A good example why is an Onion article reporting that Al-Qaeda leader,  Ayman al-Zawahiri, is upset the US doesn’t invest in its infrastructure because it limits the number of prime Al-Qaeda targets.

Reading from a prepared statement, al-Zawahiri blasted the U.S. government for its lack of foresight and admonished its leaders for failing to provide Americans with efficient and reliable modes of public transport to reduce traffic congestion, lower carbon emissions, improve air quality, and supply suitable targets for terrorists….

al-Zawahiri said. “We want to turn your bridges into rubble, but if we claimed credit for making them collapse, nobody would ever believe us.”…

He also revealed the terrorist organization had wasted six months planning to take down Amtrak’s regional operations before realizing that with its constant delays and malfunctions, the government-owned passenger train service “basically terrorizes itself.”

Beezer here.  Too funny.  Read the entire article, it’s full of funny observations purportedly made by a frustrated al-Zawahiri in a 30 minute video.

Bloomberg news reports districts that voted in Tea Party candidates are some of the biggest recipients of government largesse. 

Sixty House members backed by the Tea Party, whose opposition to federal spending helped bring on an impasse over raising the U.S. debt ceiling, represent districts that last year received $43 billion in government contracts.

In 16 of those constituencies, spending exceeded $1 billion each — more than twice the median amount for all House districts, Bloomberg Government reported today.

“People don’t like federal spending in the aggregate, but when it’s back home where you’re spending the money, that’s a different story,” said Charles J. Finocchiaro, a political scientist at the University of South Carolina, in Columbia, in an interview. The state is home to two House Tea Party Caucus members and Republican Governor Nikki Haley, elected last November with the movement’s support.

The strictest Tea Party adherents had opposed House Speaker John Boehner’s plan for a debt-limit increase before the Aug. 2 deadline. The House passed the plan 218-210, about 24 hours after Boehner postponed an initial vote to line up more supporters. Twenty-two Republicans joined 188 Democrats in opposition.

Of the 60 Tea Party caucus members, nine voted no and 51 voted yes. Two of the 16 whose districts received more than $1 billion in U.S. contracts voted no; 14 voted to support Boehner’s plan.

Beezer here.  Probably a pretty good place to start cutting is in the districts that voted in Tea Party candidates.  Might as well be the first to find out how the new Raw Deal tastes. 

With respect to the Federal income tax on individuals, the 1954 Code imposed a progressive tax with 24 income brackets applying to tax rates ranging from 20% to 91%. For example, the following is a schedule showing the Federal marginal income tax rate imposed on each level of taxable income of a single (unmarried) individual under the 1954 Code:

Interestingly enough, this tax code imposed a 4% credit cap on dividend income which previously was tax exempt.   Some believe this change triggered a fundamental change in investing.  From a commentator over at economist’s view named ‘Ron.’

I could just agree sentimentally if I did not realize that the 1954 tax code implemented the transfer of primary investment returns from previously exempt dividends to realization of capital gains. This ushered in an age of speculation and corporate mergers, increasingly LBO and rarely stock swap, with all the attendant reductions in internal investment. Subsequent financial deregulation was merely an attempt to optimize the rate of destruction of the real productive economy to the benefit of investment bankers and hedge funds.

Another frequent commentator at economist’s view, identified only as ‘paine,’ said he shared Ron’s ‘devotion to highly idiosyncratic turning points,’ and then proceeds to list two more events that don’t get much attention today, but definitely impacted future events.  Paine listed the 1951 accord between the US Treasury and the Federal Reserve which restored the Fed’s independence and the close of the gold window in 1971.

I prefer the surrender by the treasury of the fed to wall street in January 1951.  Since then full employment has been impossible if for no other reason then wall street doesn’t want a wage spiral.

But the real universal, opens all locks key, is of course international payments flow prior to another key turning point:  The closing of the gold window in the late months of 1971.  That entrained the era of forex flex.  There are others but yours is nicely obscure.

Both commentators are obviously academically knowledgeable.   Paine is an economist.  We don’t know what Ron is, but his citation of the 1954 tax code goes beyond hobby.

Beezer here.  Maybe we should restore some exemption, like the 4% credit cap, on dividend income while placing a similar cap on capital gains that can be assessed at 15% instead of the higher income tax.

While everyone fixates on total national debt, which is over $14.2 trillion at the moment, it’s imporant to break this big number down into components.

First, the tradable debt (treasuries that can be bought and sold, excluding treasuries that Social Security issues which are not tradable) is about $9.1 trillion.   That debt has a duration of less than 7 years, which means that it needs to be refinanced over less than 7 years, or an average of $1.3 trillion annually at minimum.  This assumes the tradable amount doesn’t increase or decrease, it just needs rolling over.

But we’re in the third year of recession and very weak recovery and that’s been a big contributor to the $9.1 in tradable debt.   In fact during 2009 and 2010 we lost about $800 billion in revenue.  From Wikipedia: 

For example, tax revenues declined from $2.5 trillion in 2008 to $2.1 trillion in 2009, and remained at that level in 2010. During 2009, individual income taxes declined 20%, while corporate taxes declined 50%. At 14.9% of GDP, the 2009 and 2010 collections were the lowest level of the past 50 years.^[8][9]

Then you have to add the $319 billion spent in paying unemployment insurance benefits caused by the great recession, so the total of these two numbers, both added by the great recession, is $1.19 trillion.   As the economy recovers these deficit additions to the debt decline and disappear entirely when the economy returns to its pre-recession trend.

Then you add the $271 billion annual cost of the Bush Tax cuts which amount to $821 billion addition to that tradable deficit. 

Which means the great recession and the Bush Tax cuts added almost $2 trillion to the $9.1 trillion in tradable debt.  Which means the tradable debt annual payment would be almost $300 billion less annually.   Getting out of the wars would save an additional $200 billion annually.  And don’t forget the payroll tax cut which costs $120 billion annually.  Altogether the annual debt rollover would amount to $680 billion instead of $1.3 trillion, or less than 5% of GDP. 

This assumes zero growth in GDP, of course, so it’s very conservative.

Conclusion.  Roll back the tax cuts, get out of the wars, create jobs which will drop unemployment expenses while increasing government revenues as the economy recovers.

One thing about human behaviour is not commonly understood:  People can do totally unexpected things, most particularly when they are organized.   Sometimes this can be a positive dynamic.  Othertimes a negative dynamic.  The point is that, positive or negative, the effect of such moves is far greater than expected.  These moves can quickly grow into major ‘Black Swan’ events, positive or negative.

Right now we have an organized wing in the Republican Party called the Tea Party.  This wing believes in small government.  They believe that, outside ‘essential’ services, government is always a net negative when it comes to economic prosperity and individual freedom.   The Tea Party definition of what ‘essential’ means is important to comprehend.  Taxpayer money for health care is not essential (Medicare), nor is taxpayer money for pensions (Social Security) essential.  Taxpayer money for helping the poor or the weak, or the otherwise disadvantaged, is not essential.  Spending tax money on education, for example Pell Grants to attend college, is not essential nor is spending taxpayer money on environmental protection essential.

What is essential to the Tea Party is that the private economy be left as untouched by government as is possible, both in regulation and in taxation.  That means keeping rates low, even for the very rich, who Tea Partiers brand as ‘job creators’ rather than just rich.  It is here, within an unfettered private economy, that true economic prosperity resides, Tea Partiers totally believe.  From an ideological perspective, this is as close as America has ever come to embracing the libertarian philosophy and putting that philosophy’s policies into effect.

Most of the public wouldn’t know a libertarian from a turtle.  But up the policy heirarchy, into the power suites in corporate and political America, there is an understanding of libertarian viewpoints.   The problem here is that the people in these power suites underappreciate the Tea Party’s power to cause dramatic change.   They don’t comprehend the degree of change that is possible.

These Very Serious People, in our opinion, are in for a very rude shock.  Do not be surprised if the Tea Party forces America into financial default by refusing to raise the country’s debt ceiling .  From their point of view this is the kind of dramatic step that is needed to ‘save’  America and rebuild it along libertarian lines.

Our view is that libertarianism has never been tried in the real world for very good reason:  Libertarians are utopians and represent the flip side of Marxism, another utopian philosophy.    That said, if this movement elevates it’s power into Black Swanland, America may be the first country in History to actually try libertarianism. 

Go to cash.  If you’re a gambler, short the equity markets.

Bruce Bartlett, former senior advisor to Presidents Ronald Reagan and George Bush as well as a staffer for the late Rep. Jack Kemp and the current Rep. Ron Paul, possesses impeccable conservative Republican credentials.  But he’s become one of the most effective critics of today’s version of Republican.

In an op-ed column in the New York Times, Bartlett crucifies the near religious belief by modern Republicans that tax cuts have been economically beneficial.  The facts, as Bartlett so clearly lays out, expose this myth as a lie.  Yet the lie persists, stronger than ever, repeated more than ever, by today’s Republican leadership.

Are the Bush Tax Cuts the Root of Our Fiscal Problem?

By BRUCE BARTLETT

Bruce Bartlett held senior policy roles in the administrations of Ronald Reagan and George H.W. Bush and served on the staffs of Representatives Jack Kemp and Ron Paul.

Whether revenue should play any role in deficit reduction is at the root of the fiscal impasse between Congressional Republicans and President Obama. One factor underlying the hard-line Republican position that taxes must not be increased by even $1 is their assertion that the Bush tax cuts played no role in creating our deficit problem.

Today’s Economist

Perspectives from expert contributors.

In a previous post, I noted that federal taxes as a share of gross domestic product were at their lowest level in generations. The Congressional Budget Office expects revenue to be just 14.8 percent of G.D.P. this year; the last year it was lower was 1950, when revenue amounted to 14.4 percent of G.D.P.

But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row when revenue as a share of G.D.P. was that low was 1941 to 1943.

Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era. At a similar stage in previous business cycles, two years past the trough, revenue was considerably higher: 18 percent of G.D.P. in 1977 after the 1973-75 recession; 17.3 percent of G.D.P. in 1984 after the 1981-82 recession, and 17.5 percent of G.D.P. in 1993 after the 1990-91 recession. Revenue was markedly lower, however, at this point after the 2001 recession and was just 16.2 percent of G.D.P. in 2003.

The reason, of course, is that taxes were cut in 2001, 2002, 2003, 2004 and 2006.

It would have been one thing if the Bush tax cuts had at least bought the country a higher rate of economic growth, even temporarily. They did not. Real G.D.P. growth peaked at just 3.6 percent in 2004 before fading rapidly. Even before the crisis hit, real G.D.P. was growing less than 2 percent a year.

By contrast, after the 1982 and 1993 tax increases, growth was much more robust. Real G.D.P. rose 7.2 percent in 1984 and continued to rise at more than 3 percent a year for the balance of the 1980s.

Real G.D.P. growth was 4.1 percent in 1994 despite widespread predictions by opponents of the 1993 tax increase that it would bring on another recession. Real growth averaged 4 percent for the balance of the 1990s. By contrast, real G.D.P. growth in the nonrecession years of the 2000s averaged just 2.7 percent a year — barely above the postwar average.

Few people remember that a major justification for the 2001 tax cut was to intentionally slash the budget surplus. President Bush said this repeatedly during the 2000 campaign, and it was reiterated in his February 2001 budget document.

In this regard, at least, the Bush-era tax cuts were highly successful. According to a recent C.B.O. report, they reduced revenue by at least $2.9 trillion below what it otherwise would have been between 2001 and 2011. Slower-than-expected growth reduced revenue by another $3.5 trillion.

Spending was $5.6 trillion higher than the C.B.O. anticipated for a total fiscal turnaround of $12 trillion. That is how a $6 trillion projected surplus turned into a cumulative deficit of $6 trillion.

Congressional Budget Office

These figures are conservative insofar as revenue is concerned, because the higher interest payments required by the deficits created by the Bush tax cuts are allocated to spending. If one allocates the interest cost proportionally, the Bush tax cuts were responsible for increasing the debt by $3.2 trillion — 27 percent of the fiscal deterioration since 2001.

These facts notwithstanding, it has become a Republican talking point that the Bush tax cuts did not, in fact, reduce revenue at all — something the Bush administration itself never asserted.

Last year, Mitch McConnell of Kentucky, the Senate minority leader, said: “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these tax cuts in the economy.”

On June 10, former Minnesota Gov. Tim Pawlenty said, “Keep in mind, whether it be the Bush tax cuts, the Reagan tax cuts or other tax cuts, they always produce an increase in revenue.”

On July 10, Senator Jeff Sessions of Alabama said of the Bush tax cuts, “The revenue went up every single year after those tax cuts were put in.”

And on July 15, Representative Trent Franks of Arizona said, “Even the much-maligned Bush tax cuts brought in an additional $100 billion a year to government coffers.”

It is hard to know where these totally erroneous ideas come from. Federal revenue fell in 2001 from 2000, again in 2002 from 2001 and again in 2003 from 2002. Revenue did not get back to its 2000 level until 2005. More important, revenue as a share of G.D.P. was lower every year of the Bush presidency than it was in 2000.

Congressional Budget Office

What will happen at the end of next year when the Bush tax cuts expire is already a matter of intense budget negotiations. Perhaps the whole point of the apparent Republican disinformation effort to deny that the Bush tax cuts reduced federal revenue is to make the reverse argument next year — allowing them to expire will not raise revenue.

Beezer here.  Apostacy is defined as someone who breaks from a religion.  The Republican promotion of the ‘tax cuts pay for themselves’ idea, in the face of historical reality showing it’s manifestly false, elevates the concept to the realm of religious belief.  How else to explain it’s persistence?  In that sense Bartlett has become an apostate.  Hat tip to Economist’s View for highlighting Bartlett’s article.