The Weiner Component Vol.2 #6 – Part 2: The Federal Reserve

Description: Newspaper clipping USA, Woodrow W...

Description: Newspaper clipping USA, Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

English: A map of the 12 districts of the Unit...

English: A map of the 12 districts of the United States Federal Reserve system. (Photo credit: Wikipedia)

The Federal Reserve System (Fed) was established in December of 1913 as the central banking system of the United States by the passage of the Federal Reserve Act. It came into existence largely in response to a series of financial panics, particularly the Panic of 1907. Its purpose was to establish a semi-independent agency that would control and regulate Monetary Policy within the United States. At that time it meant mainly being able to freely and quickly move currency around as needed in the country.

 

The Fed consists of twelve regional banks that cover the entire nation. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Each of the twelve sections has its own Federal Reserve Bank, generally with at least one auxiliary bank. For example: California has the main Fed Bank located in San Francisco and an auxiliary one in Los Angeles. The Federal Reserve Banks are located throughout the United States, with the main branch in Washington, D.C. Each can also handle and make the other branches cognizant of any problems within its region.

 

The Fed was initially establish to devise and implement Monetary Policy. In 1913 this meant to control the supply of currency available throughout the nation. This was and still is its main function. But after 1913 the law establishing it was gradually expanded, generally as the need existed, expanding the definition of Monetary Policy, and giving the Fed numerous other responsibilities.

 

Today Monetary policy remains its primary function but today the Federal Reserve System’s mandate is also to promote economic growth, high levels of employment, stability of prices, to help preserve the stability of the dollar, and to moderate long-term interest rates. We can say that the Fed’s mission is, in addition to regulating Monetary Policy, to foster a sound banking system and a healthy economy throughout the nation. That in order to accomplish this the Fed serves as the banker’s bank, the government’s bank, the regulator of financial institutions, and as the nation’s money manager. We can also say that all of this is the current definition of Monetary Policy.

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The problem here is that economics is not an exact science and that the regulators of the Fed have to continually read and interpret what’s happening in the economy. The different Federal Reserve members do not always agree upon what should be done. The agency is run by consensus with the Fed Chair being in charge.

 

In 1908 Congress enacted the Alrich-Vreeland Act which established the National Monetary Commission to study banking and currency reform. The Bill set up two commissions, one to study the American monetary system in depth and the other to study the European Central Banking system and to report on them. Thereafter Congress took two years to come up with the Federal Reserve Bill. It was passed late in 2013 and signed by President Woodrow Wilson the same day it passed Congress. The Bill was constructed largely by bankers as a necessary reform of the U.S. financial system.. It set up a fairly independent entity, The Federal Reserve.

 

In its initial period it was opposed by agrarian interests. They stated that it favored the mercantile class over the farmers. It has long since passed beyond this period of discontent within the United States. While it is still at times opposed by many Republicans largely for being too independent it has stood the test of time as a necessary entity of the U.S. Federal Government.

 

Interestingly the Republicans who still oppose it feel that it should be under rigid control of the Congress. But Congress is afraid to mess with it. An error on their part could bring about a massive depression. And that would bring about a voter rebellion at the next election.

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As was pointed out even though the Fed has control of the money supply that aspect of the Fed’s power is fairly limited. They cannot always control completely or even handle all the factors that are affecting the economy. It is a very difficult process to predict what is occurring within the nation, virtually from day to day, and to make exact changes that can or will always affect it in a positive fashion.

 

Also Congress, by its actions can strongly affect the economy by, among other things, its spending policies. This is called Fiscal Policy, where Congress can increase or decrease the amount of money it spends upon various programs like decreasing aid to the poor in Affordable Health Care or perceptibly increasing military spending. Decreasing aid programs to the needy takes large amounts of spending out of the overall economy while increased spending on the military will substantially increase the amounts of money that go to the upper class. This can make for a redistribution of income from the poor to the upper class.

 

All these changes, plus others that have not been mentioned, become reasons for differences in the economic flow. They become factors that the Fed has to consider in mapping out its policy. And they are dynamic changes that all always going on. This means that the Fed is in a constant state of studying the economy and continually fine-tuning what is happening in the country. It is a constant process and the changes can take months to come about or not come about. It takes a steady hand to deal with this process.

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The United States Government probably is the largest spender in the world. It has a checking account with the Fed through the U.S. Treasury Department. All revenue generated by Federal taxes, licenses, etc. and all outgoing government payments are handled through this account. In addition the Fed sells and redeems government securities such as savings bonds and Treasury bills, notes, and bonds. It does this to raise money, or to limit the amount of money in the National Cash Flow, and otherwise adjust the economy.

 

The factor that deals with this is the overall rate of inflation in the country. If it starts going up the Fed has to reduce the amount of money in the National Cash Flow. There is too much money chasing too few goods and services, forcing prices up as more and more people bid for the same products and/or services. At this point the Fed sells more bonds and Treasury Bills than it redeems. It does this by raising the interest rate it pays for the money. If, on the other hand, there is not enough money in the National Cash Flow then the Fed will increase the amount by buying back more bonds and Treasury bills than it sells. Or for that matter the Fed can just add money to the National Cash Flow making more cash available for everyone as it did for over two years under the Obama administration.

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The Fed also issues all coins and paper currency. The U.S. Treasury prints and mints the cash and the Fed distributes it to its financial institutions. This includes replacing worn-out and torn bills. In fact if one visits and takes a tour of one of the Federal Reserve Banks, they get a little package a shredded old money as a souvenir.

 

The Federal Reserve Board also has regulatory and supervisory responsibilities that include monitoring banks that are members of the system and the international banking facilities in the U.S., the banking activities of member banks and the U.S. activities of foreign owned banks. In addition the Fed helps to ensure that banks act in the public’s interest by helping to develop federal laws governing consumer credit. Such laws as The Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, and the Truth in Savings Act are examples of this. The Fed is supposed to be the policeman for banking activities for the U.S. and abroad.

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The Chairperson of the Federal Reserve heads this bank. Currently Janet Yellen is the Chairwoman. She has held this position since 2014 when she was appointed by President Barack Obama. The term of this office is four years. President Trump has stated that he will replace her when her term expires in 2018.

 

Chairperson Yellen tends to be overly cautious in her approach. She gradually ended the policy of the Fed contributing money to the National Cash Flow and has been overly cautious in terms of raising the interest rate that the Fed charges it member banks, bring about two quarter of a percent raised while threatening three further quarter of a percent increases. The Fed has gone from a 0% charge to banks borrowing money from it to one half of one percent which it is at present. This has kept interest rate that the banks charge low but has gotten their depositors a rate of one tenth of one percent interest on the money they have deposited into the banks. Consequently the Commercial and Saving Banks are practically getting free money from their depositors, and feeing their depositors for everything thing they do for them, and while charging a lower interest than they used to still making millions in interest. It would seem that the banks are not operating in the interest of their depositors.

The Weiner Component #145 – The 2016 1.145 Trillion Dollar Funding Bill & the Republican Party

Official portrait of United States House Speak...

Official portrait of United States House Speaker (R-Ohio). (Photo credit: Wikipedia)

In October of 2015, John Boehner, the former Speaker of the House of Representatives resigned from the House, effective the end of November.  His problem was getting what he considered necessary legislation through the House of Representatives without a government shutdown.  His immediate problem was extending the debt limit, which was then over 18 trillion dollars.  Not extending it would shut down the Federal Government as it would stop all government expenditures beyond a certain point that had almost been reached.

 

The extreme right of the Republican Party wanted to defund Planned Parenthood in return for extending the Debt Limit.  President Barack Obama had stated that if this measure were tied to the bill he would veto it.  By resigning, effective a month later, Boehner removed the House of Representatives from formulating the necessary bill.  The Republican majority leader in the Senate, Mitch McConnell, proposed a short term bill extending the Debt Limit until early December which the Senate and later the House passed.  The President commented that he would not again sign a short term bill.  The final version of the bill was passed early in December raising the Debt Limit for a period of two years.

 

The next major initial problem of the House of Representatives was finding a new Speaker.  Kevin McCarthy, the House Whip, was in line for a short period of time but he didn’t have the votes.  Eventually Paul Ryan, after initially refusing, ended up being the individual who could muster enough votes to be made the new Speaker.  He accepted after setting special conditions.

 

The next important bill was one to fund the Federal Government.  It had to be passed by December 11, 2015 if the government were not to be shut down for not legally having funds to keep operating.

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Generally, every year Congress has to pass a Bill in order to fund the U.S. Government for the oncoming year or it cannot legally pay its bills.  This Bill has to originate in the House of Representatives which, according to the Constitution, initially begins all money bills.  All that is needed is a one sentence law stating that the Federal Government shall be funded for one or more years.  Since 2011, when the Republicans gained control of the House of Representatives, they have used that Bill as leverage or blackmail to obtain other things that they had wanted by adding endless amendments to the Bill, many at the very last moment.

 

For example on Thursday, 12/11/14, the House of Representatives passed, what was essentially but not really a 1,603 page bipartisan 1.1 trillion dollar spending bill that will allowed the Federal Government to continue to function until September 30, 2015, the end of the fiscal year.  The bill adhered to strict caps negotiated earlier between the White House and the deficit-conscious Republicans.  It is also salted through with GOP proposals which were actually Christmas giveaways to individuals and companies and have nothing to do with the spending budget.  The bill should have been passed months earlier but it was convenient for the GOP to keep it hanging as a potential form of blackmail against President Barack Obama until the last possible moment when it had to be passed or its absence would cause a government shutdown.

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When Ronald Reagan was Governor of California he had a line-item veto over all bills passed by the State Legislature.  He could veto any section or group of sections that he thought was or were inappropriate and sign the document for the rest of the bill to become law.  But as President of the United States he could either sign a bill, veto it, or do nothing for ten days and allow it to become law.  Reagan was not too happy with this limitation but he had to accept it.  It would require an amendment to the Constitution to change this practice.

 

Not only does every bill have to be passed by both the House and Senate but both versions have to be identical.  If a word or punctuation is different, then the two versions are not the same.  Actually what happens is that the bill goes to a Committee of Congressmen dealing with that particular subject, they discuss the bill, usually modify it, and then send it to the legislative house to which they belong with their recommendations.  If it is passed then that version goes to the other legislative body, where it follows the same procedure.  In practically all cases the two versions are at least slightly different.  At that point the bill goes to a Conference Committee made up of members of the two Houses, where a final version is then hammered out.  This goes back to both Houses of Congress and it then has to be voted upon and repassed by the two Houses.  If the bill passes it then goes to the President.  After he signs it the bill becomes law.  This process generally takes at least a number of days.

 

The 1.1 Trillion Dollar Spending Bill was passed by the House of Representatives on Thursday, December 11, 2014.  The Congress was slated to end its session on Friday, December 12th.  This meant that the bill had to be accepted exactly as it was if the government was not to shut down the following week when it ran out of money.  In fact a short a short extension was also passed in case a few more days were needed to pass the bill.

 

Keep in mind that according to the Constitution only the House of Representatives can initiate a money bill since initially they were the only group directly elected by the People, the Senate was originally elected by the State Legislatures. The Founders felt that taxes should be authorized by the direct Representatives of the People so that the People are, in a sense, taxing themselves.

 

Also note that there are no rules about what a bill is supposed to contain.  It can deal with one subject or any number of subjects.  This finance bill dealt with innumerable subjects, most of which had nothing to do with financing the government.

 

Because of the catastrophe caused by a government shutdown President Obama urged the Democratic controlled Senate to pass the bill even though it had numerous amendments that were harmful to individuals or groups within the country.

 

One of these amendments cancelled parts of the Dodd- Frank Act that had been passed in 2010 as a reform measure after the 2008 Bank-caused Real Estate Collapse, to avoid such occurrences in the future and to keep banks from exploiting their depositors and the taxpayers.  Presumably the lobbyists for Citibank wrote the measure and it was secretly inserted the night before the bill came up for a vote in the House of Representatives.  The insertion rolls back regulations that limit banks from using federal deposit insurance to cover high-risk financial investments.  There had been no notice given or debate on this Amendment.  Nancy Pelosi, the minority leader in the House strongly opposed this insertion as did Senator Elizabeth Warren who called upon the Democratic majority in the Senate to oppose the entire bill if this Amendment was left in.

 

Another interesting Amendment was trading land with an Indian tribe.  A sacred mountain containing a burial ground was to be traded for another piece of land.  The sacred mountain was wanted by a company for a copper mine.

 

Another last minute Amendment dealt with campaign finance, it was extended for individuals. It went from contributions of $32,400 to $324,000.  Republicans got a 60 million dollar cut at the EPA (Environment Protection Agency) reducing their workforce to the level they had been at in 1989.

 

Not all Republicans in the House supported the bill. Many of the Tea Party members wanted to defund President Obama’s immigration executive order.  This issue was left out of the House bill.

 

In both the House and Senate the bill required the votes of both Democrats and Republicans to pass.  In the House 162 Republicans and 57 Democrats voted for the bill.  139 Democrats and 67 Republicans were against the spending bill.  In the Senate there were 31 Democrats, 24 Republicans, and 1 Independent who voted for the bill and 21 Democrats, 18 Republicans, and 1 Independent who were against it.  In both Houses of Congress it required the votes of both major political parties in order to pass.

 

Interestingly the far right and the far left both opposed this bill, both for different reasons.  On the far right, Ted Cruz wanted a section added that would limit or eradicate President Obama’s executive order dealing with illegal immigrants whose children had been born in the United States.  And on the far left, the Congressmen wanted to remove many of the giveaways that had nothing to do with the spending bill.

 

Cruz, in a procedural vote extended the Senatorial Session into the weekend.  He did not get his Amendment to the bill passed.  Harry Reed, the majority leader in the Senate, used the additional time to get a large number of Obama appointees approved beginning with the Surgeon General, Dr. Vivek Murthy, who had been opposed by the NRA because he had suggested earlier that guns were a disease since they killed a large number of people.  By the end of the session, Tuesday, December 15th, the Senate had approved a total of 69 controversial presidential appointments.

 

The Senate passed the Spending Bill on Saturday and President Obama quietly signed it on Tuesday.  Congress adjourned around midnight of Tuesday, December 16th and the new Congress, which would have Republican majorities in both Houses, met in January of the next year, after the holidays.

 

It is interesting to note that all that is required for the government to keep functioning is a one sentence bill that states that the Federal Government shall be properly funded for the fiscal year.  The 1,603 page bill detailing all the expenditures over the fiscal year was ridiculous.  In this bill every item that was to be funded had to be mentioned in detail.  For example: Vice President, Joe Biden’s and other top officials in the government’s salaries were frozen.  There was no automatic raise for them that was put into law several years earlier but the members of Congress  got their cost of living raise, raising their pay to over $140,000 each.

 

What happened originally was that several years earlier Congress had voted itself a raise.  The press got hold of the news and published it.  People were indignant over Congress giving itself an increase in salary when everyone else was hurting financially.  There was a protest and the increase was rescinded.  Thereafter Congress quietly passed a law making pay increases for Congress and government officials automatic.  From then on there was no protest or even public knowledge that this was occurring.  In 2014 Congress has voted through its 1,603 page bill not to freeze its own salary but to do so to the Vice President and other high government officials in the Administration.  How petty could they get?

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In December of 2015 the Federal Government funding situation was far different from what it had been a year earlier.  For one thing there was a major Presidential Election coming up in a little less than a year.  A government shutdown at this point could have dire consequences for the Republicans in the election if they were blamed for it.  Also the people had had enough of the shenanigans that the Republican House of Representatives had pulled since 2011 when they took control of the House of Representatives.  The President and the Democrats in both Houses of Congress were not about to go along with what the Republicans had pulled the preceding year. And they would need Congressional Democratic votes to pass any spending bill in both Houses of Congress.

 

The 2015 omnibus bill, 2,200 pages long, incorporated legislation from twelve subcommittees and was the work of nearly a year.  There had been months of negotiations between the two major parties.  The bill passed in the House with 316 positive votes to 113 negative ones.  150 Republicans supported the measure and 95 opposed it.  50 members did not vote.  Among the Democrats, 166 voted for the legislation, 18 voted against it.

 

On both extremes there were Congressmen who thought the bill did not go far enough or that it went too far in the wrong direction.  Many conservatives felt it overspent, didn’t go far enough blocking abortions and Syrian refugees from coming to the U.S.  Liberals felt that the bill did nothing to address the debt crisis in Puerto Rico, did not positively enough effect environmental concerns, and that it lifted a 40 year ban on exporting domestic oil export.

 

The bill funds the United States Government through September of 2016, nine months.  The probability is that another bill will be easily passed at that time to fund the government at least until the end of 2016.  The country will be too close to the 2016 Presidential Election for any games to be tried at that time.

 

But if a Democrat wins the 2016 Presidential Election and the Republicans retain control of the House of Representatives, the December 2016 Government Financing Bill should prove very interesting.  Who the next President will be will not be known until the November 2016 Presidential Election is over.

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This omnibus bill will be noted for what it left out, rather than for what it included.  There is no mention of Planned Parenthood or of the Syrian refugee crisis; nor of numerous other things that were important to both political parties.  Speaker Ryan promised the Democrats that the House would deal with the Puerto Rico Debt Crisis in March; that brought a number of Democrats into line to support the bill.  Ryan also spread-out the decision making process so that many members of Congress felt that they owned parts of the bill.

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Nancy Pelosi, the minority leader, was asked why the Democrats hadn’t pushed harder.  Her answer was, “I don’t think they would have passed it.”  The implications are that both the Democrats and the Republicans had each gone as far as they could in working out this compromise piece of legislation.  As a result of the negotiations neither side could claim victory or defeat.  Both had squeezed the other side as hard as they could.  President Obama praised the Republicans for doing what Congress has done so well in the past, compromising to the point of hammering out a bill both sides could live with.

 

The Democrats considered the permanent reauthorization of the 9/11 Health legislation a major win.  As a result of the 9/11 destruction of the Twin Towers in New York City a large number of the rescuers had breathed in toxic dust and, those who had not since died from resulting cancer and other maladies, still had expensive medical needs.  Reauthorizing this medical coverage would help a large number of people.  Lifting the 40 year ban on oil drilled in the U.S. being sold outside it continental borders was called by Ryan a big win.  Republicans also were able to block proposed bans on weapon purchases by people on federal terrorist lists and also federally funded research on gun violence.

 

Perhaps the most important thing that the bill did was to do away with the automatic Sequester cuts for 2015.  These cuts, which would have automatically gone into effect early in 2016, would have seriously hurt government efficiency for both defense and non-defense programs, across the board.  The military budget was actually increased above what it had been the prior year.  And this was also true for a number of other programs.  The White House was touting tax breaks for the wind and solar programs.  In all there were $680 billion in tax cuts for both businesses and individuals.  But sequestration is still there and will automatically come into being at the end of 2016 unless new legislation is passed then to stop or end it.

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Does this legislation denote a new feeling of friendliness between the two political parties?  I think not.  What it demonstrates is a wide division between both Democrats and Republicans.  It took nearly a year to come up with this 2,200 page detailed bill and make it acceptable to both political parties.  Neither party was strong enough to push any of this legislation through on its own; it required a joint effort to pass it.

 

If anything it denotes the great distance between our political parties.  Speaker Ryan has recently commented that the House will soon take up defunding Obamacare. That will mean that this bill will have been passed over 50 times without once being taken up in the Senate.  Considering that the House will officially only meet for 110 days in 2016 that is spending a lot of time upon a bill that will go nowhere.  Ryan stated that, outside of the increasing number of people signing up for the service, the bill is a failure.  Interestingly outside of his statement he offered no evidence other than his word.

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The December 11th deadline for this bill to pass was extended one week to Friday, December 18.  Directly after the bill was passed in the House of Representatives it was sent to the Senate where it was passed.  From there it was sent to the President, who signed it with positive remarks for the compromise legislation.  Obviously the Government shutdown was avoided.

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It should be noted that on Wednesday, December 6th the    House of Representatives, under Speaker Paul Ryan’s leadership, passed a bill for the 62d time defunding Obamacare and stripping Planned Parenthood of Federal Funding.  The bill was passed in the Senate last year through a special provision that avoided a filibuster in the Senate and was sent to the President for the first time.  On Friday, December 8, two days later, it was vetoed by the President, who stated that the Affordable Health Care Act had helped millions of Americans who couldn’t otherwise afford Health Care.  Republicans do not have the votes to override the veto.  Still they claimed victory, claiming that they had passed a repeal bill and that they are keeping a promise to voters in an election year.  They stated that they are capable of repealing the law if a Republican wins in the November election.  I wonder if that’s true if Donald Trump were to become the next president.

 

Of course they would still have to keep control of both Houses of Congress.  2016 promises to be a colorful year in Congress.  We may go beyond gridlock.  This should be particularly true with the House working a three day week and taking a four day weekend and all holidays.

Official photographic portrait of US President...

Official photographic portrait of US President Barack Obama (born 4 August 1961; assumed office 20 January 2009) (Photo credit: Wikipedia)

The Weiner Component: Part 2 – Taxes & the Republican Party

English: Federal income tax amounts in the Uni...

English: Federal income tax amounts in the United States, based on average pretax household income (2003). The primary source of the information is the Congressional Budget Office’s publication titled, “Historical Effective Tax Rates.” (Photo credit: Wikipedia)

English: Plot of top bracket from U.S. Federal...

English: Plot of top bracket from U.S. Federal Marginal Income Tax Rates for 1913 to 2009. Data are from http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_progressivity_in_federal_income_tax (Photo credit: Wikipedia)

No one will argue that the Federal Tax System (the income tax) is fair and doesn’t need reform.  The problem is that both the Republicans and the Democrats come at it from totally different perspectives and cannot even begin to come to any sort of agreement about what should be done.

 

The Republicans are supposed to be the party of balanced budgets.  They have systematically held to two major positions: a balanced budget and not increasing the tax rate for the rich or for large corporations; in fact for a large number of years every incoming Republican to the House or Senate has sworn an oath/pledge in writing to Grover Norquist, a lobbyist with no direct connection to the Federal Government that he or she will not raise taxes.  They have also verbally and dramatically supported raising the rate of expenditure for the military with cuts to entitlement programs.

 

Yet the last three Republican Presidents, starting with Ronald Reagan and the two Bush’s, father and son, through military preparedness and wars have raised the National Deficit from one trillion dollars to over thirteen trillion dollars and, in addition, the last Republican President, George W. Bush, left the country at the end of his term in office at the very edge of a major depression.  Avoiding this potential Great Depression caused the next President, Barak Obama, in 2009 to have to spend a far greater amount than was taken in in taxes over most of his two terms to avoid economic calamity and to continue the two wars that Bush propagated, bringing the current deficit up to over seventeen trillion dollars.  Finally, toward the end of 2015, the administration may be able to reduce slightly the deficit.

 

The Republican majorities in Congress are still “Penny wise and dollar stupid,” refusing to spend money on fiscal policy which would both help leave the remnants of the 2008 recession behind us, improve the needed outdated early 20th Century infrastructure of the United States and significantly lower the current rate of unemployment.  They have since 2011, when they gained control of the House of Representatives, refused to pass any spending bills that would upgrade any of the needed infrastructure of the United States, like hundred year old bridges.

 

Their aim seems to be to lower taxes for the upper few percent of the earners, who they call the “job creators,” and increasing the taxes for the middle and lower classes.  In this process, regretfully, they have been fairly successful.  The middle class has been since 1980 decreasing in percentage of the population and the lower class has been growing, to a point where homelessness can be seen today in almost any major city in the U.S.  In fact poverty is at a higher rate today than it’s been in years and is continuing to increase.

 

Since the Republicans cannot get the Democrats in Congress to openly go along with tax cuts for the wealthy and paying for this with large cuts in entitlement programs they have in 2013 passed the sequester law, which automatically makes cuts across the board in government spending.  Most of these automatic cuts seem to be invisible but when one become openly harmful to the economy a law can quickly be passed funding it.  Such was the case with the air controllers at the airports throughout the U.S.   Such was not the case in terms of the U.S. military; they are currently in the worst state of preparedness they have been in decades.  It’s as though the Republicans in Congress are saying one thing, getting the nation ready for war with Iran when they completely take over the government after the next election and at the same time, assuming that they will not have to pay for the war or anything else.  Their actions and intent verge on idiocy and irresponsibility or on a total inability to deal with the real world.

 

One of their major actions during the last thirty-five years has been to systematically reduce taxes for the very wealthy and gradually increase it or make up for the increasing deficit by increasing the tax base for the middle and lower classes.  Some of this has been done by indexing income taxes; that is, with natural inflation incomes rise while purchasing power stays the same or decreases.  This throws many members of the middle class into higher tax categories because their incomes increase but their standard of living actually decreases.

 

Many or most Republicans legislators probably are not even aware that this is happening because it has been going on for over three decades.  Most, if not all of them, have come into office in Congress well after this process has been begun and have just continued it.  If we look at the pattern of taxation over the last fifty years this is one aspect that we can easily see.

 

The major responsibility for all these changes rests with the Republicans, their major contributors and the lobbies working for these people.  And the Supreme Court, in recent years, has expedited this process by defining contributions to political parties as just another form of “free speech guaranteed by the First Amendment to the Constitution.”

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First off, taxes are either progressive: everyone pays according to their ability to pay, or they are regressive: everyone pays equally, which means the rich pay a smaller percentage of their incomes on these taxes than the middle or lower classes.  In essence the lower one’s income the higher a percentage of his income would be paid on these taxes.  Examples of this kind of tax would be a sales tax or an excise tax.  Everyone pays these equally.

 

An example of a progressive tax would be the Federal or State income taxes.  They are progressive up to a point, that is up to a little over 400,000 dollars.  Up to this amount the percentage of the tax is gradually increased as incomes becomes larger.  After the maximum, a little over 400,000 dollars is reached the income tax becomes regressive in that the percentage paid becomes fixed no matter how great the income is over this amount.

 

An individual earning ten or twenty million a year or more would continue paying the same percentage as someone who has only earned 400,000 dollars a year.  In point of fact the higher his income the lower the percentage that individual pays in taxes.

 

Virtually all other taxes, which are touted as being fair because everyone pays the same amount, are regressive.  The wealthier one is, the lower that tax is in terms of a percentage of his income.

 

If we look at the 2014 Income tax schedule there are four categories for taxpayers: (1) Single, (2) Married Filing Jointly, (3) Married Filing  Separately, & (4) Head of Household.

 

Using Schedule Y-1: Married Filing Jointly as our example one sees the sequence of taxes for 1914.  For earning up to $18.150 there is no income tax.  For a couple earning between $18,150 and $73,800 the tax is $10,162 + 15% over $18,150.  For earning of $73,800 to $148,850 the tax is $10,162 + 25% of the amount over $73,800. If a family earns between $148,850 and $226,850 the tax is $28,925 + 28% over $148,850.  For between $226,850 and $405,100 the tax is $50,765 +33% over $226,850.  If they earn between $405,100 and $457,600 the tax is $$109,587.50 + 39%.  At $457,600 up they pay $127,962.50 + 39.6% no matter how much they earn.

The amounts are slightly less for a single person and roughly half for a married taxpayer filing separately.

 

In essence everyone pays increasing amounts for each category until they reach their total income after legal deductions.  This would be true for those earning over $457,600, except that after that amount they would pay $127,962.50 + 39.5% of their income.  If they earn a million it would be that amount and would remain the same with earnings of a billion or more.

 

Note that anyone earning any amount over $457,600 pays that same percentage whether his income is one million or over a billion dollars.  While this may seem like a lot of money still in comparison to the percentage of their incomes which most taxpayers have to pay who are under the $450,000 benefit it can be a very much smaller percentage of their yearly incomes.  In the case of someone like the Koch Brothers, who are estimated to have at least a $100 billion each, it can be well under ten percent of their yearly incomes.

 

Mitt Romney, in 2012 when he was running for the presidency, released one year’s tax percentage.  It was 11 or 12%.  No one earning less than $400,000 a year pays that small a percentage of their income

 

If we look at the taxes in 1980, the last year of Jimmy Carter’s presidency, the percentage in income paid in income taxes were graduated up to an income of one million dollars.  The more one earned the higher the percentage he paid in income taxes.  At $100,000 the tax was 27.3%.  At $200,000 it was 33.1%.  At $500,000 it was 40%.  Up to $1,000,000 it was 44.6%.  And over $1,000,000 it was 47.9% of the yearly income.  The income tax became regressive on earnings well over the million dollar mark.  But it was still a fairer income tax than that of 2014.

 

From 1932 to 1935 the percentage of income taxes for those earning one million or more was 63%.  It rose to 94% from 1944 – 1945 and then gradually declined to 92% by 1952 – 1953.  By 2013 for those earning $450,000+ the rate of taxation became 39.6%.

 

In 1981 Ronald Reagan became President of the United States.  From that point on the maximum percentage seemed to flow toward 39.6% for those earning $457,600 or more.  This amount was fixed, under the guise of tax reform, during the Obama Administration.  The Republicans who then held a majority in the House and were able to freely filibuster in the Senate absolutely refused to go over that amount.  It was that or nothing.

 

With the oncoming 2016 election this issue hangs in the air again.  A Republican majority currently exists in both Houses of Congress.  If a Republican president is elected then the tax reform will be enacted for the upper few percent of earners in the country.  The rich will keep more of their incomes and the middle and lower classes will get far less than they currently have.  It will truly be Government of the Rich, for the Rich, and by the Rich.  All entitlement programs for the poor and general public will diminish considerably.

 

In fact in one of his speeches Jed Bush has promised to lower taxes for the upper few percentage of the earning population.  His justification is that this will increase employment in the U.S. because these are the people who create jobs.  Historically this has never happened.  But Bush Jr. presumes he knows best.

 

If, on the other hand, the Democrats were to win both Congress and the Presidency then we could see genuine reform of our income tax system.  But the probability is that 2016 will give the country another Democratic President and the House of Representatives will maintain, through gerrymandering, a Republican majority.  The Democrats will still not have a super-majority in the Senate, so it will again be open to filibustering.  There will still be no way for real tax reform.  However we can hope for miracles.

Distribution of U.S. federal taxes for 2000 as...

Distribution of U.S. federal taxes for 2000 as a percentage of income among the family income quintiles. Source: Department of the Treasury, Office of Tax Analysis Working Paper #85, “U.S. Treasury Distributional Methodology” by Julie-Anne Cronin (September 1999)- also available here (Photo credit: Wikipedia)

The Weiner Component #117 – Following the Federal Reserve’s Example: the European Central Bank

The 2008 Real Estate Debacle affected not only the banks and economy in the United States but also those in Europe and other parts of the industrial world. And like conditions during the Great Depression each country or region has had to fend for itself, work its way through the economic disaster.

The United States followed a method of creative monetary policy, adding gradually trillions of dollars to its national cash flow in order to bring about a return to the direction of prosperity. In essence it created and added 85 billion dollars a month to its economy for well over two years. The result of this was partial recovery with national unemployment dropping to slightly over 5 percent.

(It should be added that had Congress also applied fiscal policy unemployment would probably be down to 2 1/2 to 3 percent.  But that would today be impossible with a Republican majority in both Houses of Congress.)

The European Central Bank (ECB) is the equivalent of the Federal Reserve, controlling monetary policy for its 19 member Eurozone economy. Mario Draghi, the director of the ECB has begun their version of creative monetary policy to bring about economic recovery within the 19 nations that make up the Eurozone. It should be remembered that this economic union was initially called The Common Market.

The European Central Bank will buy $69 billion or 60 billion euros in bonds each month until September 2016. They do not have the mortgage dilemma that had existed in the United States but they do have a debt crisis in a small number of their member states that they are currently essentially attempting to ignore. The ECB is beginning this process with traditional monetary policy. But even this is a radical step for the ECB because they will be adding 60 billion euros to the cash flow every single month. This will be done by buying back bonds.

In all they will be adding a total of over one trillion euros. Where is all this money going to come from? The ECB will print it and add it over a twenty month period. At the end they will be adding 1.2 trillion euros to the Eurozone cash flow.

Remember, currency has no real value. There is nothing behind it but the word of the agency or country that provides it. This is true for all nations today because there are not enough precious metals in existence to conduct all the business that occurs within and among all the nations. The value of this currency is set in the nations using the money by their governments and by what other countries are willing to trade for it.

There are several major problems the Eurozone is facing. To use a historical example: When the United States was first formed during and immediately after its Revolutionary War in the late 19th Cwntury its government consisted of thirteen separate states and a Continental Congress made up of representatives of these states. In order for Congressional legislation to pass, each of the individual states had to sanction it. Also only the states could tax. Congress had to request money from each of the states which each of the thirteen states could send or not send. What existed was 13 sovereign states with an essentially powerless central government.

This is largely what exists in Europe today, nineteen sovereign nations that largely speak different languages who have bound themselves into an economic union. Some are wealthier and more efficient than others. It is to everyone’s advantage to belong to the union but some of the members are currently in dire straits.

In the period prior to 2009, some of these countries using creative bookkeeping, which was largely created for them and their citizens by large American banking houses like Goldman Sacks, slowly incurred extensive debt. The basic premise, I assume, was similar to that used by the banking houses in the United States that their increasing prosperity would grow the debt out of existence. At the end of 2008 the Housing Industry collapsed in the U.S. shrinking economic growth throughout the world and leaving these nations and many of their citizens hopelessly in debt.

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The Eurozone is a monetary union of nineteen European states that have adopted the euro as their official currency. They are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Other European states are getting ready to join and some have adopted the euro unilaterally.

The current major problem facing the ECB is deflation. Their Gross National Product (GDP) has been slowly shrinking; it is currently down .02%. This means, particularly with their population slowly increasing, that the average standard of living for most of the people is slowly dropping.  In order to avoid this and to begin growing the GDP again the ECB will, using monetary policy, increase the cash flow throughout the Eurozone by 60 million euros per month for about twenty months. Obviously they believe that this will reverse the current pattern. Hopefully in this they are right.

The euro tends to be a far better currency than most of the 19 nations had before the Common Market. It has been between 1.2 to 1.5 percent above the U.S. dollar. The only currency that has been higher has been the British pound which has been between 1.5 and 1.7 cents above the U.S. dollar.

All the nations involved have benefited from this economic union, but all these countries are not economically equal, and all of them have otherwise remained independent sovereign nations with strong feelings of nationalism. Currently Greece, which had a youth unemployment level of 53.5% in November of 2014, had its government for a number of years borrowing off the books billions of euros. In November of 2010 Eurostat revised the debt of Greece putting the deficit at 15.4% of GDP and public debt at 126.8% of the GDP. This was the greatest deficit among all the EU member nations. The European Central Bank (ECB) bailed Greece out with money and an austerity package.

Despite the austerity measures, possibly because of a continuing recession, the deficit continued to grow and in the beginning of July 2014 there was a second bailout of one billion euros that was due to be paid back in late July. Greece ended its six year recession in the second quarter of 2014 but was still facing, economic and political instability and heavy debt

There has been spontaneous protests strikes, heavy unemployment, and large scale discontent ever since the bailout loans were first made. In the January 25, 2015 Election the Left Wing Syriza Party won the majority position with 149 out of 300 seats, 36% of the popular vote. The second, out of the 20 functioning political parties in Greece, was the (NO) New Democracy with 27.81% of the vote.

Syriza campaigned as the anti-austerity party. They are a radical left-wing political party whose platform was to end Greece’s austerity measures. In a manner of speaking by the way they voted the Greeks held out their middle finger to the European Central Bank (ECB).

It’s understandable in a country which, for whatever reason, has been in an ever increasing recession for the last seven years, has seen its GDP decrease about 25% and unemployment rise above 25%, with the ECB now asking for further austerity.

The new Prime Minister, Alexis Tsipras, has promised to renegotiate the country’s 270 billion bailouts. He is also seeking forgiveness for most of Greece’s 270 billion euro debt. He has pledged to reverse many of the austerity reforms, such as cuts in pensions and the minimum wage and public sector layoffs.

Germany and France want the ECB to adhere to the original austerity agreements; in a sense they want to continue to punish Greece and the other nations who overspent and received bailouts from the ECB. Some of the other countries are Spain, Portugal, Ireland, and Italy.  In Spain a radical left party is presently organizing protest marches in the country. They may well emulate Greece in their next popular election.

As of now nothing has been done. The European Central Bank has put off any possible settlement for several months. What will happen then is anyone’s guess.

The ECB needs agreement from all its members in order to act. If it demands that the austerity continue then Greece will be forced to leave the Eurozone and go back to its old currency, the Drachma, and eventually be forced to declare bankruptcy since at the present it is at the point of needing another bailout for which its new prime minister swears he will never ask. If, at that time, the ECB accepts a compromise it will be establishing a precedent that will apply to the other nations that have overspent in the past and need or will need bailout funds.

All this is an interesting dilemma! This is particularly true since the euro has no intrinsic value. Additional funds can be printed and issued as needed. In fact this is the Monetary Policy plan that the ECB is about to start that will hopefully reverse the current deflation cycle the Eurozone is presently undergoing.

This problem is another result of the U.S. Real Estate Bubble bursting in late 2008 and causing a world-wide recessions. Both the Eurozone and U.S. property dilemmas were caused by the major banking houses.

In the United States the Federal Reserve, with the approval of President Barak Obama, by its monthly purchase of 45 billion dollars’ worth of mortgage paper, essentially forgave a large percentage of the multitude of homeowners who found themselves over their heads in debt on their homes. The result of this has been to solve the multi bundling of mortgages and return the housing industry to sanity and to move the country largely in the direction of economic recovery. Hopefully the dual actions will eventually occur.

Ultimately the ECB will have to take a similar type of action, largely forgiving the debt of the few nation’s that are currently in dire straits and add over a trillion euros to their overall economy or see the Eurozone largely fall apart. And if this happens and the Eurozone is largely broken up then Europe could see a return to the conditions of 1929 when each individual nation had to fend for itself during the time of the Great Depression.

(Footnote: Many of my readers have asked me questions in their comments. I carelessly did not number the original publication of “The Weiner Component #114.” However all the questions are answered in that blog: “Responding to Your Enquiries.”)

English: Clockwise from top-left: Federal Rese...

English: Clockwise from top-left: Federal Reserve, Bank of England, European Central Bank, Bank of Canada (Note: Uploaded for use on Wikinews) (Photo credit: Wikipedia)

English: Various Euro bills.
English: Various Euro bills. (Photo credit: Wikipedia)

The Weiner Component #116 – The U.S. & the Federal Reserve

In 1935, Cret designed the Seal of the Board o...

English: Janet Yellen being sworn in by Fed Ch...

English: Janet Yellen being sworn in by Fed Chair Ben Bernanke (Photo credit: Wikipedia)

By Friday January 9, 1915, the Federal Reserve had turned over $98.7 billion to the Treasury for the year 2014. In 2013 it was $79.6 billion and in 2012 it was $88.4 billion. All of this was the interest on the National Debt bonds, much of which the Federal Reserve had purchased since 2009.

In 2008, the last year of the Bush Administration, the country faced the explosion of the Real Estate Bubble that had been gradually building over the prior thirty years. The big banks had been going crazy with denial in 2007 with their abuses when the oncoming failure became obvious. In essence every dollar in circulation suddenly dropped in value to about a dime. The Obama Administration did two major things in 2009 and 2010. They were able to avoid through rapid action an economic crash potentially larger than the Great Depression of 1929 and they passed Affordable Health Care (Obamacare). In 2010 the country elected a Republican majority in the House of Representatives and thereafter nothing was done by the House to alleviate conditions caused by the Real Estate Bust. In fact Congress passed laws to exacerbate the negative conditions.

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It should be noted that the Federal Government has two major tools to deal with downturns in the economy. One, used by the Federal Reserve, is Monetary Policy and the other, used by Congress and the President, is Fiscal Policy. This is Macroeconomics.

Fiscal Policy has to do with Congress passing bills that add money to the economy. Keep in mind that all currency has nothing behind it other than the word of the National Government. All money is now a means of exchanging something of value for something else of value, goods and services for goods and services.

In 2011 or 2012 President Obama proposed a bill that would create jobs by updating the infrastructure of the United States. The electric grid across the U.S. is well over fifty years old, much of it predating World War II, and parts of it are in constant danger of breaking down. It has not dealt with the changes in demography or increases in population that have occurred over that period. The country has come close to power outages because of cold weather conditions or for other reasons. Many of the bridges throughout the nation are also well over fifty years old. A number have collapsed; many are still waiting to be refurbished.  Also many schools, some of which were built over one hundred years ago, also need refurbishing or replacement throughout the country. Many of the sewers in cities are well over one hundred years old; a few have collapsed in parts.

All of these and many other projects will have to be done at some point in the future. Maintenance is required to keep all aspects of society properly functioning. From 2011 on the House of Representatives with its Republican majority has tended to squeeze the society, downsizing government and adding to unemployment, in fact at one point it closed down the Federal Government by refusing to fund it. The present is an ideal time to do a lot of these fiscal projects as interest rates are at just barely above 0.

Monetary Policy is a tool of the Federal Reserve. It can be used to increase or decrease the amount of money in circulation. Ordinarily the Fed adjusts the money flow in the economy by increasing or decreasing the amount of money it borrows through the sale of bonds. What happens is decided by the rate or non-rate of inflation. The Fed is always cashing out and selling bonds. There are short term, medium term, and long term bonds, lasting from a few months to a number of years. The rate of sale is determined by the level in interest paid on these bonds. The higher the interest the greater the sale and the lower the interest the less the sale. These interest rates are determined by the level of inflation in the country. The higher the inflation the higher the interest. Here money is taken out of the national cash flow so that there is less available to be spent, thus gradually forcing down the rate of inflation. If the opposite is true then the Fed will sell less bonds than it cashes out and continually add currency to the national cash flow.

With no help from Congress during a period of recession or depression the Fed under the chairmanship of Ben Bernanke had to be quite innovative to pull the nation out of the Real Estate Debacle. This was done by the Fed buying $85 billion worth of bonds each month for well over two years: $45 billion in mortgage paper and $40 billion in government bonds. The effect of these two actions was to add well over a trillion dollars to the national cash flow per year; and also to essentially resolve the big banks activity in splitting up individual mortgages into well over one hundred parts. By my estimate it would have taken well over twenty years to straighten out the housing mess if the Fed had left it alone. The Fed did it in a relatively short time by buying most of the pieces. We again have new construction and older houses are being resold.

What is interesting to note here is that 40 billion was utilized on traditional monetary policy while 45 billion dollars was used to purchase mortgage paper from the assorted hedge funds which each owned fractional pieces of mortgages in each of their funds that had been very sloppily catalogued. For the Fed to collect or foreclose on any of these properties it would have to set up a table of all the homes on which it held mortgages within the 50 states and gradually build up its portfolio to the point where it owned over fifty percent of each particular mortgage. The cost of setting up this information bank would have been prohibitive even for the Federal government. The probability is that the Fed did nothing with this paper and a percentage of the population ended up living in their homes for nothing, in essence the government forgave these loans.

Of course the people living in these houses still had to pay property tax. If they did not the municipality would eventually foreclose on the property and sell it for back taxes. These people would suddenly have a lot of disposable income, which many of them spent freely, and they could not claim any home interest payments on their income taxes. This, in turn, added billions of dollars circulating in the National Cash Flow throughout the country.

The practice of adding money to the economy was ended in October of 2014. Janet Yellen, the new Fed chair left the ending of the policy tentative. It could be started up again if the need arose.

Interest rates had also been dropped to a fraction of one percent, practically giving the banks free money from all the savers and checking accounts which they could lend out at a decent rate of interest. Currently the Fed is considering when to raise interest rates. Meanwhile most of the larger banks have announced large profits for 2014.

What is interesting here is that the Federal Reserve used part of the National Debt as a means of positively controlling the amount within and the flow of national currency. They actually increased over time the flow of money by trillions of dollars and, in this way, diminished the effects of the Real Estate Debacle caused recession.

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What Bernanke did was to use part of the National Debt as a means of getting the country out of a serious recession. Since Congress would not act he used the Debt itself as the tool by which a large percentage of recovery was gradually brought about.

The National Debt is divided into two parts: public debt which the government owns and private debt which is held by private countries and by individuals. For example the two largest holders of U.S. debt are China which as of November 2014 held 1.25 trillion and Japan had 1.24 trillion.

All foreign holdings at that time were 6.11 trillion dollars. It should be noted that the National Debt currently is 18 plus trillion dollars. Who owns the balance? Private individuals and companies within the United States and elsewhere would hold at least another trillion dollars. The balance would then be held by the U.S. government and its agencies. For example Social Security has well over 2 1/2 trillion in government debt. All this means that the Federal Government holds well over 50 percent of its own debt and pays the interest on that debt to the U.S. Treasury.

It should be noted that Treasury securities are seen as one of the world’s safest investments. This has been the situation in the world and will, in all probability, remain so.

The 114 Congress, which recently met for the first time and has a Republican majority in both Houses, shows no indication that it is even slightly interested in fiscal policy. While unemployment is down to 5 plus percent for the first time in the nation since the 2008 Debacle it still could be a lot lower with fiscal policy.

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Another factor of importance here is population; it is always gradually increasing. According to the Census Bureau’s Population Clock: there is one birth every 8 seconds, one death every 12 seconds, and one international migration every 33 seconds. The result of all this is a net gain of one person every 16 seconds.

That is an increase in the population of the United States of 3.75 people per minute, 225 per hour, 5,400 persons per day, and 1,965,600 people per year, if we count each month as 30 days and do not allow for each leap year. The current overall number of people in the country is in excess of 350 million people.

Most of these new settlers will reside along either of the coastal areas. In order for standards of living to not decrease with this additional population the GDP (Gross Domestic Product) has to increase one or two points yearly. If it stays at exactly the same point or decreases slightly then the overall standard of living has dropped for the bulk of Americans.

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What will happen with this new Congress should be interesting and economically uninspiring. From now until July 2016 when the Republicans hold their Presidential Convention there will be a lot of jockeying for the lead position in the Republican Party. The major issues like immigration, fiscal policy, job creation, plus whatever else comes up will be largely ignored. They will try forms of blackmail with the President in order to achieve some of their goals. This will be done by attaching riders that he will not approve of to necessary bills. That means that President Obama will probably have to veto the necessary legislation causing all sorts of economic and other problems. The question there is who will take the blame for causing all these disasters?

The Republicans will certainly not be creating any new jobs. Janet Yellen, the current chair of the Federal Reserve may have to restart the program of buying bonds for economic recovery to continue since the Republicans will be doing their dandiest to constrict the economy and inadvertently increase unemployment. What will probably occur between the present and the next presidential election is two years that the future historians will in all likelihood essentially ignore.

Description: Newspaper clipping USA, Woodrow W...

Description: Newspaper clipping USA, Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

The Weiner Component #112A – How the United States Government Works

During the Grand Jury examination of the August 8, 2014 shooting of 6’4” eighteen year old Michael Brown by the 6’4” police officer, Darren Wilson, in Ferguson, Missouri the question was asked by one of the jurors as to which predominated, the state laws or the Federal laws. The Assistant District Attorney never really answered that question for the Ferguson Grand Jury. The Constitution gives that power to the Federal Government and the issue was ultimately resolved by the Civil War which solidly placed power in the hands of the Central Government of all the states.

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The basic document for the organization of the Federal Government is the Constitution of the United States which defines all aspects of our government. Initially, during and directly after the American Revolution, this country was ruled by the Articles of Confederation of the 13 states with most of the power resting within the governments of each of the 13 states. The central government was run by a Congress of the States and had very little direct power. Any measure that it passed had to be agreed upon by all the states involved. It had to no power to tax and had to rely on the states for anything it needed. To fill its monetary needs it had request funds from the states which would simply and individually send money or not.

For these and other reasons this system of government did not work well. A meeting was called to have elected representatives come to Philadelphia during the summer of 1787, from May 25 until September 17. Its purpose was to amend the Articles of Confederation. This assembly occurred nine years after the start of the new nation. Not all the states sent representatives and not all the representatives stayed the full hot summer to work upon the reform.

George Washington, probably the most trusted man in the new nation, was elected chairman. They met during a very hot Philadelphia summer and had to be done when the meeting place would again be used by the state legislature. It was early determined to keep no record of the meetings and to keep the results secret until they were done.

They very early concluded that the Articles of Confederation were completely inadequate and could not be reformed to form a proper government. They determined that they had to start from scratch and develop a totally new government with the power to run the new nation. What emerged at the end of the summer was the United States Constitution. It required 9 of the 13 states to vote approval for the document to come into being. Not all the states initially voted to join.

Interestingly the one issue never resolved at this time was where did the ultimate power rest, with the states or with the new Federal Government? That issue was not resolved until the end of the Civil War. The power rests with the Federal Government.

Virtually everyone has heard of the Constitution but many people don’t quite know what is contains or how it works. They have not read it or remember what they learned in school about it. This lack of knowledge has caused all sorts of confusion and, at times, a lack of voting.

The Constitution begins with a statement of its purpose: “We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America”. This statement is highly important; it explains the reason for the government.

The document itself contained seven articles. The first establishes the government’s legislative powers, establishing a bicameral law making body, the Senate and the House of Representatives. The House was to be elected directly by the People for a period of two years while the Senate was to be elected for a six year term at the rate of 1/3d of the Senate reelected every two years by the state legislatures. The House represented the people directly and the Senate represented the States. The minimum age for the House was 25 and the Senate, 30. House representatives were apportioned by population with each state having a minimum of at least one, while each state had two Senators. The Vice President headed the Senate with no vote except in cases of a tie with the second in command being the President pro tempore, the leader of the majority party. The House had to sole power of impeachment while the Senate served as the jury in such cases. All tax bills were to originate in the House of Representatives allowing the people to indirectly tax themselves.

Every bill after being passed in both Houses of Congress had to be signed by the President in order to become law. The President can sign the bill, veto the bill, or ignore it. After ten days an unsigned bill automatically becomes law.

Article 1 also enumerates the powers of Congress: lay and collect taxes, regulate commerce, coin money, declare war, raise and support a military, and establish the primacy of the Federal Government over the states.

It is important to keep in mind that only Congress can pass laws. The President can issue executive orders but generally they last only during his tenure in office. Another president can cancel them by a stroke of the pen.

Article 2 deals with the executive power, establishing a President and Vice-President for a four year period. The means of election is stated, requiring that the individual be a natural born citizen, at least 35 years of age. The people vote for electors whose total number equals that of all the Senators and members of the House of Representatives. Upon the removal of the President by death or for any other reason the Vice-President succeeds him.

The specific oath of office is stated. He is commander and chief of the military and can grant pardons. His appointments and treaties require the advice and consent of the Senate. He is to give Congress the State of the Union information and recommendations from time to time. The President can be removed from office on Impeachment for “high Crimes and Misdemeanors.”

From what has been stated the overall powers of the President have been specifically defined over the years by the way the men who have held that position have acted.

Article 3 deals with the judicial power of the United States. It requires a Supreme Court and such other Federal Courts that Congress establishes. It sets the judges tenure as lifetime and the Constitution as the basis for all court decisions. The document defines the jurisdiction of the Supreme Court, the specifics and structure of the Supreme Court and the entire court system is left to be defined by Congress.

Article 4 deals with citizens and state’s rights throughout the nation and with new states coming into the Union.

Article Five has to do with amending the Constitution.

Article Six Pertains to business contracts, the supremacy of Federal law over state law, and having all elected and judicial officials taking an oath to support the Constitution.

Article Seven deals with ratification of the Constitution. It required nine states to ratify the Constitution for it to come into being.

While the process of ratification was going on some of the states complained that there was no Bill of Rights within the document. The founders promised to add one after the Constitution was ratified.

James Madison wrote twelve Amendments to the Constitution. Following Article Five, it required a 2/3d vote for the Amendment to become part of the Constitution. Twelve states had ratified the Constitution. Nine states approved ten of Madison’s twelve Amendments and they became the first ten Amendments to the Constitution or the Bill of Rights.

Seventeen additional Amendments have been added to the Constitution since its inception making the total present number 27.

In 1865 the 13th Amendment abolished slavery.

In 1868 the 14th Amendment was passed. It extended civil rights making all people equal.

In 1870 the 15th Amendment specifically extended Black suffrage.

In 1913 the 16th Amendment legalized the income tax.

In 1913 the 17th Amendment authorized the direct election of Senators by the people.

In 1913 the 18th Amendment authorized the prohibition of liquor and the 21 Amendment in 1933 repealed prohibition.

In 1919 the 19th Amendment gave women the vote throughout the United States.

In 1951 the 22nd Amendment limited future Presidents to two terms.

In 1965 the 24th Amendment made poll taxes illegal for anyone to vote.

In 1971 the 26th Amendment moved initial voting from 21 years of age to 18.

The Constitution of the United States is, with some exceptions, a general document. The interpretation of what it means has shifted over the years as the country has gone from a rural nation with some cities to an industrial one with some agriculture. It is a flexible document whose interpretation has been largely defined by the way it was run and by the courts, particularly the Supreme Court, which has the final say upon what it means. And what it means has changed over the years.

By being flexible the Constitution remains as valid today as it did in 1789 when it was first put into existence.

This document was originally set up with a system of checks and balances. Both the Senate and the House of Representatives serve as a check upon each other since both have to pass the exact same bill in order for it to become law. The President by signing or vetoing the bill serves as a check upon the Congress. The President is essentially an administrator and can only suggest that certain bills be passed by Congress. The Supreme Court has, among other things, the power of judicial review which was created by its third chief justice, John Marshall, in the case of Marboro v. Madison and has functioned ever since. Also the Supreme Court can make the final decision about what a law or any part of a law means.

In addition it is important to remember that only Congress can make and pass a law. The President is the Chief Administrator in the government. He can issue an Executive Order but he cannot make laws only Congress or the People can do that.  Congress by passing a law and the People through Amending the Constitution.

 

 

The Weiner Component #49 – The Tea Party: Hypocrisy, Intolerance, & Extortion

English: Sarah Palin at the Americans for Pros...

On Wednesday, October 1, 2013, Darrel Issa, the California Tea Party Republican, who chairs the House Oversight & Government Reform Committee, was addressing the Executive Park Ranger, who heads all the National Parks in the nation, at a committee meeting. He asked him why the Parks had been closed during the Government Shutdown. Several Democrats on the Committee responded negatively to Issa’s comments. One held up a hand mirror and said something to the effect of: “If you want to see who shut down the Parks look at me.” Issa’s statement at the end of the questioning was that the head of the National Park Service should resign over his handling of the government shutdowns of the public national parks.

It’s an interesting behavior pattern. Blaming someone else for what you helped bring about. It shows Issa to be as sensitive as a boulder rolling down a mountainside. Is it gall, hypocrisy, or just insensitivity to the rest of the world? Does Darrel Issa feel that his view of the world is the right one and that everyone who holds a contrary view is wrong and should change their prospective to match his? Is he the perfect representative of the Tea Party?

Ted Cruz, Michelle Bachmann, Sara Palin, and other prominent Tea Party Republicans were in shock, several days earlier when they usurped a veteran’s meeting at the new World War II Veteran’s Memorial in Washington, D.C., to protest both the fact that it was closed during the Government Shut Down and that the Obama Administration had done this. The fact that Cruz and the Republican House of Representatives led the charge for the Government Shut Down was beside the point. It’s amazing how these people can set up a negative situation and then blame the Government for what they themselves have done. It’s like, with a straight face, claiming that white is really black and black is really white. They are arrogant with no sense of shame for their own inappropriate behavior.

The Tea Party’s actions are reminiscent of the functioning of the old Communist Party. The member or adherents of that group were so sure they were right in their beliefs and that everyone else was wrong that anything they did to advance their cause was acceptable, even to robbery, murder, or even blatantly sacrificing the lives of any number of people. Their cause was the ultimate cause; the next step in the inevitable flow of history, to them the destiny of mankind. It justified any behavior that enhanced its cause.

The old Communist Party of the late Nineteenth and Twentieth Centuries are gone now and so are their doctrines, all casualties of historic change. Russia (the old Soviet Union). China (The People’s Republic), and Vietnam like the United States, Great Britton, Germany, and France are all combinations of both Socialism and Capitalism.

This historic change will also happen to The Tea Party, they will, like the Know Nothing Party of the 1840s and 1850 eventually become casualties of history. But before they disappear they can cause all sorts of havoc to the current generation. Up until the end of the possible government default they, a small minority of elected government legislators, had achieved control of the Republican Party moving it to the far reactionary right. They have done this by essentially controlling the money contributions that the politicians need to stay in office and by threatening their fellow Republicans with having more extreme candidates run against them in the primaries when they came up for reelection. This mode has been successful, first in shutting down the government by not passing an acceptable budget, and then up until the day of the default when the Speaker of the House brought up a Senate Bill that would extend the debt ceiling and reopen the government, created great negative problems for the Government. While the Tea Party members voted against this measure both the Democrats and moderate Republicans passed the bill and almost immediately it became law.

Various far right groups like the Heritage Foundation threatened primary runoffs against any Republicans who supported this bill. This means so far that there should be runoffs in the primaries against the majority of Republican Senators who are running for office in 2014 and the House of Representative members who supported the bill.

The 2014 Midterm Election will be very interesting and important. Particularly since the question of the Debt Ceiling will come up again in February of 2014. Hopefully by then the country will have a new budget to finance the running of the Government. Ted Cruz, among others, has threatened a Government Default. Many of the current Tea Partiers are very angry over losing the current battle over this twenty-four billion dollar fiasco. Will the far right and the Tea Party have the clout to bring about another twenty-four billion dollar crisis?

To date Tea Party control of the Republican Party has lasted three years. The Heritage Foundation and other far right organizations will have to spend billions of dollars to get their way in the primary races. They will again have to spend that much money in the actual elections against Democratic candidates. Will their contributors be that generous, particularly since the banks and other corporate contributors lost a lot of money in the first Government Shut Down and the near-default by the Federal Government.

Meanwhile the public is going to be subjected to all sorts of rhetoric about what the Tea Party will and will not do. They will be regaled with hypocrisy and intolerance.

Refusing to deal with the budget and bringing the country to the edge of default over the Debt Ceiling cost the government of the United States twenty-four billion dollars and about 250,000 jobs. This does not count other losses in industry and consumption, which could bring the lost amount to over a trillion dollars. I haven’t heard anyone in the Tea Party taking responsibility for these actions. In fact the Tea Party members in the House of Representatives all voted against raising the debt limit and funding the government. Do they even understand what they are doing? Are these the actions of a group claiming to want to reduce Government spending and increase employment? They seem to want to bend the government to their will by any means. They would destroy the state if they can’t get their way and their means of enforcing their will is blatant extortion. They feel they are that right and everyone else is that wrong. They are very much like the old Communist Party.

English: US Representative Michele Bachmann (R...

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The Weiner Component #41 – Obama Care, Socialism, & the Free Market

English: President Barack Obama speaks to a jo...

English: President Barack Obama speaks to a joint session of Congress regarding health care reform (Photo credit: Wikipedia)

There was an article recently in the Wall Street Journal, which stated that a larger and larger percentage of the National Income is going to the top one percent of the population.  Consequently there is less and less available yearly for anyone else and standards of living keep going further and further downhill.  This is the Free Market in action, giving more and more to the top and less and less to everyone else.

Meanwhile the Republicans in Congress are keeping taxes relatively low for the top percentile and vigorously denouncing Obama Care, the Affordable Health Care Bill that largely comes into being in October of 2013.  They are, among other things, threatening to shut down the Federal Government by stopping all spending, rather than let Obama Care come into being.  There have been about forty separate votes over two different sessions of the House of Representatives defeating this law.  The Senate, which has a Democratic majority, will not even bring this bill up for a vote and the President, if it were to come before him for his signature, would veto it.

Looking over statements by prominent Republicans and others I find that there are only two reasons for discarding this law.  The first, which seems minor, is that it will bankrupt the government.  That is nonsense; the law, in the long run, will actually lower medical costs for everyone.

The second reason, which seems to be major, is that it is socialistic.  They are offering no alternatives for the millions who have no medical care; they just want to do away with the law, presumably because it is evil in their estimations.  Why is it evil?  It is so because it takes choice away from individuals by giving them medical insurance, something every member of Congress has. The Republicans are afraid that people will lose their self-reliance.

Actually, to paraphrase one of their more verbal proponents, Ted Nugent, it takes free choice away from many Americans by requiring them to have medical coverage.  It is therefore rampant socialism, which everyone knows is a bad thing because it makes him or her dependent upon the Federal Government.  Therefore it is bad.  While the Republicans in Congress do not tend to be as dramatic or as loud this is still their basic attitude.

My problem with all this postulating is that it overlooks the fact that socialistic practices already exist in our society.  For example there are Social Security and Medicare.  Shouldn’t these programs also be done away with to make people less dependent upon the Federal Government?  In addition aren’t subsidies and tax-breaks for wealthy individuals and some major corporations like oil another form of socialism since the government allows these industries to pay less or no income taxes and in some cases gives them subsidies for running their highly profitable businesses.

Aren’t people like Michelle Bachmann, whose families have received subsidies from the government for their farms and business, also accepting socialistic practices that, in turn, limit their competitive free choice and make them dependent up the government? 

It’s an interesting conundrum.  Basically if one looks at government activity across this nation, that activity is rife with socialistic practices, both on state and Federal levels.  If a state offers a particular corporation tax benefits to locate in their area, isn’t that a form of socialism?  That would make Rick Perry, the governor of Texas, guilty of spreading this ism.

Of course, if we look at the assorted Republican statements we find that one can draw a line across what they consider socialism and what it is all right to do.  When it comes to individuals, the working class, then that is socialism and those programs should be cut or done away with; but when it comes to the earning classes, the businesses, corporations, and high earning people, the activity is perfectly okay.  It is a view that could best be defined as “Government of the rich, by the rich, and for the rich.”

I could respect the Republicans in Congress if they were at least consistent and actually stood for their principles but they are essentially hypocrites.  If they want to do away with the Affordable Health Care Law then they should also propose to do away with their own health care coverage and, for that matter, also everyone else’s.  That would significantly lower the price of most employment in the United States and make all those workers competitive with those in other countries.  Of course it would also sustancially lower standards of living.  If they did away with all tax breaks and bonuses that would significantly increase the amount collected in taxes.  It might even make the free market honest! 

But they do none of this.  The Republicans in Congress are largely dependent upon the large corporations and wealthy individuals for the contributions they need to run their political campaigns.  In a manner of speaking they have sold their principles, if they have any, for the financing needed to remain in office.

What is being asked of the people who support them, particularly those individuals who have no medical insurance, is to object to a law that will protect them by giving them medical coverage that they do not have.  They want to give the poor the right to die sooner than they might with Oboma Care.

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The Weiner Component #38 – The National Debt

To most people the National Debt is an unimaginable amount, over sixteen trillion dollars

United States Capitol

that the United States Government or the taxpayers owe to foreign entities like China and Japan, whose interest payments alone will eventually bankrupt the nation.  This also seems to be the image projected by the Republicans in Congress.  It is total misinformation and nonsense, more mythical than real.

The initial debt was incurred during the Revolutionary War and under the Articles of Confederation.  With the exception of the year 1835, the United States has continually held a public debt since the Constitution went into effect on March 4, 1789. 

The National or Public Debt of the United States consists of two components.  The first is debt held by the public and the second is debt held by government accounts or intergovernmental debt.  Debt held by the public consists of Treasury securities held by investors outside the Federal Government.  These include individuals, corporations, foreign states like China and Japan, and local governments, both in and out of the United States.

Debt held by government accounts includes non-marketable Treasury securities held in accounts administered by the Federal Government that are owed to program beneficiaries such as the Social Security Trust Fund.  This account currently exceeds 2.7 trillion dollars.  Other large intergovernmental holders include the Federal Housing Administration, the Federal Savings and Loan Corporation’s Resolution Fund, and the Federal Hospital Insurance Trust Fund (Medicare).  Debts held by governmental accounts represent the cumulative surpluses, including interest earning of these accounts that have been invested in Treasury securities.  In 2012 there were at least two direct transfers of 89 billion dollars from the FED to the Treasury that were mostly interest paid on the National Debt.

By my estimate the Federal Government owns well over fifty percent of its own debt.  Dr. Ben Bernanke, the Chairman of the Federal Reserve, recently stated (May 2013) that the FED, which had monthly been investing 85 billion dollars in the National Debt for well over the last twelve months, 40 billion in re-buying government securities and 45 billion in purchasing mortgage paper, would increase or decrease the monthly amount according to the nation’s needs.  He indicated that this would depend upon whether or not Congress would utilize fiscal policy, which it has not done since 2011.

It is interesting to note that the deficit under President Obama, which increased when he took office in 2009 because of the economic disaster facing the nation, has been dropping significantly and could by 2015 reverse itself and generate a surplus as it did in President Clinton’s last year in office.

Up to the end of 2008 there seemed to be endless amounts of money available.  Banks were refinancing real estate at 125 percent of their appraised value and in the process creating endless amounts of money.  People were spending like there was no tomorrow.  All of this ended when the Real Estate Bubble burst.  Every dollar in circulation suddenly became a nickel.  Virtually overnight there wasn’t enough money available to meet the needs of the economy.  If Presidents Bush and Obama had not bailed out the banks the nation would have been in a far worse depression than that of 1929.  The government, under the guidance of President Obama saved the economy from total ruin.  This was done by bailing out the financial institutions that had brought about the crash and then by bailing out some core industries like the automobile companies.  Where did the money come from?  The government created it and gave the needing companies the financial backing to recover.

Foreign trade has been unequal; we buy far more than we sell to others.  The two foreign nations that hold large amounts of the National Debt are Japan and China; each holding about 1.1 trillion dollars worth. 

Keep in mind that each nation has its own currency that has value only within the boundaries of that nation.  While money can be exchanged internationally if the trading is totally out of balance/unequal, then an international exchange of currency following the laws of supply and demand, could drop the value of the money fifty or more percent causing the nation that has acquired it to take a substantial loss in its profits.  Actually the money becomes a prisoner in the country of the sale and has to be invested there.  The value of this to the country making the massive purchases is that it gets the goods it wants and in a slightly convoluted fashion retains the funds it has spent for these items.

Several decades ago Japanese businessmen purchased large amounts of real estate in the United States, particularly in Hawaii.  They actually bought high and ended up eventually having to sell much of it far below what they had originally paid.  While China is very adept at selling goods and services to the rest of the world she has problems with certain aspects of her economy.  On 2012 many thousands of pigs died, presumably from drinking polluted water.  China has the largest population in the world and has to be able to successfully feed them.  It seems that she is in the process of buying food-producing companies in other nations (June 2013).  She is currently in the process of buying Smithfield Foods, the largest producer of pork in the U.S., for 4.7 plus billion dollars.  She is probably doing this also with countries other than the United States.  She will be importing what she needs from companies all over the world that she will own.

The Federal Government utilizes Macroeconomics.  Here money is the tool that it uses to allow the economy to function properly.  Ultimately the government prints/creates the money it needs to allow the economy to work.  It can do this knowingly or blindly.  The manner in which the state performs and controls the process determines the success of its economy.

On April 2, 2013, the National Debt was 16,805 trillion dollars.  What is the significance of this massive amount of money that the government has created?  Does this in any way hamper the productivity of the nation?  The answer to the first question is that there isn’t any real significance other than functionality.  The answer to the second question is NO.  It has become, as far as many of our conservative legislatures are concerned, the tail that is wagging the dog!  

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The Weiner Component #27 – Subsidies & Taxes: Is There a Difference?

End crop subsidies

In order for any government to function it must have some source of revenue that allows it to pay its expenses.  In addition, for a nation to grow, both during periods of peace and war, it must have a means of encouraging the development of new or fledgling industries.  A major method of doing this is through subsidies, which reduce taxes in specific areas of economic growth.  These are tax subsidies that are supposed to be used only when they are needed.  Once the fledgling industry can compete on a world-trading basis or can supply the needs of its-own country these subsidies are no longer needed and should be done away with.  Unfortunately that is not always the case.

During the early days of the United States the source of government income was mostly tariffs, a small tax on all goods being imported.  As the country grew so did its need for money to fund its operation and other things within the nation were taxed.  Eventually, with wars, beginning with the Civil War, individual gross income was taxed.  The Supreme Court eventually declared this income tax unconstitutional.  Early in 20th Century the Constitution was amended, Article XVI, legalizing the income tax.  It has existed ever since as one the main sources of revenue for the Federal Government and also for most of the state governments.

This tax, from its beginning was supposed to be a graduated tax; the amount people paid was to be based upon their ability to pay, the more one earned the greater the percent the individual paid.  Thus the amounts paid were based upon the individual or household’s ability to pay.

During the later part of the 20th Century taxable income, the income tax, was divided into two major categories, regular income and capital gain or active and passive income.  Active income was money directly earned by some form of employment; passive income was an increase in value of something, stock, property, art or anything increasing in value over a passage of time.  The object of this was to encourage the sale of the property or stock or whatever the item was, since it could only be taxed when it was exchanged for money.

Also with capital gain the increase in value had to be significant if it were to be sold, otherwise the profit would be eaten up by the amount of the tax.  Consequently capital gain was considered a reasonable extension of the income tax laws.  However over the years many accountants have been able to extend it to cover a goodly percentage of the upper echelon’s income and subsequently have considerably reduced the percentage of their earnings paid in taxes.  Someone like Mitt Romney pays fourteen percent or less of his million plus income while the ordinary citizen earning far less than one hundred thousand dollars a year will pay twenty to twenty-five percent of their income in these taxes.  There is now a move to reduce the capital gains tax and/or increase the tax base of anyone earning a million dollars or more a year.

On the other hand the Federal Government is and has been giving subsidies to many people and companies investing in green forms of power, saving or producing devices like those that make electricity or hot water from light.  These devices are usually installed on the roofs of homes or they can be money invested in electricity producing windmills that generate electricity or similar resource creating devices.  The individual’s benefit derived from this type of investment is not to decrease his overall taxable income by the amount spent on the device but a direct deduction from the money owed to the government.  If you owe fifteen thousand dollars in income taxes that year and the power-saving device cost ten thousand dollars to buy and install, then the tax owed is reduced to five thousand dollars.  If the cost of the device is greater than your taxes then you can carry the difference over to the next year.  It is a means of economically encouraging households “to go green” and inexpensively increase the amount of available resources for the country

In the case of businesses or corporations this encouragement is carried out by “subsidies.”  Subsidies according to Webster’s dictionary are “grants of money by a government to a private person or company to assist an enterprise advantageous to the public.”    Usually these grants are supposed to function as long as it is advantageous for the country to fund that entity.  This usually means allowing a fledgling company to grow large enough to become competitive with similar concerns from other nations or to allow forms of exploration that the concern cannot itself afford, such as drilling for oil in the Gulf of Mexico.  The oil subsidies, for example, were begun in the early 1940’s to allow for rapid exploration during World War II.  With some modifications and additions they are still going on today.  If the government were to stop or limit these subsidies in no way is it taxing these companies which today are making profits in the billions of dollars.

For practical reasons over the years many corporations were given innumerable subsidies, generally for very good reasons.  These subsidies are, in most cases, no longer practical, as currently most of these corporations are multi-profitable.  In point of fact many, like the oil interests, tend to use some of their subsidy money to hire lobbyists and for contributions to both political parties.  While this is not legally bribery, it comes awfully close to being both coercion and bribery.

The current argument in Washington between the Democratic and Republican Parties defines these subsidies as being taxes.  If they were cancelled, John Boehner has argued, it would be raising taxes on “the job creators.”

As we’ve seen the large corporations that get these subsidies use the money mainly to fund lobbyists and to make financial contributions to both parties in both Houses of Congress.  What they are mining is the American taxpayer who indirectly ends up paying their bills.  Isn’t it time we stopped subsidizing companies that are making many billions of dollars in profits.  Subsidies are not taxes and should not be treated as such.  Let’s have a more reasonable system of taxation!

 

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