“That Terrible Trillion Deficit”: Another Disingenuous Attempt To Scare And Bully The Body Politic Into Abandoning Social Programs
As you might imagine, I find myself in a lot of discussions about U.S. fiscal policy, and the budget deficit in particular. And there’s one thing I can count on in these discussions: At some point someone will announce, in dire tones, that we have a ONE TRILLION DOLLAR deficit.
No, I don’t think the people making this pronouncement realize that they sound just like Dr. Evil in the Austin Powers movies.
Anyway, we do indeed have a ONE TRILLION DOLLAR deficit, or at least we did; in fiscal 2012, which ended in September, the deficit was actually $1.089 trillion. (It will be lower this year.) The question is what lesson we should take from that figure.
What the Dr. Evil types think, and want you to think, is that the big current deficit is a sign that our fiscal position is completely unsustainable. Sometimes they argue that it means that a debt crisis is just around the corner, although they’ve been predicting that for years and it keeps not happening. (U.S. borrowing costs are near historic lows.) But more often they use the deficit to argue that we can’t afford to maintain programs like Social Security, Medicare and Medicaid. So it’s important to understand that this is completely wrong.
Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care. However, the current deficit has nothing to do with that problem, and says nothing at all about the sustainability of our social insurance programs. Instead, it mainly reflects the depressed state of the economy — a depression that would be made even worse by attempts to shrink the deficit rapidly.
So, let’s talk about the numbers.
The first thing we need to ask is what a sustainable budget would look like. The answer is that in a growing economy, budgets don’t have to be balanced to be sustainable. Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.
Right now, given reasonable estimates of likely future growth and inflation, we would have a stable or declining ratio of debt to G.D.P. even if we had a $400 billion deficit. You can argue that we should do better; but if the question is whether current deficits are sustainable, you should take $400 billion off the table right away.
That still leaves $600 billion or so. What’s that about? It’s the depressed economy — full stop.
First of all, the weakness of the economy has led directly to lower revenues; when G.D.P. falls, the federal tax take falls too, and in fact always falls substantially more in percentage terms. On top of that, revenue is temporarily depressed by tax breaks, notably the payroll tax cut, that have been put in place to support the economy but will be withdrawn as soon as the economy is stronger (or, unfortunately, even before then). If you do the math, it seems likely that full economic recovery would raise revenue by at least $450 billion.
Meanwhile, the depressed economy has also temporarily raised spending, because more people qualify for unemployment insurance and means-tested programs like food stamps and Medicaid. A reasonable estimate is that economic recovery would reduce federal spending on such programs by at least $150 billion.
Putting all this together, it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable; just about all of the rest would go away if we had an economic recovery.
And the prospects for economic recovery are looking pretty good right now — or would be looking good if it weren’t for the political risks posed by Republican hostage-taking. Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers. Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.
Which brings us back to ONE TRILLION DOLLARS.
We do indeed have a big budget deficit, and other things equal it would be better if the deficit were a lot smaller. But other things aren’t equal; the deficit is a side-effect of an economic depression, and the first order of business should be to end that depression — which means, among other things, leaving the deficit alone for now.
And you should recognize all the hyped-up talk about the deficit for what it is: yet another disingenuous attempt to scare and bully the body politic into abandoning programs that shield both poor and middle-class Americans from harm.
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 16, 2012
“Republicans Need To Wise Up”: It’s Not Their Uninspiring Candidates Or Unsound Tactics, It’s Their Unpopular Ideas
The biggest problem the Republican Party faces is not uninspiring candidates or unsound tactics. It is unpopular ideas.
This reality was brought home in last month’s election. It’s playing out in the struggle over how to avoid the “fiscal cliff.” And we’ll see it again in coming fights over immigration, entitlements, inequality and a host of other issues. Here’s the sad thing: Republicans get this stuff so wrong that Democrats aren’t even forced to go to the trouble of getting it right.
There will be those who doubt the sincerity of my advice to the GOP, since my standing as a conservative is — justifiably — less than zero. But I’ve always believed in competition, if only to prevent liberals from becoming lazy and unimaginative. One could argue that this is already happening.
Take the question of what to do about undocumented immigrants. The Republican Party takes an uncompromising line against anything that could be construed as amnesty — any solution that provides “illegal” immigrants with a path to citizenship. Much has been made of the impact the immigration issue had in the election, as Latinos voted for President Obama over Mitt Romney by nearly 3-1.
It is obvious to sentient Republicans why the party cannot afford to so thoroughly alienate the nation’s largest minority group. What the GOP seems not to grasp is that the party’s “send ’em all home” stance is way out of line with much of the rest of the electorate as well.
A Politico-George Washington University poll released Monday asked voters whether they favored “an immigration reform proposal that allows illegal or undocumented immigrants to earn citizenship over a period of several years.” That would be amnesty, pure and simple — and a whopping 62 percent said they were in favor, compared to 35 percent who said they were opposed.
You might expect Democrats, then, to be pushing hard for a straightforward amnesty bill. But they don’t have to. Because Republicans are so far out in right field on the issue, Democrats haven’t actually had to do anything to reap substantial political benefits. They’ve just had to sound more reasonable, and less hostile, than Republicans, which has not required breaking a sweat.
On the central fiscal-cliff question, the GOP is similarly out of step. The Politico poll found that 60 percent of respondents favor raising income taxes on households that earn more than $250,000 a year. The Republican Party says no — and thus allows itself to be portrayed as willing to sink the economic recovery, if necessary, to ensure that tycoons can keep their pantries stocked with caviar.
Where is the incentive for Democrats to get serious about fiscal matters? As long as the GOP remains adamant on what many Americans see as a no-brainer question of basic fairness, those who believe in progressive solutions get a pass.
The truth is that raising top marginal rates for the wealthy is probably as far as we should go on the tax front right now, given the fragility of the recovery. The best thing we could do for the country’s long-term fiscal health is spur the economy into faster growth, which will shrink deficits and the debt as a percentage of gross domestic product.
That said, it’s hard to imagine long-term solutions that don’t eventually require more tax revenue from the middle class as well as the rich. But why should Democrats mention this inconvenient fact when Republicans, out of ideological stubbornness, are keeping the focus on the upper crust?
The same basic dynamic plays out in the question of reforming entitlements. Republicans proposed turning Medicare into a voucher program; polls show that voters disagree. The GOP seems to be falling back to the position that the eligibility age for the program should be raised. Trust me, voters aren’t going to like that, either.
Nor, for that matter, do voters like the GOP’s solution for the millions of Americans who lack health insurance, which Romney summarized as, essentially, go to the emergency room. A smart Republican Party would stop focusing exclusively on how government can pay less for health care and, instead, begin to seriously explore ways to reduce health-care costs. A smart GOP would acknowledge the fact that Americans simply don’t want to privatize everything, which means we need new ideas about how to pay for what we want.
Faced with an opposition that verges on self-parody, progressive thinkers are mostly just phoning it in. This won’t change until somebody defibrillates the GOP, and we detect a pulse.
By: Eugene Robinson, Opinion Writer, The Washington Post, December 10, 2012
“Hostage Takers, Act II”: GOP To Hold Debt Ceiling Hostage Again As Leverage For Medicare Cuts
On Sunday, Sen. Bob Corker (R-TN) conceded that Democrats have won the debate on raising taxes on the richest Americans and said that he would likely vote to increase rates on the top 2 percent of Americans in order to shift the debate to cutting entitlement programs and improve the GOP’s leverage in the debate over how to avert the so-called fiscal cliff.
During an appearance on Fox News Sunday, Corker explained that if Republicans “give Obama a 2 percent increase,” the party can then hold the debt ceiling hostage in order to secure real cuts in spending:
CORKER: The Republicans know they have the debt ceiling, that is coming up around the corner, and, the leverage is going to shift, as soon as we get beyond this issue. The leverage is going to shift, to our side where hopefully we’ll do the same thing we did last time and that is if the president wants to raise the debt limit by $2 trillion we get $2 trillion in spending reduction and, hopefully, this time, it is mostly oriented towards entitlement and with no process. […]
[Obama] has the upper hand on taxes and you have to pass something to keep it from happening. We only have one body. If we were to pass, for instance, raising the top 2 rates, and that’s it, all of a sudden we do have the leverage of the debt ceiling and we haven’t given that up so the only way the debt ceiling.
House Speaker John Boehner (R-OH) has indicated that the GOP plans to use that leverage by demanding more spending cuts, but the move will result in great economic costs. In 2011, Republican demands nearly led to a credit default and ultimately cost taxpayers “$18.9 billion over 10 years, due to elevated interest rates between January and August 2011.”
Obama slammed the GOP’s strategy during a meeting with business leaders last week. “The thinking is the Republicans will have more leverage because there will be another vote on the debt ceiling, and we will try to extract more concessions with a stronger hand on the debt ceiling,” Obama told members of the Business Roundtable. “That is a bad strategy for America, it’s a bad strategy for your businesses, and it is not a game that I will play.”
By: Igor Volsky, Think Progress, December 9, 2012
“Why Sane Bargaining Looks Strange”: Two Can Play The Crazy Uncle Game
An entirely new political narrative is taking shape before our eyes, yet many in Washington are still stuck in the old one.
President Obama’s victory blew up the framework created by the 2010 elections, which forced him to play defense. Now, he finally has room to move. That’s the only way to understand the ongoing budget talks.
This has several implications. First, why was anyone surprised that Obama’s initial offer to the Republicans was a compendium of what he’d actually prefer? We became so accustomed to Obama’s earlier habit of making preemptive concessions that the very idea he’d negotiate in a perfectly normal way amazed much of Washington. Rule No. 1 is that you shouldn’t start bargaining by giving stuff away when the other side has not even made concrete demands.
Second, Obama made clear that he will not allow the fiscal calendar to set his priorities. Past actions by Congress established this wacky set of deadlines requiring frenzied decision-making. This does not mean the deficit is the nation’s highest priority. It isn’t. Speeding up economic growth is the most important thing now.
Thus did Obama’s opening proposal call for measures to boost the recovery, including an infrastructure bank, a public-private partnership that ought to appeal to Republicans. And he was right to insist upon an extension of unemployment insurance and another year of the payroll tax holiday or some equivalent way to keep middle-class purchasing power up. Raising taxes on the wealthy won’t damage the economy. A sudden drop in the take-home pay of the vast majority of U.S. consumers would.
Third, House Republicans have, so far, been unwilling to assume any risk to get what they claim to want. They seem to hope a deal will be born by way of immaculate conception, with Obama taking ownership of all the hard stuff while they innocently look on.
Obama went that route in 2011 when he feared that Republicans would bring down the nation’s economic house by failing to pass an increase in the debt ceiling. This time, he doesn’t face that risk.
If we go past the so-called “fiscal cliff” deadlines and all the resulting budget cuts and tax increases come into force, the administration can minimize the damage. It can delay the implementation of new tax tables so billions of dollars are not suddenly sucked out of the economy. There is no law requiring that budget cuts be implemented upfront or spread equally across the year. Obama can publicly announce he is delaying any cuts, on the theory that Congress will eventually vitiate some of them. And he can make sure the bond markets know of his plans well in advance.
This is not pretty, and it’s not ideal. But the only way to keep the next four years from becoming another long exercise in gridlock and obstruction is for Obama to hang tough now. And he has every right to.
Republicans claim they are fighting for cuts in entitlement programs, particularly Medicare. Fine. Let them put their cuts on the table. So far, all we have are words. Obama has outlined $400 billion in savings from Medicare. If this isn’t enough, the GOP’s negotiators should tell us how to find more. And having individual Republicans toss out ideas is not the same as a detailed public counter-proposal.
Republicans also say tax reform can raise enough money so we can avoid rate increases on the wealthy. Fine. Let them put forward a comprehensive plan so we can judge it. Their problem is that tax reform can’t produce the revenue that’s needed, but let’s at least see what they have in mind.
Obama is criticized for making life difficult for House Speaker John Boehner (R-Ohio) who has to bring around a rather right-wing caucus. Sorry, but demanding this sort of solicitude doesn’t fly anymore. Boehner rather brilliantly used the “I have to deal with this crazy uncle in the attic” gambit to extract a lot of concessions in 2011. Republicans walked away from the great deal Boehner won for them. The intervening election means they won’t get a similar gift this time. Obama has to win something for his own progressive supporters who rightly feel empowered by November’s results. Two can play the crazy-uncle game.
So a normal negotiation looks strange only because the past two years have been so utterly abnormal, driven by tea party extremism and an irrational hostility to Obama, a fundamentally moderate man who has already shown a willingness to offer more than his share of concessions. Boehner knows this, which is why everyone (especially Wall Street) should calm down.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, December 2, 2012
“Take That Turkey Off The Table”: The Bush Tax Cuts For The Wealthy Are Un-American
Reading about the historic Johnstown flood of 1889 brought to mind the Bush tax cuts for the wealthy—and why the president must rid us of them now as the nation starts a new season, thankful yet sober.
The 1 percent of that era were the robber barons of the Gilded Age, with great steel, coke, and railroad wealth concentrated in Pittsburgh. They started an exclusive club, several industrial barons, including Andrew Carnegie, devoted to fishing and hunting, by the South Fork Dam. The dam the club constructed nearby overlooked several towns and villages in the rugged incline and valley below. On a terribly rainy spring day when the dam broke, an entire lake drowned those towns in torrents of water, debris and floating trees, and houses. Because the fancy club’s earthen dam was shoddy, roughly 2,200 people died in the worst natural disaster to befall an American town up to that point.
The robber barons’ summer recreation endangered the whole community’s safety and livelihood. People talked about the dam breaking all the time before it did. And that’s what I’m talking about. For too long we have lived under the yoke, under the treacherous dam of putting really rich people first. To recover from our own economic calamity, those tax cuts must be scrubbed, along with everything with George W. Bush’s name on it. Let it not be forgot, he’s the guy that took peace and prosperity and turned it all into desert dust and debt.
Taking that turkey off the table would not upset most wealthy people, who were content to live under the Clinton tax code. That is what President Obama wishes to do, but he has been thwarted once before by stubborn Republicans. This time around, he seems to have more mettle about getting rid of the significant tax break the rich have received, just for being rich. It will also bring substantial revenue badly needed by the Treasury. I grant you, there are hedge fund managers out there who see it differently than you and me.
As we mark the autumn harvest in a collective ritual that brings comfort, let’s resolve to rid ourselves of the most divisive policy remaining from the Bush years. A policy that is, in the end, unfair and un-American. And life will start looking up.
By: Jamie Stiehm, U. S. News and World Report, Washington Whispers, November 20, 2012
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