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 Markets might not like the idea of the drug being withdrawn now, when the Fed holds a portfolio of $3 trillion.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.”
Storified by Brian Empric· Wed, Mar 06 2013 19:58:04
“There’s debt denial and debt denial denial, but there is one wave of liberal truth-telling sweeping the land. We are increasingly hearing admissions that paying for the promises the federal government has made will require higher taxes on everyone, not just the rich.”
“[L]iberals who don’t need votes from the American people are still allowed to do math. To pay for the social programs they want, they will ultimately need more tax revenue from the middle class as well as high earners.”
“Since the 1980s, the two parties have had a tacit agreement. We get the Republicans’ tax rates in exchange for the Democrats’ spending programs. There were some upward adjustments of the top rates under George H.W. Bush and Bill Clinton in the early ’90s and in the fiscal cliff deal at the end of last year, but this has basically held. The price has been chronic deficits… Now those deficits are becoming unsustainable and the major entitlement programs will soon be in the red.”
“The plain fact is that big government has actually limited the political options available to the American people, leaving them with only unpleasant options. But at least we can be honest that the bill is about to come due.”
“Using GAAP-based accrual accounting, though, as typically used by private corporations, the government’s day-to-day operations were shown to have suffered a shortfall of $1.3 trillion, with an additional $5.3 trillion shortfall in the year-to-year increase of unfunded liabilities in social programs, such as in Medicare and Social Security…”
“Based on the same official GAAP numbers, the federal government’s total obligations as of September 30, 2012, stood at $85.4 trillion…”
“Suggestions that somehow the total GDP can cover the government’s deficit, debt and obligations problems are nonsense. With decades of practice and fine-tuning, the U.S. government has reached the practical limits of the net cash it can siphon out of the income-producing private sector. The system has reached that delicate balance, where the government’s raising taxes actually reduces the government’s cash receipts, where higher taxes reduce economic activity enough to reduce tax revenues.”
“Often, before a large company goes bankrupt, creditors can see the financial collapse coming and tighten up on credit, freeze credit, or move to collect a debt while there still may be time. The same thing happens at the level of sovereign states, and the global financial markets increasingly have indicated waning patience for the United States to address its longer-range solvency issues.”
“With limited tax-raising options, massive spending cuts have to be put in place and the social programs recast so as to be solvent, if there is to be any hope of restoring long-term solvency for the United States government… There is no political will apparent among those currently controlling the White House and Congress to do so.”
“In the nearly four years since Senate Democrats last passed a budget (on 4/29/2009), government spending has driven our national debt up past $16 trillion (and rising). That’s more than $52,000 for every man, woman, and child.”
“While our debt continues to grow, President Obama and Senate Democrats are demanding more tax hikes to fuel more ‘stimulus-style spending. That’s why Speaker John Boehner says we don’t need higher taxes – ‘It’s time to focus on the real problem here in Washington, and that is spending.’”
“The search for an elusive grand bargain — more taxes, fewer benefits — may be blinding us to the potential for incremental progress. The two parties fundamentally disagree over the future of our welfare state, but there may be space for common ground.”
“Both sides should agree at least to spend less money on the wealthy — via means testing. It may surprise some Americans to learn that the United States spends quite a lot on the affluent, especially through the entitlement programs at the heart of the budget fight: Social Security and Medicare… Means-testing — allocating benefits according to need — might offer both sides a way out.”
“First, give less to the wealthy rather than take more from them… Second, assess wealth based on lifetime earnings rather than on income or assets… Basing benefits on lifetime earnings… would encourage saving over time, would be far more difficult to game and, provided it was based on pre-retirement earnings, would not discourage older Americans who are able to work from continuing to do so.”
“Some on the left might complain that curtailing our entitlement programs’ universal character would undermine their social purpose and political support. But targeting benefits to those who most need them is surely better than reducing payments to providers (many of whom will drop out of Medicare), as President Obama’s 2010 law does. Some on the right might complain that such reforms would punish success. But surely rewarding achievement with government aid is no one’s idea of conservatism.”
“Liberalism has its advantages. It puts government in the driver’s seat and encourages the creation of more and more government programs that sound good and seem nice. Who could be against them?”
“If programs lifted from the liberal book of dreams are enacted, Obama and his allies will be thrilled. If conservatives—congressional Republicans in this case—block those programs, that’s fine too. Democrats can exploit GOP opposition to winsome new programs to recapture the House in 2014 and transform Washington into a liberal juggernaut for the president’s final two years.
“If you think this tactic cannot work, think again. We’ve just seen it work brilliantly in Obama’s reelection campaign. The election was less a referendum on Obama’s first term—the norm for reelections—and more a negative verdict on Mitt Romney, the challenger. The Obama team cast Romney as a heartless corporate buccaneer and made him the centerpiece of its campaign…”
“In effect, (Obama)’s accepted a slow growth, high unemployment, high tax, large debt economy, but he can’t acknowledge it for obvious reasons… Nor can he turn to the most effective tools for stirring economic growth and job creation—that is, cutting tax rates on individual income and capital gains and reducing government spending. He just raised rates on income and capital gains and wants to increase spending. Besides, Obama is loath to unleash the private sector to boost the economy. That way, government loses control.”
“For Republicans, the response may be easier than they think. It’s simple: Forget the politics and do what’s right. Obama thinks the public loves government programs and wants more, whatever the cost. If he’s right, Republicans are doomed regardless of what they do politically. If he’s wrong, a Republican comeback is slouching toward Washington.”
“Americans need to understand that Mr. Obama is threatening that if he doesn't get what he wants, he's ready to inflict maximum pain on everybody else. He won't force government agencies to shave spending on travel and conferences and excessive pay and staffing. He won't demand that agencies cut the lowest priority spending as any half-competent middle manager would… It's the old ploy to stir public support for all government spending by shutting down vital services first.”
“Mr. Obama just whacked the economy with a roughly $160 billion tax increase in 2013 that he says will do no harm, but he wants us to believe that $85 billion in spending cuts will trigger a recession… Mr. Obama has taken government spending from 21% to 24% of GDP, yet we've had the weakest economic recovery in three generations.”
“For 30 years bipartisan tax reform has meant lowering tax rates in return for closing loopholes. But having already raised rates, Mr. Obama now wants fewer loopholes for those he dislikes while keeping the higher rates. This is nothing but a grab for more revenue so he and Democrats can keep spending.”
“If Mr. Obama really wants to eliminate the sequester, Republicans are ready to negotiate. But if he won't drop his tax increase and negotiate in good faith, as he hasn't during his Presidency, then the sequester is the only way that any spending is going to be cut. The economy will be better for it.”
“The major objection most Republicans have to the coming sequestration budget cuts is that the cuts will fall disproportionately on the Department of Defense. That’s true; defense spending is about one-fifth of the federal budget but will take about half of the sequester cuts.
“But even for the Pentagon, the cuts are only to the rate of growth for the defense budget in coming years. They are not actual cuts that make spending decline…”
“[A]ssume that U.S. involvement in the war in Afghanistan does end in the next year or so, and that war spending goes down or even disappears altogether. Even in that scenario, defense spending is scheduled to increase in every year except one, even with sequestration cuts…”
Bob Woodward notes that during the campaign last fall Obama blamed Republicans in Congress for proposing and then insisting upon the sequester; however, Woodward’s reporting in his book “The Price of Politics” showed that the sequester was initiated by Jack Lew and Rob Nabors in the White House.
“What is the non-budget wonk to make of this? Who is responsible? What really happened?”
“Obama personally approved of the plan for Lew and Nabors to propose the sequester to Senate Majority Leader Harry Reid (D-Nev.). They did so at 2:30 p.m. July 27, 2011, according to interviews with two senior White House aides who were directly involved.”
“A majority of Republicans did vote for the Budget Control Act that summer, which included the sequester. Key Republican staffers said they didn’t even initially know what a sequester was — because the concept stemmed from the budget wars of the 1980s, when they were not in government.”
“Why does this matter? … First, months of White House dissembling further eroded any semblance of trust between Obama and congressional Republicans… Second, Lew testified during his confirmation hearing that the Republicans would not go along with new revenue in the portion of the deficit-reduction plan that became the sequester…”
“In fact, the final deal reached between Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.) in 2011 included an agreement that there would be no tax increases in the sequester in exchange for what the president was insisting on: an agreement that the nation’s debt ceiling would be increased for 18 months, so Obama would not have to go through another such negotiation in 2012, when he was running for reelection.
“So when the president asks that a substitute for the sequester include not just spending cuts but also new revenue, he is moving the goal posts…”
“And when the Republicans opened the seventh seal of the sequester, there was a great earthquake; and the sun became black and the stars fell unto the Earth; and our nation's ability to forecast severe weather, such as drought events, hurricanes and tornados, was seriously undermined. Lo, and the children were not vaccinated, and all the beasts starved in the zoos, and the planes were grounded.”
“But if any of these cataclysms do come to pass, then they will be mostly Mr. Obama's own creation. The truth is that the sequester already gives the White House the legal flexibility to avoid doom, if a 5% cut to programs that have increased more than 17% on average over the Obama Presidency counts as doom.”
“This White House has never been fussy when a statutory text or even the Constitution interferes with its political ambitions. (See ObamaCare, immigration executive orders, recess appointments and much else.) Could it be that Mr. Obama is exaggerating the legal stringency of the sequester in a gambit to force Congress to shut it off?”
“If air traffic control and airport security really are the models of government efficiency that anyone who has ever traveled knows they are not, perhaps Homeland Security could begin by targeting some of the programs identified by Oklahoma Republican Tom Coburn this week. These include necessities such as grants for a security conference in San Diego that featured ‘zombie apocalypse training’ or funds for towns like Keene, New Hampshire (pop. 23,000) to purchase armored tank-like vehicles called Bearcats. Seriously.
“Before furloughing park rangers, maybe start with the 10% of the 75,000 Department of the Interior employees who are conserving the wilderness of Washington, D.C. Before slashing cancer research, stop funding the $130-million-a-year National Center for Complementary and Alternative Medicine that studies herbs and yoga. Cut after-school funding only after consolidating the 105 federal programs meant to encourage kids to take math and science classes.”
See also: AMERICA'S GROWTH CORRIDORS: The Key to National Revival
“Overall, these corridors account for 45% of the nation's land mass and 30% of its population. Between 2001 and 2011, job growth in the Great Plains, the Intermountain West and the Third Coast was between 7% and 8%—nearly 10 times the job growth rate for the rest of the country. Only the Southeastern industrial belt tracked close to the national average.”
“Energy, manufacturing and agriculture are playing a major role in the corridor states' revival. The resurgence of fossil fuel–based energy, notably shale oil and natural gas, is especially important…”
“Since 2000, the Intermountain West's population has grown by 20%, the Third Coast's by 14%, the long-depopulating Great Plains by over 14%, and the Southeast by 13%. Population in the rest of the U.S. has grown barely 7%...”
“The corridors' growing success is a testament to the resiliency and adaptability of the American economy. It also challenges the established coastal states and cities to reconsider their current high-tax, high-regulation climates if they would like to join the growth party.”
“A display case in the lobby of the Federal Reserve Bank (in Richmond, VA) might express humility. The case holds a 99.9 percent pure gold bar weighing 401.75 troy ounces. Minted in 1952, when the price of gold was $35 an ounce, the bar was worth about $14,000. In 1978, when this bank acquired the bar, the average price of gold was $193.40 an ounce and the bar was worth about $78,000. Today, with gold selling for around $1,600 an ounce, it is worth about $642,800. If the Federal Reserve’s primary mission is to preserve the currency as a store of value, displaying the gold bar is an almost droll declaration: ‘Mission unaccomplished.’”
“The Fed failed to cure the (Great Depression), and today’s unprecedentedly anemic recovery — approximately 3 million fewer people are working than were five years ago — has failed to cure the (Great Recession): If the workforce participation rate were as high as it was when Barack Obama was first inaugurated, the unemployment rate would be 10.8 percent.”
“Will Rogers said, ‘Be thankful we’re not getting all the government we’re paying for.’ Today we are not paying for all the government we are getting, and the political class benefiting from this practice should be thankful for the Fed’s low interest rate policy, which makes running deficits inexpensive. In addition to making big government cheap, this causes a flight of investors from interest-paying assets into equities — the rising stock market primarily benefits the wealthy — and commodities, rather than job-creating investments.
“Fed policy, which has failed so far, can also fail by succeeding. If strong economic growth begins, interest rates will rise substantially, and the cost of debt service will cause the deficit to explode.”
Storified by Brian Empric· Tue, Feb 19 2013 17:26:22
Storified by Brian Empric· Thu, Feb 07 2013 17:18:19
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