Tag: Deficit

Why was this not in the State of the Union address? The deficit is falling faster in the last three years than at anytime since World War II.

To be specific, CBO expects the deficit to shrink from 8.7% of GDP in fiscal 2011 to 5.3% in fiscal 2013 if the sequester takes effect and to 5.5% if it doesn’t. Either way, the two-year deficit reduction – equal to 3.4% of the economy if automatic budget cuts are triggered and 3.2% if not – would stand far above any other fiscal tightening since World War II. [..]

History suggests that there’s little good to be gotten from cutting the deficit much faster than 1% of GDP per year. That’s especially true at the moment, given the nature of our related demographic and budget challenges.

Both of those challenges suggest that growth should be our paramount concern, far ahead of near-term deficit reduction, even as we work to improve the intermediate-term budget outlook.

So the deficit falling too fast is bad? What Ezra Klein said:

And we may well have a coincident recession this time, too. According to the initial GDP numbers, the economy shrank slightly in the fourth quarter of 2012, largely because government spending fell. As federal spending continues to fall and the effects are compounded by new tax increases (the payroll tax cut expired in January, for instance), it wouldn’t be a huge surprise to see more quarters of negative growth. So, given that the typical definition of a recession is two consecutive quarters in which the economy shrinks, this drop in deficits might yet be accompanied by another recession.

Hence, two things to remember in the deficit conversation: First, the deficit is expected to fall faster in 2013 than at any time in the last 60 years. And second, that kind of austerity tends to be accompanied by recessions, and we’ve already seen evidence that the same might be true this time, too.

Austerity and sequestration are really bad ideas and that is what the President should have been hammering in the SOTU.

What Atrios said: Republicans Don’t Care About Cutting Social Security

The big flaw in the premise of the grand bargain is that Obama is asking them to give away their precious by increasing taxes on the rich in exchange for something they don’t care much about. Cutting taxes for rich people is their whole purpose. Cutting Social Security? Well, if they can use Social Security cuts to cut taxes for rich people, sure. But cutting Social Security in order to increase taxes on rich people? Really not interested.

401Ks are a disaster

We need an across the board increase in Social Security retirement benefits of 20% or more. We need it to happen right now, even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.

Over the past few decades, employees fortunate enough to have employer-based retirement benefits have been shifted from defined benefit plans to defined contribution plans. We are now seeing the results of that grand experiment, and they are frightening. Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles.

Frankly, that’s an optimistic way of putting it. Let me be alarmist for a moment, because the fact is the numbers are truly alarming. We should be worried that large numbers of people nearing retirement will be unable to keep their homes or continue to pay

Economics and law professor at the University of Missouri, Kansas City, William K. Black joined Paul Jay, senior editor at The Real News Network to discuss President Barack Obama’s State of the Union address and his economic proposals.

President Barack Obama told Democratic delegates and congressional members meeting at the annual House Democratic retreat at Lansdowne Resort in Virginia that the he wants a “big budget deal”

President Barack Obama said he wants to reach a “big deal” on the budget that will cut the nation’s deficit without slashing spending on education and research that is needed to ensure future growth.

Obama said negotiations with congressional Republicans over avoiding the $1.2 trillion in automatic, across-the-board spending reductions set to begin March 1 shouldn’t push aside the effort for a broader plan to cut government debt.

While the president stood firm against “government by crisis” and the need for more revenue in any future deficit reduction deal, and much like the Republicans, who keep saying that they will close loop holes in the tax code but not which ones, there have been few details in how that deal would be accomplished. Nobel Prize winning economist points out that any reduction in government spending at this time would “destroys jobs and causes the economy to shrink”

This really isn’t a debatable proposition at this point. The contractionary effects of fiscal austerity have been demonstrated by study after study and overwhelmingly confirmed by recent experience – for example, by the severe and continuing slump in Ireland, which was for a while touted as a shining example of responsible policy, or by the way the Cameron government’s turn to austerity derailed recovery in Britain. [..]

But aren’t we facing a fiscal crisis? No, not at all. The federal government can borrow more cheaply than at almost any point in history, and medium-term forecasts, like the 10-year projections released Tuesday by the Congressional Budget Office, are distinctly not alarming. Yes, there’s a long-term fiscal problem, but it’s not urgent that we resolve that long-term problem right now. The alleged fiscal crisis exists only in the minds of Beltway insiders.

(my emphasis)

Prof. Krugman discussed with MSNBC’s The Last Word host, Lawrence O’Donnell the consequences of such a deal at this time would mean and what the government should be doing to restart the economy.

The U.S. economy contracted slightly in the fourth quarter of last year, shrinking by 0.1 percent. The main factor that is being blamed is cuts in government spending. The report, as Pat Garofalo at Think Progress notes, might have been worse but if the House Republicans let the sequester kick in, as they seem want to do, the US economy is in for another deeper dip:

According to Macroeconomic Advisers, the sequester will knock 0.7 percent off of GDP growth this year. The Bipartisan Policy Center estimates that the sequester will kill one million jobs. [..]

Of course, scrapping the sequester – which includes equal cuts from defense spending and non-defense discretionary spending – does not mean the government simply has to plow that money back into the Pentagon. Domestic spending is headed toward historic lows. The country has a huge infrastructure gap that needs to be filled. And the American Jobs Act, which Republicans filibustered, would have significantly boosted growth according to several independent analyses.

Journalist and author, David Cay Johnston, a specialist in economics and tax issues, discusses why the Republicans keep pushing spending cuts.

Meanwhile, as Suzie Madrak at Crooks and Liars observed, hell may have just froze over at the conservative think tank, American Enterprise Institute where conservative economist John H. Mankin just told the deficit hawks, in so many words, to “shut up about austerity”.

Japan’s lessons for America’s budget warriors

by  John H. Makin, American Enterprise Institute

Lessons for the United States

Congress, take note. Although American deficits do need to be reduced and debt accumulation does need to be slowed and eventually reversed, cries of imminent disaster from “unsustainable” deficits and a supposed bond market collapse will not accomplish this goal. Persistently rising bond prices in Japan and the United States have undercut the “sky-is-falling” rationale for deficit reduction. [..]

If fiscal austerity is applied too rapidly, US growth will drop and the debt-to-GDP ratio will rise, boosting the nation’s debt burden. If the Fed tries to stem the rise with too much money printing, inflation could rise and drive up interest rates, exacerbating the US debt burden. [..]

Congress and the president need to avoid excessive austerity with respect to changes in fiscal policy this year. Over the past four years, on average, the fiscal boost applied to the American economy has been worth about 3 percent of GDP. This year, with tax increases and sequestration, fiscal drag will be about 1.5 percent of GDP. [..]

The lessons from Europe and Japan are that austerity, per se, is not the way to move to a sustainable fiscal stance. Rather, the US economy needs a combination of tax reform to boost growth and legislation enacted now to stabilize the future growth of outlays on entitlement programs.

Economist Paul Krugman, at his NYT blog, Conscience of a Liberal, talks about “incestuous amplification” which happens when “a closed group of people repeat the same things to each other – and when accepting the group’s preconceptions itself becomes a necessary ticket to being in the in-group“.

Which brings me to the fiscal debate, characterized by the particular form of incestuous amplification Greg Sargent calls the Beltway Deficit Feedback Loop. I’ve already blogged about my Morning Joe appearance and Scarborough’s reaction, which was to insist that almost no mainstream economists share my view that deficit fear is vastly overblown. As Joe Weisenthal points out, the reality is that among those who have expressed views very similar to mine are the chief economist of Goldman Sachs; the former Treasury secretary and head of the National Economic Council; the former deputy chairman of the Federal Reserve; and the economics editor of the Financial Times. The point isn’t that these people are necessarily right (although they are), it is that Scarborough’s attempt at argument through authority is easily refuted by even a casual stroll through recent economic punditry.

Will AEI’s resident economics scholar, John Mankin’s warnings be heeded? Or will the “incestuous amplification” continue?

Seriously, you can’t make this stuff up.

Dave Camp Bank Tax Bill Would Punish Obama-Friendly CEOs

by Zach Carter and Ryan Grim, The Huffington Poat

WASHINGTON — House Ways and Means Committee Chairman Dave Camp (R-Mich.) is considering legislation that would significantly increase taxes for the nation’s largest banks while providing tax breaks to struggling homeowners. [..]

The bill would significantly strengthen the Volcker Rule, which bans banks from speculating in securities markets with taxpayer money. The Volcker Rule’s implementation has been delayed as bank lobbyists have flooded regulatory agencies in Washington, pillorying the ban with loopholes. Hefty tax burdens for proprietary trading would reduce bank incentives to engage in the risky activity.

Camp’s legislation also would permanently establish a homeowner aid plan advocated by former Rep. Brad Miller (D-N.C.), who retired this month. When banks grant homeowners mortgage relief, the IRS considers the debt-reduction taxable income. As a result, struggling homeowners can face an unmanageable tax burden. A $50,000 debt reduction can spark an $18,000 tax bill — money that borrowers struggling to avoid foreclosure simply do not have. Miller successfully lobbied to include a one-year fix on the tax policy in the fiscal cliff deal. Camp’s legislation would permanently end the tax policy.

Steve Benen at The Maddow Blog aptly notes that “hell hath no fury like a House Ways and Means committee chairman scorned” but points out Camp’s “big deal” won’t impress the bank lobby:

Camp sent an angry letter to the Business Roundtable a month ago, and now Republicans are saying if there must be new revenue, it should be “on their backs.”

How big a deal is Camp’s bill? I think it’s safe to say the bank lobby won’t be impressed.

   Camp’s new bill would harvest government revenues from complex financial transactions involving derivatives, some of which figured prominently in the 2008 banking collapse. Although the 2010 financial reform legislation would curb some excesses in the derivatives market, the legislation isn’t yet fully implemented, and leaves much of the market unregulated. Financial reform advocates have urged new taxes on derivatives to deter excessive risk-taking by big banks. […]

   Camp’s bill would establish a new tax regime for derivatives, requiring banks to declare the fair market value of the products at the end of each year. Any increase in value would be considered corporate income, subject to taxation. It’s a more aggressive tax treatment than Wall Street enjoys for either derivatives or for trading in more traditional securities. […]

   The bill would significantly strengthen the Volcker Rule, which bans banks from speculating in securities markets with taxpayer money. The Volcker Rule’s implementation has been delayed as bank lobbyists have flooded regulatory agencies in Washington, pillorying the ban with loopholes. Hefty tax burdens for proprietary trading would reduce bank incentives to engage in the risky activity.

How serious is Camp about this? It’s hard to say at this point, though I suspect it’s mostly about posturing and political chest-thumping. Camp wants to send a message that he’s displeased and see this as a vehicle. Even if the committee chair got serious about this, I imagine other Republicans would intervene to stop its progress.

Benen thinks that in the aftermath of Pres. Obama’s reelection the business community see him as “a leader who is going nowhere” but “is reaching out to them.” At the same time they view the Republicans as untrustworthy and increasingly reckless.

But seriously, folks, the Republicans are threatening to tax the banks and help stressed homeowners as a “payback” for supporting Pres. Obama. Oh, please, let them.

ROTFLMAO

New York Times economics columnist, Prof. Paul Krugman posted a graph from Center on Budget and Policy Priorities in a post to his blog indicating the deficit problem has mostly been solved:

The Center on Budget and Policy Priorities has a graph:

Click on image to enlarge

The vertical axis measures the projected ratio of federal debt to GDP. The blue line at the top represents the projected path of that ratio as of early 2011 – that is, before recent agreements on spending cuts and tax increases. This projection showed a rising path for debt as far as the eye could see.

And just about all budget discussion in Washington and the news media is laid out as if that were still the case. But a lot has happened since then. The orange line shows the effects of those spending cuts and tax hikes: As long as the economy recovers, which is an assumption built into all these projections, the debt ratio will more or less stabilize soon.

Prof. Krugman noted that the CBPP advocates for another $1.4 trillion in revenue or spending cuts over the next decade. While there are still problems the debt/deficit is not as bad as is being presented by politicians and the traditional media. So while we everyone was loosing sleep about falling off cliffs, the cliff was a bad dream. Now the government and the media need to wake up and start talking about jobs.

Up Date 14:26 EDT: The House of Representatives has adjourned until Monday December 31

New Year’s Eve is four days away but you may want to start drinking now. True to form Congress is right on track to do nothing about anything, except maybe to try to repeal the Affordable Care Act. The House is still in recess, under what Senate Majority Leader Harry Reid (D-NV) called the “dictatorship” of House Speaker John Boehner (R-OH), with some major issues still in need of resolution. There is the mythical Cliff with its draconian spending cuts to everything except Medicare, Medicaid, and Social Security; the expiration of the Bush/Obama tax cuts and the end of unemployment benefits for two million long term unemployed. There is the farm bill that has lingered undebated in the House which will most likely result in steep spikes in the cost of dairy products and to throw another log on the fire, Treasury Secretary notified congress yesterday that the debt limit will be reached on December 31.

This past Sunday on MSNBC’s Up with Chris Hayes, host Chris Hayes discussed how the president and congress almost came up with a deal to avert a non-crisis and how Speaker Boehner’s “Plan B” failed. Chris’ guests were former Governor James Florio (D-NJ); Heidi Moore, Finance and Economics Editor for The Guardian newspaper; Dean Baker, Co-Director of the Center for Economic and Policy Research; and Dylan Glenn, Senior Vice President of Guggenheim Advisors and former Special Assistant to Pres. George W. Bush. Keep in mind that Social Security has nothing to do with the deficit. It is on the table because President Obama put it there.

Warning: Dylan Glenn and the lack of push back from Hayes and the others on Social Security may have you throwing things at your monitor, so secure any damaging objects before watching.

Back to the grind. President Barack Obama cut his Christmas holiday in Hawaii short, returning to Washington to try to cut a deal to avoid the mythical” fiscal cliff.” While there was much cheering from the president’s most avid supporters over the reports of his tough talk last week during negotiations with House Speaker John Boehner (R-OH), there is still a major concern that Social Security cuts are still on the table by tying cost of living increases it to the chained CPI. It is not just Republican and the president we can’t trust on this, it’s also Democrats. House Minority Leader Nancy Pelosi (D-CA) sees no problem with chained CPI. While there was no mention of Social Security in Speaker Boehner’s failed “Plan-B,” there is no indication from Pres. Obama that it won’t be offered again as a carrot to entice the Republicans to accept a tax increase on the top two tax brackets.

Until we hear it from Pres. Obama’s lips that it isn’t, Social Security is still a bargaining chip in the manufactured debt/deficit crisis. So it is back to the phone. Flood the White House and the Congressional phone lines with calls demanding that they keep their hands off Social Security.

White House

202-456-1111

Your senators

Your House member.

No cuts to Social Security.

Gaius Publius @ Americablog offers this helpful digest-

What are we protecting?

We’re protecting three social insurance programs. These are:

    ■ Social Security

    ■ Medicare

    ■ Medicaid

What are we protecting them from? Anything that:

    ■ Reduces benefits

    ■ Turns the program from insurance to welfare (which only the “deserving” have access to)

How are these programs being threatened?

As near as I can tell, these are the threats. Note to foxes – this is the hands-off list. Each of these seven items is a benefit cut:

Social Security

    1. Raising the retirement age

    2. Chained CPI instead of current COLA

    3. Means-testing benefits

Medicare

    4. Raising the eligibility age

    5. Increasing Part B premiums

    6. Increasing “cost-sharing”

Medicaid

    7. Shifting costs to the states by any means, such as “federal blended rate,” etc.

Keep it up everyday, jam the lines until the President and Congress get the message:

As you know, if you read this blog, or any of the true left wing sites, like FiredogLake and Corrente, that Pres. Obama has once again gone back on his word that cuts to Social Security were off the table as a bargaining chip for a “Grand Bargain.” He has proposed to use  the chained CPI to calculate cost of living increases in Social Security benefits. Now House Minority Leader Nancy is saying that she could live with tying Social Security to the chained CPI, plus she said Democrats would stick with the president to avoid going over the fiscal cliff.

David Dayen at FDL News summed up Pelosi’s meaning and later White House Press Secretary Jay Carney said at the press briefing:

Pelosi tried to emphasize the unformed idea that there would be “protections” for the most vulnerable. For example, the disabled on Supplemental Security Income might not be subject to chained CPI, and there could be a “bump-up” for people aged 80, to compensate for the cumulative effect of the benefit cut. Again, the vulnerable are a massive part of this population (pdf). This is almost the entire income source for almost half of seniors, and for 3/4 of widows or unmarried women. And 15.1% of seniors live in poverty. And if you hold all of them harmless, you erode the actual savings you can derive from this. The three-legged stool of retirement has withered away, especially since the dot-com bust and the Great Recession. This argues strongly for increasing Social Security benefits, not cutting them and not even mitigating cuts.

White House Press Secretary Jay Carney called this a “technical fix” to better calculate inflation. Bullshit. If this were just a technical fix, you would adjust so that the fix wouldn’t hit beneficiaries in a regressive fashion, with the most pain at the bottom. This plan doesn’t, to any real degree. The goal isn’t to properly measure inflation, it’s to save money for the federal government. It always has been.

Well, it time to make noise and fight back. Atrios has sounded the alert and we should take to the phones:

White House

202-456-1111

Your senators

Your House member.

No cuts to Social Security.

Keep it up everyday, jam the lines until the President and Congress get the message:

Bruce Bartlett and Yves Smith join Bill in a discussion about why Washington insiders are talking about the deficit crisis instead of the jobs crisis.

Transcript can be read here.

H/T Yves Smith at naked capitalism:

I had fun in this conversation with conservative Bruce Bartlett, even though he stole some of my best lines (like Obama not being a liberal). Bartlett is in exile from the Republican party for saying things like Keynesian deficits stimulate the economy (after doing research and finding he couldn’t debunk it based on data) and unions help promote higher wages.

Repeat after me, “Austerity is bad.“