It is self-evident that no sickness can be successfully cured without proper
diagnosis of the illness. In their frantic efforts to remedy the plague of
national debt and deficit, however, US policy makers tend to shy away from the
root causes of the problem and focus, instead, on scapegoats.
What are the root causes of the national debt and deficit? They are, first and
foremost, the multi-trillion dollar bailout packages that were bestowed upon
Wall Street in order to rescue the financial gamblers, the constantly
escalating costs of war and militarism, the huge tax giveaways to the wealthy,
and the
skyrocketing costs of healthcare, systematically jacked up by the insurance and
pharmaceutical companies.
What are the scapegoats? They are the entitlements (Social Security, Medicare
and Medicaid) and non-military discretionary spending: health, education,
housing, transportation, the environment, community development, science and
energy, human services, and the like. I call these items scapegoats because
they are not the sources of the continued escalation of debt and deficit.
Take, for example, Social Security. First of all, it is a self-financing
insurance program, funded by payroll taxes, not a handout or courtesy of Uncle
Sam. Secondly, although it no longer has as big a surplus as it used to,
nonetheless it still enjoys a considerable surplus. Indeed, without Social
Security's surplus, the federal debt would be bigger than it is. Thirdly, to
the extent that the trust fund may face a shortage in the future, it can easily
be remedied by, for example, raising the maximum level of taxable income (for
payroll purposes) from the current US$106,800 to a slightly higher level.
Like Social Security, Medicare is an insurance program that is funded by
payroll tax. (Out of the 15.4% payroll tax, 12.5% goes to fund Social Security
and the remaining 2.9% goes to fund Medicare.) Only recently have Medicare
expenses come close to surpassing its revenue. This too can easily be remedied
if or once the maximum taxable income for payroll funding is raised above the
current $106,800.
The financial pressure on the Medicare program (like that on the Medicaid
program) is not so much due to the revenue side of the program as it is due to
the cost side, for which the pharmaceutical and health maintenance
organizations/insurance companies are to be blamed, not the program itself.
Indeed, the program itself has been a very successful case of single-payer
health insurance programs. There are reasonable suspicions that this is why
Medicare has been targeted for destruction by the powerful interest groups that
view it as a "bad" example of a cost-efficient and successful health insurance
program.
Just as the entitlements are thus not the sources of the problems of debt and
deficit, so are not the non-military discretionary spending such as health,
education and all other social and infrastructural expenditures.
For one thing, these expenditures (or more precisely, investments in
maintaining or building the society's physical and human capital) constitute
only a small portion (15%) of the total federal budget. For another, their
share of the increase in federal outlays has in recent years been quite
minuscule, only 14 cents out of every dollar over the past decade - hardly big
enough to be blamed for the astronomical rise in the federal debt and deficit
during this period (Economic Policy Institute, Policy memorandum #187, July 13,
2011).
It is obvious, then, that the budget negotiators, posturing and shouting over
the debt ceiling, are shamelessly lying to the American people when they blame
the entitlements and non-military public spending as sources of the federal
debt and deficit. An honest approach to the problems of debt and deficit would,
instead, look into the real causes of these problems: Wall Street bailouts, war
and military expenditures, tax giveaways to the wealthy, and out-of-control
costs of healthcare.
The ruling kleptocracy and the corporate media have created a huge
misperception regarding the bailout of the Wall Street gamblers: that the
government paid only $780 billion of the taxpayers' money (called TARP, or
Troubled Asset Relief Program) to rescue the bankrupt or near bankruptcy
speculators, and that once these financial speculators returned to
profitability, they paid all they owed the taxpayers back - the end of the
story!
In reality, the TARP money was only a small fraction of the government's
giveaway of taxpayers' money to Wall Street. Other forms of government
handouts, not known to the public, included trillions of dollars in terms of
subsidies, backstops, guarantees, loans, purchases of worthless toxic assets at
their pre-recession high prices, and a number of other confounding types of
plunder.
Here is how Senator Bernie Sanders (of Vermont) put it: "The first
top-to-bottom audit of the Federal Reserve uncovered eye-popping new details
about how the US provided a whopping $16 trillion in secret loans to bail out
American and foreign banks and businesses during the worst economic crisis
since the Great Depression."
This explains why the federal debt has increased from $9.2 trillion in 2007 to
$14.2 trillion in 2011, an increase of nearly 55%.
It is now common knowledge that a major contributor to the rising debt and
deficit is the escalating spending on war and militarism, nearly doubled over
the past decade (from $295 billion in 2000 to the current $560 billion). While
the official Pentagon budget for the 2011 fiscal year is $560 billion, the real
figure is nearly twice as much as the official figure.
The reason for this understatement is that the official Department of Defense
budget excludes not only the costs of the wars in Iraq and Afghanistan, but
also a number of other major cost items. These disguised cost items include:
budgets for the Coast Guard, the Department of Homeland Security, nuclear
weapons, veterans' programs, most military retiree payments, interest payments
on money borrowed to fund military programs in past years, and more.
Once these misplaced or disguised expenditures are added to the official
Pentagon budget, total "security"/military-related budget items would amount to
slightly more than $1.1 trillion, which absorbs about one-third of the entire
2011 federal budget of $3.4 trillion.
Another major contributor to the rising debt and deficit has been the huge tax
breaks granted giant corporations and the very affluent layers of the society.
For example, according to Citizens for Tax Justice (CTJ), known for its
accurate reports on taxation, the combined amount of taxes paid by the
following 12 corporations for the 2008-2010 period was zero - no, it was less
than zero! Collectively, they got $2.5 billion in refunds.
The 12 corporations were: Exxon Mobile, Wells Fargo, DuPont, American Electric
Power, Boeing, FedEx, IBM, General Electric, Honeywell International, United
Technologies, Verizon Communications, and Yahoo. CTJ reports that "from 2008
through 2010, these 12 companies reported $171 billion in pretax US profits.
But as a group, their federal income taxes were negative: –$2.5 billion." (It
must be pointed out that although the total federal income taxes for the group
of 12 as a whole was negative, four out of 12 paid some federal tax, but the
little tax that those four paid was more than offset by the other seven
companies' not having paid any.)
This is an indication of how major US corporations pay - or avoid paying -
their tax liabilities. The extremely rich and powerful interest groups have
(since the late 1970s and early 1980s) deliberately used a combination of
raising military spending and lowering their tax obligations in order to
redistribute the national resources from the bottom up. As this combination
leads to increases in debt and deficit, it then forces cuts on non-military
public spending.
This represents a cynically clever strategy on the part of the ruling
plutocracy that benefits from war, militarism, debt and deficit: instead of
financing their wars and military adventures by paying taxes proportionate to
their income, they give themselves tax breaks, finance their wars of choice
through borrowing, and then turn around and lend money (unpaid taxes) to the
government and earn interest. The wealthy have thus successfully converted
their tax obligations to credit claims, that is, lending instead of paying
taxes, which is in essence a disguised form of robbery.
It is obvious from this brief analysis that Washington's political dogs howling
at the non-military public spending as the source of the escalating national
debt and deficit are barking up the wrong tree. As long as the out-of-control
spending on war and militarism is not contained, the multi-trillion dollar
corporate welfare handouts (in the form of tax giveaways and costly
rescue/bailout packages) are not curtailed, and the skyrocketing costs of
health care are not restrained, the national debt and deficit are bound to
continue their upward trend.
It is also obvious that the American people are lied to when they are told that
all the wrangling that is going on in Washington over the debt ceiling is to
reduce national debt. In reality, the national debt will continue to rise even
if the corporate government takes a few trillion dollars out of it by further
reducing the non-military public spending, that is, by further reducing the
people's standard of living.
Ismael Hossein-zadeh is Professor Emeritus of Economics, Drake University, Des
Moines, Iowa. He is the author of The Political Economy of US
Militarism (Palgrave-Macmillan 2007) and Soviet Non-capitalist
Development: The Case of Nasser's Egypt (Praeger Publishers 1989).
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