Deficits, Your Job and Republicans

In December 2012, Congress debated whether the George W. Bush tax cuts for wealthiest Americans should expire. “Most Americans understand that if we raise taxes on job creators, we’re going to have fewer jobs,” House Speaker John Boehner, R-Ohio, stated. “Our economy is still struggling under President Obama’s policies, and his massive tax hike will only make things tougher. It’s one of the worst possible ideas at one of the worst possible times for families and small business.”

The Bush tax cuts for the wealthiest Americans did expire and taxes rose for the wealthiest Americans. Unemployment has dropped ever since. Congressman Boehner was wrong, again.

Figure 1

Source: Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, February 13, 2014, http://data.bls.gov/pdq/SurveyOutputServlet
Figure 1 Source: Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, http://data.bls.gov/pdq/SurveyOutputServlet, Accessed February 13, 2014

Rather than admit his error and perhaps suggest that if the relatively small December, 2012 tax increase got such good results, a bigger tax increase might get us to the full employment economy we enjoyed after Bill Clinton’s 1993 tax increase that balanced the budget, Boehner and his Republican allies call for the same Republican dogma, the tax cuts that brought about the Bush Recession of 2008.  If we want a robust economic recovery in the US, we need to make changes. First, the big picture, then the details.

The big picture:

  • Corporate greed and trade agreements have no impacts on our trade balance. A nation’s annual trade balance equals the nation’s annual net national savings.
  • US Seasonally Adjusted Unemployment is 6.6% (January 2014)
  • A modern day goal is Seasonally Adjusted Unemployment under 4%, achieved during the last year of the Bill Clinton Administration.
  • The US presently imports $392 billion more annually than we export. We are exporting jobs overseas.
  • The major reason the US has a $392 billion negative annual net national savings is because of our federal government’s $850 billion deficit (Fourth quarter, 2013, Table 3.2 Bureau of Economic Analysis).
  • Dramatically lowering or eliminating our federal government’s deficit will make the US’s net national savings positive, assuming private savings and investment does not dramatically change. We would then have a positive trade balance, which will significantly lower US unemployment.
  • A tax increase is the most effective cure for our federal government’s deficit.
  • Republicans refuse to negotiate tax increases.
  • Replacing Republicans is the most effective first step to a balanced federal budget, a positive net national savings, an equally positive trade balance and lower unemployment.

The details

International trade agreements impact the volume of trade; they do not affect the balance between nations. President Bill Clinton signed a major international trade agreement (GATT), a minor regional one (NAFTA) and awarded China Most Favored Nation trade status. Since Clinton assumed the presidency in 1993, US “Current receipts from the rest of the world”, which we will call Exports for simplicity, increased 372%. At the same time, imports (which like exports include services) increased even more.

Figure 2

Figure 1 Source:
Figure 3 Source: Bureau of Economic Analysis, Table 4.1, http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=x&911=0&903=128&904=1993&905=2013&906=a, Accessed March 9, 2014

 

 

 

 

 

 

 

 

 

Trade agreements raise all US citizens’ living standards by providing consumers a wealth of high quality and low-priced goods. International trade also dramatically increased the wages of highly skilled and educated US workers. Unfortunately, trade is a two-edged sword and the George W. Bush and Barack Obama Administrations managed to turn trade into a US job killer.

The difference between exports and imports is our Trade Balance and is the black line in Figure 3. This balance has been negative since 1991. Relatively small negatives experienced during the Clinton full employment years are an inflation buffer. Big negatives are bad and indicate exportation of jobs.

Figure 3

Figure 3 Source: Bureau of Economic Analysis Table 4.1.
Figure 3 Source: Bureau of Economic Analysis Table 4.1. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=x&911=0&903=128&904=1993&905=2013&906=a, Accessed March 9, 2014

Countries with big positive national savings who are willing to loan us money to cover our negative savings will export much more to us than we export to them. US politicians predictably blame China for our trade deficit. The real problem is not China. It is us and more specifically the Republican party.

There are three major factors affecting a country’s net national savings. Private savings are rapidly increasing. Gross Domestic Investment increased 220% since 1993, keeping us technologically ahead of the rest of the world.  The factor that can be changed is government savings, which are actually huge deficits.

Figure 4

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Figure 4 Source: Bureau of Economic Analysis, Table 5.1 http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=x&911=0&903=137&904=1993&905=2013&906=a, Accessed February 13, 2014. Note: “Statistical discrepancy” on Line 42 is added to “Private savings”.

Every country’s Trade Balance equals their Net National Savings.  These accounts must balance. Notice how the Trade Balance line in Figure 3 matches the Net National Savings line in Figure 4? They are identical.

Fix the problem!!

The Congressional Budget Office predicts the 2014 deficit will fall to $514 billion and begin rising again in 2016. This is not acceptable. If we are serious about reducing deficits and their impact on our economy, we need change.

There are two reasons the most effective and obvious solution is voting Republicans out of office. First, they are the primary reason for the six-fold increase in the size of government since 1980. When President Ronald Reagan took office in 1981, annual federal government spending the previous year was $644 billion. Today it is $3.7 trillion.  Figure 5 details how 72% of the spending increases since 1980 came while Republicans controlled the White House and the budget.

Figure 5

Federal Government Spending Increase by Administration (billions)
President Annual spending start of term Annual spending end of term Annual Spending Increase During Term
Ronald Reagan        $640 $1,170 $526
George H.W.Bush $1,170 $1,523 $352
Bill Clinton $1,523 $1,940 $417
George W. Bush $1,940 $3,316 $1,376
*Barack Obama $3,316 $3,847 $531
Total $3,203
*Obama total through 4th Quarter, 2013

 

Figure 5 Source: Bureau of Economic Analysis, Table 3.2, http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=X&911=0&903=87&904=1976&905=2013&906=A, Accessed February 20, 2014

The second reason to vote Republicans out of office is their resistance to a tax increase. Republicans refuse to consider tax increases until social programs benefitting poor people are dismantled. The result is continuing budget deficits, continuing negative national savings and continuing exporting jobs.

Abe would be disappointed.
Abe would be disappointed.

There are major problems with the Republican approach. First, it is impractical to consider multi hundred billion dollar cuts in government safety net programs. They simply aren’t going to happen. Second, $500 billion in spending cuts does not result in $500 billion of deficit reduction. Spending cuts of this magnitude mean firing an army of government and contract workers. Expecting they will instantly get new private sector jobs paying as much as they were making is inconceivable. Instead, what happens in the real world, are greatly reduced tax revenues from the fired employees along with reduced spending on other things they can no longer afford. The government spending cut reverberates through the economy resulting in less taxes paid by anyone selling to the ex-government workers.

Tax increases work

President George H.W. Bush raised taxes in 1990 and probably saved the country from the type of recession his son gave us in 2008. President Bill Clinton raised taxes again in 1993, balanced the budget, ended the Republican recession and brought us one of the longest periods of sustained growth and low unemployment the US ever experienced.

Ending the George W. Bush tax cuts for the wealthiest taxpayers that Republican House Speaker Boehner fought to preserve, reduced the budget deficit and unemployment.

Additional notes

Even if you have a good job, high unemployment affects you. Employers are stingy about raising pay when 24.7 percent (margin of error = +/- 1 percentage point) of the US workforce is either unemployed or underemployed. (http://www.gallup.com/poll/125639/gallup-daily-employment.aspx). There are plenty of people who would like your job. More detailed analysis of tax cuts are on this site at “Tax Cuts and Budget Deficits, Not the Answer” and “Do Lower Tax Rates Equal More Revenue?”

Summing up

While Congressman Boehner has no problem looking like a fool defending tax cuts (and resulting deficits) in the face of the high unemployment and slow economic growth they cause, it is getting old here. Whether you are a true conservative, mad as Hell and not going to take it anymore or someone who is just fed up with high unemployment and our government’s passing on huge debt to our children, it is time for a change. Change isn’t going to happen if we quietly sit back and let events unfold. Knowledge is power and spreading knowledge is the best way to take power from those who abuse it. Feel free to share this article.

 

 

 

 

 

 


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