Published On: Fri, Aug 12th, 2011

FINANCIALLY DISEASED AMERICA – Part I

Financially diseased america

Financially-Diseased

America – Part I

Debt Deal As a Symptom of a Financially Ill America Keeping the Super-Rich Richer and Poor Poorer

Based on an article by Joshua Holland, AlterNet

What It All Means To the Average Person

(Healingtalks) In the real world, the recent debt deal cut by Congress will result in tens of thousands of vulnerable people losing health coverage, funding for Head Start will be cut, thousands more of low-income students will be denied an education, and many public sector workers will be added to the unemployment rolls. Neither the environment nor our decrepit 19th-century infrastructure will get needed funds.

Many of the budget changes on the way will be highly unpopular, but no member of Congress will have to cast a vote on them. The social safety net won’t be protected, but lawmakers will be – and here is how it works:

It’s a Financial Set-Up – Enrichening the Rich and Impoverishing the Rest 

Here’s how the deal was supposed to play out, according to the White House: Congress cut around $1 trillion in spending over the next 10 years as a “down payment” on a larger package in exchange for raising the debt limit through the 2012 election. The Gang of 12 is then supposed to come up with at least another $1.2 trillion in debt reduction through a mix of additional cuts – possibly to include cuts to Medicare and Social Security – and revenue increases. If seven members vote on a package along those lines, it will get an automatic up-or-down vote in both chambers of Congress – amendments won’t be allowed.

If they can’t cut a deal an automatic “trigger” kicks in, forcing an additional $1.2 trillion in cuts. Democrats had wanted it to include a mix of cuts and revenue increases in an effort to make Republicans negotiate in good faith, but that proved a sticking point with the GOP caucus. Eventually, the parties settled on a 50/50 mix of security and non-defense cuts – the the defense cuts were supposedly something Republicans would find intolerable.

The Democrats would have yet more leverage, they said, because the trigger would kick in at the same time as the Bush tax cuts are set to expire, which in theory would allow Obama to raise taxes on the wealthiest Americans if the Gang of 12 comes up with a deal that isn’t “balanced.”

It’s an interesting legislative story, but none of it is going to happen. It is all a sham and part of a financially ill America that robs the poor and middle class to feed the interests of the rich.

A Federal Debt Deal Designed to Fail

Political scientist Seth Maskett analyzed the voting records of the Gang of 12 and concluded that it represents a mix of “extremists and moderates” that “should agree on approximately nothing.” The most likely scenario is that this group won’t come up with a deal that gets seven votes needed to send it to the full Congress for a vote.

The “leverage” that’s supposed to move these legislators closer together is a fantasy. Conservatives have little incentive to deal, in part because Democrats have already negotiated away substantial cuts in military spending in the “trigger.”

Large Defense Cuts Not For Real

They did that first with a little sleight-of-hand. The savings are based on a 10-year baseline of defense spending, but future Congresses will decide the specifics of what gets cut. The 50/50 mix of defense and non-defense spending is only locked in for the first two years. After that, the cuts to projected spending could theoretically all come from the non-defense side. Second, “defense spending” doesn’t only include the Pentagon’s budget, but also dollars for agencies like the FBI, the Labor Department, Commerce and Homeland Security.

Defense Secretary Leon Panetta has already said that further cuts to the Pentagon budget “would result in a further round of very dangerous cuts across the board, defense cuts that I believe would do real damage to our security.” A few days later, Obama himself agreed with that analysis, saying that more debt reduction had to come from “tax reform” and “modest adjustments to health care programs like Medicare.”

What this all means is, as defense analyst Winslow Wheeler noted, “the most likely alterations to defense spending appear to be significantly less than the touted” numbers in the press. And that’s a reduction from a very bloated defense budget increased by 43 percent since 9/11/01.

Bush Tax Cuts For the Rich Will Remain in Tact

President Obama’s promise to veto an extension of the Bush tax cuts on high earners if Congress doesn’t pass a “balanced” debt package is bunk.  The bottom line remains that Republicans are willing to shut down the government if they can’t have their way, and the Democrats are not (or the GOP is bluffing and the Dems won’t call them on it, which has the same effect). And while most Democrats would like to raise taxes on the highest earners, they don’t have any interest in raising rates on the middle class.

That creates a mismatch in leverage. We know how this game will likely to turn out as we’ve played this game already, when Republicans insisted on spending cuts and the extension of the Bush tax rates in exchange for an extension of unemployment benefits and aid to cash-strapped states. That was the beginning of this era of legislation-by-hostage-taking. Its a safe bet that this scenario will repeat itself.  So the trigger will thus kick in. What does that mean? See below.

“Trigger” For Across the Board Federal Budget Cuts

The government is projected to spend $46 trillion over the next decade, but a large chunk of that – more than $27 trillion — is “mandatory spending” on Medicare, Social Security, Medicaid and interest payments, all of which are exempted from the trigger. Defense is another chunk, and then there’s $6.7 trillion in domestic “discretionary spending.” In the first round, there was around $600 billion in cuts to this category, and when the trigger kicks in, it will add up to a total of $1.2 trillion, or a reduction of around 18 percent.

Matt Cameron at the Center for American Progress crunched the numbers and figured out how those cuts would be divided. The biggest hit would be in “education, employment, and training” – more than a fifth of the cuts would come from that category. Discretionary health-care programs, transportation, environmental protection, the State Department and Justice would also be hit. We’re talking about a lot of programs that are both popular and necessary – Head Start, child care and K-12 education, family planning and health-care for the poor, job training, Pell grants, and services for the elderly.

Triggering State and Local Budget Cuts

The cuts will hit state budgets hard. According to the Center for Budget and Policy Priorities, “fully one-third of this category of federal spending flows through state governments in the form of funding for education, health care, human services, law enforcement, infrastructure, and other services that states and localities administer.” The “large cuts in federal funding to states would force states to make still-deeper cuts in their budgets,”

So states and localities, which have already shed almost 600,000 public sector jobs since 2008, will continue to do so.

A Federal Budget Process Based on a Big Lie

All of this is being driven by an alternative universe – inhabited not only by conservatives, but also most of the legacy media – in which we face “runaway” government spending and, as House Majority Leader Eric Cantor, R-Virginia, put it, “Washington doesn’t have a revenue problem.”

There is No Runaway Federal Spending

That’s the opposite of any objective reality. The undeniable fact is that this year, for the third year in a row, the federal government will collect the smallest share of our economic output in taxes than it has at any time since 1950, before we even had programs like Medicare and Head Start. And while spending (as a share of the economy) spiked short-term as a result of the crash, and efforts to counter the recession, before this debt reduction deal was cut, the government was projected to spend 23.6 percent of our economic output next year and 22.5 percent in 2014. Is that “runaway spending”? Well, the government spent 23.5 percent of our output under Ronald Reagan in 1983; four of Reagan’s eight budgets authorized spending at 22.5 percent of our output or more. So this entire exercise is predicated on economic falsehoods.

And these outcomes are all but baked into the cake already. You can forget about all the stories of Congressional sausage-making to come – the debt ceiling deal is designed to force lawmakers to make unpopular cuts to popular programs, and keep taxes near their historic lows.

Joshua Holland is an editor and senior writer at AlterNet. He is the author of The 15 Biggest Lies About the Economy: And Everything else the Right Doesn’t Want You to Know About Taxes, Jobs and Corporate America. Drop him an email or follow him on Twitter.

Keyword tags: financially diseased America, runaway federal spending, poor poorer, rich richer, destruction of American dream, eliminating the middle class, keeping the super rich rich, financially ill America, how to destroy American dream, who rules America, financially diseased US, bankrupt US

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