This American soap opera, this Washington political charade, this partisan farce is a reminder yet again of how hollow are the occasional arguments by a few Canadian journalists among others that the American political system is superior to the Canadian. The 'debt ceiling/budget reduction' political fight would constitute black humour if its potential implications -- including for Canada --had not been so serious.
Since last November's congressional elections the Republican Party has controlled the House of Representatives. The Tea Party element within the House is comprised of 80+ newly elected representatives in the House and they constitute the extreme right in a right wing party that no longer has room for political moderates within its ranks. The Tea Party faction has received, justifiably on several levels, the credit or blame for hamstringing the Washington process of political compromise in order to tie mandatory budget reductions to the raising of the U.S. debt ceiling without tax increases.
On the eve of the default deadline a deal of sorts was reached among Republicans, Democrats and the White House. It postpones the next fight over raising the American debt ceiling to early 2013 as President Obama had insisted, i.e., until after the next presidential election.
The first phase of the deal does virtually nothing to address the underlying U.S. fiscal problems. It involves spending reductions of only $917 billion but no tax/revenue increases, not even the closing of a single individual or corporate tax expenditure/loophole. This first round of 'savings' will actually arise only from holding (over years) the increase in discretionary spending below the rate of inflation.
The reduction is spread over 10 years and part two of the 'deal' involves yet another committee (6 Republicans and 6 Democrats to report by Nov.23 this year) to look at how the deficit can be reduced by a further $1.5 trillion and by how much but supposedly with 'triggers' for spending cuts in the likely event of no agreement. In fact the deal just signed into law on Aug. 2 by the president will, if not enlarged, add a further $12 trillion to the U.S. deficit over the next decade.
The dysfunctional American political system has borrowed its way to $14.3 trillion of debt: $6.1 trillion of it under George Bush who had inherited $trillions in surplus from President Clinton, $2.4 trillion added to date under President Obama. It has also shown itself unable to address the public realistically about the horrendous fiscal challenge the country faces, one that can only be dealt with if major tax increases are married to spending reductions.
Absent a suspension of disbelief can any sensible person in a time of fiscal crisis, whether analyst or voter, oppose removal of highly favourable tax treatment bestowed by George Bush and his congressional Republican majorities upon the wealthy, on oil companies, on hedge fund managers and numerous other elements of American society?
The logical answer may seem as plain as a pikestaff until one looks at the reality: most of the persons elected to Congress are wealthy. According to the Center for Responsive Politics, a non-partisan organization in Washington, the average wealth (2009) of all U.S. senators was more than $13.5 million while for House of Representatives members, the corresponding figure exceeded $4 million.
However the Republicans, particularly the Tea Party reps, have steadfastly opposed any tax increases while repeating as if it was holy writ that there can be no tax increases on "the job creators". This latter phrase is their euphemism for the wealthy who, the evidence shows, have not been creating the jobs their tax windfalls are supposedly designed to encourage and underwrite, much less with nearly the enthusiasm with which they contribute financial support to the Republican Party. Even the oft-repeated comment by billionaire Warren Buffet that the wealthy do not pay enough taxes has had no apparent impact on the public views of these Republicans.
A fundamental problem underlying this political dance of the deaf involves the extent of American popular understanding -- or rather its absence -- of U.S. economic and historical reality and the refusal of most politicians, including the current American president and his predecessor, to address it publicly in a manner at once realistic, frank and forceful.
The historical and cultural factors accounting for the average American's view of taxes are a significant reason helping to generate uninformed and illogical views on the problem. American mainstream media, especially the cable news networks, have done little to confront Americans with reality, with the facts. It was the late American senator from New York Daniel Patrick Moynihan who said that while we are all entitled to our opinions, we are not entitled to our own facts, an aphorism with particular relevance to Tea Party members.
Consider for example:
-- In 2011 43 cents of every dollar spent by the federal government will be borrowed, 4 times the rate in 1980. Indeed, between 2007 and 2011 alone the rate has increased by 38 cents per dollar.
-- While most Americans seem to believe they are highly taxed, the opposite is true. They pay the lowest taxes in the developed world, and actually lower than they paid in 1965: 24% of GDP (2009) while the average among OECD countries is 34.8% of GDP (2008).
-- While most Americans are opposed to any reductions in their entitlement (social benefit) programs like Social Security, Medicare and Medicaid a majority refuse to contemplate levels of taxation sufficient to pay for them either at their current or steadily increasing (and under-funded) costs. To take just one example: increased revenue from elimination of the deduction of home mortgage interest which accounted for $500 billion in deductions last year.
-- A majority of Americans and their elected representatives apparently still subscribe to the propaganda put out by the military-industrial complex about which President Eisenhower warned the country on his leaving office. U.S. defense receives an annual budget of approximately one quarter of the federal government's $3.7 trillion annual budget, higher than the military spending of the next largest 20 countries combined. This bloated and unnecessary level of post-Cold War military spending is an obvious and major source of potential budget reductions by the government but still garners major political support.
-- How much will this just concluded 'debt ceiling' deal reduce U.S. defense spending? Like the overall deal itself, projected reductions in defense spending are a triumph of political slight of hand producing, spread over 10 years, a total reduction in the defense budget of $330 billion. Privately Pentagon sources, who had been anticipating a spending decrease, already predict this reduction will amount only to decreases in the rate of projected increases in defense spending.
-- Many Americans appear to swallow whole the propaganda from Republicans and various allied special interests that health care reform could not possibly have been based on a 'socialistic single payor' system like Canada's (even though the American public seem largely unaware that Medicare is a form of single payor system). President Obama's reformed and extended health care system had to settle for continuing to involve the insurance companies as core participants in the system. This ensures that in future, as now, unnecessarily high administrative and other costs and therefore the proportion of U.S. GDP devoted to health care will continue to be half again or more higher than Canada's, i.e., health care reform without the necessary concomitant savings.
This latest political deal to raise the U.S. debt ceiling illustrates the considerable success to date of the Tea Party as a movement and ultimately an elected faction in the House. Its success lies above all in its demands for solving the U.S. government debt challenge with no tax increases despite the Tea Party residing in an intellectual cloud-cuckoo-land.
The Tea Partiers as well as most elected Republicans seem sincerely to believe what cannot be: the elimination of a vast and growing U.S. federal government debt only through budget reductions and without substantial increases in tax revenue. The ridiculously elongated campaign run up to American presidential elections has already been in full swing for some time in this election cycle. Therefore it seems certain that Americans (and the world) must wait until after the Nov.2012 presidential and congressional elections to find out if there is to be any realization of the increasingly forlorn hope that measures to avoid a fiscal disaster will soon be put in place by the U.S.
Had Lewis Carroll been an economist and Through the Looking-Glass a textbook, could it have had a title better suited to this latest episode?
by Alastair Rickard
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