The Not-So Great Society

Mitt Romney revealed a lot about himself when he told CNN’s Soledad O’Brien, “I’m not concerned about the very poor. We have a safety-net there.” Weeks before he had asserted that those safety-net programs have “massive overhead” and that because of the cost of such bureaucracy “very little of the money that’s actually needed by those that really need help, those that can’t care for themselves, actually reaches them.” His claim is false. The fact is that more than 90% of the money allocated to safety-net programs reaches its beneficiaries. Romney’s statements demonstrate that he is oblivious to such socio-economic realities, but at least he brought up poverty and made it an issue. That is something that has not happened up since 1964.

Romney touts his business background and pontificates that he knows how to create jobs. That may sound good to the Republican base, but Presidents of the United States have nothing to do with job creation. It is not in their Constitutional authority. Presidents do not legislate. They sign legislation into law or veto it. Furthermore, the United States is not a corporation. The last U.S. President who came to office from business was Herbert Hoover, whose administration ushered in the Great Depression, incredible job loss, and excruciating poverty.

Presidents do propose legislation to the Congress, as LBJ did with the Economic Opportunity Act of 1964. That Act established the Office of Economic Opportunity to administer the local application of federal funds targeted against poverty. Modified over the years, the Act’s remaining programs include Head Start and the Job Corps. Johnson proposed that legislation in January of 1964, coerced and cajoled members of Congress to pass it, and signed it into law on August 20, 1964. It created jobs.

In declaring the War on Poverty, President Johnson sought “to help that one-fifth of all American families with incomes too small to even meet their basic needs.” LBJ called for “better schools, and better health, and better homes, and better training, and better job opportunities to help more Americans, especially young Americans, escape from squalor and misery and unemployment rolls where other citizens help to carry them.”

The poverty rate is the percentage of Americans whose income is lower than the federally determined poverty line. It was 17.3% in 1965.

As LBJ put it to Congress, “Very often a lack of jobs and money is not the cause of poverty, but the symptom. The cause may lie deeper in our failure to give our fellow citizens a fair chance to develop their own capacities, in a lack of education and training, in a lack of medical care and housing, in a lack of decent communities in which to live and bring up their children.” The safety-net programs that Mr. Romney does not comprehend came from President Johnson’s Great Society initiative.

Romney, the other GOP candidates, and the Republican Congress gripe about and seek to change one of President Johnson’s greatest legislative achievements, Medicare. It helped to lower poverty rates for the elderly. So did President Franklin D. Roosevelt’s Social Security program, which LBJ enhanced by advocating, pushing for, and signing legislation in 1965 and 1967. But the GOP seeks to repeal LBJ’s Great Society by claiming that its programs are bankrupting the country.

Romney ineloquently brought up poverty with his “very poor” statement, for which he drew massive criticism. He said he misspoke. That may be true, but it reveals an ignorance of the fact that more than 20 million Americans live in a household with income of less than half the federal poverty rate. According to census data for 2010, those “very poor” had an annual income below $11,057 for a family of four. That portion of the US population in the very poor category has almost doubled since 1975 and is the highest it has been in 35 years. Business people rely on data. At the least Romney could have read Business Week and appeared less clueless.

In addition to those one in five Americans that Romney does not care about, the ones who had trouble putting food on the table last year, the unpleasant reality is that nearly half of all U.S. households are struggling to cover basic expenses like electricity and medical care. Children are the least fortunate victims. As in LBJ’s time in the late ‘20s when he was a Texas school teacher, childhood poverty can have a lifelong effect on a person's earning potential. The Brookings Institute and First Focus found that by the time children who fell into poverty during a recession grow up to be financially independent adults, their median income is about 30 percent less than that of adults who never experienced poverty as children. That is certainly bad for business.

The poverty issue is not who gets blamed. The issue is what choices do policy makers make to help expand economic activity. Romney and his cohorts are all about austerity, like defunding the safety-net programs for the very poor, the disabled, and seniors. The problem is that austerity in a recession makes things worse, not better. In Europe, which the GOP does not understand, harsh austerity policies have made unemployment soar. Cuts in government spending have failed to reduce budget deficits because tax receipts fell. Economic activity and employment levels collapsed. Poverty increased as spending decreased.

President John F. Kennedy said, “If a free society cannot help the many who are poor, it cannot save the few who are rich.” As one of those few, Romney demonstrates a profound paucity of the economic and social understanding that is requisite of Presidents. Despite the Republican pabulum to the contrary, this is still a country of great abundance that is slowly emerging from the Great Recession. However, the nation suffers from a rise of poverty that the nation can ill afford. All of the talk about the middle class ignores the plight of the “many who are poor.”

Poverty is bad for business and Romney should know it. His comments deserve derision because they are false, not because they are gaffes. He raised the poverty issue but has articulated no plan for addressing it, without which the country becomes the Not-So Great Society.

 Originally published as The Not-So Great Society on Blogcritics.

History and Consequences

With all of the information that is available, the public remains confused. It may have to do with the sources of their information, but the latest polling data says that 47% of Americans say their greater concern is that raising the debt limit would lead to higher government spending and make the national debt bigger, while 42% say their greater concern is that not raising the limit would force the government into default and hurt the economy. Additionally, 74% of Republicans and GOP leaning independents who agree with the tea party faction of the party say their bigger concern is that raising the debt limit would result in more spending, compared to 58% of those who do not agree with the faction.

According to the Congressional Research Service, the debt ceiling has been raised 74 times, since March 1962, and 10 of those times have occurred since 2001. Theoretically, the debt ceiling limit is supposed to help Congress control spending. In practice, the debt limit has been ineffective in controlling spending and deficits because politicians and reality remain as strangers to one another. History shows that it has been that way for quite a while.

The fact is that the debt ceiling doesn’t regulate anything, believe it or not. The Budget Control Act of 1974 created a process that requires Congress to vote on aggregate levels of spending, revenue and deficits every year. That makes the debt limit redundant.

Five years after the 1974 Budget Act passage, a combination of a failure to increase the debt limit in time and a breakdown of Treasury’s machines for printing checks caused a two-week technical default and a short term failure for the government to meet its obligations. That raised interest rates by six-tenths of a percentage point. Over time that percentage hike translated into billions of dollars in increased interest payments on the nation's debt, which became a cost passed on to taxpayers.

In other words, default increases the debt service which increases the deficit.

President Franklin Delano Roosevelt (FDR) questioned the meaning of a legal debt limit, according to Time Magazine on January 20, 1941. The President “hinted that there should be no legal limit.” In its coverage of the FDR’s Budget for the fiscal year 1941-42, Time noted, “Last July's Democratic platform made no mention of that fiscal dodo, that old museum piece: a balanced budget. Franklin Roosevelt held to precedent—he didn't mention it, either.” The Newark News remarked, “Like the budgets of Mr. Average Citizen, it was full of unjustifiable errors of judgment, of expenses borne out of habit, of big installments still being paid on past mistakes.”

FDR signed the first Social Security Act into law in 1935. Thirty years later, that part of FDR’s “New Deal” became part of the President Lyndon Baines Johnson (LBJ) “Great Society” and established Medicare when LBJ signed the Social Security Act of 1965 into law.

Only half of American's 65 and older had any health insurance at the time. The bill LBJ signed also created Medicaid, the public health insurance program that today covers over 60 million people, including one in three children, eight million people with disabilities and nearly six million low-income seniors. Each state administers its own Medicaid program. Republicans have scorned the entitlement programs of the Great Society ever since, now more so than ever.

Here is how we pay for those programs. Social Security and Medicare entitlements are paid for by the FICA [Federal Insurance Contributions Act] tax. The rate is 7.65% of our pre-deduction [gross] earnings. 6.2% goes for OASDI [Old-Age, Survivors, and Disability Insurance]. 1.45% goes for Medicare. The Social Security system pays for old-age, survivors, and disability. Hospital insurance is funded by Medicare. Income tax funds the government. It is called revenue and is a separate and different issue. Republican rhetoric obfuscates that point.

While the public may be somewhat divided about the debt ceiling, they are not so confused when it comes to entitlements. “The public decisively supports maintaining the status quo,” according to the Pew Research Center. “Six-in-ten (60%) say it is more important to keep Social Security and Medicare benefits as they are; only about half as many (32%) say it is more important to take steps to reduce the budget deficit.”

LBJ argued that helping the poor was in the best interest of business by providing stability to society. GOP disdain for Johnson’s Great Society and its War on Poverty continue. Republicans demand sharp cuts to Medicare and Social Security. Programs for the poor and the aging are the “reckless spending” recitations of Republican rhetoric that compound the deficit conundrum that confronts House Speaker John Boehner.

At a recent press conference Boehner said, “I agree with the president we cannot allow our nation to default on our debt.” He added, “But to prevent a default, a bill must pass the Congress.” For that to happen, “the bill must include spending cuts in excess of the increase in the debt ceiling.” He faced a similar challenge in April with the government shut-down threat. He also faces factional opposition within the Republican House majority and its fame-seekers, like Representatives Cantor and Ryan.

"I don't think the majority of Congress is so stupid as to visit an actual default on the United States," said David Kelly, chief market strategist at JPMorgan Asset Management. "Their constituents would never forgive them for playing fast and loose with the credit-worthiness that it took 230 years to build up." Meanwhile, Standard and Poor's told Reuters last week it would “waste no time cutting the top-notch U.S. credit rating” if Treasury missed a $30 billion debt payment on August 4.

The consequence of default would crank up borrowing costs for consumers and businesses, and flush the vulnerable US economy back into the toilet of recession.

The Speaker of the House is responsible for ensuring that the House passes legislation supported by the majority party, in this case the majority of the majority. Mr. Boehner was a teenager when LBJ ushered in the Great Society in 1965. [President Obama was 4.] Majority leader Eric Cantor (R-VA) was a 2-year-old. GOP Budget author Paul Ryan (R-WI) wasn't even born. . It is their short-sighted ignorance of history and consequences, coupled with the ideological intransigence of the freshman tea party faction, which threatens Boehner’s speakership, the Republican Party and the United States.

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Article first published as History and Consequences on Blogcritics.

Repealing the Great Society

Republicans propose changes in Medicare and Social Security. The claim is that federal spending is “out of control.” Members of Congress repeat that claim often, hoping that by repetition their claim will become true. GOP members publicly advocate that the federal budget must be cut to their terms or else the United States can default on its obligations. The party opposes the “Great Society” as it did the “New Deal.” It just doesn't know that.

President Lyndon Baines Johnson (LBJ) signed the Social Security Act of 1965 into law. It established Medicare. Johnson enrolled former President Harry Truman as the first Medicare beneficiary at the bill-signing ceremony and presented him with the first Medicare card. Truman’s boss, President Franklin Delano Roosevelt (FDR), signed the first Social Security Act into law in 1935. Thirty years later, that part of FDR’s New Deal had become part of LBJ’s Great Society.

Republicans have opposed Social Security for more than 65-years-old. They also oppose facts. For instance, Social Security and Medicare entitlements are already paid for through an involuntary tax called FICA, collected at a rate of 7.65% of gross [before deduction] earnings. 6.2% goes for Social Security called OASDI [Old-Age, Survivors, and Disability Insurance]. 1.45% goes for Medicare. The federal system of old age, survivors, disability and hospital insurance is paid by the FICA tax. The Social Security system then funds the first three, while hospital insurance is funded by Medicare.

Those are the facts. Here are more. For the last 20 years Congressional Republicans have tried to limit Medicare spending on doctors’ services. However, the proposed limits have always proved to be so unrealistic, like their current demands, that each time new limits have been proposed, Congress has had to intervene to increase them. Republicans inaccurately call it uncontrolled spending when they lose.

Only half of American's 65 and older had any health insurance at the time LBJ signed the bill that created Medicare. Medicaid, established by Title XIX of the Social Security Act of 1965, is administered by the states. The public health insurance program covers over 60 million people, including one in three children, eight million people with disabilities and nearly six million low-income seniors. Each state administers its own Medicaid program. In addition to Medicare, LBJ’s “Great Society” legislation included laws to uphold Civil Rights, to create Public Broadcasting and the National Endowment for the Arts and Humanities, and to establish a host other social legislation programs to improve the American way of life. It seems as if Republicans are determined to repeal the Great Society.

Thirty-five million Americans lived below the poverty level in 1965. In a nation with such abundance, LBJ argued that helping the poor was in the best interest of business by providing stability to society. Republican disdain for Johnson’s War on Poverty continues. Originally headed by the late R. Sargent Shriver, the first Director of the Peace Corps, its legislation created Medicaid in addition to environmental protection, aid to education, Head Start, and the Job Corps. Republicans appear to label any program that helps poor people as “reckless spending.”

President Johnson also handled spending differently than the way Republicans and President Obama are considering. Instead of deficit spending to finance the Vietnam War, LBJ pushed Congress to enact a surtax. The imposition of a surtax added another 10% to one's ordinary federal income tax liability. LBJ left office in 1969 with a balanced budget plus a small surplus. It took 30-years for the United States to see another balanced budget.

Bear in mind that there is no Constitutional requirement for a balanced budget. The United States federal government has pretty much always been in debt since its inception. Article I, Section 8, Clause 2 of the Constitution grants to the United States Congress the power “To borrow money on the credit of the United States.” As you may also know from recent accounts, Section 4 of the Fourteenth Amendment states, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

Republicans are questioning it.

Their latest debt ceiling demands include an oldie-goldie cover renamed the Cut, Cap and Balance Pledge. It is a classic hit that comes up from time to time -- to oppose raising the borrowing limit unless it is accompanied by spending cuts and caps, and to pass a Balanced Budget Amendment to the Constitution. So far the Pledge has been signed by just 12 senators (6 of them freshmen Republicans) and 28 House members (17 of them Republican rookies). Republicans seem to like the idea of amending the Constitution despite the fact that the founders made that so difficult to accomplish it has only happened seventeen times. As I say, it’s a GOP blast from the past like the Fair Tax.

During the Carter administration, Republicans proposed the Balanced Budget Amendment as a fiscal cure-all. It didn’t cost them anything politically since they were out of power, controlling neither house of Congress nor the Presidency. They knew it would not be enacted. Between April 29, 1975 and January 29, 1980, 34 petitions for a Balanced Budget Amendment have been submitted to Congress from 30 different state legislatures. Even though deficit spending soared during the Reagan administration, a program agreed to by Congressional leaders and the administration that entailed two dollars of spending cuts for every dollar of tax increases failed miserably. Deficits mounted further. But Congress had no intention of passing the Balanced Budget Amendment.

The Gramm-Rudman-Hollings Act of 1985 acted as political cover to raise the debt limit. It called for automatic cuts in discretionary spending when certain deficit-reduction targets were not met. Aimed at cutting the budget deficit, the largest in history at the time, the House passed the bill 271-154, the Senate by 61-31, and President Ronald Reagan signed the bill on December 12, 1985. However, when it began to affect popular programs, Congress amended it to postpone its effects until later years. The Act was partially overturned in the courts and eventually repealed in its entirety.

Republicans should know that default is not an option. A failure to increase the debt limit by the deadline coupled with a breakdown of Treasury’s machines for printing checks caused a two-week default in 1979. That was enough to raise interest rates by six-tenths of a percentage point for years afterward and increased the Reagan era deficit even more. Yet, the GOP threatens default as a negotiating tactic.

As to tax revenue increases, Ronald Reagan requested the largest peacetime tax increase in American history in 1982. Bill Clinton also asked for a large tax boost for deficit reduction again in 1993. Strong economic growth followed each time, even though conservative economists predicted economic disaster.

Congressional Republicans seem to be thinking about something other than fiscal responsibility, business, or the social fabric of the country. Advocacy of its position to negotiate the budget with default puts its representatives in the position of breaching their oath of office which could subject them to recall if not impeachment. The GOP position seeks to repeal the Great Society. They are doing a good job of that, so far.

Article first published as Repealing the Great Society on Technorati.