Storified by Brian Empric· Mon, Mar 25 2013 19:23:37
“The turnabout (of the stock market) is testament to healthy corporate profits and the resilience of America's free enterprise system. And it's a huge relief to workers whose 401(k) plans are tied to equities. But the risky little secret of the rebound is that it is powered in significant part by the easy-money policies of the Federal Reserve, which must one day end.”
“[T]he time is approaching to scale back the bond-buying spree and get ready to unwind some of the Fed's massive portfolio, which now tops $3 trillion. The longer the policy lasts, the more likely it will end unhappily.”
“Savers, particularly older ones trying to live on income from their investments, are starved for safe options. They've been forced into stocks, which is one reason the market has been acting as if it's on steroids. Further, with borrowing costs low, Congress and the White House have less incentive to rein in the national debt.”
“The market is ‘hooked on the drug’ of easy money, Dallas Fed President Richard Fisher told Reuters… Fisher's comparison of Fed policies to a drug is apt. Markets might not like the idea of the drug being withdrawn now, when the Fed holds a portfolio of $3 trillion. But the withdrawal symptoms will be a lot worse once the portfolio grows to $4 trillion, or more.”
“The longer the Fed's easy-money policies go on, the greater the risk they will distort markets, create new bubbles and set the economy up for another fall.”
“With the White House closing its doors to public tour groups in order to save money for the sequester, it's worth remembering some of the other costs the White House incurs annually.
“Like the ‘Chief Calligrapher,’ Patricia A. Blair, who has an annual salary of $96,725, and her two deputies, Debra S. Brown, who gets paid $85,953 per year, and Richard T. Muffler, who gets paid $94,372 every year.”
Other #CutWaste opportunities here
“Let’s be honest about one thing: The budget introduced yesterday has about as much chance of becoming law as Nancy Pelosi does of being elected pope.”
“But at least it is a budget. It has now been more than four years since the Senate produced such a document. While Senate Democrats have pledged to do so this year, recent reports suggest that they are struggling to come up with a plan that can garner support from a majority of their members…”
“[T]he Ryan budget provides a view of Republican priorities and their vision for how to increase economic growth, reform entitlements, and balance the budget. While timid and imperfect, Ryan’s plan shows that Republicans are at least looking in the right direction.”
“On the spending side, Ryan would mostly retain the sequester, and would further reduce spending by $5.7 trillion from the current ten-year baseline, bringing the budget into balance by 2023.
“However, while we can undoubtedly look forward to news stories about how Ryan would slash spending, his budget doesn’t actually cut spending at all; it merely slows the rate of growth. Indeed, under Ryan’s proposal, federal spending would still grow by an average of 3.4 percent every year…”
“Ryan’s budget would leave us with roughly $20.85 trillion in debt in 2023, which is $5.29 trillion lower than under the current baseline but still a $4.15 trillion increase over what we currently owe…”
“The budget would also block-grant Medicaid and food stamps (the latter would be reformed more gradually, as the unemployment rate decreases), and reform civil-service pensions by requiring increased contributions from federal workers.”
“As Ryan says, ‘balancing the budget is a means to an end,’ that end being a growing economy and freer, more prosperous society.”
“Based on the premise that national economies grow by about 1 percent less when debt exceeds 90 percent of GDP, the president of the AAF (American Action Forum)—and former Congressional Budget Office director—Douglas Holtz-Eakin predicts that the Republican budget would allow for 5 percent more in economic growth than under current law, translating to that estimated 5 million new jobs in 10 years.”
“But despite the benefits of lowering the debt-to-GDP ratio, there is not widespread bipartisan agreement on whether balancing the budget should be a top priority. Ryan's plan would balance the budget through spending cuts alone. The Democratic plan calls for a combination of discretionary spending reductions, tax increases and boosting infrastructure spending, but it does not balance the budget in the foreseeable future.
“In an interview with ABC News this week, President Barack Obama said he was not interested in balancing the budget ‘just for the sake of balance. My goal is how do we grow the economy, put people back to work, and if we do that we are going to be bringing in more revenue.’”
“Over the next decade, spending under Murray's budget would increase by 62 percent... As the chart shows, the budget would increase a bit each year, under the Democratic plan.”
“Murray’s budget spends $2.2 trillion more in 2023 (the last year of the budget window) than the 2013 levels – a 62% increase (significantly outpacing inflation),” says a staff member on the Republican side of the Senate Budget Committee.
“Ryan’s plan is revenue neutral… meaning that it is not an overall tax hike. Senate Democrats say in the Chairman’s Mark that their budget includes ‘only’ $923 billion in higher taxes over the next 10 years, but it turns out to be much higher. Buried elsewhere in their budget is $580 billion in additional tax hikes, bringing the total to $1.5 trillion.”
“Both budgets call for comprehensive tax reform, but they disagree on what that should look like. Chairman Ryan proposes simplifying and streamlining the tax code, highlighting the ‘maze’ of deductions, credits, limitations, and phase-outs that clutter the tax code. He also calls for rate reduction, on both the personal and corporate side… Representing a different vision, Senate Democrats want to ‘restore fairness to the tax code’ by making it even more progressive…”
“Although both plans call for eliminating loopholes, both are woefully short on specifics. Neither dives into the details of which deductions should be cut…”
“Chairman Ryan proposes to simplify our broken tax code by turning our seven individual income tax brackets into two, and then bringing down the marginal tax rates to 10% and 25%... Murray’s budget doesn’t lower personal income tax rates…”
“Chairman Ryan would cut the top corporate tax rate to 25 percent, but Murray’s budget would leave it untouched. AFP supports cutting the corporate tax rate—which is currently the highest in the industrialized world, at 35 percent—since low rates is a principle of optimal taxation and it would produce myriad positive results for the economy. According to a brand-new study from Tax Foundation, cutting the federal corporate tax rate to 25 percent would incite economic growth, more wages and job creation, and higher tax revenue.”
“So it looks like we've all been sentenced to spending at least two more years in budget hell with Barack Obama. Under the rules of budget hell set the past four years by the prince of Pennsylvania Avenue, you're not allowed to do anything real about federal spending. You can only fight over federal spending. Forever.”
“Amid the sequester smackdown with the White House, Republicans did something off-script: They called the Obama bluff. They let the sequester's spending cuts occur, and the apocalypse didn't descend. The only thing that cracked was the president's approval rating.”
“Ever since Ronald Reagan legitimized the efficacy of tax cuts, Democrats have sought to discredit his idea and restore the New Deal theory of a Keynesian multiplier, which dates to 1931. It holds that more public spending will revive a struggling economy… No president has believed more in the miracle of the multiplier than Barack Obama…”
“(Economist Alberto Alesina, a professor at Harvard University) has identified the alternative. His, and others', work the past decade with how struggling economies revive suggests that the Obama spend-more solution is the opposite of what the U.S. should be doing.”
“The path back to stronger growth, argues Mr. Alesina, is a combination of significant, permanent cuts in public spending and relatively small tax increases, if any.”
“Adjustments based upon spending cuts,” the economists concluded, “are much less costly in terms of output losses than tax-based ones. Spending-based adjustments”—that is, cuts—“have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments”—tax increases—“have been associated with prolonged and deep recessions.”
“Fiscal plans based on large, permanent spending cuts are associated with renewed growth more than any alternative policy mix that has been tried. Indeed, spending cuts without big tax increases look to be the only thing that really works…”
“No worries, America. Debt is a preoccupation of the fringe, a mere distraction for anyone interested in progress. And anyway, as President Barack Obama explained this week, ‘we don’t have an immediate crisis in terms of debt. In fact, for the next 10 years, it’s going to be in a sustainable place.’
“That’s a pretty convenient position, wouldn’t you say, for a man who’s helped pile on trillions of dollars of new debt and created an entitlement that promises to escalate this non-crisis crisis of ours?”
“Right now, we’re spending more money to pay interest on debt than we’ll spend on education, homeland security, transportation and veterans’ benefits combined this year. Surely, there’s something better to spend that money on. And those interest payments are a significant tax on Americans — a debt tax that Washington doesn’t want to talk about. And just wait until interest rates rise, because at some point they will.
“Hey, I didn’t even come up with the previous paragraph. I cribbed it from a speech given on the Senate floor in 2006 by an up-and-comer named Barack Obama. He’s so articulate I couldn’t resist. But those were the stormy days when debt mattered because Republicans were … well, Republicans.”
“Of course, debt isn’t always a bad idea. We build things for the next generation, and they should chip in, no doubt. But right now, public debt is more than 75 percent of gross domestic product. So when do we get to worry? At 100 percent?”
“Last month, the Congressional Budget Office released its revised baseline for spending, taxation, and deficits for the next decade. It is not pretty. The gross federal debt is expected to increase by nearly $10 trillion over 10 years, from $16 trillion today to roughly $26 trillion in 2023.
“Beyond the 10-year horizon, the fiscal picture only gets worse. Without major reforms, the government’s vast array of health entitlements—starting with Medicare, Medicaid, CHIP, and Obamacare—are set to grow from about 5 percent of gross domestic product today to 9 percent in 2033, 12 percent in 2053, and 15 percent in 2073. There is no way the nation can afford that bill, absent a shocking increase in taxation. What’s more, taxes would have to be raised again and again and again, as health entitlements are expected to grow faster than the economy.”
“Much has been written about the nation’s awful budgetary outlook, but one aspect that is often overlooked is the effect the country’s debt and deficit will have on the American political landscape.”
“Right off the bat, the looming debt crisis explains why House Republicans persist with a policy solution that has not been politically popular in the past. Today’s House GOP believes it has no choice; the duties of responsible governing require a solution to this problem, even if such a solution is unpopular… The fiscal situation also explains why Senate Democrats have failed to produce a budget in four years. Senate majority leader Harry Reid has a hyper-transactional approach to politics, always preferring to shield his members from tough votes, or sweeten the pot for them when he has no choice.”
“Together, the different approaches that House Republicans and Senate Democrats have taken in dealing with the nation’s fiscal mess illustrate the profound changes occurring in American politics. Reid has chosen the fiscally irresponsible but politically easy path; Ryan the opposite. It is either one or the other, because the two goals are now mutually exclusive. A responsible policy requires a departure from the status quo—meaning higher taxes, entitlement reforms, or both—that will be politically dangerous.”
“Politicians of generations past could pass a budget or agree to raise the debt ceiling without much trouble because they never really had to worry that the debt was out of control. Today, they have no such luxury. Hence the persistent fighting over what were once perfunctory tasks.
“Until the public makes up its mind about what to do next, all bets about American politics are off. The near-term political outlook is messy, fraught with finger-pointing, demagoguery, and vitriolic rhetoric as both sides try to position themselves…”
“One thing, though, is clear: The political center as we know it today will no longer exist. For generations, Americans have demanded more, more, more from their government, which has been able to supply it without burdening the citizenry with onerous taxes. No longer. The time for painful choices is at hand.”
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