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Nightmare on Wall Street? Are Stock Buybacks Creating Another ‘Financial Bubble?’

An American flag festooned with dollar bills and corporate logos flies in front of the Supreme Court during oral arguments in the case of McCutcheon v. Federal Election Commission. 
Image by JayMallin.com
An American flag festooned with dollar bills and corporate logos flies in front of the Supreme Court during oral arguments in the case of McCutcheon v. Federal Election Commission.  Image by JayMallin.com

Image by JayMallin.com

Some blog posts are easy to forget. But the one I wrote last week is beginning to give me nightmares.

Here’s why: the stock market keeps hitting record highs. But the so-called “economic recovery” – which started in June 2009 – is just beginning to “trickle down” to us average Americans.

And oh, such a sloooooow trickle! “Although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011. …Median income in February 2014 [was only] 3.8 percent higher than in August 2011.”

And we’re not anywhere near “recovered” from the damage caused by the last two recessions. “The February 2014 median was [still] 6.2 percent lower than the median of $56,586 in January 2000.”

So in last week’s blog post, I took a look at the research UMass Professor Bill Lazonick and his team have done, about how top US corporations have been distributing their net income to shareholders rather than reinvesting money in their business (or workers).

What Professor Lazonick found: since 2004, the surveyed companies have returned 86% of net income to stockholders through dividends and stock buybacks. In 2013, those companies spent an average of $945 million just buying back their own stock. Repeat: $945 million is the average. That’s per company. In one year.

So I took a closer look at that, using a couple of companies as case studies. I keep hoping that I’m completely wrong. I’m not an economist, I’m not an expert. I’m just a blogger who looks at things from my own personal perspective.  And when I looked, here’s what I found:

FedEx:

  • CEO Fred Smith owns more than 15 million shares of FedEx (not counting shares held by his wife, his family holding company or his retirement plan.)
  • Last October, FedEx announced plans to buy back 32 million shares – more than 10% of its stock.
  • FedEx borrowed $2 billion to help pay for that stock repurchasing program. Those bonds run from 10 to 30 years.
  • In the past year, FedEx stock has gained over 44 percent. That translates into a huge increase in net worth for Mr. Smith… somewhere between a half-billion dollars (as of my post last week) and $600 million (the stock price kept going up). Yeah… FedEx borrowed $2 billion… and its CEO personally benefited by a half-billion-plus.
  • But maybe there’s a reason why FedEx stock soared by 44%? Let’s see… according to the International Business Times, its ground shipping business grew by 13% and it is trimming employee benefit costs by 13%; and so the overall corporate profits grew by 24%.
  • Corporate profits grew by 24%… but the stock price grew by 44% (benefiting “company executives who receive stock-based compensation”).
  • But of course there are fewer shares of stock now than there were last year, because of the buyback program. So I looked at the company’s “market cap” – or, the total value of all the outstanding shares. And that also grew: from $39.03 billion when the stock buyback was announced last October… to $50.35 billion as of Friday. So the market cap grew by $11.32 billion – or about 29% – during roughly the same time that profits grew by only 24%.
  • Let me recap: The company grew its business a bit, while at the same time cutting employee costs. It borrowed to buy back stock, enriching its CEO. And Wall Street rewarded this behavior. Stock value grew – at a much faster rate than the company’s profits were rising.

wall_streetThat difference between 24% growth in profits and 29% growth in market value? Isn’t that just a “Wall Street bonus” for taking part in this borrow-and-buyback scheme?  But why is Wall Street is rewarding FedEx for moving toward a “loot the company” model of business behavior?

It’s not just FedEx.

One analysis, from June 2014:

Since the end of 2012, using the DOW (NYSEARCA:DIA) companies as a large cap company market proxy, share buybacks in dollar volume have exceeded the actual level of after tax profits recorded by the 30 companies in the index. What this means is that somewhere in the DOW there must be more than a handful of companies, which are either borrowing money or deferring capital expenditures in a potentially harmful manner for the sole purpose of buying their shares back in the market to boost share price.

From last week’s Wall Street Journal:

Companies are buying their own shares at the briskest clip since the financial crisis, helping fuel a stock rally amid a broad trading slowdown.

Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008.

No, it’s not just FedEx.

Cisco:

Back in February, Cisco announced an $8 billion bond issue “to help finance stock buybacks after the shares lost almost 6 percent over six months.”

  • Cisco CEO John Chambers owns about 2 million shares of Cisco stock.
  • Cisco stock was trading at $22.12 when that bond issue/buyback was announced. Now, it’s trading at $25.20. Do the math: that’s about a 14% increase in per-share price; and more than a $6 million increase in Mr. Chambers’ net worth.
  • Cisco’s market cap was $113.95 billion when the bond issue/buyback was announced.   Now, it’s $128.7 billion. Do the math: that’s about a 13% increase in Wall Street’s assessment of the company’s total value.
  • But what’s going on with the actual company?   Last month, Cisco released an earnings statement “that illustrated its troubles as one of the tech industry’s giants competing in a rapidly changing environment.”  Profits are down, compared to last year. And it is planning to eliminate 6,000 jobs.
  • Let me recap: Profits are down, layoffs are pending. But the company borrowed $billions to buy back stock, enriching its CEO and other executives.   And Wall Street rewarded this behavior.

Want to know what worries me most about Cisco? It looks like Cisco’s CEO is selling his stock. According to the filings, he owns a lot less Cisco stock now than he did when the bond issue/buyback was announced. Doesn’t he have any faith in his corporation’s long-term prospects?

It’s not just Cisco.

Bloomberg News:

American companies have seldom spent more money than they are now buying back shares. The same can’t be said for their executives. … While companies are pouring money into their own stock because they have nothing better to do with it, officers and directors aren’t… Insiders buying stock have dropped 8 percent from a year ago, poised for the fewest in more than a decade.

wall street bullAnd even worse? That perspective that companies “have nothing better to do” with their money than buy back stock.

As of a couple of weeks ago:

In total, US companies have announced USD309bn worth of share repurchases year-to-date, up from USD259bn for the same period a year ago, according to Thomson Reuters data.

Do the math. Nine months of stock buybacks equals about 6 million median-wage American jobs.

Let me rephrase that.

The money that US corporations are spending buying back their own stock “because they have nothing better to do with it” could give a $52,000-a-year job to every single unemployed American.

Instead… Cisco’s cutting 6,000 jobs. FedEx is cutting employee benefits. And who knows what all the other companies in Professor Lazonick’s survey are doing?

Here’s the thing: buying back stock doesn’t add any intrinsic value to a company. It’s not a new product line, it’s not a new factory, it’s not any kind of investment in the company’s future. All it does is concentrate the stock ownership. Same everything else – just fewer shares of stock. (Sort of like ultra-concentrated dish soap… same basic thing, just in a smaller bottle.)

So, aren’t these rising market caps at least somewhat artificial? Why should a company be worth more, just because it has fewer shares of stock?

Cisco may have declining profits… but its market cap is growing. FedEx may be growing, but its market cap is growing faster. Why?

Here’s the other thing: To accomplish this concentration of stock ownership… corporations are bonding untold billions of dollars. (Yes, that’s another thing I couldn’t find tracked anywhere.)

So yeah, they’re borrowing against the future… to improve stock prices today.

soap bubbleAnd Wall Street is encouraging this.

There’s a technical term for those sorts of artificial increases: they’re called “bubbles.”

And that’s why I’m starting to have nightmares.

I’m wondering when this latest Wall Street bubble is going to burst.

Why the Economy Doesn’t Work for the 99%: Massive Payouts to Corporate Stockholders

http://2bgr8stock.deviantart.com/art/Money-Cash6-117258936 By 2bgr8STOCK
We Are the 99 Percent photo by Gawain Jones via Flikr Creative Commons license

Photo by Gawain Jones via Flikr Creative Commons License

Wondering what happened to America’s Middle Class? UMass Lowell professor William Lazonick has some numbers for you.

  • Since 2004, top US corporations have paid 86% of their net income to stockholders through dividends and stock buybacks.

Why that’s important: Money paid out to stockholders is not available for long-term growth investments such as R&D, opening new facilities, updating equipment or hiring new employees. It’s also not being used to give raises to current employees. But I’m digressing. Back to Professor Lazonick:

  • And 86% is just the average return to stockholders. Professor Lazonick names 15 corporations that spent more than their net income on dividends and stock buybacks, including: Time Warner (280%); DirecTV (192%); Hewlett-Packard (168%); Pfizer (137%) and Home Depot (134%).

Wonder how corporations can pay more out to stockholders than they receive in net income? Here’s one possible answer: they can borrow the money. From May 20, 2014 Time Warner Inc. Prices $2.0 Billion Debt Offering: “The net proceeds from the issuance of the notes and debentures will be used for general corporate purposes, including share repurchases.” (Remind you of…say, What Mitt Romney Taught Us About America’s Economy?)

But I’m digressing again. Back to Professor Lazonick, again:

  • The top corporations kept paying dividends through the recent recession, with a barely-noticeable drop between 2008 and 2010. “[T]hrough boom and bust, dividends were stable, and on the rise from 2010. In 2004 mean dividends were $349 million; in 2013 double that amount at $685 million.”

Repeating that: an average of $685 million in dividends per company. Paid out to stockholders, not reinvested in the business. Just in 2013.

Wondering what effect that has on America’s economy? Here’s one example, using a company that paid out much less than $685 million in dividends:

http://2bgr8stock.deviantart.com/art/Money-Cash6-117258936 By 2bgr8STOCKLast year, we estimated what FedEx CEO Fred Smith received – personally – in dividend income: “According to SEC filings, he owns about 15 million shares of the company.  Last year, FedEx paid out a total of 55 cents per share in dividends.  Do the math… and it looks like Mr. Smith received about $8.5 million in dividends (not counting dividends to his family holding company, his wife, or his retirement fund).” Also last year, we estimated what that meant in the larger scheme of things: “his 15 million shares in the company represent only a fraction of the outstanding stock. For Mr. Smith to receive $8.5 million in dividends, personally, the company has to pay out well over $100 million in total dividends – money that could have been invested in new hires, or new planes, or new facilities (or improved employee benefits).”

Now, compare that $8.5 million that we calculated he received as dividends with his $13.7 million “compensation package” that was reported about the same time.

Hey, maybe we did the math wrong. Maybe Mr. Smith didn’t actually get two-thirds again as much in dividends as he got in official “compensation.” It’s really, really hard to track dividend payments to corporate CEOs – that information is not reported anywhere that we have been able to find.

But doesn’t it seem possible that Mr. Smith’s decisions about how FedEx treats its workers… could perhaps be influenced by the fact that he gets a substantial share of the dividends paid out to stockholders? Read FedEx And The Real Reason Why There’s No Jobs: Cut Back On Worker Hours And Raise Profits. Also remember that a federal appeals court just ruled that FedEx improperly classified 2,300 California drivers as “independent contractors” rather than “employees”… to the tune of “hundreds of millions of dollars.”

BTW, it’s not just difficult to track dividend payments to CEOs… it’s also hard to track the effect of stock repurchasing programs on CEOs.

Going back to Mr. Smith… Late last year, FedEx announced plans to buy back up to 32 million shares – or, about 10% of outstanding stock. Since then, the market price of its stock has risen by about $35 a share. Multiply $35 per share by the roughly 15 million shares Mr. Smith owns… and you’re talking some serious numbers.

Not to repeat myself (again), but: that type of information isn’t tracked anywhere. At least, not anywhere we could find.

Going back to Professor Lazonick:

  • The corporations in his survey spent 51% of net income on stock buybacks.

Yep, must be lookin’ real rosy up there in the corporate offices. Extrapolating from our FedEx example, can you imagine how much all those different stock buybacks have enriched America’s CEOs?

EGTRRA signingAnd as near as I can tell, it’s going to keep lookin’ rosy in corporate offices as long as our federal tax system encourages this sort of thing. Ever since the Bush tax cuts, investment income has been taxed at a much lower rate than wage income. Are we really surprised that CEOs are taking more compensation in stock options and awards, rather than traditional wages?

 – – – – – – – – – – – -

Meanwhile, yesterday’s New York Times hosted a “Room for Debate” on the policy implications of Professor Lazonick’s research.

Want to know how deeply ingrained the “No New Taxes” ceiling has become, in our public discourse?

Not a single policy expert quoted in that “debate” even suggested that America should return to taxing investment income at the same rate as wages.

 – – – – – – – – – – – -

#dejavu

My “Why the Economy Doesn’t Work for the 99%” post from last year is available here.

Proving Once Again That Tax Cuts For The Wealthy “Job Creators” Do Not Work, S&P Lowers Kansas’s Credit Rating

"Kansas Apologizes" by David Shankbone via Wikimedia Commons
"Kansas Apologizes" by David Shankbone via Wikimedia Commons

Photo from October 30, 2010 “Rally to Restore Sanity” – by David Shankbone via Wikimedia Commons

For decades, the right-wing has held fast to its belief that tax cuts can fix the economy and end government deficits.

Nevermind that the idea — cutting taxes would somehow increase government revenues? — never made much sense.

They’ve kept the faith, despite all evidence to the contrary.

Myself, I think it’s long past time for the right wing to give up on this theory. I mean: at some point, shouldn’t people be able to accept the evidence, even if it goes against their beliefs?

I mean, even Republican leaders eventually gave up on it.

CBPP_effects_of_KS_tax_cutsBut two years ago, the Tea Partiers down in Kansas decided to try, try again… and Governor Sam Brownback signed “one of the largest tax cut bills in Kansas history.”

Even though many Republicans in the state legislature opposed it. (Republican Senate President Steve Morris told the press: “It is not good public policy.” He also called the tax plan backed by the tea party “very reckless.”)

Since then, there has been no evidence of any economic boom. “Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole. The earnings and incomes of Kansans have performed slightly worse than the U.S. as a whole as well.” (Read more here.)

And yesterday, the chickens came home to roost. Standard and Poor’s lowered the state’s credit rating, because of the tax cuts.

“The downgrades reflect our view of a structurally unbalanced budget, following state income tax cuts that have not been matched with offsetting ongoing expenditure cuts in the fiscal 2015 budget,” said Standard & Poor’s credit analyst David Hitchcock in a release.

The rating agency gave the state a “negative” outlook on both ratings and projects that the state will face serious budget woes by the end of fiscal year 2015.

But Brownback still didn’t seem to get the message. “We need jobs and we have proven the way to that is through lower taxes,” he told the press – even after the ratings downgrade.

State Representative Jim Ward: “When presented concrete evidence of a fiscal crisis … he denies it exists. He blames the people who bring the data. You cannot live in a world where you reject all information that doesn’t feed into your ideology.”

Except… it looks like some people can.

“Let Them Eat Cat Food”: The Truth Behind The GOP’s Ten Year Push To Cut Social Security

marie antoinette

marie antoinetteAs the latest GOP-caused national crisis begins to coalesce around the Tea Party’s demand for Social Security cuts… here are some facts worth remembering:

  1. Even though President Obama included chained-CPI in his FY14 budget proposal, it wasn’t his ideaChained-CPI – which incrementally reduces Social Security benefits – was first proposed in 2003 by then-Federal Reserve Board Chairman Alan Greenspan as a way of cutting the federal budget deficit.  (Read Greenspan’s testimony to Congress here.)
  2. Almost exactly a year later, Greenspan was back before Congress, arguing that “Congress should make President Bush’s tax cuts permanent and cover the $1 trillion price by trimming future benefits in Social Security and other entitlement programs.”
  3. The American public has never supported the Bush tax cuts. Just months after the first round of tax cuts was passed, in 2001, a Washington Post poll found that 57% of Americans wanted to roll back the tax cuts in order to preserve the federal budget surplus. (Yes, we had a surplus, back then.)
  4. The Bush tax cuts primarily benefited the folks at the top of the food chain.  The top 1% received more tax benefits than the bottom 80% of taxpayers combined.
  5. Even Bush’s own economists disavowed the idea that lower taxes improve the economy.  Back in 2006: “Even under favorable assumptions, making the tax cuts permanent would have a barely perceptible impact on the economy.  Under more realistic assumptions…the tax cuts could even hurt the economy.”

So here we are, 12 years after the public said “repeal the tax cuts”… 10 years after Greenspan suggested using chained-CPI to reduce the budget deficit… nine years after Greenspan explicitly told Congress to choose between tax cuts and Social Security… seven years after Bush economists reported that his tax cuts would likely hurt the economy…

..and there’s a faction of the Congress insisting on even more tax cuts… and Social Security cuts… or they’re going to blow the economy to smithereens.

As you’re watching events unfold in Washington, over the next few weeks, remember this fact, too:

By 2010, even Alan Greenspan thought the Bush tax cuts should go away.

—–

Got the aspirin bottle handy?

In his 2003 testimony to Congress, Greenspan also suggested a third path: increased immigration.  “Short of a major increase in immigration, economic growth cannot be safely counted upon to eliminate deficits and the difficult choices that will be required to restore fiscal discipline.”

(But it turns out that that same small faction in Congress doesn’t like immigrants, either.)

—–

Don’t know what the chained-CPI brouhaha is all about?  Read the latest report from the National Committee for the Preservation of Social Security and Medicare here.

Here’s how I look at it:

Chained-CPI is a vivid example of the “race to the bottom” that unions have been trying to stop for years.  It assumes that when personal finances are tight, consumers will alter their purchasing behavior and buy cheaper products.  Then, since they’re spending less, Congress figures they’ll need less money in Social Security benefits.

It’s the image of a senior citizen, trying to make ends meet, who gives up buying beef because she can only afford chicken… and then her Social Security benefit drops, so she gives up chicken and buys tuna… but with the next benefit drop, she can’t afford tuna anymore.

It’s the cat food thing.

(And BTW… given that about 12% of our nation’s jobs are in retail… I gotta wonder about the idea of “solving” a federal fiscal crisis by slowly strangling consumer spending.)

Social Security: 78 years (and counting)

Social_Security_45th_Anniversary

Seventy-eight years ago today, President Franklin Roosevelt signed the Social Security Act with this statement:

“Today a hope of many years’ standing is in large part fulfilled. The civilization of the past hundred years, with its startling industrial changes, has tended more and more to make life insecure. Young people have come to wonder what would be their lot when they came to old age. The man with a job has wondered how long the job would last.”

That was almost eight decades ago. Now, almost 90% of Americans age 65 or older receive Social Security. Almost half of those people would be living in poverty, if they did not receive Social Security benefits.

“This law, too, represents a cornerstone in a structure which is being built but is by no means complete. It is a structure intended to lessen the force of possible future depressions. It will act as a protection to future Administrations against the necessity of going deeply into debt to furnish relief to the needy. The law will flatten out the peaks and valleys of deflation and of inflation. It is, in short, a law that will take care of human needs and at the same time provide for the United States an economic structure of vastly greater soundness.”

Today, the Social Security Trust Fund has $2.7 trillion in assets. The “Old Age and Survivors Insurance” program is expected to have an annual surplus at least through 2020 (and only after 2020 would it need to dip into the Trust Fund to pay benefits).

The irony here is that President Roosevelt expected Social Security to “lessen the force of possible future depressions” and prevent the federal government from having to go “deeply into debt to furnish relief to the needy” during economic crises.

But instead, the program was used to help the federal government absorb the cost of the Bush tax cuts.

Today, we are at the decision-making point that Alan Greenspan predicted 10 years ago: either the Bush tax cuts need to (finally) end, or the government is going to have to “cover the $1 trillion price [of the tax cuts] by trimming future benefits in Social Security and other entitlement programs.”

Today, the Social Security program is under attack like never before. (Watch for my next post, about the GOP’s revived “Penny Plan”.)

And President Roosevelt’s assumption that the federal government would go “deeply into debt to furnish relief to the needy” during “possible future depressions”?

Looks to me like that’s just history.

————

Really worth reading, if you have a few more minutes: Tax attorney Paula Singer’s column “Social Security is a model, not a failure, for Washington budgetmaking.”

Why the economy doesn’t work for the 99%

EGTRRA signing

Today’s New York Times has a really good picture of what’s happened to America’s economy over the past 50 years.

Please take a few minutes to look at it, and pay particular attention to what’s happened since the Bush tax cuts started going into effect in 2001.

  • Corporate profits are at their highest level ever.  After-tax corporate profits were 5% when the Bush tax cuts started taking effect — now they’re at 9.7%.
  • Wages are at their lowest level level ever.  When the Bush tax cuts started taking effect, 46.7% of the gross domestic product was paid to workers as wages — now it’s 42.6%.
  • Corporate taxes are at almost-record lows.  Corporations paid 30% of their profits as taxes, when the Bush tax cuts started taking effect — now they pay 21.6%.
  • Personal taxes have also dropped.  Taking all taxpayers together (the 1% as well as the rest of us), individuals paid 17.8% of their incomes as taxes when the Bush tax cuts started taking effect — now, it’s 14.1%.

Remember, the Bush tax cuts were supposed to be temporary.  They were supposed to “stimulate the economy” and then expire in 2011.

Instead, the Republicans in Congress have used one fiscal crisis after another to keep most of those tax cuts in place.

Top Tax Rates 1952-2008And now they’re talking as if those Bush-era tax rates are a ceiling, not a floor.  (Read “Corporate Tax Cuts are almost twice the Sequester cuts” here.  Read about the $161 billion annual cost of the dividend and capital gains tax cuts here.)

Republicans in Congress keep agitating about the federal debt — but they’re not willing to raise revenues by returning to historical tax levels.  No, the GOP keeps insisting that the only way to address the debt is by cutting “entitlements”.

Let’s use real words, here, so everyone knows what the choice comes down to.  Translated from GOP-speak, “entitlements” are Social Security, Medicare and Medicaid.  (Remember, you have paid into the Social Security and Medicare trust funds with every paycheck, for as long as you’ve been working.)

So here’s the choice:

  1. Congress can continue to let the federal debt grow.
  2. Congress can return taxes to historical levels.
  3. Congress can cut Social Security, Medicare and Medicaid.

Congress is going to be making this choice over the next two and a half months.  The current federal budget expires on September 30th — about the same time that the federal government will hit the debt limit (again).

Go back and look at those New York Times “what happened to the economy” charts again.

Don’t you think it’s time to finally end the Bush tax cuts?

 

How many times can the Republicans count the same money toward the budget?

Paul_Ryan
  1. Back in 2001, the Bush Tax Cuts were supposed to be temporary. All the old tax laws were supposed to kick back in, starting in 2011. The fact that all those “old taxes” were going to come back into effect was what made the tax cuts “affordable”, back when Alan Greenspan was doing the math.
  2. Fast-forward to January 2013, as the federal government goes over the Fiscal Cliff. The Republicans finally agreed to some “new taxes” – even though the “new taxes” were less than one-third of the “old taxes” which had been “temporarily suspended” by the Bush tax cuts. (The 10-year cost of the Bush tax cuts was $2.2 trillion. The Fiscal Cliff deal was $617 billion over 10 years.)
  3. Now it’s March. House Budget Committee Chairman Paul Ryan just released his budget proposal. And gosh, there’s that money again — this time as “budgetary savings”. Here’s what The Hill had to say:

The Ryan budget counts the $600 billion in new tax revenue raised under the January “fiscal cliff” deal as budgetary savings. Ryan also counts hundreds of billions in additional revenue being raised due to rosier economic growth projections…

But wait. There’s more:

The budget would also cut the top individual tax rate from 39.6 to 25 percent as part of an overhaul of the tax code that would eliminate breaks within the system. Like last year’s budget, the overhaul would leave two remaining rates at 10 and 25 percent.

Are the Republicans still trying to increase tax revenues by cutting taxes on the rich?

Confused? Me too.

But here’s the most confusing thing. Ryan describes this as – direct quote, here – “A budget that addresses America’s needs.”

In order to address America’s needs, Ryan proposes to:

  • cut Medicare, Medicaid and other health care spending by $2.7 trillion over 10 years;
  • cut an additional $1 trillion from “other programs” including food stamps, student loans and federal employee pensions; and
  • add $500 billion to the Pentagon’s budget.

So… apparently, Paul Ryan thinks America needs a budget that increases spending on military contractors while cutting spending on actual citizens.

Meanwhile, around this great country of ours…

Sequestration cuts mean that 600,000 young children from low-income families are losing the free milk, fruits and vegetables they had been receiving through a U.S. government nutrition program.

It’s Lent, Rep. Ryan. Been to church lately?

Where your treasure is, there your heart will be also.”

Military contractors? or hungry kids? Where’s your tax money going?

 

The Action to urge lame ducks Bass, Guinta to get back to work

TheAction

Here is your chance to encourage your Congressional Representatives to get back to work and the Bush Tax Cuts.

Activists working with The Action, a joint project of Granite State Progress and the New Hampshire Citizens Alliance for Action, will demonstrate outside the Concord office of lame duck Rep. Charlie Bass and the Manchester office of lame duck Rep. Frank Guinta tomorrow, Friday the 28th, to demand that the House get back to work to stop the country from going over the fiscal cliff and protect the middle class by maintaining the current tax rates for 98% of Americans and 97% of small businesses.

The House, including lame ducks Bass and Guinta, remain on vacation while the Senate and Pres. Obama have returned to DC to try to find a solution to the on-going uncertainty created by the so-called ‘fiscal cliff.’ Activists from the Action will be urging Bass and Guinta to get back to work and help the president and Senate find a solution.  After the failure of Speaker Boehner’s ‘Plan B,’ the GOP leadership of the House has failed to offer any solutions while the Senate passed a bill over the summer to protect the middle-class. Speaker Boehner has refused to bring this bill to a vote.

The event will include a short speaking program and rally, followed by the building of snowmen to hold signs outside of the offices long after the action ends.

Who:             Activists with The Action, a joint project of NH Citizens’ Alliance for Action and Granite State Progress 

What:            Demonstration to urge Bass and Guinta back to work on fiscal cliff 

When:            Friday December 28th 12:00 noon  

Where:           Office of Congressman Bass, 114 North Main Street, Concord

Office of Congressman Guinta, 33 Lowell Street, Manchester

According to Bush Economists: His Tax Cuts Don’t Really Improve the Economy

best case scenario

Another thing to remember, as you’re watching the Fiscal Cliff negotiations:

Back in 2006, President George Bush asked the US Treasury Department to analyze what would happen to the economy if his tax cuts were made permanent.  Treasury economists conducted a “dynamic analysis” of the tax cuts, which was clearly intended to provide a political justification for making the tax cuts permanent.

best case scenario for economic impacts of Bush Tax Cuts

This is the Treasury’s “best case” scenario, which
is based on extremely optimistic assumptions.
Source of chart: Center on Budget and Policy Priorities.

But here’s what they found, instead:

even under favorable assumptions, making the tax cuts permanent would have a barely perceptible impact on the economy.  Under more realistic assumptions, the Treasury study finds that the tax cuts could even hurt the economy. In addition, the study casts doubt on claims that the tax cuts are responsible for much of the recent growth in investment and jobs.  It finds that making the tax cuts permanent would lead initially to lower levels of investment, and would result over the longer term in lower levels of employment (i.e., in fewer jobs).

What ?!?

The Treasury study finds that making the tax cuts permanent would reduce long-run labor supply (i.e., the number of people working and the number of hours they work) by 0.3 percent.

Three-tenths of one percent in today’s labor market translates into about 468,000 jobs.

If we end the Bush tax cuts, will those jobs come back?

The Magical Math of Boehner’s Congress: tax cuts don’t ‘cost’ anything

House Speaker John Boehner

House Speaker John Boehner
Another thing to remember, as you’re watching the Fiscal Cliff standoff:

When John Boehner was first elected Speaker of the House of Representatives, he changed the Rules.

Yes, the actual Rules that the House uses to structure debate on pending legislation.

One of those changes tells you a lot about Boehner’s priorities.

Boehner decreed that the House would not consider any additional federal spending without an identified “offset”.  For example, in order to increase spending on Medicaid, the House would have to “offset” that spending through cuts to other programs (for example, by cutting Food Stamps).

chart of factors contributing to federal debt

BUT – Boehner decided that tax cuts would be exempt from this. Under Boehner’s Rules, Congress could pass any tax cut proposal without having to “offset” – or even consider! – the revenue cost of the legislation.  [And yes, the Bush tax cuts are specifically mentioned, and specifically exempted from any Congressional consideration of their cost.]

In other words, under Boehner’s Rules, Congress will not add a dime to the deficit through increased spending.

But Congress can increase the deficit by any amount, as long as the money is being “spent” on tax cuts.

Yes, for more than a decade, our country has been borrowing to pay for the Bush tax cuts.  And under Boehner’s Rules, Congress can increase the deficit as much as it wants – as long as the borrowed money is paying for tax cuts, not spending.

Boehner’s “Magical Math” sheds a different light on the Fiscal Cliff “negotiations”, doesn’t it?

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