[From the diaries by susanhu. A wise person pointed out this diary’s brilliant plan to me.]
President Bush will call tonight for an unprecedented federal commitment to rebuild New Orleans and other areas obliterated by Hurricane Katrina, putting the United States on pace to spend more in the next year on the storm’s aftermath than it has over three years on the Iraq war, according to White House and congressional officials.
The president will call on Washington to resist spending money unwisely, but some in his own party are already starting to recoil at a price tag expected to exceed $200 billion — about the cost of the Iraq war and reconstruction efforts. As emergency expenditures soar — with new commitments as high as $2 billion a day — some budget analysts and conservative groups are warning that the Katrina spending has combined with earlier fiscal decisions in ways that will wreak havoc on the government’s finances for years to come.
Bush and Republican congressional leaders, by contrast, are calculating that the U.S. economy can safely absorb a sharp spike in spending and budget deficits, and that the only way to regain public confidence after the stumbling early response to the disaster is to spend whatever it takes to rebuild the region and help Katrina’s victims get back on their feet.
I don’t want to sound unsympathetic to the situation in states hit by Katrina. This is a horrible disaster that begs relief. However, at some point the bill from Republican mismanagement before Katrina will come due. And it is my fear this will be sooner rather than later.
Let’s look at the actual history of treasury receipts under Bush, with information from the Congressional budget Office. First, tax cuts don’t increase receipts. In fact they decrease them. In 2000, individual tax receipts (receipts from individual tax payers) totaled 1.004 trillion dollars. Many on the right will scream that I am using a boom year for comparison, so in 1997 and 1998 tax receipts were 737.5 billion and 828.6 billion respectively. For the years 2001-2004, individual receipts were 994 billion, 858 billion, 794 billion and 809 billion, respectively. Does anybody see a pattern here? When you cut taxes, revenues decrease, in this case by 18% from 2001 – 2004. Well, call me a liberal, but it looks like the laugher curve is wrong. Also note that Bush’s tax receipts for 2004 were lower than Clinton’s in 1998. As another comparison, individual income taxes as a percentage of GDP decreased over the same time from 9.9% to 7%.
In 2001, Bush had a surplus of 128 billion. At the end of 2004, he had a deficit of 412 billion. Fiscal conservatism at its finest.
And the recent surge in Federal Revenues in 2005 is not the result of the laugher curve. As Krugman noted in his colum Unspin the Budget Numbers:
It turns out that all of the upside surprise in tax receipts is coming from two sources. One is tax payments from corporations, up both because last year corporate profits grew much more rapidly than the rest of the economy and because the effective tax rate on corporations went up when a temporary tax break, introduced in 2002, expired. Both are one-time events.
The other source of increased revenue is nonwithheld income taxes – taxes that aren’t deducted from paychecks but are instead paid by people receiving additional, nonsalary income. The bounce in nonwithheld taxes probably reflects mainly capital gains on stocks and real estate, together with bonuses paid in the finance and real estate industries. Again, this revenue boost looks like a temporary blip driven by rising stocks and the housing bubble.”
So, Bush’s little experiment in the laugher curve is a failure. Even though he could have learned that lesson from Reagan’s experience he had to try it again. Fine. It’s done and it’s over.
For those of you who missed the news for the last 3 years, the US has engaged in a voluntary war. This war has cost 200 billion+ with no end in sight. As a result, the budget deficit has once again ballooned.
Simply off the top of my head, Katrina’s cost will increase the Federal deficit to between 400-500 billion. The US cannot afford this amount of debt.
Simply from a fiscal perspective, the US cannot afford to pay for a natural disaster and fight a voluntary war at the same time without bankrupting the US. As a result, the US must choose what to do. We can either fight the war, or rebuild after Katrina.
I think the answer is obvious.
Link
Hey Bonddad….what are you trying to do – confuse us with reason and logic? BTW I totally agree with you.
My fear is that too many rethugs in Congress will not yield for fear of being slimed by Bushco in 2006. Fear of being destroyed by the party is pervasive. Bushco has pushed it down the throats of their own party for a long time.
Based on all your diaries (and Jerome’s diaries) and my own background in finance…we are preparing for a full blown depression in the next 18 months.
Time to adjust tinfoil hat again…getting tight!
But that would just make too much sense, wouldn’t it?
Guess we all need to go to the Arthur Andersen School of Accounting for this administration’s fiscal policy to seem viable, huh?
Actually, I’ve noticed many people are starting to speak up about the financial irresponsbility that BushCo has shown. T
Bush says he takes responsibility and then immediately passes the responsibility on to our children and grandchildren. He is once again using the good credit of the United States to back his folly, incompetence and politics.
I though pyramid schemes were illegal! This man should be imprisoned!
BTW That is an excellent diary. This is so important. Thank You.
I agree with you 100% and I might add that it is time we stop talking about making tax cuts permanent and implementing new tax cuts such as the estate tax as well.
This needs to be made an issue both now and in 2006 during the midterm elections. The congressional Republicans behave like gambling addicts on the 1st of the month with our money and it has to stop.
Where are the insurance companies ??? Why the inside tracks of bush/cheney and fellow gangsters to overpaying jobs. Mercenaries at $350 a day, to protect the rich, at our expense. Still the tax breaks to the rich.. Let the rich pay for their security, let the rich pay their share of the taxes/expenses. End the bloody war, investigate where the money has gone, in the Middle East, as well as in New Orleans. Investigate where the Iraqi oil is going as well as the money generated from the Iraqi oil. I am sure that it will flow to bush/cheney and their crime family.. Looking at and bickering about details($200 billion is a detail with this gang). Look at what the bush/cheney crime family is doing to America’s future, America’s reputation, and America’s well-being. America’s children deserve at least that…
in the best of cases, will grow up with the memory of watching kids their age roast slowly on American expressways.
That’s really about all there is to say about the future.
Wow. Bob Kur on MSNBC just gave this poll result: Which do you see as the greater priority?
Rebuilding New Orleans/etc. — 60%
Rebuilding Iraq — 5%
Five percent.
It sounds to me this would be a great issue for the Democrats.
some budget analysts and conservative groups are warning that the Katrina spending has combined with earlier fiscal decisions in ways that will wreak havoc on the government’s finances for years to come.
The spin:
Katrina has caused all of our deficit problems.
The truth:
Unconscionable budget decisons in the last five years concerning a “war of choice”, and “taxing the super-rich” have made Katrina a major liability beyond what the economy is capable of absorbing.
There is a long and short to every story. This is the short story of the bush admin. “long-term planning” in a reality based world considering he is running the economy.
Bonddad… Do you have any reality based suggestions for our personal investments? You get it, and you make it all very clear. (lol JK… kind-of, sort-of… I wouldn’t want to make you responsible for all of our financial disasters! lol)
I won’t feel ashamed if you smack me for being wrong… That is 2 posts in a row where I think I may have learned something.
Keep it simple and conservative.
I would recommend a mutual fund that is a growth and income fund. About half bonds, half stocks.
.
Comment added to diary recently :: Insanity ◊ by IdiotSavant
Visiting the Gulf Coast, Corporate VP CEO Dick Cheney, understood project New World Order hit a broken levee in New Orleans. The total economic cost spread over many years will be thrice the cost of the Iraq Adventure, estimates now between $200-300bn.
The Republicans may call the administration on the budget deficit, lack of money may prevent a march on Tehran and thereby the launch of mini-nukes (Jan. 20, 2001).
Time for new job as corporate CEO?
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Unless this is a joke everybody gets, it’s spelled “the Laffer Curve.”
Congressional Dems are in the position of demanding that Bush say how he’s going to pay for this spending, and propose rolling back the highest bracket tax cuts.
But a vital issue here is how the money is being spent. So far it’s clear that it’s going to the same corporations that have done such a swell job reconstructing Iraq that Baghdad is like a slow motion New Orleans–inadequate power, water and sewage services, all better under Saddam.
Plus the Bush move of lowering wages in the area to increase corporate profits. He’s got Black Water mercenaries patrolling an empty city at high wages, again a direct payment to his cronies.
This is a big issue in the black community, because they legitimately fear that this is ‘urban redevelopment’ redux, black community aka slum clearance, forcing black families out of New Orleans by gentrifying and pricing them out, transforming N.O. into a rich republican enclave.
These are the immediate issues that need to be raised, immediately after the speech.
I deliberately mis-spell his name becuase it’s such a damn joke.
I seriously think we should give some thought to letting inflation increase a little. This would hurt the creditors more than the debtors and — guess what — most working class folks ain’t creditors.
apart from that:
I just want to pass along some good news, emanating in part from the Republicans, believe it or not. This was recentlyl reported in The Bond Buyer:
“The Senate bill was introduced Tuesday night by Finance Committee chairman Charles Grassley, R-Iowa, and Sen. Max Baucus of Montana, the ranking Democrat on the panel.
“Grassley and Baucus want Congress — for three years — to ease restrictions on the use of mortgage revenue bond proceeds, which fund below-market interest rate mortgages for qualified first-time homeowners.
“Their bill would suspend the first-time homeowner requirement and relax the purchase price and income limitations so that all homeowners in the hurricane-devastated disaster area could benefit from the program.
“It would also increase to $150,000 from $15,000 the dollar amount of qualified home-improvement loans issuers can give to homeowners who face staggering home repair costs. States can use mortgage revenue bond proceeds to fund the loans.”
It’s clear that thousands of home owners will be needing substantial relief in days to come or else they will be forced to default, with foreclosure not far behind. It’s great to see an effort to provide help to these people through the capital markets. In fact, I would like to see the Federal government go beyond this effort to something more spectacular, like Re-Building Bonds, which would be tax exempt, and which would pay very little interest, the proceeds of which would be used solely to re-build New Orleans. The payoff to the investor would be the satisfaction of helping to save a great American city, rather than pecuniary gain.
Also, I have pointed out before that there are about 50,000 homeowners whose loans are in the hands of securitization trusts, which are not in a position to extend much if anything in the way of lenience to those homeowners. Those trusts are set up in such a way that, as soon as cash flows stop flowing, or slow down, the deal crashes. While the individual deals would then be worked out in an orderly way, it would be a disaster for any transaction sponsor for any of its deals to meet this end. What this means is that those homeowners need help making their payments because they can’t expect the securitizers to provide any breathing room. Total principal is about $5billion for loans on properties in the affected counties in Louisiana, with monthly payments at around $50 million, based on data published by Wachovia.