Thursday, April 21, 2011

S&P Threatens To Tank The Economy (Again) If The Incredibly Wealthy Don't Get A Bigger Share Of The Pie


Yesterday Robert Reich did a good post on extortion politics in regard to how the GOP is trying to manipulate the debate over usually routine process of raising the debt ceiling. "Raising the debt limit shouldn’t be subject to party politics. Economic extortion should be out of bounds."
It’s bad enough government shutdowns have become an accepted part of political negotiation. But failure to increase the amount the Treasury can borrow would have far graver results.

Not only would the government be unable to issue Social Security or Medicare checks but the United States couldn’t pay interest on its current debt.

We’d go into default. The full faith and credit of the United States would be in jeopardy. Treasury bonds would go into free fall. Interest rates would skyrocket. We, and most of the rest of the world, would fall into financial chaos.

The recovery is still fragile. All this would force us and most of the rest of the world into a deeper recession or worse... [I]t’s a giant game of highway chicken, and if one driver doesn’t yield the crash will be catastrophic.

...The biggest surprise is the silence of American business and Wall Street. They have as much if not more to lose as anyone if this game ends in tragedy. Yet the GOP-- which big business and Wall Street fund-- insists on playing it.

Why isn’t the Business Roundtable decrying the use of this tactic? Where are the leaders of Wall Street? Where are the corporate statesmen? They should insist this game of chicken be called off or they’ll stop the funding.

Maybe they think the crash won’t happen, that Obama and the Dems will cave in to Paul Ryan’s and the Republicans’ before that.

If so, they’re wrong. The Republicans’ demands are so far beyond the pale-- turning Medicare into vouchers that funnel money to private insurance companies, turning Medicaid and food stamps into block grants that would deliver less to the poor, giving a giant tax windfall to the very rich-- they cannot be met without causing the Democratic base (and most Independents) to revolt.

A bottom up, non-Tea Party, revolt might be refreshing, but not one I expect. Reich was correct in saying Americans don't like Ryan's proposals. In fact, as Greg Sargent points out, "There is strong across the board support for Obama’s policy preferences on the deficit... 72% overall, and 68% of independents, support hiking taxes on those over $250,000. Even 54% of Republicans support this. Meanwhile, 65% say Medicare should remain as it is today and should not be transformed into a voucher program. Only 30% [a hard core right-wing base brainwashed by Fox and Hate Talk radio] favor changing the program." Instead, we get more terror from the top-- more extortion from the ruling elites. No doubt you read about the threats to downgrade U.S. Treasuries by S&P this week. This bastion of right-wing Republican ideology is doing its bit for the cause. John Harvey's explanation in Forbes makes a lot of sense and points out that their explicit threat that if the federal government doesn't cut the deficit, it will bring financial ruin to the whole system is hot air. "[R]educing the incomes of millions of Americans (via tax increases or spending cuts) is precisely the opposite step we should be taking," Harvey writes.
The bottom line is that the federal government’s budget is most decidedly not analogous to a private one. For it, deficit spending is not a result of buying things that they cannot presently afford, but an act aimed at stimulating the macroeconomy when the private sector does not generate sufficient demand to hire all those willing to work... [N]ot only are these absolutely insignificant today when there are 13.5 million unemployed people, but one of those down sides is not an increased chance of US debt default.

He goes on to make sure we remember that the S&P is hardly a trusted or even competent arbiter of what's fiscally prudent: "Incidentally, if you do get a chance to ask them what they were thinking, why don’t you also find out why they thought the toxic, subprime debt was AAA? I think we’d all like the answer to that one, as well." Not that this will stop the conservative rich people who run the U.S. Senate from doing exactly what they want to do.
U.S. corporations have enjoyed a two-year bull run on Wall Street. They are sitting on a record amount of cash and are back to paying bonuses that are the envy of executives around the world.

And the icing on the cake for many of them might be just around the corner: a tax cut that has bipartisan support in Congress.

As part of their budget plan passed last week, House Republicans want to cut the corporate tax rate to 25% from 35%. The Obama administration and many Democrats also are looking to slice the current rate, but not as much.

Supporters of the corporate tax cuts say they're needed to make U.S. companies more competitive with their foreign counterparts, and the administration and House Republicans say they want to offset rate cuts by eliminating unspecified loopholes and tax breaks.

Yet despite complaints that they fork over too much money to Washington, U.S. corporations have been paying an increasingly smaller share of federal taxes over the last half-century.

Nearly a third of all federal taxes came from corporations in 1952. Last year, they paid just 8.9%, according to government figures. Loopholes, credits and the ability to shelter earnings abroad have helped many of the country's biggest companies pay far less than the corporate tax rate set into U.S. law.

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