Rónán Burtenshaw
Deputy Editor
What has caused the debt ‘crisis’ in the US? If you spent your time listening to US media – not something I’d ever advise – you’d probably believe that it was primarily a spending problem. And one caused by entitlement programmes. You’d be wrong of course. It’s fundamentally a revenue problem, exacerbated by unfunded wars. The US government says that annual defense spending comes to around 20% of the budget. That figure only includes what are called “overseas contingency operations” and ran to a total of $664 billion in 2010. The figure approved by Congress in December 2010 for this year was $726 billion. This was the largest military budget in history. But in reality defense spending is much higher than those figures. In those calculations, only the budget of the Defense Department is calculated.
When military expenditures elsewhere, which are often concealed or ignored and have risen dramatically during the War on Terror years, are factored in the cost comes to $1.1 trillion per year. This larger figure includes things like those payments of interest on debt, federal law enforcement activities, Homeland Security programmes and NASA research that are for defense purposes. The US government’s own outlay for this more comprehensive total projects spend will be in excess of $1.4 trillion by 2012. Those who track military spending in detail, and without omissions, like the Center for Defense Information (51% per annum budget spending on defense), Friends Committee on National Legislation (43%) and WarResisters (54%), count the annual spend far in excess of the 20% quoted by the government. All of this excludes the well-documented back-door money-trail finding its way to contractors and other outsourcing agencies through proxies that is never accounted for transparently.
More wars, less taxes to pay for them
The defense budget has seen a steady rise since George W. Bush took office. Taxes have not been raised to bridge the gap. Meanwhile, the US government figures place the cost of the Iraq and Afghanistan wars at $1.5 trillion. However, Brown University’s Watson Institute for International Studies’ more comprehensive estimate of the final cost for these wars was up to $4.4 trillion, of which $3.7 trillion was already spent. And this counts only the direct costs – not those which follow inevitably from war. When things like Veterans’ Administration, disability benefit and costs incurred from tackling homelessness amongst Iraq and Afghanistan veterans are factored in the total liability for these conflicts could reach beyond $6 trillion. Before 2010 – when most of the expenditure occurred – these wars were funded through supplementary spending bills and were off-the-books, outside of the Federal Budget. They were also unfunded. Taxes were not increased to pay for these excursions. In fact George W. Bush introduced the Economic Growth and Tax Reconciliation Act in 2001 (when Afghanistan was launched) and the Jobs and Growth Tax Relief Reconciliation Act in 2003 (when Iraq was launched). Collectively these have become known as the Bush Tax Cuts and, counting total revenue deduction, they were the largest tax cuts in US history. The cost of this unfunded expansion of the military state is usually put between 35 and 50% of the Total Public Debt Outstanding (TPDO) of $14.5 trillion.
Revenue shortfalls, caused by Reaganomic follies like the Bush Tax Cuts, are a broader theme of the US debt problems. The US is taxed at record low levels. The 2010 estimate for overall tax receipts as a percentage of GDP was 14.8%. That’s the second lowest in recorded history. To put that in perspective the national average over the last 30 years (which is in itself low because 1980 is when Reagan entered office) is 18.2%. That’s 3.4% down on even the average of the last thirty low-tax years. If you take into account the US government’s calendar year 2010 figure for GDP of $14.6 trillion this “record low level” is costing half a trillion dollars a year even when compared to the “Reagan low tax level”.
The main reason for the cumulatively low tax receipt level is not middle-class tax cuts, nor unemployment levels driving down income tax. It’s down to the fact that idolatry of the rich has been masquerading as economic policy in the US since the Reagan-era. The richest 400 Americans own more in wealth than the bottom 50% of the country. On Morning Joe on MSNBC this morning Joe Rattner, Wall Street financier not radical Marxist, presented his calculations on just that group of 400. In 2000, when the TPDO was only $6 trillion, they paid 30% of their incomes in taxes. Now, according to Rattner, they pay 18%. And he made it clear that his calculations did not even account for instruments of wealth taxation like capital gains – which have seen massive reductions in that period. In 1981, when the US TPDO first started increasing exponentially – tripling during the period when Reagan increased the debt ceiling 18-times due to tax cuts that weren’t paid for – the tax rate for those paying the top bracket was 70%. Now, thirty years later, and with another $11 trillion tacked on to the debt, they stand at half that level – 35%. And this is the basic rate, before clever accountants exploit the loopholes for the super-rich.
The lies of Reagonomic policies
The reasoning behind these tax cuts for the rich comes straight out of the trickle-down economic playbook by which the US has been playing since the Ronald Reagan years. Its supposed benefits for the greater society are complete fantasy. The rich have become richer and richer over the last 30 years. In 1980 CEOs were paid 45-times the salary of their average worker (up from 22-times in 1960). In 2007 that figure was 275-times. In 2011 it was over 300-times. Despite this wages have stayed about the same, adjusting for inflation, for the middle-classes since 1980. No discernable increase. This should be the obvious outcome – if you give money to the rich, the end result is that the rich have money. You may attract some more wealthy people to your country in the short-term, you may have a brief bubble but the end-game effect is the same. And you get a society, as Joe Stiglitz put it, of the 1%, by the 1% and for the 1%. There are more astounding facts to evidence this than I could possibly produce. 44 million Americans are on food stamps today, almost half of them children. One fifth of all children in the US were living below the poverty line in 2010. Almost the same amount of men between 25-54 are jobless. The average American household holds $75,000 in debt. The poorest 50% of Americans own just 2.5% of the country’s wealth. Only the top 5% of US households have earned enough additional income to cover the rising house costs since 1975. 46 million Americans lack health insurance – denying them basic care for chronic illnesses – until ObamaCare kicks in, and half of that amount will still be uninsured when it does. Trickle down?
Are US entitlement programmes in need of some reform? Yes. But they are not in crisis. Social Security, in its current guise, could pay out full benefits until 2037. Medicare and Medicaid’s costs are rising at the same level as US health care costs. The entire health care system needs reform to bend the cost curve – something ObamaCare singularly failed to do – but this is not specifically an entitlement health care problem. Some restructuring may be required when the Baby Boom generation retires – maybe even cutting benefits to those top 2% now earning $250k p/a whose Bush Tax Cut nets them $70 billion a year that the US can’t afford. But these programmes are not the reason for the high debt levels. US government spending – when the colossal military budget is removed – is comparatively low. And its spending on social programmes like ‘entitlements’ is especially so.
As President Obama put it during Monday night’s Presidential address, “raising the debt ceiling does not allow Congress to spend more money. It simply gives our country the ability to pay the bills that Congress has already racked up.” The large debts incurred by non-essential and counter-productive wars and tax cuts for the rich are the bills that have to be paid. But, if (or more likely when) the deal is done, the President and the radical right-wing Republicans in Congress are going to pay those bills by cutting chunks out of the US social safety net and imposing austerity measures on the working and middle-classes. This is the case because, as Paul Krugman has pointed out in his column, the issues of wars and tax cuts for the rich have taken their place among the “disappeared” of public discourse: the place where – no matter what their merits – issues go out to pasture when establishment Democrats and Republicans agree on them. The whole debate is skewed – a charade conducted by two pro-war, plutocratic parties that are idolatrous of the rich. Unfortunately, whether it’s through default or ‘compromise’, it’s a charade that’s likely to have dire consequences for working and middle-class Americans.
