Automatically blaming government spending represents a biased viewpoint as well- you could equally say that the government taxed too little. If Bush hadn’t cut taxes and invaded Iraq he could have spent more without creating deficits. And the spending was broadly popular and without the prescriptions drug bill it is doubtful he could have won re-election.
It’s also important to distinguish between short-term and long-term deficits. Short-term deficits today are not only unavoidable, they are a good thing supporting demand at a time when the private sector isn’t generating enough of it. Long-term deficits are indeed harmful but Obama’s policies contribute very little to those, health care will be paid for with higher taxes.
What is the solution to long-run deficits? Pretty much the same solution that was successfully implemented during the 90’s a combination of tax increases, spending restraint including restraint on defense spending. Of the three, two were opposed tooth and nail by Republicans during the Clinton administration and continue to be opposed now. Even on domestic spending restraint the Republicans aren’t serious; their main tactic during the recent health care fight was to demagogue the modest cost-reduction proposals in the bill.
In any event the idea that you can cut deficits entirely by massive spending cuts in domestic spending is a political pipe dream even if it were desirable. If you take tax increases off the table you aren’t serious about deficits. And if you believe spending a trillion dollars in Iraq was a wise investment of resources you aren’t serious about deficits either.
Given the Filibuster happiness of the Republicans in the Senate, there really is no conceivable way that Obama or Congressional Democrats could do away with the Bush tax cuts. Unfortunately, once a law is enacted or a country invaded you can’t just snap your fingers and put it all back the way it was even if you wanted to.
Yes. There’s a legitimate debate here. My point was that you shouldn’t automatically assume that tax cuts were the problem. The problem was not enough tax revenue for the spending taking place. You can fix that by either cutting spending or increasing taxes.
There’s also a legitimate debate about whether the short-term deficit is a good thing. At some point, if the deficit drives up lending rates or crowds out capital or results in higher taxes, it could easily be a net loss to the economy. The stimulus already looks like it did somewhat less than promised, and the negative effects of paying it back, plus the interest on it, haven’t even begun.
In any event, the Obama budget forcecasts long-term deficits. If you believe in Keynesianism, then you should be arguing that once the economy heats up in the middle of the next business cycle, the government should be cutting spending, correct? Obama isn’t doing that. He’s not even cutting discretionary spending. He’s taking the increases that were justified as stimulative and essentially making them permanent.
For example, the lowest deficit projected in the next 10 years comes in 2014, which I assume they predict will be a period of very high growth - and yet, the deficit will still be $706 billion dollars. The budget claims that revenues will be 3.455 trillion dollars (as opposed to 2.165 trillion in 2010). That’s a revenue increase of 1.29 trillion dollars.
So why is there still a 706 billion dollar deficit? Because Obama plans to increase government spending by 440 billion dollars over that time period. He should be cutting spending if he thinks the economy is going to be so hot that revenue will skyrocket like that. Instead, he’s piling on.
And that’s the best year. By 2020, the projection for the deficit is 1.003 trillion dollars, despite a projected revenue that’s more than double what it is today. Got that? Government revenue can double in ten years, and you will still have a trillion dollar deficit.
And 2020 will be seen to be the lowest deficit of the next decade unless something fundamental changes, because it’s the next decade when the bulk of the baby boom retires and health care and retirement spending explodes.
If you think that’s true, you’d better look at the numbers again. The increase in entitlement costs by the end of the next decade will be greater than the entire defense budget. Given that it’s unlikely that U.S. defense spending will ever go below maybe 3-4% of GDP, you’re talking about cutting at most 2-3% of GDP in spending out of defense - an amount equal to about five years’ worth of increase in entitlements. In other words, cut defense in half and the money you save will only push the curve a few years down the road. Then the freight train continues.
And to do it with tax increases is impossible - even if you dig deeply into the middle class. In fact, the Obama administration’s budget projections include revenue from letting Bush’s tax cuts expire. If that happens, personal income taxes will already be at an all-time high as a percentage of GDP (see This Report from the Hoover Institute). The additional increases required to balance the budget in the face of annual increases of entitlements will be impossible to implement. The numbers I’ve seen say that to maintain fiscal balance the 35% tax rate would have to increase to 66%, and the top tax rate would have to increase to 92%. The result would be a drop in GDP growth of at least 1-1.5% per year. And this assumes static scoring (i.e. that capital wouldn’t flee and tax avoidant behaviour wouldn’t increase - both ridiculous assumptions).
By 2050, Medicare will be consuming 10% of GDP more than it does today. That increase alone would push the size of American government up to the levels of the European social democracies. Add in the cost of the new health care program over that time, and the U.S. could easily wind up with the highest tax rates and largest government of any major country in the world. Which would be a disaster for the American way of life.
Furthermore, you want to cut military spending at a time when the same storm clouds are on the horizons of those countries in Europe - only about twice as bad. We’re heading into a period of major instability - the kind of period that often triggers new re-alignments and new wars. Plan for it.
No disagreement here. Both parties are to blame. Or, as I’ve come to believe, the structure of political incentives inherent in the American form of government drive all elected officials to this behavior. Had Republicans taken a principled stand and demanded serious cuts to entitlements, they probably would have been kicked out of office by their constituents.
The only way something like that can be done is with complete bipartisan support - both sides have to agree, and provide cover for each other so they can survive an election. They have to agree to keep their own special interests out of the fight for the good of the country. Then they have to announce serious, painful cuts in entitlements, together. This will never happen. Not until the pain is so severe there is no alternative. This is why countries like Greece and Argentina can run themselves right into the ground when the solutions are obvious and available well ahead of time.
I’m saying that tax increases aren’t enough. The spending in Iraq is a side show that you guys keep injecting for political reasons. The fact is, the trillion dollar cost was for both Iraq AND Afghanistan, and it’s not an expense that will continue to grow. The total unfunded liability of your entitlement programs is 107 trillion dollars. Compared to that, Iraq is a rounding error. If you keep focusing on that instead of entitlements, it’s YOU who isn’t serious about deficits.
The long-term answer is going to have to be a sliding scale of reduced benefits over time. Young people today need to be told that they have to start saving more for their own retirement. Benefits have to be upheld for current retirees and for people about to retire. But for example there would be nothing wrong with saying that going forward, the retirement age will increase by one year every five years, that social security benefits will be cut by 1% per year starting in 2020, and that means-testing will require that seniors with high net worth pay for a higher share of their own retirement costs.
In the meantime, strengthen programs for allowing individuals to save. Use Cass Sunstein’s ‘nudge’ ideas to default workers into retirement savings programs. Slowly change the focus of retirement from “government will look after me” to “I’d better be prepared to look after myself”.
Seriously - without cuts in entitlements, you’ll wreck the economy. Raise taxes enough to pay for it, and you’ll destroy economic growth. The numbers are pretty clear.
They don’t have to. As I said above, the Bush tax cuts expire by themselves automatically. This was done to make the long term deficit projects look better - in other words a scam, since they expected to renew them. Now, it is possible for the Republicans to try to filibuster budget bills unless the tax cuts are restored, but then they’d have to explain why they are so hot on both deficit reduction and tax cuts for the rich.
The 2001 tax cuts, done in the face of a recession, were perfectly reasonable. They were badly misdirected, though, and didn’t increase consumption which was the issue. The bigger problem was that they were not reduced when the economy improved to address the deficit.
Calling for spending cuts is all very fine, but is usually politically impossible, so politicians of both parties yell about spending on the Capitol steps and write in spending increases for their districts or their favorite lobbyists inside. The solution is simple - unless there is a recession on, which can be defined precisely, don’t allow tax cuts without a signed, sealed and delivered spending cut. Make the spending cut last for a year before the tax increase - maybe the deficit would get reduced. There are some laws requiring that tax cuts be tied to spending cuts, but Republicans in particular don’t like them.
It’ll never happen, but I think that anyone who does not support such a law is really more into starving the beast than fiscal responsibility.
without having much to add to the specifics of this debate, I must say that I hate when a new president (of any country) spends 2 or 3 years telling us he inherited problems (this is a national sport in my country).
A president doesn’t inherit problems, he/she willingly takes problems both know an unknown.
Yes, but there’s a difference between (a) having your house burn down on the previous guy’s watch, and then having to struggle to clean up the mess and (b) being constantly blamed for burning down the house, which was already on fire when you showed up.
No pity party for any president and the brickbats they have to take, but let’s lay the blame for messes where they properly belong, and stop pretending like the entire deficit suddenly appeared in a magical puff of smoke upon Obama’s entering office.
The numbers I have seen for the direct costs of the Iraq war till now are around 700 billion to date. There will be additional long-term costs like heath care for veterans which could be hundreds of billions of dollars and there will be interest costs. The long-run costs of the Iraq war will probably be much more than 1 trillion dollars but 1 trillion seems a reasonable number for now. And considering that conservatives have been ranting about the Obama stimulus of around the same size I think it's highly relevant to the current debate.
The larger point for the future is that there will be a choice between a defense budget of around 3 % of GDP versus 5%. Given the size of the US economy 3% is an enormous number which will more than ensure the security of core US interests. 5% will be needed if the US wants to fight discretionary wars like Iraq or pump huge amounts of money in speculative technologies like missile defense. Ultimately military spending and foreign policy cannot be exempt from broader economic considerations and if conservatives are always going to choose the path that leads to higher defense spending they can't be considered serious about the deficit.
Again neither I or anyone else that I know is proposing that tax increases alone will take care of the long-term deficit. However tax increases have to be part of the solution and if you have moderate tax increases in the mix, the required entitlement cuts will be much smaller and therefore more feasible. The basic choice is between federal taxes of around 18% of GDP versus 21% of GDP. Again the latter number is hardly some kind of radical transformation of the US economy; it will be a bit higher than tax/GDP in the last Clinton years. You could reach it easily through Clinton-era tax levels and a few other smallish taxes.
If you add defense and taxes proposals you get about 5% of GDP which is an enormous number which will knock a big part of the projected long-term deficit by itself. Of course in addition to that you will need to “bend the curve” on health care costs. I think the current bill is a small start in that direction and would have been better if Republicans hadn’t started demagoguing Medicare cost cuts.
As I see it there are two broad choices for the long-run deficit control
a) No tax increases, no defense spending restraint. Deficit reduction must be predominantly through cuts in domestic spending
b) A combination of health care cost control, moderate tax increases and restraint on defense spending.
A is pretty much a political pipe dream and really a recipe for doing nothing and moving inexorably towards a fiscal disaster. B is quite realistic. It is pretty similar to the formula that got deficits under control in the 90’s. And while the Democrats will need to make serious proposals for cost-control in health care they are a lot more likely to implement B than Republicans who seem to have made opposition to tax increases an ideological litmus test.
The 2008 budget, Bush’s last, was $3.2 trillion and the 2009 (Obama’s first) was $3.5 billion so spending went up $300 billion over the previous year. $100 billion of that $300 billion was because Obama insisted the wars in Iraq and Afghanistan actually be part of the budget instead of an off budget expenditure where Bush had kept them from 2001-2008. In short, it wasn’t an increase in the budget but was instead just being more truthful by no longer hiding spending off of the budget.
Of the remaining $200 billion virtually all of it was mandatory spending on social security, medicare, etc…
Sam, where are you getting the idea that the Social Security retirement age isn’t being raised? It’s continually being raised over time, as this chart shows. And the effective retirement age is even higher than the official retirement age in the chart, because of increased-benefit incentives to delay retirement past the official age. For example, someone in my age bracket doesn’t get maximum benefits unless they delay retirement to age 70 (which I personally am perfectly happy with the prospect of doing).
Nonsense. Self-described conservative politicians are politically unable to do anything about it, because they don’t dare either cut spending (except for a few economically negligible programs benefiting poor people) or raise taxes. Clinton did both, and (for those among other reasons) ran budget surpluses.
Big government run by robber-baron crony-capitalists who claim to be opposed to big government is certainly a very bad idea. They have no incentive to do anything right except line the pockets of themselves and their cronies, because everything else they fuck up can be pointed to as an indictment of the very nature of government itself, thus justifying their ostensible position as government-haters.
In the real world, though, you can’t run a big country without a big government. The debate among rational people nowadays is just about what size and shape of “big” you’re going to have. And don’t get me wrong, I think that’s a very important and meaningful debate: a government that’s too big or too big in the wrong places can be just as bad as or worse than one that’s not big enough. But the radical-libertarian notion that a large modern society can realistically somehow be governed chiefly by self-organizing entities in the private sector with very small and limited central government functions is a zombie ideology: it’s dead and rotting but too brainless to know it.
What’s the basis for this prediction? Unless boomers are planning to all live past their 90s, oughtn’t costs associated with the elderly go down by 2050? That’s when my generation will be of retirement age, and Gen X is the smallest generation since the great depression; there’s almost 30 million fewer of us than boomers, 51 million vs 78 million.
Thanks to the wonders of cognitive dissonance the “No True Scotsman” logical fallacy does not apply to the concept of “Republican In Name Only”.
The Republican President and Republican Congress that passed tax cuts with an expiration date were simply RINOs, therefore “True Republicans” can oppose not renewing them.
And if the now “True Republican” was one of the then RINOs, they can simply say they’ve drunk the [del]Kool-Aid[/del] [del]Flavor Aid[/del] Tea, and seen the light, the tealight so to speak.