“It’s All Your Fault”: Federal Reserve Chair Calls Out Congress For Being The Drag On The Economy
The stock market is testing new highs, the unemployment rate is declining and consumer confidence is at a six-year peak, but the Federal Reserve chairman Ben Bernanke wants Congress to know that things could be a lot better.
Testifying Wednesday in front of the Joint Economic Committee of Congress, Bernake pointed out that the economy has been improving, but one obstacle is keeping a real recovery from sparking — them:
“Most recently, the strengthening economy has improved the budgetary outlooks of most state and local governments, leading them to reduce their pace of fiscal tightening. At the same time, though, fiscal policy at the federal level has become significantly more restrictive. In particular, the expiration of the payroll tax cut, the enactment of tax increases, the effects of the budget caps on discretionary spending, the onset of the sequestration, and the declines in defense spending for overseas military operations are expected, collectively, to exert a substantial drag on the economy this year.”
President Obama was able to delay serious austerity — tax increases paired with budget cuts — from coming into effect until this year. This delay has given housing a chance to recover, as evidenced by strong recent earnings from The Home Depot.
However, there’s no doubt that the payroll tax holiday, which Republicans never considered extending, is affecting every America who lives paycheck to paycheck. The sequester will take $85 billion and 750,000 jobs out of the economy this year. Even the ending of the Bush tax cuts on income over $400,000 will take some steam out of the economy, though tax breaks for the rich have the least stimulative benefit for the economy.
Bernanke points out that the biggest problem with the sequester is that it has no real effect on the actual problem this country faces — the long-term deficit.
“Although near-term fiscal restraint has increased, much less has been done to address the federal government’s longer-term fiscal imbalances,” he said. “Indeed, the [Congressional Budget Office] projects that, under current policies, the federal deficit and debt as a percentage of GDP will begin rising again in the latter part of this decade and move sharply upward thereafter.”
Basically, Bernanke is echoing what New York Times‘ columnist Paul Krugman has been saying for years: Get the economy going, then worry about long-term fixes.
By: Jason Sattler, The National Memo, May 22, 2013
The Republicans’ Deceptive Payroll Tax Compromise
Republicans finally came to their senses yesterday and realized they were waging a losing battle with their opposition to a payroll tax extension. The two-month extension Congress passed in December was set to expire by the end of this month, and Republicans were adamant that any further extension be paired with equal spending cuts. Democrats balked, instead suggesting a surtax on millionaires that the Republicans would never accept, and another last minute legislative showdown appeared inevitable. Then out of nowhere yesterday afternoon Congressional Republicans announced that they would drop their resistance:
“Because the president and Senate Democratic leaders have not allowed their conferees to support a responsible bipartisan agreement, today House Republicans will introduce a backup plan that would simply extend the payroll tax holiday for the remainder of the year while the conference negotiations continue regarding offsets, unemployment insurance, and the ‘doc fix,’” said GOP leaders in an official statement Monday afternoon.
The last impasse on the tax extension left Republicans limping out of Washington for the Christmas recess. The payroll tax cut—which maintains the current 4.2 percent rate that, for a family earning $50,000 a year, amount to about $80 extra per month than the standard 6.2 percent rate—is a widely popular measure and Republicans faced public scrutiny as their obstinacy risked raising taxes on 160 million people, all in the name of political brinkmanship. By slipping this announcement out far in advance of the deadline on the same day the president released the 2013 budget, Republicans hoped to avoid a repeat of their previous public relations debacle.
Seems like an unabashed win for the Democrats, right? It’s certainly reassuring that the payroll tax extension, a form of stimulus bolstering the still shaky economy, will remain in place through the end of the year. Except unlike the December concession, this change of heart only covers the politically popular payroll tax. Excluded is an extension of unemployment benefits for the long-term jobless and the so-called Doc Fix, which stalls a drastic drop in the fees paid to Medicare physicians.
I imagine Republicans will also find common ground on the latter half—they wouldn’t want to position themselves against your grandma’s doctor during an election year—but the agreement seems designed as a ploy to put an end to the increased unemployment benefits that Republicans have fought against throughout Obama’s presidency. While the payroll tax cut helps keep the economy afloat, the unemployment benefits are the more simulative part of the equation, possibly dropping GDP by 0.3 percent if no extension is passed. But since those benefits aren’t dolled out to as wide a base as the payroll tax, there is less of a public groundswell whenever Republicans hold the extension hostage.
If Democrats buy into the Republicans’ attempts to separate the various measures, it’s unlikely that any offsets would be enough to convince Republicans to support extending unemployment. The party is secretly crossing their fingers, hoping the economy doesn’t improve before Obama is on the ballot this fall. Any form of stimulus that lacks widespread appeal would be a nonstarter.
By: Patrick Caldwell, The American Prospect, February 14, 2012
“The World We Live In”: Yes, Tax Cuts Increase The Deficit
On Thursday, House Republicans unanimously rejected a resolution from Rep. Gary Peters stating, among other things, that the Bush tax cuts added to the deficit. If you read the text they were voting on, it’s pretty clear that it wasn’t built for bipartisanship: It’s phrased to suggest that Bush was a liar and Republican governance was a fraud. That kind of thing doesn’t pick up votes across the aisle.
But there’s a more important economic debate here. Republicans occasionally flirt with the idea that tax cuts don’t increase deficits. Senate minority leader Mitch McConnell has said this directly. Speaker John Boehner has decreed that tax cuts don’t need to be offset, but spending proposals do. But there’s a very easy way to see that Republicans don’t really mean this: They believe that tax cuts cause deficits when Democrats are behind them.
The ongoing debate over the payroll tax is a good example. When Republicans proposed a payroll tax cut as stimulus in 2009, it wasn’t offset. When they agreed to it in the 2010 tax deal, it wasn’t offset. But since it has become the White House’s favored policy, House Republicans — the same House Republicans who passed the CUTGO rules stating that spending proposals had to be paid for but tax cuts didn’t — are insisting the payroll tax cut be offset.
Then there’s the Bush tax cuts. When Republicans tally up Obama’s deficits over the last few years, they’re adding $620 billion for the two-year extension of the Bush tax cuts. When they project his deficits for the next five years, they’re assuming the extension of the Bush tax cuts. And they’re doing so explicitly. Earlier in the week, I worked with the Center on Budget and Policy Priorities on a column summing up the projected budgetary impact of every single piece of legislation Obama had signed into law. In the end, my numbers showed, Obama has passed policies adding about a trillion dollars to the deficit. But Keith Hennessey, who directed the National Economic Council under George W. Bush, responded that I had ignored the trillions of dollars in deficits “from policies President Obama proposes to enact in the future (like extending most but not all tax cuts rates beyond 2012)”.
And Hennessey is right. Not about my analysis, which was restricted to actual policies, not proposed policies (should I also have subtracted $4 trillion from the deficit because Obama favors a deficit deal of that size?). But about the Bush tax cuts, which will add trillions of dollars to the deficit if Obama extends all or most of them in 2012.
Finally, there is a particularly odd claim you occasionally hear about the Bush tax cuts: Revenue increased in their aftermath. Dan Holler, the communications director for the Heritage Action, tweeted as much at me yesterday. “revenues increased between 2003 and 2007…how does @ezraklein argue Bush policies ‘pushed revenues’ down?”
This relies on mixing up the effects of inflation, economic growth, and taxes. The normal way to measure how much revenues a given tax regime is pulling in is to look at taxes as a percentage of GDP. In 2001, taxes revenues were 19.5 percent of GDP. In 2002, they fell to 17.6 percent of GDP. In 2003, 16.2 percent of GDP. In 2004, 16.1 percent of GDP. Some of that is the 2001 recession. But at no point in Bush’s presidency, and at no point since, have taxes returned to 19 percent of GDP.
Or, to put it slightly differently, if tax cuts actually increased revenues, then it would have been absurd for George W. Bush to propose tax cuts as a way of paying down the surplus. In that world, tax cuts would have made the surplus larger, and given the government even more of the people’s money. We would end up in a fiscal paradox, with the government constantly trying to give back its surplus, but ending up with an even larger surplus as a result. But that’s not the world we live in.
By: Ezra Klein, The Washington Post, February 3, 2012
“Living Dangerously”: The Year Of GOP Hostage-Taking
When the House GOP’s enormous freshman class arrived on Capitol Hill in January, it wasn’t uncommon to hear them sound off on the mistakes their predecessors made in 1995. Despite having shut down the government — twice! — House Republicans under Newt Gingrich had caved too easily, didn’t push hard enough, didn’t embody the true spirit of conservatism.
But the new House leadership wasn’t so sanguine. Many had lived through the Gingrich revolution and its aftermath. Others had been around long enough to hear tales of it. And so they mapped out a strategy specifically designed to avoid what they believe were the party’s ’90s-era mistakes.
In other words, the two factions — the newly energized backbenchers and the veteran leadership — were pulling each other in opposite directions. The tug of war left the House GOP’s strategic center of gravity stuck in an unstable position. The party was committed to fighting as hard as possible, but stopping short of its most conservative members’ slash and burn instincts.
The 2011 version of the House GOP, in not always easy coordination with Senate Republicans, would approve must-pass bills, but only after dragging negotiations down to the wire and extracting as many concessions as possible from Senate Dems and the White House each time. We saw that strategy play out over and over again this year, with mixed results for both parties and largely poor results for the country at large.
Here’s a quick lookback at a year of living dangerously — and the series of recurring crises that it produced.
APRIL: Government Shutdown
This fight set the tone for the remainder of the year. At the tail end of the last Congress, Republicans blocked a bipartisan effort to fund the government through the end of the fiscal year in September 2011. They’d made big gains and wanted an early bite at the apple in the new Congress. With government funding set to expire, House Republicans sought to make good on their pledge to cut $100 billion from domestic federal programs right away. In addition, they sought to attack the Obama administration’s power to govern from the executive branch with scores of legislative riders meant to limit access to women’s health centers, weaken environmental regulations and so on. The administration and Senate Dems sought to limit the damage — but it wasn’t easy. In negotiations that lasted until minutes before the government shutdown, Republicans locked in billions of dollars in budget cuts, and even a few riders, including one that reinstated a ban preventing the District of Columbia from spending local tax dollars on abortion services.
AUGUST: Debt Limit
This is where House Republicans overplayed their hand — but also made, from a conservative point of view, the most substantive gains. Republicans held the country’s borrowing authority hostage. They implicitly threatened to let the country default on its debt obligations unless Democrats agreed to massive cuts to federal programs over the course of a decade. For a time, the White House genuinely saw this as an opening to strike a fiscal “grand bargain” with House Speaker John Boehner. But in an early indication of the limited room Boehner’s conference would give him to deal, those negotiations fell apart over the GOP’s reluctance to increase taxes on the wealthy. So Democrats reverted again to a “contain the damage” strategy. The damage was pretty severe: $1 trillion in cuts to defense and domestic discretionary spending over the next year, enforced through statutory budget caps; a downgrade to the country’s AAA rating by Standard & Poor’s; and, because the Super Committee the debt deal created would ultimately fail, the prospect of another $1.2 trillion in across the board cuts to national security programs, Medicare providers, and other parts of the budget, which are set to kick in on January 1, 2013, unless Congress finds savings elsewhere.
The good news for now is that the budget cuts are somewhat backloaded and won’t become too severe until later in 2012 and 2013. In the meantime, the country’s fiscal fate — whether we’re on a bumpy path toward unwinding the New Deal or toward shoring it up — now hinges on the outcome of the 2012 elections. If a Republican beats President Obama, the GOP will continue to put the squeeze on government revenue and pursue a course of swapping out the automatic defense and Medicare provider cuts with cuts to other key support programs.
SEPTEMBER: Disaster Relief
The debt limit fight was a political disaster, and an embarrassment for Dems who found themselves outmaneuvered throughout. But it also marked the point at which they adopted a new, more confrontational strategy with the GOP. That manifested itself in a small skirmish over funding the government in the new fiscal year that began in October. Republicans attempted to use the expiration of government funds at the end of the fiscal year as leverage to force Democrats to offset the cost of federal disaster relief with cuts to a successful hybrid vehicle incentive program. Indeed, House Republicans they tried to jam Senate Dems and skip town. In the end, Democrats refused to budge, FEMA managed to squeak by with the disaster relief funds it had, and a shutdown was again averted.
NOVEMBER: Super Committee
The debt limit fight led to the creation of the Super Committee, and a whole new fight over reducing federal deficits. But this fight was completely different. With the threat of a debt default off the table, Democrats drew a line: no cuts to entitlement benefits until Republicans agreed to break the stranglehold anti-tax conservatives have on their party. That break never really happened, and so the 12-member panel failed. As a result, major across the board cuts to defense, Medicare providers and other programs are set to kick in on January 1, 2013, unless Congress comes up with something better. That’s why the coming year and the presidential election are so high-stakes. They’re all about the nation’s priorities.
DECEMBER: Payroll Tax Cut
The GOP strategy of pushing negotiations to the brink of crisis finally caught up with them in the fight over extending the payroll tax cut, giving Democrats their most decisive victory of the year. Not only did Dems manage to turn the Republicans’ reluctance to renew the 2011 payroll tax cut into a huge political liability, they reset the consensus entirely. And in the process they left the House GOP conference — and the relationship between House and Senate Republicans — in shambles. In the end, Congress renewed the payroll tax cut for two months, and both parties have committed to extending it through the end of 2012. But Republicans will have to do so on Democrats’ terms. If they learned nothing from the last month, and try to pick another fight over payfors and unrelated riders, they risk a much more severe political embarrassment in the middle of primary season and, many observers have speculated, losing control of the House in 2013.
By: Brian Beutler, Talking Points Memo, December 28, 2011
Understanding Republican “Suicidal” Political Episodes
It wasn’t a great week for congressional Republicans, who ended up hurting themselves twice — they looked bad fighting to raise middle-class taxes, and then looked worse caving when the heat was on.
Jon Chait argued this week that GOP policymakers were so far around the bend, they looked politically “suicidal.”
The payroll tax debacle is now the third suicidal episode undertaken by the House Republicans since they took control of it at the beginning of the year. The first was when they voted almost unanimously for Paul Ryan’s budget, which was filled with grist for attack ads — huge cuts to Medicare, big tax cuts for the wealthy, deregulating Wall Street — despite it having no chance of passing this term.
The second was when they played chicken with the debt ceiling and turned a once-routine procedure into a white-knuckle game of chicken with the world economy.
And then this week, when they attempted to extract concessions in return for extending the payroll tax holiday, an anti-recessionary measure with strong support from economists, businesses, and voters. These are not just gestures. The right-wingers are really trying to off themselves.
I found all of this quite compelling, but it got me thinking about why Republicans, especially in the House, would be so cavalier about their own electoral futures. Usually, elected politicians want to win re-election, and take some steps while in office that voters will respect and appreciate. As part of the efforts that make it seem as if GOP officials “really trying to off themselves” politically, congressional Republicans appear to be making themselves less popular, almost on purpose.
Why on earth would they do this? I’ve been kicking around a few theories.
1. Republican lawmakers assume voters aren’t paying any attention. Politicians can get away with quite a bit if they think the public won’t know either way.
2. They assume Democrats, when faced with any pressure at all, will invariably surrender and give Republicans whatever they demand. That’s generally not a bad strategy, but it failed miserably in the fight over the payroll tax cut.
3. They assume the media will, under all possible circumstances, continue to tell the public “both sides” are always to blame for everything. This, too, is a pretty safe bet, but when even Republican media outlets turn against the GOP (take the Wall Street Journal editorial page, for example), this starts to fail.
4. They fear primary challengers. Under this model, Republicans know their extremism will offend the American mainstream, but if they’re defeated by even-more-conservative primary opponents, their careers are over anyway.
5. They figure major right-wing money — from the Koch Brothers, Crossroads GPS, assorted Super PACs, etc. — will come in before the election, destroy their Democratic challengers, and keep them in office no matter what they vote for.
6. They’re just nuts.
Why else would congressional Republicans take such breathtaking risks with their own electoral fortunes?
Update: Paul Krugman argues that I missed one: “reliable conservatives are assured of a safe landing even if they are defeated,” thanks to “wingnut welfare.” It’s a good point.
By: Steve Benen, Contributing Writer, Washington Monthly Political Animal, December 24, 2011
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