Wednesday, February 15, 2012

Budget For Me, Nothing For Thee

By Carl
 
Professor Jeffrey Sachs was on Countdown last night, talking about the budget proposal President Obama submitted to Congress this week. His appearance was in response to an op-ed he submitted to the Financial Times of London in which he states:

President Barack Obama’s budget for 2013 will set off a vitriolic battle. Republicans will rail against the Democrats’ “class warfare” and Democrats will rail against the Republicans’ “coddling of the rich”. Yet it is mostly for show. The rich will win in their fund balances while probably losing at November’s presidential polls, and the poor and working class will probably re-elect Obama but suffer a continuing decline in relative and perhaps absolute incomes.

Consider the bottom line of the Obama budget. The policy is to cut total primary (non-interest) federal spending from about 22.6 to 19.3 per cent of gross domestic product from 2011 to 2020, while revenues would rise from recession lows of about 15.4 per cent of GDP in 2011 to some 19.7 by 2020. Compare that with Republican congressman Paul Ryan’s budget a year ago. Mr Ryan’s budget aimed for about 17 per cent of GDP in primary outlays by 2020, with revenues at about 18 per cent of GDP. The difference is modest, but the important fact is this. Both sides are committed to significant cuts in government programmes relative to GDP. These cuts will be especially swingeing in the discretionary programmes for education; environmental protection; child nutrition; job re-training; transition to low-carbon energy; and infrastructure. The entire civilian discretionary budget will amount to only 2 per cent of GDP, or less, as of 2020, in the budget plans of both Obama and the Republicans.

Sachs is right: The budget battles of the 21st Century have been narrowed down to paring away at the middle class.

Worse, this was a predictable situation. Indeed, it was predicted ahead of the first Clinton administration, that eventually, defense spending, Social Security and Medicare, and debt service on the cumulative budget deficits, the latter two mandatory figures, would choke the life out of any discretionary spending (except defense, which for some odd reason is not considered discretionary *koffkoffPORKkoffkoff*)

And then President Clinton took the then-bold (and now, radical) step of raising taxes on the wealthy while lowering them on the job-creating middle classes.

Yea, "job-creating middle class." That works in two ways, and please allow me this digression: First, 99% of jobs in this country are created by small businesses. 90% of small businesses are owned by people who make less than $50,000 from those businesses. You can't get much more "middle class" than $50K (use Google, the figures are out there.) Second, the middle class is the engine that keeps consumption going. Computers, cars, housing, iPads, food, clothing, shelter, all these sectors thrive on the middle class.

There are many more poor (Sachs and Olbermann both pointed out last night that one in two Americans now live in a low-income household, a staggering figure,) but they can only spend so much after they've paid rent. And let's face facts, it's the middle class that is caught up in keeping up with the Joneses.

But I digress....Clinton raised taxes on the wealthy, created 23 million jobs with his tax cuts on the middle class, and not only balanced the budget, but left a surplus.

Squandered immediately, I should point out, which brings us back to where we are now: the same boat as 20 years ago, deciding who should get hurt least.

In fairness to Obama's budget, he wants to raise taxes on the wealthy while maintaining Bush's middle class tax cuts, such as they were. And it is true that just cutting up the Bush era credit card of tax cuts would provide a neat little surplus in not-too-short order.

Here's the thing, tho: the argument over the budget, centered as it is around discretionary spending, mirrors the battle for re-election that Obama faces this year. There is so little left once you take defense, Social Security, and debt service off the table (in the election, staunch Republicans and Democrats) that the scraps are what will be left.

Similarly, the budget and the election link in this fashion: how those scraps are viewed and disposed of will determine if Obama wins, or whomever the Republicans set up to lose wins.

All Obama really needs to do is to change the dialogue and show that there's more meat than these burnt dry scraps. And that works in both arenas.

(crossposted to Simply Left Behind)

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