Here is our latest installment of the Daily Austerity Watch, 24/7 Wall St.’s summary of the major news of efforts by governments to bring their fiscal houses in order.
U.S. — Tired of austerity? Fed up with politicians arguing over who can cut government spending the deepest? Frances Fox Piven of the City University of New York and Princeton University’s Cornell West feel your pain. The headline in the opinion piece they penned for The Guardian sums up their feelings succinctly: Just say no to austerity.
Today, Americans are working harder and earning less, while corporate profits soar. Homeowners, consumers and students are seeing their wealth being stripped away by banks. Our government plunges into debt waging trillion-dollar wars. Meanwhile, our infrastructure erodes, climate change proceeds unchecked, our schools, daycare centres, senior facilities, clinics, parks and emergency services are all starved while corporations and elites get billions in tax breaks!
While Fox Piven and West may be technically correct, they are missing the larger point. The budget deficit is expected to hit $1.5 trillion, or about 11% of GDP, this year. That’s the highest it’s been since World War II. Next year, the red ink level will drop to $1.1 trillion. In 2008, it was 3.2% of GDP, according to the Congressional Budget Office. No matter how it’s measured, the deficit is a problem.
Taxpayers can either make painful choices now or make very painful choices later. Members of Congress, though, need to be careful not to cut too much or else the anemic economic recovery that is underway may be stifled. Ratcheting up taxes too high may drive businesses away. Corporations are sitting on mountains of cash, spending billions on acquisitions, dividends and stock buybacks. They argue that the uncertain business climate — code word for tax rates that they say are too high — makes them shy away from adding significantly to their workforces. That argument would hold more currency is most U.S. companies paid the statutory tax rate of 35%. Many pay much less than that to Uncle Sam. In fact, the New York Times noted recently how General Electric paid zero to the IRS in 2010.
Fox Piven are teach-ins at college campuses across the country on April 5 called “Debt, Austerity, Corporate Greed and What You Can Do About It.” One idea may be to let the Bush Tax Cuts expire. The liberal think tank the Center on BUdget and Policy Priorities argues that doing so would cut the deficit in half by 2021. GIven the uproar over the last extension, odds of that happening are slim. In fact, the answer to the question posed by the academics may be “depressingly little.”
GDP– In a move that’s as surprising as the sun rise, the IMF today lowered its GDP forecast for the US and Japan. It even noted a slowing in China. Zero Hedge has the following data:
- US GDP growth has been cut to 2.8% from 3.0% in 2011; while 2012 (which will be cut at a later date) was raised to 2.9% from 2.7%.
- Japan 2011 GDP cut to 1.4% from 1.6%, 2012 to 2.1% from 1.8% (same as above)
- Euro zone 2011 GDP raised to 1.6% from 1.5% in 2011; 2012 raised to 1.8% from 1.7%
- China 2011 GDP remains at 9.6%, slowing to 9.5% in 2012..
The U.S. forecast underscores the weakness of the recovery as the housing market tumbles into an abyss. Besides natural disasters, Japan faces a mountain of debt. Given what has happened in Ireland and Portugal, the Euro zone projection seem optimistic. China, for its part, faces huge challenges with inflation which may cause its growth to falter.
California: Governor Jerry Brown has called off budget negotiations with Republicans in the state Legislature. The GOP is balking at Brown’s plan to make $14 billion in cuts and temporarily extend some taxes to close the state’s mammoth $27 billion deficit. As Bloomberg News notes, the veteran politician is being stymied by the same political paralysis in Sacramento that stymied his predecessor Arnold Schwarzenegger. The former action movie star left California with the worst credit rating of any US state.
Brown, who promised after his November election to make state government “more responsive” and “coherent,” was thwarted by partisan lawmakers entrenched in gerrymandered districts, the need for a two-thirds majority vote to raise revenue, a tax structure vulnerable to economic cycles and constitutional amendments that plucked budgeting power from elected officials.
Many other states are in the same boat.
–Jonathan Berr
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