Deficit Commission Proposals Would Cost 4 Million Jobs
Report: Deficit Commission Proposals Would Cost 4 Million Jobs
by James Parks, Nov 23, 2010
The deficit reduction plan released last week by the co-chairmen of the National Commission on Fiscal Responsibility shows that this so-called budget deficit commission shows the commission has run severely off course.
The recommendations issued by co-chairs Alan Simpson and Erskine Bowles would cost 4 million jobs over three years and reduce economic growth by 0.7 percent in 2012, 1.4 percent in 2013 and 1.9 percent in 2014, according to an analysis by the Economic Policy Institute (EPI).
The Simpson-Bowles approach calls for job-killing budget austerity to begin in October 2011, even though most economic forecasters expect unemployment to remain as high as it is today or even increase by then.
Simpson and Bowles also call for deep cuts in Social Security benefits, even though Social Security is not responsible for our long-term budget problem and the public is overwhelmingly opposed to benefit cuts.
Simpson and Bowles also propose more cost-sharing in Medicare. They suggest lowering top income tax rates for the wealthiest Americans and for corporations and eliminating the Alternative Minimum Tax (AMT), while sparing Wall Street from any taxes on bonuses or financial speculation.
Bowles collects $335,000 a year as a director of Wall Street investment bank Mor gan Stanley, and Simpson has called Social Security “a milk cow with 310 million tits.”
AFL-CIO President Richard Trumka said Simpson and Bowles “just told working Americans to “Drop Dead.”
Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare. Some people are saying this plan is just a “starting point.” Let me be clear, it is not.
In the EPI report, economists Josh Bivens and Andrew Fieldhouse note that because the Simpson and Bowles recommendations would reduce economic growth, they would end up lowering the deficit far less than Simpson and Bowles claim.
Bivens and Fieldhouse say the co-chairs’ proposal “threatens to increase the already unacceptably high level of unemployment and increases the possibility of the economy falling back into outright recession.”
They argue a better path to fiscal responsibility would be to invest in job creation and growth to increase revenue in the near-term, raising revenue from new sources over the medium-term to stem the hemmoraging caused by the Bush-era tax cuts for the very well-off, and reforming the health care provision to generate long-run budgetary savings. Otherwise, Bivens and Fieldhouse say:
In the present economic environment, the near-term austerity measures proposed by the co-chairs would be fiscally counterproductive and crippling to states, communities, and families, delaying a robust economic recovery for years.
Eating the Irish
By PAUL KRUGMAN
Published: November 25, 2010
What we need now is another Jonathan Swift.
Most people know Swift as the author of “Gulliver’s Travels.” But recent events have me thinking of his 1729 essay “A Modest Proposal,” in which he observed the dire poverty of the Irish, and offered a solution: sell the children as food. “I grant this food will be somewhat dear,” he admitted, but this would make it “very proper for landlords, who, as they have already devoured most of the parents, seem to have the best title to the children.”
O.K., these days it’s not the landlords, it’s the bankers — and they’re just impoverishing the populace, not eating it. But only a satirist — and one with a very savage pen — could do justice to what’s happening to Ireland now.
The Irish story began with a genuine economic miracle. But eventually this gave way to a speculative frenzy driven by runaway banks and real estate developers, all in a cozy relationship with leading politicians. The frenzy was financed with huge borrowing on the part of Irish banks, largely from banks in other European nations.
Then the bubble burst, and those banks faced huge losses. You might have expected those who lent money to the banks to share in the losses. After all, they were consenting adults, and if they failed to understand the risks they were taking that was nobody’s fault but their own. But, no, the Irish government stepped in to guarantee the banks’ debt, turning private losses into public obligations.
Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.
Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.
Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.
But there is no alternative, say the serious people: all of this is necessary to restore confidence.
Strange to say, however, confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy — and are fleeing Irish debt because of that economic weakness.
Now what? Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line — a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.
Does it really have to be this way?
In early 2009, a joke was making the rounds: “What’s the difference between Iceland and Ireland? Answer: One letter and about six months.” This was supposed to be gallows humor. No matter how bad the Irish situation, it couldn’t be compared with the utter disaster that was Iceland.
But at this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible?
Part of the answer is that Iceland let foreign lenders to its runaway banks pay the price of their poor judgment, rather than putting its own taxpayers on the line to guarantee bad private debts. As the International Monetary Fund notes — approvingly! — “private sector bankruptcies have led to a marked decline in external debt.” Meanwhile, Iceland helped avoid a financial panic in part by imposing temporary capital controls — that is, by limiting the ability of residents to pull funds out of the country.
And Iceland has also benefited from the fact that, unlike Ireland, it still has its own currency; devaluation of the krona, which has made Iceland’s exports more competitive, has been an important factor in limiting the depth of Iceland’s slump.
None of these heterodox options are available to Ireland, say the wise heads. Ireland, they say, must continue to inflict pain on its citizens — because to do anything else would fatally undermine confidence.
But Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.
Are You Really Interested In Ireland? Okay, Read This.
Quote:
Originally Posted by
SiriuslyLong
Thank God it's only a proposal and they have time to get it right!
In regards to Ireland, just read an interesting article on Yahoo. The fact that Ireland has no control of monetary policy is a key factor. The fact remains that they are near defaulting. Now what should an "entity" facing default do? Borrow more at a higher interest rate to spend more? The case of Ireland (and others) cannot be used as an example of what to do here in America.
Right-Wing Think Tank Praised Ireland's 'Economic Freedom' ... and Then Its Economy Crashed
Any time the Heritage Foundation holds up any country as an economic example, it should set off alarm bells.
November 26, 2010 | Blog for Our Future / By Terrance Heath
It hasn't even been a year since the Heritage Foundation placed Ireland among the top ten countries on its Economic Freedom Index. I wasn't intending to write about Ireland at the time, but any time the Heritage Foundation holds up any country as an economic example attention must be paid. It's an invaluable opportunity to learn what not to do, in terms of economic policy.
Even way back then, in April of this year, Ireland's economic crisis was serious enough to make it a real head-scratcher that anyone would place it on top ten list and hold it as an example of economic success, as the Heritage Foundation's Index is intended to do. Ireland is indeed an example. It's nearly a textbook example of the epic failure of conservative economics to grow an economy and austerity to spark a recovery.
At the time, Heritage glossed over Ireland's economic trouble with a short paragraph.
Despite the crisis, Ireland’s overall levels of economic freedom remain high, sustained by such institutional strengths as strong protection of property rights, a low level of corruption, efficient business regulations, and competitive tax rates. These strengths provide solid foundations on which to build recovery and curb long-term unemployment.
That short paragraph is actually loaded with irony. The very "institutional strengths" that Heritage highlights effectively neutered the "Celtic Tiger" that the Irish economy was suppose to be. Just a year before it was written, Ireland became the first Euro zone country to fall into a recession. A month after Heritage published its index, Ireland's recession evolved into a depression. As in the U.S., Ireland's economic boom was driven by a housing bubble that took the economy down with it when it burst, with shrinking economic output and spiraling unemployment following in its wake. The bursting of that bubble was made even more devastating by the effect of conservative policies on the Irish economy.
On top of the housing bubble, Ireland's economy largely relied on exports, 90% of which were made by foreign-owned multinationals, attracted by the corporate tax rate that was among the lowest in Europe. The tax rate was sweetened by more lucrative concessions designed to attract multinationals. Indeed, when tax-cutting advocate Charlie McCreevy became Labour Finance Minister in 1997, he soon implemented what some deemed were unnecessary property-tax incentives, along with a 20% cut in capital gains tax for property investment. Banking on permanent prosperity, essentially, led to tax cuts that have deprived the country of much-needed reserves, and left it stuck choosing between severe budget cuts in service of the national debt, or investing in programs to keep people working and stimulate the economy.
The "competitive tax rate" for which Heritage rated Ireland so highly turned out to be catastrophic not just to Ireland but to its neighbors too. Ireland's deficit was caused by an incredibly low corporate tax rate the benefited the corporations that came to Ireland more than it did the country itself.
Ireland's "excellent tax climate for businesses," praised by conservatives came in the form of a 12.5% corporate tax rate that turned Ireland into a tax haven for corporations without profiting the Irish economy much at all.
Ireland’s problems are, sadly, far deeper than the need for simple fiscal austerity. The Celtic tiger’s impressive reported growth over the past decades was in part based on its aggressive attempts to help major corporations in the United States reduce their tax bills. The Irish government set corporate taxes at just 12.5 percent of profits, thus attracting all sorts of businesses — from computer services such as Google and Yahoo, to drug companies such as Forest Labs — that set up corporate bases and washed profits through Ireland to keep them out of the hands of the Internal Revenue Service.
The remarkable success of this tax haven means that roughly 20 percent of Irish gross domestic product (G.D.P.) is actually “profit transfers” that raise little tax for Ireland and are owned by foreign companies. Since most of these profits are subject to the tax code, they are accounted for in Ireland where they are lightly taxed; they should not be counted as part of Ireland’s potential tax base.
Corporate profits were essentially funneled through Ireland, and money funneled through a country's economy doesn't get reinvested in that economy in any meaningful way for the middle and working class who provide labor for those multinationals. It did considerable damage to with what Polly Toynbee called "tax piracy" in The Guardian this week, lowering not only its own tax base with a corporate tax rate that not only failed to enrich Ireland, but beggared its neighbors by attracting corporations to move their headquarters and thus their profits to Ireland.
The "efficient business regulations," for which Heritage rated Ireland so highly were non-existent. In a review of Fintan Toole's book Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger, Henry Farrell cites lax regulation and bad business judgment as factors in Irelands economic crisis, and relates that in one instance in which the Irish Central Bank failed to discipline Ansbacher Bank for running a tax evasion scheme for prominent individuals.
Banks suffered no consequences for behavior that ruined the economy and destabilize the public finances. Regulators abdicated their authority to discipline financial institutions, and the result was akin to 50-foot toddlers running amok. Even a major tax evasion scam warranted no consequences. What else went on while the regulatory lights were out, the culprits have largely escaped under the cover of austerity.
Meanwhile, the economic pain even more spectacular than the failure of Ireland's "efficient business regulations" and "competitive tax rates" is the failure of its austerity measures in what seems like record time. Not only did Ireland become the first Euro zone country to enter recession, it also became the first to test its status as a petri dish for conservative policy by becoming the first country to respond to the economic critics by enacting severe austerity measures.
The government's 2008 emergency budget was the kind of economic medicine that even now conservatives are clamoring for here in the U.S. — a package of cuts in social programs from education to medical care, combined with a bailout of the country's banks. The idea was that making such severe cuts would increase confidence and produce growth by assuring investors that Ireland was serious about its economic problems.
Ireland's austerity measures were an "epic fail" on two fronts. The country was rewarded with shrinking economy, and a sharper downturn than if the government had spent more to keep people working. The suffering that austerity measures brought the Irish people sparked a series of public demonstrations in 2008, 2009, and 2010.
