SUPER TRIANGULATION, ANYONE?
by Robert Wicke (12/10/10)

It's so obvious, and yet that's not the reason it's never mentioned in the media. It's never mentioned instead, because it's also so telling. I'm talking about the glaring contradiction of the Obama administration creating a deficit commission to deal with the unsustainable national debt and then turning right around and agreeing to extend the Bush tax cuts. The latter is one of the two major measures that created the deficits that have drastically increased the national debt in the first place. According to Citizens for Tax Justice, the increase in the national debt by the Bush tax cuts was $2.1 trillion or $2.48 trillion, if you include entailed interest. (Over the ten year period since 2000.)

At the time the 2003 tax cuts were enacted, 450 economists attacked them as being unsustainable in a signed statement, which held that they would "increase inequality and the budget deficit, decreasing the ability of the U.S. government to fund essential services, while failing to produce economic growth." The Bush administration succeeded in drumming up slightly more than half as many economists (250) who applied the supply side model to the tax cuts and claimed that they would "create more employment, economic growth, and opportunities for all Americans".

The latter, of course, is the same claim for tax cuts at the top of the income pyramid that has been repeated as a basically fraudulent mantra ever since the Reagan administration. And, despite its unproven nature, it's what the GOP said this time around. However, the tax cuts for the top 1% will not necessarily result in investment; certainly not if demand remains at a low level. The tax cuts for the middle class will add to demand, because the resultant funds will be spent, probably almost immediately.

Not content with simply extending the tax cuts, two more measures have been introduced; one would cut the estate tax as well, the other would cut pay roll taxes under the $106,000 cap. That is, not only is Social Security being tabbed by the deficit commission for supposedly contributing to the deficit, but instead of raising the cap which would open the possibility of strengthening Social Security, cuts are planned for payroll taxes. Social Security is proscribed from borrowing; it is 100% paid for by taxes. It therefore cannot add to the deficit. Of course, the legistation prohibited borrowing from the Social Security Trust fund, which borrowing is an illegal action that has occurred a lot more than once. In additon to the national debt, there are unfunded obligations, which reportedly amount currently to around $40 - $60 trillion. Social Security is one of the agencies to which these unfunded obligations are owed.

The Bush tax cuts did add to the national debt, and, as James Kwak has been quoted as saying, "[They] were always bad policy. After the last election, President Obama will be able to accomplish precious little. But he could easily have killed the Bush tax cuts and thereby done more good for our nation's fiscal situation than anyone will be in a position to do for many years to come. Killing the tax cuts would alone reduce the national debt by roughly as much as the deficit commission's entire proposal. (Emphasis added) And killing the tax cuts was the path of least resistance. Obama could have done it by doing nothing. Or he could have done it by taking a strong negotiating position and being willing to walk away from the table ..."

Kwak goes on to say "Instead we got a two-year extension as part of an overall package that adds $900 billion to the debt ... And Obama will no longer be able to say the tax cuts were a mistake made by President Bush that he was letting expire. Now he owns the mistake."

It's beginning to appear as if the comparisons of the 2010 midterms with the 1994 midterms were quite apt. Clinton got to the point that he seemingly could work better with the GOP than with the Democrats. Are we getting a sort of a forecast of what the next two years will be like from what happened in this round? Namely, the President and the GOP cooperating and the Democrats and he being on opposite sides, with all of it an alliance stemming from an obviously unnecessary capitulation at the outset. Or, maybe it's really round two, with the formation of the deficit commission in the first place, being round one.