The Sequester: A Small, Dull Meat Cleaver

It looks like the sequester will go through, at least for a while, before Congress gets their act together (if they ever do).   Republicans refuse to budge on the issue of tax giveaways for the rich (which makes them responsible for any fallout the sequester may bring to the economy), and Democrats are simply not bold enough to do what really needs to be done.  But what exactly is the sequester, and why is it so bad for the economy?

First of all, the sequester consists of across-the-board, inflexible, automatic budget cuts as far as discretionary spending is concerned.  Half of the cuts will come from defense spending, and the other half from non-defense spending.  The size of the cuts (5% overall across the board each year for the next 10 years, 8.2% for defense) may not seem large, but the indiscriminate nature of these cuts won't just cut out the fat, but also bone and muscle as well.  If the doctor tells you that you need to lose weight, you wouldn't chop off one of your hands.  But that's exactly the kind of effect the sequester would have, and it won't be pretty.

Secondly, our economy is still very weak, and cutting too much too soon would likely push our economy back into recession.  The direct effect of these cuts would mean at least 750,000 public sector jobs would be lost this year alone, and the multiplier effect would mean that many private sector jobs would be eliminated as a result, making the total of jobs lost well over 1 million in 2013.  And we need that like we need a hole in the head.

Thirdly, many of the so-called "cuts" are not really cuts at all, but reductions in the growth of spending over time.  Thus, even if the sequester remains in effect for a whole decade, the net effect is that federal spending (and the national debt) will continue to grow significantly over the next decade.  But it would still do significant damage to the economy since these "cuts" are indiscriminate and inflexible.

Finally, although Congress clearly has a problem with spending like drunken sailors (regardless of who is in power), there are better alternatives to the sequester that would not only reduce but eliminate the deficit rather quickly.   The TSAP has repeatedly proposed better ways of balancing the budget and dealing with our massive national debt.  Right now, the deficit is really not our biggest problem, but it still must be dealt with.  And while our ideas will probably not come to fruition in today's Congress, the sequester is still one of the worst possible ways to deal with the deficit and any alternative must be put in place very soon.   For example, simply modifying the sequester to allow the heads of various agencies the flexibility to decide how to make their cuts (as long as the overall amount cut remains the same) would achieve the exact same effect on the deficit, but with far less collateral damage.  And Obama's plan to combine spending cuts with increased revenues (from removing various tax loopholes for the rich and corporations) is better still, though not quite as good as the TSAP's plan.

But it looks like the sequester will go through nonetheless, much to our chagrin.  The Republicans have rejected Obama's last offer for an alternative deficit-reduction plan, and in doing so they have revealed (yet again) that they really only care about the ultra-rich and mega-corporations.   Hopefully Congress will wise up before too much damage is done.

UPDATE:  The sequester has already begun as of noon on March 1.  While most of the impact will not be immediate (it will take at least several weeks to feel it), the pain will be real for those affected.  And millions of Americans will be affected in one way or another eventually.  But the silver lining is that Obama and the Democrats now have the upper hand should a belated deal be made in the days to come.  And the Republicans would get blamed for any fallout should a deal not be made in the near future.

If no deal is possible in the near future, the least-worst choice of all would be for Congress to simply repeal the sequester entirely with no strings attached.  Yes, they can do it if they want to, and at this point it is clearly in America's best interest to do so.  But they probably won't unless a critical mass of Americans credibly threatens to vote every single one of them out of office in 2014.

UPDATE II:  Looks like the sequester is already starting to kill jobs as of the first week of April, one month after the sequester began.  And the much-anticipated furloughs have officially begun.  But remember, the worst is yet to come if the sequester remains in effect.

The Ideal Tax

What exactly is the ideal type of tax?  It depends, of course, on your definition of "ideal", but most folks would probably agree that the ideal tax is one that would would meet all of the following criteria:

• Lowest possible rate on the broadest possible base
• Painless for virtually everyone, yet everyone has some "skin in the game"
• Progressive (the rich pay a higher proportion of their income than the poor)
• No loopholes
• As simple as possible (but not simpler)
• Efficient (raises lots of revenue without hurting the economy)

So what type of tax would meet all of these seemingly contradictory criteria?   Certainly neither our current 77,000+ page Byzantine tax code, nor any of the specific types of taxes in it, would suffice.  The so-called FairTax (national sales tax) would also fail to meet all of the criteria, as would introducing a value-added tax (VAT) to replace all or part of our current tax code.  Ditto for virtually every other idea out there.  It seems like a rather impossible feat, until...

Enter the Universal Exchange Tax (UET).  This idea, taken from an anonymous website by a mysterious stranger, is very similar to Dr. Edgar Feige's idea for the Automated Payment Transaction Tax (APT), which we have discussed in a previous post.  It would be a very tiny tax, likely somewhere between 0.05% and 0.1%, on all automated (electronic) transactions between entities, period.  With a tax base of over $4 quadrillion dollars, such tiny rates can raise impressive sums of revenue:

0.01% = $400 billion per year
0.025% = $1 trillion per year (nearly the entire federal deficit)
0.05% = $2 trillion per year (half the federal budget)
0.1% = $4 trillion per year (the entire federal budget)

This idea is the logical conclusion of the ideas of economists such as Tobin and Keynes, since it is the lowest possible rate on the broadest possible base.  And while it may not appear to be progressive at first glance, it is actually highly progressive in practice since the rich have a much higher volume of transactions than the rest of us, while the poor have a relatively low volume of transactions.  Or, as the mysterious stranger would put it, "the more you play, the more you pay".  And the tiny rate would be painless and barely even noticeable, unless of course you're a rabid speculator.  Then it hurts a bit, as it should since excessive speculation imposes negative externalities on the rest of us.  Finally, something both progressives AND libertarians can embrace as far as fiscal policy is concerned.

The TSAP supports the introduction of the UET at the federal level (and possibly even at the state and local levels) as revenue-positive replacement for many of our current taxes.  Specifically, we would like to see a massive overhaul of our tax code in which the following changes are made along with the UET:

• The income tax for individuals is drastically simplified and truncated to apply equally to all forms of income with no loopholes, but no tax on the first $100,000 per year.  Suggested marginal rates are 10% for each dollar over $100,000 and 50% for each dollar over $1 million.
• The income tax for corporations is drastically simplified and truncated to apply equally to all forms of income by all entities with no loopholes, but no tax on the first $1 million per year.  A good rate would be 20-25%, and only undistributed profits would be taxed.
• The FICA (Social Security and Medicare) payroll taxes are eliminated entirely for both employers and employees, since the UET would replace these taxes as well.
• All giveaways (tax expenditures) in the old tax code would either be jettisoned entirely or replaced by direct (and transparent) subsidies from the spending side of the ledger.
• State and local governments should give serious consideration to adopting the UET as a full or partial replacement for their own sales, income, and property taxes.  It would not be difficult to "piggyback" on the federal UET once it is in place, and the feds should make it as easy as possible to do so.

The benefits of such changes are astounding.  The massive simplification, reduced costs, larger paychecks, and relative lack of distortion would be like a giant B12 shot for our economy, which is currently stuck in neutral.  Our budget would be balanced for the first time in over a decade, and we would have a massive surplus to invest in our country.  Social Security will finally be put on a sound footing for the foreseeable future once a few more tweaks are made.  And for the vast majority of Americans, April 15 would be just another spring day.  In other words, nearly all Americans would be much better off as a result (except perhaps speculators and the ultra-rich 0.1%).

It's time to adopt a 21st century tax code, and to '86 the obsolete Internal Revenue Code of 1986.

The American Dream is Dead

It's time to face the brutal truth.  The so-called American Dream is dead.  Finished.  Defunct.  Kaput.  C'est fini.   Except for the top 1% of course.  And it has now turned into a nightmare for the rest of us.

Why do we say this?  Just look at the facts:

• Unemployment remains persistently high despite over three years of "recovery", nearly double what it was in 2007.
• Even as unemployment has begun to slowly ebb and people are returning to work, they are taking lower-wage and less secure jobs than before.
• As a result, poverty has increased in recent years, especially among the working poor.
• The middle class continues to shrink nearly every year. 
• Meanwhile, the rich continue to get richer.  Corporate profits and the Dow Jones are at or close to record highs.  And the top 1% now owns over 40% of the nation's financial wealth.
• In fact, a mere 400 individuals have more wealth than the bottom 50% of Americans combined.
• Statistically, an individual is more likely to go from riches to rags than rags to riches.  Social mobility has mostly one direction now--DOWN.  
• The problems of unemployment, poverty, inequality, and downward mobility are especially true for today's under-30 generation, as America continues to ruthlessly eat its young.

It does not have to be this way forever.  There are several things that will, over time, reverse these negative trends and restore at least some semblance of the American Dream.  Just take a look at our party platform for a list of such ideas.  But the entrenched special interests that control our government want these pernicious trends to continue, and they will not stop until there are only two classes:  master and serf.   That, at least for now, is the true state of our union.

State of the Planet Address 2013

On February 12, 2013 (Lincoln's Birthday), the President will give his annual State of the Union Address.  Every year since 2011, the TSAP has been giving our annual State of the Planet Address around January 20.  Yes, we know it is a bit of a downer to say the least.  So sit down, take off your rose-colored glasses, and read on:

Our planet is in grave danger, and has been for quite some time now.  We face several serious long term problems:  climate change, deforestation/desertification, loss of biodiversity, overharvesting, energy crises, and of course pollution of many kinds.  Polar ice caps are melting.  Rainforests have been shrinking by 50 acres per minute.  Numerous species are going extinct every year.  Soil is eroding rapidly.  Food shortages have occurred in several countries in recent years.  Weather has been getting crazier each year, most likely due to climate change.  We have had numerous wildfires, floods followed by long periods of drought, and a "storm of the century" at least once a year for the past few years.   We need look no further than Superstorm Sandy (which was partly caused or at least enhanced by global warming) to see how crazy our weather has become lately.

None of this is an accident of course.  These problems are man-made, and their solutions must also begin and end with humans.  We cannot afford to sit idly by any longer, lest we face hell and high water in the not-too-distant future.  Our unsustainable scorched-earth policy towards the planet has to end.  NOW.

While we do not invoke the precautionary principle for all issues, we unequivocally do for the issue of climate change and any other environmental issues of comparable magnitude (we support the Rio Declaration's version, to be precise). With no apologies to hardcore libertarians or paleoconservatives, in fact. We are not fazed one bit by the Climategate scandal as it does not really "debunk" the scientific consensus on anthropogenic global warming. The only serious debate is about how fast it will happen, and when the tipping point will occur. It is not a matter of if, but when. And the less precarious position is to assume it is a real and urgent problem. We need to reduce CO2 emissions to the point where the CO2 concentration is at or below 350 ppm. And it is currently at an unsustainably high level, and growing.

Solving the problem of climate change will also help to solve the other ecological crises we are facing, for they all ultimately have the same root causes, not least of which is our insatiable addiction to dirty energy.  However, there is a right way to solve it, and several wrong ways.

The TSAP endorses the ideas embodied in Steve Stoft's new book Carbonomics, most notably a tax-and-dividend system that would tax carbon (i.e. fossil fuels) at the source, and give all Americans an equal share of the revenue generated from this tax.  (Note that our proposal to tax natural resources and pay out an Alaska-like citizen's dividend already includes this.)  Yes, prices for various things would undoubtedly rise due to this tax, all else being equal, but the dividend will allow Americans to pay for this increase. The average American would in fact break even, but those who (directly or indirectly) use less energy than average will effectively pay less tax, while the energy hogs will effectively be taxed more, as they should be. Thus it is certainly not a regressive tax, and may even be mildly progressive. This is both the simplest and most equitable way to reduce carbon emissions as well as other forms of pollution, not to mention waste of dwindling non-renewable resources. The real challenge is getting the feds to accept something that won't directly benefit them (in the short term).  Carbonomics also includes other good ideas, such as improving how fuel economy standards are done, and crafting a better verison of the Kyoto treaty.  

Though not a part of Carbonomics, we also support raising the federal gasoline (and on-road diesel) tax, raising it a penny a week for two years until it is a dollar higher than it currently is but using that to fund alternative energy sources and public transportation along with highway funding (and possibly including a limited prebate). We call this idea "a penny for progress".  Another good idea to further the development of alternative energy would be the use of feed-in tariffs for renewable power sources.

We support ending net deforestation completely, and putting carbon back in the ground through carbon sequestration. One method is known as biochar, a type of charcoal made from plants that remove carbon dioxide from the air, that is subsequently buried. This is also an ancient method of soil fertilization and conservation, originally called terra preta.  It also helps preserve biodiversity. 

We've said this before, and we'll say it again. We need more nuclear power plants as well. Nuclear emits no greenhouse gases directly, and even indirectly it pales in comparison to fossil fuels. Done properly, it is just as green as solar photovoltaic power, produces less radiation than coal power, and is much safer than in the past (and even those dangers were exaggerated). Since nuclear plants take many years to build, we need to get cracking ASAP. Nuclear power is not a substitute to renewables; it is a necessary complement to them since we need a base-loading power source, not just intermittent power. Our nation's irrational fear of all things nuclear needs to die NOW.  Right now.

But the biggest elephant in the room (make that the elephant in the Volkswagen) is overpopulation.  It does not make for pleasant dinner conversation, but it must be addressed or else all other causes become lost causes in the long run. We absolutely need to have fewer kids, or nature will reduce our population for us, and the latter will NOT be pleasant to say the least. The TSAP believes in voluntarily reducing the total fertility rate (TFR) to 1.5-1.9 children per woman to do so, along with reducing immigration dramatically, but let us be clear that we do NOT support draconian and/or coercive measures of population control (like China has used).  We believe more liberty is the answer, not less.   But the current tax and benefit incentives that perversely reward having more than two children need to be jettisoned at once.  Fortunately, America's TFR has recently dropped to 1.9 (though that is probably just due to the bad economy rather than a secular trend).  But we cannot keep growing and growing, that's for sure (in fact, we need to shrink). And our insatiable addiction to economic growth (despite being recently decoupled from well-being) is also part of the problem.  Growth for the sake of growth is clearly one of the most asinine obsessions our nation (and world) has ever had.  Put another way, we need to leave room for nature, lest it not leave room for us.

Bottom line: we need to take the environment much more seriously than we do now.  We ignore it at our own peril. 

What About Guns?

Let us first begin this fairly controversial post by extending our deepest condolences to the victims (and their loved ones) of the Sandy Hook Elementary School massacre in Newtown, CT.  This tragedy was the single worst school shooting in American history, and words cannot describe just how horrible it was.  Clearly, it's right up there with Columbine, Virginia Tech, and even 9/11 as far as being a horrific wake-up call that something must be done to prevent it from ever happening again.

Where the TSAP begs to differ is the question of what that "something" actually is.  Our party is generally not a big fan of gun control, and we strongly support the right to bear arms.  We believe that guns don't kill, people do. The finger pulls the trigger, not the other way around.  As noted in our party platform, we also believe that all law-abiding citizens over 18 should have the right to carry concealed weapons, with the burden of proof on the state to show why a particular individual should not be allowed to have a gun.   And rounding out the standard libertarian position on the issue, we believe that we should throw the book at anyone who commits crimes with guns.

That being said, I think we can all agree that fully automatic weapons, rocket launchers, grenade launchers, bombs, and poison gas have no useful self-defense or sporting purpose and do not belong in the hands of civilians.  (These weapons are already generally illegal for civilians to own.) And I think we can also agree that no one should be allowed to sell or give away guns to convicted felons, fugitives, domestic abusers, or those known to be psychotic. Thus, background checks are justified by that rationale.

As for what should be done to prevent future tragedies like this and other mass shootings, we do NOT believe that more gun control is the answer.  Instead, for the short-term we recommend having armed guards in schools that do not already have them.  (Our nation guards our gold with guns, but not our children?)  In the medium term, we recommend repealing or amending the Gun-Free School Zones Act to allow properly-trained teachers and staff to carry concealed weapons on the job, since there really is no such thing as a "gun-free zone".  In fact, nearly all mass shootings in recent years have occurred in so-called "gun-free zones".   At the same time, we need to improve the way background checks are carried out (e.g. requiring them at gun shows) to reduce the chances of firearms falling into the wrong hands.

Of course, in the long run we need to properly address the root causes of tragedies like these.  We know that the killers are typically mentally disturbed individuals, and that (as we have noted before) our mental healthcare system is seriously broken and must be fixed.  There are also other serious social pathologies that need addressing as well, such as inequality and bullying, but mental illness seems to be the factor most closely linked to these types of tragedies. 

So, are there any gun control laws that the TSAP does support?  Yes, but a very limited few.  Among existing laws, we support the original National Firearms Act of 1934 as well as some (but not all) parts of the Gun Control Act of 1968, and encourage increased enforcement of these laws.  The same goes for background checks.  As for new laws, we would support the following ones only:  1)  requiring background checks at gun shows, 2) a ban on high-capacity magazines (i.e. more than 10 rounds), 3) a one-gun-a-month rule, and 4) an excise tax on bullets.  We do not support bringing back the incorrectly-named "assault weapons" ban because it is largely based on cosmetic features and really has nothing to do with the kinds of true military weapons that are already banned (or severely restricted) by the National Firearms Act.  Granted, banning some of the previously banned semi-automatic weapons may be justified, but the 1994 ban was too broad and in any case did not seem to have any discernible effects on actual rates of gun violence.

Above all, we must not let fear rule our nation.  For when we do so, the terrorists win.

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.

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.

Stoned in Seattle

Today is truly a historic occasion.  In Washington State, the initiative that legalized cannabis goes into effect, marking the first time any US state fully legalized the herb since it was federally banned in 1937.  In Seattle, there was plenty of celebration of this occasion, with hundreds of people toking up under the Space Needle.  Colorado also legalized it as well, and that goes into effect on January 5, 2013  December 10, 2012 (see update below).  In both states, the first legal retail outlets for weed are scheduled to be set up in early 2014 as the new laws are phased in.  Looks like Cypress Hill finally got his wish in two states, even if California was not one of them.

Of course, cannabis is still illegal under federal law, and it is still not clear exactly what the Feds will do.  While they say they will still enforce the current law, the situation is very similar to how NY ended alcohol Prohibition in 1923, ten years before national Prohibition was repealed.   Basically, the only ones enforcing it there were the feds, and they did not have nearly enough manpower or resources to do it alone (and they still don't).  That spelled the beginning of the end for Prohibition, and we hope that is true this time around for cannabis as well.  We will be closely watching this story as the next few months progress.

For the record, the TSAP supports full legalization of cannabis in all 50 states as well as federally.  By that we mean it should be taxed and regulated in a manner similar to alcohol and tobacco, with an age limit of 18, and no one should be arrested or jailed for simple possession of small amounts.  Growing one's own weed (within reason) should be treated like growing one's own tobacco or brewing one's own beer, and passing around a joint should be treated like passing around a tobacco cigarette or a bottle of beer.  Driving under the influence of cannabis should be treated the same as driving under the influence of alcohol, though the penalties should reflect the fact that the latter is far more dangerous than the former.  And we hope this will all become reality sooner rather than later.

UPDATE:  On December 10, Colorado Governor John Hinckenlooper signed an executive order that made the initiative currently official.  Thus, cannabis possession is now legal in both states for all people over the age of 21, while sale remains at least technically illegal for now pending the creation of a regulatory framework for such sales.

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?

Time for a Victory Dance!

The 2012 election was largely a victory for us, since Obama won re-election and the lesser-evil party (aka the Democrats) regained control of the Senate (but unfortunately not the House).  As we have noted before, Obama has been our only hope for keeping America from falling completely into the plutocrats' (and kleptocrats') hands yet again.  We thank everyone, especially in swing states, who chose NOT to feed the vultures this time around.  And fie upon those who did!

Ballot initiative results were generally favorable this time around, especially as far as civil rights are concerned.  For example, three more states legalized same-sex marriage, and one state rejected a constitutional amendment banning it.  This is the first time any state has legalized gay marriage via a ballot initiative.  Perhaps direct democracy isn't so bad after all.

Also, it looks like "California dreaming" has finally become a reality.  Though not in California or even in Oregon, but rather in Colorado and Washington.  Those two states were the first to legalize cannabis for non-medical use since it was banned in the 1930s.  This is nothing short of historic and groundbreaking.  However, before you go and book that flight to Denver or Seattle, keep in mind that it still remains illegal at the federal level and the feds say they will still enforce the federal law for the time being. 

In other news, it looks like Puerto Rico wants to become the 51st state. We hope Congress and the President will agree to make it happen. Imagine if Puerto Rico actually was represented in Congress and the Electoral College, that could be a game-changer in the 2016 election. And the people there would be paying federal income taxes as a result of statehood, so federal revenues should increase. However, this is the fourth time that the island tried to change its status, so we don't know if this attempt will succeed.

Thanksgiving is coming up soon, and we clearly have a lot to be thankful for.  Power to the people!

New Study: Taxing the Rich Won't Tank Economy

We've been saying this before, and we'll say it again.  Contrary to what the top 1% and their lackeys like to claim, tax cuts on the rich do NOT create jobs or boost economic growth, and tax hikes on the rich do NOT destroy the economy.  And now a new study proves it yet again.  

In a nutshell, a 1%-of-GDP (i.e. $150 billion) tax cut on the bottom 90% of Americans boosts GDP by 2.7 percentage points over a two-year period, while a tax cut of the same size on the wealthiest 10% of Americans gives a statistically and practically insignificant boost of merely 0.13 percentage points (while significantly increasing economic inequality). So, if we really want to boost economic growth, we would cut (or perhaps even eliminate) the income tax on the bottom 90%, while raising rates on the top 10% and especially the top 1%.  That makes sense since 70% of our GDP is consumer spending, and the middle class are the ones who drive such spending.  The less money they have, the less they will spend.  And businesses will avoid hiring and making new investments and instead choose to sit on their excess cash (like they are doing now) when the consumer demand is simply not there.  It's not "class warfare," it's simple mathematics. 

But plutocratic Republicans never let mere facts get in the way of their greedy goals.

Romney Is Digging His Own Grave

Looks like Mitt "the Twit" Romney has put his foot in his mouth yet again, this time by insulting nearly half of America, and even has the audacity to defend his remarks rather than apologize.  His secretly recorded comments basically say out loud what most Republicans only think in their heads:

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it -- that that's an entitlement. And the government should give it to them. And they will vote for this president no matter what. ... These are people who pay no income tax. ... [M]y job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."
 

This may very well be the quote that sinks Romney in the election this November (hopefully), and Obama is now ahead by 5 points in the polls.   But is what he said actually true?  It is technically true that 46.4% of Americans pay no federal income taxes in 2011.  But this does NOT mean that they pay no taxes at all, and it does NOT mean that they are freeloaders.  Just think state and local income taxes, FICA, sales taxes, excise taxes, property taxes, and the numerous hidden taxes built into the price of virtually everything they buy.  And it's not like most of them are particularly well-off financially; 4 out of 5 of these folks earn less than $30,000 per year.  The rest of his obnoxiously insulting quote is mere opinion rather than fact.  And he conveniently ignores the fact that 2/3 of large corporations paid zero or even negative income taxes, and quite a few millionaires and billionaires also paid zero income taxes.  Also, a disproportionate share of the 47% of Americans that pay no federal income taxes live in red (Republican) states, not blue (Democratic) states.  Romney is clearly entitled to his own opinions, but he is NOT entitled to his own facts.

Romney is clearly digging his own grave.  Time for the voters to push him in there on Election Day.

Billy Joel Was Right

Looks like Billy Joel was right all along.  Working too hard actually can give you a heart attack.

A recent study found that too much work-related stress, especially when workers have little to no control over their stress levels (like retail workers), can raise the risk of a heart attack by 23%.  This risk persisted even after other variables such as lifestyle were controlled for.  While it does not completely prove causation, this study is quite reliable since it combines the results of 13 prospective cohort studies and adjusts for several confounders.  Another recent study found that working more than eight hours a day may raise the risk of heart disease by as much as 40-80%.  Thus, it's really not all that surprising that New York City and its surrounding suburbs have some of the highest death rates from heart disease in the nation, and also that the USA tends to be worse than other developed nations in this regard.

Of course, it's mainly the bottom 99% of Americans that are likely to be affected, but that does not make the top 1% completely immune.  And next time someone claims that raising marginal tax rates or some other policy will cause at least some workers not to work as hard as they otherwise would, remind them of these studies.  The life you save may be your own.

Don't Feed the Vultures!

The 2012 presidential election is fast approaching, and much to our chagrin there will be no chance for any third party candidates.  Though not an ideal candidate, only Obama has any sort of chance of beating Romney the Vulture Capitalist and Paul "Throw Granny Off a Cliff" Ryan.  Only Obama has any chance at all of stopping 1,000,000 Americans from receiving pink slips (due to Romney) and then facing a shredded or nonexistent social safety net (due to Ryan).  And if they do manage to find another job later on, they will then be kicked in the teeth with higher taxes (you read that right) while watching the richest 1% pay even less than they do now.  We simply cannot support that, period.  As a result, the TSAP has no choice but to endorse Obama this time, and thus we will NOT be running a candidate of our own.  It is such a dead heat in the polls that a vote for any progressive third-party candidate will effectively be a vote for Romney-Ryan, as much as we hate to admit it.  And not voting at all is like rolling over and playing dead just so the vultures can eat you alive.

So let's all shout it from the rooftops:  DON'T FEED THE VULTURES!!!  VOTE FOR OBAMA LIKE YOUR LIFE DEPENDS ON IT!!!  Because in many ways, it does.

What the Obamacare Ruling Means

NOTE: This post is on both the TSAP blog and the Twenty-One Debunked blog

The recent Supreme Court ruling on the Affordable Care Act ("Obamacare") was a mixed bag overall. The individual mandate (which the TSAP does not support) was upheld, but as part of the government's taxing power rather than under the Commerce Clause. While it is clearly a stretch to say it is constitutional because it is a tax (just think of poll taxes), and thus unfortunately provides a roadmap on how to make an end-run around some parts of the Constitution in the future, at least the Court recognized that the Feds do not have unlimited power under the Commerce Clause. Thus, the ruling took some of the wind out of the sails of the dangerous Gonzalez v. Raich precedent in 2005.

One thing the Court did strike down was the primary mechanism for ensuring state compliance with the Medicaid expansion, namely the withholding of existing federal Medicaid funds as a penalty for noncompliance. This was basically the same form of coercion used by the feds to force states to raise the drinking age to 21 in the 1980s, which was upheld by South Dakota v. Dole in 1987. Since then, this power has been used to coerce the states to follow other mandates as well, and not just ones related to highways. Thus if there is any silver lining to the Obamacare ruling, it is the fact that it may make it easier for states to lower the drinking age (and possibly even legalize cannabis) without federal interference.

As we have noted before, the TSAP supports a single-payer healthcare system similar to what Canada currently has, which is also what President Obama originally wanted as recently as 2008. Anything less would be uncivilized.

Take Back the Flag

Just pointing out that today is Flag Day. But this blog looks no different today because we display the Stars and Stripes every day.

To all the ignorant fools who burn it, remember what it is that you're really burning, and all those that fought and died for it. Those who consider themselves to be on the political left would be better served by "taking back the Flag" and waving it proudly, so it is not perverted into an ultra-right-wing symbol by the fascists. Make it clear that the government policies you oppose are not in the national interest. And let everyone know that you can just as strongly love this country as you fear its government.  In fact, plenty of true patriots often do feel that way, and as Jefferson once said, "dissent is the highest form of patriotism."

The Flag is not Republican, Democrat, liberal, conservative, or belonging to any other faction. It is the American Flag, and it belongs to all of us.   Live free or die!

America Eats Its Young

Unfortunately, the title of this post is not just the name of a Funkadelic song (and album) from 1972.  It is also the best way to describe what is happening to the Millennial generation as we speak.  And it's not good. 

An excellent article by Stephen Marche (in Esquire of all places) really hits the nail on the head in describing what is happening.  Which is nothing short of intergenerational robbery. 

To the aging Baby Boomers who are currently voting and/or in power, listen up:  You have only a few short years left to rectify these wrongs before they become irreversible.  And you have the power to do so.  You may not like what has to be done, but it is FAR better than the alternative.  Even the most self-centered and self-interested among you should be able to see the writing on the wall.  Remember that the Millennials are the ones that will be paying for your retirement and ultimately deciding your fate as far as that goes.   And unless you want to end up in the gutter because we are too broke to pay for it all, you might just want to invest in us instead of hoarding or squandering your vast and unprecendented wealth.

The Only Way to Defeat the Debt

Our national debt is approaching $16 TRILLION dollars, and our deficit remains well over a trillion, meaning that the debt is still growing rapidly. It is now mathematically impossible to pay off the national debt by conventional (fiscal) means--even the Donald Trump Tax would raise "only" about a trillion or so based on our back-of-the-envelope calculations. So what should we do?

Obviously, if we find ourselves in a hole (especially one as deep as this), the first thing we should do is stop digging. That means no more deficit spending for the foreseeable future, period. But unfortunately, that's a lot easier said than done. Taxes will have to go up and spending will have to go down--dramatically. There is really no way around that.

However there is a relatively painless (albeit unconventional) method of paying off the debt. Not just this year's deficit, but all of the cumulative $16 trillion of the debt. It's called the Noble Solution (named after its creator, Richard E. Noble) and does not involve any significant tax hikes or spending cuts. So what is it? It's something we never would have advocated in the past: printing (electronically creating) money out of thin air to pay it off all at once.  Alas, the genie is out of the bottle now, as the Feral Reserve has been creating money out of thin air for decades (including a recent whopping $16 trillion secret bailout of the banks) so we might as well put this practice to productive use.  Call it QE4 if you'd like.  Money is really nothing more than an accounting entry nowadays, so let's make the entry and be done with it. 

But wouldn't that lead to hyperinflation? Not if it is properly done with due diligence.  Noble points out that while creating money is undoubtedly inflationary, using it to pay off the debt (which is in Treasury bonds and is thus already part of the money supply) would be deflationary in that it would shrink the money supply by an equal amount. Thus, the two effects would cancel each other out, as paper (electronic data) would be exchanged for paper (data). Of course, we would have to bypass the Feral Reserve to avoid creating more debt in the process. Or better yet, abolish the Feral Reserve entirely and return the power of money creation to its rightful owners, our elected representatives in Congress.  America would then be free and clear for the first time in history since Thomas Jefferson.

Of course, while doing it once may not be harmful, doing it regularly can be.  To make sure we never have to do this again, we must make sure the debt never, ever, reaches such stratospheric levels again, period.  In addition to abolishing the Fed, fiscal policy must be tightened after the Noble Solution is implemented and the debt is paid off.  We have already outlined in previous posts what must be done as far as taxes and spending are concerned.  We will need to have a Balanced Budget Amendment added to the Constitution as well, with deficit spending permitted only in severe fiscal emergencies.  Fortunately, the latest news suggests that the deficit may already be shrinking as we speak as the economy improves (albeit very slowly).  After all, a significant portion of the fiscal gap is due to reduced revenues resulting from the Second Great Depression (because that's what it really is) as well as the several fiscal stimulus measures made necessary by the crisis.  (Nearly all of the rest can be chalked up to the wars and the Bush-Obama tax cuts, as well as various loopholes and tax-shelters.)

But the bottom line is that the debt must be defeated, and soon.  We simply cannot afford to continue kicking this can further down the road.  Otherwise we may very well go the way of the Romans.

The Laffer Curve Revisited (Part Deux)

In our previous post, we essentially debunked the right-wing talking points about the Laffer Curve.  We showed that, generally speaking, the peak of the curve for the top marginal tax rate is most likely 70% or perhaps even a bit higher.  That is, tax cuts (particularly at the top) can nearly always reasonably be expected to decrease revenue rather than increase it, and vice-versa. We also showed that there is another curve called the Kimel Curve, which illustrates that a top marginal rate of 60-70% maximizes economic growth based on empirical data.

But what about Hauser's Law?  For those who don't know, Hauser's Law (a supposed corollary to the Laffer Curve) postulates that federal tax revenue cannot exceed 19.5% of GDP for long regardless of what the marginal tax rates are.  Indeed, at first glance the empirical data from 1945 to the present do appear to agree, but it really doesn't stand up to closer scrutiny.  Part of it comes from lying with statistics to obscure significant swings in revenues, and part of it comes from omitting key facts about less obvious changes in the tax code over the years that confound the apparent (non)correlation.  Thus anyone who cites Hauser's Law (which it turns out is not really a law at all) is either ignorant or disingenuous at best.  Consider it debunked.

Another important question is whether the Laffer Curve differs depending on the type of income being taxed.  Conservatives frequently argue that the tax rate on long-term capital gains should be significantly lower than the rate on ordinary income, as is currently the case.  For example, they claim that the Laffer Curve peaks at a much lower rate due to the so-called "lock-in" effect (when investors hold onto their underperforming assets longer to avoid taxation) induced by higher tax rates, an effect that allegedly hurts the economy.  However, this appears to be primarily a short-term phenomenon that occurs when investors either anticipate the change in tax rate in advance and/or believe that the rate hike or cut will only be temporary.  Effects on economic growth do not appear to be large in the short or long term, and may even be perverse in the short term.  In fact, rather than encourage investment, one experimental study finds that taxing capital gains at too low a rate may, at least in some circumstances, encourage too much divestment (consumption) of capital at the expense of further investment.  This might be one reason why overall private investment was actually lower on average in the lower-tax 1980s than it was in the higher-tax 1970s.  Also, a lower rate on capital gains is a key part of many tax shelters, and adds unnecessary complexity to the tax code. Thus, taxing long-term capital gains at a lower rate does not appear to be justified.  And to avoid taxing illusory gains due to inflation, it would make more sense to simply allow taxpayers to index the basis for inflation (which is not currently the case) while taxing all forms of income at the same rate. 

In addition, one should also observe how nearly every single time the capital gains tax was cut, an asset bubble of some sort eventually followed.  These include the notorious 1920s stock market bubble (tax cut was in 1922-1925), the late 1970s commodities bubble (cut in 1978), the late 1990s NASDAQ/tech bubble (cut in 1997), and the 2000s housing bubble (cuts in 1997 and 2003).  The one exception was the 1982 tax cut, which occurred during a deliberately-induced (i.e. by the Feral Reserve) recession and was followed by an equally large hike in the capital gains tax five years later that restored the rate back to its 1981 value before another bubble had a chance to form.  (The relatively small stock market correction in 1987 represented only a minor bubble in the market.)  While correlation does not necessarily equal causation, it is uncannily suggestive to say the least.  Though a low tax rate may appear be investor-friendly on the surface, one should keep in mind all of those hapless investors that lost their shirts when the bubbles inevitably burst, and all the damage the fallout did to the general economy.

How about corporations?  It appears that the Laffer Curve for the corporate income tax peaks somewhere between 20-30%, which is significantly lower than is the case for individuals.  However, the current corporate income tax rate of 35% in the USA (supposedly one of the highest in the world) is largely a fraud--due to loopholes, most companies pay nowhere close to that, and two-thirds of them effectively paid zero (or even negative) rates in 2008-2010.  And most estimates of the Laffer Curve simply don't take that into account.  While cutting the rate to 20-25% may very well make America more competitive in the global economy, the loopholes absolutely must be closed, period.

We recently came across a website called EquityScore, which claims that cutting the corporate income tax to zero would actually increase revenue to the point that all other income taxes could also be eliminated except for the capital gains tax.  That is, they claim that taxing corporate profits suppresses market values, and the massive gain in market values would yield enough capital gains tax revenue (when the stocks are sold) from individual shareholders to more than offset the foregone revenue from eliminating the corporate income tax.  While there may be some truth to that, their calculations ignore the fact that the majority of corporations already pay an effective rate of zero (or close to zero) due to loopholes, and that typical corporations used to pay much more in the not-too-distant past than they do now.  A better idea to maximize revenue (and growth) would be to cut the corporate tax rate to 20-25%, close all of the loopholes, tax only the amount of profit left after dividends are paid out, and tax dividends (and capital gains) as ordinary income for individuals.  Not only would that raise more revenue directly, it would also allow companies to pay bigger dividends and attract more investors, thus increasing market values and indirectly raise even more revenue.  It would also make the "double taxation" argument moot as well.

In summary, we have shown that the supply-siders' conception of the Laffer Curve is largely a canard.  And for those who continue to eschew the notion of shared prosperity and still insist on the richest Americans and mega-corporations paying historically low (if any) taxes, we shall leave the reader with the following inspirational quote from a very wealthy businessman of many decades past.  This was the man who founded the famous Filene's department store and also founded the U.S. Chamber of Commerce.

"Why shouldn't the American people take half my money from me? I took all of it from them."

---Edward Albert Filene (1869-1937)

The Laffer Curve Revisited

Most people (at least those who took Econ 101) have heard of the Laffer Curve.  This idea is often attributed to economist Arthur Laffer in 1974, but similar ideas were put forth much earlier by John Maynard Keynes and Ibn Khaldun.  In a nutshell, it states that both a 0% tax rate and a 100% tax rate would both yield zero revenue, for obvious reasons, and that the level that would produce the maximum amount of revenue thus lies somwhere in between.  To wit:

However, this is a rather crude representation and the curve need not be symmetric or even single-peaked.  So where exactly is the (highest) peak of this curve?  That is the million-dollar question that has been nagging numerous economists ever since Arthur Laffer himself initially proposed it.  Different sources have given very different answers, and the true answer may very well vary from year to year and country to country.  Probably one of the most reliable estimates of the peak is the midpoint of the results of various studies, which according to the New Palgrave Dictionary of Economics is about 70% as of 2008.  Thus, the real curve would probably look something like this:

Of course, one source of variation of estimates has to do with whether or not you are talking about average rates or top marginal rates (i.e. the rate on the last dollar earned by those in the highest tax bracket), as well as where the threshold of the top bracket lies.  Most studies (and politicians) are more concerned with the top marginal rate, and both those rates and the thresholds for the top bracket have varied a great deal throughout history and from place to place.  The most recent study on the matter puts the peak for the federal top marginal rate at a whopping 76%, assuming no loopholes and all else being equal.  Thus, with a top marginal rate of 35% as of 2012, we clearly have plenty of room to raise it (even double it), close the loopholes, and still significantly increase revenue.  Policymakers should take note next time the issue of budget deficits comes up.

Of course, this is downright heresy to wealthy Republicans and their Tea Party lackeys, so when they aren't trying to deny it directly (which they often do) they at least try to argue that a higher top marginal rate will hurt economic growth and thus hurt all of us in the long run, even if it does raise more revenue in the short run.  But history doesn't really bear this out.  Recall that the top marginal rate hovered around 90% in the 1950s and early 1960s, and hovered around 70% from 1964 to 1981.  Some of the greatest economic growth we have ever had occured during top marginal rates north of 70%.  Which leads us to another, less well-known curve--the Kimel Curve.  Discovered by economics blogger Mike Kimel, this curve plots historical real GDP growth versus the top marginal tax rate and controls for several potential confounders.  And the peak of that curve turns out to be somewhere between 60-70% depending on how the model is specified.  Thus, a top marginal rate of 60-70% actually appears to maximize economic growth rather than hurt it! 

While this may seem counterintuitive to those who took Econ 101, it is entirely plausible that hoarding of wealth by the ultra-rich as well as excessive executive compensation has an adverse effect on GDP growth.  Inequality beyond a certain point appears to harm the economy--just look at the levels of inequality (and tax rates) immediately before both the first Great Depression and the current one.  And a top marginal rate north of 50% most likely discourages such hoarding and excessive executive salaries and bonuses, and encourages businesses to reinvest their profits in more productive ways.  This is similar to the rationale nicely summarized by Kimel himself:

At 70% tax rates, there is more of an incentive to reinvest in the business, creating more growth in the business in subsequent years, and more economic growth thereafter. 70% tax rates are more likely to generate faster economic growth than 25% tax rates precisely because people are self-interested and the higher tax rates induce people to continue investing in things they do well.

Indeed, another study of the 1920s and 1930s found high top marginal rates (even pushing 80%) did not appear to hurt business investments one iota, but possibly even slightly increased the formation of new businesses.  This was a time period in which the income tax was levied pretty much only on the wealthy (with the top rate applying only to the top 0.1%), the top rate varied a lot from year to year, and the tax code was a lot simpler with fewer opportunities for cheating and tax-sheltering.

In addition, there is always the fact that, contrary to popular opinion, sometimes the government actually spends and invests money in better ways than the ultra-rich and mega-corporations would.  Just think of public infrastructure, which enables the private sector to generate most of its wealth in the first place.  And the money for that comes from--you guessed it--taxes.

Thus, advocates of a more progressive tax system (as well as the more intelligent deficit hawks) should feel vindicated and motivated by the results of these studies.  And we can just hear the greediest members of society whining right now.  But taxes are the price we pay for civilization, and the alternative to civilization is far worse.