S7P downgrades the U.S. debt outlook. that's not a supply side problem, but I bet all the solutions will be!

The words of babes . . . or Congressmen - Why Paul Ryan thinks competition will save the federal budget

I'll give Paul Ryan this - when it come to the free market, he is a true believer that competition is ALWAYS best, even when it doesn't achieve the best societal end or the most efficient process (Emphasis mine):

SIEGEL: Congressman Ryan, critics of your idea say that the cost of insurance for members of Congress has actually gone up faster with the element of choice than the cost of Medicare has. Well, why would you - if it turned out that indeed the government-run program was more cost-efficient, would you favor it, or is it in fact an ideological preference for the market even if the market is less efficient?

Rep. RYAN: The point I'm trying to make - and there is a difference of just, I think, philosophy here or of what works best - we don't believe surrendering more of the health care system over to government is an effective solution to lowering health care costs. It simply results in rationing, in price controlling. So, we do believe that the current health care system is broken and needs to be fixed.

SIEGEL: So, even - but you're saying, even if the Medicare system were to be comparably more efficient in controlling cost, the way in which it's arriving at that, you say the...

Rep. RYAN: It's competition.

SIEGEL: ...the government way - if it's not competitive, you'd prefer what might be conceivably a more expensive system if it involves free market competition.

Rep. RYAN: Actually, no, we don't believe that at all. We believe that it will be a less expensive system. But believe you me, we need to do more in the health care system to get the consumer more power in the health care system so that the patient and their doctor have the real power in the health care system so that all providers - health insurance companies, doctors, hospitals - have to compete against each other for the health insurance beneficiary's business.

credit where it's due- Paul Ryan just said on NPR that top income earners in the US enjoy the benefits of most income tax loopholes. never heard that before!

The Debt Crisis and Deficit Elimination - raising tax rates is not a bad idea!

From the Congressional Quarterly (CQ) Daily Briefing email I got this morning:

“The three biggest tax expenditures, though, are presumably politically untouchable: The exclusion for employer-paid medical insurance, the exclusion for retirement savings and the deduction for mortgage interest. Combined, they result in almost $500 billion a year in lost IRS revenue.”

This talk about possible reduction or elimination of so-called Tax Expenditures (i.e. personal deductions, corporate tax breaks, and general loop-holes) has figured prominently in a series of comment back and forth that Mike and I have been engaged at over in Ames’ corner of the world. Like many conservatives, Mike doesn’t want to raise taxes on the wealthy, unless we raise EVERYOBNE’s taxes or close EVERYONE’s loopholes. Unlike most conservative and Republican Politicians (Tea Party and not) Mike is willing to acknowledge that revenue is a part of the problem.

I mention this, because one part of our discussion that I have thrown on the table is Effective Tax Rates. Simply put, through 2007 (which is the latest year the IRS has data for publically available) the top 400 income earners in the nation paid . . . 16.5% in federal income taxes. They did that because they generally have a lopsided compensation/income portfolio that leans toward investment income, which as “capital gains” is taxed at 15%. What’s really interesting to me is that the “typical American” earning $50,000 only pays slightly more in effective federal taxes at 17.5%.

“Salaries and wages, the source of income taxed at the blue line, represented only 6.5 percent of these filers’ income. Nearly two-thirds of their income comes from capital gains, and this is why you see a much tighter coupling between the orange and red lines.”

Emphasis mine.

So, when you hear conservatives say that raising taxes will eliminate our national economic growth, or that it is unfair to the rich, remember – if you have a median (i.e. 50% below you and 50% above you ) income in the U.S. you are probably paying a higher effective rate then the rich. As the Motley Fool puts it:

“

If your income moves into a higher tax bracket, Uncle Sam will take a bigger slice of all of your taxable earnings, right? Wrong.”

What does this mean for the current debate about both the 2012 federal budget and the debt limit increase? Simply this, if you do, in fact, raise the top marginal tax rate to 39% from its current 35% - where it was during the Clinton years – not only will you gain more revenue, you will in fact do so without real damage to those at the top because they do not pay 35% on their total income. That means you will still have plenty of money in their hands (the top 1% of income earners in the U.S. control 40% of the wealth) should they choose to invest it in American businesses and therefore create American jobs.

Will it raise as much money as getting rid of the three biggest loopholes mentioned by CQ above? Probably not, but recent economic studies indicate that if you raise the capital gains tax rate from 15% to 20.6% (therefore actually taxing the money that Americans richest people receive) you will raise revenues by 3% of GDP. Since U.S. GDP in 2011 is around $14.119 Trillion that would equal a $423 Billion increase in tax revenue, all the while leaving a TON of cash lying around for the Republicans much loved but factually implausible “Trickle Down Economics.”

Problem is, that won’t really solve the battle, which as Harold Meyerson pointed out today, is about whether the Southern or Northern economic model will ultimately guide America.

The Great Recession - tip of the economic iceberg

When the final history of the Great Recession of 2008-???? is written, I hope two key points will guide the narrative. First, the recession came about because the wealth of the nation was not equitably distributed, but rather collected in the hands of a conniving few, for whom controlling and maintaining that wealth became a business investment:

The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.

Second, as our Nation struggles to lift itself out of a "jobless recovery" we have run head long into a type of inflation that is not amenable to "traditional economic solutions" nor is it driven by American consumption or supply and demand mismatches:

It’s not just that prices are rising — it’s that wages aren’t.

Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent.

And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it’s not computers and cars that are getting more expensive, it’s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.

Rather, the capture of the political system by those wealthy few, for whom the status quo is a virtual economic requirement,has led us to a place where we can not address either wage stagnation, nor inflation caused by competition for consumer goods. Simply put, we as a Nation have traded our long-term economic and food security - and a decline in standard of living for nearly all Americans - for a oligarchical political system that protects the top 1% of Americans wealth. We made that trade explicitly, knowingly, because we were misled into thinking that the rising tide would indeed lift all ships, even though repeated world events (from the Roman Empire to Tahrir Square) continue to show us our folly. This, perhaps, is the most egregious example of non-military American Exceptionalism, and it may be more our undoing then any misadventure in Libya.