Posted on 01/10/2005 8:16:57 AM PST by Willie Green
For education and discussion only. Not for commercial use.
HOW POOR IS THE UNITED STATES?
When President George W. Bush addressed newly elected members of Congress at the White House January 3, he spoke of doing "big things" in his second term. One of these "big things" was leading the relief efforts in South Asia in the wake of the tsunami that devastated coastal areas from Indonesia to Africa. Another was reforming the U.S. tax system with an emphasis on lower rates. What the president failed to realize, both in this instance and in regard to other issues related to America's continued security and leadership in world affairs, is that the continued mismanagement of the nation's finances makes the accomplishment of most "big things" impossible.
President Bush has pledged what he calls "an initial commitment" of $350 million toward the tsunami relief effort in Indonesia, Thailand, Sri Lanka and other affected countries. The administration is drawing those funds from an emergency account at the Agency for International Development, money that was appropriated in November as part of the omnibus spending package. The problem is that this initial response will completely drain the AID fund, requiring Congress to vote additional funds, not only for the current disaster but also as a reserve against future contingencies. According to the Office of Management and Budget, the 2005 budget is already facing an estimated $363.5 billion deficit, so any new funding will be financed in red ink.
President Bush has enlisted two former presidents, his father and Bill Clinton, to spearhead a private charity drive to raise money for tsunami relief. The American people were already pouring out their charity, as they always do in a crisis, but this added effort by the Bush Administration looks like an admission of the poor financial condition of the Federal government.
The United States is a large and rich country, which gives it the ability to shape world events in accordance with its interests and values, and, as a result, create better lives with more opportunities for its citizens. But it must be willing to mobilize its resources behind its objectives or it will be no more effective in international affairs than a small and poor country.
The tsunami crisis provides Washington with the opportunity to exercise its leadership, demonstrate its global reach and make substantial diplomatic gains. The U.S. government is setting up a coalition with Japan, Australia, and India to coordinate relief efforts, a coalition that would serve as a good foundation for securing America's strategic position in Asia. But is the Bush administration willing to mobilize the resources needed to maintain its role as the lone Superpower? Australia, Japan, and Germany have all pledged more official aid than the United States.
When Congress considers increased disaster funding, it will probably add the money to the $80 billion supplemental spending bill for military operations in Iraq, Afghanistan, and elsewhere in the war on terror. The Bush administration's war funding request is not expected on Capitol Hill until after the president has submitted his fiscal 2006 budget proposal on Feb. 7. The 2006 budget, as estimated by the OMB, still shows a $267.6 billion deficit. According to widely leaked memos, OMB has asked the Pentagon to cut $10 billion from its budget to lower the overall Federal deficit.
The U.S. military has been in the forefront of tsunami relief, with an aircraft carrier and Marines on the scene in Indonesia, and Air Force transports flying in aid across the region. The military is already badly stressed by the Iraq and Afghan deployments, even though these are small compared to past conflicts. There are around 150,000 American military personnel in Iraq and 10,000 in Afghanistan, but the United States deployed roughly 500,000 in the Korean, Vietnam, and Gulf wars. Maintaining troop levels in the current campaigns should not be a problem, but it is, due to the massive force level cuts of the 1990s. The Army had 18 regular combat divisions in 1991, but only 10 divisions in 2001. When Defense Secretary Donald Rumsfeld was asked about the lack of armor for vehicles in Iraq at the now famous session with National Guardsmen, he said, "The country goes to war with the Army it has at the time, not the Army it might want in the future."
True enough, but it has been three years since 9/11. Rumsfeld has done nothing to increase the size of the Army, or any of the other services, inherited from the Clinton Administration. The Bush administration has not been willing to put resources behind its geostrategic policies, risking the failure of those policies. (Instead, resources have gone to new domestic programs, such as "No child left behind" and the Medicare prescription drug benefit.)
Bush and Rumsfeld are even planning to cut major weapons programs and take more combat units out of service. Proposed force level cuts include reducing the Navy's aircraft carriers by one (from 12 to 11), even though the Navy's uniformed leadership has said it needs 15; cutting back the F/A-22 fighter program to such a low level of production as to endanger the entire project (despite the reliance of U.S. war planning on air superiority); and delaying new satellite launch vehicles (even though the military depends heavily on space-based assets). A host of other military projects are also being cut or slowed because they are deemed to be too expensive.
Yet, America's military spending is not excessive, even when taking into account the cost of military operations in the Middle East. It will run about 4.5 percent of GDP in 2005, which is about what it was ten years ago when the country was at peace. Indeed, total Federal spending is at a relatively modest level, running at about 20 percent of GDP, compared to 21 percent in the 1990s and 22 percent in the 1980s. The immediate problem is not spending, but the lack of Federal tax revenues. Beyond that is the menace of America's huge current account deficit and the falling value of the dollar.
The Bush administration has cut taxes every year it has been in office. In 2004, the OMB estimates that tax revenues equaled only 15.7 percent of GDP, the lowest rate since 1950. The initial tax cut was necessary to fight the recession, but subsequent cuts have been pushed by a mixture of ideology and concern that the economy has still not reached a self-sustaining recovery. At the recent White House economic conference, it was claimed that the economy was now on a growth track. So it is libertarian ideology that is pushing for more revenue killing tax cuts under the guise of reform – including a possible shift away from the income tax. But the libertarian ideology explicitly rejects maintaining America as a great power. Its fiscal policy is compatible only with isolationism and "imperial" decline.
It is also from libertarian ideology that the "free trade" policy of both the Clinton and Bush administrations has come. That policy has allowed the U.S. current account deficit to expand year after year, propelled by a trade deficit that topped $630 billion in 2004. Every time America acts in the world, deploying forces overseas, providing foreign aid, or conducting diplomacy, it expands the current account deficit. And as the imbalance increases, the value of the dollar declines in international exchange, making it more costly in real terms for America to pay its way in the world.
During the first three decades after World War II, the United States was a net international creditor. It ran a trade surplus than could fund its overseas military operations. Now, the United States is the world's largest debtor. The immense strategic advantage Washington has held because the dollar serves as the reserve currency of the global economy is in jeopardy because national leaders have ignored the dire consequences of the fundamental shift in America's financial position.
History is quite clear on this matter. More great powers have declined because of financial distress than from defeat in war, though economic failure often leads to military failure. It is common for nations to run up budget and trade deficits in times of emergency (primarily war), but the ability to do so depends on the confidence of lenders that revenues from future taxes and exports will be sufficient to cover the debts. The danger comes when governments start using emergency measures as normal operating procedures. This is a sign of weakness and a process that leaves nothing in reserve to meet the next real emergency.
Polls consistently find that the American public wants the budget deficit reduced more than it wants lower taxes; and it also wants foreign trade brought into balance. This is not just common sense, it is a manifestation of the people's survival instinct. The deteriorating financial situation both at home and abroad is not the result of a "poor" economy, but of poor leadership.
'Revenue killing tax cuts'!!! Tax cuts are revenue generators.
Yes, we do. SANFORD FOR PRESIDENT in 2008!
Yeah, I agree. I was just trying to get a plug in for Sanford.
Instead of "trickling down" to provide economic stimulus and growth, Dubya's tax cuts hemorrhaged OUT of our domestic economy as increased offshore investment and expanded trade deficits. This economic misdirection provides inadquate funding to cover Dubya's irrresponsible spending spree, and buries taxpayers over $1.5 trillion deeper in debt.
ping
Yes, and the American public is wrong here. Look, what matters is how much money is being spent. How the spending is paid for is a relatively unimportant issue. If you borrow for it, you take on a future obligation, but leave people with more money now that in the US generally gets put to productive use (as evidenced by our long term growth rate). This growth makes the long term obligation easier to pay when it comes due.
If you tax for it, there is no long term obligation, but over the long run the economy does not grow as fast, and standards of living are lower.
The liberals (including the GOP) enjoy having us squabble of which one of those situations is better. It keeps our focus off of the level of spending.
Personally, I would rather have low taxes and more deficit, but hey, it's relatively unimportant. WHAT MATTERS IS THE LEVEL OF SPENDING. How it's paid for is a trivial issue.
Nonsense. We were in a recession in 2001, made worse by the results of 9/11. As a result of a contracting job or tax base, revenues fell. Just like in 1982 and 1983. Revenues fell because of the Cater and Clinton recessions. I credit President Clinton with the increase in the deficit, because like the liberals say, the economy tanked under 'his watch'
As unemployment fell from 10% to 5% in Reagan's second term, revenues exploded. The same is true today. Revenues are improving, getting stronger as we come out of the Clinton recession. The deficit is falling. And with larger tax cuts and regulatory reform the deficit witll continue to shrink.
No it isn't.
The deficit for fiscal 2004 was smaller than all the experts thought it was going to be. Due to a larger and weathier job or tax base. Revenues are much stronger than anticipated, and will continue to improve. The Kennedy Tax cuts, the Reagan tax cuts, increased revenues to the government. As Bush tax cuts are.
If you want to argue that the Bush Administration is spending foolishly, fine. But in terms of generating revenue they're right on track.
Revenues are increasing. That is what the tax rates effect. The deficit is a function of revenues and spending. Revenues are increasing. The problem, of course, is that spending is increasing as well.
And the value of the dollar is decreasing while prices go up.
Yep, Dubya's plundering the Treasury and sending us to the poorhouse.
So what's your point?
Same old political spin: overestimate the deficit so that it can be described as "smaller" despite being the largest deficit ever recorded.
Same old baloney as when they claim that "decreasing the rate of increase" is supposed to be a "savings". Crapola.
My point is that in a discussion of the deficit, one must address both revenues and spending. If someone is making the argument that a particular revenue policy is working, it is not possbile to asses whether or not that argument is correct one way or the other simply be pointing out what has happend to the deficit, as the deficit is a combination of both revenue and spending policy.
From the article: The United States is a large and rich country
(Chuckle). No, we are not. As the article points out, we are a debtor nation. We cannot afford Social Security, we cannot repair our infrastructure, and we must cut our military budget as the world becomes more dangerous.
We were a rich country; but that is in the past tense. As we send our industry to China and outsource every sort of job, as we borrow ourselves ever more deeply into debt, we travel further from what made us rich.
As for squandering money on foreign aid - it is like someone contemplating bankruptcy putting a donation on his credit card.
Spoken like a true statist! It would never occur to him that the Bush Administration believes in private charity over using tax money for such purposes.
Willie, Why do you frequent Free Republic? You've made several unsubstantiated charges.
Here's some facts: Capital FLOWS to where it is treated best. In the US, we have one of the HIGHEST CORPORATE TAX RATES...second only to Japan if memory serves. We DRIVE our corporations to tax havens.
Alan Greenspan, in testimony before the Joint Economic Committee, May 21, 2003, said:
"GREENSPAN: First, Congressman, let me just repeat a cliche which happens to be true, mainly that capital doesn't pay any taxes; only people pay taxes. What happens is, you impose taxes on organizations which then deflect them elsewhere. But at the end of the day, all taxes are paid by people.
I have always argued that this is a very inefficient way of organizing revenues within a government, and that we're far better to tax -- gain our taxes directly, rather than putting it on capital.
Because all it does, it slows down the growth of economic activity and the revenue base from which the revenues actually occur.
GREENSPAN: And I've argued over the years for the elimination, where we possibly could, of taxes on capital. And I, as you probably are aware, have always argued for the elimination of the capital gains tax. And the reason is is that I think it's an extraordinarily inefficient tax -- inefficient means of raising revenue in the sense that by posing itself on capital reduces the growth rate in the economy. ....
....And anything we can do to remove taxation on capital will enhance the revenue base and probably do more to incomes of lower- and middle-income Americans than any other tax-type vehicle we would impose."
Please explain how tax cuts cause off-shore investment.
Please explain how tax cuts expand trade deficits.
Tax cuts, particularly as they relate to removing the burden on capital, will generate MORE revenue than they "cost."
Please educate yourself on dynamic econometric modeling: PRACTICAL ASPECTS OF DYNAMIC REVENUE ESTIMATION, MARTIN A. SULLIVAN, June 14, 2004; found at: http://www.heritage.org/Research/Taxes/cda04-05.cfm
"Polls consistently find...'
What polls, where, when, by whom?
The dollar is returning. Do you read the news?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.