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Obama and the Deficit
Politico reports that the White House plans to change direction next year:
President Barack Obama plans to announce in next year's State of the Union address that he wants to focus extensively on cutting the federal
deficit in 2010 — and will downplay other new domestic spending beyond jobs programs, according to top aides involved in the planning.
....“Democrats have to reassure voters we are not being reckless,” said a Democratic official involved in the planning. “The White House knows this and that's why we'll be hearing a lot about reducing the deficit early next year. Democrats owned this issue for the past four years and cannot afford to cede it to Republicans now."
I think I'm more sympathetic toward this approach than most liberals. Part of the reason is practical: although it would probably be wise to focus more on job creation right now than we are, that's just not in the cards. There aren't the votes for it, and there's not much point in endlessly tilting at windmills.
But on a policy basis I think this might be a good idea too. It's unlikely that Obama will try to do anything to cut spending in 2010 itself (or 2011 for that matter), but some initiatives that credibly promise to reduce the deficit in 2012 and beyond would be smart both politically and economically. Politically because a guy who's approved a trillion dollar stimulus package, a trillion dollar healthcare bill, a trillion dollar energy bill, and (possibly) a substantial increase in Afghanistan spending, needs some credibility on the spending front. It's also smart politically because it puts Republicans in a tough spot: they've been screaming for months about fiscal rectitude, and this forces them to put their money where their mouths are. That has the potential to hurt them at the polls whether they go along or not.
But it's smart economically too, because we really do have a long-term deficit problem. I'm not the biggest deficit hawk in the world or anything, but if it starts to look like we can't ever get our deficits under control, we run the risk of blowing up another bubble, getting further in hock to the Chinese, losing the trust of the international financial community, and more. Obama was smart to try and accomplish as much as he could as soon as he took office, but he'd also be smart to make some serious gestures toward long-term stability once he's passed all his big bills. More here from CBPP if you want a smart, reliably progressive take on the issue.
>>because we really do have
>>because we really do have a long-term deficit problem>>
No doubt the reason 30 year treasuries are yielding an incredibly low 4.4%
ummm
So is this long-term deficit problem de-coupled from the long term DEBT problem?
Wherein teh federal budget must include increasing amounts of funding simply to pay the interest on the debt created by past deficits?
I mean, we're still paying for Reagan's defense buildup.
I didn't even start college until 7 years after he took office, and I've already managed to pay off my college loans. Knowing my own proclivity for procrastination - this does not speak well of policy and budget makers.
What happens to T-bills if Uncle Sam declares a 3-year return to something resembling Eisenhower era tax rates with some exclusive earmarks for debt reduction, sunsetted into Reagan-era rates?
Oh, the gnashing of teeth and wailing and breast-beating ... um - as I recall, 60% of that debt is held by Americans. Tax-free ...
Great, Kevin
Way to fall for the conservative framing. The "trillion dollar healthcare bill" doesn't add a penny to the deficit, it actually is projected to reduce it long term. The biggest reasons for the long term debt are 1) Bush tax cuts and 2) growth in health spending causing Medicare to blow up and 3) Defense budgets that grow 12% per year and are already 10 times the rest of the world combined. But let's not do anything about those because the Republicans might scream and kick their legs more! You sound like a Blue Dog Democrat- do you really think that if you do what Republicans want, they'll say, "Oh, never mind, actually Obama is great!"
It's the Politics
I agree with both Kevin and the commenters. It's true that the budget deficeit simply isn't an issue at this point. Another factor adding to it's growth, besides those already cited, is the sharp decline in tax receipts.
That said, it's a fact that none of this matters a whit to the Republicans. They will bitch and moan about America going bankrupt, the media will spread their lies, and people will believe them. So whatever we think about the economics of the deficeit, it's better to start thinking now about how to cut the Republicans off at the knees.
Wrong Direction
My first take is that this is a move in the wrong direction, but I haven't read the details so i could well be wrong.
As noted above, health care costs are a major problem, so I would be in favor of continued pressure on that front.
"in 2010 will downplay other new domestic spending beyond jobs programs"
But aren't jobs the major issue at this point? Isn't that like saying, "Obama will propose a giant increase in the deficit in 2010, by focusing on jobs programs while giving up on health care cost control"? What I hope this means is more direct funding of jobs programs in areas such as alternative fuels and transportation, and less trickle down economics. What I'm afraid it means is more business tax credits to encourage employments while not solving our chronic problems in the areas of energy, health, and the environment...
The biggest long term
The biggest long term spending issue is Medicare/Medicaid. How is Obama going to find votes to do more beyond the health care bill? And if there is some new wonderful politically palatable cost cutting health care reform, why wait a year rather than putting it in the current bill?
Wrong Deficit
I'm more worried about the household sector deficit than the federal government deficit. The Fed can pay it debts anytime with no problem. If the value of the US $ sinks and imports become more expensive, that's mainly to the better.
The fundamental economic problem is that the U.S. consumer has weak earnings capacity and has been spending too much in relation to income. Until Obama or someone in charge realizes that and addresses it more directly, we're just spinning our wheels trying to get consumers and businesses to spend more.
I am sympathetic to the argument that government spending is blowing unhealthy financial asset bubbles via trickle down economics. So we've got to cut out the middle man and crank out some public works directly. Maybe there is not enough political support for this, but you never know if you don't make the case. If you lose, you always have the fallback of doing the next best thing, and being able to justly blame the obstructionists when the next best thing doesn't work out so well for predictable reasons...
"if you want a smart,
"if you want a smart, reliably progressive take on the issue."
^^ oxymoron of the day!
"Way to fall for the
"Way to fall for the conservative framing. The "trillion dollar healthcare bill" doesn't add a penny to the deficit, it actually is projected to reduce it long term. The biggest reasons for the long term debt are 1) Bush tax cuts and 2) growth in health spending causing Medicare to blow up and 3) Defense budgets that grow 12% per year and are already 10 times the rest of the world combined."
Erroneous. Erroneous on all accounts.
First, get your head out of the sand with regards to the cost of HCR. The Democrats have been playing a shell game with you when it comes to CBO scoring. The gov't spending for HCR doesn't start until 2013; but the gov't will start getting revenue from HCR once it is passed. So when you do a 10-year CBO score from the time HCR is passed, you get 10 years of revenues against 7 years of outlays.
Pretty sweet, huh?
Fact is, HCR will be a huge burden on the deficit and debt when you compare 10 years of revenues (taxes) versus 10 years of outlays.
Second, Bush tax cuts saw an increase in federal revenues. That's always true of tax cuts.
Lastly, if you want to address the federal deficit, or debt, then your first three culprits (in order of cost) are:
1. Social Security
2. Medicare/Medicaid
3. Defense
That's it. Go ahead and find me a politician - D or R - who will tackle the first two. Defense is a distant third and of course any good progressive will gut the armed services if it means more $$ into entitlement programs, ie, #1 and/or #2. So no matter what, the deficit and debt will grow.
Blind to reality
"Second, Bush tax cuts saw an increase in federal revenues. That's always true of tax cuts."
Tax revenues as a % of GDP peaked in 2000. Your second sentence is clearly false. If true, we would lower taxes to near 0 and reap huge revenue increases. But, sadly, reality does not behave in that manner.
Tax increases will have to be a major part of addressing the deficit. All serious analysts know this.
Look at the chart
Tax revenues fell in absolute terms as well after the Bush tax cuts. And GDP growth under Bush was terrible.
Why do you persist with this nonsense? Do you enjoy looking like a fool?
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200
"If true, we would lower
"If true, we would lower taxes to near 0 and reap huge revenue increases. But, sadly, reality does not behave in that manner."
Of course not. I never said that. Reasonable tax increases spur growth, which increases federal revenues. It has worked this way since JFK. Remember him?
Bush's tax cuts did in fact increase growth and federal revenues, until a two-front war ate into those revenues. Two wars - need I remind you - that Democrats voted for enthusiastically. And once the Democrats took Congress, any hopes of tax cuts went out the window, as did the chance of any decrease in federal spending.
But please, go ahead and try to tell us how Obama is going to be a tough spending hawk, considering Obama:
"has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives."
http://www.politico.com/news/stories/1109/29471.html
So tell us exactly how Obama is going to get his budget under control. Like I said before: the two largest government expenditures - by far - are Social Security and Medicare/Medicaid. Attempting to stanch government spending without addressing those two is a fool's errand.
But I'm sure you have the answer.
"Tax increases will have to be a major part of addressing the deficit. All serious analysts know this."
Tell that to Obama. He promised that no one making under 250K will see an increase - not one dime - in any sort of additional taxes. Of course, he lied. He never told us that the individual mandates - that he was against on the campaign trail - would be classified as taxes.
"Reasonable tax increases
"Reasonable tax increases spur growth, which increases federal revenues."
We agree on something.
What needs to be done.
The 8gigaton gorrila is medicare. And that is predicated on the arte of increase of healthcare costs. So we gotta do something about the growth in healthcare costs. But how:
(1) Careful study of costs versus benefits? We can't do this because the republicans will shout "death panels"...Scratch that.
(2) Rein in profiteering in the medical pharma industry. The repubs will yell socialism, and the lobbyists will spend billions to thwart it... Scratch that.
(3) How about administrative expensives. Any attempt to replace private insurance with single payer, "socialism" again. Plus billions of dollars of insurance industry lobbyists, so yet again ...scratch that.
Then there is the sacred cow, defense spending. Yeah, Obama cut a couple of programs. But thats just marginal bickering about what sort of hay to feed them, -no cows were slaughtered to bring you these cuts. Defense is sacred -maybe even to the extent we should call it our national religion. Scratch that.
Then we could try to raise revenues. "socialism, Communism..." can't do that either.
And the way to do it is by
And the way to do it is by re-balancing the tax distribution to require a fair share from the wealthy. It's funny how this mess just happened to coincide with the Bush tax cuts primarily for the wealthy. The technical recovery likely from any tax cut was a weak one and became known as the "jobless recovery."
It's long past time for the "American Dream" social contract to be restored.
Something of this nature (debt-deficit reduction) probably has to be done politically because the right-wing absolutely controls the framing of all this. However, if the rich are properly asked to fund the lion's share of it, especially if accompanied by meaningful repair of the safety net, consumer confidence won't tank and might even grow.
Blame Reagan.The U.S.
Blame Reagan.
The U.S. economy was very well balanced, if not perfect, up until around 1980. The Reagan tax cuts created huge budget and trade deficits while the "financialization" and the wealth polarization of the economy accelerated. Bush I and Clinton slowed down those trends, but Bush II put them in overdrive.
I don't don't know of any Dem who is suggesting that we go back to the pre-1980 tax code. Too bad.
Go With What Works Elsewhere
1. Single payer health care
2. Lower defense spending
3. Higher taxes on wealthy
4. Higher energy taxes
Pretty much agree. Anyone
Pretty much agree. Anyone who knows anything about this issue realizes reining in healthcare costs is key to cutting the deficit. But with the GOP screaming "death panels" anytime a reasonable suggestion is made, this will be impossible.
Cutting defense spending will also be tricky. But I give a lot of credit to Gates when it comes to cutting unneeded weapons programs.
Most developed countries also have some form of national VAT or consumption tax. I'm not a big fan because they are regressive and I think we'll be needing to boost consumption, not discourage it.
Agree with Detroit Dan
Detroit Dan says it concisely.
Roll back the Bush tax cuts for the wealthy.
Roll back the Reagan tax cuts for the wealthy.
Forget about the Republicans
Regardless of what Obama does the Republicans won't come on board nor will they be put in a box, at least not this way. It should be crystal clear by now that no matter what Obama does the Republicans will never come around. If Obama cuts taxes they'll say it's not enough. If he cuts Social Security and Medicare they'll blast him either for not cutting enough or for hurting the seniors or both at the same time.
As a matter of policy, it should be clear that the only thing to do is to do what's right and what you believe in.
did you *read* the cbpp report?
First of all, any budget projection that goes out to 2050 is silly.
Second, our numbers aren't that bad yet. See Krugman today http://krugman.blogs.nytimes.com/2009/11/13/fiscal-perspective/
Third, reducing spending won't shut up the Pubs, nothing will satisfy them and the media will continue to mindlessly report whatever drivel they come up with.
IV. The report states:"Social Security expenditures will rise modestly as a percentage of GDP" and "All federal spending other than Social Security, Medicare, Medicaid, and interest payments on the debt will — when taken together — shrink as a share of GDP"
So the only leverage we have over the deficit/debt is medical, and we've given up on the only thing sure to reduce it (single payer). I suppose it's politically possible to cut Medicaid, that's mainly poor kids and the disabled, but that's not anything I want to sign on to. That leaves SS and Medicare, oh yeah, let's cut those. Way to piss off your base even further. It _is_ getting crowded under the Democratic bus.
The only sane thing to do is to hold defense constant and let inflation eat it over the years, and go balls to the wall on a jobs program, as getting household balance sheets repaired is really the A-number-1 problem. Fix that and everything else gets much, much better.
You libs fail to understand
You libs fail to understand what Obama wants to do; he's not promising to raise taxes. He's saying he'll cut spending. He's said nothing about fixing the deficit via raising taxes. In fact, he promised not to raise taxes - not one dime - on anyone making less than $250K. Of course, the individual mandate is a tax, and this backtrack will probably secure Obama as a one-term president, but I digress.
Obama cutting spending. I'll believe it when I see it.
And I'm not holding my breath.