The draft proposal released as a surprise yesterday by the two chairmen of President Obama's fiscal commission is conceived and written in panic. It is a profoundly ideological set of policy prescriptions. The co-authors are counting on national alarm over the current budget deficit to make extreme proposals seem reasonable. It is an outrageous, misleading document, unsupported by evidence.
The current deficit of $1.5 trillion is no reason for alarm. It is the result of the recession, which created large reductions in tax revenues, as well as increases in automatic stabilizers like unemployment insurance. The Obama stimulus of $800 billion also is part of the deficit. But as a modeled by economists Alan Blinder and Mark Zandi, the deficit would have been higher without the stimulus.
The longer term deficit is also too often attributed to "big government." The projection of the Congressional Budget Office, adjusted for some realistic policy changes, such as the extension of the Bush tax cuts, is that the deficit will actually fall substantially to 4 percent of GDP and stay there for some time. Debt rises to 77 percent of GDP.
This increase is hardly trivial and a 4 percent deficit may not be sustainable. But increases are not the result of rising outlays for Social Security, Medicare or Medicaid, contrary to what many, including members of the media, seem to think. The higher deficit and debt levels are overwhelmingly the result of three factors: recession, war spending, and the Bush tax cuts of the early 2000s.
In the 2020s and 2030s, Medicare and Medicaid outlays will at last begin to rise rapidly because overall healthcare costs without serious reform will likely rise rapidly-by 2 percentage points a year more than GDP per capita. This compounds to high levels quickly. Social Security, however, adds rather little to this deficit, rising from roughly 5 percent of GDP to 6 percent over the years. Medicare and Medicaid rise from 5 percent to 13 percent of GDP and higher. Along with interest, the debt can mount to 200 and 300 percent of GDP. Healthcare costs are what America must deal with.
But the White House commission draft proposal goes far beyond focusing on healthcare. First, it wants to reduce radically the income tax rate on Americans. One option is to reduce the top rate of 35 percent to 23 percent, or at the least to 28 percent. This is simply right wing ideology at work, and has nothing to do with deficit issues. To the contrary, the authors are using deficit alarms to present a new tax agenda. Is Obama really going to stand behind it? There is no commonly accepted evidence that current marginal tax rates, or even higher ones, suppress economic growth.
Second, the proposal will also reduce to and maintain federal outlays at 21 percent of GDP. The CBO expects them to be about 24 percent. Why the reduction? There is no reason at all to do so, except an ideological one: less government is always better. Again, there is no absolutely commonly accepted evidence that higher levels of government suppress growth. Yet the proposal is willing to make painful cuts in programs to meet this spurious goal. And it will leave no room for more public investment.
Third, the proposal's goal is to reduce debt levels to 60 percent of GDP and eventually 40 percent. To do so requires a deficit on average of 2.2 percent of GDP. Again, there is no evidence that debt levels of 60 percent are better than levels of 70 percent, for example. Reducing the debt levels to 40 percent is simply Draconian. One argument is to keep them low to be able to respond to emergencies, as the nation just did. It would be far better to devote attention to avoiding the extreme emergencies.
In fact, American can easily live with a debt-to-GDP level of 70 percent and a long-term average budget deficit of 3 percent. With that as a framework, sensible compromises on spending cuts and tax increase can be reached.
But most dangerous part of this toxic package is that it urges cutting federal spending substantially in fiscal year 2012. At best, the unemployment rate will be in the range of 7.5 percent at that time, which many will fairly still consider recessionary. That is not time to administer austerity. A far better tool, if one had to be deficit minded, is to start reigning in spending or raising taxes (my preference) when unemployment is around 6 percent. I'd wait until it is well down into the 5s. That may take more time.
This proposal is not likely to carry the day. But the surprise publication is a calculated political gesture to win support. And it may surprise the doubters. There are in fact some good ideas in it. The mortgage deduction would be reduced. It calls for a higher gasoline tax. The cap on Social Security taxes would be raised. Large cuts in military spending are proposed.
But these are made palatable only by painful cuts in social programs, far lower taxes on income and corporate profits, aggressive pruning of federal employees, and no talk at all of more investment in infrastructure, education or energy technologies.
In fact, the priority now is to get the economy moving again with a stimulus. Once that is accomplished, the nation must turn its attention to reforming healthcare, and raising tax revenues to support the public investment that will truly prove a foundation for future prosperity.
The current White House proposal is not merely preposterous, it will be a disaster economically if anything remotely like it is passed. It is a nation running backward in defeat, not looking forward to the challenges of a new century and rising competition around the world.
Cross-posted from New Deal 2.0
Rob Johnson: Deficit Commission Recs: We Gotta Get Out of This Place
If demands are not met by December 11th, consequences will go into effect December 18th. This pertains to everyone: cops, doctors, lawyers, nurses, teachers, and ESPECIALLY those courageous enough to serve in the military. If you're truly dedicated to the your position, please reread this fundamental oath that is the foundation for our country:
"...I will support and defend the Constitution of the United States against all enemies, foreign and DOMESTIC..."
Please do the proper research, we want our troops home; if there was an attack on U.S. soil we would be caught completely off guard. There are too many perpetual wars being fought by the U.S., the financial burden is not sustainable. Understand that by allowing things to continue you are violating this oath.
DEMANDS:
Independent entity audit the FED.
Follow up action will depend on the results of the audit.
List of recipients that received TARP and QE2 bailout money.
Return troops back to U.S. The War on Terror is based on fear tactics, it is as successful as the War on Drugs.
Immediately discontinue FED's legal counterfeiting.
Any associates within the FED willing to disclose valuable/relevant information to the public (by Dec 11th 2359) leading to the convictions of these thieves, will be offered a greatly reduced sentence. (At least 50% depending on the nature of their crime)
CONSEQUENCES:
peAceFUL ProtestThatWillBeHeldInEach of the 12 FEDERAL DISTRICTS.
SocialSecurityAndIncomeTaxWillNotBeFundedWithoutTaxationWithRepresentation.
AReformedVersionOfSocialSecurityWillBeEstablished,TaxedBracketsWillBeReformedAsWell.
BracketsWillBeMoreEvenlyDistributed,TaxesOnTheMiddle/LowerClassWillNOT increase.
TheAboveWillCipherMoneyIntoHealthcare,SocialSecurity,AndTechnologyInsteadOfBailouts.
ThoseFoundLiableForIntentionallyManipulatingStockMarket, andDestroyingOurCurrencyWillBeHeld responsible.
If this bold idea is pursued aggressively, it would prevent future oil spills and save jobs, the budget, the economy and the environment and cost nothing.
For links to Youtube and iReport videos go to
http://whiÂtecollargrÂeenspace.bÂlogspot.coÂm/
I shared this plan with the Select Committee for Energy Independence and Global Warming and Secretary Chu's office at the Dept. of Energy. It is out of the box thinking that is based on proven principles, low cost, and with no negative environmental impact. Aggressively implementing it would be much less costly that another oil spill. This initiative is even more relevant since Bernanke stated that we must get the Federal deficit under control and Obama is ordering all dept's to cut budgets by 5%.
Enough is enough. Money itself is just a widget in a big monopoly game of skill. The people with good math and business skills wind up with all the widgets, and the bottom 98% of ordinary human beings who lack these skills ends up with no widgets, or just enough widgets each month to survive while spending 40 hours a week working for people who have widgets.
Screw it. Let's get together and design a better game so that 1% of the people don't end up with all the play money. The poor and middle class are in the majority right? It's within our democratic right to organize ourselves and demand a new game.
Seriously. Even if it means getting rid of the whole concept of Congress and the Senate and the Supreme Court and the Presidency. Aren't these institutions that were designed for an era that lacked electronic communication.
We've got the internet now.
Why don't we just peacefully, calmly, democratically, openly, transparently, methodically, just get together and agree that it's time to start over. What is stopping us from doing this? Are we afraid that the authorities will punish us for even considering the idea?
What if the real "Powers That Be" decided to go ahead and let us go free?
http://define.com
So the money in this bank would be under the care of ALL OF US.
Let's say an entrepreneur came to us and said, "I've designed a new drug that will help treat X. I need to build a pharmaceutical factory to make this drug."
OK, THE NET is in charge. How do you go about approving this loan without having a giant bureaucracy and a bunch of loan agents at a bunch of brick and mortar retail operations?
Do you create some kind of panel of experts to approve this loan? How do you decide who is on this panel of experts? Who chooses the panel? What is the criteria?
Now let's assume that instead of this panel being chosen based on their ability to calculate profitability, instead this panel makes their decisions based on science. They ask simple questions:
Is this investment good for humanity?
Is this investment good for the environment?
Does this investment cause harm to anybody?
Or would it even need to be a loan?
Could this BFG bank just buy the equipment outright as a one time capital investment for the herd?
http://taxes.about.com/od/preparingyourtaxes/a/tax-rates_2.htm
These brackets and rates are off-the cuff, so I truly don't know what to expect.
$373,650+ = 35 pct tax (same as now)
$500,000+ = 40 pct tax (new)
$1,000,000+ = 50 pct tax (new)
$5,000,000+ = 60 pct tax (new)
$10,000,000+ = 70 pct tax (new)
$100,000,000+ = 80 pct tax (new)
This schedule might seem aggressive to some, but realize that high earners also have large capital gains income as well--another area for possible progressive bracketization for high numbers, come to think of it. The current long-term capital gains rate is only 15 pct
Any takers?
Please don't quote back any "result" you might get back.
I said appropriately rigorous studies - not some dude in his basement with a napkin and a pen.
Here's a little history& a good read where it all started & the deficit was out of control at 101 billion ...OMG... Its a cato institute study by Stephen Moore: http://www.cato.org/pubs/pas/pa261.pdf
Inflation has always been the govt's intent. You have to look at all the entitlements, payments and such tied to the CPI. We all know CPI is a game, I expect them to recalc the items like they did with steak and hamburger before. Inflation wipes away the true the price of debt, corrects the housing market and a pricely sum can be made in commodities.
Now saying that, I don't Big Helo Ben can pull it off, and will miss widely and we will see 10-20 percent inflation. That is the good news. When the USD can't be trusted as the Reserve Currency and people start dumping dollars, that's when it accelerates fast. Hyperinflation is a lack of crediblity in the fiat currency.
Sadly the Progressives, the champions for the unemployed, poor and others on entitlements from the govt will suffer the worse as their income is fixed and will never be accurately upward adjusted.
All rational defenses include:
"Where where you when Bush was in charge?"
"Social Security is solvent?"
"The Democrats tried to pass.....But the Republicans....."
Listen, Bush was a bad president, Obama's economic and fiscal policies are either treason or ignorant. Nothing has been done economically or jobs wise.
Imagine what would happen if the government actually had to do anything with these recommendations instead of just round filing them after the pundits pick them apart. Good planning, Mr. O.
Corporate tax rates
Simplifing the indv. tax code
Removing all these dam deductions
gas tax
etc. etc.
A lot in this proposal that would and will work.
Question. Is "Fair" Share in Dollar amount or Percentage?
It makes me sick that people actually get money from the IRS. You pay in 2K and receive 8k, does not make you a payer of taxes. So the claim, "I pay taxes" is incorrect. Almost half pay no aggregate tax rate and recieve money from the govt.
I know that percentage has risen to over fifty with the ecnomic woes, "Americans Work" "Refundable Tax Credit" and other IRS changes.
Look up "Refundable Tax Credit" some time. I had to, it means you get the tax credit in cash if you didn't pay in.
But I agree with the "Skin in the game" comment. But then I also believe like in "Starship Troopers" that you aren't a "Citizen" untill you have served your country.
So, thanks again to our Republican and Tea Party friends. You are the tools you so want to be.
We have to quit giving in to the rich at some point. Why not now? Just like the way they rushed in and demanded money or the country would fall, they are still demanding more and more. Just like blackmailers they won't quit until they are forced to quit taking more and more.
This is mostly a center-right country, and there is a lot of common sense in most of the draft proposals.
Now that the George W. Bush era has finally ended, we can do a tally of the national debt he has left to us, our children, and our grandchildren:
When Bush was sworn in on January 20, 2001, the national debt was $5,727,776,738,304.64.
When "W" left office on January 20, 2009, the national debt was $10,626,877,048,913.08.
The growth in the national debt during his eight years in office: $4,899,100,310,608.44.
The average yearly growth in the national debt during Bush's presidency: $612,387,538,826.05.
During much of Bush's tenure, he had a Republican majority in both the House and the Senate.
He claimed that tax cuts would pay for themselves - they did not. He claimed that tax cuts would result in growth - we are in the worst economic downturn since the Great Depression.
There are quite a few items that should not be touched and removed from this proposal, but there are quite a few more that make sense. One of the common themes I see in the proposal is the removal of redundant agencies that other agencies are performing the same function.
"Third, the proposal's goal is to reduce debt levels to 60 percent of GDP and eventually 40 percent. To do so requires a deficit on average of 2.2 percent of GDP. Again, there is no evidence that debt levels of 60 percent are better than levels of 70 percent, for example. Reducing the debt levels to 40 percent is simply Draconian."
Ok, maybe I just dont have enough understanding, but why is the reduction of debt to 40% of GDP draconian? I know the goal in my personal finances is to eleminate debt. Why should that not be the goal of our government?
The commission recommended lowering the tax rate, but reducing the loopholes and other things that exist that allow people to pay much less than their current rate. That way there is a larger base that is being taxed from. Lowering taxes expands the economy. That really isn't something that can be reasonably disputed.
Being wrong isn't a sin, but adding arrogance brings it close to the line. One could say that less taxation grows the economy, by a factor of about 3% ROI. There are many other ways of growing the economy that bring in many times that ROI, such as infrastructure investment or unemployment payments. These return about 150% to the economy and therefor reduce their footprint on the "real" deficit right away and then continue to return as increased national equity.
Once the ideology is removed from the argument it becomes apparant that higher taxation of top level incomes generates increased investment in the private industrial sector and less government debt. Both of these are exactly what we need right now. There simply isn't financial incentive for the wealthy to invest in jobs when they can take profits from paper shuffling without risk and with little tax loss. RayGun convinced America that the wealthy are "patriotic" and would "trickle down" their added wealth instead of hoarding it. Bush doubled down on that falacy and we learned that the wealthy are anything but patriotic. They broke the system and now they will have to pay to fix it or it will remain broken. The middle class simply doesn't have the resources to do it after the "grand theft home" of the last decade.
What do you want to bet they will only cut from the health care bill what would be good for the rest of us? They will keep the insurance mandates and stuff.
We should send the corporations to other countries and not let them do business here. Then we could start all over without their meddling greed. I doubt that other countries would put up with their freeloading very long.
The Corps love for the government to pay all the costs for the foreigners health care, etc.