Tax and Spend

According to the White House website, Mr. Obama’s “stimulus” plan was to focus on economic recovery, whereby “America would become a stronger and more prosperous nation”. The thought is that “the current economic crisis is the result of many years of irresponsibility, both in government and in the private sector.” The American Recovery and Reinvestment Plan is supposed to make long-term investments in health care, education, energy, and infrastructure. Among other objectives, the recovery will increase production of alternative energy, modernize and weatherize buildings and homes, expand broadband technology across the country, and computerize the health care system. It’s also claimed that the recovery plan will save or create about 3.5 million jobs while investing in priorities that create sustainable economic growth, and will create a new regulatory framework that holds market players responsible for their actions and stops fraudulent practices before they take hold. The White House is also demanding accountability and transparency on Wall Street and in Washington. On the surface this all sounds well and fine, but the question remains, will it work? First, in my not so humble opinion, is the fact that the current economic crisis was brought about by nothing more than greed in our financial system, and government controls that did little more than augment that greed. And I’ll certainly agree with the “irresponsibility” part and lay that at the doorstep of big government as well, particularly when considering the social welfare state we seem to have become.

The disaster of the 1929 depression established the conditions where FDR could get elected in 1932 on a welfare platform. In his acceptance speech, Roosevelt declared: “Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth... I pledge you, I pledge myself to a new deal for the American people... This is more than a political campaign. It is a call to arms.” As we all know, Roosevelt was elected, and the “New Deal” became a reality. But, both during and for long after his presidency conservative critics questioned not only his policies but also the enormous expansion of government debt during Roosevelt's time in office. In 1929 the national debt was a bit less than 20% of the Gross National Product. The New Deal raised that to slightly over 40%, and WW II ran that up to a wopping 130%! By 1950 the debt was paid down to a meer 90% of the GNP. By 1980 the debt had been paid down to almost 35%, and has again been climbing slowly but steadily ever since. By 2008 the debt had reached slightly over ten trillion dollars, then with the Bush bailouts and now Mr. Obama’s continuation of the stimulus programs, we’re well over 80%, and the line on the graph is going straight up! Just who pray tell, is going to pay off that debt… and how long is it going to take!? Well shoot, HOW are we going to pay off that debt!? Remember that with consumer spending going down in our current crisis, business is going to be laying people off — not hiring them. Nor can you blame business for doing this, as its all part of a vicious economic cycle. And you can't blame consumers for not spending (or paying high taxes), when the economy is in the basement. Much like FDR’s public works projects, “stimulus” might put a few people to work for awhile, but what happens when the money runs out? And run out it will.

In the meantime, the current crisis has taught us once again just how dependant we’ve become on financial markets and institutions, and the severe impact they can have on working folks. Following the current meltdown, the government has tried (unsuccessfully it seems) to get credit flowing once again so that small businesses can rebuild, and American families can again afford to send their kids off to college. And how was this done? By “bailing-out” the banking industry with taxpayer money, and not incidentally putting my grandkids deep into debt! Adding insult to injury, the ‘Fed’ has lowered the Federal Reserve interest rate to about the lowest level in history. Effectively this hands a LOT of ‘free’ federal money to big banks so they can loan it to us… at whatever interest rates the market will bear, and putting the profits into their pockets. You might make note that all that very profitable federal money has to go through the big banks, it’s certainly not directly available to John Q. Citizen at that nearly nonexistent interest rate.

All of this economic slight-of-hand has to be paid for somehow, and that’s supposed to be done through taxes. And that, according to Mr. Obama, will be accomplished by “taxing the rich”, and that nobody making less than $250,000 a year will see a tax increase. Well, he might consider the fact that the richest 1% of Americans already pay nearly 41% of our total tax burden. This year New York’s rich were tapped like never before. The state’s wealthy pay higher income tax rates, higher taxes on their limos, airplanes, and yachts, more to enter their ponies in a horse race, and more to play in the real estate market. They’re also losing tax loopholes and deductions that others get. Now, early figures indicate that taxing the wealthy may have driven away richer New Yorkers. “You heard the mantra, ‘Tax the rich, tax the rich’” Gov. David Paterson said, “We’ve done that. We’ve probably lost jobs and driven people out of the state. People aren’t wedded to a geographic place as they once were. It’s a different world.” Both Buffalo Sabres owner Tom Golisano who was paying $13,000 a day in New York income taxes, and Rush Limbaugh became ex-New Yorkers this year, due to the higher tax rates. Golly, could any liberal have anticipated that happening?

Stimulus money is helping many states to plug the leaks in their budget, but a lot of officials are now worried about supporting assorted programs after the federal funds run out. Around $90 billion of the $787 billion stimulus package was dedicated to supporting state Medicaid programs. The money, which is known as FMAP funds, has moved faster than other stimulus dollars allocated to many other spending categories. The GAO found that most states were using their Medicaid funds to cover increased caseloads and to maintain their current services and eligibility criteria. Some states are using the funds to avoid cutting overly large payments to doctors and hospitals. Some State officials “expressed concern about the longer-term sustainability of their Medicaid programs after the increased FMAP funds are no longer available, beginning in January 2011,” the GAO report said. The report also found some states were using Medicaid funds to finance general state budget needs. No wonder a good friend of mine is having so much trouble getting Medicaid assistance following a catastrophic illness.

Republicans have criticized the funds for state governments, saying they encourage states to postpone hard budget decisions and do little to create jobs or growth. They have also attacked the plan’s effectiveness overall, citing the 26-year high in unemployment. Members of the administration say the plan is working, and that it has kept the recession from being worse.

To all this federal waste and confusion we may add “Social justice has been served and government is here to help you…”