Tuesday, April 19, 2011

WSJ offers sobering figures on how to close budget deficit

Prosecutor - “Why do you rob banks, Mr. Sutton?”
Willie Sutton - “Because that's where the money is.”

The astronomical numbers dance across the computer and television screens with ghostly precision, trip off the tongues of the commentators and politicians in glib and pear-shaped tones.

They speak in terms of trillions. How much is a trillion? Well, for starters, bear in mind that a billion is actually one thousand million, and you start to get the picture.

Trillion sounds like a word from a "Start Trek" episode or a Buck Rogers movie.

How to close the budget deficit gap and thereby save the nation's credit rating?

Soak the rich?

Hose down the middle class?

Borrow your way out of debt by directing the U.S. Federal Reserve to buy your own U.S. Treasury bonds?

Those benchmark instruments were downgraded on Monday, just yesterday, from “stable” to “negative” by the credit reporting company, Standard & Poor. There is a one in three chance that the United States' excellent credit rating could slip off its pedestal in the next three years if the government does not cut its spending.

None of that will work, according to the leading financial news service in the U.S., Dow-Jones, publisher of “The Wall Street Journal.”

The nation could tax the wealthiest of the wealthy at a rate of 100% and still not tax itself out of debt.

In the nation's revenue stream of $5.65 trillion in total taxable income, the lion's share comes from middle income earners, according to figures obtained by the Journal's editorial writer.

“The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks,” the ultra-conservative financial publication of News Corporation hooted.

This came in the wake of President Barack Obama's pronouncement that if only the top earners – the top 2% - would pay just a little more, the nation could tax itself out of the troubles with a $14.3 trillion debt ceiling and a $1.65 trillion budget deficit, a number that seems almost as high as the mileage between Times Square and the corner of space and time, located somewhere in an obscure village on the Planet Uranus.

It wouldn't work if you taxed all who earn more than $114,000 per year – five times the President's targeted 2% - or the top 10%, at the maximum rate. It would only raise $3.4 trillion, the numbers show.

The top 10% already pay 69% of all total income taxes, the top 5% more than all of the other 95%.

In fact, if the government taxed the income of all who earned more than $200,000 at the rate of 100%, the yield would only be $1.89 trillion.

The newspaper concluded that President Obama has set the nation on the path of an entitlement state on autopilot.

That leaves the prospect of either cutting entitlements for elderly citizens such as Medicare, Medicaid and Social Security, according to House Budget Chairman Paul Ryan, or, according to Treasury Secretary Tim Geithner, raising the debt ceiling off its current $14.3 trillion peg.

Herein lies the murky truth – somewhere – because Mr. Ryan cannot remember any such commitment extracted from the “Republican leadership” in talks at the White House with President Obama.

Said Mr. Geithner in an appearance on ABC's Sunday “This Week” news talk show. “There's no alternative, and they recognize that. I sat there with them, and they said, we recognize we have to do this. And we're not going to play around with it. Because we know – we know that the risk would be catastrophic.”

Au contraire, said Mr. Ryan in an appearance on CBS's “Face The Nation.”

Any such move would come only in conjunction with huge spending cuts in entitlement programs for the elderly's health care and retirement annuities.

“We won't raise, just simply raise, the debt limit. We will vote to have spending cuts and control in conjunction with the debt limit increase.”

Rep. Bill Flores, R-Dist. 17, had no comment. His press secretary did not respond to an inquiry from The Legendary. The freshman Congressman is a member of the House Budget Committee.

Are there any alternatives?

In the wake of what pundits on the street are calling "the next great short," stocks are tanking all over the lot.

According to the “rationale” section of the Standard and Poor decision to lower the credit rating of the U.S. Treasury, “The Obama Administration's proposed spending cuts include reducing non-security discretionary spending to levels similar to those proposed by the Fiscal Commission in December 2010, holding growth in base security (excluding war expenditure) spending below inflation, and further cost-control measures related to health care programs...”

So, there it is, the elephant in the living room no one talks about.

Defense spending - “war expenditure,” as termed by the Standard & Poor credit rating accountants – is sacrosanct in all talks political, fiscal and conversational on both sides of the aisle, or inside the Beltway.

What is the share of the $4 trillion budget that goes to such spending? It's about 20 percent, or 4.7% of the gross domestic product, up from 3% only a few years ago.

Neoconservatives will not even talk about cutting the share of defense spending, according to pundits. Why?

According to the Congressional Research Service, defense spending authorized by the 2010 Supplemental Appropriations Act is set at $1.121 trillion for military operations, base security, reconstruction, foreign aid, embassy costs and veterans' health care for the three operations initiated since 9/11 – Operation Enduring Freedom Afghanistan and other coutner terror operations; Operation Noble Eagle, providing enhanced security at military bases; and Operation Iraqi Freedom.

The share of each segment is set at 94% for defense department budget, 5% for foreign aid programs and embassy operations, and 1% for medical care for veterans.

Spending in Iraq is down 25% from 2009 – from $7.2 billion to $5.4 billion. Spending in Afghanistan is up – from $3.5 billion to $5.7 billion.

Troop strength in Iraq fell by 50,000, down by 46%; troop strength in Afghanistan is up by 70% at 98,000.

Whatever happens in the House of Representatives, the actions won't gain easy concurrence from conservative Senators.

The senior Senator from New York, Republican Mike Pence, has vowed to filibuster any measure that will raise the debt ceiling until he sees cuts in entitlements for senior citizens.

Senator John Warner, a member of the “gang of six” – three Democrats and three Republicans – who are working to find a way out of the financial maze, said that he and his colleagues feel there should be spending cuts of $3 for every $1 in new tax revenue.

While the nation is spending 25% of gross domestic product, “Our revenues are at an all-time low at about 15%,” he said on CBS.

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