its massive balance sheet (Quantitative Tightening), and/or drain and sterilze excess bank reserves if and when the "inflation dragon" ever does rear its ugly head at some point.  Thus, it would really be a non-problem.

So what are we waiting for? 

Wednesday, January 2, 2013

Fiscal Cliff Averted--For Now

It's now official.  The so-called fiscal cliff that had nearly everyone (especially Republicans) nervous has been averted due to a bipartisan deal in Congress.  The deal contains the following provisions in a nutshell:  no income tax rate hikes for those making less than $400,000 per year (but the top marginal rate is hiked back to Clinton levels on those making above that threshold), various tax deductions are capped at $250,000, the so-called "Obamacare taxes" are left untouched (and thus go into effect), unemployment benefits are extended, spending cuts are postponed by two months, and the payroll tax (i.e. FICA) rates are raised back to pre-stimulus 2009 levels.  So although most Americans will see slightly smaller paychecks in 2013 (due to the 2% payroll tax hike), thanks to the deal there will not be a massive amount of aggregate demand sucked out of the economy, and there will most likely not be another recession as a result--at least for now.

However, the deal only addresses one side of the ledger--revenue and taxes.  The other, bigger side--government spending--will not even be touched until February at the earliest.  Just in time for when the debt ceiling needs to be raised again, most likely in March.  So we can expect another "cliffhanger" around that time, albeit a somewhat smaller one.  But I guess that's the price we pay for kicking the can even further down the road.

To the President and everyone in Congress:  Please listen to what the True Spirit of America Party has to say, at least about economic policy and the national debt.   Our nation's future depends on it.

Wednesday, December 12, 2012

Now, Back to that "Fiscal Cliff"

Deal or no deal?  That is the question that still hasn't been answered.

But remember, no deal is better than a bad deal.   Obama is still holding firm thus far in the face of the Repugnicans who want to slash our social safety net to give millionaires and billionaires more undeserved and unnecessary tax breaks.  And Boehner seems to be sweating bullets.  If no deal is reached, it will not lead to financial Armageddon like the right-wing plutocrats claim.  The so-called "fiscal cliff" is really not a cliff at all--it's more like a staircase.  The full effect of the tax hikes (which occur on next year's income) and automatic spending cuts (which are phased in over a period of a few months) will not be felt right away, which clearly gives Obama the upper hand especially after January 1, 2013.   No wonder Boehner and his ilk are so nervous.

Even more importantly, the budget deficit is actually NOT the biggest economic problem our nation is facing.  The more pressing issue, of course, is the jobs deficit--the whopping 9 million Americans that are still out of work at the end of 2012, five years after the recession officially began (December 2007) and over three years after the recession officially ended (June 2009).  We are clearly stuck in a vicious cycle of persistently high unemployment and inadequate consumer and aggregate demand (remember that one person's spending is another person's income and vice-versa).  Remember that 70% of our entire GDP is consumer spending, and 20% is government spending.  And cutting the budget deficit too much too soon (at least by traditional means) would only make the jobs deficit worse, and the relative lack of revenue from the still-struggling economy is one of the biggest drivers of the budget deficit.   Basically, any significant tax hikes on the bottom 90% of Americans and/or any significant cuts in non-defense spending would only hurt our economy and make our future deficits (and national debt) that much worse in the long run.  If it turns out that these hikes and cuts must be done, and that is a very big "if", then they must be postponed until our economy is back to normal (i.e. two consecutive quarters of 3% GDP growth or higher and less than 6% unemployment).  Congress, you have been warned, so don't drink the Repugnican Austerity Kool-Aid.

Monday, November 12, 2012

Now, About that "Fiscal Cliff".....

With President Obama's re-election already won, the next hurdle to face is the so-called "fiscal cliff", which is a set of tax hikes and spending cuts that will automatically occur on January 1, 2013 if no action is taken.  While such a thing would clearly reduce the deficit, the Congressional Budget Office predicts that it would also likely trigger another recession given the already weak economy.  Specifically, it would be the middle-class tax hikes and some of the spending cuts that would be the real problem, not the tax hikes on the rich.  However, if we don't address the deficit at all, then we're in financial trouble as well, at least in the long run.   And to top it off, the debt ceiling will have to be raised yet again in late January or early February.  Seems like we're stuck between the proverbial rock and a hard place, between the devil and the deep blue sea.

Not really, though.  As UC Berkeley professor Robert Reich so cleverly points out, the real problem is House Speaker John Boehner and the rest of the Repugnicans in Congress who are willing to play chicken with the economy.   They will apparently do anything to avoid even a modest tax hike on the top 1% of Americans, even if it means ruining our country's credit rating and/or crashing the economy.   Basically, everyone's ox would get gored except the ultra-rich if the Repugnicans had their way.

The best thing for Obama to do is to start out bold and aim high, rather than start out with a compromised position.  According to Robert Reich, this means the following:

1)  Raise taxes on the rich--by a LOT.  Enough so the average millionaire would pay an effective rate of about 55% after all deductions and credits, as it was 60 years ago.  (The top marginal rate would have to be at least 70%, and every dollar above the first million would have to be taxed at 50% or more)

2)  Create a 2% wealth tax on the net worth of the top 0.5% of Americans.

3)  Create a 0.5% financial transactions tax.

4)  Raise the capital gains tax to match the rate on ordinary income, and cap the mortgage interest deduction at $12,000 per year.

5)  Eliminate special tax preferences and subsidies for Big Oil, Big Pharma, Big Agro, Wall Street, and so-called "defense contractors."

6)  Last but not least, let the Bush tax cuts expire for incomes between $250,000 and $1 million.

Doing all of these things would reduce the deficit by $4 trillion over the next ten years (the same as what Simspon-Bowles proposed), but without cutting any vital programs or raising taxes on the middle class.  This is the crucial difference between what Professor Reich proposes and what the Repugnicans propose.  And it wouldn't crash the economy, as the best studies have shown.

While Professor Reich acknowledges that some sort of compromise is inevitable, he also notes that any such "grand bargain" to avoid the cliff must contain the following stipulation:  any sort of tax hike on the middle class and any sort of spending cut must only be permitted with a triggering mechanism of two consecutive quarters of 6% unemployment or lower and 3% GDP growth or higher.  This caveat would ensure that we really are out of the woods before sucking any significant amount of aggregate demand out of the economy, echoing Keynesian economic theory.  It is also very important to note that, unlike last time, progressives actually have the upper hand right now--so let's not squander it.  No deal is still better than a bad deal.

Of course, there are other ways of accomplishing a similar or even greater deficit reduction, as the TSAP has repeatedly proposed.   In fact our own proposals would eliminate not just the deficit, but the entire national debt as well.  But much of what we have proposed dovetails rather nicely with what Professor Reich suggests, and that is an excellent start.   What better time than now?