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The American Democratic Party Veers Further To The Left

220px-DemocraticLogoAs the presidency of Barack Obama winds down, Americans are faced with the choice of moving the country even further to the left. After spending seven years in transforming the United States economy and society to be more like Western Europe, resistance to this movement has been slowing growing in opposition. Voices of protest are growing louder and voters have continued to place obstacles in the path of the President and his vision for the country.

The political situation in the United States is important to the world economy and global investors because the country maintains the largest economy and the most used reserve currency. Growing debt will not only destabilize the American economy and financial system, but will have repercussions that will be felt on a world wide basis. The role of the United States in the global economy is still quite significant. Many nations depend on the American market for a sizable amount of their trade transactions.

When President Obama came into office, the Democratic Party had control of both houses of Congress allowing him full control of the legislative branch of government. The House of Representatives returned to more conservative Republican control after the 2010 election. The 2014 election, moved the Senate or upper chamber in the same direction. There is now a larger Republican majority in Congress than at any other time since the 1928 elections.

Barack Obama, 44th President of the United States (2009-present)

Barack Obama, 44th President of the United States (2009-present)

The same could be witnessed at the state level. The number of state legislatures and governorships that were now in Republican hands, has never been higher in the history of the party. Out of 50 states 31 are now under control of conservative governors. This is a 61.29% majority.

In the state legislative assemblies, 68 out of 98 have fallen to the Republicans. This is near a 70% majority. In 23 states, the party controls both houses of the legislature and the governorship. That is nearly half of the total. Democrats have that level of control in only 7 states.

Looking at this growing opposition, one would think the liberal progressives in the Democratic Party might want to change course. On the contrary, they are moving even further to the left of President Obama. In the first Democratic debate in playing for the base, it was difficult to determine which candidate among the group, was more socialist in the policies they were promoting. The exception was Jim Webb, who seemed to be totally out of the mainstream of the political party he is part of. It explains his subsequent withdrawal of his candidacy shortly afterwards.

Clinton's official photo as U.S. Senator

Clinton’s official photo as U.S. Senator

The two leading candidates of the Democratic Party seemed to be in a competition to list what new and expanded programs the government would be paying for. Both Hillary Clinton and Bernie Sanders wanted far more government expenditures. Neither of them provided a full explanation of how these new expenditures would actually be paid for during the debate.

Considering the United States government is over $18 trillion USD (United States dollars) in debt, one would think the question should be addressed. Unfunded liabilities in entitlements and other government guarantees, are now between $120 and $142 Trillion USD, depending on what measure one is using. That is over $1 million USD per taxpayer. This is even more than the total worth of the entire country which comes in under $100 trillion USD.

Pundits might argue that the total liability will be far lower because of various changes and reforms that will take place in Social Security, Medicare, Medicaid and the new Affordable Care Act known as Obama Care. Although true, since there has been no real attempt to change the trajectory of the debt and the unfunded liabilities, the present trend should be troubling to anyone.200px-US-SocialSecurityAdmin-Seal.svg

To be fair, in recent days Senator Bernie Sanders has provided some explanation how the new promised entitlements will be paid for. It will be a massive expansion in taxation. Social Security for example, will be paid for by adding the tax on all earned incomes instead of the present maximum amount of $118,500 USD. It is important to note, that a steady rise in the taxable amount may need to be done over time anyway, just to fund the present benefit level.

Free public college and university tuition will be made available by a new tax on the wealthiest of Americans, particularly those who make their money in stocks and equities. Senator Sanders calls it a tax on Wall Street speculators. It is actually a tax on investment. The objective is to prevent the need for any individual to borrow large sums of money, to fund tuition at a public learning facility.

400px-Effects_of_Population_Aging_and_Excess_Health_Care_Costs_on_Entitlement_Programs_(2013)Of course since the government would now be paying, there is no incentive by public higher education institutions to rein in costs either. They are already exorbitantly high in many areas of the country. Senator Sanders claims it will only cost taxpayers $47 billion USD on an annual basis, but as with most government programs the final cost will likely be much higher.

Free child care and family leave could be financed through closing corporate loopholes according to Senator Sanders. There is now way to calculate the final cost on how this new government benefit will be paid for, since specifics have not been provided.

There is also no way to know how many people will actually avail themselves of the opportunity, to have the government help pay for the costs associated with childcare or family leave not already provided by their employer.

In addition, since Senator Sanders does not specify which corporate loopholes will be closed, there is no way to compute how much money can be raised in this endeavor. As far as family leave, there is the obvious temptation to simply have the business sector pay for it. Larger firms would need to pick up the full expense, where smaller firms would be entitled to some type government subsidy. That this will be another tax on business in a slowing economy, does not seem to concern Mr. Sanders in his quest to provide additional benefits to Americans.

Sanders campaigning in New Orleans, Louisiana, July 2015

Sanders campaigning in New Orleans, Louisiana, July 2015

Senator Sanders does back a bill introduced by New York Democratic Senator Kirsten Gillibrand which would finance a proposed mandate for a total of 12 weeks of paid family and medical leave. The funding formula will depend on a new payroll tax contribution from all workers. If this would be implemented, it would be a contrary to what Senator Sanders has promised. That is no additional taxes on the shrinking middle class.

The same is true with the single payer health care program that Mr. Sanders is promoting. He has not yet released a detailed plan that explains how the expansion of Medicare to every American will be paid for. A plan introduced by John Conyers a Democratic member of the House of Representatives from Michigan, may give a clue of how it would be done. Part of the funding would derive from another payroll tax on middle income and wealthy taxpayers.

450px-2008_Top1percentUSA (2)When Senator Sanders, Hillary Clinton and other politicians in the Democratic Party talk about the wealthy being asked to pay far more in taxation, they are referring to a very small group of individuals. The top 1% that have been practically called out as villains by the presidential candidates of the Left, only make up 1.13 million households, with average annual incomes of $2.1 million USD.

This is why when pressed, Mr. Sanders did admit that the higher tax burden may need to incorporate a slightly larger group of taxpayers in order to fully implement his new entitlements. There are simply not enough super wealthy Americans, to fund this massive expansion in benefits. So the political promise that middle class taxpayers will not be asked to pay more, is quite disingenuous.

As expected many political leaders of the Democratic Party including Mrs. Clinton and Mr Sanders, are calling for a large increase in capital gains and corporate taxation in general. That this makes American businesses less competitive globally, does not seem to concern them in their quest for additional votes.

The massive expansion in government as presently proposed by the Democratic presidential candidates are quite popular among a rising segment of the voters. A recent poll found that 47% of the Democratic Party membership would now support a socialist for president. This partly explains the enthusiastic crowds that Mr. Sanders encounters, as his political campaign moves forward. It is a dramatic change from the 2008 and even the 2012 presidential election.U.S._Federal_Spending_-_FY_2011 (1)

There are a number of issues that the Left in the United States refuses to acknowledge. One is that the present financial path on entitlements, is totally unsustainable in their present form. This makes the expansion of even more social programs nonsensical. The second is that even if there was a total government confiscation of the income of the wealthy, it would still not pay for the entitlement systems already in place. The American Left is already talking about tax rates on the affluent as high as 90%.

Third is the total disregard that all this additional taxation on business and individuals will have a negative impact on growth and investment throughout the larger economy. There will be a net loss of jobs and opportunities for Americans across the board. The economic cost will be greatest on the lower middle class and minority youth. These are the very two groups that the Democratic Party claims it wants to help the most.

President of France

               President of France

The fourth issue is that even if confiscatory tax rates on the wealthy are approved by a now Republican Party controlled Congress, these individual Americans can simply decide to leave the country. This was what occurred in France, when the now Socialist government under Francois Hollande decided in the 2012 election campaign, that the most prosperous in the country should help close a funding gap.

The tax rate was placed at 75% and the exodus of the wealthy in France began. This included well known individuals like Bernard Arnault, the richest man in the country and actor Gerard Depardieu. Although 6 out of 10 French voters favored higher income tax rates on the affluent, a majority disapproved of this ruinous rate.

President Hollande clung to the tax regardless, even after this super tax was declared illegal by the court system. One reason was that he feared that his political allies would abandon him, if he retreated from his stance on principle. The rate was readjusted to 50% payable by companies by the end of 2012.

The entire effort was abandoned at the end of 2014. The appointment of the more pro business Prime Minister Manuel Valls caused the far left to abandon President Hollande anyway. The reform had in net effect,damaged French competitiveness and the business reputation of the country.

Despite all the fanfare and publicity, the amount of money raised by the new tax rate was rather meager. A total of $294 million USD was collected in 2013 and $181 million USD in 2014. It ended up affecting just 1,000 individuals in 470 different companies. In the meantime, the deficit increased by an additional $96 billion USD over this period.

Camden, New Jersey is one of the poorest cities in the United States.

Camden, New Jersey is one of the poorest cities in the United States.

Another consideration is that despite the 7 years that President Obama has been in office, there has been no reduction in poverty rates in the United States. In fact by the end of 2013, the rate of poverty had increased from 14.3% in 2009 (43.6 million people) to 16% of the population. The increase is even more troubling when one considers the rate was only 13.2% in 2008, before the full effects of the financial crisis and recession had taken hold. It is now at its highest rate since 1993.

Despite the massive stimulus spending under President Obama and a huge run up in entitlement expenditures, the median income in the United States has actually been declining. The last full year of the Bush Presidency in 2008, which was during a recession the amount was $55,313 USD per worker. Before the recession which began in December 2007, the rate was at $57,357 USD.

In 2012, during the re-election campaign of President Obama it had fallen to $52,605. In 2014 despite an increase, it has still not returned to the previous level witnessed under President Bush coming in at $53,657 USD. It is still more than 3% below the recession level seen in 2008 and nearly 7% from 2007. This is in spite of the rhetoric how successful the economy has done under the tutelage of a Democratic President.

220px-Supplemental_Nutrition_Assistance_Program_logo.svgThe number of Americans receiving food stamps is still up 45% since Obama became president. Nearly 47 million Americans receive these benefits, which translates to 1 out of 9 Americans. Not a good statistic, if one considers the economy has been technically growing since 2009.

Home ownership has slid to its lowest point in 20 years. This is in spite of the historically low interest rates on mortgages and an economy that is expanding, although much slower than past recoveries. The percentage of American households that own their own residence is now at just 64.3%.

Although the official unemployment rate has now dropped to 5.1%, the figure is misleading since the 2.8 million that have been out of work long term are not even counted. The real unemployment rate (U6) is actually 10.3%. A more accurate picture of employment in the United States is the participation rate. At 62.6% it is at the lowest rate since 1977.

The United States Labor Force Participation Rate by gender 1948–2011. Men are represented in light blue, women in pink, and the total in black.

The United States Labor Force Participation Rate by gender 1948–2011. Men are represented in light blue, women in pink, and the total in black.

Some pundits may argue that this is a result of demographics and an aging population however, the same phenomena is not being witnessed in Western Europe and Japan. In fact, those societies are aging far faster than the United States.

If one considers the importance of becoming employed as a way to combat poverty, the present government policy in the United States, has been a total failure. Youthful unemployment (ages 16 to 24) stood at 11% in September. For African Americans of all ages it is at 10.4%, with youthful unemployment of this minority at 56.4%.

Two segments of the economy that have done well under Obama are stock valuations and asset prices. These are both the unintended consequences of massive stimulus spending and almost absurdly low interest rates. The Dow Jones Industrial Average has increased by 125% under President Obama. The Standard & Poor 500 Stock Index and the NASDAQ Composite Index have also done quite well. However, the run up in share value, primarily benefits the investment class and the affluent.

The success of Wall Street has not resulted in a mass increase in wealth for most Americans. In fact, the generation of this abundance, has become a major talking point of the Left in the United States. Yet it is the very government policies that they promote, that has led to the massive expansion of assets and equities. The only segment of American society that has done well across the board during the Obama years, is actually the wealthy class.

If one considers the statistics aforementioned, it is little wonder that Americans on the whole are dissatisfied with the present state of affairs. Only 24% of likely voters in the United States, now think the country is headed in the right direction. It is not a good indicator for an incumbent party in the race to succeed President Obama in 2016.

Democratic_Party_logo_(transparent).svgWhen Democrats talk about the unfairness of wealth disparity that exists in the United States today and the resulting consequences, they fail to relate that they are the result of policies put in place by the most Leftist president in American history. After all, who has been President during the last 7 years?

The Democratic Party wishes to push the present agenda even further to the Left, despite the probable consequences. They are facing the headwinds of a declining economy and history. The last time there has been a third term of presidential policies was in 1988, at the end of the Reagan Presidency. At that time the economy was doing well and Ronald Reagan had an approval rating of 60% for he job he was doing. Just 30% of the citizenry disapproved. It goes far in explaining why George H. Bush the Vice President,became the 41st American President in 1989.

The only modern president with a higher rate at the end of his tenure than Reagan was President Clinton at 66%. President Obama in contrast is now at just below 45% approval, on how he is handling his job. Of course this could change in the final year of his presidency. However, given the slowing economy and ever growing financial difficulties, as well as the utter failure of American foreign policy under his tenure,that is highly unlikely.

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