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Why Some People Are Just Fine with the Collapse of the Debt Ceiling Negotiations
If political functionality were a means test for a country’s credit-worthiness, the US would have lost its AAA rating a long time ago. The country which prides itself as the “World’s Greatest Democracy” has puts its dysfunctional political system on display for months now, in a struggle to get the debt ceiling increased. The resulting spectacle has nauseated even the ever-complacent American public: both Democrats and Republicans are now given losing grades by the voters for their performance in this farce. If the country had a legitimate third party to vote for, the Democrats and Republicans would be in serious trouble. Of course, the political system is geared to prevent third parties from emerging, so the country flounders about, looking for leadership from pusillanimous Democrats or ideological Republicans who consider raising taxes a mortal sin. The voters are probably a few steps away from concluding what is meant to be hidden but by now should be obvious: American democracy doesn’t exist, and the political system in Washington is beyond repair. What is worse: there are people and organizations who like things just the way they are and will fight any attempts at reform.
How to Cripple a Government
Let us look at a sad laundry list of governance failures that have built up over time and which now have paralyzed Washington’s political process.
• The average Congressman spends only about half their time in governance – meaning reading and introducing legislation, attending debates, working on committees, and voting. The rest of the time is spent raising money and campaigning for reelection.
• Newt Gingrich when he was Speaker of the House in the 1990s introduced a “pay for play” system. Corporate lobbyists who wanted access to the Republican majority had to pay for it with campaign donations first. Every Republican House member was given a yearly target of donations they had to raise on their own or fall out of favor, and the targets ratcheted upwards for committee chairs and party leaders. Gingrich himself had a multi-million dollar fundraising target. The size of these targets was large enough that not only did they consume enormous time, they could only be raised from corporate lobbyists. Gingrich essentially turned the House over to corporations, in the hopes that the Republicans would raise enough money to become a permanent majority. Unfortunately, the Democrats chose to emulate this system and eventually took over the House, in part by raising the ante. When Nancy Pelosi was Speaker, she inherited and enforced the same pay-for-play system, only by 2004 the amounts involved were staggering – tens of millions of dollars raised yearly for the party from fat-cat donors and corporations.
• Politicians interested in running for president mimicked this pay for play system by engaging in a monetary armaments race. When President Clinton ran for reelection in 1996, he overwhelmed the Republicans by raising an astounding $46 million. Barack Obama won the presidency in 2008 with a campaign fund of $750 million, and is on his way to raising $1 billion for reelection. The exponential increase in these campaign war chests has nothing to do with the rate of inflation or the cost of running for office, but has everything to do with auctioning off access to the White House to the highest bidder. Only wealthy individuals and corporations can play at this league, and therefore only their interests ultimately get satisfied in administration policy.
• Corporations have taken full advantage of this system. During the Bush administration, corporate lobbyists were given unprecedented access to committee mark-up sessions in the Republican-controlled House, which means they were able to introduce and amend legislation as if they had been elected members of the body. Companies also were allowed to appoint their executives to high positions in the administration; this is how the oil and gas industry was able to water down environmental controls over off-shore drilling, which eventually led to BP’s oil rig disaster in the Gulf of Mexico. Pharmaceutical companies obtained lucrative non-compete clauses which prevent Medicare from shopping for lower prices for the drugs used by seniors. The banking and finance industry, of course, was given nearly a trillion dollars in benefits during the 2008 credit crisis, much of this delivered secretly through their captive benefactor, the Federal Reserve Bank.
• Perhaps the most important accomplishment of corporations in this era of pay for play has been their ability to extricate themselves from the tax system. The corporate contribution to tax revenues has fallen to the lowest level since the introduction of a corporate tax rate, and this has been accomplished in one industry after another through tax exemptions, deferrals, and forgiveness schemes. America’s most profitable company – Apple Computers – is a perfect example of how this system works. Apple uses off-shore tax havens for the purpose of declaring revenue to Internal Revenue, thus lowering its effective tax rate to around 3%. Janitors at Apple pay a higher tax rate than the company does. The massive hoard of cash that Apple has built up – around $80 billion – comes courtesy of the American taxpayer, who must make up the loss to the Treasury. Microsoft has now joined this scam as well: Microsoft channels almost all of its earnings, including its US sales, through Singapore, Ireland, and Puerto Rico – all of which are tax havens. This reduces the company’s effective tax rate to 7%, allowing it to “beat” market estimates for earnings, despite a significant fall-off in sales of its basic software products.
• To prevent politicians from turning against their corporate donors, certain safeguards have been introduced into the political system. In the Senate, both parties have taken advantage of what used to be a little-used stalling tactic – the filibuster – which any Senator may employ if he has the stamina to dominate debate for hours on end. In the past two decades the party out of power has learned to collectively impose a filibuster to prevent a vote from coming to the floor, and since it takes 60 votes by the rules to overturn such a filibuster, persistent use of this tool has effectively converted the Senate from a majority rule body to a super-majority rule body. All significant votes now require at least 60 senators to approve passage, which gives the minority virtual veto power over legislation. The consequence is that the Senate is a paralyzed institution, effectively put out of business except for innocuous legislation that everyone can agree upon, or more importantly, legislation that benefits corporations which generously fund the campaigns of both parties (like the finance industry).
• In the House, there is no filibuster mechanism, so it is much harder to control a body that requires only a majority vote for passage. Therefore, corporations have de facto taken away the ability of the current majority in the House – the Republicans – from ever increasing taxes. This is done through the corporation-funded Americans for Tax Reform, run by Grover Norquist, the man who is now recognized even in the mainstream press as having personal veto power over whether the debt ceiling will be raised or taxes will ever go up. Norquist accomplishes this feat by getting all Republican candidates for Congress to sign “The Pledge”, promising never to raise taxes under any circumstances. If he comes across any Republican politician who violates The Pledge, he has large amounts of corporate money at his backing to run a primary opponent against the politician, and his candidate has won in almost all such challenges. The threat to Republican politicians is therefore very real, and they all remember how George H.W. Bush was defeated for reelection after violating his campaign promise on “no new taxes.” Grover Norquist essentially guarantees corporations that their tax rates can only go down, and never up. While it is true that Democrats are not as prone to Norquist’s extortion racket, because they don’t sign The Pledge, Democrats in the House are still subject to withdrawal of corporate donations if they vote the wrong way. Now that corporations can legally run campaign ads of their own, both Democrats and Republicans are loath to go against corporate demands.
Just Try to Get the Debt Ceiling Raised in This Environment
The pantomime of debt ceiling meetings, debates, proposals, and votes, is made almost meaningless by the inability of Congress or the White House to effect any reform of their political system. The system is now designed to provide maximum benefits to the wealthy and to corporations, and to prevent any back-sliding in case the Congress wants to remove these benefits. Significant revenue cannot be raised because Republicans in the House will never countenance an increase in taxes. Real savings cannot be achieved through closing off corporate loopholes because the lobbyists for these corporations will threaten to withdraw campaign donations for the offending Congressmen. Should the White House and the House of Representatives agree on a proposal of spending cuts, it would take a super majority of Senators to approve it.
As a consequence, you get some bizarre outcomes in the debt ceiling debate. If President Obama and the Democrats are going to deliver any meaningful budget cuts, it will have to come from those who are no longer represented in the Congress – namely, The People. This is why Barack Obama is willing to gut Social Security, Medicare, and Medicaid, even though Social Security is self-funded through ongoing tax revenues paid by The People (unlike the wars in Iraq and Afghanistan), and even though Medicare and Medicaid are run more efficiently that private health care systems. The Republicans, of course, have always wanted to gut these ‘welfare” systems, so this is the only grounds upon which all parties can agree to achieve any savings.
What makes this attention on social programs even more absurd is the fact that the increase in the federal deficit since 2000 has been almost entirely due to three things: the Bush tax cuts for the wealthy, the unfunded wars and military expansion (military expenditures have tripled in this time frame), and the bank bailouts of 2008. None of these programs was paid for by new taxes, and it is the borrowing made necessary by these programs that has taken a serious budget deficit problem and turned it into an existential crisis that threatens the US AAA rating. All during this period, with the exception of the economic downturn in 2008-2009, corporate earnings have increased and corporate contributions to the Treasury have decreased.
This is why the Senate has come up with the idea of the “Super Congress” as a means of getting any significant spending cuts through the Congress. The Super Congress will consist of six Republicans and six Democrats selected from both houses, and assigned to work out real budget cuts and tax increases to bring the deficits under control. They will be required to finish their work by the fall of this year, and they are promised that their proposals will be brought before both houses for a simple up or down, majority vote, with no amendments allowed. The Super Congress idea is an admission by the real Congress of its true dysfunctionality. It is a cry of despair from the real Congress, which is willing to subvert the Constitution in order to disenthrall itself from the grip of the wealthy people and corporations who have bought the Congress for themselves.
None of this suggests that Barack Obama is even considering abandoning his servitude to corporate interests. He’s merrily going along from one fundraiser to the next, raising millions of dollars each week from hedge fund managers and corporate lobbyists, so that he can get reelected as a “centrist” and bipartisan deal maker. This is based on his reading of what The People want – an end to the divisiveness in Washington – but Obama is fundamentally misreading the problem in Washington. It isn’t the rancor, name-calling, and petulance that is constantly on display which worries the American people. It is the backroom deals, the hidden bailouts, the tax evasions, the deregulation initiatives, the lack of prosecution for criminal behavior, that is more than frustrating Americans, because the beneficiaries of all this are wealthy people and corporations who have shifted power and money to themselves. Voters want this system overthrown – even the Tea Party voters, who keep searching for Republicans who will finally say no to corporate money.
One Last Chance?
Most people think a last minute deal will be reached. If it is, it will be a band-aid placed on a cancerous tumor. The real problems of raising taxes and cutting expenses will be left to some committee, or to some unspecified future legislation. Or, there will be promises to slow the growth in deficits, but not really to return to the days ten years ago when the deficit was only $400 billion. Since nothing of substance will be done here and now, the rating agencies will have every reason to downgrade US debt.
Financial Armageddon may not ensue from this downgrade – the market may just have to get used to the benchmark “risk free rate” being less than stellar, because there is no alternative in market size and liquidity to US Treasuries. Still, it will be a landmark event – an exclamation point to the closing out of the American Century. Certain names will be plastered all over this debacle: Newt Gingrich, Grover Norquist, George W. Bush, Harry Reid, and Barack Obama. The Democrats have to be included in this list because they acquiesced in the pay to play system, and have never challenged wealthy donors and corporate lobbyists to start contributing to the welfare of the US rather than continually working to subvert it. All of these men are too deep into the system to realize the subservient role they have played, though they must have a niggling sensation that they spent far too much of their time chasing after big donations.
While you are reading this, the debt problem grows. The US will spend $20 billion this year to air condition the tents for its troops in Afghanistan and Iraq. Taxes from wealthy Americans will be hundreds of billions less than they would have been if Barack Obama had let the Bush tax cuts for the wealthy lapse. The interest on the debt continues to compound, even though it is temporarily being kept under control by the Fed’s Zero Interest Rate Policy. This may cease to be effective if the AAA rating is lost. Apple and Microsoft and hundreds of other corporations enjoy record profits yet pay hardly any taxes. Meanwhile, the people who do pay taxes – The People in middle class and poor economic condition – shoulder a greater and greater financial burden as they are all pushed closer and closer to a subsistence existence.
And yet, hardly any politicians tell us the truth – that the middle class and poor are tapped out, and that the only place left to raise the necessary cash here and now to at least stop the deficit from growing are wealthy people and corporations. That’s it – that’s where all the money is, and until the United States finds a political way to tap into that money, its deficits will continue to go up, while its debt rating will continue to go down.
