President Barack Obama will unveil a plan Monday to cut the U.S. deficit by about $3 trillion over the next decade, with nearly half of the savings coming from tax increases.
The U.S. budget deficit in 2011 is expected to be about $1.3 trillion. Obama's plans would include roughly $1.5 trillion in tax increases aimed mainly at wealthy Americans and corporations.
The Buffett tax, aimed at those earning $1 million or more a year, is named after billionaire investor Warren Buffett, a persistent critic of low tax rates for the rich. The tax would only apply to a tiny minority of the millions of Americans who file tax returns.
Budget deficits require the government to borrow money that otherwise could be spent on productive activities. In 2010, the federal government financed its deficit spending by selling $708 billion in Treasury securities to foreign buyers. To put that in perspective, foreigners spent more on Treasury securities than on any of the following types of U.S. exports: agricultural goods, services, industrial supplies, consumer products, or capital goods.
No economic issue today is more pressing than the U.S. trade deficit. There is absolutely no history that shows that any country, including the U.S., can long sustain large yearly trade deficits without putting its future at risk. Most of the U.S. trade deficit is with China, which is the largest owner of U.S. debt. Thus the U.S. is slowly being sold mostly to China from trade deficits obtained from the U.S. consumers.
The cycle is extremely vicious. Corporations outsource jobs, thereby increasing unemployment and resulting in the loss of taxes. The debt of the U.S will increase with the loss of tax. This forces the U.S to sell Treasury bonds to foreign nations, especially China. American consumers will have to depend more on foreign products with American products not available. Foreign companies will be making more profits and will be purchasing U.S. business opportunities.
The Republicans were quick to denounce the proposal, failing to recognize that the people they want to reward with continued tax breaks are those who caused many U.S. economic woes to begin with. The Tea Party in particular seems to rather punish the poor by cutting important government programs to provide continued tax breaks to people who will just pad their pockets instead of creating jobs.
After the financial crisis, in order to avoid the collapse of the entire U.S. financial system, the U.S. government gave more than $350 billion in federal bailout money to over 200 banks and financial institutions.
The mantra of the U.S so far has been Greed is good, as Gordon Gekko said in the movie Wall Street. The financial meltdown of the last few years has already proved how far this is incorrect. In fact Paul Krugman, Nobel laureate economist, wrote in New York Times that Greed is Bad, criticizing a “system that lavishly rewards executives for success tempts those executives, who control much of the information available to outsiders, to fabricate the appearance of success — aggressive accounting, fictitious transactions that inflate sales, whatever it takes.”
Corporate greed could also lead to the worst case scenario for the U.S. China directly criticized the U.S after the superpower’s credit rating was downgraded, saying the good old days of borrowing were over. Standard & Poor’s cut the U.S. long-term credit rating from top-tier AAA by a notch to AA plus over concerns about the nation’s budget deficits and climbing debt burden. China, which is the biggest creditor of the U.S, had said that Washington only had itself to blame for the plight and also called for a new, stable global reserve currency.
It will have to be seen in the days to come if Obama will be successful in pushing his deficit plan which could be a step in the right direction.