Deal
In a rare moment of bipartisanship, Rep. Paul Ryan (R-WI) and Sen. Patty Murray (D-WA) this past week reached a budget compromise that is actually quite moderate in nature.
Conservatives got the two things that were most critical to them - no tax increases (although there were some fee increases, which I feel are defacto tax increases - more on that later) and restoration of some of the sequester budget cuts.
Liberals got two more years without entitlement cuts as the agreement leaves Social Security, Medicare and Medicaid untouched. They also got higher overall spending caps (by $63 billion) over the next two years than the sequester allowed, although part of that increase will go to defense.
In theory, the package is deficit reducing, but probably not in reality. The package allowed $63 billion in additional spending over the next two years, offset by $85 billion in cuts (primarily from federal workers and military pension contribution changes) and fee increases (most notably an increase in the fee on airline tickets) over the next 10 years. So if the world stays utterly static over the next ten years, the deficit will go down, but the reality is that the package increases the deficit by $45 billion over the next two years versus the sequester agreement and it is a near 100% certainty that budgeting over the following 8 years will change.
This is a small-ball bargain that largely preserves the status quo. It does not touch in any meaningful way the three biggest drivers of the deficit, which are entitlement spending, defense spending and revenues. But that might actually be okay - the federal budget last year was $680 billion, way down from the recession heights of $1.4 trillion+ and clocks in at only 4.0% of GDP, close to a reasonable level. In order to keep the debt to GDP ratio constant, the deficit can be as high as the inflation rate plus the rate of economic growth. If one assumes modest 2% inflation and 2% GDP growth, then a 4% deficit will essentially keep debt flat in real terms.
Unfortunately, the math above only works if you never have a recession. Recessions cause huge spikes in spending and decreases in revenues that shock the system. In order to pay for these approximately once per decade shocks, in the good years, governments need to be running deficits of a lot less than 4%, ideally budgets would be balanced or even slightly in surplus.
The brief modern history here is that the US exited World War 2 with major debt from war obligations, with debt to GDP running as high as 120%. We steadily "paid down" this debt, no so much through absolute reduction but though inflation and economic growth and by the end of the Carter administration, debt had fallen to 35% of GDP. The next 12 years of Reagan and Bush (although H.W. did eventually agree to tax increases) saw major increases in defense spending, no cuts to social spending and large tax decreases, all of which, combined with the 90-91 recession, spiked debt to almost 70% of GDP. The Clinton administration saw tax increases (his idea) and large cuts in defense (his idea) and social spending (Newt Gingrich's idea) which combined for budget surpluses and took debt down to 55% of GDP.
Then W. Bush took over as President and immediately slashed taxes, instituted prescription drug benefits for Medicare and ramped up defense spending in the build-up to wars in Afgahnistan and Iraq. Debt was already up to over 70% of GDP before the recession hit and spiked to over 80% of GDP by the time Bush left office as massive outlays for bank bailouts and social benefits hit the federal coffers as the recession hit.
The first year of the Obama administration saw continued large outlays for the bailouts coupled with a large stimulus bill that spiked the debt by almost 10% in a single year. Now the debt has stabilized right around 100% of GDP.
We really need to get back to about 50% of GDP to be able to absorb comfortably the next recession, since debt levels over 100% of GDP are reaching towards the saturation point where credit downgrades and loss of investor interest cause a spike in interest rates. And a 1% interest rate increase on a 100% of GDP debt increases the deficit by 1% of GDP, meaning that we are very susceptible to interest rate risk if rates rise off of their current historic lows.
This deal won't accomplish any of that - it doesn't deal with tax reform, entitlement reform or defense spending reform. But it does give the markets certainty, prevents another government shutdown in the near term and at least maintains debts and deficit at a stable level.
It is also significant in that conservatives agreed to new sources of revenue. An increase in the airline ticketing fee is effectively a tax, since it is a direct charge to you as a consumer when you purchase an airline ticket. Calling it a fee and not a tax is politically expedient, but the effect is the same - airline consumers pay more to the government.
The deal passed overwhelmingly in the conservative-dominated House, by a roll call vote of 332-94 with 73% of Republicans and 84% of Democrats backing passage. It seems likely to pass the Senate, although, oddly, Republican opposition in the Senate seems a lot stronger than in the House and the vote next week may be much closer than the House vote.
For Republicans, this deal provides political cover to focus the debate on Obamacare, where they perceive themselves to have a big advantage given the struggles with the website and anger over policy cancellations. For Democrats, they get a higher spending level and clear the legislative agenda to discuss other items that are non-budgetary, such as immigration reform, where they perceive they have a public opinion advantage.
This deal was expedient bipartisanship, but welcome bipartisanship nonetheless.
Obamacare Enrollment Improves Some
Obamacare enrollment increased dramatically in November, with the total now enrolled nationally reaching 365,000 by the end of the month, up from under 30,000 in October.
The basic benchmark of success is 7 million enrollments by the time open enrollment ends on April 1st. Clearly, enrollment will not happen evenly across the months and will ramp up as the deadline gets closer. Even so, October was clearly a dramatic failure. The November numbers are less clear. On a straightline basis, if every other month (December, January, February, March) only saw the same level of enrollment as November, enrollment would reach less than 2 million. But, as I said, that is not the likely scenario. It is still TBD to me if the administration comes close to its goal.
An additional 803,000 people have qualified for expansions in Medicaid and SCHIP, another key element of the law's expanded access.
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Showing posts with label federal budget deficit. Show all posts
Showing posts with label federal budget deficit. Show all posts
Saturday, December 14, 2013
Sunday, March 17, 2013
Believe It Or Not: The Budget Process Is Working, Rob Portman's Game-Changing Statement
Bipartisan Gridlock Is Striking the Right Balance
To the casual observer and most members of the mainstream media, or political system looks an utter mess as it relates to the federal budget. In the past two years, we have almost shut the government down just to agree to pay our bills, we have gone down to the wire to agree to a tax policy for this year and we have implemented across-the-board spending cuts without rhyme or reason and trade-offs of government programs.
Taking a step back, while the process is certainly not working perfectly, the split control of the budgeting process between House Republicans and the President is producing positive results.
First, let's think about the deficit. The only modern role model for a balanced budget that we have is during the Clinton administration. During that time period, spending averaged between 19% and 20% of GDP and taxation also averaged between 19% and 20% of GDP. The tax side was achieved through the 1993 tax hikes, which included an increased gas tax and increased income taxes, including the creating of a 39.6% bracket for those making over $250K. The revenue side was contained by cuts to defense and welfare reforms, as well as a booming economy that led to low costs of things like unemployment benefits.
Fast forward to 2011. Revenues had fallen to 15.4% of GDP, a Post-World War 2 low. This was a combination of the Bush tax cuts and the Obama payroll tax cuts, which created historically low tax rates and, through various exemptions and deductions, excluded a large percentage of the tax base. Spending, meanwhile, had grown to 24.1% of GDP, increased by heightened military spending, new Medicare drug benefits, extended unemployment benefits, homeland security spending and growing entitlement costs as boomers retired (Obama's stimulus package and Bush's TARP program had both largely concluded their costs by this point.) Essentially, up 4-5% of GDP in spending, down 4-5% of GDP in revenue from when we were in balance.
Those of us who would take a rational, fact-based approach, would say that we clearly had a problem of wanting the government to do a whole bunch of new things (drug benefits, wars) combined with more expensive existing things (Medicare, Social Security) while paying less for them. Not a sustainable path. The obvious path would be to try to get back to Clinton-era levels of taxation and revenue. That sounds easy but isn't - we were still entangled in Iraq and Afghanistan, entitlements were going to inherently be more expensive if nothing systemic was done and people had reset the baseline in their mind and would consider Clinton-era rates a massive "tax hike".
The gridlock in 2011, while walking on the edge of a knife, produced a spending agreement that substantially reduced federal discretionary spending out of the gate and produced the sequester. The recent fight between the President and congress produced higher tax rates, both a repeal of the Obama payroll tax cut and a partial repeal of the Bush tax cuts for higher earners. The sequester further reduced spending.
So what has happened? The 2013 budget year, which runs October 2012 - September 2013 paints an incomplete picture as the changes are only partially implemented (the tax hikes will only be effective for 9 of the 12 months and the sequester spending cuts for only 7 of the 12 months.) Even so, in fiscal 2013, revenues have risen to 17.8% of GDP and spending has fallen to 23.3% of GDP. Next year, revenues will further rise to 18.7% of GDP and spending will further fall to 22.6% of GDP, leaving a deficit of only 3.9% of GDP, versus the 2011 level of 8.7% of GDP.
In other words, the range of budget fights have increased taxes by 3.3% of GDP and cut spending by 1.5% of GDP. That's fairly balanced, although there is clearly more work to do. The big area of spending opportunity is clearly entitlements, which to-date have been untouched. There are also still large opportunities in the defense budget, which is still running way above 1990s era levels.
But what about the arbitrary nature of the spending cuts? While there has been a lot of hand-wringing over the across-the-board nature of the cuts, this is not that different from what happens in private industry all the time. If you work in a private corporation, have you ever experienced a travel ban or a freeze on all raises? These are private sector examples of exactly the same behavior - it may not be the most precies way to cut spending, but it is simple to implement and allows each department manager to make trade-offs within the budget that they know the best. The sequester isn't a bad thing in this regard.
We are making progress on the budget. But Congress and the President must be willing to make some uncomfortable choices about entitlements over the next few years. Entitlements are sucking up more and more federal money as the population ages and Medicare inflation continues to rise.
Rob Portman: Late to the Party, But Right
Rob Portman's revelation that he has a gay son and that he has come to support gay marriage is courageous for a man who is viewed as a leading elected conservative. His personal story of coming to understand his son's orientation and reconciling it with his previous held religious and social beliefs is insightful and touching.
Portman may be late to the party, but to his credit, he is but a few months President Obama in coming around.
What is most fascinating to me about Portman's shift is that there isn't much anger among prominent conservatives on the issue. While there are still screaming so-called "values voters", more and more young conservatives are embracing the notion of the GOP as the party of liberty and realize that embracing that notion means providing liberty to everyone, not just straight people.
While I could criticize Portman for not coming forward with these views last year when he was a contender for the VP spot, I could make the same criticism of President Obama for not supporting this view in 2008, when gay marriage support would have been a clearer political negative.
I welcome Rob Portman to the fold of those fighting for marriage equality and hope more conservatives follow his and Dick Cheney's lead on this issue.
If you like this site, tell your friends.
To the casual observer and most members of the mainstream media, or political system looks an utter mess as it relates to the federal budget. In the past two years, we have almost shut the government down just to agree to pay our bills, we have gone down to the wire to agree to a tax policy for this year and we have implemented across-the-board spending cuts without rhyme or reason and trade-offs of government programs.
Taking a step back, while the process is certainly not working perfectly, the split control of the budgeting process between House Republicans and the President is producing positive results.
First, let's think about the deficit. The only modern role model for a balanced budget that we have is during the Clinton administration. During that time period, spending averaged between 19% and 20% of GDP and taxation also averaged between 19% and 20% of GDP. The tax side was achieved through the 1993 tax hikes, which included an increased gas tax and increased income taxes, including the creating of a 39.6% bracket for those making over $250K. The revenue side was contained by cuts to defense and welfare reforms, as well as a booming economy that led to low costs of things like unemployment benefits.
Fast forward to 2011. Revenues had fallen to 15.4% of GDP, a Post-World War 2 low. This was a combination of the Bush tax cuts and the Obama payroll tax cuts, which created historically low tax rates and, through various exemptions and deductions, excluded a large percentage of the tax base. Spending, meanwhile, had grown to 24.1% of GDP, increased by heightened military spending, new Medicare drug benefits, extended unemployment benefits, homeland security spending and growing entitlement costs as boomers retired (Obama's stimulus package and Bush's TARP program had both largely concluded their costs by this point.) Essentially, up 4-5% of GDP in spending, down 4-5% of GDP in revenue from when we were in balance.
Those of us who would take a rational, fact-based approach, would say that we clearly had a problem of wanting the government to do a whole bunch of new things (drug benefits, wars) combined with more expensive existing things (Medicare, Social Security) while paying less for them. Not a sustainable path. The obvious path would be to try to get back to Clinton-era levels of taxation and revenue. That sounds easy but isn't - we were still entangled in Iraq and Afghanistan, entitlements were going to inherently be more expensive if nothing systemic was done and people had reset the baseline in their mind and would consider Clinton-era rates a massive "tax hike".
The gridlock in 2011, while walking on the edge of a knife, produced a spending agreement that substantially reduced federal discretionary spending out of the gate and produced the sequester. The recent fight between the President and congress produced higher tax rates, both a repeal of the Obama payroll tax cut and a partial repeal of the Bush tax cuts for higher earners. The sequester further reduced spending.
So what has happened? The 2013 budget year, which runs October 2012 - September 2013 paints an incomplete picture as the changes are only partially implemented (the tax hikes will only be effective for 9 of the 12 months and the sequester spending cuts for only 7 of the 12 months.) Even so, in fiscal 2013, revenues have risen to 17.8% of GDP and spending has fallen to 23.3% of GDP. Next year, revenues will further rise to 18.7% of GDP and spending will further fall to 22.6% of GDP, leaving a deficit of only 3.9% of GDP, versus the 2011 level of 8.7% of GDP.
In other words, the range of budget fights have increased taxes by 3.3% of GDP and cut spending by 1.5% of GDP. That's fairly balanced, although there is clearly more work to do. The big area of spending opportunity is clearly entitlements, which to-date have been untouched. There are also still large opportunities in the defense budget, which is still running way above 1990s era levels.
But what about the arbitrary nature of the spending cuts? While there has been a lot of hand-wringing over the across-the-board nature of the cuts, this is not that different from what happens in private industry all the time. If you work in a private corporation, have you ever experienced a travel ban or a freeze on all raises? These are private sector examples of exactly the same behavior - it may not be the most precies way to cut spending, but it is simple to implement and allows each department manager to make trade-offs within the budget that they know the best. The sequester isn't a bad thing in this regard.
We are making progress on the budget. But Congress and the President must be willing to make some uncomfortable choices about entitlements over the next few years. Entitlements are sucking up more and more federal money as the population ages and Medicare inflation continues to rise.
Rob Portman: Late to the Party, But Right
Rob Portman's revelation that he has a gay son and that he has come to support gay marriage is courageous for a man who is viewed as a leading elected conservative. His personal story of coming to understand his son's orientation and reconciling it with his previous held religious and social beliefs is insightful and touching.
Portman may be late to the party, but to his credit, he is but a few months President Obama in coming around.
What is most fascinating to me about Portman's shift is that there isn't much anger among prominent conservatives on the issue. While there are still screaming so-called "values voters", more and more young conservatives are embracing the notion of the GOP as the party of liberty and realize that embracing that notion means providing liberty to everyone, not just straight people.
While I could criticize Portman for not coming forward with these views last year when he was a contender for the VP spot, I could make the same criticism of President Obama for not supporting this view in 2008, when gay marriage support would have been a clearer political negative.
I welcome Rob Portman to the fold of those fighting for marriage equality and hope more conservatives follow his and Dick Cheney's lead on this issue.
If you like this site, tell your friends.
Sunday, February 24, 2013
The Machete vs. The Scalpel: Why John Boehner is Playing It All Wrong
In the 2008 Presidential debates, Senator John McCain proposed across-the-board cuts the federal budget as a starting point on the road towards deficit reduction.
Then-Senator Barack Obama responded: "Senator McCain is looking to apply a machete to the budget when what is needed is a scalpel", essentially criticizing the indiscriminate nature of across-the-board spending cuts and making the point that he would be more surgical about what he would cut.
An aghast John McCain, having seen federal spending expand wildly across virtually every budget line item during George W. Bush's Presidency, responded, "I would apply a machete and THEN a scalpel."
The current hysteria in Washington over the sequester would make you believe that it is a big machete - that massive reductions to federal programs will take place, starving the poor, endangering national defense and putting food safety and clean air at risk.
What the sequester actually amounts to is $85 billion in cuts, material to be sure, but we are talking about a federal budget of $3.6 trillion, meaning the sequester essentially amounts to 2.4% reduction in planned federal spending. If you had to take a 2.4% pay cut in your personal life, you wouldn't like it, but, it probably wouldn't mean that you wouldn't make the mortgage or car payments - it would probably be more akin to having to eat out once less in a month or moving from 93 octane to 87 octane gas.
It has been pointed out by some, correctly, that since entitlements are not impacted by the sequester, that the remaining elements of the federal budget will endure far greater percentage cuts than the overall 2.4%. And they are right, to a point. Entitlement spending makes up $2.1 trillion of the $3.6 trillion federal budget. Federal interest payments, which obviously cannot be directly impacted by the sequester, makes up about another $200 billion. Put those together and you have $1.3 trillion of discretionary spending across which the $85 billion reduction is spread. This therefore equates to a 6.5% cut to other programs, across-the-board.
A 6.5% cut might sound more severe and that some of the hysteria is warranted, but let's place it in proper context. Since the year 2000, discretionary spending has grown by 72%, or a compound annual growth rate of 4.5%. Adjusted for inflation, this means real discretionary spending has grown by 39% over that time period. It would seem that, being that most people would say government was relatively more functional in 2000 than it is today, that "only" being 32.5% higher in discretionary spending in real terms is a very small machete indeed.
So it was with a degree of shock that I read John Boehner's piece in the Wall Street Journal, bemoaning the sequester and laying blame at the feet of President Obama.
Speaker Boehner opens his editorial with the following line:
"A week from now, a dramatic new federal policy is set to go into effect that threatens U.S. national security, thousands of jobs and more."
This is utterly contradictory. Isn't it Boehner and the Republicans that have always stated that government spending doesn't create jobs? Aren't they the anti-Kenyes party? Threatens national security? A 6% cut in a defense budget that his TRIPLED since 2000? Is he serious?
If the GOP is going to be the party of deficit reduction through spending cuts, getting hissy over a 6% cut in defense spending is a bit absurd.
The Speaker does make a legitimate point that entitlements must be dealt with. At 61% of all federal spending, it is difficult to imagine a scenario that balances the budget with entitlement reforms. The Speaker is also right that the sequester is a crude instrument, making no distinction between effective and ineffective programs.
But Republicans should be taking an AND approach to budget cuts - do the sequester AND eliminate ineffective programs AND reform entitlements. While an across-the-board cut is a crude machete, it is a small one. Lots of private corporations do similar exercises to control spending - think of how troubled companies do across-the-board pay freezes or cancel all travel, often not distinguishing between top and bottom employees or value-added versus non-value added travel. Across the board approaches are a quick way to get cost containment. THEN, you go after the tough trade-offs.
John Boehner opposes any and all tax increases. If he is serious about cutting the deficit, he should be advocating for any-and-all budget reduction opportunities. By sound hysteria over relatively small budget cuts, he just looks like an idiot. The answer is machete AND scalpel.
Then-Senator Barack Obama responded: "Senator McCain is looking to apply a machete to the budget when what is needed is a scalpel", essentially criticizing the indiscriminate nature of across-the-board spending cuts and making the point that he would be more surgical about what he would cut.
An aghast John McCain, having seen federal spending expand wildly across virtually every budget line item during George W. Bush's Presidency, responded, "I would apply a machete and THEN a scalpel."
The current hysteria in Washington over the sequester would make you believe that it is a big machete - that massive reductions to federal programs will take place, starving the poor, endangering national defense and putting food safety and clean air at risk.
What the sequester actually amounts to is $85 billion in cuts, material to be sure, but we are talking about a federal budget of $3.6 trillion, meaning the sequester essentially amounts to 2.4% reduction in planned federal spending. If you had to take a 2.4% pay cut in your personal life, you wouldn't like it, but, it probably wouldn't mean that you wouldn't make the mortgage or car payments - it would probably be more akin to having to eat out once less in a month or moving from 93 octane to 87 octane gas.
It has been pointed out by some, correctly, that since entitlements are not impacted by the sequester, that the remaining elements of the federal budget will endure far greater percentage cuts than the overall 2.4%. And they are right, to a point. Entitlement spending makes up $2.1 trillion of the $3.6 trillion federal budget. Federal interest payments, which obviously cannot be directly impacted by the sequester, makes up about another $200 billion. Put those together and you have $1.3 trillion of discretionary spending across which the $85 billion reduction is spread. This therefore equates to a 6.5% cut to other programs, across-the-board.
A 6.5% cut might sound more severe and that some of the hysteria is warranted, but let's place it in proper context. Since the year 2000, discretionary spending has grown by 72%, or a compound annual growth rate of 4.5%. Adjusted for inflation, this means real discretionary spending has grown by 39% over that time period. It would seem that, being that most people would say government was relatively more functional in 2000 than it is today, that "only" being 32.5% higher in discretionary spending in real terms is a very small machete indeed.
So it was with a degree of shock that I read John Boehner's piece in the Wall Street Journal, bemoaning the sequester and laying blame at the feet of President Obama.
Speaker Boehner opens his editorial with the following line:
"A week from now, a dramatic new federal policy is set to go into effect that threatens U.S. national security, thousands of jobs and more."
This is utterly contradictory. Isn't it Boehner and the Republicans that have always stated that government spending doesn't create jobs? Aren't they the anti-Kenyes party? Threatens national security? A 6% cut in a defense budget that his TRIPLED since 2000? Is he serious?
If the GOP is going to be the party of deficit reduction through spending cuts, getting hissy over a 6% cut in defense spending is a bit absurd.
The Speaker does make a legitimate point that entitlements must be dealt with. At 61% of all federal spending, it is difficult to imagine a scenario that balances the budget with entitlement reforms. The Speaker is also right that the sequester is a crude instrument, making no distinction between effective and ineffective programs.
But Republicans should be taking an AND approach to budget cuts - do the sequester AND eliminate ineffective programs AND reform entitlements. While an across-the-board cut is a crude machete, it is a small one. Lots of private corporations do similar exercises to control spending - think of how troubled companies do across-the-board pay freezes or cancel all travel, often not distinguishing between top and bottom employees or value-added versus non-value added travel. Across the board approaches are a quick way to get cost containment. THEN, you go after the tough trade-offs.
John Boehner opposes any and all tax increases. If he is serious about cutting the deficit, he should be advocating for any-and-all budget reduction opportunities. By sound hysteria over relatively small budget cuts, he just looks like an idiot. The answer is machete AND scalpel.
Saturday, January 5, 2013
Our Elected Leaders Punt Yet Again On Real Deficit Reduction, Boehner Narrowly Holds On To Speaker Job, Christie Goes Ballistic
The Fiscal Cliff Deal Isn't Much of a Deal at All
I guess there are things that all sides can claim victory in the fiscal cliff "deal" that was negotiated early in the new year, which was primarily a by-product of discussions between Vice President Joe Biden and Senate Minority Leader Mitch McConnell.
For Republicans, they can feel good that for 99.2% of Americans, the tax cuts that President Bush pushed for in 2001 and 2003, that the vast majority of Democrats and even some Republicans opposed at the time, have no become a permanent reality. They are law forever. They can also feel good that the military cuts that were part of the sequestration deal last year are now put off, albeit for only two months. They can also feel good that they will get another bite at the spending apple in short order with the pending fights over the second half Fiscal 2013 budget and the debt ceiling coming up directly.
For Democrats, they can feel good that they successfully raised taxes on the wealthiest 1% (actually the wealthiest 0.8%, to be precise, but you get the point), that they averted the fiscal cliff cuts for domestic programs, albeit for only two weeks, that unemployment insurance was extended for another year, that renewable energy tax credits were extended for another year and that they really didn't have to agree to any spending cuts to get the deal done.
As for me, I don't feel particularly good about any of this.
Let's introduce a reality into the equation. The deficit last year was $1.128 trillion. We took in $2.435 trillion in taxes, 46% from individual income taxes, 35% from Social Security and Medicare Taxes, 10% from Corporate Taxes and 9% from the miscellaneous set of other federal taxes that the government collects, such as excise taxes on gasoline, cigarettes, alcohol, permitting costs, etc. We spent $3.563 trillion, 45% on Social Security and Medicare/Medicaid, 23% of Defense and Military expenses, 10% on unemployment and other income security measures (such as subsidized school lunches), 6% on interest on the national debt and 16% on everything else.
So what did the fiscal cliff "deal" do? It allowed the temporary payroll tax reduction on Social Security to lapse, which effectively boosts Social Security payroll tax income by 19%, since the total tax (including both employer and employee) rises from 10.4% to 12.4%. This raises about $120B per year in additional revenue, versus the last two years.
The cliff deal also raised income taxes from 35% to 39.6% for individuals making over $400K and married couples making over $450K and raises capital gains and dividend taxes on those individuals from 15% to 20%, as well as capping deductions on those over $200K/$250K. Collectively, this raises about $60B per year in additional revenue.
So, all else being equal (and it is obviously not because not everything else is static, but everything else is pretty well in balance), we took a $1.128 trillion deficit and solved 16% of it. On the 2012 basis, this woud give us about $2.615 trillion in revenue, not quite enough money to fund Social Security, Medicare/Medicaid, Defense and interest on the debt, if you cancelled every single other government program (no FAA, no SEC, no EPA, no FDA, no USDA, no OSHA, no federal court system, no power at the White House, etc.)
In other words, this was a totally and grossly insufficient bill to solve the structural problem that we had.
It amazes me that Democrats now accept 99.2% of the Bush tax cuts that they once opposed, and that we have never been able to afford. It also amazes me that they reject out of hand even the most modest GOP proposals to rain in entitlement spending, such as shifting the chained CPI for Social Security increases, which would save a ton of money over time and make the system much more stable while having only a gradual effect on today's seniors.
It also astonishes me that the GOP continue to fight for low taxes without a serious, specific proposal on how they would cut spending. Since today's revenues don't even cover Defense, Entitlements and Interest and they want even lower revenues than today, to be credible to me, they would need to present a budget that makes deep, deep cuts in Defense and Entitlements to even get close to balance. They have not, as of yet and, in fact, most have strongly opposed defense cuts, while skirting the issue of entitlements.
Let's not forget also the underlying dynamics that make the future budget reality worse. The population is getting older and health care costs are still rising (albeit the rate of health care inflation has slowed from the pace of the past decade) so entitlement costs will rise faster than revenues. Interest rates are at 200 year historic lows, meaning that it is highly probable that interest rates and therefore interest expense will rise in the future, especially with a rising federal debt. There are some positives - unemployment insurance costs are likely to drop as the economy improves along with some other social programs and the wind-down in Afghanistan will save some on the military budget. But in balance, the trajectory is towards a worse budgetary situation, not a better one.
Both parties to date are taking unserious positions. There are only four levers to manage our current situation:
(1) Raise Taxes of Some Form in Meaningful, Broad Way
You can't tax the 1% and get us into balance. To make a meaningful impact on the deficit, you would need to raise taxes on the majority of the population in some form, either in the form of higher income tax rates, higher payroll taxes or a national sales or VAT tax.
(2) Structural Reforms to Entitlements
Higher participation ages, lower benefits, etc. You have to "bend the curve" on entitlement spending.
(3) Meaningful Cuts to Defense
We spend 5 times the next nearest country (China) on our military. Would we be unsafe at 3 times their spending?
(4) Default in Some Way Shape or Form
This is a nuclear option that would cause a depression. There are two ways to do this - either simply don't pay the bills which would be an utter disaster to financial markets that would immediately spark a deep financial and economic crisis or print money to pay the bills (i.e. have the fed buy up and forgive treasury debt), which would likely spark hyper-inflation. Neither of those options is at all appealing, even compared to 1-3.
My other disappointment (or maybe I should be happy, since I didn't love the deal) with the cliff deal is that it doesn't really solve anything. The federal budget still expires March 1st, so there is another, immediate fight over spending. Sequestration cuts still hit March 1st also. And, approximately the end of February, the federal government won't be able to pay its bills unless congress increases the debt ceiling. In other words, get ready for more melodrama, stern rhetoric and down-to-the-wire posturing that solves nothing before another 11th or 12th hour deal that doesn't do nearly enough.
My final disappointment is in President Obama's inability to lead or paint a vision. He wasn't even a participant in most of the talks that cut the deal. He has painted no clear vision for how we get where we need to go with the budget and seems to have no sense of urgency about reducing the deficit. Joe Biden showed far more leadership that the President in this case, and even Biden's leadership was just to cut a deal in the end, not to really solve the problem.
Prepare to be disappointed again in the coming year.
Boehner Holds On With 2 Votes to Spare
John Boehner will be the House Speaker for the next two years, after successfully beating back dissent from about 8% of his caucus. While there was no Republican actively running against Boehner, a cast of 17 Republicans (excluding Boehner, who did not vote, as is tradition) either cast protest votes, voted "present" or did not vote. Some were clear protest votes, for the likes of Alan West (who isn't in the House any more as he lost re-election) and Colin Powell (who has never been in the House), some were semi-serious votes, including 3 for Majority Leader Eric Cantor, who many of the far right view as more sympathetic to their cause than the pragmatic Boehner. Boehner needed an outright majority in order to not force a second ballot on the issue, which required 218 votes. The 220 he received was sufficient - barely, to keep him with the Speaker's gavel for the next two years.
All of this supports what I have long said about Boehner - he is a conservative but not a wing nut as many think. He is hemmed in by a caucus that is well outside the mainstream. The fact that he almost lost his Speakership simply for supporting the deal he did speaks volumes about where the right-wing in the House sits. Heck, a significant number of House Republicans even opposed the Hurricane Sandy aid package that was finally passed on Friday (more on that in a second.)
My advice to Boehner? You know you are never going to be the darling of the right wing, so take your re-election as an opportunity to try to go solve the problems. The hard-liners will hate it, but they already don't support you. So cement your legacy and get something done.
Chris Christie Lets Loose on the House GOP
The fiscal cliff deal on January 2nd was the last thing the outgoing House of Representatives did before disbanding to make way for the new House, which was sworn in yesterday. This greatly upset lawmakers from New York and New Jersey, who had been hoping for and believed they had secured agreement for aid for the battered coastal areas impacted by Hurricane Sandy.
Why the House didn't take the issue up before disbanding is inexplicable to me. Perhaps John Boehner couldn't swallow asking his conservative members to vote on a spending package right on the heels of a painful vote on the fiscal cliff. But, come on, when did relief for people made homeless by a hurricane become a partisan issue?
Christie was specific, and named names in his criticism, stating:
"There is only one group to blame for the continued suffering of these innocent victims, the House majority and their speaker, John Boehner."
Boehner scrambled to pull a vote together on the bill, with an initial aid package rapidly set for a vote yesterday and the balance to be voted on January 15th. The initial package passed the House 354-67, with all 67 "no" votes coming from Republicans. It is shocking to me that there were 67 members of the new House majority willing to vote no on this bill. The bill passed the Senate, which always seems much more reasonable an bi-partisan, without a single "no" vote.
The initial aid package contained only $9B, the bigger $51B package is to come in the January 15th vote. Could that package be in serious jeopardy, given the delay and vote on the first bill? If it is, it would be utter political suicide for the House GOP. Nothing makes you look like a wing nut like pushing hard to keep tax cuts on capital gains for people making millions of dollars and then opposing federal funds to help people made homeless by a hurricane.
If you like this site, tell your friends.
I guess there are things that all sides can claim victory in the fiscal cliff "deal" that was negotiated early in the new year, which was primarily a by-product of discussions between Vice President Joe Biden and Senate Minority Leader Mitch McConnell.
For Republicans, they can feel good that for 99.2% of Americans, the tax cuts that President Bush pushed for in 2001 and 2003, that the vast majority of Democrats and even some Republicans opposed at the time, have no become a permanent reality. They are law forever. They can also feel good that the military cuts that were part of the sequestration deal last year are now put off, albeit for only two months. They can also feel good that they will get another bite at the spending apple in short order with the pending fights over the second half Fiscal 2013 budget and the debt ceiling coming up directly.
For Democrats, they can feel good that they successfully raised taxes on the wealthiest 1% (actually the wealthiest 0.8%, to be precise, but you get the point), that they averted the fiscal cliff cuts for domestic programs, albeit for only two weeks, that unemployment insurance was extended for another year, that renewable energy tax credits were extended for another year and that they really didn't have to agree to any spending cuts to get the deal done.
As for me, I don't feel particularly good about any of this.
Let's introduce a reality into the equation. The deficit last year was $1.128 trillion. We took in $2.435 trillion in taxes, 46% from individual income taxes, 35% from Social Security and Medicare Taxes, 10% from Corporate Taxes and 9% from the miscellaneous set of other federal taxes that the government collects, such as excise taxes on gasoline, cigarettes, alcohol, permitting costs, etc. We spent $3.563 trillion, 45% on Social Security and Medicare/Medicaid, 23% of Defense and Military expenses, 10% on unemployment and other income security measures (such as subsidized school lunches), 6% on interest on the national debt and 16% on everything else.
So what did the fiscal cliff "deal" do? It allowed the temporary payroll tax reduction on Social Security to lapse, which effectively boosts Social Security payroll tax income by 19%, since the total tax (including both employer and employee) rises from 10.4% to 12.4%. This raises about $120B per year in additional revenue, versus the last two years.
The cliff deal also raised income taxes from 35% to 39.6% for individuals making over $400K and married couples making over $450K and raises capital gains and dividend taxes on those individuals from 15% to 20%, as well as capping deductions on those over $200K/$250K. Collectively, this raises about $60B per year in additional revenue.
So, all else being equal (and it is obviously not because not everything else is static, but everything else is pretty well in balance), we took a $1.128 trillion deficit and solved 16% of it. On the 2012 basis, this woud give us about $2.615 trillion in revenue, not quite enough money to fund Social Security, Medicare/Medicaid, Defense and interest on the debt, if you cancelled every single other government program (no FAA, no SEC, no EPA, no FDA, no USDA, no OSHA, no federal court system, no power at the White House, etc.)
In other words, this was a totally and grossly insufficient bill to solve the structural problem that we had.
It amazes me that Democrats now accept 99.2% of the Bush tax cuts that they once opposed, and that we have never been able to afford. It also amazes me that they reject out of hand even the most modest GOP proposals to rain in entitlement spending, such as shifting the chained CPI for Social Security increases, which would save a ton of money over time and make the system much more stable while having only a gradual effect on today's seniors.
It also astonishes me that the GOP continue to fight for low taxes without a serious, specific proposal on how they would cut spending. Since today's revenues don't even cover Defense, Entitlements and Interest and they want even lower revenues than today, to be credible to me, they would need to present a budget that makes deep, deep cuts in Defense and Entitlements to even get close to balance. They have not, as of yet and, in fact, most have strongly opposed defense cuts, while skirting the issue of entitlements.
Let's not forget also the underlying dynamics that make the future budget reality worse. The population is getting older and health care costs are still rising (albeit the rate of health care inflation has slowed from the pace of the past decade) so entitlement costs will rise faster than revenues. Interest rates are at 200 year historic lows, meaning that it is highly probable that interest rates and therefore interest expense will rise in the future, especially with a rising federal debt. There are some positives - unemployment insurance costs are likely to drop as the economy improves along with some other social programs and the wind-down in Afghanistan will save some on the military budget. But in balance, the trajectory is towards a worse budgetary situation, not a better one.
Both parties to date are taking unserious positions. There are only four levers to manage our current situation:
(1) Raise Taxes of Some Form in Meaningful, Broad Way
You can't tax the 1% and get us into balance. To make a meaningful impact on the deficit, you would need to raise taxes on the majority of the population in some form, either in the form of higher income tax rates, higher payroll taxes or a national sales or VAT tax.
(2) Structural Reforms to Entitlements
Higher participation ages, lower benefits, etc. You have to "bend the curve" on entitlement spending.
(3) Meaningful Cuts to Defense
We spend 5 times the next nearest country (China) on our military. Would we be unsafe at 3 times their spending?
(4) Default in Some Way Shape or Form
This is a nuclear option that would cause a depression. There are two ways to do this - either simply don't pay the bills which would be an utter disaster to financial markets that would immediately spark a deep financial and economic crisis or print money to pay the bills (i.e. have the fed buy up and forgive treasury debt), which would likely spark hyper-inflation. Neither of those options is at all appealing, even compared to 1-3.
My other disappointment (or maybe I should be happy, since I didn't love the deal) with the cliff deal is that it doesn't really solve anything. The federal budget still expires March 1st, so there is another, immediate fight over spending. Sequestration cuts still hit March 1st also. And, approximately the end of February, the federal government won't be able to pay its bills unless congress increases the debt ceiling. In other words, get ready for more melodrama, stern rhetoric and down-to-the-wire posturing that solves nothing before another 11th or 12th hour deal that doesn't do nearly enough.
My final disappointment is in President Obama's inability to lead or paint a vision. He wasn't even a participant in most of the talks that cut the deal. He has painted no clear vision for how we get where we need to go with the budget and seems to have no sense of urgency about reducing the deficit. Joe Biden showed far more leadership that the President in this case, and even Biden's leadership was just to cut a deal in the end, not to really solve the problem.
Prepare to be disappointed again in the coming year.
Boehner Holds On With 2 Votes to Spare
John Boehner will be the House Speaker for the next two years, after successfully beating back dissent from about 8% of his caucus. While there was no Republican actively running against Boehner, a cast of 17 Republicans (excluding Boehner, who did not vote, as is tradition) either cast protest votes, voted "present" or did not vote. Some were clear protest votes, for the likes of Alan West (who isn't in the House any more as he lost re-election) and Colin Powell (who has never been in the House), some were semi-serious votes, including 3 for Majority Leader Eric Cantor, who many of the far right view as more sympathetic to their cause than the pragmatic Boehner. Boehner needed an outright majority in order to not force a second ballot on the issue, which required 218 votes. The 220 he received was sufficient - barely, to keep him with the Speaker's gavel for the next two years.
All of this supports what I have long said about Boehner - he is a conservative but not a wing nut as many think. He is hemmed in by a caucus that is well outside the mainstream. The fact that he almost lost his Speakership simply for supporting the deal he did speaks volumes about where the right-wing in the House sits. Heck, a significant number of House Republicans even opposed the Hurricane Sandy aid package that was finally passed on Friday (more on that in a second.)
My advice to Boehner? You know you are never going to be the darling of the right wing, so take your re-election as an opportunity to try to go solve the problems. The hard-liners will hate it, but they already don't support you. So cement your legacy and get something done.
Chris Christie Lets Loose on the House GOP
The fiscal cliff deal on January 2nd was the last thing the outgoing House of Representatives did before disbanding to make way for the new House, which was sworn in yesterday. This greatly upset lawmakers from New York and New Jersey, who had been hoping for and believed they had secured agreement for aid for the battered coastal areas impacted by Hurricane Sandy.
Why the House didn't take the issue up before disbanding is inexplicable to me. Perhaps John Boehner couldn't swallow asking his conservative members to vote on a spending package right on the heels of a painful vote on the fiscal cliff. But, come on, when did relief for people made homeless by a hurricane become a partisan issue?
Christie was specific, and named names in his criticism, stating:
"There is only one group to blame for the continued suffering of these innocent victims, the House majority and their speaker, John Boehner."
Boehner scrambled to pull a vote together on the bill, with an initial aid package rapidly set for a vote yesterday and the balance to be voted on January 15th. The initial package passed the House 354-67, with all 67 "no" votes coming from Republicans. It is shocking to me that there were 67 members of the new House majority willing to vote no on this bill. The bill passed the Senate, which always seems much more reasonable an bi-partisan, without a single "no" vote.
The initial aid package contained only $9B, the bigger $51B package is to come in the January 15th vote. Could that package be in serious jeopardy, given the delay and vote on the first bill? If it is, it would be utter political suicide for the House GOP. Nothing makes you look like a wing nut like pushing hard to keep tax cuts on capital gains for people making millions of dollars and then opposing federal funds to help people made homeless by a hurricane.
If you like this site, tell your friends.
Thursday, December 27, 2012
Let's All Go Cliff Diving But Please Don't Mess With the Federal Debt Limit
So, it certainly appears that we are headed over the fiscal cliff (kind of a misnamed and bad analogy if you ask me...modest across the board tax hikes and spending cuts are hardly a "cliff", but I'll go with the commonly understood language), barring an eleventh hour deal.
There are a few ways that things could still play out differently - Speaker Boehner could decide to allow a vote on extending lower tax rates for those below $250K, which seems almost sure to pass with near universal Democratic support and a smattering of Republicans who think that something is better than nothing. I could also still see a "kick the can down the road" type of bill that delays the sequestration.
But frankly, I'm happy to go cliff-diving. It'll be fun to watch the federal deficit shrivel up to a fraction of its former self overnight. We'll actually be living within our means (or closer to it) when the cliff happens.
Alas, it will almost surely be temporary. President Obama is no doubt looking ahead to January 3rd, when the new Congress goes into session and he has more House and Senate seats to work with. He still obviously won't have a majority in the House or the 60 seats to stop a filibuster, but the difference between having to win over 17 House Republicans instead of 25 and 5 Senate Republicans instead of 7 will make a difference in how good a deal the President can get.
Regardless, we will survive a few weeks of Clinton-era tax rates, fragile economy and all.
The meatier issue staring us in the face is the debt-ceiling, which the country is scheduled to hit on Monday. There is a little time on the clock - similar to last year, the Treasury can buy some time by not making pension contributions and delaying paying for other expenditures - typically these tricks can buy about two months, although they will likely buy longer than that if we also go over the cliff and borrowing needs are a lot less.
Coinciding with the debt ceiling issue is the issue of the remaining budget for Fiscal 2013. The continuing resolution that everyone agreed to in order to avoid this showdown at election time covered funding of the federal government through March of 2013. Beyond that, new legislation will need to be passed.
I mention these two issues together, because it poses an obvious question - why are Republicans threatening to mess with the debt ceiling again? They have control over what we spend beyond March. The House can choose to pass much smaller appropriations, if it deems fit to do so. Charge less on the credit card if you wish, but quit threatening not to pay the bill. The whole notion that congress can refuse to permit the debt that is necessitated by laws it passed seems absurd every time it comes up. And failure to raise the debt ceiling will have much more severe consequences over the long term than going over the fiscal cliff for a few weeks.
Let's hope rational heads prevail and it doesn't come to another default showdown. But given the history, anything is possible.
If you like this site, tell your friends.
There are a few ways that things could still play out differently - Speaker Boehner could decide to allow a vote on extending lower tax rates for those below $250K, which seems almost sure to pass with near universal Democratic support and a smattering of Republicans who think that something is better than nothing. I could also still see a "kick the can down the road" type of bill that delays the sequestration.
But frankly, I'm happy to go cliff-diving. It'll be fun to watch the federal deficit shrivel up to a fraction of its former self overnight. We'll actually be living within our means (or closer to it) when the cliff happens.
Alas, it will almost surely be temporary. President Obama is no doubt looking ahead to January 3rd, when the new Congress goes into session and he has more House and Senate seats to work with. He still obviously won't have a majority in the House or the 60 seats to stop a filibuster, but the difference between having to win over 17 House Republicans instead of 25 and 5 Senate Republicans instead of 7 will make a difference in how good a deal the President can get.
Regardless, we will survive a few weeks of Clinton-era tax rates, fragile economy and all.
The meatier issue staring us in the face is the debt-ceiling, which the country is scheduled to hit on Monday. There is a little time on the clock - similar to last year, the Treasury can buy some time by not making pension contributions and delaying paying for other expenditures - typically these tricks can buy about two months, although they will likely buy longer than that if we also go over the cliff and borrowing needs are a lot less.
Coinciding with the debt ceiling issue is the issue of the remaining budget for Fiscal 2013. The continuing resolution that everyone agreed to in order to avoid this showdown at election time covered funding of the federal government through March of 2013. Beyond that, new legislation will need to be passed.
I mention these two issues together, because it poses an obvious question - why are Republicans threatening to mess with the debt ceiling again? They have control over what we spend beyond March. The House can choose to pass much smaller appropriations, if it deems fit to do so. Charge less on the credit card if you wish, but quit threatening not to pay the bill. The whole notion that congress can refuse to permit the debt that is necessitated by laws it passed seems absurd every time it comes up. And failure to raise the debt ceiling will have much more severe consequences over the long term than going over the fiscal cliff for a few weeks.
Let's hope rational heads prevail and it doesn't come to another default showdown. But given the history, anything is possible.
If you like this site, tell your friends.
Sunday, December 2, 2012
An Emboldened President Obama Lobs a Gernade, Is This the Ultimate Long Game?
I recall the tax debate of 2010 quite well. President Obama had campaigned in 2008 on extending the Bush tax cuts for those making less than $250K per year and not continuing them for everyone else. The debate took to the Sunday airwaves, but in the end the President blinked. All of the Bush tax cuts were extended for two years, in addition to a new Social Security tax reduction of 2% for the next two years. In the end, it was darn close to a complete victory for the GOP on taxes at least - although really very little happened to reign in the structural sources of spending.
We are 29 days from the fiscal cliff this time, so there is still a chance for the President to blink, but he is acting anything but compromising this time around. His opening volley to the GOP, delivered by Treasury Secretary Tim Geithner to House Speaker John Boehner, is everything that liberals would want and conservatives would hate. It includes:
* Allowing the Bush tax cuts for those making over $250K to expire
* Further reducing tax deductions on the wealthy to raise additional revenue
* Reducing Medicare benefits to upper income taxpayers
* Reducing farm subsidies
* Claiming credit for cuts that are naturally happening in Defense from the wind down of the wars in Iraq and Afghanistan
The GOP predictably hated the proposal. It is basically a non-starter in the conservative GOP House. I suspect it was quite obvious to the President that this would be the case. I'm not sure he cares.
The President's basic negotiating mistake in almost every key piece of policy in his first term was negotiating from weakness. The President has been giving away the farm before the conversation started and then negotiating from the compromise. And often, there has not been a GOP counter-proposal, so the President has wound up negotiating with himself, putting forward increasingly conservative policy proposals until the GOP decides to accept one.
What the President is doing is daring the GOP to make a counter-proposal. He's put forward the most popular tax increases - solid majorities favor raising taxes on the wealthy and put forward fairly vague promises of spending cuts against programs which are not particularly popular.
He is basically saying - "your move, John Boehner".
On the one hand, the President appears to hold all the cards this time:
* The Bush tax cuts WILL expire for everyone with no action, as will all the sequester spending cuts and the GOP is powerless to stop it without agreement from the Democrats
* Obamacare taxes and health insurance exchanges WILL take place under current law
* The President doesn't have to face re-election again - the House GOP does - you would think they have the larger incentive to get something done.
The GOP has held on to one card, however, and that is the federal debt ceiling. It will need to be extended in 2013 and they can again hold it hostage for their goals, in spite of the potential damage to US credit. But even on this topic, the President could go bold and claim constitutional authority to pay debts that are the result of previously authorized spending, although the constitution is fairly explicit in giving Congres the power to borrow money, not the President. But it would likely be tied up in court for a while and be very bruising to the GOP's public image.
Did the President play a very long game to construct this situation? There is a solid argument for it. The "fiscal cliff" was set-up by three pieces of legislation that the President negotiated:
* The 2009 passage of Obamacare, which set the bulk of the associated taxes to go into effect on Jan 1, 2013
* The 2010 extension of the Bush tax cuts, which set them to expire on Jan 1, 2013, along with the payroll tax reduction
* The 2011 debt ceiling deal, which set the automatic sequestration cuts to go into effect on Jan 1, 2013
I noted all of this when I wrote about my proposal to whack the deficit by doing nothing - and that is certainly still an option available to the President.
Nobody in Washington wants to eat that many peas at once. But, in negotiations that it appeared to everyone he was losing in 2010 and 2011, the President set up this gun to the head, where he can negotiate back from a policy base where all of the above things happen and, because of the timing he set up, he can do it all without having to worry about another election.
So, what will happen?
Privately, most in the GOP concede that they will have to give some ground on tax rates, although no one is talking about it in public. A possible compromise would likely look something like this:
* Allow rates to go up some, but set the threshold higher than $250K. It might look something like a 37 or 38% rate on incomes over $500K or $750K.
* Give some ground on Capital Gains and Dividends, allowing rates to rise, but not to the full level of ordinary income - perhaps increasing rates on both from 15% to 20%.
* Increase premiums in Medicare on higher income seniors
* Some reductions to domestic discretionary spending and defense spending, but less than would be automatically implemented in sequestration
* Some type of bi-partisan commission to study more fundamental tax reform.
The GOP realizes they have to give some ground to the President and that his hand is strong this time around. But they probably won't give away the whole farm.
If you like this site, tell your friends.
We are 29 days from the fiscal cliff this time, so there is still a chance for the President to blink, but he is acting anything but compromising this time around. His opening volley to the GOP, delivered by Treasury Secretary Tim Geithner to House Speaker John Boehner, is everything that liberals would want and conservatives would hate. It includes:
* Allowing the Bush tax cuts for those making over $250K to expire
* Further reducing tax deductions on the wealthy to raise additional revenue
* Reducing Medicare benefits to upper income taxpayers
* Reducing farm subsidies
* Claiming credit for cuts that are naturally happening in Defense from the wind down of the wars in Iraq and Afghanistan
The GOP predictably hated the proposal. It is basically a non-starter in the conservative GOP House. I suspect it was quite obvious to the President that this would be the case. I'm not sure he cares.
The President's basic negotiating mistake in almost every key piece of policy in his first term was negotiating from weakness. The President has been giving away the farm before the conversation started and then negotiating from the compromise. And often, there has not been a GOP counter-proposal, so the President has wound up negotiating with himself, putting forward increasingly conservative policy proposals until the GOP decides to accept one.
What the President is doing is daring the GOP to make a counter-proposal. He's put forward the most popular tax increases - solid majorities favor raising taxes on the wealthy and put forward fairly vague promises of spending cuts against programs which are not particularly popular.
He is basically saying - "your move, John Boehner".
On the one hand, the President appears to hold all the cards this time:
* The Bush tax cuts WILL expire for everyone with no action, as will all the sequester spending cuts and the GOP is powerless to stop it without agreement from the Democrats
* Obamacare taxes and health insurance exchanges WILL take place under current law
* The President doesn't have to face re-election again - the House GOP does - you would think they have the larger incentive to get something done.
The GOP has held on to one card, however, and that is the federal debt ceiling. It will need to be extended in 2013 and they can again hold it hostage for their goals, in spite of the potential damage to US credit. But even on this topic, the President could go bold and claim constitutional authority to pay debts that are the result of previously authorized spending, although the constitution is fairly explicit in giving Congres the power to borrow money, not the President. But it would likely be tied up in court for a while and be very bruising to the GOP's public image.
Did the President play a very long game to construct this situation? There is a solid argument for it. The "fiscal cliff" was set-up by three pieces of legislation that the President negotiated:
* The 2009 passage of Obamacare, which set the bulk of the associated taxes to go into effect on Jan 1, 2013
* The 2010 extension of the Bush tax cuts, which set them to expire on Jan 1, 2013, along with the payroll tax reduction
* The 2011 debt ceiling deal, which set the automatic sequestration cuts to go into effect on Jan 1, 2013
I noted all of this when I wrote about my proposal to whack the deficit by doing nothing - and that is certainly still an option available to the President.
Nobody in Washington wants to eat that many peas at once. But, in negotiations that it appeared to everyone he was losing in 2010 and 2011, the President set up this gun to the head, where he can negotiate back from a policy base where all of the above things happen and, because of the timing he set up, he can do it all without having to worry about another election.
So, what will happen?
Privately, most in the GOP concede that they will have to give some ground on tax rates, although no one is talking about it in public. A possible compromise would likely look something like this:
* Allow rates to go up some, but set the threshold higher than $250K. It might look something like a 37 or 38% rate on incomes over $500K or $750K.
* Give some ground on Capital Gains and Dividends, allowing rates to rise, but not to the full level of ordinary income - perhaps increasing rates on both from 15% to 20%.
* Increase premiums in Medicare on higher income seniors
* Some reductions to domestic discretionary spending and defense spending, but less than would be automatically implemented in sequestration
* Some type of bi-partisan commission to study more fundamental tax reform.
The GOP realizes they have to give some ground to the President and that his hand is strong this time around. But they probably won't give away the whole farm.
If you like this site, tell your friends.
Saturday, November 26, 2011
Forget Hillary Clinton, How to Balance the Budget by Doing Nothing
It Isn't Going to Happen
It seems that not a week goes by that some journalist or political commentator finds the need to discuss the possibility of President Obama dumping Vice President Joe Biden to put Secretary of State Hillary Clinton on the ballot as his VP candidate in 2012.
The case goes something like this - Biden is flub-prone and doesn't do a lot for the ticket. Secretary Clinton is wildly popular, as evidenced by a myriad of polls that show her respect. Plus, you get the bonus of having the still-beloved ex-President Bill Clinton out, more actively fighting for the ticket.
All interesting, but it isn't going to happen. It is nearly unprecedented for a sitting President to stand for re-election with a new Vice-President. FDR did it, but it was after two full terms in office. Gerald Ford ran with a different guy (Bob Dole) than the sitting VP (Nelson Rockefeller), but that was an unusual administration, as neither Ford nor Rockefeller had stood for election for either office (Ford had been appointed VP by President Nixon after Spiro Agnew's resignation in 1973, Rockefeller was appointed by Ford after taking the reins from Nixon after his Watergate resignation.) McKinley ran for re-election with a new VP (one Teddy Roosevelt) but his original VP, Garrett Hobart, had died in office.
To find a situation where a sitting President ran for a second term with a new VP candidate when his first-term VP candidate was still alive, you have to go all the way back to Ulysses S. Grant in 1872. Simply put, it isn't done.
And with good reason. Vice Presidents have only a marginal impact on Presidential races - after all, can you name one race that was largely decided on the basis of the VP candidate? And don't say 2008 - Sarah Palin isn't what sunk John McCain, a sour economy did.
What would the upside to President Obama be? He would look disloyal and weak. And that big benefit that Clinton would supposedly bring to the ticket? Can you name a single swing state he would win BECAUSE of Clinton? Does Clinton fundamentally change the key issues or the reasons President Obama has high disapproval numbers? And does anyone really think Clinton would be as popular as she is now if she were a candidate for public office, re-subjected to the scrutiny the press reserves for politicians?
It isn't going to happen, Pete Dupont (the former governor of Delaware and one-time Presidential aspirant, who is the latest to purvey this theory), so let's just stop talking about it.
The Solution: Do Nothing!
Think the deficit problem is incredibly complex and that the failure of the super committee just shows how intractable our deficit problem is? Nonesense!
Let me show you how easy it is to balance the budget. And our politicians don't even have to do a thing.
Here's the simple math.
This year's deficit is estimated to be around $1.099 trillion.
All you have to do is the following:
1. Let the Bush tax cuts expire (all of them) - $400B per year
That's right, the Bush tax cuts (really Bush-Obama cuts at this point) cost the treasury about $400B per year. Of this, about $100B is associated with the cuts to the top bracket, the rest associated with the cuts to the Clinton bracket. By doing nothing, and allowing the "temporary" cuts to expire at the end of this year, the treasury will collect approximately $400B more.
2. Let the Obama tax cuts expire - $110B per year
President Obama's "temporary" reduction in Social Security taxes by 2% for this year is costing the treasury $110B, as general revenues are being used to cover the gap in the social security trust fund. Just allow the cut to expire, and that's $110B more in the coffers.
3. Don't extend unemployment benefits beyond statutory maximum - $44B per year
Under ordinary circumstances, people get unemployment benefits for 6 months. Since the recession started, Congress has been routinely extending those benefits for 2 full years. Stopping this practice would trim $44B in cost from the budget.
4. Allow the Iraq war to wind down - $159B per year
The Iraq war is costing us a lot of money in both direct costs to the military and costs to the contractors. The troops are scheduled to leave. This should be easy spend to wind down.
5. Don't "fix" the alternative minimum tax - $120B per year
The alternative minimum tax was created to keep the very wealthy from using loopholes to reduce their tax rate too far. The AMT amount was not indexed to inflation, but Congress routinely passes "fixes" aimed to keep the AMT focused squarely on the very wealthy. Allowing it to not index, as current law allows, would essentially take those same loopholes away from upper-middle class taxpayers. This yields $120B per year in savings.
6. Allow the Sequester Cuts - $120B per year
Since the deficit panel failed, the automatic "sequester" cuts of $120B per year are scheduled to kick in in about 14 months, with 50% applying to defense and 50% applying to non-entitlement domestic spending. These cuts happen automatically, unless Congress acts to change the law.
Total savings from doing nothing: $953B per year.
Okay, I didn't totally solve the deficit - there would still be a $146B shortfall. But $146B is a mere 1.0% of GDP, a rate at which the overall debt would decline significantly (we can expect GDP growth plus inflation to be equal about 5-6%, even using conservative estimates, meaning a 4-5% reduction in the effective debt levels.)
The approach is balanced ($323B in spending cuts and $630B in tax "increases", with all the tax increases being the expiration of "temporary" cuts.)
And all the government has to do to make it happen is nothing.
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It seems that not a week goes by that some journalist or political commentator finds the need to discuss the possibility of President Obama dumping Vice President Joe Biden to put Secretary of State Hillary Clinton on the ballot as his VP candidate in 2012.
The case goes something like this - Biden is flub-prone and doesn't do a lot for the ticket. Secretary Clinton is wildly popular, as evidenced by a myriad of polls that show her respect. Plus, you get the bonus of having the still-beloved ex-President Bill Clinton out, more actively fighting for the ticket.
All interesting, but it isn't going to happen. It is nearly unprecedented for a sitting President to stand for re-election with a new Vice-President. FDR did it, but it was after two full terms in office. Gerald Ford ran with a different guy (Bob Dole) than the sitting VP (Nelson Rockefeller), but that was an unusual administration, as neither Ford nor Rockefeller had stood for election for either office (Ford had been appointed VP by President Nixon after Spiro Agnew's resignation in 1973, Rockefeller was appointed by Ford after taking the reins from Nixon after his Watergate resignation.) McKinley ran for re-election with a new VP (one Teddy Roosevelt) but his original VP, Garrett Hobart, had died in office.
To find a situation where a sitting President ran for a second term with a new VP candidate when his first-term VP candidate was still alive, you have to go all the way back to Ulysses S. Grant in 1872. Simply put, it isn't done.
And with good reason. Vice Presidents have only a marginal impact on Presidential races - after all, can you name one race that was largely decided on the basis of the VP candidate? And don't say 2008 - Sarah Palin isn't what sunk John McCain, a sour economy did.
What would the upside to President Obama be? He would look disloyal and weak. And that big benefit that Clinton would supposedly bring to the ticket? Can you name a single swing state he would win BECAUSE of Clinton? Does Clinton fundamentally change the key issues or the reasons President Obama has high disapproval numbers? And does anyone really think Clinton would be as popular as she is now if she were a candidate for public office, re-subjected to the scrutiny the press reserves for politicians?
It isn't going to happen, Pete Dupont (the former governor of Delaware and one-time Presidential aspirant, who is the latest to purvey this theory), so let's just stop talking about it.
The Solution: Do Nothing!
Think the deficit problem is incredibly complex and that the failure of the super committee just shows how intractable our deficit problem is? Nonesense!
Let me show you how easy it is to balance the budget. And our politicians don't even have to do a thing.
Here's the simple math.
This year's deficit is estimated to be around $1.099 trillion.
All you have to do is the following:
1. Let the Bush tax cuts expire (all of them) - $400B per year
That's right, the Bush tax cuts (really Bush-Obama cuts at this point) cost the treasury about $400B per year. Of this, about $100B is associated with the cuts to the top bracket, the rest associated with the cuts to the Clinton bracket. By doing nothing, and allowing the "temporary" cuts to expire at the end of this year, the treasury will collect approximately $400B more.
2. Let the Obama tax cuts expire - $110B per year
President Obama's "temporary" reduction in Social Security taxes by 2% for this year is costing the treasury $110B, as general revenues are being used to cover the gap in the social security trust fund. Just allow the cut to expire, and that's $110B more in the coffers.
3. Don't extend unemployment benefits beyond statutory maximum - $44B per year
Under ordinary circumstances, people get unemployment benefits for 6 months. Since the recession started, Congress has been routinely extending those benefits for 2 full years. Stopping this practice would trim $44B in cost from the budget.
4. Allow the Iraq war to wind down - $159B per year
The Iraq war is costing us a lot of money in both direct costs to the military and costs to the contractors. The troops are scheduled to leave. This should be easy spend to wind down.
5. Don't "fix" the alternative minimum tax - $120B per year
The alternative minimum tax was created to keep the very wealthy from using loopholes to reduce their tax rate too far. The AMT amount was not indexed to inflation, but Congress routinely passes "fixes" aimed to keep the AMT focused squarely on the very wealthy. Allowing it to not index, as current law allows, would essentially take those same loopholes away from upper-middle class taxpayers. This yields $120B per year in savings.
6. Allow the Sequester Cuts - $120B per year
Since the deficit panel failed, the automatic "sequester" cuts of $120B per year are scheduled to kick in in about 14 months, with 50% applying to defense and 50% applying to non-entitlement domestic spending. These cuts happen automatically, unless Congress acts to change the law.
Total savings from doing nothing: $953B per year.
Okay, I didn't totally solve the deficit - there would still be a $146B shortfall. But $146B is a mere 1.0% of GDP, a rate at which the overall debt would decline significantly (we can expect GDP growth plus inflation to be equal about 5-6%, even using conservative estimates, meaning a 4-5% reduction in the effective debt levels.)
The approach is balanced ($323B in spending cuts and $630B in tax "increases", with all the tax increases being the expiration of "temporary" cuts.)
And all the government has to do to make it happen is nothing.
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Friday, November 18, 2011
There Will Be Blood, Why Does Every Budget Action Have to Be Such a Drama?
The Guns Turn to Newt
Poor Mitt Romney. Do you remember that girl or guy that you really liked in high school? The one for whom you did sweet things. You let her (or him) copy your homework. You gave her a ride when she needed one. You were always there as a shoulder to cry on. But you were always the best friend, never the boyfriend. She liked you, but she was always falling in love with some other guy, never appreciating what was right in front of her.
Mitt Romney was a Republican that managed to win in Massachusetts. While there, he governed as conservatively as that blue state can be governed. He worked across the aisle - because he had to. He had a record of restraining spending and taxes. He was popular, with Republicans and Democrats alike. He left office with a strong economic record. He's also a well-spoken, smart, good lucking (and amazingly young looking for his age) guy who was successful in business before he was successful in government.
But it appears poor Mitt can't ever close the deal to get that elusive date with the GOP girl.
First, Donald Trump, a blow hard who was utterly unqualified in almost every way to be President led poor Mitt in the polls. That's okay, Mitt must've thought, every girl wants to date a wild man once before she settles down with a stable guy. Donald's time came and went quickly.
Then Rep. Michele Bachmann, straight out of the lunatic wing of the party surged ahead of him in the polls. That's okay, Mitt must've thought, everybody wants to date a pretty face, but that girl will come back to me once she realizes she can't carry on an intelligent conversation with the congresswoman. And leave Michele the GOP girl did.
Next, the GOP girl had a fling with Texas Governor Rick Perry. Old Mitt must surely have thought, hey, I know that southern twang is sexy, but is she every going to notice the guy right in front of her? I mean, this guy is an idiot once you get past his accent and hair! Oh well, surely she'll come around to me next.
But it wasn't Mitt next. Tired of dating politicians, the GOP girl decided she wanted a smooth talker. You know, who'd been out in the world. Someone who could turn a phrase and tell a joke. Herman Cain was boyfriend number 4, right up until he sexually harassed her. Mitt was there for the GOP girl, a shoulder to cry on. Maybe, at long last, he'd get that date.
But it was not to be, at least not yet. The GOP girl decided she wanted a father figure. The wise, intelligent guy who'd been around the block. She wanted a date with Newt Gingrich.
And Mitt waited and waited.....
Gingrich is already ahead in some national polls and only 2 points behind in New Hampshire (New Hampshire!) in one poll. Will he fall like the last 4 challengers to Romney? It's too early to tell. I said to bet on Romney from day 1 and I'm still betting on him to take the nod in the end. So are the Intrade betters, who peg Romney's chances at winning the nomination at 69%.
You see, even though Newt has been in the race since jump street, he has never really been tested. All of the other candidates have been playing nice with Newt because, up until now, he hasn't represented a threat. Don't count on that next Tuesday. Romney and company will be going for the jugular and we'll have to see how Newt stands up to the pressure. He has a checkered past, personally (some ugly divorces and infidelity), politically (remember, he was ousted from the speaker's seat in shamed disgrace) and professionally (how'd those big consulting deals with Fannie Mae go?) and we can expect to be reminded of that directly.
There will be blood....and the President is in the White House laughing about how a guy with 42% approval might be a favorite to win a second term.
Another Last Second Budget Move, Another Bipartisan Deadlock
Congress has passed another interim spending measure, attached to a so-called "minibus" appropriations bill that funds a few smaller departments (Agriculture, Transportation, HUD, Justice and Commerce) while extending funding for all other government agencies for another month, setting up yet another lovely drama for December, just before the Christmas break. The bill is called a "minibus" because it combines several departments, but not all the departments as would be the case in an "omnibus" bill.
With this backdrop, the deficit reduction Super Committee appears deadlocked, although they may reach another magical, dramatic, 11th hour compromise (sarcasm intended.) Even if they don't, the ominous sounding automatic cuts to discretionary and defense budgets won't even take effect until 2013, so Congress will have plenty of opportunity to change the law to avoid the cuts and kick the can down the road again.
The choices to solve the deficit are simple. I wish everyone involved would put just 1% of their hubris aside and actually negotiate in good faith. The GOP ISN'T going to get a deal that doesn't involve tax increases. And the Dems AREN'T going to get all the money from the rich while not touching entitlements. It doesn't work that way.
Where is that third party when you need it?
Poor Mitt Romney. Do you remember that girl or guy that you really liked in high school? The one for whom you did sweet things. You let her (or him) copy your homework. You gave her a ride when she needed one. You were always there as a shoulder to cry on. But you were always the best friend, never the boyfriend. She liked you, but she was always falling in love with some other guy, never appreciating what was right in front of her.
Mitt Romney was a Republican that managed to win in Massachusetts. While there, he governed as conservatively as that blue state can be governed. He worked across the aisle - because he had to. He had a record of restraining spending and taxes. He was popular, with Republicans and Democrats alike. He left office with a strong economic record. He's also a well-spoken, smart, good lucking (and amazingly young looking for his age) guy who was successful in business before he was successful in government.
But it appears poor Mitt can't ever close the deal to get that elusive date with the GOP girl.
First, Donald Trump, a blow hard who was utterly unqualified in almost every way to be President led poor Mitt in the polls. That's okay, Mitt must've thought, every girl wants to date a wild man once before she settles down with a stable guy. Donald's time came and went quickly.
Then Rep. Michele Bachmann, straight out of the lunatic wing of the party surged ahead of him in the polls. That's okay, Mitt must've thought, everybody wants to date a pretty face, but that girl will come back to me once she realizes she can't carry on an intelligent conversation with the congresswoman. And leave Michele the GOP girl did.
Next, the GOP girl had a fling with Texas Governor Rick Perry. Old Mitt must surely have thought, hey, I know that southern twang is sexy, but is she every going to notice the guy right in front of her? I mean, this guy is an idiot once you get past his accent and hair! Oh well, surely she'll come around to me next.
But it wasn't Mitt next. Tired of dating politicians, the GOP girl decided she wanted a smooth talker. You know, who'd been out in the world. Someone who could turn a phrase and tell a joke. Herman Cain was boyfriend number 4, right up until he sexually harassed her. Mitt was there for the GOP girl, a shoulder to cry on. Maybe, at long last, he'd get that date.
But it was not to be, at least not yet. The GOP girl decided she wanted a father figure. The wise, intelligent guy who'd been around the block. She wanted a date with Newt Gingrich.
And Mitt waited and waited.....
Gingrich is already ahead in some national polls and only 2 points behind in New Hampshire (New Hampshire!) in one poll. Will he fall like the last 4 challengers to Romney? It's too early to tell. I said to bet on Romney from day 1 and I'm still betting on him to take the nod in the end. So are the Intrade betters, who peg Romney's chances at winning the nomination at 69%.
You see, even though Newt has been in the race since jump street, he has never really been tested. All of the other candidates have been playing nice with Newt because, up until now, he hasn't represented a threat. Don't count on that next Tuesday. Romney and company will be going for the jugular and we'll have to see how Newt stands up to the pressure. He has a checkered past, personally (some ugly divorces and infidelity), politically (remember, he was ousted from the speaker's seat in shamed disgrace) and professionally (how'd those big consulting deals with Fannie Mae go?) and we can expect to be reminded of that directly.
There will be blood....and the President is in the White House laughing about how a guy with 42% approval might be a favorite to win a second term.
Another Last Second Budget Move, Another Bipartisan Deadlock
Congress has passed another interim spending measure, attached to a so-called "minibus" appropriations bill that funds a few smaller departments (Agriculture, Transportation, HUD, Justice and Commerce) while extending funding for all other government agencies for another month, setting up yet another lovely drama for December, just before the Christmas break. The bill is called a "minibus" because it combines several departments, but not all the departments as would be the case in an "omnibus" bill.
With this backdrop, the deficit reduction Super Committee appears deadlocked, although they may reach another magical, dramatic, 11th hour compromise (sarcasm intended.) Even if they don't, the ominous sounding automatic cuts to discretionary and defense budgets won't even take effect until 2013, so Congress will have plenty of opportunity to change the law to avoid the cuts and kick the can down the road again.
The choices to solve the deficit are simple. I wish everyone involved would put just 1% of their hubris aside and actually negotiate in good faith. The GOP ISN'T going to get a deal that doesn't involve tax increases. And the Dems AREN'T going to get all the money from the rich while not touching entitlements. It doesn't work that way.
Where is that third party when you need it?
Thursday, October 27, 2011
The Wholly Ridiculous Perry Tax Plan, Did Tim Pawlenty Bow Out Too Soon?, Deficit Plan PR Wars
A Very, Very Bad Plan
There are some things to love about the concept of a flat tax. Our current income tax system is overly complicated, causing a huge cost of enforcement, large scale fraud (or at least graying of the tax law) and places an efficient time and financial burden on tax payers. A true flat tax, that eliminated all the itemized deductions and at least carved out an exemption for the first $20K or $30K of income (so we aren't taxing working class people into poverty) would probably be preferable to our current system, particularly if it was structured to encompass existing payroll taxes. It has the drawback of, on face, making the system less progressive, but the reality is that our existing code really is regressive in many cases, because of the myriad of tax credits and deductions that distort the stated rates. Besides, by exempting, say, the first $30K in income and setting a tax rate of say, 20%, the progressive nature of the code would be preferred, since a wage earner of $30K would pay an effective rate of 0%, an earner making $60K would pay an effective rate of 10% and an earner making $150K would pay an effective rate of 16% and so on.
So shouldn't I love Rick Perry's plan that applies a flat tax of 20% and exempts the first $12,500 in income for individuals? Absolutely not. Perry's plan combines all of the worst drawbacks of a flat tax while gaining none of the advantages. His plan lets taxpayers CHOOSE between the existing system and his new system. This means that all of the loopholes and carve outs stay for those who benefit them. It doesn't get rid of the cost of enforcement, since any number of taxpayers may continue to pay under the old system, if it benefits them. It doesn't reduce the burden on taxpayers for preparing their returns, since you would need to do your taxes both ways in order to determine which one was more beneficial. Even in the "flat tax" option, it leaves carve outs to deduct state income taxes, charitable deductions and home mortgage interest.
Worst of all, it would amount to a massive decrease in federal revenue. How can I be so sure? Think about it. If I have an option between the old system and Perry's new system, which system would I choose? The answer, of course, is the one under which I pay less taxes. There would be no taxpayers that would pay more...and many who would pay less (those who would owe less under Perry's new system.) It's simple math that you can't have no one pay more and lots of people pay less and not collect a lot less.
Worse still, Perry eliminates taxes on capital gains and dividends, meaning he is effectively not taxing the investing class and relying entirely on taxes on wages. This makes the system massively more regressive than our existing system.
This is a far inferior system to Herman Cain's 9/9/9 plan, although that has flaws too, which I have previously discussed. It is completely unserious. He has absolutely zero in specific budget cuts to offset the revenue, instead only a broad statement that he wants to get federal spending down to 18% of GDP. Even if that were possible without either massive cuts to military spending or serious changes to entitlement programs (one of those two would be necessary), to get to a balanced budget at 18% of GDP, we'd need Clinton-era tax levels, not rates even lower than the ones today.
It's fine to believe in lower taxes. But lower taxes should be a byproduct of lower spending. So if you want to cut taxes by slashing Social Security, Medicare or Defense, then say so. There is no free ride.
Shame on the conservative blogosphere for embracing Perry's plan. A flat tax debate would be a great debate to have in this country. But let's debate a real plan, not a PR gimmick.
I probably shouldn't waste much more digital ink on Perry. Between this and his ridiculous identification with birthers this week, I think he is pretty well done as a national candidate. Frankly, I think GOP primary voters were done with him even earlier.
Where is Tim Pawlenty When You Need Him?
75% of the GOP seems to want someone other than Mitt Romney to be the nominee, judging by his stuck-in-neutral poll numbers. Perry has effectively flamed out. Michele Bachmann's brief surge is a distant memory. Herman Cain looks unready for the national stage on many levels.
If he were still in the race, wouldn't Tim Pawlenty seem like a logical guy to go to? Sure, he once supported Cap and Trade. But his conservative bona fides are a heck of a lot better than Romney's and Pawlenty has the credibility of a successful governor. Does anyone else think he would be a player if he hadn't dropped out so early?
A Tax Increase by Any Other Name...
The PR leaks around the deficit reduction super committee's work are coming fast and furious (perhaps a bad term to use after watching Janet Napolitano get grilled this week over the botched operation by that name.) First, the Democrats leak that they had proposed a $3 trillion deal that included significant entitlement cuts but also significant tax increases. Now the GOP leaks a $2 trillion counter proposal that contains a lot of the same cuts, but no tax increases, although it has some enhanced revenues from increased federal fees.
At least they are talking and passing specific proposals back and forth, but it seems like we are at the same log jam - the GOP simply won't accept higher taxes, no matter what.
How about some creative solutions to get to a solution that both sides can stomache?
How about a proposal that tax the cuts, doesn't raise taxes now, but includes a poison pill that would have tax increases kick in in 2013 or 2014 if the deficit isn't brought down to x% of GDP by those years? The GOP still controls the House, so they could argue that they aren't really voting for a tax increase since they won't let spending drive deficits that high. And Democrats could claim victory in that they kept tax increases on the table but just pushed them out to later to help the weak economy.
Some type of creative compromise will be necessary to get something on the table that can pass. We'll see if the super committee is up to the task.
There are some things to love about the concept of a flat tax. Our current income tax system is overly complicated, causing a huge cost of enforcement, large scale fraud (or at least graying of the tax law) and places an efficient time and financial burden on tax payers. A true flat tax, that eliminated all the itemized deductions and at least carved out an exemption for the first $20K or $30K of income (so we aren't taxing working class people into poverty) would probably be preferable to our current system, particularly if it was structured to encompass existing payroll taxes. It has the drawback of, on face, making the system less progressive, but the reality is that our existing code really is regressive in many cases, because of the myriad of tax credits and deductions that distort the stated rates. Besides, by exempting, say, the first $30K in income and setting a tax rate of say, 20%, the progressive nature of the code would be preferred, since a wage earner of $30K would pay an effective rate of 0%, an earner making $60K would pay an effective rate of 10% and an earner making $150K would pay an effective rate of 16% and so on.
So shouldn't I love Rick Perry's plan that applies a flat tax of 20% and exempts the first $12,500 in income for individuals? Absolutely not. Perry's plan combines all of the worst drawbacks of a flat tax while gaining none of the advantages. His plan lets taxpayers CHOOSE between the existing system and his new system. This means that all of the loopholes and carve outs stay for those who benefit them. It doesn't get rid of the cost of enforcement, since any number of taxpayers may continue to pay under the old system, if it benefits them. It doesn't reduce the burden on taxpayers for preparing their returns, since you would need to do your taxes both ways in order to determine which one was more beneficial. Even in the "flat tax" option, it leaves carve outs to deduct state income taxes, charitable deductions and home mortgage interest.
Worst of all, it would amount to a massive decrease in federal revenue. How can I be so sure? Think about it. If I have an option between the old system and Perry's new system, which system would I choose? The answer, of course, is the one under which I pay less taxes. There would be no taxpayers that would pay more...and many who would pay less (those who would owe less under Perry's new system.) It's simple math that you can't have no one pay more and lots of people pay less and not collect a lot less.
Worse still, Perry eliminates taxes on capital gains and dividends, meaning he is effectively not taxing the investing class and relying entirely on taxes on wages. This makes the system massively more regressive than our existing system.
This is a far inferior system to Herman Cain's 9/9/9 plan, although that has flaws too, which I have previously discussed. It is completely unserious. He has absolutely zero in specific budget cuts to offset the revenue, instead only a broad statement that he wants to get federal spending down to 18% of GDP. Even if that were possible without either massive cuts to military spending or serious changes to entitlement programs (one of those two would be necessary), to get to a balanced budget at 18% of GDP, we'd need Clinton-era tax levels, not rates even lower than the ones today.
It's fine to believe in lower taxes. But lower taxes should be a byproduct of lower spending. So if you want to cut taxes by slashing Social Security, Medicare or Defense, then say so. There is no free ride.
Shame on the conservative blogosphere for embracing Perry's plan. A flat tax debate would be a great debate to have in this country. But let's debate a real plan, not a PR gimmick.
I probably shouldn't waste much more digital ink on Perry. Between this and his ridiculous identification with birthers this week, I think he is pretty well done as a national candidate. Frankly, I think GOP primary voters were done with him even earlier.
Where is Tim Pawlenty When You Need Him?
75% of the GOP seems to want someone other than Mitt Romney to be the nominee, judging by his stuck-in-neutral poll numbers. Perry has effectively flamed out. Michele Bachmann's brief surge is a distant memory. Herman Cain looks unready for the national stage on many levels.
If he were still in the race, wouldn't Tim Pawlenty seem like a logical guy to go to? Sure, he once supported Cap and Trade. But his conservative bona fides are a heck of a lot better than Romney's and Pawlenty has the credibility of a successful governor. Does anyone else think he would be a player if he hadn't dropped out so early?
A Tax Increase by Any Other Name...
The PR leaks around the deficit reduction super committee's work are coming fast and furious (perhaps a bad term to use after watching Janet Napolitano get grilled this week over the botched operation by that name.) First, the Democrats leak that they had proposed a $3 trillion deal that included significant entitlement cuts but also significant tax increases. Now the GOP leaks a $2 trillion counter proposal that contains a lot of the same cuts, but no tax increases, although it has some enhanced revenues from increased federal fees.
At least they are talking and passing specific proposals back and forth, but it seems like we are at the same log jam - the GOP simply won't accept higher taxes, no matter what.
How about some creative solutions to get to a solution that both sides can stomache?
How about a proposal that tax the cuts, doesn't raise taxes now, but includes a poison pill that would have tax increases kick in in 2013 or 2014 if the deficit isn't brought down to x% of GDP by those years? The GOP still controls the House, so they could argue that they aren't really voting for a tax increase since they won't let spending drive deficits that high. And Democrats could claim victory in that they kept tax increases on the table but just pushed them out to later to help the weak economy.
Some type of creative compromise will be necessary to get something on the table that can pass. We'll see if the super committee is up to the task.
Sunday, September 25, 2011
The "I Told You So" Edition
When you write about politics and specifically when you make political, economic and social projections, you get your fair share of things wrong. I've gotten a few minor things wrong (see North Dakota's projection in 2008, not massively wrong, but wrong nonetheless) and a few major things wrong (see my blog during the height of the financial crisis about how the economic recovery would be strong -- oops.) So, it's nice to know that I haven't lost my knack for identifying some of the things to come in the political world. Two cases in point this week.
Perry Candidacy Already on the Rails
Frequent readers will know that I never believed the hype around Texas Governor Rick Perry's prospects of becoming the GOP nomination. The media has been gaga over Perry and his sudden rise in the GOP field. One can understand why. Perry is a conservative, in line with the party faithful in his political beliefs. Perry has a good track record economically in Texas. On face, he looks like what today's GOP wants. But, as I wrote a few weeks ago when Perry got into the race, I'm not convinced Perry is ready for prime time or capable of leading the GOP.
And so it was on full display in the latest Republican debate, a Fox News hosted affair, where Perry looked bewildered, spoke in sentence fragments, stepped in it on perhaps his one moderate political stance by alienating the GOP base when he had an opportunity to make a unifying statement and generally fell completely flat. He hasn't been a rock star in the other debates, but this was, by far, his worst performance.
And GOP loyalists spoke. In the Florida straw poll, a poll Perry had spent heavily and campaigned strongly for, he got scorched by conservative talk show host and businessman Herman Cain and barely finished ahead of Romney, who had not campaigned hard or spent heavily in the poll. Now, I take these straw polls with a grain of salt. This is a poll of loyalists, not a poll of representative voters in a GOP primary. And you can certainly spend to up your standing. I don't think Cain is in any way the favorite in Florida. But let's analyze what it means.
The Tea Party wing isn't happy with Mitt Romney as a choice, primarily because of his moderate positions when he was Governor of Massachusetts, most notably his health care plan which looks a lot like President Obama's national plan. Consequently, they were ready to flock to Perry. The message from the Florida straw poll is that they are no longer happy with Perry as an alternative. They weren't willing to cross and vote for Romney, so they voted for Cain as a kind of second-choice protest. Of course, Cain has his supporters as well, but few believe a businessman with no political experience and a penchant for saying outrageous things will really be the nominee or could seriously take down President Obama.
So where does this leave the state of the GOP? The right wing still isn't happy with Romney, but it is very fragmented, since there isn't a clear good alternative with Perry looking like a hack. One possibility is that Perry ups his game and they decide to get behind him. Another is that another candidate, perhaps one already announced (Newt Gingrich? Michelle Bachman?) or one that hasn't (Sarah Palin?) is able to concentrate this support. The third, and I still think most likely scenario is that the Tea Party wing stays fragmented and Romney is able to win by being just conservative enough and strong enough a general candidate to get the nod.
Nominations doesn't get decided in September the year before. They will be decided in the first quarter of 2012, when everyone really tunes in. But it's shaping up to be an interesting, competitive race.
Another Shutdown Showdown
I told you that we'd be back here. We are a mere week before the start of the government's new fiscal year and there is no agreement on how to proceed with the Fiscal 2012 budget, leaving us at a logjam that yet again threatens a government shutdown. The issue this time is the level of funding for FEMA and how it will be paid for. Republicans want a less than $4B funding replenishment, paid for by offsetting spending cuts in other area. Democrats want closer to $8B, without the offset. The GOP plan passed the House narrowly and was soundly rejected in the Democratic Senate. The Democratic plan has not been voted on in either house.
The budgetary dysfunction continues. Even if they are able to come to agreement in the next week (expect another 11th hour deal that nobody likes), this will only kick the can down the road to Mid-November, right before the bi-partisan deficit commission is supposed to report back its recommendations. So we will have at least 3 more fights that create uncertainty, make long-term programs highly inefficient and threaten to shut down the government.
Many have noted recently that Congressional approval is around 12%, by far an all time low. The question is, who are the 12% who approve? Does anyone else just feel like voting against every incumbent regardless of party?
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Perry Candidacy Already on the Rails
Frequent readers will know that I never believed the hype around Texas Governor Rick Perry's prospects of becoming the GOP nomination. The media has been gaga over Perry and his sudden rise in the GOP field. One can understand why. Perry is a conservative, in line with the party faithful in his political beliefs. Perry has a good track record economically in Texas. On face, he looks like what today's GOP wants. But, as I wrote a few weeks ago when Perry got into the race, I'm not convinced Perry is ready for prime time or capable of leading the GOP.
And so it was on full display in the latest Republican debate, a Fox News hosted affair, where Perry looked bewildered, spoke in sentence fragments, stepped in it on perhaps his one moderate political stance by alienating the GOP base when he had an opportunity to make a unifying statement and generally fell completely flat. He hasn't been a rock star in the other debates, but this was, by far, his worst performance.
And GOP loyalists spoke. In the Florida straw poll, a poll Perry had spent heavily and campaigned strongly for, he got scorched by conservative talk show host and businessman Herman Cain and barely finished ahead of Romney, who had not campaigned hard or spent heavily in the poll. Now, I take these straw polls with a grain of salt. This is a poll of loyalists, not a poll of representative voters in a GOP primary. And you can certainly spend to up your standing. I don't think Cain is in any way the favorite in Florida. But let's analyze what it means.
The Tea Party wing isn't happy with Mitt Romney as a choice, primarily because of his moderate positions when he was Governor of Massachusetts, most notably his health care plan which looks a lot like President Obama's national plan. Consequently, they were ready to flock to Perry. The message from the Florida straw poll is that they are no longer happy with Perry as an alternative. They weren't willing to cross and vote for Romney, so they voted for Cain as a kind of second-choice protest. Of course, Cain has his supporters as well, but few believe a businessman with no political experience and a penchant for saying outrageous things will really be the nominee or could seriously take down President Obama.
So where does this leave the state of the GOP? The right wing still isn't happy with Romney, but it is very fragmented, since there isn't a clear good alternative with Perry looking like a hack. One possibility is that Perry ups his game and they decide to get behind him. Another is that another candidate, perhaps one already announced (Newt Gingrich? Michelle Bachman?) or one that hasn't (Sarah Palin?) is able to concentrate this support. The third, and I still think most likely scenario is that the Tea Party wing stays fragmented and Romney is able to win by being just conservative enough and strong enough a general candidate to get the nod.
Nominations doesn't get decided in September the year before. They will be decided in the first quarter of 2012, when everyone really tunes in. But it's shaping up to be an interesting, competitive race.
Another Shutdown Showdown
I told you that we'd be back here. We are a mere week before the start of the government's new fiscal year and there is no agreement on how to proceed with the Fiscal 2012 budget, leaving us at a logjam that yet again threatens a government shutdown. The issue this time is the level of funding for FEMA and how it will be paid for. Republicans want a less than $4B funding replenishment, paid for by offsetting spending cuts in other area. Democrats want closer to $8B, without the offset. The GOP plan passed the House narrowly and was soundly rejected in the Democratic Senate. The Democratic plan has not been voted on in either house.
The budgetary dysfunction continues. Even if they are able to come to agreement in the next week (expect another 11th hour deal that nobody likes), this will only kick the can down the road to Mid-November, right before the bi-partisan deficit commission is supposed to report back its recommendations. So we will have at least 3 more fights that create uncertainty, make long-term programs highly inefficient and threaten to shut down the government.
Many have noted recently that Congressional approval is around 12%, by far an all time low. The question is, who are the 12% who approve? Does anyone else just feel like voting against every incumbent regardless of party?
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Monday, August 1, 2011
A Good Bargain for America
I know that the compromise struck between President Obama and Congressional Republicans will make a number of people unhappy. Tea Party members will be livid that the cuts aren't deeper and faster and that tax cuts will be on the table for the joint select committee. Liberals are livid that there are no revenue increases in day 1. But, make no mistake about it, this is a very good deal for the country.
The details of the deal are as follows:
* $917B of defined cuts over the course of the next 10 years. Basically these cuts are the cuts agreed to early on in the Biden deficit discussion and impact both Defense and Domestic Discretionary spending.
* $1.2T in cuts to be identified by a bi-partisan select committee comprised of 6 Democrats and 6 Republicans. The committee must report back recommendations by Thanksgiving and Congress must act by December or draconian across-the-board spending cuts will be imposed across the budget, including both entitlements and defense.
Would I have liked to see an upfront end to the Bush Tax Cuts? Absolutely.
Do I think we could have gone deeper, faster with cuts in Defense and wasteful spending such as agricultural subsidies? Sure.
Do I wish that we'd just passed Erskine-Bowles instead of appointing YET ANOTHER committee to find out what we already know we need to do? Of course.
But this ensures a significant reduction in the deficit and provides the ammunition to force a real compromise that addresses both entitlements and tax reform. And, most importantly, it ensures default. Everything is on the table as it should be. I am the most optimistic that I've been that we will address the deficit in a responsible way that I have been in over a decade.
Let's hope the thing passes.
The Senate should not be an issue as there is broad support for the deal. The House is a slight question mark with the progressive caucus and the tea party caucus both in firm opposition for precisely opposite reasons, the progressives because the cuts are too deep for their liking and there is no immediate tax changes and tea party members because they don't feel the cuts go deep enough and don't touch entitlements immediately.
This is the best possible deal given the circumstances. President Obama, Senator Minority Leader Mitch McConnell and House Speaker John Boehner deserve credit for finding common ground, even though it took way too long.
House voting begins in about 30-40 minutes. I predict passage. I don't believe Speaker Boehner would be holding the vote if he didn't think he could get to 216. I would guesstimate that the bill will get in the neighborhood of 240 votes, with bi-partisan support, although with more GOP support than Democratic support. It should sail through the Senate with 70+ votes.
I'll keep you posted.
The details of the deal are as follows:
* $917B of defined cuts over the course of the next 10 years. Basically these cuts are the cuts agreed to early on in the Biden deficit discussion and impact both Defense and Domestic Discretionary spending.
* $1.2T in cuts to be identified by a bi-partisan select committee comprised of 6 Democrats and 6 Republicans. The committee must report back recommendations by Thanksgiving and Congress must act by December or draconian across-the-board spending cuts will be imposed across the budget, including both entitlements and defense.
Would I have liked to see an upfront end to the Bush Tax Cuts? Absolutely.
Do I think we could have gone deeper, faster with cuts in Defense and wasteful spending such as agricultural subsidies? Sure.
Do I wish that we'd just passed Erskine-Bowles instead of appointing YET ANOTHER committee to find out what we already know we need to do? Of course.
But this ensures a significant reduction in the deficit and provides the ammunition to force a real compromise that addresses both entitlements and tax reform. And, most importantly, it ensures default. Everything is on the table as it should be. I am the most optimistic that I've been that we will address the deficit in a responsible way that I have been in over a decade.
Let's hope the thing passes.
The Senate should not be an issue as there is broad support for the deal. The House is a slight question mark with the progressive caucus and the tea party caucus both in firm opposition for precisely opposite reasons, the progressives because the cuts are too deep for their liking and there is no immediate tax changes and tea party members because they don't feel the cuts go deep enough and don't touch entitlements immediately.
This is the best possible deal given the circumstances. President Obama, Senator Minority Leader Mitch McConnell and House Speaker John Boehner deserve credit for finding common ground, even though it took way too long.
House voting begins in about 30-40 minutes. I predict passage. I don't believe Speaker Boehner would be holding the vote if he didn't think he could get to 216. I would guesstimate that the bill will get in the neighborhood of 240 votes, with bi-partisan support, although with more GOP support than Democratic support. It should sail through the Senate with 70+ votes.
I'll keep you posted.
Saturday, July 30, 2011
Watching Rome Burn
Why Everyone Should Be Ashamed About the Debt Limit
So, here we stand. 72 hours before the Treasury Department says that the government will run out of money to fund the operations of the Federal Government. And there is no deal in sight. No one has proposed a plan that would even remotely balance the budget for this year. The budget compromise, agreed to by all sides just a few months ago, is off by over 40 cents on the dollar. Even the most aggressive spending reduction plan out there, the Ryan plan, wouldn't come close to balancing the budget anytime in the next 10 years. Yet there is no deal in sight.
This is a very high stakes game of chicken. Over $750 billion worth of wealth has been wiped out in the past week as stocks have faltered, fearing a US default may actually happen. All other policy discussion in Washington has been put on hold for this debate. And no one is leading.
The GOP criticizes the Obama Administration for not proposing a detailed plan for deficit reduction. They are 100% right. In fact, the lack of any meaningful administration attention to our disaster of a balance sheet was the primary reason that I voted Republican in the mid-terms in 2010. The GOP taking of the House did succeed in bringing the issue into focus, but has not sparked the grand compromise that all sides should want. I would further criticize Obama heavily for pushing very hard for the Erskine-Bowles deficit reduction commission, then largely ignoring their very good proposal for months, rather than pushing for adoption at a moment in time when he had broad bi-partisan support from the center for a package that included sensible spending cuts, tax reform that would increase revenues and make the tax system far more efficient and necessary entitlement reforms. In other words, entitlements from the left and taxes from the right becoming third rails is entirely Obama's fault because he did not seize the moment. Finally, Obama literally handed the GOP his best leverage in this discussion by agreeing to an awful tax cut bill at the end of last year while not even asking for a debt ceiling hike at the same time.
Oh, my friends at the GOP, where do I start? Taxes are the lowest they've been since the Eisenhower administration, yet they oppose eliminating special tax breaks for Exxon Mobil? If that isn't an extreme point of view, I don't know what is. And other than the freshman, where exactly where these spend thrifts when federal spending grew by 15% (as a % of GDP) during the Bush administration while taxes were cut by 25%? The people who signed up for Medicare Part D and two wars while asking the American people to pay LESS are suddenly offended when the check comes? What a joke.
The world won't end if a bill isn't passed by August 2nd. The Federal government may have a few more days than the original estimate, thanks to higher than expected tax revenues. And if we do breach the limit, there are short-term options. In leaks to the press, it appears clear that the Obama Administration would avoid the worst catastrophe, failing to make payments on US Bonds, but they would do so at a brutal price to the most vulnerable, delaying social security and unemployment checks and other payments that can be deferred. But don't think for a second that the consequences won't be severe. We have a very fragile economy, which has been teetering on the verge of a double-dip recession and heightened interest rates as well as income lifeline being cut off to the working class could very easily plunge us back into recession, which would ultimately make the deficit problem a whole lot worse.
Let's hope that there is a deal this weekend. Almost any deal is better than no deal. And let's hope eventually the GOP gets serious about compromise and Obama gets a real plan.
If you like this site, tell your friends.
So, here we stand. 72 hours before the Treasury Department says that the government will run out of money to fund the operations of the Federal Government. And there is no deal in sight. No one has proposed a plan that would even remotely balance the budget for this year. The budget compromise, agreed to by all sides just a few months ago, is off by over 40 cents on the dollar. Even the most aggressive spending reduction plan out there, the Ryan plan, wouldn't come close to balancing the budget anytime in the next 10 years. Yet there is no deal in sight.
This is a very high stakes game of chicken. Over $750 billion worth of wealth has been wiped out in the past week as stocks have faltered, fearing a US default may actually happen. All other policy discussion in Washington has been put on hold for this debate. And no one is leading.
The GOP criticizes the Obama Administration for not proposing a detailed plan for deficit reduction. They are 100% right. In fact, the lack of any meaningful administration attention to our disaster of a balance sheet was the primary reason that I voted Republican in the mid-terms in 2010. The GOP taking of the House did succeed in bringing the issue into focus, but has not sparked the grand compromise that all sides should want. I would further criticize Obama heavily for pushing very hard for the Erskine-Bowles deficit reduction commission, then largely ignoring their very good proposal for months, rather than pushing for adoption at a moment in time when he had broad bi-partisan support from the center for a package that included sensible spending cuts, tax reform that would increase revenues and make the tax system far more efficient and necessary entitlement reforms. In other words, entitlements from the left and taxes from the right becoming third rails is entirely Obama's fault because he did not seize the moment. Finally, Obama literally handed the GOP his best leverage in this discussion by agreeing to an awful tax cut bill at the end of last year while not even asking for a debt ceiling hike at the same time.
Oh, my friends at the GOP, where do I start? Taxes are the lowest they've been since the Eisenhower administration, yet they oppose eliminating special tax breaks for Exxon Mobil? If that isn't an extreme point of view, I don't know what is. And other than the freshman, where exactly where these spend thrifts when federal spending grew by 15% (as a % of GDP) during the Bush administration while taxes were cut by 25%? The people who signed up for Medicare Part D and two wars while asking the American people to pay LESS are suddenly offended when the check comes? What a joke.
The world won't end if a bill isn't passed by August 2nd. The Federal government may have a few more days than the original estimate, thanks to higher than expected tax revenues. And if we do breach the limit, there are short-term options. In leaks to the press, it appears clear that the Obama Administration would avoid the worst catastrophe, failing to make payments on US Bonds, but they would do so at a brutal price to the most vulnerable, delaying social security and unemployment checks and other payments that can be deferred. But don't think for a second that the consequences won't be severe. We have a very fragile economy, which has been teetering on the verge of a double-dip recession and heightened interest rates as well as income lifeline being cut off to the working class could very easily plunge us back into recession, which would ultimately make the deficit problem a whole lot worse.
Let's hope that there is a deal this weekend. Almost any deal is better than no deal. And let's hope eventually the GOP gets serious about compromise and Obama gets a real plan.
If you like this site, tell your friends.
Sunday, July 17, 2011
All Sizzle and No Steak, Could Perry Disrupt the GOP Race?
How the "Grand Deal" is Rapidly Turning Into NothingIt's quite an interesting narrative around the debt ceiling. Historically, debt ceiling increases have been non-events in American politics. The right of the government to borrow is authorized by law. From the country's inception until 1917, Congress individually reviewed every bond issuance. In 1917, realizing that the country's affairs and balance sheet had become far too complex for such micro-management, Congress passed the Second Liberty Bond Act, which authorized blanket federal borrowing, up to a preset limit, at the time, $8 billion. Since that time, Congress has continually raised the limit as inflation and deficit spending have driven the debt up over time. Historically, these increased have passed easily. Congress passed debt increases in 2002, 2003, 2005, 2007, 2008, 2009 and 2010 with little fanfare (do you even remember a debt ceiling debate during the Bush Administration?)
This time however, the newly minted House GOP majority, buoyed by Tea Party activists, saw an opportunity to set the stage for their fiscal policy goals by demanding major deficit reduction in return for the ceiling increase. House Speaker John Boehner set the standard that at least $1 in debt-reducing initiatives must pass for every $1 increase in the debt ceiling. Rep. Paul Ryan laid out the House GOP blue-print which called for radical changes to entitlements and a whole bunch of non-specific cuts to discretionary spending (the Ryan Plan set targets but did not actually say WHAT it would cut beyond entitlements.)
It now appears that the GOP was bluffing and doesn't actually want a deal. Why do I say that? Because President Obama has embraced their somewhat silly position around the debt ceiling (the debt ceiling is a product of laws Congress already passed, so why do they suddenly act shocked and demand cuts when the check comes?) and pushed for a grand bargain, a $4 trillion deal over 10 years that would include 85% spending cuts and 15% new revenues, with the new revenues being generated solely by closing corporate and wealthy tax loopholes. He even put entitlements on the table.
No dice, says the GOP. "Everything" is on the table say John Boehner and Eric Cantor, "everything" that is except tax increases. With taxes sitting at their lowest level in 60 years and the President proposing only the most symbolic of tax hikes, the GOP position is somewhat absurd.
Now it is the GOP, led by Senate Minority Leader Mitch Mcconnell, who are pushing for either a much smaller deal or a gimmick by which Congress would agree to debt ceiling increases in a way that allows the GOP to vote against them but still let them happen.
I've been critical of President Obama's negotiating tactics in the past - I thought he cut a horrible deal on the Bush Tax Cuts and gave away a ton of leverage and I thought that he gave the GOP 80%+ of what they wanted in the Fiscal 2011 budget. But, I admit, I was wrong about this one. He has played it masterfully.
The GOP looks hypocritical and is stuck defending why they would walk away from $3+ trillion in spending cuts because they don't want Exxon-Mobile or private jet owners to lose their special tax exemptions. They look unserious about deficit reduction and like they are simply pandering and playing politics.
In short, the GOP is losing the debate and is scrambling to figure out there new position. Boehner, who actually wants a deal, is wedged by Eric Cantor, who has no interest in legislation. Several others in the GOP have expressed openness to closing tax loopholes, including conservative Tom Coburn and moderate Lindsey Graham. But it looks like there will be no deal.
So, the can gets kicked down the road and the GOP loses credibility. What a shame.
Rick Perry Could Make Waves
It looks increasingly likely the Texas Governor Rick Perry will enter the GOP 2012 Presidential field. He is a compelling candidate in many ways - he obviously has executive experience, he has strong conservative credentials (which is obviously very helpful in GOP primaries and caucuses) and he is a good speaker. In short, he is Michelle Bachmann with more credibility.
His entry would clearly be bad for Bachmann as they would be fighting for the same set of voters. Moderates and those most interested in general election victory would still back Mitt Romney, although conservatives who were holding their nose and supporting Romney because they viewed him as the only credible general candidate, might jump ship.
So, in short, how relevant Perry would become depends on where he pulls his support from. If he steals support mostly from Bachmann, he will simply solidify Romney's national lead. If he stills primarily from Romney, he could win or he could open the door for Bachmann to win with a plurality of Tea Party voters and talk radio listeners.
Either way, in what has become kind of a ho-hum field, Rick Perry's entrance adds an element of excitement.
This time however, the newly minted House GOP majority, buoyed by Tea Party activists, saw an opportunity to set the stage for their fiscal policy goals by demanding major deficit reduction in return for the ceiling increase. House Speaker John Boehner set the standard that at least $1 in debt-reducing initiatives must pass for every $1 increase in the debt ceiling. Rep. Paul Ryan laid out the House GOP blue-print which called for radical changes to entitlements and a whole bunch of non-specific cuts to discretionary spending (the Ryan Plan set targets but did not actually say WHAT it would cut beyond entitlements.)
It now appears that the GOP was bluffing and doesn't actually want a deal. Why do I say that? Because President Obama has embraced their somewhat silly position around the debt ceiling (the debt ceiling is a product of laws Congress already passed, so why do they suddenly act shocked and demand cuts when the check comes?) and pushed for a grand bargain, a $4 trillion deal over 10 years that would include 85% spending cuts and 15% new revenues, with the new revenues being generated solely by closing corporate and wealthy tax loopholes. He even put entitlements on the table.
No dice, says the GOP. "Everything" is on the table say John Boehner and Eric Cantor, "everything" that is except tax increases. With taxes sitting at their lowest level in 60 years and the President proposing only the most symbolic of tax hikes, the GOP position is somewhat absurd.
Now it is the GOP, led by Senate Minority Leader Mitch Mcconnell, who are pushing for either a much smaller deal or a gimmick by which Congress would agree to debt ceiling increases in a way that allows the GOP to vote against them but still let them happen.
I've been critical of President Obama's negotiating tactics in the past - I thought he cut a horrible deal on the Bush Tax Cuts and gave away a ton of leverage and I thought that he gave the GOP 80%+ of what they wanted in the Fiscal 2011 budget. But, I admit, I was wrong about this one. He has played it masterfully.
The GOP looks hypocritical and is stuck defending why they would walk away from $3+ trillion in spending cuts because they don't want Exxon-Mobile or private jet owners to lose their special tax exemptions. They look unserious about deficit reduction and like they are simply pandering and playing politics.
In short, the GOP is losing the debate and is scrambling to figure out there new position. Boehner, who actually wants a deal, is wedged by Eric Cantor, who has no interest in legislation. Several others in the GOP have expressed openness to closing tax loopholes, including conservative Tom Coburn and moderate Lindsey Graham. But it looks like there will be no deal.
So, the can gets kicked down the road and the GOP loses credibility. What a shame.
Rick Perry Could Make Waves
It looks increasingly likely the Texas Governor Rick Perry will enter the GOP 2012 Presidential field. He is a compelling candidate in many ways - he obviously has executive experience, he has strong conservative credentials (which is obviously very helpful in GOP primaries and caucuses) and he is a good speaker. In short, he is Michelle Bachmann with more credibility.
His entry would clearly be bad for Bachmann as they would be fighting for the same set of voters. Moderates and those most interested in general election victory would still back Mitt Romney, although conservatives who were holding their nose and supporting Romney because they viewed him as the only credible general candidate, might jump ship.
So, in short, how relevant Perry would become depends on where he pulls his support from. If he steals support mostly from Bachmann, he will simply solidify Romney's national lead. If he stills primarily from Romney, he could win or he could open the door for Bachmann to win with a plurality of Tea Party voters and talk radio listeners.
Either way, in what has become kind of a ho-hum field, Rick Perry's entrance adds an element of excitement.
Sunday, July 10, 2011
The Grand Deal Falls Through, How Republicans Have Changed the Subject, Why John Boehner is Good for the GOP, 2012: Romney or Bust
No Mega-Deal on the Debt
President Bill Clinton's Democratic Party was dealt a complete spanking in the 1994 mid-terms after public backlash against his proposed health care reform sparked the now famous Republican Revolution and Newt Gingrich's Contract with America. Clinton deftly adapted to the new political reality and negotiated with Gingrich to reform welfare and restrain government spending, which led to budget surpluses, a resounding re-election in 1996 and a lasting legacy for both Clinton and Gingrich.
President Barack Obama's Democratic Party was dealt a complete spanking in the 2010 mid-terms after public backlash against his adopted health care reform sparked a Republican takeover of the House and significant gains in the Senate. Some of us (myself included) hoped that this would lead to a grand deal on the deficit, built on the basis of the bi-partisan debt commissions recommendations.
It appears it is not to be, at least for now. The President and House Speaker John Boehner had been quietly attempting to negotiate a 10-year, $4 trillion deal that would have reportedly included not only tax changes but reforms to all three major entitlement programs. Such a deal would've been course-altering for the country and a major feather for both.
But, as is often the case, political reality got in the way. The House GOP wasn't going to bite on even the smallest of tax increases. Liberal Democrats in the House and Senate weren't going to go for entitlement reform. No compromise, no deal.
So, it appears we will likely get a deal half that size, that consists entirely of spending reductions. $2 trillion over 10 years really isn't as draconian as it sounds. It frankly wouldn't even get government back to the size of 5 years ago. But it's better than nothing. And based on the stated GOP principle that they will only vote to extend the debt ceiling only by the amount of spending that is reduced, $2 trillion would still be sufficient to get the country through the 2012 elections, all of which would set up a huge set of decisions for the population in 2012.
Just remember:
(1) The Bush Tax Cuts, extended by Obama, are slated to expire on January 1, 2013.
(2) Also on January 1, 2013, major tax changes take place as part of the Health Care reform act. These include a 0.9% Medicare tax increase on wages over $200K and a 3.9% tax on investment income for those making over $200K.
(3) Assuming a $2T increase, the new debt ceiling will be breached, likely in late 2013.
(4) The individual mandate tax for health care takes effect on Jan 1, 2014.
So, We, The People will likely have a lot to decide next November about the future of the country.
It's All About Spending, Baby
The 111th Congress, over the course of 2 years, passed 383 bills which became law. Granted, some of these were to name post offices and the like, but some very meaty legislation became law in 2009 and 2010, including:
* SCHIP Expansion
* The Lily Ledbetter Fair Pay Act
* The Stimulus Package
* Healthcare Reform
* Two major financial reform bills (the CARD Act and the Dodd-Frank Act)
* 9/11 First Responders Act
* Start Treaty
* Don't Ask, Don't Tell Repeal
In it's first 6 months, the 111th Congress has passed only 23 bills which have become law, or to put it another way, is only on pace to produce 24% as much legislation.
And this is just the way the GOP wants it. Their desire, coming out of the 2010 mid-terms, was to make the discussion all about reducing government spending. And they have succeeded, in spades. First, it was the Fiscal 2011 budget, in which they extracted over $80 million of spending reductions, albeit less than what they had hoped. Now, it is the debt ceiling increase, which will allow them to extract a large number of spending cuts and will consume all of the political air time until at least early August.
Then, lest we forget, Fiscal 2012 begins in October, and save for the House passing a Defense bill, virtually no work has been done on this opportunity for the GOP to extract more cuts.
When was the last time that you heard anyone talk about Immigration Reform, Environmental Policy or anything other than the budget?
John Boehner: Policy, Not Just Politics
House Speaker John Boehner is good for the GOP. Will Boehner and I disagree on a whole host of policy issues, I greatly respect the fact that he is about getting things done, not simply political grandstanding. It was Eric Cantor and whining wing of the GOP that caused the debt talks to break down (along with the liberal whining wing of the Democratic party), not Boehner. Boehner was willing to put everything on the table.
He also masterfully worked through deals with the White House to extend the Bush Tax Cuts and cut the deal that passed on the 2011 budget.
The more Republicans out there actually trying to make policy and strike deals versus simply scoring political points against the White House, the better off the nation and the GOP are.
Romney Is The Only One Who Can Win
Okay, maybe that's a little too bold a statement. If people actually knew Tim Pawlenty or Jon Huntsman, either would be a viable choice against President Obama, in what could wind up being a very close election in 2012. But that isn't going to happen. It's Romney vs. Bachmann unless someone else breaks out very quickly. And Bachmann can't win. I grant you that polling at this stage of the race is still very tenuous, but look at the average numbers this month:
Obama vs. Romney: Obama +5.5%
Obama vs. Gingrich: Obama +11.5%
Obama vs. Huntsman: Obama +14.0%
Obama vs. Pawlenty: Obama +14.2%
Obama vs. Bachmann: Obama +14.3%
Obama vs. Paul: Obama +18.0%
No polls yet on Obama vs. Thaddeus McCotter (go look it up, if you don't know what I'm talking about.)
It's actually quite amazing given how bad the economy is that President Obama still leads the field. Romney is within striking distance, no one else is even close. I expect things to tighten, particularly if we keep having jobs report like June's.
If you like this site, tell your friends.
Obama vs. Cain: Obama +19.0%
President Bill Clinton's Democratic Party was dealt a complete spanking in the 1994 mid-terms after public backlash against his proposed health care reform sparked the now famous Republican Revolution and Newt Gingrich's Contract with America. Clinton deftly adapted to the new political reality and negotiated with Gingrich to reform welfare and restrain government spending, which led to budget surpluses, a resounding re-election in 1996 and a lasting legacy for both Clinton and Gingrich.
President Barack Obama's Democratic Party was dealt a complete spanking in the 2010 mid-terms after public backlash against his adopted health care reform sparked a Republican takeover of the House and significant gains in the Senate. Some of us (myself included) hoped that this would lead to a grand deal on the deficit, built on the basis of the bi-partisan debt commissions recommendations.
It appears it is not to be, at least for now. The President and House Speaker John Boehner had been quietly attempting to negotiate a 10-year, $4 trillion deal that would have reportedly included not only tax changes but reforms to all three major entitlement programs. Such a deal would've been course-altering for the country and a major feather for both.
But, as is often the case, political reality got in the way. The House GOP wasn't going to bite on even the smallest of tax increases. Liberal Democrats in the House and Senate weren't going to go for entitlement reform. No compromise, no deal.
So, it appears we will likely get a deal half that size, that consists entirely of spending reductions. $2 trillion over 10 years really isn't as draconian as it sounds. It frankly wouldn't even get government back to the size of 5 years ago. But it's better than nothing. And based on the stated GOP principle that they will only vote to extend the debt ceiling only by the amount of spending that is reduced, $2 trillion would still be sufficient to get the country through the 2012 elections, all of which would set up a huge set of decisions for the population in 2012.
Just remember:
(1) The Bush Tax Cuts, extended by Obama, are slated to expire on January 1, 2013.
(2) Also on January 1, 2013, major tax changes take place as part of the Health Care reform act. These include a 0.9% Medicare tax increase on wages over $200K and a 3.9% tax on investment income for those making over $200K.
(3) Assuming a $2T increase, the new debt ceiling will be breached, likely in late 2013.
(4) The individual mandate tax for health care takes effect on Jan 1, 2014.
So, We, The People will likely have a lot to decide next November about the future of the country.
It's All About Spending, Baby
The 111th Congress, over the course of 2 years, passed 383 bills which became law. Granted, some of these were to name post offices and the like, but some very meaty legislation became law in 2009 and 2010, including:
* SCHIP Expansion
* The Lily Ledbetter Fair Pay Act
* The Stimulus Package
* Healthcare Reform
* Two major financial reform bills (the CARD Act and the Dodd-Frank Act)
* 9/11 First Responders Act
* Start Treaty
* Don't Ask, Don't Tell Repeal
In it's first 6 months, the 111th Congress has passed only 23 bills which have become law, or to put it another way, is only on pace to produce 24% as much legislation.
And this is just the way the GOP wants it. Their desire, coming out of the 2010 mid-terms, was to make the discussion all about reducing government spending. And they have succeeded, in spades. First, it was the Fiscal 2011 budget, in which they extracted over $80 million of spending reductions, albeit less than what they had hoped. Now, it is the debt ceiling increase, which will allow them to extract a large number of spending cuts and will consume all of the political air time until at least early August.
Then, lest we forget, Fiscal 2012 begins in October, and save for the House passing a Defense bill, virtually no work has been done on this opportunity for the GOP to extract more cuts.
When was the last time that you heard anyone talk about Immigration Reform, Environmental Policy or anything other than the budget?
John Boehner: Policy, Not Just Politics
House Speaker John Boehner is good for the GOP. Will Boehner and I disagree on a whole host of policy issues, I greatly respect the fact that he is about getting things done, not simply political grandstanding. It was Eric Cantor and whining wing of the GOP that caused the debt talks to break down (along with the liberal whining wing of the Democratic party), not Boehner. Boehner was willing to put everything on the table.
He also masterfully worked through deals with the White House to extend the Bush Tax Cuts and cut the deal that passed on the 2011 budget.
The more Republicans out there actually trying to make policy and strike deals versus simply scoring political points against the White House, the better off the nation and the GOP are.
Romney Is The Only One Who Can Win
Okay, maybe that's a little too bold a statement. If people actually knew Tim Pawlenty or Jon Huntsman, either would be a viable choice against President Obama, in what could wind up being a very close election in 2012. But that isn't going to happen. It's Romney vs. Bachmann unless someone else breaks out very quickly. And Bachmann can't win. I grant you that polling at this stage of the race is still very tenuous, but look at the average numbers this month:
Obama vs. Romney: Obama +5.5%
Obama vs. Gingrich: Obama +11.5%
Obama vs. Huntsman: Obama +14.0%
Obama vs. Pawlenty: Obama +14.2%
Obama vs. Bachmann: Obama +14.3%
Obama vs. Paul: Obama +18.0%
No polls yet on Obama vs. Thaddeus McCotter (go look it up, if you don't know what I'm talking about.)
It's actually quite amazing given how bad the economy is that President Obama still leads the field. Romney is within striking distance, no one else is even close. I expect things to tighten, particularly if we keep having jobs report like June's.
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Obama vs. Cain: Obama +19.0%
Sunday, June 5, 2011
Meet Your GOP Field, Debt Ceiling Chicken, Some Easy Predictions
The GOP Field is Set, Sort Of, Maybe
We have gained a lot of clarity over the course of the past few weeks about who is in and who is out in the race for the GOP 2012 Presidential nomination. The Huck isn't running. Neither is Trump (read back to my earlier posts when he first started making noise if you don't already understand why.) Daniels is sitting this one out. It's actually a pretty thin field as it stands. There are five meaningful players who have not made decisions yet. Accordingly, here are my power rankings of the "in" and the "maybe" candidates.
The "in" candidates:
1. Mitt Romney - the clear and undisputed front-runner. Yes, he used to be a pro-universal health care, pro-choice, pro-gay rights, Massachusetts moderate. But, let's face it - an attractive face with business experience and a strong governing record is a pretty good place to start for a party that actually wants to win.
2. Tim Pawlenty - if Romney stumbles or health care becomes too much of an issue, Pawlenty is the other "legit" candidate. He has gubernatorial experience, he is liked both within the party and popular in his home state. Pawlenty's biggest problems are a. that he backed cap-and-trade at one point, b. that few outside the mid-west and the party loyalists know him and c. he isn't particularly charismatic. He's going to have to count on a Romney slip-up to get seriously in the game.
3. Newt Gingrich - the highly intelligent but deeply flawed Gingrich is clearly qualified as former Speaker of the House. He is also a pretty famous jerk, both personally and professionally. His personal life will dog him in the GOP primaries including his two failed marriages, his cheating and his overall lack of personal morals. He is also not very inspirational and highly confrontational. I can't seem him winning, but outside of Romney and Pawlenty, he's pretty much the only other credible candidate.
4. Ron Paul - the ever-entertaining libertarian is running again. He will make some noise, raise some money and even get some votes (heck, he could finish 2nd in libertarian-leaning New Hampshire!), but he can't get the nod - he would be a disaster for the GOP if he did.
5. Herman Cain - Cain is a great speaker and lit up the first debate, but he's hard to take seriously as a candidate. No experience governing and if you peel back the brilliant surface rhetoric, he's not particularly insightful. He'll be fun to watch, like Paul, but will be a sideshow.
6. Gary Johnson - if you took Ron Paul and subtracted the wit and charisma, you'd have Gary Johnson. Another devoted libertarian, Johnson will create havoc for some of the front-runners, but will get few votes, thanks to the much better known and far more entertaining Ron Paul.
The "maybe" candidates:
1. Rudy Guliani - shockingly, the 2008 electoral disaster hasn't kept Guliani from polling near the front of the 2012 field. He could be a real player, but I'm left with the following question: if the GOP didn't like him in 2008 and he hasn't done much since, why will they like him now?
2. Michelle Bachman - the darling of the tea-party could make some noise. The tea-party has shown its muscle over and over again in GOP primaries. Bachman winning the nomination would be a disaster for the GOP, however, as she would likely get absolutely torched in the general.
3. Jon Huntsman - the erstwhile Obama Administration Ambassador to China is actually just the sort of general election candidate the GOP should want. He's a center-right candidate who works extremely well across the aisle and has a proven ability to govern. But can you imagine the GOP nominating a former Obama Administration official who is a social moderate? Me neither.
4. Rick Perry - the conservative Texas Governor is one candidate I've had my eyes on for a while. He's the perfect intersection for the GOP of a candidate with conservative enough chops to be appealing to the tea party while being mainstream enough to not freak out the general public. Still - nobody knows Perry and it isn't totally clear he is even interested.
5. Sarah Palin - her star has faded fast. I admit to being wrong about her - I warned not to underestimate her in 2008, but she has been a paper tiger with frequent gaffes and no depth. Besides, she's making too much money at Fox to run.
6. Rick Santorum - he's a complete afterthought. His far-right social views may appeal to some on the fringe, but other candidates will have that space well covered and Santorum couldn't even run competitively for re-election in Pennsylvania. He shouldn't waste his time. And don't Google his name unless you have strong intestinal fortitude.
The GOP is Playing Chicken - And It May Work
The US Government has hit its debt ceiling, but Congress seems in no hurry to act. Tim Geithner has given an approximate "real" deadline of August 2nd, which the government can get to by stopping payments to pension funds and deferring other short-term payments. The bottom line is that the debt limit will have to be raised as no one has proposed anything approaching a budget that is balanced for this year -- even the most conservative proposal for the Fiscal 2011 budget called for about a $1.4T deficit and the one enacted was slightly more moderate than that. But Republicans are staging grand theater, holding symbolic no votes on a ceiling increase with no spending decreases attached and demand major reform to everything except taxes.
So what do we make of all of this? The GOP isn't trying to destroy the country, I don't think and will therefore make sure that the debt ceiling is increased prior to August 2nd. A compromise that allows all sides to save face will likely occur, which will likely involve big planned defense reductions, big reductions in domestic discretionary spending, token changes to Medicare and no change in tax policy. This is the middle ground that both sides can probably live with, although it will likely leave the two biggest problems with the budget - taxes and entitlements, mostly unchanged.
Be prepared for action to come at the very last minute, so expect at least another month and a half of wrangling before we throw together a short-term fix.
Some Easy Predictions
Allow me to stick my neck out. Write me later when I'm proven to be an idiot:
(1) Mitt Romney will win the GOP nomination -- why? There is nobody credible enough to beat him. Besides, he's the "next guy in line" (read my posts from 2008 to understand how important this is to GOP nominations.)
(2) The debt ceiling will be raised prior to August 2nd. See above.
(3) The Democrats will not retake the House and will lose the Senate in 2012. Read my prior posts - the map is just awful for them.
(4) The Presidential race will be within 5% and the key states will be Virginia, Colorado and Ohio, not Florida and Pennsylvania.
(5) Sarah Palin won't run for President.
If you like this site, tell your friends.
We have gained a lot of clarity over the course of the past few weeks about who is in and who is out in the race for the GOP 2012 Presidential nomination. The Huck isn't running. Neither is Trump (read back to my earlier posts when he first started making noise if you don't already understand why.) Daniels is sitting this one out. It's actually a pretty thin field as it stands. There are five meaningful players who have not made decisions yet. Accordingly, here are my power rankings of the "in" and the "maybe" candidates.
The "in" candidates:
1. Mitt Romney - the clear and undisputed front-runner. Yes, he used to be a pro-universal health care, pro-choice, pro-gay rights, Massachusetts moderate. But, let's face it - an attractive face with business experience and a strong governing record is a pretty good place to start for a party that actually wants to win.
2. Tim Pawlenty - if Romney stumbles or health care becomes too much of an issue, Pawlenty is the other "legit" candidate. He has gubernatorial experience, he is liked both within the party and popular in his home state. Pawlenty's biggest problems are a. that he backed cap-and-trade at one point, b. that few outside the mid-west and the party loyalists know him and c. he isn't particularly charismatic. He's going to have to count on a Romney slip-up to get seriously in the game.
3. Newt Gingrich - the highly intelligent but deeply flawed Gingrich is clearly qualified as former Speaker of the House. He is also a pretty famous jerk, both personally and professionally. His personal life will dog him in the GOP primaries including his two failed marriages, his cheating and his overall lack of personal morals. He is also not very inspirational and highly confrontational. I can't seem him winning, but outside of Romney and Pawlenty, he's pretty much the only other credible candidate.
4. Ron Paul - the ever-entertaining libertarian is running again. He will make some noise, raise some money and even get some votes (heck, he could finish 2nd in libertarian-leaning New Hampshire!), but he can't get the nod - he would be a disaster for the GOP if he did.
5. Herman Cain - Cain is a great speaker and lit up the first debate, but he's hard to take seriously as a candidate. No experience governing and if you peel back the brilliant surface rhetoric, he's not particularly insightful. He'll be fun to watch, like Paul, but will be a sideshow.
6. Gary Johnson - if you took Ron Paul and subtracted the wit and charisma, you'd have Gary Johnson. Another devoted libertarian, Johnson will create havoc for some of the front-runners, but will get few votes, thanks to the much better known and far more entertaining Ron Paul.
The "maybe" candidates:
1. Rudy Guliani - shockingly, the 2008 electoral disaster hasn't kept Guliani from polling near the front of the 2012 field. He could be a real player, but I'm left with the following question: if the GOP didn't like him in 2008 and he hasn't done much since, why will they like him now?
2. Michelle Bachman - the darling of the tea-party could make some noise. The tea-party has shown its muscle over and over again in GOP primaries. Bachman winning the nomination would be a disaster for the GOP, however, as she would likely get absolutely torched in the general.
3. Jon Huntsman - the erstwhile Obama Administration Ambassador to China is actually just the sort of general election candidate the GOP should want. He's a center-right candidate who works extremely well across the aisle and has a proven ability to govern. But can you imagine the GOP nominating a former Obama Administration official who is a social moderate? Me neither.
4. Rick Perry - the conservative Texas Governor is one candidate I've had my eyes on for a while. He's the perfect intersection for the GOP of a candidate with conservative enough chops to be appealing to the tea party while being mainstream enough to not freak out the general public. Still - nobody knows Perry and it isn't totally clear he is even interested.
5. Sarah Palin - her star has faded fast. I admit to being wrong about her - I warned not to underestimate her in 2008, but she has been a paper tiger with frequent gaffes and no depth. Besides, she's making too much money at Fox to run.
6. Rick Santorum - he's a complete afterthought. His far-right social views may appeal to some on the fringe, but other candidates will have that space well covered and Santorum couldn't even run competitively for re-election in Pennsylvania. He shouldn't waste his time. And don't Google his name unless you have strong intestinal fortitude.
The GOP is Playing Chicken - And It May Work
The US Government has hit its debt ceiling, but Congress seems in no hurry to act. Tim Geithner has given an approximate "real" deadline of August 2nd, which the government can get to by stopping payments to pension funds and deferring other short-term payments. The bottom line is that the debt limit will have to be raised as no one has proposed anything approaching a budget that is balanced for this year -- even the most conservative proposal for the Fiscal 2011 budget called for about a $1.4T deficit and the one enacted was slightly more moderate than that. But Republicans are staging grand theater, holding symbolic no votes on a ceiling increase with no spending decreases attached and demand major reform to everything except taxes.
So what do we make of all of this? The GOP isn't trying to destroy the country, I don't think and will therefore make sure that the debt ceiling is increased prior to August 2nd. A compromise that allows all sides to save face will likely occur, which will likely involve big planned defense reductions, big reductions in domestic discretionary spending, token changes to Medicare and no change in tax policy. This is the middle ground that both sides can probably live with, although it will likely leave the two biggest problems with the budget - taxes and entitlements, mostly unchanged.
Be prepared for action to come at the very last minute, so expect at least another month and a half of wrangling before we throw together a short-term fix.
Some Easy Predictions
Allow me to stick my neck out. Write me later when I'm proven to be an idiot:
(1) Mitt Romney will win the GOP nomination -- why? There is nobody credible enough to beat him. Besides, he's the "next guy in line" (read my posts from 2008 to understand how important this is to GOP nominations.)
(2) The debt ceiling will be raised prior to August 2nd. See above.
(3) The Democrats will not retake the House and will lose the Senate in 2012. Read my prior posts - the map is just awful for them.
(4) The Presidential race will be within 5% and the key states will be Virginia, Colorado and Ohio, not Florida and Pennsylvania.
(5) Sarah Palin won't run for President.
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Sunday, May 1, 2011
I Demand to See Donald Trump's Birth Certificate, Hoping for the Gang of Six, A Presidency in Crisis?
Birthers Are Racist Idiots
Barring some kind of dramatic event unfolding, my sincere hope is that this is the last time I have to write about this topic. I've spilled enough virtual ink on this nonsensical topic. Let me try one more time to rehash things:
In 2008, when then-Senator Barack Obama was running for President, rumors from the conservative blogosphere emerged that he had not, in fact, been born in Hawaii, but had been born in Kenya. In response, his campaign released a "Certificate of Live Birth", the current legal copy of a birth certificate issued in Hawaii, which should have put the issue to bed. But there is no convincing idiots with logic, and the rumors have persisted, buoyed in recent days by the incoherent ramblings of one Donald Trump.
Let me review the facts one more time:
* The "Certificate of Live Birth" is the current legal standard for birth certificate copies in Hawaii, it is accepted as proof of birth in all 50 states and by the U.S. State Department for the issuance in passports.
* Microfiche evidences proves positively that the birth of Barack Obama in Hawaii was reported by the hospital in two papers the day after it occurred.
* Several news organizations including factcheck.org and CNN had viewed the original of his birth certificate in Honolulu and reported that fact.
* Even if one were to ignore the obvious facts as to the location of his birth and choose to continue to believe he was born in Kenya, President Obama would likely have been eligible anyhow as he was entitled to U.S. citizenship at birth based on the citizenship of his mother. This is no different from Senator John McCain, who was born in Panama while his father was serving in the military.
But, the President relented this past week and was able to convince the State of Hawaii to release his birth certificate. This was a poor move in my opinion -- there was absolutely zero credible evidence to counter from the birthers and frankly, if the right-wing of the GOP wants to behave like a bunch of braying jackasses, I'd be happy to let them. Karl Rove commented extensively on how this issue was hurting the credibility of the President's opponents, as had Bill O'Reilly and they were both 100% correct. But, in his continuing spirit of "ever backing down", the President conceded ground to the wing nuts and convinced the State of Hawaii to release his original.
So why do I think birthers are racist? Ask yourself a question. Has Donald Trump released a copy of his birth certificate? How about Mitt Romney? Michelle Bachman? Have any of the GOP candidates?
And why is no one asking?
You could say that it is because there is no credible reason to believe that any of them were born outside the United States and you'd be right. There is equally zero credible evidence that Barack Obama was born outside the US. Simply put, if you choose to believe that the President was born in Kenya, against all facts, then you are simply buying into the Muslim-Kenyan-Tribal image of our first black President. And you are doing so without evidence. And that is racism, period.
If you've been hawking this issue, get a life. I'm talking to you, Mr. Trump.
Will the Gang of Six Crack the Deficit Code?
We are a long way from a deal on long-term deficit reduction. It's a very strong possibility that, as has happened so many times in the past, all the talk will lead to very little action. There have only been a few times in my lifetime that the parties have come together to effectively address the deficit. The Gramm-Rudman deficit reduction act of 1985, which closed tax loopholes and implemented the original version of "pay as you go" comes to mind. So does the tax deal that President George Herbert Walker Bush struck with congressional Democrats in 1991, which was wildly unpopular with his party but set-up for the surpluses of the late 90s. But it doesn't happen much.
But I AM very encouraged with the bipartisan negotiations that are taking place between the so-called "Gang of Six" which include 1 liberal Democrat (Dick Durbin-IL), two moderate Democrats (Kent Conrad-ND and Mark Warner-VA) and three conservative Republicans (Saxby Chambliss-GA, Mike Crapo-ID and Tom Coburn-OK.) Using the deficit reduction commissions plan as a baseline, they are working towards a deal and making some progress. Coburn has even defended tax changes that would increase revenue (also known as tax increases) so long as the revenue-enhancement is achieved through closing loopholes and not through raising marginal rates (which is what the deficit panel had proposed.) I wish we'd gained alignment at the outset for an up-or-down vote on the panel's findings, but thanks the partisan flip-flopping of Senator John McCain and others, we didn't get that chance. But if these six Senators, who come from across the ideological spectrum, can agree on a plan, then I believe that a bipartisan bill can pass. And they are doing it the right way, putting things on the table, negotiating in good faith. We all should root for their success.
How Much Trouble is Barack Obama In?
I've been writing for a while that President Obama was an odds-on favorite for a second term. My theory has always been that the timing of economic recovery would create favorable conditions for an incumbent, regardless of any policy squabbles. But the economic recovery has become significantly less robust, with economic growth slowing to 1.8% in the first quarter of this year and inflation jumping up significantly, particularly on commodities such as oil and food. Incoming growth above the "mendoza line" of 1.5% (the line on linear regression analysis that generally correlates to the incumbent President's party receiving 50% of the Presidential vote) is not assured and the President's poll numbers, after a bump at the end of last year and the beginning of this year, have sagged again (a full update on those numbers next week.)
But the President is still polling favorable against would-be GOPers. Here is a quick average of his performance against possible GOP candidates:
Versus Mike Huckabee: Obama +2.5%
Versus Mitt Romney: Obama +2.4%
Versus Jon Huntsman: Obama +11.0%
Versus Michelle Bachman: Obama +12.0%
Versus Mitch Daniels: Obama +13.0%
Versus Tim Pawlenty: Obama +13.5%
Versus Newt Gingrich: Obama +14.3%
Versus Donald Trump: Obama +15.4%
Versus Sarah Palin: Obama +17.9%
Of course, these polls are not very predictive of final outcomes at this stage of the race - Jon Stewart did a great comedy piece on this on the Daily Show last week which relived the news reports of Hillary Clinton being a lock in 2008, Joe Lieberman being the front-runner in 2004 and Bill Clinton being in 7th in the Democrat running order in 1992. But they do give us some clues.
Clearly Huntsman, Daniels and Pawlenty are suffering from the fact that few people really know very much about them yet. And Gingrich, Trump and Palin are likely suffering from the fact that people DO know a lot about them. Romney and Huckabee are the two established, credible candidates that the public knows, and they poll pretty close to President Obama. Either one of the lesser-knowns will break out of the pack or those two, who have to be considered the front-runners at this point (regardless of Donald Trump polling well in some polls at this point), would run a very close, competitive race with the President next November.
So how much trouble is the President in? I've said it before and I'll say it again -- it's all about the economy.
If you like this site, tell your friends.
Barring some kind of dramatic event unfolding, my sincere hope is that this is the last time I have to write about this topic. I've spilled enough virtual ink on this nonsensical topic. Let me try one more time to rehash things:
In 2008, when then-Senator Barack Obama was running for President, rumors from the conservative blogosphere emerged that he had not, in fact, been born in Hawaii, but had been born in Kenya. In response, his campaign released a "Certificate of Live Birth", the current legal copy of a birth certificate issued in Hawaii, which should have put the issue to bed. But there is no convincing idiots with logic, and the rumors have persisted, buoyed in recent days by the incoherent ramblings of one Donald Trump.
Let me review the facts one more time:
* The "Certificate of Live Birth" is the current legal standard for birth certificate copies in Hawaii, it is accepted as proof of birth in all 50 states and by the U.S. State Department for the issuance in passports.
* Microfiche evidences proves positively that the birth of Barack Obama in Hawaii was reported by the hospital in two papers the day after it occurred.
* Several news organizations including factcheck.org and CNN had viewed the original of his birth certificate in Honolulu and reported that fact.
* Even if one were to ignore the obvious facts as to the location of his birth and choose to continue to believe he was born in Kenya, President Obama would likely have been eligible anyhow as he was entitled to U.S. citizenship at birth based on the citizenship of his mother. This is no different from Senator John McCain, who was born in Panama while his father was serving in the military.
But, the President relented this past week and was able to convince the State of Hawaii to release his birth certificate. This was a poor move in my opinion -- there was absolutely zero credible evidence to counter from the birthers and frankly, if the right-wing of the GOP wants to behave like a bunch of braying jackasses, I'd be happy to let them. Karl Rove commented extensively on how this issue was hurting the credibility of the President's opponents, as had Bill O'Reilly and they were both 100% correct. But, in his continuing spirit of "ever backing down", the President conceded ground to the wing nuts and convinced the State of Hawaii to release his original.
So why do I think birthers are racist? Ask yourself a question. Has Donald Trump released a copy of his birth certificate? How about Mitt Romney? Michelle Bachman? Have any of the GOP candidates?
And why is no one asking?
You could say that it is because there is no credible reason to believe that any of them were born outside the United States and you'd be right. There is equally zero credible evidence that Barack Obama was born outside the US. Simply put, if you choose to believe that the President was born in Kenya, against all facts, then you are simply buying into the Muslim-Kenyan-Tribal image of our first black President. And you are doing so without evidence. And that is racism, period.
If you've been hawking this issue, get a life. I'm talking to you, Mr. Trump.
Will the Gang of Six Crack the Deficit Code?
We are a long way from a deal on long-term deficit reduction. It's a very strong possibility that, as has happened so many times in the past, all the talk will lead to very little action. There have only been a few times in my lifetime that the parties have come together to effectively address the deficit. The Gramm-Rudman deficit reduction act of 1985, which closed tax loopholes and implemented the original version of "pay as you go" comes to mind. So does the tax deal that President George Herbert Walker Bush struck with congressional Democrats in 1991, which was wildly unpopular with his party but set-up for the surpluses of the late 90s. But it doesn't happen much.
But I AM very encouraged with the bipartisan negotiations that are taking place between the so-called "Gang of Six" which include 1 liberal Democrat (Dick Durbin-IL), two moderate Democrats (Kent Conrad-ND and Mark Warner-VA) and three conservative Republicans (Saxby Chambliss-GA, Mike Crapo-ID and Tom Coburn-OK.) Using the deficit reduction commissions plan as a baseline, they are working towards a deal and making some progress. Coburn has even defended tax changes that would increase revenue (also known as tax increases) so long as the revenue-enhancement is achieved through closing loopholes and not through raising marginal rates (which is what the deficit panel had proposed.) I wish we'd gained alignment at the outset for an up-or-down vote on the panel's findings, but thanks the partisan flip-flopping of Senator John McCain and others, we didn't get that chance. But if these six Senators, who come from across the ideological spectrum, can agree on a plan, then I believe that a bipartisan bill can pass. And they are doing it the right way, putting things on the table, negotiating in good faith. We all should root for their success.
How Much Trouble is Barack Obama In?
I've been writing for a while that President Obama was an odds-on favorite for a second term. My theory has always been that the timing of economic recovery would create favorable conditions for an incumbent, regardless of any policy squabbles. But the economic recovery has become significantly less robust, with economic growth slowing to 1.8% in the first quarter of this year and inflation jumping up significantly, particularly on commodities such as oil and food. Incoming growth above the "mendoza line" of 1.5% (the line on linear regression analysis that generally correlates to the incumbent President's party receiving 50% of the Presidential vote) is not assured and the President's poll numbers, after a bump at the end of last year and the beginning of this year, have sagged again (a full update on those numbers next week.)
But the President is still polling favorable against would-be GOPers. Here is a quick average of his performance against possible GOP candidates:
Versus Mike Huckabee: Obama +2.5%
Versus Mitt Romney: Obama +2.4%
Versus Jon Huntsman: Obama +11.0%
Versus Michelle Bachman: Obama +12.0%
Versus Mitch Daniels: Obama +13.0%
Versus Tim Pawlenty: Obama +13.5%
Versus Newt Gingrich: Obama +14.3%
Versus Donald Trump: Obama +15.4%
Versus Sarah Palin: Obama +17.9%
Of course, these polls are not very predictive of final outcomes at this stage of the race - Jon Stewart did a great comedy piece on this on the Daily Show last week which relived the news reports of Hillary Clinton being a lock in 2008, Joe Lieberman being the front-runner in 2004 and Bill Clinton being in 7th in the Democrat running order in 1992. But they do give us some clues.
Clearly Huntsman, Daniels and Pawlenty are suffering from the fact that few people really know very much about them yet. And Gingrich, Trump and Palin are likely suffering from the fact that people DO know a lot about them. Romney and Huckabee are the two established, credible candidates that the public knows, and they poll pretty close to President Obama. Either one of the lesser-knowns will break out of the pack or those two, who have to be considered the front-runners at this point (regardless of Donald Trump polling well in some polls at this point), would run a very close, competitive race with the President next November.
So how much trouble is the President in? I've said it before and I'll say it again -- it's all about the economy.
If you like this site, tell your friends.
Sunday, April 17, 2011
The Next Fronts in the Budgetary War, America's Energy Future
With Fiscal 2011 Behind Us, The Battle Turns to the Debt Ceiling and the Blueprint
I give John Boehner a lot of credit as a politician. When the GOP swept into control of the House last November, Republicans were quick to note that they still only controlled "one-half of one-third of government", that is, that they controlled half of the legislative branch but not any of the executive branch (certainly true) or the judiciary (not really true, but makes for a good one-liner.) But with control of the House came a very important power, one that I noted that we all should hold the GOP accountable for - control of the purse strings. And use that control the Republicans have done.
Think back to prior to November. The debates that took place in the last congress were about stimulus, health care, Don't Ask, Don't Tell, nuclear arms treaties. The President wanted to talk about comprehensive immigration reform and cap and trade. The Republicans have focused the political debate in this country on one thing and one thing only: government spending. Boehner did a masterful job getting most of what he wanted in the fiscal 2011 budget. This time-consuming debate was just an initial salvo in the debate to come.
First up, the debt ceiling. By sometime in late May, the federal government will have reached the maximum amount that it is allowed to borrow by law and will need permission from congress to continue issuing bonds. As there is no viable path to budgetary balance this year, the impact of not getting that permission would be nothing short of catastrophic. Essentially, large swaths of the government would shut down and the US would fall into default on treasuries, which would destroy the value of the full faith and credit of the government and cause massive spikes in interest rates. I don't think most of the Republicans want to see this happen, but they are certainly looking to use the debt ceiling as a bargaining chip. Boehner and company will attempt to use the debt ceiling legislation to extract even more significant cuts in spending. This is a fairly dangerous game of chicken, but from what I've seen, in games of chicken, the Democrats seem to be blinking first most of the time the past few years.
Then, there is the Ryan plan, the GOP blueprint for the next 10 years of government spending. All but 4 Republicans in the House supported the plan (no Democrats did), which called for abolishing Medicare and Medicaid as we know it, replacing Medicare with subsidized private plans and Medicaid with block grants to the states. It also called for extension of the Bush/Obama tax cuts at all income levels and major reductions in domestic discretionary spending (it left Social Security untouched, although some Republicans have been calling for the retirement age to be raised to 70 over time.)
If you would have told me a year ago that 98% of House Republicans would have supported a plan to dismantle Medicare, I wouldn't have believed you. But it just shows how far Boehner has been able to shift the debate. The Ryan plan is clearly DOA in the Democratically-controlled Senate and President Obama would veto it regardless, but it stakes out a striking opening position in the debate over balancing the federal budget.
Republicans seem highly likely to control both Houses in 2013 (see my previous post on the Senate map and how awful it is for the Dems in 2012), which means that the Presidential election will be very high stakes. If a Republican candidate wins, we could very well see something like the Ryan plan enacted.
President Obama, for his part, has called for more modest reductions in domestic discretionary spending, significant reductions in defense expenditures and allowing the Bush/Obama tax cuts to lapse for those making over $250K. It's a start, but doesn't go nearly far enough to fix the budget. Republicans are sure to strongly oppose the tax changes and a least a portion of the defense reductions.
Let the debate begin.
Why $4 Gas is a Good Thing
In the breakthrough economics book, Freakonomics, economist Steven Levitt makes one point abundantly clear over and over again: people respond to incentives. From drug dealers, to parents with kids in day care to sumo wrestlers, the book chronicles how incentives drive behavior large and small. The same is true with energy policy.
When gas is sub-$2/gallon, whatever we may say about carbon emissions, national security, etc., not a lot will change with the behavior of individuals that drives our oil consumption. When it reaches $4/gallon, magical things happen. People buy hybrid and electric cars. Corporations start investing in alternative energy. We start to make real progress against our dependence on foreign fuels and evolve our economy.
$4/gas hurts, but let's hope it is here to stay. Our green energy economy depends on it.
I give John Boehner a lot of credit as a politician. When the GOP swept into control of the House last November, Republicans were quick to note that they still only controlled "one-half of one-third of government", that is, that they controlled half of the legislative branch but not any of the executive branch (certainly true) or the judiciary (not really true, but makes for a good one-liner.) But with control of the House came a very important power, one that I noted that we all should hold the GOP accountable for - control of the purse strings. And use that control the Republicans have done.
Think back to prior to November. The debates that took place in the last congress were about stimulus, health care, Don't Ask, Don't Tell, nuclear arms treaties. The President wanted to talk about comprehensive immigration reform and cap and trade. The Republicans have focused the political debate in this country on one thing and one thing only: government spending. Boehner did a masterful job getting most of what he wanted in the fiscal 2011 budget. This time-consuming debate was just an initial salvo in the debate to come.
First up, the debt ceiling. By sometime in late May, the federal government will have reached the maximum amount that it is allowed to borrow by law and will need permission from congress to continue issuing bonds. As there is no viable path to budgetary balance this year, the impact of not getting that permission would be nothing short of catastrophic. Essentially, large swaths of the government would shut down and the US would fall into default on treasuries, which would destroy the value of the full faith and credit of the government and cause massive spikes in interest rates. I don't think most of the Republicans want to see this happen, but they are certainly looking to use the debt ceiling as a bargaining chip. Boehner and company will attempt to use the debt ceiling legislation to extract even more significant cuts in spending. This is a fairly dangerous game of chicken, but from what I've seen, in games of chicken, the Democrats seem to be blinking first most of the time the past few years.
Then, there is the Ryan plan, the GOP blueprint for the next 10 years of government spending. All but 4 Republicans in the House supported the plan (no Democrats did), which called for abolishing Medicare and Medicaid as we know it, replacing Medicare with subsidized private plans and Medicaid with block grants to the states. It also called for extension of the Bush/Obama tax cuts at all income levels and major reductions in domestic discretionary spending (it left Social Security untouched, although some Republicans have been calling for the retirement age to be raised to 70 over time.)
If you would have told me a year ago that 98% of House Republicans would have supported a plan to dismantle Medicare, I wouldn't have believed you. But it just shows how far Boehner has been able to shift the debate. The Ryan plan is clearly DOA in the Democratically-controlled Senate and President Obama would veto it regardless, but it stakes out a striking opening position in the debate over balancing the federal budget.
Republicans seem highly likely to control both Houses in 2013 (see my previous post on the Senate map and how awful it is for the Dems in 2012), which means that the Presidential election will be very high stakes. If a Republican candidate wins, we could very well see something like the Ryan plan enacted.
President Obama, for his part, has called for more modest reductions in domestic discretionary spending, significant reductions in defense expenditures and allowing the Bush/Obama tax cuts to lapse for those making over $250K. It's a start, but doesn't go nearly far enough to fix the budget. Republicans are sure to strongly oppose the tax changes and a least a portion of the defense reductions.
Let the debate begin.
Why $4 Gas is a Good Thing
In the breakthrough economics book, Freakonomics, economist Steven Levitt makes one point abundantly clear over and over again: people respond to incentives. From drug dealers, to parents with kids in day care to sumo wrestlers, the book chronicles how incentives drive behavior large and small. The same is true with energy policy.
When gas is sub-$2/gallon, whatever we may say about carbon emissions, national security, etc., not a lot will change with the behavior of individuals that drives our oil consumption. When it reaches $4/gallon, magical things happen. People buy hybrid and electric cars. Corporations start investing in alternative energy. We start to make real progress against our dependence on foreign fuels and evolve our economy.
$4/gas hurts, but let's hope it is here to stay. Our green energy economy depends on it.
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