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McCain/Republican planned tax cut plus Housing Market Crunch

McCain plans to continue Bush’s work of getting government out of the entitlement programs by creating a situation in which the tax cuts will force an end to these programs (Social Security, Medicare, grants for education to name the principle).  The globalizers (neoliberals) want to return to the age of the Robber Barons, only with a twist, there scope is not national, but global.  . 

 

Huffington Post, 5/11/8 at http://www.huffingtonpost.com/jared-bernstein/the-most-important-piece_b_101237.html

 

The Most Important Piece of Paper in America

 By Jared Bernstein {bio at bottom}

 

I hold in my hand one of the most important pieces of paper in America: Table T08-0071, an analysis of candidate John McCain's tax plan.  OK, it's not really in my hand because I'm typing, but I'm looking at it carefully, and you should too. It is a table constructed by the Tax Policy Center's steely-eyed tax analysts, and it reveals nothing less than McCain's secret plan to diminish the US government beyond recognition. If he gets his way, conservatives will finally be able to say they've achieved the goal set out by Grover Norquist: to get government "down to the size where we can drown it in the bathtub."

The numbers in the table show the revenue loss to the Federal government from McCain's proposed tax cuts. In the far right corner is the 10-year total: -$5.7 trillion.

People deride the Republican candidate as "McSame," implying a continuation of Bushonomics as well as the president's foreign policy. But from the perspective of domestic policy, it's much worse. Sure, McCain extends the Bush tax cuts but that's the least of it. At $1.7 trillion they amount to less than a third of the damage.

Note also that the big ticket tax cuts-eliminating the alternative minimum tax and lowering the corporate tax-both follow on another Bush tradition of exacerbating market-driven (i.e., pre-tax) inequalities by cutting high-end taxes the most.  As I stress here, McCain's plans to pay for these tax cuts amount to filling a crater with a teaspoon of sand. Earmarks won't get you there, so he'll have to go after discretionary spending. In fact, he's already suggesting a freeze in such spending, excluding defense, of course. Sound inoffensive until you consider that we're talking about kids' health care, education, child care, training for displaced workers, environmental and labor protections, and dozens more programs that lots of people actually need and care about.  Plus, he can't fill the hole he's dug with cuts in these programs either, which leads you to the inevitable punch line of all this: his target is the entitlements, Social Security and Medicare. Those programs have always been the big enchiladas for the Norquist shock troops and they've never recovered from their Social Security privatization defeat. Well, they're back, incognito.

McCain's top economist, a number cruncher of great integrity named Doug Holtz-Eakin, responds to the Tax Policy's analysis here, and he makes a good point or two, especially regarding the way they score the AMT, but his counterpoints amount to little more than quibbles. In fact, one can't help wonder if Doug, who used to inveigh against supply-side nonsense, has been drawn to the economic dark side. When recently asked about the extent to which these numbers fail to add up, his response was: "I think what [critics] ought to do is remember that the proposals are going to engender economic growth, which is the best thing you can do for near-term budget improvement." That's pure hand waving of the type with which the old Holtz-Eakin had no patience.

This story has yet to catch the fire it should, and hopefully will, once the D's get focused on McCain and his dim vision of government. But the point born of these numbers is as simple as it is compelling:  For seven long years, we've tried entrusting our government to those who discredit it, defund it, and fundamentally disbelieve in its role, except when they seek a lucrative contract or a bailout. We gone down the road-and it is a crumbling road, with potholes and failing bridges -- where the solution to every problem is a tax cut, where critical agencies are staffed with cronies at best and opposition lobbyists at worst, where secrecy trumps transparency and cynicism rules, where budget resources are never available for expanding children's health care, but always there for war.

Table T08-0071 is a road map to taking us far, far deeper into this morass. We must not go there.

 

BIO:

Jared Bernstein joined the Economic Policy Institute in 1992.  His areas of research include income inequality and mobility, trends in employment and earnings, low-wage labor markets and poverty, international comparisons, and the analysis of federal and state economic policies.  He is author of numerous books related to these specialties.  He is on the Congressional Budget Office’s advisory committee and is a contributor to the financial news station CNBC.  He holds a PhD in social welfare from Columbia University.

 

 

Grover Norquist found Americans for Tax Reform in 1985 at the request of President Ronald Reagan, and has head the organization ever since.  He is currently on the board of directors of the National Rifle Association and the American Conservative Union.  He is a member of the Council on Foreign Relations and chairman emeritus of the Islamic Free Market Institute.  He co-authored with Newt Gingrich Contract with America.  He was the prime architect behind the many Bush Tax-cuts. 

FRBSF Economic Letter, 2008, 13-14, April 18, 2008 published by the Federal Reserve Board of San Francisco

The Financial Markets, Housing and the Economy

By Janet L. Yellen, President and Chief Executive Officer

{Extracts by JK}

My basic point is that a process of delevergaging, in which many financial intermediaries are simultaneously trying to shrink the size of their balance sheet, has produced a situation in which the quantity of credit available in the overall economy from a wide range of intermediaries has contracted sharply and suddenly—a credit crunch.  Moreover, concerns about credit quality and solvency for intermediaries can dissolve into liquidity problems, as in an old-fashioned bank run.  Firms in the shadow banking sector are particularly vulnerable to this because, like banks, they typically issue short-term, highly liquid debt.  The fear that an institution may be unable to meet its obligations to its creditors may trigger a withdrawal of credit—as in a bonk run.  Of course, the perceived inability of one institution to meet its obligations is likely to cast doubt on the ability of others to meet theirs, triggering chains of distress and systemic risk. 

            The Federal Reserve was created precisely to stem such systemic risks by acting as a lender of last resorts, although not since the Great Depression has the Fed acted to accomplish it by lending directly through its discount window to an entity other than a depository institution{which it did in the case of Bear Stern--jk}

            Currently, close to 20% of subprime mortgages are delinquent or in foreclosure.  The vast majority of subprime loans are recent vintages, so only a fraction has hit reset dates as of late 2007. 

            In inflation-adjusted terms, spending on housing construction fell by nearly 13% in 2006, and by nearly 19% last year—subtracting of a percentage point and a full percentage point growth in those 2 periods.  Moreover, forward-looking indicators—notable huge inventoreies of unsold new and existing homes—suggest that the end is not yet in sight.  It seems likely that residential construction will be a major drag on the overall economy through the end of this year and into 2009. 

 

Must watch:

Parts of Europe (such ask Netherlands and Denmark) use small local electricity generation plants, which permits the use of the byproduct heat for heating.  In one example they use all he CO2 generated to supply 4,000 hectares of green houses.   The combined heating and energy production (CHP) is a proven technology that lowers the energy consumption for electricty and heating by over 50%.   British (BBC) documentary on this http://www.youtube.com/watch?v=klooRS-Jjyo&mode=related&search

 

Teddy Roosevelt's advice that, "We must drive the special interests out of politics. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being. There can be no effective control of corporations while their political activity remains."

 

For the best account of the Federal Reserve  (http://www.freedocumentaries.org/film.php?id=214).  One cannot understand U.S. politics, U.S. foreign policy, or the world-wide economic crisis unless one understands the role of the Federal Reserve Bank and its role in the financialization phenomena.  The same sort of national-banking relationships as in our country also exists in Japan and most of Europe.