9/2/2011 7:09 PM ET|
Political disarray threatens us all
Congress has said it will neither raise taxes nor increase spending, and the Fed is taking a back seat for now. How can the government stimulate the economy without the tools of effective fiscal policy?
Global financial markets continue to expect the U.S. Federal Reserve to pull a rabbit out of its hat. For example, global stocks rallied on Aug. 31, on the release of minutes from the Fed's Aug. 9 meeting that showed some members of the Fed's Open Market Committee wanted to go beyond the Fed's promise to keep rates exceptionally low through the middle of 2013. Markets read that as a sign that the Fed would do something dramatic if problems deepened.
But as Bullwinkle J. Moose repeatedly said when he pulled a snarling bear instead of a cuddly bunny out of his hat, wrong hat.
Hasn't anybody actually read through to the end of Fed Chairman Ben Bernanke's Aug. 26 Jackson Hole speech? (That's a purely rhetorical question, of course.)
Six paragraphs from the end he said, "Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank." Faster economic growth, Bernanke went on, depends on fiscal policy, and the design of intelligent tax and spending programs. We can't grow our way "out of our fiscal imbalances, but a more productive economy will ease the trade-offs that we face," he said even closer to the end of his speech.
In other words, we're in deep trouble. After all, we're talking about the United States, a country where President Barack Obama and the speaker of the House have trouble scheduling a major presidential speech on jobs. (That speech is now set for Thursday.)
How dysfunctional is fiscal policy in the United States right now? Let's use the fight over extending funding for transportation as an example. You'd think this would be an easy one.
A fiscal fight over transportation
Transportation legislation, set to expire Sept. 30, provides money to build and repair highways and bridges and to fund mass-transit projects. The expiring legislation also authorizes the government to collect the current gas tax of 18.4 cents a gallon -- which goes into the Highway Trust Fund to pay the federal share of highway projects.
In the Senate, Barbara Boxer, D-Calif., and James Inhofe, R- Okla., have proposed a two-year, $109 billion extension of the act.
In the House, John Mica, R-Fla., has proposed a version of a reauthorization bill that would cut funding by about a third.
Frankly with the unemployment rate at 9.1% and the economy threatening to tip back into recession, I find the idea of cutting spending on transportation puzzling. This is spending that keeps people working and that's one thing the economy needs right now.
If you're so gung-ho about cutting spending right now (and as much as I think we need a deficit-reduction plan in the midterm, I think we need spending to stimulate growth now), there are lots of other places to cut government spending without costing jobs.
Scaling back or eliminating tax breaks to companies would be one place to start. A recent study by the Institute for Policy Studies found that 25 of the 100 highest-paid corporate executives in the United States received more in pay last year than their companies paid in taxes. And how did companies such as Verizon Communications (VZ, news), General Electric (GE, news), Boeing (BA, news) and eBay (EBAY, news) pull that off? By juggling revenue and expenses between the United States and subsidiaries operating in countries that the U.S. Government Accountability Office has characterized as tax havens.
As you'd expect, the political rhetoric in Washington is flying fast and furious. Democrats say the House transportation bill would cost 500,000 highway jobs and 100,000 additional transit jobs. Republicans say the Senate bill is yet another instance of runaway spending. I think the Democrats have the better of this argument: The experience of the Great Depression says that when the problem with the economy is a slump in demand, then government spending that creates demand is an effective tool of fiscal policy.
But what drives me nuts about this debate isn't the differences between the Democratic and Republican plans but their similarities. The vision of both sides is so crabbed, so pessimistic, so limited that it's hard to see any hope for fiscal policy leading the country out of recession in the way that Bernanke pleaded for in his Jackson Hole speech.
Why not increase the gas tax?
Take the federal gasoline tax. The 18.4-cents-a-gallon tax hasn't been raised since 1993. In September 1993, regular gasoline sold for $1.05 a gallon, so the federal tax represented 17.5% of the price of a gallon. In August 2011, regular sold for $3.60 a gallon, so the tax represented just 5.1% of the price of a gallon.
Despite this, despite projections that show the Highway Trust Fund facing insolvency in 2012, despite strong arguments (agree or disagree, up to you) that gradually raising the price of a gallon of gas through taxes would be one way to reduce U.S. dependence on oil -- despite all this -- both Obama and congressional Republicans have ruled out any increase in the federal gas tax.
The vague plan is to make up the shortfall in the trust fund by attracting more private-sector funding. (Of course, if the government has to give away subsidies to attract this private funding, it wouldn't count as a tax. Although it would be spending that adds to the deficit.)
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I did not vote for Obama, and have been a Republican for most of my 45 voting years. That said, this article hints at the real problem in Washington - "compromise" has become a dirty word. And, the only major political figure I see who seems to know that compromise is the only way a democracy can govern effectively is the current President.
Beware my fellow Republicans; the mandate you were given in the last elections are NOT a license to destroy our economic or political way of life, it was a call for CHANGE. Change can only be made by working together with all representatives and senators, to improve our country. When ultra librerals and ultra conservatives stake out positions that they are unwilling to compromise on, all of us lose.
What can the government Do? How about Back the F*%@ Off!!! , Reform the Tax Code, Stream line Regulations, Make America the Most Business Friendly Nation on Earth, Get out of everybody's Personal Business, End the Wars (& Empire), STOP the Welfare System Individual and Corporate, Stop Giving Money (we don't have) away to other countries and Prohibit any lobbying except that by individual citizens to their respective Representative and Senators with penalty of impeachment!
These are things the Government CAN Do that WILL "stimulate the economy permanently!
If they don't want to spend money then start getting rid of at least 45% of their congressional
staff and White House Staff. They should also give-up every benefit that the tax payers have
to pay for. They are talking about cutting spending. I believe that the first cut should start with them.
one thing to do as a starting point would be to enact a SUBSTANTIAL penalty on all corporations that outsource jobs and investments overseas to escape paying taxes.
What's really interesting is that raising gas taxes to pay for roads is critized as regressive and against our economic well being. If we want good roads, I see no better way to pay for them then through the people and business which use them. User taxes are preferred. If you think they regressive, then stay off the roads.
Americans have become bumbling idots. Everyone wants someone else to pay for it. Unfortunately those someone else's are fleeing the country for better economic environments and taking their jobs with them.
Increasing the Gas Tax would only make those that have to use their vehicles to go to work, spend more and have less for all the other items they need. Already to fill up a 20 gallon tank is $77.00 in our neighborhood. That is a lot of money to spend on gas. Gas should be under $2.00 a gallon. The speculators have driven up the price of gas to the point of no return. The Liberal Environmentalists have wanted this for a long time to force people to go to clean energy. The problem is, there is not enough clean energy to go around and it is very difficult to come by. Speculation should only be allowed by those that need to hedge their programs - Airlines, electric and gas generators, etc. or the margins should be 100%.
EVerywhere we look the price of goods and services are going up. There is a great deal of inflation going on that the Gov't is denying.
For the most part, there hasn't been any raises in wages for over 4 years. Incentives to spend money are hard to come by.
Our Gov't needs to stop spending money we don't have. The whole world is in the same boat. It sounds like a world wide Depression to me. The cause of it all was easy money by the Democrats, especially Barney Frank and his boy friend in the Freddie and Fannie fiasco and AIG. We can not continue to allow people to be given housing when they couldn't afford to pay it back. We need to take a clue from Canada which was in this very situation some time ago. They stopped unemployment benefits to make people take jobs, then they released the country from Regulations on the Environment so natural resources could be used to create jobs and they were strict on their purchasing of homes with a 20% deposit. There unemployment rate went down to 5.4%. It is up somewhat now, but not nearly as bad as in the US.
Socialism doesn't work. The European Union is finding this out the hard way. Americans for the most part will not riot like in Greece as we know how to get along without. The only ones that do are spoiled rotten free loaders that are use to getting something for nothing. When they mask up and start looting, they should be treated as Terrorists.
What we need is a whole new tax system in this country.
1. Straight percentage across the board, where everyone that makes a dollar pays the same percentage. All people regardless of annual wages need to pay their fair share so they actually share in this great country.
2. A Federal sales tax to go to Social Security and Medicare and which can not be used for other Gov't payouts.
3. Corporate taxes that are across the board with no safe havens. An American Company is an American company no matter where they do business.
Yes we are in a world of hurt, but just giving out money will not solve our problems. To start, we should tell the Postal Service people there is no such thing as a free lunch with their high cost of retirements. These Unions are a national disgrace with what they give their people. The Gov't answer is to allow them to retire early and cut back on Post Offices. In other words, have them do less with more Gov't input of funds. Just like with the Car companies, this Administration is paying off the Union vote for the 2012 cycle.
Economic Lesson 101:
The Gas Tax is a progressive tax that hits lower and middle income wage earners the hardest! The LAST thing you want to do is to take spendable money out of the hands of consumers, and give it to the Government. Lower and middle income workers are already spending those dollars. They won't magically appear as more effective jobs if you "redistribute" them from being spent by consumers, to being spent by the government.
If you could find a way to tap into additional tax revenue from individuals who are just hoarding cash (and not spending it) THEN you'd have a point.
I do agree that we need to spend more, but not NEW spending, "Redistributed" spending for a limited period of time. i.e. farm subsidies go to roads, military spending goes to schools, approve "fast track style" major private infrastructure projects to start THIS year like Canadian-US Pipeline project. Basically, take a look at ALL the possible sources of money, and then heavily incentivize that to be spent NOW.
Ever dollar Uncle Sam spends has to be paid back one way or another by the American people.
Tax or inflation, gold moving from $20. to $2000, I call that inflation.
Years ago I finished school with BS and started at $3500. Granddaughter finished last spring with BS and started at $60,000. That is inflation.
Uncle Sam will never stop printing paper money, and inflation will keep going. Uncle Sam or no one knows how to stop spending.
As for China, they are buying timber and minerals all over the world, and hold options on unknown amounts of the world. Uncle Sam can print more for China to spend. They don't want paper money. What part of China Bonds and Money has already been used to cover options? Watch the inflation when they start dumping that money on the world.
Our system is broke and behind times...The United States was built on the basis of thief and slavery...with a political system that took its time to follow its own constitution...The wealth and power were guarded and controlled by a few, while allowing those deemed suitable into their world. This created a world of inequality that still goes on...This countries government has denied and destroyed the culture of the very people that they stole from and put into slavery creating a whole under class of people even today...The Good times are over. The republicans and democrats alike are losing the battle for the truth.. This country cannot support its citizens and illegal immigrants and work visa foreign workers, while more than half american jobs have gone overseas. We cannot support a capitalist society with so many people doomed to never fine work and a republican party crying race...Nor can we continue to use global involvement when it comes to our own lack of jobs. The simple question is how we are going to product jobs for all our citizens while we ship all work overseas? How can we allow american companies on the basic of freedom to move all productions to foreign countries because of cheap labor and expect a jobless america to buy them....The finical whiz's are using all the fancy words to double talk and spin tails...The bottom line is that their is not enough to go around in a system that pays entertainers, sports figures, radio host, and politicians salaries that are ridiculous...The few people walking around with money they can never spend in a life time. looking for tax breaks at the expense of the poor...The stock market is machine run amok created by capitalist to keep the engine running...With the world population growing and western society continues to bank on its system,,,,The wars around the world will continue and the poor will pay......Stop companies from calling themselves american and send their jobs overseas because of profits...Tax them dearly....Really go after companies that hire illegal immigrants...Stop for now work visa's and open up the schools to a new education...One where welders,.electricans, carpenters, home contruction workers, and other industrial production workers are the courses that should be training our students...Not Ba's,Ma's, and PHD's with huge loans to pay back
The plain truth as stated in one comment here is that 100% of government is supported by the private sector.
America needs new industry that does not exist now that would employ millions. That new industry would be paid for by the private sector because it would increase the value of those corporations. The private sector needs the confidence in government rather than fear of government. It requires an administration that will encourage progress in America.
Utilities will rebuild a decaying national electric grid if organized and encouraged. A natural gas industry fueling all trucks , buses and cars would require millions of jobs to build the fuel pumps, install them all over America, sales people, clerks, mechanics for installation and repair. America's aging underground gas pipelines need replacing so that explosions will not occur as in SF recently. These jobs and this work cannot be exported to China.
I will end with a new saying,. America's government can always be counted upon to do the right thing, after everything else has failed.
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