The Surplus of 2000

By the end of 2000, Democrats and Republicans had worked together to create a balanced budget. Not only was it balanced, but there was also a half-trillion-dollar surplus. There was enough surplus to pay off the outstanding federal debt in less than five years, and it would have paid off the debt owed to the Social Security Trust Fund by as early as 2010.

The Bush Deficit

Then George W Bush and the Republicans decided to pass tax cuts that amounted to over $2 trillion PER YEAR in annual deficit. This tax increase was based on the assumption that there were no wars, we were in a peace-time economy, economic growth was 4% per quarter with growing industries based on the Internet, Cellular, and new technologies such as PDAs, Media Players, and other personal electronics innovations that could fuel new growth through the development of new growth-oriented companies.

There was a little problem, though. First, the Bush Tax Cuts cut taxes on dividends paid to investors significantly, almost to zero. Billionaires like Bill Gates got $billions in tax-free dividends. The problem was that now investors wanted high-dividend stocks and abandoned growth stocks. This dried up the available venture capital because venture capital investors couldn’t get money back by taking their companies public. Suddenly, the economic growth of the 1990s collapsed. Even before the 9/11 attacks, there were panics in the stock market as prices fell dramatically, thanks to eliminating the “up-tick” rule, allowing stocks and markets to go into free fall.

Bush argued, “You know best how to invest that surplus.” The surplus wasn’t invested. It was hoarded as companies bought back their stock and paid huge dividends to principal stockholders, yet small investors barely got enough to pay the filing fees. Mega-cap companies purchased innovative companies that wanted to eliminate competition and preserve the status quo.

The War on Terror

Then we had 9/11 and started wars in Afghanistan and Iraq, creating a four-front war in which rules of engagement crippled the military’s ability to control and win the wars. The result was record levels of military spending. The constant use of “smart bombs” and missiles that cost as much as $1 billion/year in wars lasting as long as 20 years.

The Mortgage Crisis

During the Bush years, homeowners were encouraged to “go shopping,” getting home equity loans, including loans on the “future value” of their homes, and spending that money on taxable items like cars, clothes, and consumer goods rather than investing the money in home improvements. Home buyers were getting low-interest variable rate mortgages. Mortgage brokers often used bait-and-switch tactics to get people to take the variable rate loans on the promise that the brokers could get them a new loan at even lower rates. Nobody explained that a 1% increase on a 4% loan would mean a 30% increase in their monthly payments, which they could barely afford before the increases. The use of sub-prime and variable-rate mortgages led to a collapse of the entire real estate market, with house prices falling by 30% or more, especially in low-income areas. Congress had to pass a $4 trillion debt increase to “bail out” the banks holding junk bonds based on bogus mortgages. The result was defaults and foreclosures, most of which hit the market after 2008.

The Obama Administration

During the Obama Administration, the Bush Tax Cuts were made permanent because the Conservative Republicans refused to increase the debt ceiling unless they were made permanent. The Obama administration had to take extreme measures to prevent a total economic collapse, even as homes were foreclosed, jobs were lost, and the country faced another Great Depression.

The Obama measures, including fed funds rates at effectively negative rates, with the Federal Reserve getting less than it cost to service the loans – to stop the bleeding and stem the recession. Over the following eight years, the economy recovered, the stock market recovered, and the deficit was reduced, but still exceeded $2 trillion per year thanks to the Bush Tax Cuts now made permanent and 2 wars that lasted up to 20 years.

Trump Tax Cuts

Donald Trump almost immediately passed another tax cut for the rich, increasing the annual deficit to nearly $4 trillion. Obama had set up a withdrawal from Iraq and killed Bin Ladin. Trump increased the use of high-priced weapons in Afghanistan. The result was even higher annual deficits.

Under the Bush administration, millions of people who had been paying $Trillions into the Social Security Trust Fund based on the promise of complete medical care coverage and tax-free retirement income were suddenly being “promised” that only 80% of their health care would be covered. Under Ronald Reagan, Social Security income would be subject to taxation. Furthermore, Prescription Drug coverage was now a separate program and had to be arranged with a private provider.

The Trump organization then tried to move people off of Social Security entirely, herding retirees, especially “baby boomers,” into Medicare Advantage programs that could limit coverage, had high deductibles, and were getting more profits by limiting services and providers.

Now, the GOP wants the Democrats to pay for all those tax cuts and wars by cutting benefits and services paid to the beneficiaries of Social Security, Medicare, & Disability by forcing people to retire even later, forcing them to accept massive cuts if they are forced into retirement. During Trump’s failure to handle COVID-19, millions of “baby boomers” in their early 60s were forced into retirement or disability and forced to accept lower payments.

Perhaps it’s time to roll back the Bush Tax Cuts?

The Bush Tax Cuts were passed based on the assumption of the same economic growth rate as during the Clinton years, that the United States was at peace with no major military conflicts. Even the few military engagements lasted days or weeks not decades like Vietnam. The other assumption was that the military budget could be cut even further over the next four years.

All of these assumptions failed to materialize. The economy and the market crashed multiple times during the George W Bush years. Some of this was due to an SEC chairman who went grand-standing to very publicly go after Enron, MCI, and other innovative companies. The Bush effort to eliminate “Double Taxes” on dividends meant that the market for growth stocks dried up, leaving venture capitalists tied into companies that couldn’t be taken pubic do to lack of interest in IPOs. The result was that the only innovation going on during the Bush II years were shoestring to $billion revenue based on Open Source technology tools like Linux, MySQL, and other key technollogies. As a result, when companies like Google went public, less that 5% of the company was offered in the IPO. Other innovative companies were sold to established companies like Microsoft, IBM, Oracle, and other companies who wanted to kill the innovative competition to maximize their profits.

By the end of the Bush II years, the country was facing a major recession that forced Congress to approve as $4 trilllion bail-out because the Bush Tax Cuts were “financed” by home mortgages and home equity loans, often at sub-prime rates to high-risk borrowers.

Perhaps we can also roll back the Trump Tax Cuts?

The Obama Administration had gone to desperate measures to rebuild the economy on a firm foundation, but he could not let the Bush Tax Cuts expire, as was supposed to happen if the assumptions didn’t pan out after 10 years. Senator Ted Cruz and Rand Paul threatened to filibuster the nation into default unless the Bush Cuts were made permanent, even though it meant adding $2 trillion per year to the Federal Debt, with the Social Security Trust Fund becoming a major creditor, having loaned nearly the entire fund at negative interest rates.

Cutting both the Trump and Bush tax cuts would result in at least $1 trillion per year in surplus, which would pay off the federal debt and provide prudent reserves to handle future economic recessions.

Perhaps we can roll back military spending to peace-time levels?

During the height of the Iraq/Afghanistan wars, we were spending over $1 trillion per week on smart bombs, occupation forces, body armor for infantry, and other high-end weapons, many of which hadn’t been tested or hadn’t performed up to expectations. Ironically, the enemy was doing more damage with simple IEDs that could cripple not only the Hummers and tanks but thousands of troops who survived as wounded warriors unable to fend for themselves.

Only then can there be a discussion of reducing benefits to healthy, able-bodied people.

Social Security/Disability is a Trust Fund funded by people who have been paying in 14% of their income for 50+ years so they can collect about half their take-home pay for 10-15 years. The contract has been breached several times since the Reagan Administration, with taxes on benefits, reduced Medicare benefits (20% co-pays), Medicare premiums for Part B, and an increase in the age to collect full benefits up to age 70.