The Long Game In The Budget Battles: Advantage Obama
Late last year, when President Obama overhauled his economic team, some people complained that the departure of Larry Summers and Christina Romer left the White House short of first-rate economists. That may have been true, but what the White House lost in intellectual sparkle it more than made up for in Washington know-how. With Gene Sperling as head of the National Economic Council and Jack Lew as budget director, it boasts two veterans of the Clinton-era budget war—two men who know how to outmaneuver right-wing Republicans.
In the past few months, Sperling and Lew have been playing from the nineteen-nineties playbook. Initially, they produced a budget for 2012 that didn’t do very much at all about long-term deficits, and was instantly proclaimed dead on arrival. Budget hawks cried foul. But the White House was playing a long game, and its budget proposal was merely an opening gambit. Then came Congressman Paul Ryan with his radical “roadmap” to budget balance over the next ten years, which featured slashing reductions in domestic spending, more big tax cuts for the rich, and the conversion of Medicare to a voucher program. I irked some readers by saying that Ryan deserved credit for at least making a specific proposal, but I still believe liberals everywhere should be grateful. By spelling out what the Republicans would do to Medicare and Medicaid, he may well have deprived his party of the White House for the foreseeable future.
If you want to know why Ryan’s “budget-cutting” plan makes no financial sense, the Financial Times’ Martin Wolf spells it out very clearly in his latest column, which is based on an analysis by the non-partisan Congressional Budget Office analysis. If you want to know why Ryan’s plan is political poison, look at Ezra Klein’s blog, where he cites a recent opinion poll showing that a plurality of Republicans—yes Republicans—think the best option for Medicare is to not cut it at all. To say the very least, Ryan presented President Obama with a big opportunity to occupy the center ground. And despite the jibes about him being a covert socialist, this is clearly the ground on which the President feels most comfortable.
And so to today’s budget speech, in which Obama presented his own eminently centrist plan to reduce the deficit without privatizing Medicare, without slashing domestic spending to the point where many government programs won’t be able to operate, and without introducing any big tax increases. I wouldn’t sweat the individual numbers that Obama presented, such as his claim that his proposals would cut the budget deficit by four trillion dollars over twelve years. Forecasting the budget deficit next year is a challenge. Forecasting the deficit three years out is extremely difficult. Ten-year budget projections are largely meaningless.
What is important is the big picture. Where Ryan proposes radical changes to taxes and spending that would alter the social contract between government and governed, President Obama is arguing that we can trim our way to fiscal sustainability. Some cuts here, some tax breaks eliminated there, and, lo and behold, the deficit will be down to two per cent of G.D.P.
To be fair, the President isn’t saying it will be easy. If by 2014 Congress can’t come up with enough cuts to stabilize the debt-to-G.D.P. ratio, he is calling for a “debt failsafe” trigger that would involve spending reductions in all programs except Social Security, Medicaid, and low-income programs. To slow the growth of entitlement spending, he is proposing to beef up the Independent Payment Advisory Board, which the health-care reform act created, and setting it at a target of keeping Medicare growth to the rate of G.D.P. growth plus half a per cent. Even the Pentagon, which has been largely exempted from budget pressures since 9/11, would have to find some (overly modest) cuts. But compared to what Ryan is proposing, these are all relatively minor changes.
Is the plan credible? Without seeing the details, it is hard to say. In the fact-sheet it circulated today, the White House avoided saying which tax loopholes it is in favor of eliminating—the mortgage interest deduction?—and it also failed to provide any projections about, say, the level of federal spending and debt as a percentage of G.D.P. in 2020. That vagueness was certainly deliberate. At this juncture, the White House still doesn’t want to reveal all of its hand. Rather than placating the budget hawks with a definitive and fully worked out set of proposals, the Administration is betting that the bond market will give it more time—time in which the American people can learn more about the specifics of Ryan’s proposals, and get even less enthusiastic about them.
This game still has a long way to run. But if I were a betting man, and occasionally I am, I would wager on Sperling and Lew coming out on top rather than the congressman from Wisconsin.
By: John Cassidy, The New Yorker, April 13, 2011
State Budget Crises And The New Language of Deceit
For most of history, we had undebatable definitions of words such as “bailout” and “bankruptcy.” We understood the former as an undeserved public grant, and the latter as an inability to pay existing bills. Whatever your particular beliefs about these concepts, their meanings were at least agreed upon.
Sadly, that’s not the case during a deficit crisis that is seeing language redefined on ideological terms.
“Bailout” was the first word thrown into the Orwellian fire. As some lawmakers recently proposed replenishing depleted state coffers with federal dollars, the American Conservative Union urged Congress to oppose states “seek(ing) a bailout” from the feds. Now, Rep. Paul Ryan, R-Wis., says, “Should taxpayers in Indiana who have paid their bills on time, who have done their job fiscally be bailing out Californians who haven’t? No.”
Ryan, mind you, voted for 2008’s TARP program — a bank bailout in the purest sense of the term. But one lawmaker’s rank hypocrisy is less significant than how the word “bailout” is being used — and abused. Suddenly, the term suggests that federal aid would force taxpayers in allegedly “fiscally responsible” Republican states to underwrite taxpayers in supposedly irresponsible Democratic ones.
Aside from stoking a detestable interstate enmity, this thesis ignores the fact that state-to-state wealth transfers are already happening. According to the Tax Foundation, most Republican-voting states receive more in federal funding than they pay in federal taxes, while most Democratic-voting states receive less federal money than they pay in federal taxes.
That means traditionally blue states like California are now perpetually subsidizing — or in Ryan’s parlance, “bailing out” — traditionally red states like Indiana. Thus, federal aid to states could actually reduce the state-to-state subsidies conservatives say they oppose.
Congressional Republicans will undoubtedly ignore these facts. Their proposed solution to the budget emergency could instead be a Newt Gingrich-backed initiative letting states default on outstanding obligations by declaring bankruptcy. Again, the word is fraught with new connotations.
Whereas sick or laid-off individuals occasionally claim a genuine inability to repay debts and thus a need for bankruptcy protections, states can never legitimately claim such a need because they are never actually “bankrupt.” Why? Because they always posses the power to raise revenue. The power is called taxation — and destroying that authority is what the new bankruptcy idea is really about. It would let states avoid tax increases on the wealthy, renege on contractual promises to public employees and destroy the country’s creditworthiness.
Blocking state “bailouts” and letting states declare “bankruptcy” are radical notions, especially in a bad economy. One would result in recession-exacerbating public layoffs; the other would institutionalize an anti-tax zealotry that destroys tomorrow’s middle class in order to protect today’s rich. That’s why advocates of these ideas have resorted to manipulating language. They know the only way to make such extremism a reality is to distort the vernacular — and if we aren’t cognizant of their scheme, they will succeed.
By: David Sirota, Creators.com, Originally Published 3/4/11
Grave Consequences: Wall Street Tells John Boehner To Back Off The Debt Ceiling
Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation’s $14.29 trillion debt ceiling could have on U.S. financial markets.
House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.
Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.
Treasury could then implement emergency measures to continuing making interest payments on existing debt until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery.
Republicans and even some fiscally conservative Democrats want to use the debt limit fight as leverage to wring more significant spending cuts out of the White House. Politicians of all stripes are worried about how independents will react to a vote — or multiple stop-gap votes — to raise the debt ceiling. Many executives on Wall Street believe Washington is playing an enormously dangerous game with what is typically a non-controversial vote.
Sen. Chuck Schumer (D-N.Y.), who leads the Senate Democrats’ messaging efforts, expressed anger that Boehner was searching for leeway on the debt limit.
“The speaker seems to be testing out how far he can venture onto a frozen lake before the ice breaks. He should listen to business leaders who are telling him to watch his step. Messing around with the debt ceiling just to satisfy the tea party will lead to higher interest rates and an economic cataclysm.”
The Wall Street executives say even pushing close to the deadline — or talking about it — could have grave consequences in the marketplace.
“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.
Another said that “anyone interested in ‘testing’ the debt ceiling should understand the U.S. debt traded wider [with a higher yield] than Greek debt roughly five years ago. Then go ask CBO what happens to our deficits/public debt to GDP, if the 10-year [Treasury bond] goes from 3.5 percent to 5.5 percent to 7.5 percent.” The executive said such an increase would result in a downgrade of U.S. debt by ratings agencies and an end to the dollar as the standard global reserve currency.
By: Ben White, Politico, April 13, 2011
What Paul Ryan’s Constituents Think And Why It Matters
Rep. Paul Ryan’s (R) Wisconsin district isn’t competitive. Over the last decade, his most competitive race was the one he won by “only” 26 points. Last year, the margin was 38 points.
But when the Associated Press checked in with some of the far-right congressman’s constituents, they were aware of their representative’s plan to eliminate Medicare, and they weren’t exactly on board with the plan.
Brian Krutsch has been long one of many automatic votes here for Rep. Paul Ryan…. But this week, admiration has been tinged with apprehension as one of Ryan’s signature ideas — ending Medicare’s status as a full, guaranteed benefit for senior citizens — suddenly took a step toward reality.
“I think that’s one of the things they should probably leave alone — you know — unless it’s absolutely necessary,” Krutsch said as he took a break from reviewing job openings at the Rock County Job Center. “Old people need help with medical bills. There’s too many people under-insured right now — especially people like myself right now who don’t have insurance.”
Howard Gage, a 74-year-old Medicare recipient who owns a three-person video-production company, said he has voted for Ryan in all seven races, still supports the congressman and likes him as a person. But, he added, it’s hard to accept that fixing the budget should mean that his family wouldn’t receive the same Medicare benefits that he relies on.
“It bothers me that my kids or grandchildren might be affected by whatever has to be done” to curb spending, he said.
At face value, it’s interesting that those who elected Ryan aren’t at all sold on Ryan’s vision. If they’re not on board, it stands to reason more vulnerable Republican lawmakers from more competitive districts have reason to be concerned, and may very well balk at embracing such a radical move that won’t pass anyway.
But there’s more to it than that. As Greg Sargent explained, “These folks are worried about doing away with Medicare as we know it, but they are grappling with whether or not this will be necessary to put the nation on firmer fiscal footing.”
Right. Reading the piece, it seems these folks want to do the right thing. They’re uncomfortable with an extreme overhaul of Medicare, but they’re willing to listen to what’s “absolutely necessary.”
But the point is, the privatization of Medicare isn’t “necessary” at all. It won’t even lower health care costs. Paul Ryan’s plan is ostensibly about debt reduction, but even that’s a charade — he’s going after entitlements and other domestic priorities while slashing tax rates for the rich.
Or as Greg added, these voters “are proceeding from the premise that Ryan’s Medicare proposal is about fixing our fiscal situation in a way that would spread the pain around evenly — and not aware that it would shift the burden for fixing our fiscal situation downward, in keeping with conservative tax-cutting ideology.”
Guess what message Democrats should be pushing right now? Or put another way, what do you suppose those folks in Southeastern Wisconsin would say if they knew going after Medicare wouldn’t be at all necessary if Ryan weren’t so desperate to give millionaires another massive tax break?
By: Steve Benen, Washington Monthly-Political Animal, April 11, 2011
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