Monday Wake Up Call – May 1, 2023

The Daily Escape:

The Schooner Surprise, built in 1918, is listed on the National Registry of Historic Places, Camden Harbor, ME – April 2023 photo by Daniel F. Dishner

A few words about Biden, McCarthy and the Debt Ceiling. We all know that the clock is ticking on a US default of our debt sometime in June. There are multiple opinions in DC about who has the leverage in the coming debate between the House GOP, Senate Dems and Biden.

The institutionalist view is that McCarthy and the House GOP have taken the Debt Ceiling hostage and they plan a hostage negotiation with Biden. Some think that McCarthy is doing it badly. Others take the darker view that the Republicans are actually trying to crash the economy so that America blames Biden and returns the GOP to power in 2024.

If you think, based on what we’ve seen so far, that the GOP doesn’t plan to negotiate, that like terrorists, they will kill as many hostages as possible until their terms are 100% met, what they’re doing makes sense.

The NYT reports that McCarthy has been open about the fact that this is not a real bill:

“This bill is to get us to the negotiations….It is not the final provisions, and there’s a number of members who will vote for it going forward…say there are some concerns they have with it. But they want to make sure the negotiation goes forward because we are sitting at $31 trillion of debt.”

For the umpteenth time, we’re watching a game of chicken about raising the debt limit. There are something like 45 days until the Debt Ceiling must be raised. You know the “or else” sentence that follows: Or else, the US will face potentially calamitous economic consequences.

McCarthy’s bill may get the Republicans a seat at the table in the negotiations over raising the debt limit, but Biden’s position remains: “Send a clean debt limit bill, or pound sand.”

Has McCarthy overplayed a bad hand? If he had failed to get anything passed he would have looked completely incompetent. Nevertheless, passing a bill filled with devastating cuts and manifestly unpopular positions that will be difficult to defend except to the Party faithful, it is arguably worse than getting nothing done at all.

If the Dems are smart they will take the GOP’s messaging bill and come up with a message that has broad appeal that can be used to hurt the GOP in swing districts for the next two years. McCarthy’s bill shows that Republicans’ ultimate goal is to gut health care, food stamps and education, and even veterans benefits. The Vote Vets organization is out with a message:

“And now, it is the fringe MAGA party that voted for a budget that would gut health care and support for our Veterans. 217 of them voted for it, and just 4 against. They talk tough when it comes to Military action, but go AWOL when it’s time to take care of those who served.”

This bill isn’t intended to pass. Republicans had an opportunity to aim a productive salvo at swing voters to convince them that GOP majorities can deliver normalcy, and give them some sign that the Party was tacking away from the extremist positions that alienated voters in the last midterm elections.

Instead, their message is that the Party is about owning the libs and slashing aid for veterans and the poor. The GOP can’t even fake being a Party interested in governing anymore. That’s bad news for McCarthy, the man chained to the GOP canoe that’s heading over the falls. As Succession’s the late Logan Roy would say “You are not serious people.”

Instead the GOP’s message to the world is that America’s commitment to paying its debts is contingent on an underlying political negotiation about the size of the budget deficit.

  • Republicans believe they can win the political standoff by making Biden and Democrats look petty by refusing a basic negotiation.
  • Democrats also seem to be betting that Senate Republicans will step in as more mature political actors and defuse this situation.

The NYT quotes Sen. Chuck Schumer, (D-NY) and majority leader:

“Discussion of spending cuts belongs in talks about the budget, not for bargaining chips on the debt ceiling….The speaker should drop the brinkmanship, drop the hostage taking, come to the table with Democrats to pass a clean bill to avoid default.”

Time to wake up America! This kabuki play will run through at least mid-June. It’s a DC big boy fight. And we the little people, will have no say until November 2024 when we can escort the GOP flame throwers out of the House. To help you wake up, watch Crowded House perform “Don’t Dream It’s Over” from their first (of three) farewell tours, played at the Sydney Opera House in November 1996:

One of the greatest songs of the 80s and it still hits hard today.

Sample Lyrics:

There is freedom within, there is freedom without
Try to catch a deluge in a paper cup
There’s a battle ahead, many battles are lost
But you’ll never see the end of the road
While you’re traveling with me

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Keep Your Politics Off Of My Economy

The Daily Escape:

Rachel Carson National Wildlife Refuge, Kennebunk, ME – January 2023 photo by Eric Storm Photo

From the WaPo:

“The economy posted another consecutive quarter of steady expansion between October and December, with economic activity increasing at a 2.9% annual rate. Consumer spending contributed to the strong fourth-quarter showing, especially given the slumps in large parts of the economy, including housing and manufacturing.”

The latest GDP figures show we have a resilient but slowing economy. Some of the slowdown is intentional, brought on by the Federal Reserve’s aggressive increases in interest rates as a way to control our high inflation. The Fed raised interest rates seven times last year, expecting that higher borrowing costs would lead businesses and households to cut back enough to slow the economy and curb price increases.

That’s happened in the real estate market, and to a lesser degree, in manufacturing. WaPo quotes Joseph LaVorgna, chief economist at SMBC Nikko Securities America:

“You may see [growth] and think the economy is out of the woods, but that would be entirely the wrong read….There are a lot of variables that are all pointing in the same direction: There’s a housing recession. Manufacturing looks like it’s approaching recession. We’re seeing weakness in temp hiring. And it’s doubtful we’ve felt the full effects of all of the Fed’s rate hikes.”

So Biden can take credit for an excellent recovery so far, but many major banks are still forecasting an economic downturn this year. As Diane Swonk, chief economist at KPMG says: (emphasis by Wrongo)

“Momentum has already begun to slow in response to rate hikes, but the bulk of the slowdown is yet to come….The Fed’s goal is to let growth stall out in 2023.”

So are we in for a bad downturn that will persist through the 2024 elections? It’s a possibility if we keep playing politics with the economy.

We need to let people know that inflation has been easing month after month while the unemployment rate has held steady at about 3.5%. The year-over-year change in the consumer price index peaked at just over 9% in June, and since then it’s fallen to just under 6.5%. Other inflation indicators like the producer price index (PPI) have trended lower from prior highs as well.

And the world’s biggest inflation scold, economist Larry Summers who has been saying for 2+ years that we need a deep recession to drive out high inflation is sounding less hawkish: (brackets by Wrongo)

“I still think it’s going to be hard…[but]…You have to recognize that the figures are better than somebody like me would have expected three months ago. It’s still a very difficult job for the Fed, but the situation does look a bit better.”

From prior experience, Larry knows how to prepare, cook, and eat crow.

Can the Democrats and Republicans get out of the way of our currently good economic growth? From Heather Cox Richardson:

“On Monday the Wall Street Journal reported that median weekly earnings rose 7.4% last year, slightly faster than inflation. For Black Americans employed full time, the median rise was 11.3% over 2021. A median Hispanic or Latino worker’s income saw a 4.8% raise, to $837 a week. Young workers, between 16 and 24, saw their weekly income rise more than 10%. Also seeing close to a 10% weekly rise were those in the bottom tenth of wage earners, those making about $570 a week.”

Overall, the economy seems to be on solid ground at least for now. But the average American probably doesn’t view it that way.

And who will the voter reward or blame in 2024? We’ve seen that the House Republicans want to hamstring Biden and the national economy by holding the debt limit increase hostage to budget cuts, possibly in Social Security and Medicare.

So the Dems countered by asking new Speaker McCarthy for a plan on what would be axed from the social services budget. Now, Roll Call is reporting that the GOP seems to be changing their strategy on the fly:

“House Republicans are mulling an attempt to buy time for further negotiations on federal spending and deficits by passing one or more short-term suspensions of the statutory debt ceiling this summer, including potentially lining up the deadline with the end of the fiscal year Sept. 30.”

They’re trying to time the engineering of a debt default crisis to coincide with the government’s new fiscal year, thinking this creates a “mega crisis” of default/government shutdown that will bring Biden to agree to the egregious spending cuts the MAGAs want.

But this should help Democrats. First, Democrats will be able to point to the MAGA cuts as being far outside the American mainstream. Second, the GOP reckless attempt at hostage-taking will be on display just as the election season ramps up.

Are the wheels of the Republican clown car already coming off?

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What’s The GOP Plan For Negotiating On The Debt Limit?

The Daily Escape:

Dream Lake, Estes Park CO – January 2023 photo by Rick Berk Photography

(Wrongo and Ms. Right send healing thoughts to friend and blog reader Gloria R.)

We’re all aware that House Republicans are refusing to lift the debt ceiling unless Biden gives them well, something? And Republicans still haven’t decided what they want. The GOP also wants a balanced budget, but they can’t say what should go, or what should stay.

From the WaPo: (Brackets by Wrongo)

“They [GOP] say they want to reduce deficits — but meanwhile have ruled out virtually every path for doing so (cuts to defense, cuts to entitlements, wiping out nondefense discretionary spending, or raising taxes).”

The fact that Republicans are up in the air about what to do highlights the likely Democratic strategy is against their threats about the debt ceiling. Again, from the WaPo:

“Sensing Republicans are on the verge of a blunder in their schemes to use the debt ceiling to hold the economy hostage and try to extract draconian spending cuts, the White House has developed a two-part response strategy.

Part 1: Lay out the simple argument that Republicans are recklessly inviting an economic meltdown even by talking about a possible default.

Part 2: Force House Republicans to put forward a plan on the table and watch as they struggle with the fallout.”

The Democrats along with Senate Minority Leader McConnell (R-KY) are daring Republicans to put forward a plan. Senate Majority Leader Schumer (D-NY) said:

“If House Republicans are serious about taking the debt limit hostage in exchange for spending cuts, the new rules that they adopted require them to bring a proposal to the floor of the House and show the American people precisely what kind of cuts they want to make….”

Everyone who follows politics knows that Republicans never take much interest in fiscal sobriety when their Party is in control. They agreed to raise the debt limit three times while Trump was in power.

It seems that Republicans are doing the Democrats’ job for them. They are asking for an economic catastrophe and seeking draconian cuts that their base doesn’t want.

Consider the Republican desire to reduce our deficits. They have pledged to balance the budget (that is, to have a zero annual budget deficit) within 10 years. But they haven’t laid out any plausible mathematical path for getting there. And of the current debt ceiling, 90% of it was committed before Biden took his job.

Some Republican House members want to cut military spending, an idea that both Speaker Kevin McCarthy (R-CA) and Rep. Jim Jordan (R-OH) are on board with. But others, including House Appropriations Chair Kay Granger (R-TX), have said defense spending cuts aren’t on the table. Rep. Michael Waltz (R-FL) said:

“We’ve got to get spending under control, but we are not going to do it on the backs of our troops and our military,”

Waltz thinks Republicans should focus on “entitlements programs,” such as mandatory spending programs like Social Security, Medicare, and Medicaid. But the bi-partisan popularity of these programs makes them hard to cut.

And last Sunday, Rep. Nancy Mace (R-SC) was asked to name one thing she was willing to suggest as a spending cut. She instead stated things she wouldn’t put on the table:

“Well, obviously no cuts to Medicare or Medicaid or Social Security….That’s a nonstarter for either side.”

Wrongo has repeatedly suggested tax increases which would help lower deficits, but Republicans have ruled that out.

Instead they’ve changed the House rules so tax cuts will be much easier to pass, and tax increases harder to pass. The House’s rules package now says that any increase in taxes would require a three-fifths vote (60%) rather than a simple majority as previously.

They’ve also proposed doing away with income taxes, payroll taxes, estate taxes and even the IRS itself in favor of a supersized sales tax that would provide most revenue to the government. Republicans would substitute a 30% sales tax on all purchases and in exchange, do away with income, Social Security and Medicare taxes.

That means workers would keep the gross amount of their paychecks. But it also means that buying everything from groceries to automobiles would be hugely more expensive. It also provides a big tax cut for the wealthy and businesses.

The result is a smaller tax burden for the highest earners and a bigger one for people in the middle.

Once you reject trimming entitlements or defense spending and bake in the cost of the GOP’s proposed tax cuts, you’re left with an additional $20 trillion hole in the Federal budget over the next decade.

OTOH, the White House is expected to release its detailed budget in early March. It will build on budgets it has released previously. Republicans want Biden to negotiate on what to do about money we’ve already spent.

Try doing that with YOUR creditors.

 

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Monday Wake Up Call – January 23, 2023

The Daily Escape:

Near Government Camp, OR – January 2023 photo by Mitch Schreiber Photography

Everyone is talking about the national debt and/or about increasing the nation’s debt limit. Congress should increase the debt limit because it’s the right thing to do. But there are many in the “very serious” media who are concerned that the Fed can’t continue to hike interest rates to 5.0% or higher because the government can’t afford to pay such high interest rates on our gargantuan debt.

Some pundits are pushing the idea that the Fed must cut interest rates or else. Or else what? The US government won’t go broke, regardless of how high interest rates rise.

While it’s true that the government’s cost of borrowing rises when interest rates rise, what these pundits are missing is that US tax receipts (which are used to pay that interest expense) have also spiked. They’re also missing the fact that interest expense as a percent of tax receipts was at a historic low in Q1 2022. And while it has moved up, it remains quite close to historic lows. Interest expense as a percent of tax receipts is one primary measure of whether the government can afford the interest expense or not. Wolf Richter of Wolf Street provides us with a chart:

As you can see, while the percentage of interest/tax receipts has “spiked” in 2022, it was at a historic low in 2021. And compare that to when the ratio hovered around 50% in the 1980s and early 1990s. In Q3 2022, it was 22.9%, still very near a historical low.

One reason for this was that inflation helped to increase tax receipts thereby lowering the government’s burden for paying interest on our existing debt.

Between the Trump and Biden administrations, the government’s debt spiked by 34%, or by $8 trillion, in the past three years. That additional debt quickly added a lot of interest expense for the government, as we see with the spike above on the chart in 2022.

As older Treasury securities mature, and assuming the national debt doesn’t go down, they are replaced by new Treasury securities with today’s higher interest rates, and the higher interest costs of those new securities are starting to show up in the government’s interest expense. Richter says that total interest expense in Q3 2022 spiked by 24% from a year ago and by 43% from two years ago. This spike in interest expense looks like this:

And this scary chart is what the GOP will be presenting as their reason to cut the debt. When you omit the spike in tax receipts and the historically low level of interest expense as a percent of tax receipts, as we saw in the first chart, you’re not presenting the whole picture.

Another way to look at the situation is Government interest payments as percent of nominal GDP. This is a classic measure of the cost of government debt compared to the overall economy. Richter offers us another chart:

As you can see, by this measure, interest on our national debt remains lower than it was at any time between 1977 and 2003. And it has remained in a narrow band from 2004 to today.

Without question, we should reduce our national debt. But unless and until interest expense on our debt returns to the level of 50% of tax receipts as it was in the 1980s, we shouldn’t expect much to change in Washington. If it starts to get near those highs, maybe we’ll see action by Congress to increase revenues and reduce spending. And despite all the GOP’s screaming, the Federal Reserve is doing the right thing: Hiking interest rates to stem inflation.

Time to wake up, Congress! The Fed is trying to gently nudge you into thinking that the country needs to raise revenues while also cutting expense. You need to consider the revenue side of the equation more seriously, if for no other reason than what will happen to our currently high tax receipts whenever the coming recession strikes.

To help you wake up, listen to the late David Crosby’s song “Laughing” from his first solo album, 1971’s “If Only I Could Remember My Name. Crosby wrote it for the former Beatle George Harrison, who never used it, so Crosby used it instead:

Several legendary musicians appeared on this recording, including Graham Nash and Joni Mitchell on background vocals; Jerry Garcia on pedal steel guitar, and Bill Kreutzmann on drums. Garcia is magical.

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Sunday Cartoon Blogging – January 22, 2023

There’s a difference between America’s national debt and our debt limit. Without question, our national debt must be reduced. That can happen only two ways, or by a combination of the two. We can increase taxes, or reduce future spending, or do both.

The debt limit is how much in total the US government can borrow. It uses borrowing (issuing treasury notes and bonds) to meet obligations for previously contracted goods and services. This is what must be increased as soon as possible by both Houses of Congress.

But Republicans say they won’t agree to increase the debt limit without action to reduce the national debt. The national debt is the accumulation of all the annual deficits (and any surplus – thanks, Bill Clinton!) that various administrations have racked up. It currently sits at $31.4 trillion.

The four Republican presidents from Reagan to Trump are responsible for more than half of that debt; they added $17.46 trillion to it by running whopping deficits each year. Trump was responsible for nearly half of that, $8.2 trillion, in just four years. About $3.9 trillion was pandemic relief and $2 trillion was the big tax cut he gave to the wealthy.

Republicans can’t explain why they voted to increase the debt ceiling every year of Trump’s administration. Even as he was racking up trillions of dollars of debt by increasing the annual budget deficit from the $665 billion he inherited from Obama, to a whopping $2.1 trillion deficit in just four years  ̶   the highest in US history.

But in the past two years, Biden has cut that $2.1 trillion deficit by 33%, to $1.4 trillion. That isn’t stopping the GOP from screaming that spending has to be curbed because there’s a Democrat in the White House. On to cartoons.

A high-stakes game of chicken:

Their plan is to never have a plan:

Alec Baldwin’s on line one Mr. Speaker:

Truth is always in the eye of the beholder:

Floods in California have people looking for new places to stay:

David Crosby would be spinning in his grave:

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Could A Discharge Petition Force The House To Vote On A Debt Ceiling?

The Daily Escape:

Cold morning on the Snake River, Grand Teton NP, WY – January 2023 photo by Laura Phelps Sundria

We haven’t written about discharge petitions in a few years. But with the likely control of much of the House’s agenda by the Freedom Caucus, they may become important. From the WSJ:

“Democrats and some centrist Republicans are in early, informal conversations about dusting off a rarely used parliamentary procedure that could force a vote to raise the nation’s borrowing limit, ahead of a showdown in coming months over government spending. The process, known as a discharge petition, requires 218 signatures, regardless of party—a majority of the House—to dislodge a bill from committee and move it to the floor.”

The tactic is seen as a way to potentially circumvent efforts by House GOP leadership and the Freedom Caucus to block a debt-ceiling increase. Congress must raise the debt ceiling to allow the Treasury Department to issue more debt to pay for existing US government financial obligations. At stake is the government’s creditworthiness, which also undergirds much of both the American and global financial system.

A default or even the expectation of a default on the US debt, could trigger a lowering of the US credit rating, raising our government’s borrowing costs for years. It could also bring financial panic or tip the economy into a recession. More from the WSJ:

“…McCarthy reiterated Tuesday he wants to use the debt ceiling as leverage to cut spending. ‘This is our moment to change the behavior to make sure, that hardworking taxpayer, that we’re not wasting their money,’ he said on Fox News.”

Playing politics with the debt limit is stupid. Hold that thought and read this from Ryan Grim at the Intercept: (brackets and emphasis by Wrongo)

“When the House Republicans enacted new rules for the 118th Congress on Monday [they included a rule] that preserves the traditional right of rank-and-file members of Congress to bypass House leadership and put legislation on the floor directly if they obtain the signatures of a majority of the chamber. This opens a handful of legislative opportunities for Democrats, despite Republican ideological cohesion.”

He means a discharge petition. Normally, the House Majority Leader sets the floor schedule, in collaboration with the House Rules Committee, but a discharge petition can automatically pull a bill from committee and move it to the floor. Since Democrats currently hold 212 seats in the 118th Congress (one is vacant), if they can find six Republican votes, they could bring a bill to the floor. For most of the Democrats’ agenda, six opposition votes might be a high hill to climb.

But a discharge petition to raise the debt ceiling is one tool that could work. It would give any like-minded Republicans a route around their own leadership and could be the way the House votes to avert a financial crisis (assuming Democrats could find six Republicans who are unwilling to risk a US government debt default).

That may be possible since there are 18 House Republicans who were elected last fall in districts Biden won in 2020.

If a discharge petition is to be used as a workaround for the looming debt crisis, Democrats would have to move fairly quickly. The rules to bring a bill to the floor of the House require that first, the bill would have to be introduced and referred to committee, according to House rules and precedents. Then 30 legislative days have to pass. A legislative day is one in which the House is in session and then adjourns.

If 218 signatures are collected, an additional seven legislative days need to pass, at which point a motion to discharge the bill would come to the floor on either the second or fourth Monday of the month.

Any motion to discharge filed in February or March ought to be ready for a floor vote by summer. Although the Treasury Department hasn’t given an exact date when default will occur, the expectation is that it will occur in the summer.

Discharge petitions have been successful in the past. It has played a role in shaking loose some historic pieces of legislation, including the Civil Rights Act of 1964 and Equal Rights Amendment in 1970. More recently, a successful petition in 2015 reauthorized the Export-Import Bank, which the Republican House majority adamantly opposed.

We’ll see if McCarthy will stand up to his cobbled together majority and bring a clean debt limit bill to the floor. If not, we’ll see if there are at least six Republicans in the House who have backbones and love their country.

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Will Dems Counter the GOP’s Plan to Cut Social Security?

The Daily Escape:

Fall in Paradise Valley, Yellowstone NP – photo by Annie Griffiths

The mid-terms are coming, and we are having difficulty focusing on some important issues, because America has a short attention span, and we’ve been Kavanaugh ‘ed and Khashoggi ‘ed so much lately.

Two issues that are linked are the amazing deficit caused by the Trump tax cuts, and the moves being plotted by Mitch McConnell, Paul Ryan and others to cut Medicare, Medicaid and Social Security.

Let’s start with tax revenues. It was clear to critics that the 2017 GOP tax cut was going to quickly increase the budget deficit and add $ trillions of the national debt, and here it is:

The federal deficit grew by nearly $800 billion over the first fiscal year of Trump’s presidency, during which the Republican Congress passed a tax cut targeted mostly to corporations and the wealthy, which is projected to add more than $1 trillion to the deficit over the next 10 years.

And it didn’t take long for Republicans to insist that the deficits were actually caused by Social Security, Medicare, and Medicaid, not their tax cuts for corporations and the wealthy. From Vox:

Fresh off the news that the deficit is increasing under President Donald Trump, Senate Majority Leader Mitch McConnell told Bloomberg News that Congress should target Social Security and Medicare for cuts to address the growing federal debt.

The White House and GOP leaders promised America that the tax cuts would pay for themselves, but they haven’t. The growing federal deficit hasn’t caused Republican leaders to reconsider their tax policy. Instead, they argue that entitlement reform — Republican-speak for cuts to social safety net programs — is what’s really needed to address the federal deficit. From McConnell’s interview with Bloomberg this week:

It’s disappointing, but it’s not a Republican problem….It’s a bipartisan problem: unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future.

Republicans have opposed Social Security and Medicare since they were created. But because these programs enjoy overwhelming support from the American people, they would not normally talk about their plans for benefit cuts three weeks before an election.

But, they are doing just that.

This is a real issue, since those programs make up a large share of federal spending: Medicare was 15% of the federal budget in 2017, and it’s projected to grow to 18% by 2028. Social Security is a bigger chunk of the budget (24% in 2016), and our aging population will put a greater strain on the program. Here is the budget breakdown:

Democrats want to expand, not cut these programs. Republicans may see their last, best chance to cut them slipping away with the mid-terms. They seem determined not to let that happen, so this will be a big issue in the lame duck sessions. The GOP will use the cost of their tax giveaways as the excuse to do what they have wanted to do to social programs all along.

If the GOP is talking like this before the mid-terms, imagine the carnage if they keep control of both Houses of Congress!

People who want to defend Social Security and Medicare better work hard to get out the vote in November. And the latest news about the House isn’t encouraging. Larry Sabato’s Crystal Ball reports that Democrats aren’t there yet:

A race-by-race analysis of Democratic House targets shows the party is close to winning the majority, but they do not have it put away, in our judgment, with Election Day less than three weeks away.

Barring a big, positive late change in the political environment in favor of Republicans, the bare minimum for Democratic House gains is in the mid-to-high teens. The needed 23-seat net gain is not that far beyond that and there are many different paths Democrats can take to achieve it.

He says Dems can count on 18, but need 23…

Assuming that the Dems won’t go along with the GOP’s planned social spending cuts, Republicans will try to blame Nancy Pelosi, Chuck Schumer and the Democrats, assuming their cuts to social programs fail.

Republicans will say “Democrats plan to raise taxes on tens of millions of middle-class Americans” to cut the deficit, and that’s true. But, it would be just a part of the package of fiscal moves to cut the deficit, with the primary focus on clawing back some of the massive Republican corporate tax cuts.

Democrats need to talk this up in the next three weeks to counter the GOP’s clearly articulated game plan.

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Sunday Cartoon Blogging – Christmas Eve 2017

(The Wrongologist is taking a brief holiday break. Blogging will resume on Wednesday, 12/27. In the meantime, Merry Christmas!)

The Daily Escape:

Jingle Bell Jog – Ft. Lauderdale FL, 2017. Better for ya than SantaCon.

A final Christmas Eve word about the unwanted gifts the Trump tax cut is foisting on us. In the short term, it will stimulate consumer demand. The economy may “grow”, but our tax receipts cannot.

Soon, these tax cuts will place our government on a fiscally precarious footing. Expect the credit rating agencies (Moody’s, Standard & Poors) to start wagging their tongues, warning of their concerns about the country’s overall debt levels. It is possible that the repatriation of some of the massive off-shore profits that American firms have hoarded may come home. To the extent that they return, and some taxes are paid on them, this (one time) tax receipt will likely make the 2018 and 2019 annual budget deficits somewhat smaller than the colossal ones to follow.

After that, the government’s income will fall, and we will hear bi-partisan calls for deficit reduction, and lower spending targets will be the norm. The effects of tax legislation can take a long time to shake out, and there often are unintended effects.

But make no mistake, the GOP will start talking about the Coming Debt Apocalypse next month.

On to a few cartoons. Here is the difference between the parties:

 

Trump’s year in review:

War is the answer to any question:

Trump’s touting of something terrific slides downhill:

Congress flies home for Christmas:

Congress gives empty present to our kids:

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What Will Dems Do When The GOP Says: “The Deficit Matters”?

The Daily Escape:

Big Ben being cleaned. In order to clean the four clock faces, every 5-7 years, skilled climbers hang down from the belfry on ropes, and they clean the front of each clock face. There is one removable panel of glass on each face, which is removed during the cleaning so that the clock maintenance staff can talk to the cleaners while they’re working. (“you missed a spot?”) Hat tip to Wrongo’s friends at the Goodspeed Opera House!

Yesterday we pointed out that there is a very large program that the country needs to fund if we are to maintain our position in the global superpower competition. The issue at hand is the stunning thought that we might lose up to 75 million jobs to automation in the next 13 years, and that we need to train the out-of-work unfortunates for new jobs in a different economy.

It’s highly unlikely that we would need to train that many, but it could be 25 million Americans. And we have no idea where the money would come from to accomplish that. After all, the Republicans now plan to reduce tax receipts bigly, thus adding to the deficit and thereby, to the total debt of the country.

We know that as soon as the new tax cuts begin accruing to their patrons, the GOP will start talking about reducing the budget deficit by cutting non-military expenses. Ron Brownstein conceives the Republican tax plan correctly:

Gaius Publius observes: (brackets and editing by the Wrongologist)

As they did in the 1980s, Republicans are laying a “deficit trap” for Democrats. As they did before, they’re blowing up the budget, then using deficit [fear] to force Democrats to “be responsible” about cutting social programs — “because deficits matter.”

In the 1980s Republicans ran up the deficit, then insisted that Democrats work with them to raise taxes on the middle class to over-fund the Social Security (SS) Trust Fund. This converted SS from a pay-as-you-go system that increased revenues as needed via adjustments to the salary cap, to a pay-in-advance system. That allowed any excess SS money to be loaned back to the government, partially concealing the large deficits that Reagan was running up.

Today, Republicans are expanding the deficit again, and are already starting to talk about deficits to argue for cuts in what they call “entitlements” — Medicare, Medicaid, and eventually Social Security, even though Social Security can be self-funding.

Fear of deficits is the go-to Republican ploy to try to maim or kill the FDR and LBJ-created social safety net. To the extent that Democrats are willing to accept the GOP’s argument that both parties need to be responsible to decrease the deficits, they will support cuts in social services. Even Obama was willing to consider doing just that in the name of “bipartisanship”. More from Gaius:

The reality — Deficits aren’t dangerous at all until there’s a big spike in inflation, which is nowhere near happening and won’t be near happening for a generation…

Do we want the US government to shrink the money supply year after year after year, by running budget surpluses, or do we want to grow the amount of money in the private sector, making more available for use by the middle class?  The trillions spent on the current GOP giveaway to the already-rich could have been given to college students in debt, or people still underwater in their mortgages since the Wall Street-created crash of 2008. It could have been used to build better roads, airports, seaports or a national high speed internet backbone.

What would be the effect of that re-allocation of money?

Back to Gaius Publius for the final words. Which of these three options would you rather the government choose:

  • Spend money on the already-rich?
  • Spend money on you and the country’s needs, ignoring the pleas of the already-rich?
  • Hoard as much money as possible in a vault and spend the least possible?

The first is the GOP’s current tax plan. The second is a plan for the many, an FDR-style economic policy. The third is the GOP’s wet dream, one that they will ask Democrats to help them accomplish once the already-rich have banked their share of our tax money.

Wrongo’s fear is that at some point down the road, a compromise will be offered up: Cuts to social programs in exchange for a repeal of some of the more onerous tax cuts. The only issue will be the extent of the cuts to social programs.

It will be celebrated as bipartisan sanity returning to Washington.

Our system is revolting. Why aren’t we?

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Sunday Cartoon Blogging – April 30, 2017

It only took 100 days for Donald Trump to reduce the office of the presidency to the point of near-zero credibility. Unfortunately, it appears as though his base and Republicans in Congress remain very accepting of him as president. In Twitter speak, #So Sad.

Back to the administration’s one page tax plan: The plan works if we assume 6% annual GDP growth for the full 8 years of a Trump presidency. Since the end of the Great Recession, annual GDP growth has been about 2%. More to the point, we now have a 3.5% (of GDP) budget deficit, and we are at the top of the current business cycle, with a 75% debt-to-GDP ratio.

Republicans used to refer to that as being broke.

Mostly, what has been accomplished in the last 100 days are a blizzard of executive orders and proclamations. We all remember when executive orders like Trump’s were considered tyranny by Fox News. On to cartoons. The GOP walks out on its long-term companion, the deficit hawks:

Trump’s first 100 days did NOT include tons of winning:

The clown show about trickle-down economics continues:

Trump explains his new tax brackets:

Arkansas needs help after botching another execution:

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