Nel's New Day

December 26, 2012

Fixing the Economy Again

Filed under: Uncategorized — trp2011 @ 8:52 PM
Tags: , , , , ,

Last week, House Speaker John Boehner (R-OH) shut off the lights and left town because he couldn’t manage his Republicans. The Tea Party members refused to consider any compromise, and the House couldn’t pass a budget proposal without them. Today President Obama returned to Washington from his holiday vacation in Hawaii, but Boehner is nowhere to be seen.

Yesterday I provided a fantasy approach of income equality that would solve the country’s deficit problem. Richard Eskow has a more pragmatic approach that might get passed.  The most important part of Eskow’s positions is to do away with what is called the “chained CPI” or “chained Consumer Price Index,” a strange approach to figure out a cost-of-living revision for Social Security.

At this time, Social Security payments are tied to the cost of living increases, meaning that it goes up based on how much prices go up. But the chained CPI has a peculiar twist. The higher the prices, the less people can afford to buy things so the lower the cost of living because they can’t afford these purchases.

For example, if the price of gasoline triples from $3.33 to $10 per gallon, then this is a 200-percent increase. But not with the chained CPI. Because people can’t afford $10 per gallon, they would buy less, which means that the cost of living increase is less than 200 percent because people aren’t buying it. Thus people get poorer and poorer, swelling from $1.4 billion in the first year to $122 billion by the tenth year.

If prices of anything goes up and people buy less, then there’s no inflation, according to chained CPI, because people don’t spend more. For example, if seniors eat pet food because they can’t afford the rising prices of chicken, then the government will pretend that seniors are doing fine because they can still buy food.

Tell the president and your House representatives to forget the chained CPI and do these instead. Notice how much more than the $122 billion from the Social Security “savings” that the country can put against the deficit.

  • Close multiple loopholes in the capital gains law – $174.2 billion: These include the “carried interest” loophole, which taxes hedge fund managers’ service fees at the low “investors’” rate; the ‘blended rate,’ which taxes some quick derivatives trades as if they were long-term investments; the ability to ‘gift’ capital gains to avoid taxation; a dodge for bartering capital gains; and the ability to ‘defer’ gains to future years.
  • Eliminate the capital gains altogether – $900 billion in savings.
  • Keep the president’s $250,000 figure for increased taxation – $183 billion: Changing this figure to $400,000 would reduce the deficit reduction impact by $183 billion.
  • Reduce the budget for U.S. overseas military bases by 20 percent – $200 billion: Dropping 702 of 4,471 military ‘installations’ in 63 foreign countries wouldn’t include bases in Iraq and Afghanistan, just those in nations such as Germany, South Korea, and Japan. The ten-year cost for these 4,471 bases is approximately $1 trillion. The waste in the Department of Defense is also high. For example, armed forces has 963 generals and admirals, 100 more than 9/11 when the Pentagon’s budget was half what it is now. A retired U.S. Army Colonel and military analyst said that the military needs only one-third of these high-ranking officers. The rest of them operate as lobbyists for the Pentagon while they have private jet rides and huge personal staffs that costs over $1 million—per general, totaling  $100 million just for those officials. U.S. taxpayers spend billions of dollars a year for  other luxuries. The Pentagon, for example, runs 234 golf courses around the world at an undisclosed cost. DoD’s Sungnam golf course in the Republic of Korea, meanwhile, is reportedly valued at $26 million. The military ski lodge and resort in the Bavarian Alps, which opened in 2004, cost $80 million. Marching bands also cost $500 million annually.
  • Allow the government to negotiate with drug companies – $220 billion: Current law specifically forbids the government from negotiating for lower rates for Medicare prescriptions  although the government paid for much of the research to develop the drugs.
  • Enact DoD-friendly cuts to military budget – $519 billion: Experts in the defense community came up with options that balanced short-term readiness with long-term preparation.
  • Enact Rep. Jan Schakowsky’s ‘Fairness in Taxation Act’ for very high earners – $872.5 billion: This solves the current tax structure that “fails to distinguish the merely ‘well-off’ from the ‘super-duper rich.’” It also taxes capital gains and dividend income as ordinary income for taxpayers with income over $1 million. Brackets would be as follows: $1-10 million: 45%; $10-20 million: 46%; $20-100 million: 47%; $100 million to $1 billion: 48%; $1 billion and over: 49%. The very wealthy would still pay much less than under Republican President Dwight D. Eisenhower, when the top rate was 91 percent as well as less than under most American presidents of the last century.
  • Eliminate corporate tax loopholes – $1.24 trillion: A 2007 Treasury Department report during George W. Bush’s second term concluded that “corporate tax preferences” (aka loopholes) lost $1,241,000,000,000 over a ten-year period.
  • Create a financial transactions tax for high-volume Wall Street trading – $1.8 trillion: The UK tax is 0.25 of each transaction, levied on both parties. Beyond the fiscal advantage, this might discourage the massive volume of ultra-high-speed computer-driven transactions that have turned the stock market into both an imperceptible “black box” and a real-time mega-casino operating in nanoseconds. “Algorithmic trading” doesn’t build economic value or encourage wise investment; instead it helped cause the 2008 recession.More than 200 economists have signed a letter supporting the concept of a financial transaction tax.

These solutions would bring in over $6 trillion in ten years rather than the $122 billion that cutting back Social Security would. The poor and middle class didn’t cause the problems with the economy; they shouldn’t have to pay for solving the problem. And people paid into Social Security. The money still exists; it’s just that George W. Bush took it to cover how high the deficit was becoming after he lowered taxes and started two wars.

Appropriations are something to watch during the next term. Sen. Barbara Mikulski (D-MD) will chair that chamber’s Appropriations Committee after the death of Sen. Daniel Inouye (D-HI. The position gives her power in setting the agenda for domestic spending, including policies that benefit women and families.

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