Government programs & regulations, spending, deficit, and budget process

[DougMacG]

Some excellent points made by George Will including this one similar to one I believe Crafty already articulated on the forum: " restoration of the Clinton-era top rate of 39.6 percent would occur in the very different Obama era of regulatory excesses and Obamacare taxes"


A cliff of their own choosing

By George F. Will, Published: November 28
http://www.washingtonpost.com/opinions/george-will-a-cliff-of-democrats-choosing/2012/11/28/0320513c-38ce-11e2-8a97-363b0f9a0ab3_story.html

With a chip on his shoulder larger than his margin of victory, Barack Obama is approaching his second term by replicating the mistake of his first. Then his overreaching involved health care — expanding the entitlement state at the expense of economic growth. Now he seeks another surge of statism, enlarging the portion of gross domestic product grasped by government and dispensed by politics. The occasion is the misnamed “fiscal cliff,” the proper name for which is: the Democratic Party’s agenda.

For 40 years the party’s principal sources of energy and money — liberal activists, government-employees unions — have advocated expanding government’s domestic reach by raising taxes and contracting its foreign reach by cutting defense. Obama’s four years as one of the most liberal senators and his four presidential years indicate that he agrees. Like other occasionally numerate but prudently reticent liberals, he surely understands that the entitlement state he favors requires raising taxes on the cohort that has most of the nation’s money — the middle class.

Mitt Romney as candidate and others before and since have suggested increasing revenue by capping income tax deductions. This would increase that tax’s progressivity, without raising rates that would dampen incentives. Obama’s compromise may be: Let’s do both. Remember the story of when the British Admiralty sought six new battleships, the Treasury proposed four, so they compromised on eight.

Those proposing higher taxes on the wealthy note that when the income tax began in 1913, the top rate was 7 percent. But in 1917, war brought a 67 percent rate. Between 1925 and 1931, the rate was 24 percent or 25 percent, but in only five of the subsequent 80 years — 1988-92 — was the top rate lower than it is today.

Republicans, however, respond that because lower rates reduce incentives to distort economic decisions, they promote growth by enhancing efficiency. Hence restoration of the higher rates would be a giant step away from, and might effectively doom, pro-growth tax reform. Furthermore, restoration of the Clinton-era top rate of 39.6 percent would occur in the very different Obama era of regulatory excesses and Obamacare taxes. Hence Republicans rightly resist higher rates.

Given liberals’ fixation with the affluent paying their “fair share,” it might seem peculiar that they are so vehemently against Paul Ryan’s “premium support” proposal for Medicare. Their recoil is, however, essential to the liberal project.

Ryan’s supposedly radical idea is that people should shop for health insurance, with government subsidizing purchases by the less affluent. This would introduce what soon will be inevitable — means testing, a.k.a. progressivity. But liberals reject it with a word, the incantation of which suffices, they think, as an argument — “voucher.”

This is peculiar because perhaps the most successful federal program of the 20th century was essentially a voucher program. The purpose of the 1944 Servicemen’s Readjustment Act — a.k.a. the G.I. Bill of Rights — was to facilitate demobilization by helping men and women acquire educations and buy houses — and hence form families. The government did not build universities or houses. It, in effect, gave individuals conditional cash — vouchers — by helping to pay for home loans and college tuition.

Liberals’ strenuous objection to vouchers is that vouchers, as the functional equivalent of cash, empower individuals to make choices. It is the business of the liberals’ administrative state, staffed by experts, to make choices for inexpert individuals. This is why, while Democrats in Washington are working to reduce the portion of Americans’ private income that is disposed of by private choices, two tentacles of the Democratic Party — the Indiana and Louisiana teachers unions — are in their states’ courts waging futile fights against school choice programs, lest thousands of low- and moderate-income parents be as empowered as millions of demobilized servicemen were.

Washington’s contentiousness about the “cliff” is producing a blizzard of numbers. The argument, however, is not about this or that tax rate but about the nature of the American regime. When the Republican House majority acts as though it has a mind — and a mandate — of its own, this is not Washington being “dysfunctional,” it is the separation of powers functioning as the Founders intended. Their system requires concurrent congressional majorities — one in the Senate, with its unique constituencies and electoral rhythms, another in the House, with its constituencies and rhythms. And at least 219 of the 234 House Republicans won in November by margins larger than Obama’s national margin.

[DougMacG]

For the record, Alan Simpson was a moderate Republican as a Senator, Erskine Bowles was Clinton's Chief of Staff; the commission was appointed by (first term) Pres. Barack Obama and the results were totally ignored.

One simple excerpt on spending:

RECOMMENDATION 1.1: CAP DISCRETIONARY SPENDING THROUGH 2020. Hold spending in 2012 equal to or lower than spending in 2011, and return spending to pre-crisis 2008 levels in real terms in 2013. Limit future spending growth to half the projected inflation rate through 2020.
---------------

This is not rocket science, people.  Put SOME limit on spending.

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

http://www.powerlineblog.com/archives/2012/12/simpson-bowles.php

[Crafty_Dog]

AMEN!!!

The Rep incompetence (hard to think of worse front men for the Rep message than Boener and McConnell) in these negotiations is mind-boggling.   It takes a special kind of stupidity to let Baraq pitch $1.6T in taxes AND INCREASES in spending and be losing on the issue.   They are even letting him trap them into making specific proposals for him to demogogue instead of defining the ratio of "cuts" to revenue increases.  If I have it right even the sequester has a 1:1 ratio of cuts to revenues!

[DougMacG]

More famous people/publications caught reading the forum:

IBD Editorials
http://news.investors.com/ibd-editorials/120312-635563-clinton-era-spending-levels-not-tax-rates.htm
 
Obama Should Return To Clinton-Era Spending Levels

Fiscal Policy: Talk of Clinton-era tax rates ignores the fact that the former president, working with a GOP Congress, cut spending as a share of GDP and produced four balanced budgets by focusing on growth, not spending.

Even as he pushes $150 billion in new "stimulus" spending, President Obama argues that to avoid the fiscal cliff we must return to Clinton-era tax rates for wealthy households, with a top marginal rate of 39.6% vs. the Bush-era 35%. Clinton's was an age of balanced budgets and economic growth.

But it was also an era of budgetary restraint in which both parties, not just the GOP, still produced budgets.

It was one, too, in which a Republican Congress led by House Speaker Newt Gingrich produced welfare reform, killed the precursor to cap and trade — Bill Clinton's BTU tax — and stopped ObamaCare's predecessor, HillaryCare, dead in its tracks.

As the Cato Institute's Steve H. Hanke points out, when President Clinton took office in 1993, government expenditures were 22.1% of GDP. When he departed in 2000, the federal government's share of the economy had been squeezed to a low of 18.2%, a decline of 3.9 percentage points. No other modern president has even come close (see table).

Under Clinton, federal spending averaged 19.8% of GDP. In contrast, spending under Obama over the past four years has averaged 24.4% of GDP.

Revenues from Clinton-era tax rates were actually used to pay down the national debt and produce four successive budget surpluses. Obama's tax increases will simply fund new spending.

The spending restraint of the Clinton/Gingrich era was so successful and disciplined that it led President Clinton in his January 1996 State of the Union address to proclaim that "the era of big government is over." In contrast, President Obama has argued that "the danger of too much government is matched by the perils of too little."

Not only has he increased total welfare spending by $193 billion since taking office, he has also ballooned the number of food stamp recipients to more than 47 million and actively worked to dismantle the 1996 welfare reform act by neutering its work requirement through executive order.

Obama's first stimulus bill included funding to help states pay for additional welfare recipients and eliminated many of the incentives that encouraged states to reduce their welfare rolls. More recently, the Obama administration announced plans to waive many of welfare reform's work requirements.

Now ObamaCare threatens to increase health care costs while increasing Medicaid's burden on the states.

Of course, President Clinton benefited from President Ronald Reagan's tax cuts, which unleashed the dot-com boom and a period of unparalleled technological creativity and development.

During this boom, the economy grew by one-third and tax receipts doubled as we added the equivalent of the West German economy to our own.

Clearly tax cuts combined with spending cuts work, as does encouraging and rewarding entrepreneurship and not punishing and demonizing success. When government sucks all the economic oxygen out of the room, it becomes hard for real job creators to breathe.

Obama has been very selective in his admiration of the Clinton era. Adopt the spending levels and restraint,Mr. President, not the tax rates.

[Crafty_Dog]

VERY good!  This gives a sound bite answer to the sound bite question "What's wrong with returning to Clinton era tax rates?"

[DougMacG]

Where have we heard this before? (http://dogbrothers.com/phpBB2/index.php?topic=1847.msg67631#msg67631)

WSJ excerpt below, subscription info at the link
http://online.wsj.com/article/SB10001424127887323401904578157233680080150.html?mod=WSJ_Opinion_LEADTop
 
The Budget Baseline Con  December 4, 2012
How Washington fools the public about spending 'cuts.'

  ...President Obama and John Boehner are playing by the dysfunctional Beltway rules. The rules work if you like bigger government, but Republicans need a new strategy, which starts by exposing the rigged game of "baseline budgeting."

Both the White House and House Republicans are pretending that their goal is "reducing the deficit," which they suggest means making real spending choices. They are talking about a "$4 trillion plan," or something, regardless of how that number is reached.

Here's the reality: Those numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill's "baseline" has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms.

The most absurd current example is Mr. Obama's claim that his "$4 trillion" plan reduces the deficit by about $800 billion over 10 years by ending the wars in Iraq and Afghanistan. But those "savings," as he calls them, are measured against a White House budget office spending baseline that is fictional. Those wars are already being unwound and everyone knows the money will never be spent. But they are called "savings" to gull the public and make the deficit reduction add up to a large-sounding $4 trillion.

The baseline scam also exists in many states, and no less a Democrat than New York Governor Andrew Cuomo denounced it in 2011 as a "sham" and "deceptive." He wrote in the New York Post that state spending was "dictated by hundreds of rates and formulas that are marbleized throughout New York State laws that govern different programs—formulas that have been built into the law over decades, without regard to fiscal realities, performance or accountability." Then he proceeded to continue baseline budgeting.

In Washington, Democrats designed this system to make it easier to defend annual spending increases and to portray any reduction in the baseline as a spending "cut." Chris Wallace called Timothy Geithner on this "gimmick" on "Fox News Sunday" this week, only to have the Treasury Secretary insist it's real.

Republicans used to object to this game, but in recent years they seem to have given up. In an October 2010 speech at the American Enterprise Institute, House Speaker Boehner proposed that "we ought to start at square one" and rewrite the 1974 budget act. But he then dropped the idea, and in the current debate the GOP is putting itself at a major disadvantage by negotiating off the phony baseline. In a press release Tuesday, his own office advertised the need for "spending cuts" that aren't even cuts.

If Republicans really want to slow the growth in spending, they need to stop playing by Beltway rules and start explaining to America why Mr. Obama keeps saying he's cutting spending even as spending and deficits keep going up and up and up.

[Crafty_Dog]

All:

Today the WSJ turns to a subject near and dear to my heart.  I would go so far as to say that until we get a spotlight on this issue we will continue to lose our free market and with it our freedom.

Marc
==========================


The Budget Baseline Con
How Washington fools the public about spending 'cuts.'.

If the fiscal cliff talks make Lindsay Lohan look like a productive member of society, perhaps it's because President Obama and John Boehner are playing by the dysfunctional Beltway rules. The rules work if you like bigger government, but Republicans need a new strategy, which starts by exposing the rigged game of "baseline budgeting."

Both the White House and House Republicans are pretending that their goal is "reducing the deficit," which they suggest means making real spending choices. They are talking about a "$4 trillion plan," or something, regardless of how that number is reached.

 
Editorial board member Steve Moore on Republican options in the fiscal cliff negotiations. Photo credit: Associated Press.
.
Here's the reality: Those numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill's "baseline" has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms.

The most absurd current example is Mr. Obama's claim that his "$4 trillion" plan reduces the deficit by about $800 billion over 10 years by ending the wars in Iraq and Afghanistan. But those "savings," as he calls them, are measured against a White House budget office spending baseline that is fictional. Those wars are already being unwound and everyone knows the money will never be spent. But they are called "savings" to gull the public and make the deficit reduction add up to a large-sounding $4 trillion.

Enlarge Image


Close
Getty Images
 
President Barack Obama
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The baseline scam also exists in many states, and no less a Democrat than New York Governor Andrew Cuomo denounced it in 2011 as a "sham" and "deceptive." He wrote in the New York Post that state spending was "dictated by hundreds of rates and formulas that are marbleized throughout New York State laws that govern different programs—formulas that have been built into the law over decades, without regard to fiscal realities, performance or accountability." Then he proceeded to continue baseline budgeting.

In Washington, Democrats designed this system to make it easier to defend annual spending increases and to portray any reduction in the baseline as a spending "cut." Chris Wallace called Timothy Geithner on this "gimmick" on "Fox News Sunday" this week, only to have the Treasury Secretary insist it's real.

Republicans used to object to this game, but in recent years they seem to have given up. In an October 2010 speech at the American Enterprise Institute, House Speaker Boehner proposed that "we ought to start at square one" and rewrite the 1974 budget act. But he then dropped the idea, and in the current debate the GOP is putting itself at a major disadvantage by negotiating off the phony baseline. In a press release Tuesday, his own office advertised the need for "spending cuts" that aren't even cuts.

If Republicans really want to slow the growth in spending, they need to stop playing by Beltway rules and start explaining to America why Mr. Obama keeps saying he's cutting spending even as spending and deficits keep going up and up and up.

Printed in The Wall Street Journal, page 11
A version of this article appeared December 4, 2012, on page A

[Crafty_Dog]

A friend I hold in high regard comments on the article:

Agreed.  And this is truly a bipartisan con.

A budget cut is not a reduction in spending.  It is a reduction in the amount of the planned spending increase.

And the revenue projections are more of the same hocus-pocus.  Obama demands $1.6 trillion of revenue increases over 10 years.  The Republicans counter with $800 billion.  These are all projections.  And they must be divided by 10 to gauge their effect upon the annual budget deficits that will average $1.2 trillion over the same time period.  Of course, you can jigger the projected deficit number by changing the assumption of personal income and GDP growth. 

Added to the mess is the fact that the IRS reports income statistics as Adjusted Gross Income; i.e., income before deductions and exemptions; but it calculates income tax based upon taxable income; i.e., income after deductions and exemptions.  And deductions and exemptions currently phase out for adjusted gross incomes that are substantially lower than Obama’s $250K threshold.

On top of all of this confusion is the fact that FICA taxes are reverting to 7.65% under both plans.  Unless Obama now wants to make that tax progressive even though the benefits are now taxable via a means test called provisional income.  And Medicare Part B premiums are means tested based upon provisional income. 

In truth, the so-called fiscal cliff is not even a speed bump.  If higher rates on taxable income are not so bad for some, then why is it bad for all?  And why is taking $20 more per paycheck from the average worker OK when it comes from the FICA tax, but it is not OK to take it from the income tax?  But it is OK to take another $20,000 from the business owner that takes a total of $150,000 in wages for himself and his wife plus realizes a $250,000 net profit from his subchapter S business after 10-20 years of doing without?  Or increase the tax rate on the inheritance of small family businesses and farms from 35% to 45%?

All of these tax rates would come with no reform in entitlement spending or baseline budgeting. 

The refusal of either party to talk about real numbers is extremely disheartening.  Regardless of what happens on January 1st, the publicly held debt of the federal government will exceed 90% of nominal GDP at sometime in second half of 2016 unless real GDP growth increases to 4% annualized.  And even then, the 90% threshold is delayed until 2019 or 2020 unless the deficits are reduced substantially and the need to borrow money drops dramatically.  Real GDP is growing at a little over $300 billion per year.  Federal borrowings are growing at over $1 trillion per year.  The day of reckoning is fast approaching and the political leaders are focused upon whether or not the fairest share of income taxes for the highest 2% of incomes is 37% or 41% of all taxes paid.  There is absolutely no sense of priorities by most everyone in DC – or for most of the voters either.

[G M]

Exactly!!

[Crafty_Dog]

I'm working on getting this esteemed friend to come play with us , , ,

============================

Chronicle • December 5, 2012
The Foundation
"It is error alone which needs the support of government. Truth can stand by itself." --Thomas Jefferson
Editorial Exegesis
 
Demo deficit reduction plan
"Both the White House and House Republicans are pretending that their goal is 'reducing the deficit,' which they suggest means making real spending choices. ... Since 1974, Capitol Hill's 'baseline' has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms. The most absurd current example is Mr. Obama's claim that his '$4 trillion' plan reduces the deficit by about $800 billion over 10 years by ending the wars in Iraq and Afghanistan. But those 'savings,' as he calls them, are measured against a White House budget office spending baseline that is fictional. Those wars are already being unwound and everyone knows the money will never be spent. But they are called 'savings' to gull the public and make the deficit reduction add up to a large-sounding $4 trillion. ... In Washington, Democrats designed this system to make it easier to defend annual spending increases and to portray any reduction in the baseline as a spending 'cut.' Chris Wallace called Timothy Geithner on this 'gimmick' on 'Fox News Sunday' this week, only to have the Treasury Secretary insist it's real. Republicans used to object to this game, but in recent years they seem to have given up. In an October 2010 speech at the American Enterprise Institute, House Speaker Boehner proposed that 'we ought to start at square one' and rewrite the 1974 budget act. But he then dropped the idea, and in the current debate the GOP is putting itself at a major disadvantage by negotiating off the phony baseline. In a press release Tuesday, his own office advertised the need for 'spending cuts' that aren't even cuts. If Republicans really want to slow the growth in spending, they need to stop playing by Beltway rules and start explaining to America why Mr. Obama keeps saying he's cutting spending even as spending and deficits keep going up and up and up." --The Wall Street Journal

=================

http://www.washingtontimes.com/news/2012/dec/4/gop-should-fear-voters-not-the-fiscal-cliff/

[Crafty_Dog]

The fiscal cliff conversation here is divided between this thread as a matter of budget, and the Tax Policy thread because of the central role of taxes in the FC.

Obj. posted Sen. Rand Paul's thoughts on the TP thread to effect of the "Let the Dems own it."   This makes sense to me, especially with incompetents like Boo Boo Boener and McConnell at the helm for the Reps.

[Crafty_Dog]

Unemployment and the Fiscal Bluff
"For my part, whatever anguish of spirit it might cost, I am willing to know the whole truth; to know the worst, and to provide for it." --Patrick Henry
 
Gaming the numbers
November's jobs numbers are out and, though they're "better than expected," they're far short of a real recovery. The U.S. economy added 146,000 jobs in November, and headline unemployment dropped to 7.7 percent, the lowest rate since December 2008. But that number is deceptive.
The rate dropped because some 542,000 people left the workforce. If labor participation remained the same as it was in January 2009, headline unemployment would be 10.7 percent. The U-6 rate, which includes the underemployed and those who have given up looking for work, is 14.4 percent. Notably, the unemployment for blacks, who gave Barack Obama 96 percent of the vote, is 13.2 percent. Additionally, September and October numbers were revised down by a total of 49,000 jobs -- awfully convenient now that the election is over!
At least one person thinks that unemployment is a huge boon for the economy. House Minority Leader Nancy Pelosi (D-CA) says that unemployment insurance benefits -- which by the way cost $520 billion over the last five years -- "probably are one of the most important stimuli for the economy." So if more people become unemployed, the economy will grow even faster. Problem solved.
The Bureau of Labor Statistics did note one bright spot: "

• ur analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates for November." That's good news, but Hurricane Barack and the fiscal bluff certainly are depressing the recovery, such as it is. Some 23 million Americans remain unemployed or underemployed, and millions more who are working haven't received pay increases in years to keep up with inflation. The economy is in a holding pattern while politicos in Washington preen and pontificate about the cliff.

The Congressional Budget Office (CBO) estimates that under "current law," i.e., if (when) we go over the cliff, the federal budget will still increase by 55 percent over the next 10 years, while tax collection will soar to an all-time high of 21.4 percent of GDP. CBO estimates, however, assume no economic change from higher taxes, which is unrealistic. In other words, higher rates won't necessarily bring in the projected revenue because businesses and consumers will change their behavior to avoid taxes. Government spending is also a tax in the sense that every dollar spent by the government must first be taken out of the economy.
A final fiscal cliff note: Barack Obama is demanding a return of the top tax rates to those in effect during the supposed nirvana of the Clinton years, and he's likely to get all the rates of Clinton's era. In fact, that's what former DNC chief Howard Dean said is necessary. "[T]he truth is everybody needs to pay more taxes, not just the rich," Dean admitted. "[W]e're not going to get out of this deficit problem unless we raise taxes across the board, to go back to what Bill Clinton had and his taxes." They're coming for the middle class, too, and some of them aren't afraid to say so.
To get spending to Clinton levels, however, the federal budget would have to be cut by an astounding 37 percent. According to Breitbart, "Adjusted for inflation, Clinton spent $2.24 trillion in 1993; that level stayed relatively stagnant, rising to $2.41 trillion in 2001." Obama is now spending nearly twice that. So instead of the $1.2 trillion in baseline "cuts" over 10 years outlined in the sequester, Congress would need to make real cuts of that much this year alone.
As we all know, there's a greater chance that pigs will fly

[DougMacG]

The roll over and play dead strategy helps us how?  Then people will like us?  We consent to putting the country down the tubes and blame the Democrats?  We did that and it didn't work.

It's easy for Rand Paul to say let it pass if he can't stop it in the Senate.  But each House Republican ran on a promise to vote against this sort of thing, and won.  

It is the Obama Presidency that has the standoff.  House Republicans have a duty to pass what they believe are responsible solutions.  If there was a party to negotiate with, they should negotiate, not cave.  

The idea that a Republican House should pass exactly what a Democrat House would have passed is repulsive to me - and not the will of the voters.

If tax rates go up for everyone with the expiration of the Bush tax cuts, then they weren't what they were called - tax cuts for the wealthy.  A return to Clinton era tax rates is a big hike - across the board.  Unfortunately, we are no longer competing in a Clinton era world, with Clinton era spending or Clinton era regulations.

If people don't like Clinton tax rates applying to themselves they can sign on with tax reform retroactive any day that they want.  House Republicans can be out front with multiple proposals.

If the Executive Branch can control outcomes in the House on revenue and appropriation bills, will the House of Representatives then choose the next Supreme Court appointee?

What part of constitutionally divided government powers am I missing?
---------------------

"CBO estimates, however, assume no economic change from higher taxes, which is unrealistic."

Really?  Not unrealistic from any widely reported story that I have seen...

[Crafty_Dog]

http://www.washingtontimes.com/news/2012/dec/7/government-borrows-46-cents-every-dollar-it-spends/

  The federal government borrowed 46 cents of every dollar it has spent so far in fiscal year 2013, which began Oct. 1, according to the latest data the Congressional Budget Office released Friday.
 
The government notched a $172 billion deficit in November, and is already nearly $300 billion in the hole through the first two months of fiscal year 2013, underscoring just how deep the government’s budget problems are as lawmakers try to negotiate a year-end deal to avoid a budgetary “fiscal cliff.”
 
Higher spending on mandatory items such as Social Security, Medicare and interest on the debt led the way in boosting spending compared with the previous year, which also highlights the trouble spots Congress and President Obama are struggling to grapple with.
 
All sides agreed to discretionary spending cuts and automatic spending cuts last year, but have been unable to agree on ways to control entitlement costs, which are the long-term drivers of deficits and debt.
 
Fiscal year 2013 began on Oct. 1 and so far the government has spent $638 billion and taken in just $346 billion in revenue.
 
That tax revenue is up by $30 billion compared with last year, or about 10 percent.
 
But spending is up even more — a staggering $87 billion, or 14 percent. The CBO said much of that higher spending total is due to timing of payments month-to-month. Without those shifts, spending would be up $22 billion, or 4 percent.
 
Overall, CBO analysts said that, accounting for shifts in both revenue and spending, the deficit would be $8 billion lower this year than it was last year at this time.
 
The agency, Congress’s nonpartisan budget scorekeeper, releases preliminary estimates of the government’s fiscal position each month. Final figures will come later this month from the Treasury Department.
 
The government is poised to post another $1 trillion deficit in fiscal year 2013, which would mark the fifth straight year. Before that, the record was $438 billion, which came in 2008, President George W. Bush’s last full year in office.
 
Congress and the White House are trying to hash out a long-term fiscal framework that could lead to higher taxes and limits on future spending.


Read more: http://www.washingtontimes.com/news/2012/dec/7/government-borrows-46-cents-every-dollar-it-spends/#ixzz2EZliAkBX
 Follow us: @washtimes on Twitter

[Crafty_Dog]

By JOHN D. MCKINNON

Republican leaders are pushing what looks like a relatively painless method of slowing federal spending, one that alters how the government calculates annual cost-of-living increases for an array of programs.
 
Senate Minority Leader Mitch McConnell (R., Ky.) recently highlighted the idea, which is known as "chained CPI," as an example of the kind of changes needed to avert spending cuts and tax increases set to begin in January. House Speaker John Boehner (R., Ohio) included it in his recent deficit-reduction proposal.
 
President Barack Obama has in the past signaled openness to switching inflation measures to shore up Social Security. And several centrist Democrats have endorsed the idea, too.
 
But as with much of the "fiscal cliff" negotiations, nothing is as simple it appears. Even this seemingly technical change has become caught in the ideological gaps between the two sides.
 
Under the Republicans' proposal, the government would stop pegging benefits to versions of the consumer price index that measure the change in prices for a hypothetical fixed basket of goods, the standard measure of inflation. Instead, the government would use the chain-weighted CPI, which tends to rise slower because it recognizes that consumers will buy less of goods whose prices are rising rapidly. For example, if the price of chicken rises more than the price of beef, families might buy less chicken and more beef.
 
Falling Over the Fiscal Cliff

See some scenarios for how different groups of people may be affected by the tax changes that will take place if the fiscal cliff isn't resolved by the Jan. 1., 2013, deadline.

Messrs. McConnell and Boehner tend to talk about how the move would shrink spending. They also acknowledge it would boost tax collections because many features of the tax code are also pegged to inflation. This could make it harder to swallow for some Republicans, who already worry the tax system's inflation measure is biased toward higher rates.
 
"There's a lot of objection on our side of the aisle to revenue increases," said Sen. Bob Corker (R., Tenn.), who has pushed the idea in legislation. "But for anything to occur, people realize there's going to have to be some of both" tax increases and spending reductions.
 
Democrats are divided too. Liberals and seniors' groups are scrambling to block the concept, saying it could hurt lower-income households and weaken safety-net programs.
 






View Interactive
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The proposal to use a different inflation measure "is a very devious and underhanded way to continue the class warfare being waged against the middle class and working families," said Sen. Bernie Sanders (I., Vt.).
 
The idea, which has come up repeatedly in budget discussions over the past two years, would change how the government adjusts various programs to account for increases in the cost of living. Using a different inflation measure would mean smaller annual increases in the size of Social Security checks, federal pensions and veterans' benefits.
 
Using the different index would lead to a small annual change, but one that compounds over time. A hypothetical Social Security beneficiary who retired at age 62 in 2002 with a monthly benefit of $1,000 would receive $1,309 a month now under the current cost-of-living adjustments, but $1,263 if the chained CPI approach had been in effect.
 
On the tax side, the size of the standard deduction and income thresholds for various tax brackets also would rise more slowly, making more income taxable, and at higher rates.
 
By 2021, the change would raise taxes by about $100 a year on practically all households earning more than about $30,000, according to estimates by the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.
 
In all, budget experts figure a switch to the chain-weighted CPI would reduce the projected deficit by about $200 billion over the next decade. Of that, about $72 billion would come from increased tax revenue. It's not a huge number, but if the new index were approved, Republicans would see that as proof of Democrats' willingness to countenance changes to entitlement programs.
 
Mr. Obama is seeking about $4 trillion in deficit reduction over 10 years, including $1.6 trillion in new tax revenue. Mr. Boehner has offered to increase revenue by $800 billion.
 
Messrs. McConnell and Boehner are both willing to apply the chained CPI to tax brackets as well as spending programs, according to spokesmen. The Republicans think it's worth a little extra in taxes to gain a curb on future entitlement spending.
 
Mr. Corker said Republicans regard the chained CPI change as an important starting point for what they hope will be a broader effort at overhauling entitlement programs, including Social Security, Medicare and Medicaid.
 
Many Democrats are reluctant to tackle Social Security as part of the deficit-reduction effort. AARP, the powerful association for seniors, has been writing letters and sending seniors to visit lawmakers, arguing against the chained CPI and other proposed entitlement changes.
 
President Obama has signaled continuing interest in measures to strengthen Social Security's long-term solvency. But he also says Social Security isn't causing current budget deficits.
 
"Social Security is not a driver of our deficits," White House spokesman Jay Carney said at a briefing last Wednesday. "The president has always expressed interest in working with Congress to take steps to further strengthen Social Security because it's such a vital program for our senior citizens and it needs to be in place for generations to come."

[Crafty_Dog]

Second post of morning



The Republican Tax Panic

The GOP should negotiate with Obama, not each other. .



If any Republicans thought that President Obama would respond with magnanimity in victory, they now know better. He is determined to rout them on taxes, give as a little as possible on spending, and blame them for any economic damage in the bargain. The question for the GOP is how to minimize the harm to the economy, as well as to their chances of a political and policy comeback in 2014 and beyond.

So it's a shame that Republicans are playing into Mr. Obama's hands, negotiating in public among themselves, prematurely giving up on the tax issue and undermining House Speaker John Boehner in the process. Mr. Obama isn't going to blink on the budget if he thinks Republicans are going to blink first, and so far the emerging GOP position seems to be to surrender on taxes first and hope Mr. Obama will have mercy on them later on entitlements.
 
Tennessee Senator Bob Corker made the case for this strategic retreat on "Fox News Sunday," arguing that if Republicans raise tax rates as Mr. Obama wants, "the focus then shifts to entitlements and maybe it puts us in a place where we actually can do something that really saves the nation."

But what is the evidence in the last four years, or even since the election, that Mr. Obama won't pocket that victory and then refuse to offer any but token changes on entitlements? Mr. Corker has proposed several specific and laudable entitlement changes, but note how Mr. Obama has declined to support a single one of them in public. After he has GOP fingerprints on tax rate increases, Mr. Obama is more likely to make Republicans trade onerous defense cuts for entitlement changes that are far less consequential than Mr. Corker has proposed.
 
***

There are also the economic merits to consider, if that doesn't rudely intrude on all the political calculations. Republicans presumably campaigned against raising tax rates because they believed what they said about the costs to growth and small business. The economic evidence is overwhelming that they are right.

But now various Beltway sages want Republicans to say never mind, we were only kidding, tax rates don't matter to the economy. So because Mitt Romney lost, Republicans in Congress are supposed to repudiate their core economic principles.
 






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Associated Press
Tennessee Senator Bob Corker
.
Mr. Obama says he merely wants tax rates to return to the "Clinton rates," but rates are already scheduled to go higher than that thanks to ObamaCare. There's the 0.9% Medicare surcharge on all income above $250,000, plus the 3.8% surcharge on investment income. The U.S. economy in 1993 also had far more growth momentum than it does today.
 
Bill Clinton agreed to cut the capital gains rate to 20% in 1997 but Mr. Obama wants it to be 23.8% at least. State tax rates are also higher than they were in the 1990s, especially in California, where the capital gains rate now is 13.3% on top of the federal rate. Combined that would be 37.1%. In Singapore, the capital gains tax is . . . zero.

Mr. Boehner's offer to raise revenue by reducing loopholes and deductions is therefore the right policy direction and consistent with a pro-growth tax reform. If Mr. Obama were open to a tax reform that reduced rates in return for fewer deductions, Republicans would be right to make a down payment this year and negotiate a larger reform in 2013. That is why we have supported raising revenue by closing loopholes, which are exploited the most by the richest Americans.

The problem is that Mr. Obama has backtracked on reform. In 2011 he was saying he wanted $800 billion in more revenue, and that he and the GOP could get it from deductions. Now he says he wants higher rates and fewer deductions in order to raise $1.6 trillion in more revenue over 10 years. He may also believe it's a concession to raise the top tax rate to 37% or 38% (from 35%) instead of the 39.6% Clinton rate as long as he also gets more revenue from capping deductions.
 
This latter choice would be the worst possible deal for the economy and for Republicans. Not only would they have agreed to raise rates, but they'd have given away the revenue from deductions that could be traded for lower rates. This wouldn't be a step toward tax reform but a double-barreled tax increase. And it would make a genuine pro-growth tax reform all but impossible.

***

It's certainly true that Republicans can't stop a tax rate increase if Mr. Obama is determined to make it happen. The Bush-era rates automatically go up on January 1, and the House can't extend them alone.

But Mr. Obama also can't get what he wants without House Republicans. He needs their votes to extend current rates for lower-income taxpayers, as well as to prevent the Alternative Minimum Tax from hitting 27 million more taxpayers. Most of those new AMT taxpayers live in high-tax Democratic states. Meanwhile, the death tax rate reverts to 55% and a $1 million exemption. Senate Democrats running for re-election in 2014 won't want that on their resume.
 
For all of his bluster about blaming Republicans, Mr. Obama also knows a budget failure would do enormous harm to his chances of second-term success. It would guarantee at least two more years of trench budget warfare and poison the chances of immigration or other reform. Another recession would be on his watch, not on George W. Bush's.

The point is that Republicans have more leverage than they imagine, and they ought to act like it. A good start would be for the House to pass a bill this week extending all the tax rates for six months and fixing the defense spending cuts coming in January. Then ask Senate Democrats to pass their own bill, and they can negotiate with the President under regular Congressional order.

At the same time, Mr. Boehner could alert his new Members that he'll convene the next House to pass the same bill again on January 3. The world doesn't end on December 31 and the law can still be changed. Such resolve would show some leadership and demonstrate to Mr. Obama that Republicans are prepared to let the spending sequester begin to take place if he won't negotiate over spending in good faith.
 
Mr. Boehner and Republicans can also make clear to the voters that if Mr. Obama doesn't want to jump off the "fiscal cliff," he can always instruct the IRS not to change the tax withholding tables pending further negotiations. And he can instruct his budget office to instruct the Pentagon to exercise flexibility in the way that it implements the automatic spending cuts.

Mr. Obama wants to give the appearance of a looming fiscal crisis because it serves his political interest in spooking Republicans to give him everything he wants. He's pressing so hard for tax rate increases not because they will bring in much revenue but because he wants GOP tax cover for Democrats in 2014 and to get Republicans to concede that tax rates must rise. Once he pockets that, he'll be back by more.

Republicans need not play along, and they and the country will suffer if they do. Above all, they need to start negotiating as a team with Mr. Obama and stop making premature concessions for the TV cameras that only make the White House less likely to meet them half way.

[G M]

 

The fiscal cliff conversation here is divided between this thread as a matter of budget, and the Tax Policy thread because of the central role of taxes in the FC.

Obj. posted Sen. Rand Paul's thoughts on the TP thread to effect of the "Let the Dems own it."   This makes sense to me, especially with incompetents like Boo Boo Boener and McConnell at the helm for the Reps.

Someone on this forum suggested that tactic first.

[Crafty_Dog]

Rob Portman: A Truly Balanced Approach to the Deficit
Raising taxes on the well-off would pay for nine days of spending..
By ROB PORTMAN

The dangers of the "fiscal cliff" are by now well known. Most agree that the year-end $500 billion in tax increases and $110 billion in arbitrary, across-the-board discretionary spending cuts, including defense, must be averted to avoid plunging the U.S. economy back into recession. But how the danger is averted is important. To keep from getting right back on another cliff, President Obama and Congress must address the underlying problems of excessive spending and weak economic growth.

Washington needs to pursue structural reforms in the country's important but unsustainable entitlement programs and in an inefficient, outdated tax code. By doing so, lawmakers can responsibly avoid the immediate cliff while addressing the long-term fiscal crisis and spurring job creation.

In January 2010, President Obama described the challenge well: "The major driver of our long-term liabilities . . . is Medicare and Medicaid and our health-care spending. Nothing [else] comes close."

The nonpartisan Congressional Budget Office agrees. According to the CBO, virtually 100% of the projected increase in budget deficits over the next 75 years comes from rising Social Security, Medicare, Medicaid and other mandatory spending.

The CBO projects that as the economy recovers, revenues will exceed the historical average of 18% of gross domestic product, even if all 2001 and 2003 tax cuts are extended. Federal spending, meanwhile, already exceeds its historical average of 20% of gross domestic product and is projected to rise to 40% within three decades. Much of this dramatic increase in spending will be the result of adding 77 million baby boomers to a Medicare system that, for the typical retiree, provides benefits of $3 for every $1 paid into the system.

Taxes cannot be raised high enough to chase the enormous spending growth projected—the math simply does not work. That is why House and Senate Republicans last year voted for a budget to begin reining in entitlements and closing the deficit.

President Obama's plan to deal with the fiscal cliff includes raising taxes on individuals and small businesses that make over $200,000 or, jointly, $250,000 a year. He has argued that we should repeal the 2001 and 2003 upper-income tax cuts because they are to blame for much of the increase in the deficit since 2001.

There is a continuing debate over whether and how to raise taxes on small businesses that pay their taxes as individuals and on those individuals earning more than $200,000.

However, CBO and Tax Policy Center data together show that only 4% of the $12 trillion swing from projected surpluses to actual deficits from 2002 through 2011 resulted from the upper-income tax cuts. Two recessions and soaring government spending were the main factors.

Ending all the upper-income tax cuts would pay for just nine days of annual spending. Social Security and health entitlements will cost 27 times more than the revenue from ending those tax cuts over the next decade.

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Corbis
 .Still, negotiations require give and take, so Republicans have put revenues on the table. For instance, during the fall 2011 bipartisan super committee negotiations, Republicans (using the general Bowles-Simpson model of $3 in spending cuts for every $1 in new revenue) offered $250 billion in new revenues with pro-growth tax reform and entitlement savings. That summer, House Speaker John Boehner offered new tax-reform revenues in return for serious entitlement reforms, and he has continued to look for ways to forge bipartisan consensus. Democrats, however, have rejected all offers and demanded $1 trillion or more in tax increases without a commitment to structural entitlement reform and tax reform.

President Obama has called for a "balanced" solution of tax increases and entitlement reforms. Yet at this point he is essentially re-offering his budget from last February—a proposed $1.6 trillion in tax increases and virtually zero net spending savings. The CBO says the president's budget actually increases spending by $1 trillion over the decade, as its modest entitlement savings would be overwhelmed by new spending. Higher taxes for more spending isn't the kind of balance that Americans expect.

It should surprise no one that this unbalanced approach in the president's budget was rejected 99-0 in the Senate in May and 414-0 in the House in March.

Tweaking Medicare and Medicaid eligibility rules, benefits and payment rates may save some money in the short run, but it won't sufficiently slow the long-term growth of these programs caused by their outdated design. Reforms should not merely squeeze health beneficiaries or providers but should rather reshape key aspects of these programs to make them more efficient, flexible and consumer-oriented.


Especially in this weak recovery, the president's demands for new tax revenues must be met in the most pro-growth way possible. Instead of merely piling higher tax rates on top of our inefficient tax code, the president should agree to join with Congress in pursuing individual and corporate tax reform, including eliminating outdated preferences that often benefit the well-connected. A simpler, fairer tax code for everyone will also increase productivity, thus creating badly needed jobs and economic opportunity.

Avoiding the immediate fiscal cliff is critical to avert a recession and more job loss, but let's also take the opportunity to address the underlying problems causing our steep deficits. President Obama has said he is for tax reform and promises not to "kick the can down the road" on entitlements. Republicans are eager to work with him on both. By working together, both parties can spare America's children from a national debt that now tops $130,000 per household—and do it in a way that helps bring back jobs.

Mr. Portman, a Republican, is a senator from Ohio and a former director of the Office of Management and Budget.

[Crafty_Dog]

Jeff Sessions: We Can't Fix the Budget in Secret
'The world's greatest deliberative body' now is like the Russian Duma, with secret meetings and preordained votes..
By JEFF SESSIONS

The United States is on an unsustainable spending and debt course. Without reform, it will lead to economic disaster. Yet a fundamental alteration in U.S. policy won't occur until the American people understand the depth of the danger and the scale of change required. One thing is already clear: Such change can begin only with extensive, messy and even contentious legislative work carried on for months in the open light of day.

This is the exact opposite of the hidden negotiations to avert the so-called fiscal cliff. Washington has become possessed by the idea that a small group of negotiators, meeting in secret, can solve the deep, painful and systemic problems plaguing this country with a single "grand bargain," produced at the 59th minute of the 11th hour. This is a siren song.

The Senate was once called the world's greatest deliberative body. But the democratic process—which leads to consensus, truce or compromise—has been set aside. So for three straight years the Senate has produced no budget, no plan, no long-term proposal of any kind.

Instead, we have seen an endless series of secret conclaves: gangs of six, committees of 12, meetings at the White House, at Blair House, in the Capitol's labyrinth of hallways and hideaways. Meetings everywhere but in the committee room and the open air of the Senate floor.

No one denies that good people have been trying hard, but what have all these secret talks produced? Temporary fixes, stopgap measures and another set of emergency deadlines. One wise observer has said that the Senate now operates like the Russian Duma, where officials meet behind closed doors, put out the word, and the overwhelming votes materialize. Today in Washington—where we're faced with the consequences of our last secret deal, the Budget Control Act of 2011—the next round of secret meetings and hushed negotiations is under way.

Members of the Senate must reassert their chamber's historic role as the national institution where the great challenges of our time are debated, clarified and ultimately resolved in public view. Unfortunately, Majority Leader Harry Reid has executed a brilliant partisan strategy of protecting his members from public accountability by avoiding the public workings of the legislative process.

Following their victories in the historic midterm elections of 2010, Republican leaders too readily accommodated Sen. Reid's craven strategy. The country and their own party's political fortunes suffered as a result.

What we need is more distinction, not less. On these great issues of the economy and debt, the voters have sent Washington mixed signals and a divided Congress. It is thus all the more critical that the facts and choices be clarified. The Senate is the perfect institution—created for just such a time as this—to provide that clarity and consensus.

Proposals should be worked up in committee, where senators appointed by their colleagues have developed expertise in the issues that come before them. Amendments should be offered as part of an open process to modify and perfect legislation. The debate should be brought to the Senate floor.

It may take dozens of votes, even scores, to reach a consensus. But the American people need to be in on the process and have the opportunity to voice their opinion on concrete proposals. Have we forgotten that it is their future that is at stake?

At a minimum, any short-term fix that may be devised in order to avert the January cliff must spend at least one week on the Senate floor in order to give senators the time they need—and that the subject warrants—for amendment and debate. No Christmas Eve "deal" should be rushed through, using the threat of financial panic to secure its hurried passage.

Next year, the Senate should return to regular order, beginning with the production of its first budget plan in four years. Every senator, whose one vote is equal to that of every other, must stand up and call a halt to government by secret committee. Under Sen. Reid's leadership—without sufficient resistance from the GOP—the Senate has suppressed the needed debate and dodged the accountability that comes from casting and defending votes.

Nothing will do more to restore respect for the Senate than for the American people to see it engaged in full, honest and passionate debate. If some of our constituents are disappointed in the results or the votes cast by their senator, at least they can know that nothing was hidden from them, that everything was laid on the line for the future of this great Republic. They will know which senators gave their all to deal wisely and courageously with the great challenge of our time—and they can hold accountable those who did not.

Mr. Sessions, a Republican senator from Alabama, is the ranking member on the Senate Budget Committee.

[G M]

http://assetbuilder.com/scott_burns/will_the_real_federal_deficit_please_stand_up

Will the Real Federal Deficit Please Stand Up?
Scott Burns “When you find yourself in a hole, stop digging.” ***

The latest estimate of the federal deficit is $1.1 trillion. In spite of that, neither candidate for President has talked much about the deficit or offered a detailed plan to close it.                     The best short deficit discussion I’ve seen is a YouTube video made by Hal Mason, a retired accountant. When I last checked, nearly 2 million people had viewed “United States Budget Dilemma.wmv”.

 Mr. Mason suggested it would be necessary to shut down most of our government to close the deficit. Of course, we might miss a few things. Say goodbye Justice. Hasta la vista Education. Bye-bye Agriculture, Commerce, Homeland Security, Housing and Urban Development, Energy, Interior, Labor, State, etc. And, by the way, this also includes the entire Defense department. All together those programs cost $1.2 trillion for 2012.

Make those simple cuts and we’d have enough tax revenue left to pay interest on the federal debt (about $225 billion) and continue printing the checks to support Social Security, Medicare, Medicaid and other “non-discretionary” programs that total about $2.25 trillion.

Alternatively, the budget could be balanced if we all volunteered to pay 46 percent more in taxes than we already pay. So far neither the 1 percent nor the 99 percent has stepped forward.

Sadly, that dismal picture doesn’t come close to showing just how over-promised and broke our country is. Do some studying and you will learn that the budget politicians talk about, the one known as the Unified Budget with the $1.1 trillion deficit, is a fiction. It is convenient for politicians but it is not a true representation of our financial condition. If it were subject to the same accounting standards as our corporations, it would get a qualified opinion from its auditors.

We can get a bit closer to reality by checking the most recent “Financial Report of the United States Government” (2011) from the Government Accounting Office. In it, Comptroller General Gene L. Dodaro observes “The comprehensive long-term fiscal projections presented…show that…the federal government continues to face an unsustainable fiscal path.”

He was being kind.

The reason can be found in the details of those financial statements. The statements include long-term estimates of the amount by which promised benefit payments for Social Security and Medicare exceed estimates of future revenues. The gap depends on the actuarial method used, but filling it would require a deposit, today, of $33.8 trillion to $46.3 trillion. Whichever actuarial method you use, the increase from 2010 to 2011 was over $3 trillion. In other words, government liabilities that are never discussed as part of federal debt are rising three times faster than the official $1 trillion deficit.

But wait, there’s more!

Even these figures are a government-manipulated fiction. The total unfunded liabilities for Medicare dropped by trillions from 2009 to 2010. How? By the passage of Obamacare. It contained major reductions in payments to doctors and medical service providers. There’s only one problem: The chief actuary for Medicare, Richard Foster, doesn’t believe those savings will be achieved. He has already declared, in the 2010 Trustees Report, that the reduction isn’t likely to happen. Basically, we’re still in a political fairyland.

So, is there a measure that we can trust?

I believe there is. Economists call it the fiscal gap, the comprehensive long-term difference between government revenues and government spending based on the most realistic estimates available. The foundation for this measurement is the Alternative Fiscal Scenario, the Congressional Budget Offices most realistic budget projection. The fiscal gap is economics’ standard measure of fiscal sustainability. Using it, economists have tracked the growth of the fiscal gap. It was $60 trillion in 2003, $175 trillion in 2007, $211 trillion in 2011 and $222 trillion in 2012.

Note that $222 trillion is a multiple of our gross domestic product that far exceeds any of the figures that are causing the economic crisis in Europe.

The person I speak with about this— enough to have co-authored “The Clash of Generations” (MIT Press, 2012) with him about this subject— is Boston University economist Laurence J. Kotlikoff. He points out that while the official deficit is $1.1 trillion for 2012, the increase in the fiscal gap for the same year was $11 trillion. That’s 10 times as much as the official deficit.

Can we argue about these numbers?

Not according to Kotlikoff. “No decent economist would use any measure but the fiscal gap to understand our long-term problem,” he said in a recent phone conversation. That means the true financial condition of our country is far, far worse than it is represented in public discussion.

Can you spell b-a-k-l-a-v-a?

Filed Under: Government, Taxes & Other Disasters

[DougMacG]

Real deficit $11 trillion, real fiscal gap at $222 trillion, and we have a Presidential election based on likeability, and news coverage that the President's daughter got a cell phone, how exciting.  Yes it would be nice to get a real auditing firm to look that operation over, top to bottom, and tell us honestly the real cost of every rule and program.

GM, I was surprised to see that story published in the NY Times - front page with big headlines - before the election.  Oh, it wasn't?

[G M]

Professional journalist Martha Raddatz and her peers were too busy gazing adoringly at the gravy boat she got from Buraq.

[DougMacG]

Why not return to Clinton levels of SPENDING?



http://washingtonexaminer.com/article/2515887#.UMzUvVKIggD

Veronique de Rugy: Let's return to Clinton spending levels, too
December 13, 2012    The Washington Examiner

President Obama has been fixated on returning the top marginal income tax rates on higher income earners to their Clinton-era levels. Increasing these rates is troubling because even if the president got his way, it wouldn't make a dent in our deficit, and it would pose negative consequences for our economy in the long term. Moreover, our problem is a spending one, not a revenue one. So how about we return to Clinton-era spending levels?

However, aggregate labor supply data, such as the differences in hours worked among countries with different levels of taxes, suggest a very different conclusion. Nobel laureate Ed Prescott, in his famous 2004 paper "Why Do Americans Work So Much More Than Europeans?" shows that workers spend considerably more hours working when marginal tax rates on their incomes are lower. So basically, over time people will reduce the number of hours of work, economic growth slows down, and less revenue is collected.

And then there's the long run. In recent years, economists have shown that higher taxes may not dissuade current rich people from working, but they will hurt incentives for younger people to invest in education and career choices that would have made them the rich people of tomorrow. That too does not benefit future economic growth and tax revenue.

So overall, increasing taxes on the rich isn't a good idea. Yet, it is true that the Clinton years saw economic growth, increasing median income, vanishing deficits and relative peace. Why doesn't the president try to copy all Clinton-era policies? Because that would mean seriously cutting spending.

On Jan. 27, 1996, President Clinton proclaimed that "the era of big government is over, but we can't go back to a time when our citizens were just left to fend for themselves." He added, "So, again, last Tuesday, I asked Congress to join with me to make the cuts we agree on. Let's give the American people the balanced budget they deserve with a modest tax cut and the lower interest rates and brighter hope for the future it will bring." And they came through on that promise.

During his two terms in office, Clinton reduced spending as a share of gross domestic product from 21 percent in fiscal year 1994 to 18.2 percent of GDP in fiscal year 2001. Today, spending stands at 24.3 of GDP. According to the Office of Management and Budget, Obama's two-term average spending level is projected at 23.4 percent of GDP as opposed to 19.9 percent for Clinton. During his two terms, Clinton grew spending by 12.3 percent in real terms -- a sharp contrast with the Reagan years and the Bush years. When he left office, total spending was close to $2 trillion, and the federal government registered a surplus of $142 billion (all numbers are adjusted for inflation). In fiscal 2012, federal spending was $3.2 trillion, and our deficit was $1.1 trillion.

For all the talk about returning to Clinton-era policies, the president is sadly silent about his predecessor's spending levels. To be fair, the only way that we could go back to these spending levels is if Congress finally reforms Social Security, Medicare and Medicaid. And reforming those programs is also the only way to put this country back on a sustainable financial path. So what are we waiting for?

Dr. de Rugy is a senior research fellow of the Mercatus Center at George Mason University.

[Crafty_Dog]

Excellent find Doug.  Maybe some of our lurkers will put it to good use , , ,

[DougMacG]

Excellent find Doug.  Maybe some of our lurkers will put it to good use , , ,

The chart is excellent visually, but the percentages on the 2012 side should be a percentage of the 2001 number, and since the Fed's accommodation of the fiscal mess is the cause of most dollar dilution, the dollars should be in dollars, not 2005 'adjusted' dollars.  When time permits, I will take a try at my own chart.

[DougMacG]

WSJ:  "After the debacle of 2011, Mr. Obama could have treated the negotiations as the art of the bipartisan deal that could set the stage for immigration reform and other second-term achievements. Flush with victory, he could have at least made a gesture on entitlements.

Instead, he has treated the talks as an extension of the election campaign, traveling around the country at rally-style events at which he berates Republicans for not accepting his terms of surrender. Grant gave Lee more at Appomattox."

[DougMacG]

http://news.investors.com/121912-637656-real-federal-outlays-up-78-since-98-spending-cap-key.aspx

Federal Spending Up 78% After Inflation Since 1998

By David Hogberg, Investor's Business Daily  12/19/2012

President Obama says he wants a "balanced" approach to the fiscal cliff. But critics argue the real problem is spending, which has far outstripped rising tax revenue as well as economic growth.

Federal government revenue rose from $1.7 trillion to $2.4 trillion from fiscal 1998 to 2012, slightly exceeding inflation. Revenue growth averaged 2.9% annually, despite two recessions, bear markets — and tax cuts.

But federal spending rose nearly twice as fast — 5.7% per year — surging from $1.6 trillion to $3.5 trillion over that same span.

The spending spike also exceeds growth in the population.

Some of the spending surge came during the Bush administration — the wars in Afghanistan and Iraq, increases in non-defense discretionary spending and the creation of the Medicare prescription drug entitlement.

But spending accelerated under Obama. While he inherited a budget increase from Bush in fiscal 2009, an omnibus bill he signed plus his stimulus package helped boost spending $535 billion in his first year, hiking total spending from $2.9 trillion in 2008 to $3.5 trillion in 2009. Spending has never returned to the already-high 2008 level even after controlling for inflation.

Dan Mitchell, senior fellow at the libertarian Cato Institute, says the U.S. government needs a spending cap.

"It's an issue of trendlines and that's everything in fiscal policy," Mitchell said. "If you are on a path where government spending grows faster than the private sector of the economy, which is your tax base, then in theory there is no level of taxation that will be enough to stabilize the system. ... If we had kept government spending down to just increases for inflation and population growth, we wouldn't be in the trouble we're in now."

Limiting spending to increases in inflation and population growth over 1998-2012 (an annual average of about 3.3%) would have given dramatically different results. The U.S. would have spent $2.6 trillion in FY 12, about $900 billion less than what it actually did. The latest deficit would be $157 billion, a fraction of the actual $1.089 trillion.

The government ran up $6.7 trillion in national debt from FY 1998-'12. Yet if spending had just risen with inflation and population, the U.S. would have reduced the debt by $177 billion.

[DougMacG]

[Crafty_Dog]

That is some good work you are bringing us there Doug.

[DougMacG]

My understanding is that Ryan was on board with the Boehner Plan B that was shot down by the rank and file.  The big failure was not on taxes but that nothing was gained on discretionary spending, entitlements or deficit reduction in return for the proposed surrender on taxes.  

Republicans need the spending or entitlement deal to come out bipartisan, not unilateral leaving themselves with no cuts enacted and all the push-Granny-off-the-cliff blame.

The Republican collapse last night actually strengthened Boehner's hand.  No amount of private arm twisting with a weak leader in matters in getting a deal.  

The burden moves to the Senate.  Does anyone new like a Marco Rubio, or leaving like Jim Webb, have any ideas that would keep Republicans largely together and pull over 4 or more Democrats? I don't see how, but that would put this back on the R House and Dem President to accept or take all blame.

The estate tax and AMT are caught in the balance. Also the 2% temporary cut in FICA, and unemployment benefit extensions.  New Obamacare taxes are coming on line either way.

The end result I suppose will be a short extension and a continued fight in the new year.  They have about 3 business days left, counting New Years' Eve.  

Investors are betting this gets resolved with markets only down 1% at the moment.  They know something that I don't.  
------
Stocks fall more than 1% on fiscal cliff fears
CNN Money  Dec 21 1:11pm

[G M]

http://pjmedia.com/blog/math-is-coming/?singlepage=true

Math Is Coming
Math is remorseless, and it will eventually balance its numbers, not caring who is hurt in the process. More: Fiscal Cliff, the 11th Hour: GOP Says Dems Can Amend House Bills If They Like by
Frank J. Fleming

Bio
December 27, 2012 - 12:11 am     All the debate over spending is starting to remind me of the movie Jaws. We have some people who believe there is this big threat headed our way, but the authorities all tell us not to panic — but instead of the mayor of Amity Island telling us the beaches are safe, President Obama is telling us we’ll grow our way out of this deficit.

Right now the Republicans and Democrats are hotly debating which of their two wholly inadequate plans we should use to avoid the fiscal cliff, but looking at the size of the deficit, they’re proposing different-sized Band-Aids where a tourniquet is needed. If you point this out, you’re called a Tea Party extremist who wants to throw old people off a cliff and deny underprivileged Ivy League law students free birth control. “You silly person. Budgets don’t have to balance. That’s just a superstition.”

Everyone is so used to politicians treating our tax dollars with less seriousness than the average person treats Monopoly money that they just don’t get why people are suddenly talking about the need for spending cuts. But this isn’t some idea invented by the Tea Party or Paul Ryan or the Koch brothers while sitting in their hollowed-out-volcano Koch Lair. They only mention cuts because they fear the one truly insisting on them: Math.

Politicians have long ignored Math. And it’s no wonder: Math is unelected, unsympathetic, and highly biased toward the rich and keeps demanding cuts to spending and changes to entitlements that are politically infeasible. In a nation filled with obese poor people, we’ve discovered a long list of things everyone should be entitled to besides food, clothing, and shelter — things people need,  like subsidized hybrids — but heartless, uncompromising Math keeps looking at our revenue and telling us we can’t have all of that.

Thus Obama wants Math locked completely out of the fiscal cliff talks and instead wants unlimited power to raise the debt ceiling and then tax the rich because of the demands of Fairness — Fairness being the left’s favorite imaginary friend. Math won’t stop laughing at Obama’s plan to pay for everything by taxing the rich, so Obama just won’t work with it at all.

The Republicans at least acknowledge that Math exists but are only trying to compromise with it. We’re broke, and Obama wants to buy a Ferrari we can’t afford, and they’re trying to argue him down to a BMW we can’t afford. I guess they think if they make some changes to entitlements, Math will just relent and allow 2 + 2 to equal 5 so the rest will add up.

But Math can’t be ignored and won’t compromise. We can plead and cry all day about how much spending cuts will hurt those in need, but this will not move Math. It’s a remorseless adding machine, and it will eventually balance its numbers and doesn’t care what it will have to destroy in the process. But the politicians don’t believe this, and while Obama has so little concern about Math that he sometimes even taunts it (“Obamacare will reduce the deficit!”), some of us see what Math did to Greece and wonder when it’s coming for us. Thus we few ask for spending cuts, as they’re all that will save us. I know it’ll be hard to tell a five year old he won’t get the exact same Medicare coverage as his grandma — especially since he won’t understand what you’re talking about — but that’s the only way to turn Math’s wrath.

People don’t want to listen. But Math is coming. It’s $16 trillion in debt and growing, and one day it will rise out of the water, and even those ignoring it will finally be afraid and gasp, “We’re going to need a bigger boat.”

No, you idiots! Haven’t you been listening? We need a smaller boat. One we can actually afford.

[Crafty_Dog]

http://www.youtube.com/watch?feature=player_embedded&v=gZgOOWAQfwc

[G M]

http://www.nypost.com/p/news/opinion/opedcolumnists/uncle_sam_sorry_day_of_reckoning_YEbcwLR5gToBx67TFUJ40J

Uncle Sam’s sorry day of reckoning
By JAMES PETHOUKIS
Last Updated: 11:11 PM, December 28, 2012
Posted: 11:01 PM, December 28, 2012

Never mind New Year’s Eve — Monday is Debt Ceiling Day! According to the best guesstimate by Treasury Secretary Timothy Geithner, the federal government on Monday will reach its statutory borrowing limit of $16.4 trillion — or roughly 104 percent of America’s total economic output.

A legal limit on federal debt was first enacted during World War I and has been increased 13 times since 1995. The most recent increase came after a major political battle in the summer of 2011 — a conflict that also led Standard & Poor’s to strip the United States of its AAA credit rating.

Now we’re back up against it again, thanks to a year when Uncle Sam spent more than $1.3 trillion more than he took in.

Don’t worry, it won’t be Debt Default Eve. Treasury’s bean-counters still have a few tricks up their sleeves. With some clever financial futzing, Geithner says his department can “temporarily postpone the date that the United States would otherwise default on its legal obligations.”

He reckons Treasury can probably squeeze out another two months and $200 billion through moves such as suspending payments into the government-employee pension fund, dipping into a special fund infrequently used to stabilize the dollar or even selling off the nation’s gold reserves.

But then what? March madness in the financial markets if Democrats and Republicans can’t agree to raise the ceiling, perhaps in the current round of fiscal-cliff talks?

Certainly it would be very bad if the US missed a debt payment. Last year, Geithner said a default would “inflict catastrophic, far-reaching damage on our nation’s economy, significantly reducing growth and increasing unemployment.”

True enough, but that isn’t the real risk here — though the ceiling will have to be raised eventually. The feds have plenty of dough to pay bondholders and run auctions to roll over maturing debt. In 2013, according to the Congressional Budget Office, the net interest expense of the US government will be approximately $218 billion, while revenue will be nearly $3 trillion.

And if worst comes to worst, Treasury could theoretically mint several trillion-dollar platinum coins — there are laws covering paper money and coinage made of gold, silver and copper — and deposit them at the Fed. “The effects on the currency market and inflation are unclear, to say the least,” said analyst Jaret Seiberg of the Washington Research Group in a recent report. Right, “to say the least.”

Still, none of this is a real confidence-builder for a US economy still struggling to gain momentum some 3 1/2 years after the official end of the Great Recession. Indeed, some analysts think the uncertainty caused by the 2011 debt-ceiling fight was at least partially to blame for the economy’s summer swoon that year.

But one can hardly blame Republicans, then or now, for viewing the debt ceiling as possible leverage for pushing the Obamacrats to get serious, finally, about cutting spending. If tax rates were left alone, according to the CBO, tax revenue would average about 18 percent of GDP over the next decade, equal to its 40-year average and about $2 trillion more than today’s revenue level.

It’s spending that’s out of whack here. It would average 23 percent of GDP through 2022 under current law — vs. its historical average of 20 percent. And then Medicare really starts to take its budgetary bite. No realistic amount of tax increases could completely offset that.

See, the real debt ceiling is the one eventually imposed by global financial markets at some point on a profligate Washington. When that happens, Congress won’t be able to raise the ceiling even if it wants to. The only options then to avoid a financial crisis will be draconian austerity — both massive tax hikes and brutal entitlement cuts.

To avoid such an extreme budgetary makeover, Congress and President Obama should raise the debt ceiling while also laying plans to cap future spending and reform entitlements. A major fiscal remodeling job would be a great way to kick off 2013.

James Pethokoukis is editor of The American Enterprise Institute’s Enterprise blog

[DougMacG]

McConnell was on the Sunday shows yesterday saying:  "The Tax Issue Is Finished, Over, Completed".
http://www.realclearpolitics.com/video/2013/01/06/sen_mitch_mcconnell_the_tax_issue_is_finished_over_completed.html

Boehner was re-elected Speaker.  Boehner says I need this job like a hole in the head.  Chosen for what members hope he has learned in the previous deals, not for the results.  Boehner is interviewed here today: http://online.wsj.com/article/SB10001424127887323482504578225620234902106.html?mod=WSJ_Opinion_LEADTop    Boehner says the President denies there is any spending problem,  just a healthcare problem all solved by Obamacare.  Boehner explains the context of saying go f*** yourself to Harry Reid.  Boehner who never loses his temper probably showed members that his heart is in the right place with that outburst.  

Failure to raise the Debt Ceiling does not (necessarily mean default on the debt.  Those who say it does contend that you cannot replace existing debt as it comes due without additional borrowing authority.  Not true according to others, such as incoming Senator Ted Cruz.  Upon a failure to raise the debt ceiling, the federal government still has the tax revenues  cash register open collecting money at the rate of $2.9T/yr.  Interest on the debt is currently just under $0.4T/yr.  The spending budget is $3.8T/yr. including the interest on the debt.  No additional borrowing ever would empower the President to allocate the 2.9T across our most critical expenses of  approved spending and cut the rest.  That is actually quite logical.  We raised "emergency spending" "temporarily" by a trillion dollars.  We chose this economy and growth rate as the new normal.  Mr. President, you got the tax deal you wanted, now spend it any way that you want - and not a penny more.  

Higher debt requires higher income to pay for it.  At the very least, Republicans should require significant pro-growth initiatives passed, not just spending cuts, in exchange for more borrowing.

The Sequester is now the real lever.  With Obama in office for another 4 years and Hagel or other anti-war,  type coming to the Pentagon, there is no need for Republicans to fear defense cuts; they are coming anyway.  Dems thought the Republicans would force the sequester fix into the last deal and they didn't.  We get total cuts of '$1.2T over 10 years' (in CBOspeak) through the sequester and that far more anyone can through 'negotiations' with the President who has no ability, experience or inclination to do that.

[DougMacG]

Is anyone/everyone following the uproar over the Paul Krugman proposal that we mint the trillion dollar coin, by executive order to get around congressional aversion to raising the debt ceiling?
http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/

Krugman's proposal points to the elephant in the room:  If we aren't really borrowing to pay for our unprecedented spending deficits, if we are in fact buying 70-90% of our own debt which is not really borrowing at all, is it really debt restricted by a debt ceiling?  If QE is what it is, inflation and devaluation of our currency instead of debt, why are we calling it debt?  People like Bernancke and Geithner are well aware of this question IMHO and keeping their mouths shut about it. 

[Crafty_Dog]

"If we aren't really borrowing to pay for our unprecedented spending deficits, if we are in fact buying 70-90% of our own debt which is not really borrowing at all, is it really debt restricted by a debt ceiling?"

A very penetrating question.

[DougMacG]

Thanks Crafty.  I wonder if anyone will address it.
-------------------
I opposed balanced budget amendment proposals for decades because balancing the budget with high spending and high taxes was potentially worse IMO than the smaller imbalances we had back then.  I still oppose all versions of it that have no limits on spending and taxation.

Previous Republican proposals limit federal spending to 18% of GDP and require a super majority to raise taxes.
http://budget.senate.gov/democratic/index.cfm/floor-speech-on-gop-balanced-budget-amendment-december-13-2011#1

I would go as high as 20% for the spending limit and require supermajorities to raise taxes or raise the debt ceiling.

Passage with 2/3rds in both chambers of a balanced budget, spending limit amendment should be a requirement for Republican consent for any major debt ceiling increase.  We need an endgame to the madness.

Obama and the Dems in Washington DC have nothing to worry about because after passage in Washington because it still would require ratification by 3/4ths of the state legislatures.  Taking a reasonable and realistic proposal to the states and to the peole would be a very positive step.

Senator Barack Obama, in all his years in the Senate, never voted for a debt ceiling increase.  He called the deficits and debt during the Bush economic boom "unpatriotic".  His characterization is far more true now than it was then.  Increasing borrowing that is maxed out already without a plan to increase income is beyond unpatriotic, more like treason - if escalating the rhetoric is the game being played.

[DougMacG]

Correction:  Credit for the Krugman trillion dollar coin idea may go back to Homer Simpson in a 1998 Simpsons episode called 'The Trouble with Trillions': 
http://online.wsj.com/article/SB10001424127887324581504578231812006460892.html?mod=WSJ_Opinion_MIDDLETopOpinion

[G M]

Correction:  Credit for the Krugman trillion dollar coin idea may go back to Homer Simpson in a 1998 Simpsons episode called 'The Trouble with Trillions':  
http://online.wsj.com/article/SB10001424127887324581504578231812006460892.html?mod=WSJ_Opinion_MIDDLETopOpinion

Homer is the lesser of the cartoonish buffoons in this case.

[Crafty_Dog]

I could have put this in the Monetary thread, but put it here as a budgetary matter.
====================================

http://detlevschlichter.com/2013/01/the-true-significance-of-the-1-trillion-coin/
The true significance of the $1 trillion coin
 
Image by Stuart Miles
Under President Obama the debt of the United States government has grown by about 50%, and now stands at close to $16 trillion. Every year, the US government spends between $1.2 and $1.5 trillion more than it takes in. Every day that financial markets are open the US government has to borrow an additional $4 billion.
The pathetic fiscal cliff ‘compromise’ of last week has proved the most cynical students of the political elite correct in that there is not a snowball’s chance in hell that Washington will ever get this under control.
Can this go on forever? No, it cannot — although adherents of the Church of Modern Monetary Theory now proclaim that its holiness, the State, is not restricted by earthly matters, and that no limits apply to it. “It simply prints the money!” Back on earth, however, such recklessness has consequences, and these consequences will ultimately put a very nasty end to proceedings. But politics will not fix this. This much is certain.
Political theatre
 One of the annoying little things that stand in the way of more debt is the dreaded debt ceiling debate, a quaint congressional tradition according to which the politicians in Washington have to periodically pretend that they can indeed exercise self-constraint and that they would even obey self-imposed limits. After the usual self-serving theatrics, both parties agree that the debt ceiling should be lifted, that spending must continue, and that more debt should be accumulated – in the interest of the American people, the US and the global economy, social peace, and because the show must go on.
Since March 1962, the debt ceiling has been raised 74 times.
Enter The Coin!
In order to make this farce a tad easier next time, the following plan has been concocted. It has recently made the headlines. You can read about it here and here:
The U.S. treasury is to issue a platinum coin with a notional value (that is, a value that is fixed entirely arbitrarily by the government) of $1 trillion, and this coin is deposited with the Federal Reserve. In fact, the coin is used to pay down $1 trillion of US government bonds held presently by the Fed (The Fed holds more than $2 trillion in government bonds). Thus, tradable government debt that counts against the debt ceiling is swapped for a ‘commemorative’ coin that does not count against the debt ceiling. $1 trillion of government debt thus magically disappears.
The US government has its fans who believe that anything, legally or illegally, should be done to keep it living beyond its means for as long as possible. These fans are supporting the plan. Among them is, not surprisingly, Paul Krugman, who fears nothing more than a congressionally enforced coitus interruptus before the protracted orgy of money-printing and deficit-spending has a chance to climax – as he keeps promising us – in a wonderful return of self-sustaining growth.
But the plan has many critics. Their criticism strikes me, however, as rather naïve and faint, and also missing the true significance of it all.
Weak criticism
The critics make the following points:
1)   This is just a trick and may not be legal.
2)   It eases the pressure on politics to reduce the deficit meaningfully.
3)  This could lead us onto the dangerous road toward debt monetization and could be inflationary.
Let me address each of these points before I come to what I consider the most important aspect of this.
Ad 1): Oh pleeeeze! Is it a trick? Is it a gimmick? Could it be illegal? – Are you stuck in the 1980s? – Of course, it is a trick and probably illegal! But who cares?  Please get real. We have long passed the point at which any of the major governments feel constrained by such things as constitutions, laws, contracts or past promises. We live in a time of ‘anything goes’. Remember: “We will do whatever it takes!”
Look at Europe: From the start of the European debt crisis to today, EVERY rule that was set up at the start of EMU in order to govern it and to discipline its members, has been violated, ignored or shamelessly re-interpreted. The political class is making up its own rules as it goes along. Parliaments are rubber-stamping everything, and if they hesitate they are told that they could be held responsible for the ‘next Lehman’. Sign here, or else….
As I explained here, the US government has already abandoned habeas corpus, has arbitrarily annulled private contracts and will force Americans into commercial transactions. You think they will stop at the laws governing the issuance of commemorative coins? Do you really think that the army of lawyers that works for Washington cannot come up with a reasonably acceptable explanation (read: this side of totally laughable) for whatever the government wants to do that will sufficiently appease the folks at Harvard Law Review?
We may not get this specific version of the plan but something similar will certainly be implemented in the near future. You can bet on it. It is simply in line with current modes of thinking and the present political culture – or lack thereof.
Ad 2) The politicians will feel less pressure to enact real budget reform. – Oh come off it! There is neither real desire nor ability nor the required character and decency among the political elite to fix this self-inflicted budget mess. If you needed a reminder of the spinelessness and stupidity ruling Washington you only have to look at the great fiscal cliff compromise that was reached last week and that the equity market, evidently still on a drug-high from snorting unlimited lines of free central bank money, has been celebrating deliriously ever since. Let me say this in reference to a great quote by the incomparable P.J. O’Rourke: To expect Washington to reform itself and rein in spending is akin to giving your car keys, your credit card and a bottle of Jack Daniels to your 17-year old son and expect him to act responsibly.
Ad 3) Could this be the start of debt monetization?
Well, duh.
Debt monetization has been going on for years, is alive and kicking, and gets bigger by the day. In the US and Britain, the central banks are the largest holders of their respective governments’ debt and the largest marginal buyers. The Bank of England has monetized about 30 percent of outstanding debt and now has more UK Gilts (government bonds) on its balance sheet than the entire UK pension and insurance industry combined. Under its current program of ‘open-ended’ QE3 (or QE4, or QEwhatever) the Fed buys $85 billion worth of new Treasuries and other securities every month.
Let’s get this straight: The whole raison d’etre of central banks is that they print money to fund the state. The Bank of England – the mother of all central banks – was set up specifically for this purpose in 1694. Since then a whole list of elaborate excuses has been drawn up for why central banks are needed and useful, a list that looks more ridiculous by the day: Central banks control inflation and guarantee monetary and economic stability? The exact opposite is true: Central banks create inflation and cause monetary and economic instability. There is no escaping the conclusion that they are organs of state planning and systematic market manipulation and thus fundamentally incompatible with the free market. But one true purpose remains: funding government. Increasingly, it is the dominant function of the ECB, the Bank of Japan, the Bank of England, and the US Federal Reserve to secure cheap credit for their respective governments and their out-of-control spending programs.
There is nothing new, surprising, or shocking about the $1 trillion coin proposal. It is perfectly in tune with the zeitgeist and with established trends in politics.
Bernanke will need a new script
So, what is significant about it? – Only one thing in my view: It exposes Bernanke as a liar.
Remember that Bernanke, and also his other central bank chums, such as Mervyn King and Mario Draghi, have tried to maintain the myth that they could one day – if markets allowed it or required it – reduce their bloated balance sheets. During the financial crisis, the Fed has ballooned its balance sheet from $800 billion to close to $3 trillion. We are supposed to believe that this is all temporary. Just to provide a stimulus. Nobody calls this debt monetization or ‘funding the government’. Same in Europe: Mervyn calls it ‘unlocking the credit markets’, Mario calls it ‘making sure the monetary transmission mechanism works’. The idea is that when the economy is finally mended the central banks can ‘normalize’ their balance sheets. More importantly, should inflation concerns arise, the central banks would quickly mop up all the excess bank reserves that they provided through ‘quantitative easing’ and sell the very assets they accumulated during the easing cycle. That would mean liquidating the central bank’s holdings of – among other things – government bonds.
But once the government has replaced liquid government bonds on the central bank’s balance sheet with illiquid coins the central bank’s maneuverability is severely restricted. When the public gets nervous about inflation, the central bank would have to reverse its crisis-policies and sell assets. There is (still) a market for US Treasury debt. However, there is no market for $1 trillion coins.
While the central bankers try to convince the public that their buying of government debt is a special case, an exception, a temporary policy measure, and that they could still defend the value of paper money if circumstances require, the politicians have other plans. They already consider central bank buying a permanent source of funding – unlimited and ever-lasting. I have long maintained that the central banks have no ‘exit strategy’, that they will simply not be allowed to reverse course. This is now becoming part of the official narrative, and central bankers who maintain otherwise are either hopelessly deluded or simply lying.
The deficits are here to stay and they will be funded by the printing press. No limit, no end, no exit.
Will this lead to inflation? _ Well, unless you are a fully signed-up member of the Church of Modern Monetary Theory, you know the answer.
This will end badly.

[Crafty_Dog]

Rivkin and Casey: The Myth of Government Default
The Constitution commands that public debts be repaid. There is no such obligation to fund entitlement programs..
By DAVID B. RIVKIN JR.
AND LEE A. CASEY
WSJ

Three false arguments, pushed hard by the Obama administration and accepted on faith by the media and much of the political establishment, must be laid to rest if the American people are to understand the issues at stake in the federal "debt ceiling" debate.

The first is that Congress's failure to raise the debt ceiling—the amount of money the federal government is authorized to borrow at any given time—will cause a default on the national debt. The second is that federal entitlement programs are constitutionally protected from spending cuts. The third is that the president can raise the debt ceiling on his own authority.

To take up the first canard: Contrary to White House claims, Congress's refusal to permit new borrowing by raising the debt ceiling limit will not trigger a default on America's outstanding public debt, with calamitous consequences for our credit rating and the world's financial system. Section 4 of the 14th Amendment provides that "the validity of the public debt of the United States, authorized by law . . . shall not be questioned"; this prevents Congress from repudiating the federal government's lawfully incurred debts.

The original concern of this provision was to guarantee the integrity of federal debts incurred during and immediately after the Civil War (while the debts of the Confederacy were nullified permanently), and to ensure that a newly "reconstructed" Congress—to which the Southern states were readmitted—would not reverse these decisions. However, the amendment's language was not limited to the Civil War-related debts. In Perry v. United States (1935), the Supreme Court made clear that the provision "indicates a broader connotation" protecting the nation's debts as a whole.

This means that a failure to raise the debt ceiling—to prevent new borrowing—does not and cannot put America's current creditors at risk. So long as this government exists, and barring a further constitutional amendment, those creditors must be paid.

Nor are they at risk in practice, since the federal government's roughly $200 billion in tax revenue per month is more than sufficient to service existing debts. If the executive chose to act irresponsibly and unconstitutionally and failed to make any debt payments when they come due, debt-holders would be able to go to the Court of Federal Claims and promptly obtain a money judgment.

These basic facts should inform any credible decisions by credit-rating agencies in establishing the government's creditworthiness. Significantly, these agencies have traditionally acted favorably when heavily indebted countries have not defaulted on their debt but cut deeply their public spending.

Second, despite White House claims that Congress must raise the debt ceiling to pay the bills it has incurred, the obligations protected as "debts" by the 14th Amendment do not include entitlement programs such as Medicare and Social Security. These programs are not part of the "public debt," which consist of loans that are made to the federal government through bonds and similar financial instruments. Entitlement programs are instead political measures that are fully subject to the general rule that one Congress cannot, by simple legislation, prevent a future Congress from making cuts.

This fundamental and vital distinction is clear from both the text and the drafting history of the 14th Amendment's Section 4. The wording of the section was revised before its enactment and ratification to replace the term federal "obligations" with that of "debts," a far more narrow (and manageable) category.

The distinction was recognized by the Supreme Court in Flemming v. Nestor (1960), which involved the power of Congress to modify Social Security benefits. The court noted that entitlements and "contractual arrangements, including those to which a sovereign itself is a party, remain subject to subsequent legislation by the sovereign."

Congress can reduce a wide range of payments to various beneficiaries at any time by amending the statutes that authorize them or simply by failing to appropriate sufficient funds to pay for them. Nor does Congress have any legal or constitutional obligation to borrow money to pay for entitlements.

Third, assertions, most recently made by Nancy Pelosi, that the president can rely on Section 4 as a pretext for raising the debt ceiling by himself are manifestly incorrect and constitutionally dangerous. Section 4 grants no power whatsoever to the president—instead, the 14th Amendment grants Congress the "power to enforce, by appropriate legislation, the provisions of this article."


More fundamentally, this argument—which has been tentatively advanced and then tentatively withdrawn by the White House, both during the 2011 debt-ceiling battle and in the last several weeks—is contrary to the language, structure and history of the Constitution.

Like the British Parliament before it, Congress controls the power of the purse—the authority to raise taxes, borrow money and direct how revenues are spent. In particular, Article I, Section 2, grants to Congress the power "to borrow money on the credit of the United States." There is no similar grant to the president. Any effort by the chief executive to borrow money without congressional action would be every bit as injurious to our constitutional system as presidentially ordered taxation.

True enough, the "debt ceiling" is not a constitutional requirement. Congress could choose instead—as used to be the case during most of our history—to vote separately on the issuance of each federal debt instrument. However, nowhere in the Constitution is the president authorized to borrow or spend money without congressional action, except insofar Congress itself may permit.

Once these false arguments are cleared away, the real issue in the debt-ceiling debate becomes clear: the proper level of federal spending. Should Congress fail to increase the debt ceiling as much as the president wants, the effective result would be major government spending cuts, with payments on public debt excluded.

This is tough medicine and not to be administered lightly. If Republicans are serious about winning this debate, they must strive to convince the American people that such spending cuts are necessary, given President Obama's openly articulated unwillingness to implement any meaningful spending cuts other than defense and his clear preference for limitless borrowing.

Whether they can succeed in this task is unclear. But the public must at least be allowed to ponder these vital issues without being misled by false claims involving debt default, the nature of federal obligations, and which branch of government is in charge of the public fisc.

Messrs. Rivkin and Casey are partners in the Washington, D.C., office of Baker Hostetler LLP and served in the White House and Justice Department during the Ronald Reagan and George H.W. Bush administrations.

[Crafty_Dog]

The Dwindling Deficit
 
By PAUL KRUGMAN
 
Published: January 17, 2013 228 Comments
 
It’s hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument about why we should believe this; it’s supposed to be part of what everyone knows.

This is, however, a case in which what everyone knows just ain’t so. The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.

It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening. (And similar things are happening at the state and local levels — for example, California appears to be back in budget surplus.)

Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much.

Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.

The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming.

Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?

Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?

Well, it’s probable (although not certain) that, within two or three decades, the Social Security trust fund will be exhausted, leaving the system unable to pay the full benefits specified by current law. So the plan is to avoid cuts in future benefits by committing right now to ... cuts in future benefits. Huh?

O.K., you can argue that the adjustment to an aging population would be smoother if we commit to a glide path of benefit cuts now. On the other hand, by moving too soon we might lock in benefit cuts that turn out not to have been necessary. And much the same logic applies to Medicare. So there’s a reasonable argument for leaving the question of how to deal with future problems up to future politicians.

The point is that the case for urgent action now to reduce spending decades in the future is far weaker than conventional rhetoric might lead you to suspect. And, no, it’s nothing like the case for urgent action on climate change.

So, no big problem in the medium term, no strong case for worrying now about long-run budget issues.

The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.

But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.

[DougMacG]

"Mr. Boehner is also adorning this debt-ceiling delay with legislative language that requires the House and Senate to pass budget outlines, or see their pay withheld. This is a shot at Harry Reid's Senate, which has not passed a budget in four years."  Today's WSJ lead editorial: http://online.wsj.com/article/SB10001424127887324624404578258221969657306.html?mod=WSJ_Opinion_LEADTop

  - Odd that Republicans would want to draw attention to their obstructionism, or is Jack Lew lying?

[Crafty_Dog]

http://www.youtube.com/watch?v=rPRtIOmPOD0

[DougMacG]

Trust them with your health care, but the Feds also know what is best to light and heat you house - all without even knowing you.  There is a new federal furnace law for 2013, all replacements (after May 1) must be of the 'high efficiency' type. 

Being in the housing business in a very cold climate, this is something I have studied at great length and am still learning.  Not the Feds.  They know what is best for you when the bill hits their desk, even if the sudden, unexpected cost of the mandate could cost you your home or business.

High efficiency furnaces are far mmore costly to buy and install, are way more complicated, are FAR less reliable, and aren't the best solution for all circumstances.  Imagine that.

Today I came back from an extended trip to find my house totally frozen.  That law isn't in effect yet but I take great pride in keeping my energy usage and expense very low without their help coercion. I was quite pleased with myself having a super high efficient setup in place, having had my thermostat turned way down and being gone during some of the coldest weather in memory, average lows of ten below and a high of five below Monday.  Not counting wind chill.  Saved more money than a call to Geico.  Not counting the damage.

Older furnaces waste heat right up the chimney, which also keeps the chimney exhaust open and rising out of the house.  Newer, high efficiency, condensing furnaces make a condensate in combustion.  They create water vapor as an exhaust gas and then blow it out the side of the house.  Great idea - in the summer, or in a mild climate or where you run the furnace constantly to keep the waste heat coming.  By the nature of it, the outside of the house is a potentially cold place - where water vapor FREEZES.  In my case, it froze the exhaust line all the way shut - rock solid with ice, which with the first safety pressure check shuts off all heat.  Now in order to turn my furnace down I will need to add electric heat to the exhaust of my 96% furnace because the 4% loss isn't enough heat to keep the line open.  Or as others do, I can turn my thermostat much higher up than I would with an older style furnace as a precaution, in order to compensate for the design problem and avoid destroying all the plumbing again.

What do the Feds say about the issues I raised.  So what!  Mandate it.  Every state, every month, every climate is different, so let's pass a law that applies exactly the same to everyone - before the technology is ready.  If it doesn't work, what do they care?  Should I sit outside and wait for FEMA?  They never came when my homes  were hit by tornado.

There is something very condescending about believing that people will not do the right thing on their own unless those who know better pass a law. 

In the old days, you had to make a good light bulb or furnace first, make it bright, warm, durable and cost competitive, something people would want and choose to buy.  Not is in this elitist fascism system that replaced freedom. 

Good luck with the Feds running your health care.

[G M]

Trust them with your health care, but the Feds also know what is best to light and heat you house - all without even knowing you.  There is a new federal furnace law for 2013, all replacements (after May 1) must be of the 'high efficiency' type. 

Being in the housing business in a very cold climate, this is something I have studied at great length and am still learning.  Not the Feds.  They know what is best for you when the bill hits their desk, even if the sudden, unexpected cost of the mandate could cost you your home or business.

High efficiency furnaces are far mmore costly to buy and install, are way more complicated, are FAR less reliable, and aren't the best solution for all circumstances.  Imagine that.

Today I came back from an extended trip to find my house totally frozen.  That law isn't in effect yet but I take great pride in keeping my energy usage and expense very low without their help coercion. I was quite pleased with myself having a super high efficient setup in place, having had my thermostat turned way down and being gone during some of the coldest weather in memory, average lows of ten below and a high of five below Monday.  Not counting wind chill.  Saved more money than a call to Geico.  Not counting the damage.

Older furnaces waste heat right up the chimney, which also keeps the chimney exhaust open and rising out of the house.  Newer, high efficiency, condensing furnaces make a condensate in combustion.  They create water vapor as an exhaust gas and then blow it out the side of the house.  Great idea - in the summer, or in a mild climate or where you run the furnace constantly to keep the waste heat coming.  By the nature of it, the outside of the house is a potentially cold place - where water vapor FREEZES.  In my case, it froze the exhaust line all the way shut - rock solid with ice, which with the first safety pressure check shuts off all heat.  Now in order to turn my furnace down I will need to add electric heat to the exhaust of my 96% furnace because the 4% loss isn't enough heat to keep the line open.  Or as others do, I can turn my thermostat much higher up than I would with an older style furnace as a precaution, in order to compensate for the design problem and avoid destroying all the plumbing again.

What do the Feds say about the issues I raised.  So what!  Mandate it.  Every state, every month, every climate is different, so let's pass a law that applies exactly the same to everyone - before the technology is ready.  If it doesn't work, what do they care?  Should I sit outside and wait for FEMA?  They never came when my homes  were hit by tornado.

There is something very condescending about believing that people will not do the right thing on their own unless those who know better pass a law. 

In the old days, you had to make a good light bulb or furnace first, make it bright, warm, durable and cost competitive, something people would want and choose to buy.  Not is in this elitist fascism system that replaced freedom. 

Good luck with the Feds running your health care.

Doug,

This is something to consider with a very possible grid collapse in the near future.

[DougMacG]

"Doug,  This is something to consider with a very possible grid collapse in the near future."

Very interesting.  Do people know that without electricity you will not have heat even with most natural gas or oil systems? Without heat in a cold climate you will not have water. 

The oldest furnaces I have are called gravity systems, natural gas with no blower at all.  Electricity is required only in low voltage to run the thermostat circuit.  Our government wants those removed and replaced with very complex circuitry with innumerable fault points.  Is that good, is that bad, or is that none of their g*ddamned business?

The government program to address this should be back off and foster prosperity so that we might be able to procure, on our own, alternatives and backup systems. 

[G M]

They aren't worried, they'll have an obamaheater to go with their obamaphone.

[ccp]

No quarterly reports ( of course they would be fudged with ridiculous accounting swindling shell games anyway) since 2011.   Obama violating a law HE SIGNED!  Why we hear of it after the election is also another hint of corruption.   Who has the power to enforce laws? Congress?

http://www.weeklystandard.com/blogs/obama-continues-violate-his-own-stimulus-law-not-releasing-quarterly-reports_697896.html

Yes the liberal *elite* , those *0.1% ers*, the *liberal politburo*,  the self delegated ones who behind closed doors are conspiring what is best for the world including the journolisters have succeeded in keeping this quite.

[Crafty_Dog]

Here are the opening paragraphs of that article:

"Have you heard much about President Obama’s $787,000,000,000 economic “stimulus” (now estimated to cost $831,000,000,000) lately?  In its last report, published in 2011, the president’s own Council of Economic Advisors released an estimate showing that, for every $317,000 in “stimulus” spending that had by then gone out the door, only one job had been created or saved.  Even in Washington, that’s not considered good bang for the buck.

"Moreover, that was the fifth consecutive “stimulus” report that showed this number getting progressively worse.
 
"Alas, that was the last report we’ve seen.  Never mind that Section 1513 of the “stimulus” legislation, which Obama spearheaded and signed into law, requires the executive branch to submit a new report every three months.  It reads:
 
"“In consultation with the Director of the Office of Management and Budget and the Secretary of the Treasury, the Chairperson of the Council of Economic Advisers shall submit quarterly reports to the Committees on Appropriations of the Senate and House of Representatives that detail the impact of programs funded through covered funds on employment, estimated economic growth, and other key economic indicators.”"