House Speaker John Boehner’s new budget proposal would require deep cuts in the years immediately ahead in Social Security and Medicare benefits for current retirees, the repeal of health reform’s coverage expansions, or wholesale evisceration of basic assistance programs for vulnerable Americans.
The plan is, thus, tantamount to a form of “class warfare.” If enacted, it could well produce the greatest increase in poverty and hardship produced by any law in modern U.S. history.
This may sound hyperbolic, but it is not. The mathematics are inexorable.
The Boehner plan calls for large cuts in discretionary programs of $1.2 trillion over the next ten years, and it then requires additional cuts that are large enough to produce another $1.8 trillion in savings to be enacted by the end of the year as a condition for raising the debt ceiling again at that time.
The Boehner plan contains no tax increases. The entire $1.8 trillion would come from budget cuts.
Because the first round of cuts will hit discretionary programs hard — through austere discretionary caps that Congress will struggle to meet — discretionary cuts will largely or entirely be off the table when it comes to achieving the further $1.8 trillion in budget reductions.
As a result, virtually all of that $1.8 trillion would come from entitlement programs. They would have to be cut more than $1.5 trillion in order to produce sufficient interest savings to achieve $1.8 trillion in total savings.
To secure $1.5 trillion in entitlement savings over the next ten years would require draconian policy changes. Policymakers would essentially have three choices: 1) cut Social Security and Medicare benefits heavily for current retirees, something that all budget plans from both parties (including House Budget Committee Chairman Paul Ryan’s plan) have ruled out; 2) repeal the Affordable Care Act’s coverage expansions while retaining its measures that cut Medicare payments and raise tax revenues, even though Republicans seek to repeal many of those measures as well; or 3) eviscerate the safety net for low-income children, parents, senior citizens, and people with disabilities. There is no other plausible way to get $1.5 trillion in entitlement cuts in the next ten years.
The evidence for this conclusion is abundant.
The “Gang of Six” plan, with its very tough and controversial entitlement cuts, contains total entitlement reductions of $640 to $760 billion over the next ten years not counting Social Security, and $755 billion to $875 billion including Social Security. (That’s before netting out $300 billion in entitlement costs that the plan includes for a permanent fix to the scheduled cuts in Medicare physician payments that Congress regularly cancels; with these costs netted out, the Gang of Six entitlement savings come to $455 to $575 billion.)
The budget deal between President Obama and Speaker Boehner that fell apart last Friday, which included cuts in Social Security cost-of-living adjustments and Medicare benefits as well as an increase in the Medicare eligibility age, contained total entitlement cuts of $650 billion (under the last Obama offer) to $700 billion (under the last Boehner offer).
The Ryan budget that the House passed in April contained no savings in Social Security over the next ten years and $279 billion in Medicare cuts.
To be sure, the House-passed Ryan budget included much larger overall entitlement cuts over the next 10 years. But that was largely because it eviscerated the safety net and repealed health reform’s coverage expansions. The Ryan plan included cuts in Medicaid and health reform of a remarkable $2.2 trillion, from severely slashing Medicaid and killing health reform’s coverage expansions. The Ryan plan also included stunning cuts of $127 billion in the SNAP program (formerly known as food stamps) and $126 billion in Pell Grants and other student financial assistance.
That House Republicans would likely seek to reach the Boehner budget’s $1.8 trillion target in substantial part by cutting programs for the poorest and most vulnerable Americans is given strong credence by the “Cut, Cap, and Balance” bill that the House recently approved. That bill would establish global spending caps and enforce them with across-the-board budget cuts —exempting Medicare and Social Security from the across-the-board cuts while subjecting programs for the poor to the across-the-board axe.
This would turn a quarter century of bipartisan budget legislation on its head; starting with the 1985 Gramm-Rudman-Hollings law, all federal laws of the last 26 years that have set budget targets enforced by across-the-board cuts have exempted the core assistance programs for the poor from those cuts while including Medicare among programs subject to the cuts. This component of the “Cut, Cap, and Balance” bill strongly suggests that, especially in the face of an approaching election, House Republicans looking for entitlement cuts would heavily target means-tested programs for people of lesser means (and less political power).
In short, the Boehner plan would force policymakers to choose among cutting the incomes and health benefits of ordinary retirees, repealing the guts of health reform and leaving an estimated 34 million more Americans uninsured, and savaging the safety net for the poor. It would do so even as it shielded all tax breaks, including the many lucrative tax breaks for the wealthiest and most powerful individuals and corporations.
President Obama has said that, while we must reduce looming deficits, we must take a balanced approach. The Boehner proposal badly fails this test of basic decency. The President should veto the bill if it reaches his desk. Congress should find a fairer, more decent way to avoid a default.
By: Robert Greenstein, President, Center on Budget and Policy Priorities, July 25, 2011
July 25, 2011
Posted by raemd95 |
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So here’s the new Republican debt-ceiling idea:
Pass a $1 trillion increase in the debt ceiling joined to $1 trillion in spending cuts over the next 10 years, no revenues.
That sounds dramatic. But $1 trillion in spending cuts over a decade is not as big a deal as it sounds, especially if you are allowed to be vague about them. And a $1 trillion debt ceiling increase carries the United States government only into the early part of next year, meaning that this debate will recur in 2012.
House Republicans apparently regard the early renewal of the debt-ceiling debate as a feature, not a bug. It means that they can resume the debate over debt and deficits in the election season.
Except – I thought the 2012 election was supposed to be about the economy? Jobs and the Obama administration’s disappointing record of creating them?
Isn’t that the winning issue?
Why the eagerness to change the subject in 2012 to Republican plans to end the Medicare guarantee for those now under 55?
Isn’t that a big loser?
Republicans and Democrats alike assume that a 2012 debate over the debt ceiling hurts Democrat’s and helps Republican’s. Maybe. But I’d be careful about that assumption. If it means that we spend 2012 debating the Ryan plan all over again – only this time with the big general electorate watching – then the assumption may be wrong.
And if there’s one thing that could alienate younger voters who have begun to drift back to the GOP because of the jobs issue, isn’t a big debate over a Republican plan to end the Medicare guarantee for younger people a good approximation of that one thing? Why frame a national election around that?
By: David Frum, The Frum Forum, July 25, 2011
July 25, 2011
Posted by raemd95 |
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For days, the White House has infuriated its Democratic allies in Congress by offering House Republicans more and more in exchange for a deal to raise the debt ceiling and prevent default. But it was never enough, and, on Friday evening, it became clear that it may never be enough. Speaker John Boehner again walked away from the “grand bargain” he had been negotiating with President Obama, leaving the country teetering on the brink of another economic collapse.
At the White House podium a few minutes later, the president radiated a righteous fury he rarely displays in public, finally placing the blame for this wholly unnecessary crisis squarely where it belongs: on Republicans who will do anything to upend his presidency and dismantle every social program they can find. “Can they say yes to anything?” he asked, noting the paradox of Republicans, who claim that financial responsibility and debt reduction are their biggest priorities, rejecting yet another deal that would have cut that debt by at least $3 trillion.
Mr. Obama, in fact, had already gone much too far in trying to make his deal palatable to House Republicans, offering to cut spending even further than the deficit plan proposed this week by the bipartisan “Gang of Six,” which includes some of the Senate’s most conservative members. The White House was willing to cut $1 trillion in domestic and defense spending and another $650 billion from Medicare, Medicaid and even Social Security.
Much of that savings would have come from raising the eligibility age for Medicare benefits and reducing the cost-of-living increases that elderly people depend on when receiving their health and pension benefits. It could have caused significant damage to some of the nation’s most vulnerable people.
The “bargain” would require that alongside these cuts, tax revenues would go up by $1.2 trillion, largely through a rewrite of the tax code to eliminate many deductions and loopholes. That’s substantially less in revenue than the $2 trillion in the “Gang of Six” plan. The problem is that while much of the cutting would start right away, most of the revenue increases would be put off, in part because a tax-code revision would take months, and in part to allow House Republicans to say they did not agree to any specific tax revenue increases.
Democratic lawmakers were rightly furious when they heard about these details this week, calling the plan wholly unbalanced. But, in the end, it was Mr. Boehner who torpedoed the talks. He said Friday evening that he and the president had come close to agreeing on $800 billion of the revenue increases (the equivalent of letting the upper-income Bush tax cuts expire as scheduled next year — not much of a heavy lift) but could not stomach another $400 billion the White House wanted to raise through ending tax loopholes and deductions.
So, on the eve of economic calamity, the Republicans killed an overly generous deal largely over a paltry $400 billion in deductions. Mr. Obama was willing to take considerable heat from his liberal critics over the deal, and the Republicans were not willing to do a thing to anger their Tea Party base. As the president forcefully said, there is no evidence that House Republicans are capable of making those tough decisions. If last-ditch talks beginning Saturday fail, they will have to take responsibility if the unimaginable — a government default — happens in 10 days and the checks stop going out.
By: The New York Times, Editorial, July 22, 2011
July 24, 2011
Posted by raemd95 |
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If China or Iran threatened our national credit rating and tried to drive up our interest rates, or if they sought to damage our education system, we would erupt in outrage.
Well, wake up to the national security threat. Only it’s not coming from abroad, but from our own domestic extremists.
We tend to think of national security narrowly as the risk of a military or terrorist attack. But national security is about protecting our people and our national strength — and the blunt truth is that the biggest threat to America’s national security this summer doesn’t come from China, Iran or any other foreign power. It comes from budget machinations, and budget maniacs, at home.
House Republicans start from a legitimate concern about rising long-term debt. Politicians are usually focused only on short-term issues, so it would be commendable to see the Tea Party wing of the Republican Party seriously focused on containing long-term debt. But on this issue, many House Republicans aren’t serious, they’re just obsessive in a destructive way. The upshot is that in their effort to protect the American economy from debt, some of them are willing to drag it over the cliff of default.
It is not exactly true that this would be our first default. We defaulted in 1790. By some definitions, we defaulted on certain gold obligations in 1933. And in 1979, the United States had trouble managing payouts to some individual investors on time (partly because of a failure of word processing equipment) and thus was in technical default.
Yet even that brief lapse in 1979 raised interest payments in the United States. Terry L. Zivney, a finance professor at Ball State University and co-author of a scholarly paper about the episode, says the 1979 default increased American government borrowing costs by 0.6 of a percentage point indefinitely.
Any deliberate and sustained interruption this year could have a greater impact. We would see higher interest rates on mortgages, car loans, business loans and credit cards.
American government borrowing would also become more expensive. In February, the Congressional Budget Office noted that a 1 percentage point rise in interest rates could add more than $1 trillion to borrowing costs over a decade.
In other words, Republican zeal to lower debts could result in increased interest expenses and higher debts. Their mania to save taxpayers could cost taxpayers. That suggests not governance so much as fanaticism.
More broadly, a default would leave America a global laughingstock. Our “soft power,” our promotion of democracy around the world, and our influence would all take a hit. The spectacle of paralysis in the world’s largest economy is already bewildering to many countries. If there is awe for our military prowess and delight in our movies and music, there is scorn for our political/economic management.
While one danger to national security comes from the risk of default, another comes from overzealous budget cuts — especially in education, at the local, state and national levels. When we cut to the education bone, we’re not preserving our future but undermining it.
It should be a national disgrace that the United States government has eliminated spending for major literacy programs in the last few months, with scarcely a murmur of dissent.
Consider Reading Is Fundamental, a 45-year-old nonprofit program that has cost the federal government only $25 million annually. It’s a public-private partnership with 400,000 volunteers, and it puts books in the hands of low-income children. The program helped four million American children improve their reading skills last year. Now it has lost all federal support.
“They have made a real difference for millions of kids,” Kyle Zimmer, founder of First Book, another literacy program that I’ve admired, said of Reading Is Fundamental. “It is a tremendous loss that their federal support has been cut. We are going to pay for these cuts in education for generations.”
Education programs like these aren’t quick fixes, and the relation between spending and outcomes is uncertain and complex. Nurturing reading skills is a slog rather than a sprint — but without universal literacy we have no hope of spreading opportunity, fighting crime or chipping away at poverty.
“The attack on literacy programs reflects a broader assault on education programs,” said Rosa DeLauro, a Democratic member of Congress from Connecticut. She notes that Republicans want to cut everything from early childhood programs to Pell grants for college students. Republican proposals have singled out some 43 education programs for elimination, but it’s not seen as equally essential to end tax loopholes on hedge fund managers.
So let’s remember not only the national security risks posed by Iran and Al Qaeda. Let’s also focus on the risks, however unintentional, from domestic zealots.
By: Nicholas Kristoff, Op-Ed Columnist, The New York Times, July 23, 2011
July 24, 2011
Posted by raemd95 |
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Have you developed a hedging strategy to protect against America’s rapid decline? Or repositioned your portfolio to take advantage of orphaned Treasury securities? Or stashed some cash so you can buy distressed assets from the newly bankrupt?
If you’re like most Americans, the answer is, of course not. But if you work on Wall Street, the man-made debt crisis that’s brewing in Washington might represent a surprising opportunity to make money. As the whole world knows by now, the U.S. government will no longer be able to borrow money as of early August, unless Republicans and Democrats swallow their vitriol and come up with a compromise deal that will begin dealing with America’s oversized debt and allow the government to function normally. The nation’s mushrooming debt load is a big problem, but abruptly halting all federal borrowing would transform it into a disaster, since it would require vast government spending cuts that would promptly trigger another recession.
The ongoing assumption is that legislators will puff and posture until the last second, then congratulate themselves for making a deal that should have been in place months ago. But even if politicians avert the worst-case scenario, the size of the debt and the deep dysfunction in the nation’s capital are likely to cause other trouble. It’s increasingly likely, for instance, that rating agencies like Moody’s and Standard & Poor’s will cut America’s credit rating from AAA—the top rating, which the United States has held for decades—to a notch or two lower. That would force thousands of institutional investors to determine whether they can keep holding Treasury securities or whether they need to dump them. Even small spending cuts that come as part of a deal to raise the federal borrowing limit could cut into weak economic growth, especially if they go into effect immediately.
The knock-on effects of a U.S. debt downgrade, sharp spending cuts or a “policy mistake” in Washington could rattle financial markets, depress hiring and drive confidence back down to recessionary levels. But smart investors know that one man’s crisis is another’s opportunity, and the monied class is planning how to profit if America goes bust. As the New York Times reported recently, some hedge funds are stockpiling cash, to buy U.S. government securities at fire-sale prices if there’s a credit downgrade and conservative investing vehicles like pension or money-market funds are forced to dump Treasuries. Others are trying to identify institutions that might be damaged by a U.S. debt crisis and forced to sell assets that vulture investors could buy on the cheap. Another way to gamble on America’s collapse is to invest in credit-default swaps that would pay out if the United States defaults on its debt. The price of such insurance has doubled recently, indicating a lively market for bets against America.
The modern financial markets are sophisticated casinos that allow steely investors to gamble on almost anything, including gloom-and-doom scenarios that could potentially harm millions. Though it might sound unctuous, betting on the likelihood of adverse events is a healthy part of a free market, because it creates an even stronger incentive for those who would suffer from bad outcomes to prevent them—and punishes those who destroy value, such as CEOs who mismanage their companies. But it doesn’t always work that way, and besides, this kind of gambling is generally open only to professional investors or those wealthy enough to have experts handling their money.
In his 2010 financial disclosure forms, for instance, House Majority Leader Eric Cantor listed a small investment in a fund that bets against U.S. Treasury securities and would benefit if the U.S. government defaulted or something else happened that devalued Treasuries. That became controversial, since Cantor is one of the key Republicans involved in the debt negotiations and a conservative stalwart who insists there should be no new taxes as part of a deal. Cantor’s office says the fund is in his wife’s and his mother-in-law’s name and amounts to less than $4,000, while the vast majority of Cantor’s retirement savings are invested in conventional securities that would lose value if there were a true U.S. debt crisis. But Cantor’s portfolio is probably similar to those of other affluent Americans, with traditional investments offset by a hedging strategy meant to minimize losses if something profoundly bad happens.
Ordinary Americans who lack investment funds or live paycheck-to-paycheck don’t have much of a hedging strategy, however, which makes them directly vulnerable if Washington wrecks the economy and jobs gets even scarcer. Some economists think the drawn-out debt drama—and the near-total absence of action on other big problems, like the foreclosure epidemic or sky-high unemployment—is already causing harm. Businesses, for instance, have virtually stopped hiring while they await the outcome of the Washington Follies. A sliding stock market reflects jittery investors who can’t figure out if they should invest in a global recovery or gird for Armageddon. “Washington is locked in a budget war that will determine the U.S. economy’s fate, not only for this year and next but for generations,” writes economist Mark Zandi of Moody’s Analytics. “Lawmakers may well misstep on this path to fiscal sustainability.” If they do, many of them will no doubt have their own personal parachutes. If possible, get your own.
By: Rick Newman, Columnist, U. S. News and World Report, July 22, 2011
July 24, 2011
Posted by raemd95 |
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