Sequestration and the “fiscal cliff”

Politics & Elections
61

It’s a tax-exemption, basically.

More broadly, there are a class of fuels sold in the United States that are dyed a special color. These dyed fuels can be used for off-road purposes, they are sold without the normal excise taxes on fuel. These dyed fuels, one primary use being for home heating, are sold without excise tax because the technical purpose of fuel excise taxes is to fund highway maintenance. The policymakers felt that people buying heating oil to heat their homes in the winter should not have to pay toward road maintenance on the purchase of that fuel.

I’m unclear on whether dyed fuel specifically exists for farming, and I’m also unclear on whether or not the undyed fuel sold without being taxed is included in the OECD fuel subsidy figures, but it may be. But the IRS does give guidance that farmers can buy dyed fuel for farming use, but it must be for “non-taxable” purpose exclusively. So a truck that runs on diesel and is used 50% on the farm and 50% off the farm is not allowed to run on the dyed fuel. If caught using dyed fuel improperly it’s a $1,000 fine. [Or more specifically: Penalty. A penalty is imposed on any person who knowingly uses, sells, or alters dyed diesel fuel or dyed kerosene for any purpose other than a nontaxable use. The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. For more information on this penalty, see Publication 510.]

Farmers additionally can buy regular undyed fuel to power farm equipment and vehicles used for farming. The farmer can then get either a tax credit or a refund (the IRS specifies which fuels and uses entitle you to a refund and which entitle you to a tax credit) on the excise taxes they paid on this regular fuel. Basically they get a refund of any taxes paid at the pump when they fill a tractor up with fuel from the local gas station. This appears to amount to around $1bn/year in average benefit to farmers.

The why of it is basically two-fold. One is farmers are heavily favored by Federal legislation, it’s been longstanding Federal policy to make farming as cheap as possible and to give significant tax benefits to farming, agricultural fuel subsidies tie into that. Secondly, like I said before, is the fact that the rationale behind excise taxes on fuels is to maintain the highway system, and the Federal government has generally been amenable to tax exemptions when you’re using fuel specifically for non-road activity.

62

No, but when you’re paying $4.40 for a gallon of gas coupled with record billions of dollars in profits for oil companies, it’s suspect that these subsidies are having any effect in lowering prices. Direct subsidies to oil companies should cease and be replaced with a subsidy to the people. Speaking of which, the people is what the government ought to be for, not oil companies, not car companies, financial companies, or foreign countries. To the latter, all foreign aid should be tethered to a 1% U.S unemployment rate and diverted to U.S cities and municipalities for the purposes of debt reduction and improvement of city services. How can we send $3 billion dollars to Israel, a foreign country, but, at the same time, take nearly $700 million from Detroit, MI over the last decade? Stealing from the most poorest of the our country to give to richest of another country. Damn poor bargain, if you ask me.

Now, I don’t rail against big oil but I do think that the government should be involved in oil business as a state-owned enterprise. I also think the government should open their own bank (apparently, this as true at one time) where the government can engage in high-frequency trading to make risk-free money by furiously tapping the enter button. What’s good for the goose is good for the gander - or at least it should be.

As for Social Security and Medicare, I feel that because I’m paying for it, there better not be a reduction in my benefits. Far as I’m concerned, these programs ran a surplus that the government dipped in like a honey to pay for crap. The government should be forced to return every cent back to those programs.

Finally, this, blaring debt siren is such noise. If the U.S was in such a predicament: why aren’t we selling our gold, why not sell/lease Guam or the host of territories the U.S holds, why not sell weaponry and/or technology to other countries, why not privatize the NIH or federal highway system? It’s such a joke. If the U.S wanted money, they would begin a process, like Greece, such as selling and liquidating their assets. No such process has occurred and, likely, will never occur because this debt crisis including the sequester is manufactured to force the President into agreeing to Republican demands. Nothing more, nothing less.

  • Honesty
63

A lot of folks grossly overestimate the percentage of the US budget that goes for foreign aid. Helping the less fortunate is something that one does when you have the world’s largest economy.

Now I have a hard time taking you seriously. The NIH? Really? Seriously? And the highway system? What do you want, a toll booth at every intersection?

As far as the oil subsidies go, things like home heating assistance shouldn’t be part of the discussion. Nobody wants poor people to freeze in their homes (other than Teabaggers), but to continue to give tax breaks to corporations that make trillions in profits is just silly.

64

As I said, a large portion of the subsidies are not direct payouts to corporations. But programs like LIHEAP, the SPR, and agricultural fuel tax rebates.

In the United States we made a decision for both personal and corporate income tax rates to be X but then provide for a large number of ways to get your effective rate lower through a Byzantine system of deductible expenses, tax credits etc. By and large much of the tax credit benefit accrued by big oil companies are general tax credits that any ordinary manufacturing company could take–and Obama would basically have to change the law to specifically target certain industries for less than favorable tax treatment, because he wants to give subsidies to big manufacturing firms because they employ lots of union workers.

65

On the response to the poll I linked to, never have I ever suggested on any topic that leaders should simply do what polls tell them. However, Republicans are currently advocating pretty much the exact opposite of what people want: people don’t want huge cuts to domestic programs; that’s exactly what the GOP is offering. People want deficit reduction balancing taxes and cuts; the GOP opposes one more cent in revenue.

It isn’t leadership to simply do the opposite of what people want, and it is pretty clear that after losing the recent elections that the GOP is failing to convince anyone of the wisdom of their platform. The party will bounce back at some point, but as of this minute, they can’t find their behind with both hands.

66

The “billion in profits” mantra is both misleading and unhelpful. You have to look at what percent they are making in profits. In some past threads I think the numbers were between 4% and 8%. Neither of those are really great numbers for a business. And you have to keep in mind that many of the oil company stocks are the very things you’ll find in pension funds held by teachers and other municipal workers.

67

So, really, they’re doing all that to help, like, widows and orphans! Gosh, when you put it like that, really, what’s good for Exxon is good for America!

68

Let’s be realistic, there is overlap. It’s good to have a strategic petroleum reserve, but it functions as an artificial amount of demand for oil–this helps Exxon. It’s good for poor people to be able to buy heating fuel for their homes, but when the government subsidises their purchase it’s bringing customers to Exxon who wouldn’t be able to buy the product themselves and thus creating transactions that would not have happened otherwise.

69

And the President opposes one more cent in spending cuts. But the GOP has actually said since at least January they are willing to go to the table to talk about some type of revenue enhancing tax reform aside from marginal tax increases–an avenue almost certainly available to Obama when they negotiate the next CR. However to get past the sequester Obama is basically going to have two choices, one is to let it just happen and negotiate a new deal when we have to pass a new CR a month or however long afterward the current one expires, or he can agree to Republican-proposed legislation that would allow him to alter the specific nature of the cuts so that he can help the cuts not cause too much pain. There isn’t an option with the sequester for tax increases replacing $85bn in spending cuts.

The Republicans do have constituents too, you keep talking about polling and all that, but these guys were just reelected too and they have constituents who do not want them to back down on spending and raise taxes by $85bn.

If the Republican House members who were put in office by hardcore Tea Partiers, anti-taxers, and general deficit hawks hope to negotiate anything approaching the “big deal” we’ve been looking for since 2010 or so on spending and taxes with the upcoming CR then they need the political cover of not caving 100% to Obama on the sequester.

If Obama isn’t willing to do that, it simply makes no political sense to give him what he wants. The sequester isn’t that big of a deal, and in truth there is a real danger for Democrats that Americans just shrug off the sequester–which will be felt most by people living in Northern Virginia where the economy is disproportionately reliant on Federal money. People in Ohio and Kentucky don’t care nearly as much about Federal contractors being furloughed–and that is the worst of the effects of the sequester that we’ll be likely to feel in truth.

In this scenario the Republicans would be violating their responsibility to get spending under control by caving on spending cuts, and they’d be doing something politically that does nothing for them at all. Like I said, they can’t win the sequester PR battle, but they also don’t have to give Obama another chance to dance in the end zone, which is exactly what raising taxes and abandoning the $85bn in spending would be.

If Obama was serious about getting a major deal with the upcoming CR, he would cave to Republicans on the sequester and agree to legislation that allows him to restructure the cuts (moving it around from agency to agency and etc) so that agency heads could keep it out of the most disruptive parts of government. But I suspect Obama doesn’t want that, I think he wants to keep campaigning because he thinks he can kill the GOP in 2014 and do whatever the hell he wants the last two years of his Presidency. But based on the political reality, I don’t think that’s really in the cards. I can understand that desire, but I just don’t think the electoral districts work out for that game plan.

With that being the case, he should just give the Republicans something they can take to their base as a “win” which would go a long way to greasing things up for getting a real deal (or even a budget passed) that could include important long term structural reforms like reforming the tax code to limit deductions and trimming areas of excessive spending.

It’s not leadership to ignore hard truths on spending just because people always want more services with no regard to how it affects the long run economic picture.

70

BS. Where do you get this nonsense? The White House has endorsed a plan to delay sequester by saving $110 billion: half from closing tax loopholes, half from spending cuts including agriculture programs. Cite.

Want to bet? I think there’s an 85% chance that the ultimate sequester deal will include new revenues.

Perhaps you should work for the CBO so you can correct their estimates that sequester will result in a contraction of the economy and something like a 1-1.5% increase in the unemployment rate. At least you can tell us why CBO is wrong.

I don’t know a single person in DC who thinks there’s going to be a major multi-trillion dollar deal made in the next few weeks. Republicans think they’d have to give up way more in taxes than they’d accept. Democrats think they’d have to give up too much for their side, too. Neither side wants to make major concessions at this point, so I’m inclined to say there’s less than a 5% chance of a major budget deal.

If the deal to eventually get rid of sequester turns out to be larger than, say, $220 billion, I’d be shocked.

71

[QUOTE=Martin Hyde]

It’s not leadership to ignore hard truths on spending just because people always want more services with no regard to how it affects the long run economic picture.
[/QUOTE]

Like with most of the strawmen parading as arguments in this thread, there’s literally nobody in Washington who isn’t in favor of spending cuts. Even Bernie Sanders, who wants the next mini-deficit deal to be virtually all tax increases, wants to cut defense spending.

Please, insert some accuracy into your commentary. Knock it off with the made-up insinuations that only Republicans support any spending cuts at all. It’s factually untrue and you ought to know better.

72

Those profits come after paying shitloads of money to their CEOs and top suits. Looking at the percentages is meaningless, just like the health insurance industry does when it points to its profit percentages instead of the cents per dollar that actually go into patient care.

So some people call home heating assistance a subsidy to the fuel industry. I suppose you could also go food assistance a subsidy to the dairy industry. Lincoln asked the question, if you call a dog’s tail a leg, how many legs would a dog have? The answer is four, calling a tail a leg doesn’t make it one. At one time, oil subsidies may have made sense if there was insufficient profit motivation to get production. Those days are long past. So what does the oil industry do when this comes up? They run ads, showing a common dude pumping gas and being asked “What would you say to the idea of a NEW TAX on gasoline?” Of course the guy says he wouldn’t like it much. So when we stop giving you money, we’re now taking it from you?

73

My bad, I honestly had not heard of that piece of Senate legislation. But it doesn’t provide for $85bn in cuts at all, it’s $27.bn in cuts to farm subsidies (which given the fact a large portion of House Republicans are from farming States the Democrats know is a political nonstarter) with the rest cuts in the military.

So I’ll mea culpa, apparently the Dems do agree to some level of cuts. But interestingly not a single cut to entitlement programs nor any effort to reform them. The Federal budget outside of Medicare and Social Security is basically irrelevant when compared to the present day size of those programs and the portion of the deficit they will make up 30 and 40 years out.

Do you guys just genuinely think Social Security and Medicare can continue for the next 50 years without: massive tax increases on working class families, cuts in benefits, or structural reform? These programs are largely funded by payroll taxes, which means the money isn’t coming from the 1%, and when you only have 2 workers for every retiree the system just simply is not going to be solvent unless the taxes change, the benefits change, or the system itself is changed.

I don’t think there will be a specific “sequester deal.” I think it’ll happen and when they negotiate a new CR they might resolve some of the issues, but I don’t expect a sequester deal in between the start date and the expiration of the current CR.

This is a terrible habit you have, and it’s the equivalent of a three year old throwing a tantrum. Quit making arguments for me, I never said spending cuts wouldn’t hurt the economy. If you just want to strawman, you can do it without me.

I never said the CBO wrong. If I stop spending 80% of my take home pay on booze and hookers then it hurts the bar and brothel business, no doubt, but it also means I can pay my mortgage and not end up homeless. The payroll tax cut expiration was also guaranteed to hurt the economy in the short term–and we knew that, but we had to go through with it anyway. If your economic growth is only being propped up with government spending then it’s not sustainable in the long term anyway, we need spending cuts, period. It doesn’t matter if it hurts the economy right now, it’s bad that the economy was so dependent on government spending in the first place.

We desperately need Medicare and Social Security reformed, but I’d be fine with $85bn in straight DoD cuts as well. People confuse wasteful spending on a large military budget that barely serves American interests with sound economic policy because it creates contractor jobs at General Dynamics and Raytheon, but the truth is those spending cuts represent money taken from other Americans and funneled into a specific industry above and beyond what is necessary for the defense of the country. Economics isn’t a first grade concept, needed changes cause pain, but the economy adjusts over time and grows. Lower government spending and taxation will mean more capital in the free market where it can be far more efficiently deployed.

But my point remains, these furloughs will primarily hit in the Northern Virginia / DC Metro area. There are trickle down effects that will hit State budgets here and there and other things that will certainly have an impact nationwide, but it will be minor compared to the effects felt in the D.C. metro area. Also keep in mind the furloughs of Federal military civilian employees and defense contractors is going to be the most immediate part of the sequester, if you’ve actually read about the sequester from somewhere other than the DailyKos you’d know that a large portion of the cuts are going to be gradually phased in throughout the next half year or so–and since the current CR expires long before then it’s highly unlikely the debate stays on the sequester past that point.

Further, many of the defense contractors have openly said they aren’t exactly sure how many contractors will be furloughed/laid off because of the sequester. For one thing, we’ve been steadily cutting DoD spending for several years, so many of these jobs were going away in any case. When even the defense companies aren’t sure yet what the impact will be, I’ll question how anyone, including the “all-knowing” CBO could know with certainty.

Try 0%, there will be no budget deal. Who said there would be?

74

I want to repeat and reemphasize my point about government spending and the economy. As World War II winded down, some American economists (all Keynesians to a one), predicted that a reduction in government spending which was inevitable at that point would destroy the U.S. economy.

Well, as the Federal government shrunk dramatically after World War II, we did have an economic contraction. Some feared it was the return of the Great Depression, but all it actually ended up being was an adjustment period. It was followed by the greatest period of productivity, income, quality of life, and general economic growth in the history of the United States.

Now, I’m not predicting such a thing with the sequester. Mainly because the sequester is a minor part of government spending. It’s like a single month’s contribution to a 401k in terms of its long term impact. Under President Obama, pretty much every agency, every program, that is getting cut by the sequester has grown by 15-20%. The sequester is going to cut them by around 5% to 13% maximum.

Even after recent years of trying to trim the Pentagon budget, we spend far more in relative terms today on civilian military employees and the military itself than we did ten years ago–and we aren’t fighting two major wars any longer. There is no justification for this spending. Pretty much the only way you can be in favor of continued spending is if you believe government creating jobs for defense contractors and growing Federal agencies far faster than the economy is better than money in the hands of citizens. Yes, most of the spending increases have come from debt, but that debt must be repaid. No government spending happens that doesn’t take money away from wage earners. It may not have taken money away yet, but it represents a claim on the future productivity of our workers.

75

Actually, I do. To fix SS, just discontinue the ceiling on income subject to tax, maintain the ceiling on benefits, and incorporate some sort of means-testing.

To fix Medicare, allow it to bargain for prescription prices, stop buying those Rascal power chairs (probably a minor savings but a waste in general), and allow everyone in the pool. Dispense with all private insurance and its bloated overhead.

76

While I agree that Virginia will feel a lot of pain, that pain is felt throughout the United States. See this map:

http://seattletimes.com/ABPub/2013/02/20/2020393463.jpg

That’s pretty much just cuts to Dept of Defense. Texas will hurt, as will California, Washington state. The military is a very large presence in these states and sequestration impacts not only those civilians who will be furloughed, but the contractors and all business surrounding those military installations. This is the link to the article: http://www.reuters.com/article/2013/02/20/us-usa-fiscal-defense-idUSBRE91J0SW20130220

I sometimes feel that many people not employed by or tied to government employment think this impacts only the beltway, and this could not be further from the truth. The Dept of Defense employees are looking at more unpaid furlough days than any other entity. Eventually, when they have choose between eating or paying a bill, those banks and creditors are going to feel it.
Those employees outside the beltway are not paid Senior Executive Level salaries, they are middle class and lower. Trust me, a GS-5 does not make that much money, especially if he or she is the sole support for a family. The same with a GS-7.

I agree cuts need to be made; but as has been noted above, Congress won’t accept cuts to their pork programs and the programs Defense wants to cut.

I don’t have the answers; I wish I did. Most people don’t have the answers because the reality is that no one wants to make a cut to something that affects them. It’s human nature.

77

I skipped, but why will the National Parks have to suffer anything? Imagine you own a tens of thousands of acres of a parcel of land with natural beauty and/or historical significance and there are thousands descending on it every day.

Are you in financial trouble? I would think not. It seems that National Parks should be fully self-supporting without the need for taxpayer help, and very profitable. If a particular Park is not, one might wonder how beneficial it really is.

78

Even the Patent and Trademark Office, which is pretty much a self-funding agency through its fees, is subject to the sequester.

Martin Hyde: so you think that the sequester will be allowed to continue for the rest of the year? I sure don’t. The only people in Congress who want the sequester to happen are the Tea Party types who are happy every time they force government to fail at something, and I just fail to see that pro-defense conservatives and all the moderates and liberals who actually like things like medical research, having air traffic controllers fully staffed, and not RIFing FBI agents, and that sort of stuff.

You are somewhat right on one point: the full effect of sequestration won’t be felt until probably early- to mid-April, since it takes time to implement. After that, though, everyone is going to hurt. Let’s say Boeing wants to get the 787 recertified to fly: well, it’s going to take longer because the FAA is going to be furloughing people. Let’s say Glaxo wants a new drug approved: FDA is going to be in the same boat.

The main problem is that the mandatory cuts of (I’m rounding off here) 10% to every agency wouldn’t be a huge problem if they were levied on October 1, when agencies had 100% of their budget to deal with. But the cuts are coming when agencies have spent 50 or 60% of their funds for the year, so they have to take 10% of 100% of their budget from the 40% of the money they have remaining.

I’ll make you a bet: I think that sequester will begin, the government might shut down, and then there will be a short-term deal probably involving tax hikes and modest cuts to a handful of programs that will replace the sequester. No way the sequester continues a full year under a CR. No way at all.

79

Well, that’s bullshit then. License these functions out to a private company and bill them for their profits, minus 10%. No reason that moneymakers should be subject to the same rules as teat suckers.

80

Hm. Good idea. How much profit do roads and freeways make for the various governments? Better to license their management out to a private company. New companies would make enormous profits outsourcing the manufacture of transponders, and then selling them such that every vehicle is equipped with one. Drivers could then pay monthly bills to each of the private company that operates the roads they use, so that they only have to pay for the roads they use instead of paying for the entire system. By making all roads privately held, there would be competition so that people could choose to drive on the cheapest ones; and there would be a hiring boom as companies construct new roads that offer more choices.

National parks? Nothing but havens for vicious animals! Who cares if one species or another goes extinct? It’s not as if most people go to look at them anyway. If they are going to die, they had better do it and make room for money-making developments! Animals don’t pay taxes after all. The sooner all of the animals are dead, the sooner we’ll find their money!