Equilibrium

The Citizens for Tax Justice put out a report on June 30th that was titled: “Revenue Increase the Obvious Answer to Deficit Impasse.”  I encourage everyone to read that piece because it lays out a pretty compelling case for why Democrats aren’t just advocating for, but believe that it is financially necessary to close tax loopholes and raise revenues.  In case you don’t have to time to read it, the gist of it can be summarized in two graphs:

The United States has the second lowest corporate tax rate in the industrialized world.  Only Iceland has a lower corporate tax rate.  This raises the question: why would any company that currently does business in the United States ship jobs overseas?  There’s less certainty in the markets of developing countries and it wouldn’t make economic sense to ship jobs to another developed country with a higher corporate tax rate.

This second graph illustrates the broader point that the United States pays the least amount of money in taxes as a percentage of GDP with the exception of Mexico and Chile.  I don’t think there are too many countries that are going to risk losing their companies to drug cartels, so unless CEOs are crazier than we all think, they’ll keep their jobs here.  What should stick out here is that many of the European countries on this list with a higher rate than the United States are in better economic shape than the United States.  This has less to do with taxes and more to do with responsible government.  The financial communities of European countries trust their governments (for the most part) to make decisions that will help ease economic uncertainty and it’s uncertainty (not a doomsday scenario on taxes) that’s killing our markets right now.

As I said yesterday, the problem with our economic plans are that Republicans are of the belief that austerity measures are going to grow jobs and that’s simply not the case.  There is no empirical evidence to support that because no one has actually tried to make that backwards argument in the past.  The best we can do is look at why we’re bleeding jobs at the rate we are because it is (in my mind at least) a pretty good indicator of what will happen in the private sector after the debt deal is done.

Simply put: because we decided to cut government spending and lower taxes even further, our unemployment rate has gone up.  This isn’t happening as a result of page 1,821 of the Affordable Care Act or page 391 of the American Recovery and Reinvestment act, this is happening because state houses across America have decided that they’re no longer willing to sustain public sector growth when it does not yield positive political results.  No one talks about public sector hiring as a good thing, people view it as “temporary jobs” or “non-revenue producing jobs,” or other talking point inspired language used to depress people who work in the public sector.

The fact is however that we need public sector employees.  We need them for education to educate our kids, we need them at the IRS so you can get your tax refund, we need for law enforcement to keep the streets safe.  None of this is new stuff, so lets stop pretending that it is.  Public sector jobs are just as important as private sector jobs, the only difference is how they’re characterized and they shouldn’t be austrecized as some sort of public ailment to the private sector because it’s these public sector jobs that keeps private enterprise churning.

There’s an element in all of this that is overlooked and it has nothing to do with the political and everything to do with the financial reality that our treasury department faces.  Kevin Drum of Mother Jones put it this way:

“We don’t reach the debt ceiling on August 2nd. We reached it two months ago, on May 16th. Treasury has been playing games ever since (“borrowing” from pension funds, suspending securities that help states manage their finances, etc. etc.).

August 2nd is merely the date when the games run out and we actually stop paying some bills. But just for the record, Congress blew through the debt ceiling long ago and has been mucking around ever since.”

If you look at the jobs reports since we hit our borrowing limit, they tell the whole story of what is going on here.  We’ve created less than 100,000 jobs over the last two months.  In April, we created 290,000 jobs and that could have been sustainable if we had taken some kind of initiative and shown the market that there isn’t a crisis of leadership in Washington.

When you look at that chart you don’t think “man, we’re screwed going forward, four straight months of positive economic growth?  Screw that.”  The reality was that we had weathered the recession, we had made positive gains and we were on a path to economic stability.  Unfortunately, the market has lost faith in the ability of leaders to lead and this crisis is creating uncertainty not just in the United States but around the world.  Yesterday IMF Chair Christine LaGarde said that she worries about the impact of debt ceiling negotiations on the world economy.  The truth is that the longer this plays out the tougher it’s going to be on the economy.  Markets like certainty and right now our uncertainty isn’t just killing the market, it’s killing jobs too.

Now, our economy is not going to rebound again without significant structural reform.  I think Dodd-Frank combined with many of the provisions from the Affordable Care Act going into place could provide that reform, but not if Republican obstructionism is allowed to continue.  The whole substantive reforms in these deals are the regulatory oversights that were put in place and the Republicans are fighting those like they’re tax increases on the elderly, veterans, and flag-wielding small business owners.  There’s a lot of concern among people who watch the financial markets that these reforms are going to be overlooked because Republicans will simply filibuster their way to oblivion.  But, that doesn’t mean we should give up hope.  I remain optimistic that a deal will be reached on the debt ceiling, not because I think Republicans are reasonable, but because I know that Democrats are.  Republicans are going to regret taking the deal offered to them by the White House.  As Ezra Klein put it this morning:

“Republicans might come to regret rejecting Boehner’s deal. Few noticed that his framework for new revenues was comprehensive tax reform — which would preempt the expiration of the Bush tax cuts. In other words, he was finishing the tax debate during the debt-ceiling debate, when Republicans have most of the leverage, rather than letting it drift linger into 2012, when the Bush tax cuts are set to expire and Democrats will have most of the leverage. If Republicans could’ve agreed with Democrats this year, taxes would have gone up by $1 trillion. If they can’t agree with Democrats next year, they’ll go up by $4 trillion. And Republicans had a better hand this year than they will next year.”

Republicans are fighting for spending cuts not deficit cuts.  If Republicans were serious about cutting the deficit they would have taken the President’s deal because it was better than any other offer that had been made.  3:1 spending cuts vs. revenue increases is a ridiculously good ratio for Republicans, but the problem is that many Republicans don’t care what the terms are because they’re not negotiating at all.  There are about forty Republicans in the House who, under no condition, will vote to raise the debt ceiling.  That’s insane, but it is now Republican orthodoxy.  The grown ups in the room ought to call it like they see it and point out the hypocrisy in calling for deficit reduction and then refusing a deal that would have made the biggest dent in our deficit since the Reagan deal back in ’82.

In closing, I think it’s worth looking at, not what Republicans or Democrats want, but what the American people want.

If you take the all respondents figure, it would seem like compromise wins the day, but look at how many people don’t want to raise the debt ceiling at all.  Isn’t that frightening?  It just goes to show that no amount of reason can persuade someone who has their mind made up.  Chuck Schumer pointed out that Republicans have walked out of every negotiation that we’ve tried to have over the deficit.  They pulled out of Simpson-Bowles, they pulled out of the Gang of Six, they pulled out of the Biden talks and now they’ve pulled out of the talks with President Obama.  At what point are we going to realize that Republicans aren’t interested in negotiating, they’re interested in winning and you can’t negotiate a win.  There are now a limited amount of options available to Democrats and no amount of “grand bargains” will be enough for the Charlie Sheen’s of politics, which is now also known as the Republican party.

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