Debt ceiling deal: A solution in search of a problem

Clipart of a hand shake

Just like during the budget fight last December, the ruling oligarchy took it to the last moment to agree on a deal on raising the debt ceiling. “Good” for them. The deal though is a solution looking for a problem.

As I have written before, cutting the budget now is stupid. It was stupid when it was done back at the end of last year.

The Bush tax cuts remain the single largest cause of America’s structural deficit—that is, the deficit not caused by the collapse in tax revenues when the economy goes into recession. The Bush administration inherited budget surpluses from the Clinton administration. What turned these into deficits, even before the recession? There were three fundamental new costs—the tax cuts, the prescription-drug bill, and post-9/11 security spending (including the Iraq and Afghanistan wars). Of these the tax cuts were by far the largest, adding up to $2.3 trillion over 10 years. According to the Congressional Budget Office, nearly half the cost of all legislation enacted from 2001 to 2007 can be attributed to the tax cuts.

The simple fact is this: all the Bush tax cuts were unaffordable. They were an irresponsible act of hubris enacted during an economic boom. Conservatives thought they would force us to shrink the government. But with Republicans controlling the White House and both houses of Congress, did reduced taxes cause reduced spending? No, they led to ever-increasing borrowing and a ballooning deficit.

But the impact of marginal shifts in tax rates on growth is pretty unclear. Clinton raised taxes in 1992 and ushered in a period of extraordinarily robust growth. Bush cut taxes massively in 2001 and got meager growth in return. Three tax cuts enacted since the financial crisis have done little to spur growth.

Raise My Taxes, Mr. President!

That was written in August of 2010 and still valid in July 2011.

But the detached Millionaires of the Beltway Oligarchy just continue to ignore the facts.

The best bet for President Obama is that the economy some how improves – like a significant increase in job growth and increased revenue. But the extended Bush tax cuts and other spending cuts forced through at the end of 2010 didn’t improve the economy so I have strong doubts this latest deal will do anything either.

Meanwhile, Speaker Boehner, where are the jobs?