Monday, July 18, 2011
For those few of you who have not already been to Instapundit this morning, a debt limit factoid to weigh in assessing which side is full of more horse pucky on this subject (an extremely close assessment in any case):
Flashback: Every Dem Senator Including Obama Voted Against Raising Debt Limit In 2006…
Of course, that vote was purely symbolic, insofar as those Democratic senators had no chance of winning their vote absent a filibuster (assuming that was a procedural option for that purpose), and they did not filibuster. But still.
What I would not give for a little bit of intellectual honesty from either side.
MORE: In a note about the closely divided politics, a good question:
Why doesn’t the GOP propose a 5% across-the-board cut in spending? I doubt that very many voters will believe that there’s not 5% that can be cut in any department of the federal government, and compared to the cuts most households have made it’s minor indeed. Then they could do it again next year . . . .
I have thought for a long time that an across-the-board cut might be the only solution within the grasp of our benighted political class. And toss in repeal of 5% of the "Bush tax cuts," just so everybody gets their bit.
Of course, with federal spending now at around 25% of GDP, a 5% reduction in federal spending would in the short term knock at least a point off GDP, which would essentially throw us in to an "official" recession. What incumbent president is going to agree to that heading in to an election year?
"a 5% reduction in federal spending would in the short term knock at least a point off GDP"
We're borrowing 10% of GDP, and we have real inflation of at least 5% -- so how much are we really growing when nominal GDP growth is only 2.5% with someone's big fat finger on the scale?
We're desperately trying to avoid deflation, because of the huge debt load we're collectively carrying.
Some good graphs here
If you look at the second one first, it has relevance to a prior thread. You'll see that total payroll tax receipts are nearly as large as income tax receipts. Don't say the working poor don't pay any taxes -- most of them do.
The other graph compares outlays vs revenues as % of GDP, since 1930.
Revenues have been declining in part because the income tax is so progressive. The tax base for the USA budget actually has a lot of imbedded leverage. If we "double dip" the revenues will drop even further, not so much because the "poor" aren't making money as because the "rich" aren't and its levered with a progressive rate structure. We're all in this together, indeed.
The red line for outlays is misleading as it doesn't capture the effect of unfunded mandates to the states. When Congress can't spend enough, it forces the states to do the spending. This isn't trivial.
For the last two years the red and blue lines have been misleading. TARP investments were counted as an outlay in 2009, but over $300 billion in payback was treated as revenue in 2010. This explains the recent kink in both graphs. Outlays should be trending straight up, revenues straight down.
My centrist (though a registered Democrat) bride cannot understand why the GOP hasn't pressed for a 10% across the board pay cut for all non-active duty military? Wouldn't that yield about $25 billion per year all by itself, and it might be scored as $3-4 hundred billion over the ten year budget time horizon they are using in this debate. Her thinking is that the only segment of our economy that hasn't felt the recessionary pain is the federal workforce, and that should end.
I've advocated for months now that the president call a cabinet meeting and announce "Each of your budgets is hereby cut 5% for this year. You decide how to allocate it. Expect the same next year." If they had the guts to do that, our borrowing might well be under control soon.
Trying to answer a question in the main article and the comments too, so bear with me.
One of the reasons the GOP does not propose a 5% across the board cut is the increases in the budget since 2008 have been very erratic, one might even say political. Some agencies got a massive boost (like HUD), some got very little or even cut back. Things like buildings, offices, and structural items are very inflexible, civil service personnel somewhat less. So a cut like this will hurt agencies who have been frugal, and have reduced or eliminated their temp staff already, while not really even touching those agencies who have been “porked up” by the Democrat spending spree.
Same thing for the concept of a 10% across the board pay cut. Since Civil Service retirement is based on “High-3”, the highest rate of pay you have received over a three year period, a cut in base pay will prompt a massive bailout of the highest-paid, most experienced career employees (Note: not Political Appointees) in order to maximize their retirement pay, leaving the Government actually spending the *same* on people who are no longer working (the agencies are already seeing some of this with the recent pay freeze). If the economy picks up, even slightly, the low-General Schedule employees with little or no seniority will bail for the private sector (and an instant 10% raise, because contrary to popular opinion, *entry level* GS positions are not very well paid). This leaves Government with a surplus of Political Appointees, and mid-career people. Not good.
So both approaches hurt the people you want to keep, and don’t touch the people you want to get rid of. The perfect Government solution.
How about this:'
Ending Medicare and Medicaid.
There it is in a nutshell. What business is it of the Federal government to run food stamps, social security, medicare and medicaid? Is it one of the duties of the Federal government laid out in the constitution? Did the American people amend the constitution for the Federal government to do this?
There is NOT enough money in the whole world to give social security, medicare and medicaid to Americans. Simple.
There is no money. What is happening is that the Socialist Utopia of the Welfare state is running up against the reality of insufficient funds. There is insufficient funds to carry the Socialist Utopia and a paltry rolling back of the so-called "Bush-tax cuts" (read upping the Socialist wealth redistribution act) is what, going to add 400 Billion more to the US treasury? We're TRILLIONS in debt! no amount of Taxes is going to cure that!
Going to hell in America. (sung to the tune of "Going to live in America".)
Obama & Co want to force a tax raise on the "rich" as an alternative. But the top 5% earners don't show enough W-2 income. It'd end up as high rates on everyone earning over $100,000. That's always been the plan.
The other alternative is to radically restructure American medicine. Which can be done.
Ignoramus, I am surprised you believe the "working poor" pay taxes, or even anyone in the lower 40 odd % of the income strata. Payroll taxes come from two sources, to the best of my knowledge: me, the employer, and those whom I employ. My employees can file for a refund of that money, while I cannot. Payroll taxes, as presented by Taxprof in is chart, are either gross (in which case about half will be refunded, and should never have been included in the data to begin with) or net of refunds, in which case the amounts either represent a penalty paid by employers for having employees or additional income tax paid by the business owner (depending, I guess, upon the income statement health of the underlying business). Unless there is some other source of "payroll taxes" of which I am unaware it seems disingenuous to claim the source of these axes are the "working poor".
Georgfelis- if a 10% pay reduction might result in mass retirements of older, more expensive federal workers I would be tempted to see that as a feature, and not a bug. Teaching those who want to make government larger about the limits of their ambitions (by starving the beast of workers) is always a good thing, and lowering ongoing payroll costs is also a good thing. Of course, we would hate to lose those people who best understand the beast we've created but no one ever said this process of making government more limited would be easy.
"I am surprised you believe the "working poor" pay taxes"
Using official data, the USA took in $2.1 trillion in FY 2009, of which income tax was $915 billion (43%) and SocSec/Medicare was $845 billion (40%). I didn't include unemployment insurance. Source below.
You can argue that employers pay a big part of SocSec/Medicare, but economically it's 100% a hit to the employee. An employer looks at the all-in cost of an employee, not the employee's take home. Just ask GE's Geoff Immelt when he's considering another outsourcing. Does anyone disagree?
Now you can say that the employee is getting a direct personal benefit in exchange for these payroll taxes -- unlike the personal income tax -- as he's been promised to get a share of the "lock-box" someday. But the "lock-box" is an accounting fiction. Most importantly, it's economically unsustainable.
So to anyone who's not near retirement, payroll taxes feel no different than personal income taxes, and they aren't.
I understand that we've added a lot of gimmicks to lower tax rates on the working poor, but they don't apply evenly.
So we shouldn't lose common cause with a working stiff by saying that "he pays no taxes" when he's seeing actual deductions that lighten his take home.
The political divide is between those who get government checks and those who pay for them -- TODAY!
What's being lost in the current Big Debate is that eliminating the Bush tax cuts would only make a dent in the budget gap that we already have. Unless we really tackle spending, we'd have to double the personal income tax on everyone to close the gap -- the "rich" don't show enough W-2 income. Now that's an Inconvenient Truth.
I admit I've never heard of SS/Medicare referred to as "Payroll taxes", a term I've only heard used in reference to withholding taxes. My bad, I guess, since I missed his inclusion of them in my earlier skim of the post.
I'd was surprised to see TaxProf did indeed include those in his Payroll tax segment, though that was only disclosed in the paragraph above the chart, and not in the chart itself. They are very different sorts of taxes, needless to say.
As far as the "benefit" associated with SS/Medicare taxes, I'd say that's neither here nor there in this discussion. My point is that the cost of government is almost enirely paid for by borrowing and by taxes on the upper half of earners (SS/Medicare taxes paid by the working poor may be significant to them when paid, but I would warrant the amounts realized are not significant in defraying the overall cost of the programs).
I'm all for common cause with my fellow citizens, but that means my fellow citizens are going to need to stand up and contribute to the cost of our government.
To TH and others interested in sequesters, or if you are interested in the idea of a 5% cut in gov't spending, then you might support the Cut, Cap and Balance bill, though the Senate gang-of-six plan might well be easier to pass.
"My point is that the cost of government is almost entirely paid for by borrowing and by taxes on the upper half of earners"
True. But some want to say that the bottom half pay nothing at all -- which isn't true. You can segment the bottom half. They don't all leach off the government; although many do. If you're only making $20,000 you already feel payroll taxes. Gasoline prices take out a big slug of your disposable income.
These folks aren't being helped by Democrats. Republicans need all the votes they can get.
The just-announced Gang-of-Six Senators plan is an attempt to pre-empt headlines from the House's actually voting today on -- and approving -- a piece of budget legislation -- something that the Senate hasn't done in over two years. This follows Obama's saying that the House's bill is DOA.
But the Gang-of-Six Plan is vaporware -- little detail -- and a "reform" of the tax code, as if we could get that agreed upon in a week. It's close to Obama's Grand Plan. We'd be better off with the McConnell plan.
The Gang-of-Six plan has no hope in the House, unless the Republicans break apart and it passes with Democratic support.
What's the First Rule of Obama Club: Never waste a crisis!
I'm in the minority for believing that Obama doesn't want a deal -- he'd rather have a crisis he can try to blame on the Republicans.
If I'm a House Republican, right now I'd want to get medieval on Senator Coburn's ass ... pliers and a blowtorch. And I used to like the guy.
If (and that's a huge "if") the Gang of Six (now Seven) Senators plan passes the Senate, a cagey Republican House could replace all the vague mist-like language in the bill with good solid cuts, and pass it back within days.
Sauce for the goose....
"As expected, the GOP-led House has approved the “Cut, Cap and Balance” plan for reducing the debt on a mostly party-line vote of 234-190.'
If you believe in law and the Constitution, everything else today has been spin.
Six or seven Senators don't make a quorum. They're bairly a press release. They wouldn't fill a whorehouse. This gang of six (seven) would be useless in a bar fight.
Coburn should be ostracized. And I used to like the guy.
My faith in Boehner is being rewarded. Hang tough, John Boy.
If the Senate Republicans don't fuck this up, we'll get a decent result.
That's not guaranteed.
What's the First Rule of Obama Club: Never waste a crisis!
Obama has never wanted a debt deal. He wants to passive-aggressively foment a crisis that he can then try to blame on the Republicans -- more specifically those Tea Party Republicans in the House -- and the Red State nuts and sluts who voted them into office.
Community Organizing! This strategy might even work. It's Obama's only way to shed blame for our lousy economy going into the 2012 election. It could also fail spectacularly, and leave the Democratic Party in tatters
Previews of Coming Attractions:
This Saturday morning the Senate will shoot down the House's Cut, Cap and Balance Act. Then what?
Obama won't want McConnell's Plan B to get adopted. So it won't be.
The Senate can't agree on the time of day. No debt ceiling solution will ever come out of the Senate. So Reid will kick it back to to Boehner with righteous indignation. But Obama and Reid won't have given Boehner anything for the House to consider, even were Boehner inclined to give ground.
So on current path we'll get to August 2 with no debt deal. If we don't pay the Chinese their interest on August 3, then the rating agencies will be forced to downgrade. You can't call it AAA if it doesn't pay on time per contract. The rating agencies will cut slack on just about anything else. A rating downgrade has the potential for disastrous knock-on effects, as other securities would get mechanically downgraded as well. We don't want to test this.
Obama wants a crisis on boil, not boiling over. So the Chinese will get paid. But Grandma won't. That's the crisis Obama wants.
Boehner needs a Plan C, and I expect he has one. Here's one idea: Offer a 30-day or 60-day debt ceiling increase sufficient to pay Grandma. Tie it to a small package of cuts to things like Bullet Trains to Nowhere. MSM will only allow Boehner to use their microphone once, so he should pick the timing wisely. I say Tuesday 10 am.
Who's bringing the popcorn.
Strange days. Despite the bluster, and even though Reid is confident enough in his ability to defeat CCB that he has actually been willing to schedule the vote for Saturday morning, I wonder if this thing could actually pass. If it does, they'll need to approve a Balanced Budget Amendment in both houses to actually make the increased debt limit valid.
Here's an exit question, a la Allah, to those still visiting this somnolent blog (but still fun clubhouse): what happens if the Senate passes CCB but the BBA fails to pass?
Strange days indeed.
At any moment, Obama and Boehner could walk out together holding hands to proclaim "Peace in our time". Lots of news leaks suggest this will happen. But I don't believe the steady drip of leaks from "sources close to the Administration", quickly denied by the principals.
At this point how does Boehner deliver the House Republicans for anything with "revenue enhancements" and/or fuzzy spending cuts, after the House has just passed CCB. If you're Boehner how do you negotiate with a guy like Obama who you know will leak and spin any serious proposal you make? Thus I conclude that the ongoing Obama-Boehner meetings are just for show: both of them have to pretend while the clock runs down some more.
Harry Reid just said that the chances of CCB passing in the Senate were one in a million. I'd say it's more like the opening odds of Japan's winning the recent Women's World Cup. My understanding is that 60 Yeas are required -- the Republicans have 47 senators. Getting to 60 is hard. But what if it gets to 57, despite Obama-Reid opposition? Obama and Boehner do penalty kicks?
Obama has done many things over the last several months to frustrate a brokered deal. This has intensified in recent weeks.
From this course of conduct I infer two possibilities: 1) Obama wants a deal but wants to drive a hard bargain, or 2) he doesn't want a deal.
But if he wants #1, then he's no LBJ -- he can't count votes. He's ignoring that the Tea Party House Republicans were the result of one of the biggest landslides in our electoral history. Compare Bill Clinton -- after the 1994 election he mostly goverened as if a moderate Republican. Instead Obama's antagonized the Republicans at every turn.
Which is why I think it's #2, but I hope I'm wrong.
Reid was right to be confident. He casually moved the vote to this morning, won it with a couple of Democrats to spare (Gillibrand and Kerry, who had already left for the weekend), and sent everyone to the airport to fly home at taxpayer expense. A reward for their hard work.
The scum of the earth, that's what they are. Scum.
Vote was 51-46.
Boehner statement from earlier today: "There was no agreement, publicly, privately, never an agreement, and frankly not close to an agreement."
Harry Reid says the ball is back to the House, as anything involving taxes must start there. "Enjoy your weekend".
In an opinion piece in USA Today, Obama continued to insist on tax revenue being part of any deal. He ends with this:
"There will be plenty of haggling over the details of all these plans in the days ahead. But right now, we have the opportunity to do something big and meaningful. This debate shouldn't just be about avoiding the catastrophe of not paying our bills and defaulting on our debt. That's the least we should do. This debate offers the chance to put our economy on stronger footing, restore a sense of fairness in our country, and secure a better future for our children. I want to seize that opportunity, and ask Americans of both parties and no party to join me in that effort."
O&Co are trying to force Boehner to choose between blowing up his caucus or blowing up the USA's AAA-rating. But Boehner doesn't have the time to do anything "big and meaningful", let alone have the votes. The subtext is to blame it all this on the nuts and sluts in the Tea Party.
Boehner has one shot next week on Plan C: a short-term debt ceiling increase tied to obvious cuts. Make Obama-Reid own the final doomsday decision.
I'd say there's now a 90% chance of us getting to Aug 2 without a deal. Obama wants a crisis. Anyone disagree?
I've had bad suspicions about Obama since June 2008, when I dug into his back story. They've been confirmed. Anyone disagree?
Hopefully people aren't finding my posts on this topic overkill. Looking back from 2012, "Debt Ceiling Chicken" may be the biggest event in Obama's presidency. If so, we're living in an unfolding historical moment.
What follows is a selection from Press Secretary Carney's presser yesterday. I know he's an idiot, but I take what he said as scripted and vetted by Obama before the poor Press Secretary got caught in doublespeak.
I invite you to read it as an absurdist, comical interlude:
Opening: ... the breaking news report that you all have probably received is incorrect. There is no deal. We are not close to a deal.
Q: So you said you’re not close to a deal, and you also said there’s no progress to report. Did yesterday’s meetings yield any progress?
A: Well, they were constructive and useful meetings ... What is not in doubt is that Congress will act to ensure that the debt ceiling is raised and that we do not risk default. That is not in doubt.
Q: Is it still a red line for the President that any grand deal include revenues?
A: Yes .... And finally, we can and must, if we want to achieve significant deficit reduction, find savings through the tax code.
Q: ... is it still the President’s position that any expansion of the debt limit must take the country through 2012? Or would he be willing to accept something less than that, maybe
A: The President’s position, his opposition to a short-term extension, a short-term lifting of the debt ceiling remains firm, period.
Q: Can you explain to the American people why the ultimatum that this has to go through 2013 is important? Because you and I talked about this, and I still don’t understand why that ultimatum is more important than avoiding the risk of default?
A: We’re not going to default, Jake. I mean, it’s a circular question. But we’re not -- Congress will act and has said that it will act, and we remain confident that it will.
Q: But in a world where you’re looking for the lesser of evils, the least horrible option, is contributing to that uncertainty not preferable to risking a default --
A: But you’re asking for a hypothetical that doesn’t -- we’re not going to default.
Q: Saying it does not make it so.
A: True enough.
Q: Would that it were.
Q So you said earlier that you’re not close to a deal; there’s been no progress made.
A: I said no progress to report.
Q: To report, right. So why should anybody believe that in the next 11 days you guys are going to make progress and be -- and actually reach a deal, when you’ve been working on this for months?
A: That’s like saying, you know, why should anybody believe Christmas is going to come until Christmas Day. I mean, it’s -- the --
Q: Or Santa
A: Or Santa. (Laughter.) Because obviously there won’t be a deal until there is a deal. So the fact that I can stand up to you and say that reports that we’re close to a deal are incorrect doesn’t mean that there won’t be one. And what -- again, my confidence -- we remain optimistic -- we remain confident that a deal can be reached, that a significant deficit reduction can be reached and that there is time to do that. We are also cold-eyed realists about the challenges that reaching such a deal are presented -- or present themselves
Q: I guess I’m curious how you’re not close when we’re so close to the deadline.
A: That’s semantics, and I can just tell you that the suggestions that we’re close to a deal are incorrect.
Obama, yesterday: "[Congressional leaders] are going to have to explain to me how it is that we are going to avoid default."
Boehner: "Mr President, we are going to come back with Plan C on paper, then you sign at the bottom."
Plan C is what Obama doesn't want: a nine-month lift of the debt ceiling bought with realtively easy cuts to things like Trains to Nowhere.
Can McConnell get a baker's dozen of Senators to support Plan C?
Could Obama be so pig-headed as to veto it?
It is painfully obvious now that the President intends to scare the markets on Monday and then scare the people for the rest of the week. Negotiating in bad faith leads me to think he has no intention of signing on to a deal until he has pulled every last bit of drama that he can out of the crisis.
So, here is my suggestion for the President. I offer it freely, as a Republican, because I am interested in seeing exactly how far our over-politicize disaster of a President is willing to push the country before he makes a reasonable deal.
Social Security has a"lockbox", as Algore so repetitively told us during his interminable run for the presidency, and in the lockbox sits $2.6 trillion or so of federal iou's. Those notes should be sold, either outright or as federal repos of some stripe, and the cash that results can be relent to the Treasury to get the Feds through the next 18 months or so. No increase in det is required, since those notes already exist, and the added virtue (from the Presidents perspective) is that the hunting of Republicans by old people might become legal, since, after all, the President will have just conducted the mother of all raids on the national kitchen cookie jar.
The last Anon suggest a clever short-term answer: Liquidate what's in the lock-box, as needed. You can argue that the proceeds can go to current Social Security recipients, as needed. Problem solved?
As predicted, Boehner is pushing for Plan C -- a several months fix that's now being called the "First Tranche" by the negotiators. This is relatively simple, obvious and necessary. The issue of the day is what to include as the Second Tranche. Obama, Reid and Pelosi are adamant that the deal not be "short-term". Their concerns are entirely driven by 2012 election considerations. Boehner wants to announce something today before the Asian markets open. Developing, quickly ....
We're walking across ice on a big lake -- you can hear some cracking. We may get across, or not. We have a lot further to go.
If you run basic projections of the current federal budget it blows up on even optimistic assumptions. This isn't hard to model on a spreadsheet, as there are only a few big drivers. Easy work for a first-year I-bank analyst, if anyone cared.
Sustained 3.5% growth works wonders, but that ain't happening on current trajectory. Even 3.5% isn't enough, which is why the White House has been using > 4.0%. Even that isn't enough. In the real world you can't just plug in an assumption and expect that it'll happen.
One of the Big Lies is that eliminating the Bush tax cuts would fix the problem. It'd only make a dent ... on paper. You even lose the dent -- and maybe even more -- from second order knock-on effects. We have sixty years of empirical data to prove this, if anyone cared.
The most alarming thing in our recent fiscal performance isn't spending -- it's revenue. This hasn't gotten enough attention. Total tax revenues have historically run about 17% - 18% of GDP, no matter the tax regime in place. We've fallen below 15% and are trending down. Is this a permanent shift? We have a lot of leverage in our tax collections because of the progressive personal income tax. The "rich" aren't making enough. Politics may make a one-time payroll tax holiday permanent.
This may explain why the Democrats are so adamant about including "revenue enhancements" in any current budget fix. And why they keep implying that it's "all our money" -- those in the private sector just get to keep what the government decides is "fair and appropriate".
Our federal government will get bigger or smaller. Current trajectory is unfinanceable
Obama won't settle for anything that doesn't give him a debt ceiling extension into 2013. I actually suspect he doesn't want a deal at all, and would rather have the crisis.
Thus, Harry Reid met with Obama yesterday and got his marching orders: Create a plan to compete with Boehner's that extends into 2013. Given that the Senate can't agree on the time of day, this will go nowhere. It makes the Democrats look like they're working, but it threatens to obstruct Boehner's effort. This isn't an accident.
Boehner's plan should pass the House. Then it goes to the Senate. Could McConnell peal off a baker's dozen of Senate Democrats, along with his 47 Senate Republicans, to stave off default? -- probably. Will Reid stop McConnell procedurally ? -- my bet is yes -- on Obama's orders. Obama wants this to die in Congress -- he doesn't want to have to veto. He's rather vote "present" and point fingers.
Come August 2, with no debt ceiling increase, there's a lot that Obama and Geithner could do to avoid a technical default. As suggested above, they could even raid the lock box to cover Social Security checks. That actually looks legal, although it'd be a PR disaster for Obama.
But I expect that Obama will want to try to take advantage of the crisis. Seniors won't get checks for awhile.
Odds of a downgrade are going up. This could cause no end of market havoc -- ironically I'd expect short-term buying in Treasuries to go up. Some states are at risk. Expect Illinois to slide into Lake Michigan.
Now you can argue that the Republicans will take the blame, but I don't expect so. The key is Independents. Obama is taking a big risk that he's going to get exposed for what he really is. To not get a short-term deal done now -- and to instead have us default -- on the argument that we have to have a long-term deal lest we spook the markets in 2012, is indefensible. It's beyond even "we had to destroy the village in order to save it" indefensible. It makes no fucking sense at all.
The problem isn't just Obama -- the Democratic Congress is mostly insane or deluded -- especially now that the Blue Dogs got purged in the 2010 mid-terms. If this goes the way I expect, the Democrats will be very vulnerable to losing lots of Senate seats in 2012, not just the Presidency. Most of their House seats will stay safe, because of gerrymandering. But they could wind up a rump party. That the Democrats don't see this risk tells you how insane/deluded they are.
Sidebar: the two leading Republicans aren't even on the official Iowa straw poll.
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