“Focusing On The Wrong Things”: Why We Should Stop Obsessing About The Federal Budget Deficit
I wish President Obama and the Democrats would explain to the nation that the federal budget deficit isn’t the nation’s major economic problem and deficit reduction shouldn’t be our major goal. Our problem is lack of good jobs and sufficient growth, and our goal must be to revive both.
Deficit reduction leads us in the opposite direction—away from jobs and growth. The reason the “fiscal cliff” is dangerous (and, yes, I know—it’s not really a “cliff” but more like a hill) is because it’s too much deficit reduction, too quickly. It would suck too much demand out of the economy.
But more jobs and growth will help reduce the deficit. With more jobs and faster growth, the deficit will shrink as a proportion of the overall economy. Recall the 1990s when the Clinton administration balanced the budget ahead of the schedule it had set with Congress because of faster job growth than anyone expected—bringing in more tax revenues than anyone had forecast. Europe offers the same lesson in reverse: Their deficits are ballooning because their austerity policies have caused their economies to sink.
The best way to generate jobs and growth is for the government to spend more, not less. And for taxes to stay low—or become even lower—on the middle class.
(Higher taxes on the rich won’t slow the economy because the rich will keep spending anyway. After all, being rich means spending whatever you want to spend. By the same token, higher taxes won’t reduce their incentive to save and invest because they’re already doing as much saving and investing as they want. Remember: they’re taking home a near record share of the nation’s total income and have a record share of total wealth.)
Why don’t our politicians and media get this? Because an entire deficit-cutting political industry has grown up in recent years—starting with Ross Perot’s third party in the 1992 election, extending through Peter Petersen’s Institute and other think-tanks funded by Wall Street and big business, embracing the eat-your-spinach deficit hawk crowd in the Democratic Party, and culminating in the Simpson-Bowles Commission that President Obama created in order to appease the hawks but which only legitimized them further.
Most of the media have bought into the narrative that our economic problems stem from an out-of-control budget deficit. They’re repeating this hokum even now, when we’re staring at a fiscal cliff that illustrates just how dangerous deficit reduction can be.
Deficit hawks routinely warn unless the deficit is trimmed we’ll fall prey to inflation and rising interest rates. But there’s no sign of inflation anywhere. The world is awash in underutilized capacity As for interest rates, the yield on the ten-year Treasury bill is now around 1.26 percent—lower than it’s been in living memory.
In fact, if there was ever a time for America to borrow more in order to put our people back to work repairing our crumbling infrastructure and rebuilding our schools, it’s now.
Public investments that spur future job-growth and productivity shouldn’t even be included in measures of government spending to begin with. They’re justifiable as long as the return on those investments – a more educated and productive workforce, and a more efficient infrastructure, both generating more and better goods and services with fewer scarce resources – is higher than the cost of those investments.
In fact, we’d be nuts not to make these investments under these circumstances. No sane family equates spending on vacations with investing in their kids’ education. Yet that’s what we do in our federal budget.
Finally, the biggest driver of future deficits is overstated—rising health-care costs that underlie projections for Medicare and Medicaid spending. The rate of growth of health-care costs is slowing because of the Affordable Care Act and increasing pressures on health providers to hold down costs. Yet projections of future budget deficits haven’t yet factored in this slowdown.
So can we please stop obsessing about future budget deficits? They’re distracting our attention from what we should be obsessing about—jobs and growth.
BY: Robert Reich, The American Prospect, November 21, 2012
“Life, Death And Deficits”: There Is No Good Case For Denying Older Americans Access To Medicare And Social Security
America’s political landscape is infested with many zombie ideas — beliefs about policy that have been repeatedly refuted with evidence and analysis but refuse to die. The most prominent zombie is the insistence that low taxes on rich people are the key to prosperity. But there are others.
And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains.
First of all, you need to understand that while life expectancy at birth has gone up a lot, that’s not relevant to this issue; what matters is life expectancy for those at or near retirement age. When, to take one example, Alan Simpson — the co-chairman of President Obama’s deficit commission — declared that Social Security was “never intended as a retirement program” because life expectancy when it was founded was only 63, he was displaying his ignorance. Even in 1940, Americans who made it to age 65 generally had many years left.
Now, life expectancy at age 65 has risen, too. But the rise has been very uneven since the 1970s, with only the relatively affluent and well-educated seeing large gains. Bear in mind, too, that the full retirement age has already gone up to 66 and is scheduled to rise to 67 under current law.
This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security.
So any rise in the Social Security retirement age would, as I said, be cruel, hurting the most vulnerable Americans. And this cruelty would be gratuitous: While the United States does have a long-run budget problem, Social Security is not a major factor in that problem.
Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem.
It’s true that thanks to Obamacare, seniors should actually be able to get insurance even without Medicare. (Although, what happens if a number of states block the expansion of Medicaid that’s a crucial piece of the program?) But let’s be clear: Government insurance via Medicare is better and more cost-effective than private insurance.
You might ask why, in that case, health reform didn’t just extend Medicare to everyone, as opposed to setting up a system that continues to rely on private insurers. The answer, of course, is political realism. Given the power of the insurance industry, the Obama administration had to keep that industry in the loop. But the fact that Medicare for all may have been politically out of reach is no reason to push millions of Americans out of a good system into a worse one.
What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money, because younger seniors are relatively healthy and hence low-cost. Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?
The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats, in particular, who even consider either alternative need to ask themselves what on earth they think they’re doing.
But what, ask the deficit scolds, do people like me propose doing about rising spending? The answer is to do what every other advanced country does, and make a serious effort to rein in health care costs. Give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” (And isn’t it odd that the same people who demagogue attempts to help Medicare save money are eager to throw millions of people out of the program altogether?) We know that we have a health care system with skewed incentives and bloated costs, so why don’t we try to fix it?
What we know for sure is that there is no good case for denying older Americans access to the programs they count on. This should be a red line in any budget negotiations, and we can only hope that Mr. Obama doesn’t betray his supporters by crossing it.
By: Paul Krugman, Op-Ed Columnist, The New York Times, November 15, 2012
“Logic, Fairness, And Common Sense”: The Final Days, The Biggest Issue, And The Clearest Choice
As we go into the final days of a dismal presidential campaign where too many issues have been fudged or eluded — and the media only want to talk about is who’s up and who’s down — the biggest issue on which the candidates have given us the clearest choice is whether the rich should pay more in taxes.
President Obama says emphatically yes. He proposes ending the Bush tax cut for people earning more than $250,000 a year, and requiring that the richest 1 percent pay no less than a third of their income in taxes, the so-called “Buffett Rule.”
Mitt Romney says emphatically no. He proposes cutting tax rates on the rich by 20 percent, extending the Bush tax cut for the wealthy, and reducing or eliminating taxes on dividends and capital gains.
Romney says he’ll close loopholes and eliminate deductions used by the rich so that their share of total taxes remains the same as it is now, although he refuses to specify what loopholes or deductions. But even if we take him at his word, under no circumstances would he increase the amount of taxes they pay.
Obama is right.
America faces a huge budget deficit. And just about everyone who’s looked at how to reduce it — the non-partisan Congressional Budget Office, the bi-partisan Simpson-Bowles Commission, and almost all independent economists and analysts — have come up with some combination of spending cuts and tax increases that raise revenue.
Just last Thursday, executives of more than eighty large American corporations called for tax reform that “raises revenues and reduces the deficit.”
The practical question is who pays for those additional revenues. If Romney’s view prevails and the rich don’t pay more, everyone else has to.
That’s nonsensical. The rich are far richer than they used to be, while most of the rest of us are poorer. The latest data show the top 1 percent garnering 93 percent of all the gains from the recovery so far. But median family income is 8 percent lower than it was in 2000, adjusted for inflation.
The gap has been widening for three decades. Since 1980 the top 1 percent has doubled its share of the nation’s total income — from 10 percent to 20 percent. The share of the top one-tenth of 1 percent has tripled. The share of the top-most one-one hundredth of 1 percent — 16,000 families — has quadrupled. The richest 400 Americans now have more wealth than the bottom 150 million of us put together.
Meanwhile, the tax rates paid by the wealthy have dropped precipitously. Before 1981 the top marginal tax rate was never lower than 70 percent. Under President Dwight Eisenhower it was 93 percent. Even after taking all the deductions and tax credits available to them, the rich paid around 54 percent.
The top tax rate is now only 35 percent and the tax on capital gains (increases in the value of investments) is only 15 percent. Since so much of what they earn is from capital gains, many of the super-rich, like Mitt Romney himself, pay 14 percent or less. That’s a lower tax rate than many middle-class Americans pay.
In fact, if you add up all the taxes paid — not just on income and capital gains but also payroll taxes (which don’t apply to income above incomes of $110,100), and sales taxes — most of us are paying a higher percent of our income in taxes than are those at the top.
So how can anyone argue against raising taxes on the rich? Easy. They say it will slow the economy because the rich are “job creators.”
In the immortal words of Joe Biden, that’s malarky.
The economy did just fine during the three decades after World War II, when the top tax rate never fell below 70 percent. Average yearly economic growth was higher in those years than it’s been since, when taxes on the rich have been far lower.
Bill Clinton raised taxes on the rich and the economy did wonderfully well. George W. Bush cut them and the economy slowed.
The real job creators are America’s vast middle class, whose spending encourages businesses to expand and hire — and whose lack of spending has the opposite effect.
That’s why the recovery has been painfully slow. So much income and wealth have gone to the top that the vast majority of Americans in the middle don’t have the purchasing power to get the economy moving again. The rich save most of what they earn, and their savings go anywhere around the world where they can get the highest return.
It would be insane to compound the damage by raising taxes on the middle class and not on the rich.
Logic, fairness, and common sense dictate that the rich pay more in taxes. It’s the key to avoiding January’s fiscal cliff and coming up with a “grand bargain” on taming the budget deficit. And it’s central to getting the economy back on track.
By: Robert Reich, Robert Reich Blog, October 28, 2012
“The Publisher Made Us Do It”: The Des Moines Register’s Practical Joke
This Romney endorsement editorial, if you actually bother to read it, is little more than a practical joke. First of all, it has all the hallmarks of having been ordered by the publisher over the objections of the editorial board. Normally, a sentence like “the Register’s editorial board, as it should, had a vigorous debate over this endorsement,” translated into blunt English means: “Our idiot publisher forced this tripe down our throats, and we’re counting on you the more knowledgeable readers to understand this.”
The argument, such as it is, is as substanceless as meringue. Mitt Romney could “forge compromises with Congress” to get the economy rolling again? The first part of that might actually be true, but only because the Democrats in Congress aren’t nearly as ideologically hidebound and politically obstreperous as their GOP counterparts.
But the second part, fixing the economy, creating jobs, tackling the deficit? Romney has been ridiculously vague on all these things. The editorial doesn’t so much as gesture in that direction. And then bam, the editorial ends. Just when you think it might start mounting such “arguments,” it ends. I actually hit the refresh button three times, as I couldn’t believe the entire editorial had loaded properly. It’s as Potemkin Village-ish a piece of journalistic writing as I’ve seen in a long time.
Sadly, it probably will make a small difference, although I’m sure the politically inside elite out in Iowa is laughing about it this morning. Most polls indicate that Obama has a couple of points to spare in the state. We’ll see. You can ask Hillary Clinton how much good the DMR did her in January 2008.
Meanwhile, Obama has been endorsed by: Detroit Free Press, Cleveland Plain Dealer, Miami Herald, Las Vegas Sun, Minneapolis Star-Tribune, Pittsburgh Post-Gazette, Raleigh News & Observer. I’ll grant that this is more newsworthy because it’s a flip since 2008, but that doesn’t make it more important in Iowa than the Sun is in Nevada.
Anyway, go read it. You’ll see what I mean. It reads like a practical joke, and a half-baked one at that. DMR: You still have time to publish your serious endorsement, you know, the one that lists actual reasons why you support the guy!
By: Michael Tomasky, The Daily Beast, October 28, 2012
“Not So Hidden”: As If Republicans Didn’t Know, President Obama’s Second-Term Agenda Is Pretty Clear
Everywhere you turn, President Obama is accused of not offering a clear second-term agenda. It’s not surprising that Republicans say it, but you also hear it from quarters sympathetic to the president.
But how true is the charge?
The president does lack a crisp, here’s-my-plan set of sound bites. What’s less obvious is whether this should matter to anyone. Mitt Romney’s five-point plan sounds good but is quite vague and, upon inspection, looks rather like five-point plans issued by earlier Republican presidential candidates. Moreover, Romney has been resolutely unspecific about his tax plans, leading to the understandable suspicion that he’s hiding something politically unsavory, either in the popular deductions he’d have to slash or in the programs he’d have to get rid of.
Obama, by contrast, has been far more straightforward about what he would do about the deficit: He wants a budget deal that includes both spending cuts and tax increases. He has put forward rather detailed deficit-reduction proposals. The centerpiece is a plan that, when combined with cuts made in 2011, would reduce the deficit by $3.8 trillion over a decade, according to the Center on Budget and Policy Priorities. Obama keeps insisting (rightly) that no deal can work without new revenue, and he is upfront that he’d begin by raising taxes on Americans earning over $250,000 a year.
Some deficit hawks argue that Obama’s tax increases are not broad enough. Others are looking for steeper Medicare and Social Security cuts than Obama is willing to endorse. Many progressives, in turn, want fewer cuts and favor additional tax increases on the very wealthy. Before signing off on deeper program reductions, progressives should consider the efforts of Rep. Jan Schakowsky, D-Ill., to counter all the proposals to cut tax rates. She has suggested five new, higher rates on incomes ranging from $1 million to $1 billion or more a year. The capital gains tax also needs to rise. Low levies on capital gains, the reason Romney paid so little tax on his $20.9 million income, raise problems for both fiscal balance and equity.
But these are responses to what Obama has proposed. To disagree with some of Obama’s specifics is to acknowledge that the specifics exist.
Some dismiss what an Obama second term might achieve by claiming that it will be mainly concerned with consolidating his first-term accomplishments. If these had been trivial, that might be a legitimate criticism. But does anyone seriously believe that implementing a massive new health insurance program that will cover an additional 30 million Americans is unimportant? Can anyone argue that translating the Dodd-Frank Wall Street reforms into workable regulations is a minor undertaking?
The president has also been clear that he wants to take on immigration reform. The question always asked is: Why should we think he’ll do it in a second term when he didn’t do it in the first? The answer is that if Obama is reelected, it will be in no small part because he overwhelms Romney among Latino voters who have stoutly rejected the Republican’s “self-deportation” ideas. It’s possible that Republicans will cooperate on immigration reform simply because they don’t want to keep losing elections by getting clobbered in Latino precincts. And Obama will know that he has an electoral debt to pay.
Republicans have been relentless in attacking the clean-energy projects Obama has financed. If Obama wins, the president will have reason to say that clean energy won, too, and push ahead. And in one of the best articles on what Obama might do in a second term, the New Yorker’s Ryan Lizza observed in June that Obama’s campaign statements — to that point, at least — suggested he would like to take another shot at legislation to address climate change.
Obama speaks incessantly about upgrading the country’s infrastructure. He also stresses the urgency of retooling both our education system and the way we train people for well-paying jobs. One can imagine a comprehensive education, jobs and investment program being a high priority in a second Obama term. And you can bet he will join efforts to create a new campaign financing system to check the power billionaires and corporations exercise in the world after Citizens United.
There is every reason to wish that Obama would pull all this together in a more inspiring way. Some of us would like him to be much bolder in addressing income inequality, the huge roadblocks to upward mobility, and the persistence of poverty. But is there is an Obama second-term agenda? Yes, there is.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, October 21, 2012
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