Ok, I voted for Obama, but I have voted for Republicans before. Heck, every single election I’ve voted in, I’ve voted for members of both parties. Right now, neither side is giving me any hope for solutions to the issues facing our nation.
The big one is the Federal Budget Deficit. Obama just put forth a budget of 3.8 TRILLION DOLLARS, with a deficit of 1.56 trillion dollars, which is a deficit of roughly 10.6% of our GNP and means that we’re spending almost 70% more than we’re taking in.
This is insane. Well beyond “what are you smoking?” territory or even “what the fuck are you thinking?” territory and straight into “Anyone who puts their name on this needs to be driven from Washington by a torch and pitchfork wielding mob, then locked in an asylum for the rest of their lives so they can’t hurt anyone” land.
Are there any realistic solutions out there - anyone talking even the slightest bit of sense - to get this back into reality territory?
It’s not so much the debt that’s the problem as getting economic growth going again. Once you get the bleeding stopped and the debt stabilised we just grow our way out of such big deficits, like what happened between 1950 and 60. I actually wouldn’t mind a bigger short term deficit spend* to get things going again and it’d also mean a much better position to start from when the economy does get going.
What we really need to do is fix healthcare, that’s by far the biggest driver of the long term deficit. Get our health spending down to Canada’s level of GDP with a nice single-payer system and that’s the problem solved overnight. Repeal the Bush tax cuts too when the economy is strong enough, they’re a big chunk of future deficits.
Here’s a good graph of the short/medium term deficit situation using CBO forecast numbers :
*Provided of course the interest rate we’re paying to the rest of the world to hold our debt doesn’t explode when the Fed ends QE next March. Although if it does we’re screwed anyway.
Most likely, the USA would just default on its debt. The “default” would involve USA playing games such as late payments, stretched payments, swapping maturities, etc.
The other option is to ask Americans to accept less government spending and related social services. Since that is politically impossible – the default on debt is the inevitable conclusion.
Well, I guess it’s theoretically possible for USA to have such a kick ass economy that it outpaces its debt servicing. This would be plausible if…
China & Japan wasn’t around as a economic powerhouse competitor. (Asia wasn’t as big a factor in 1950s.)
… or the USA discovered a brand new energy source (wealth) it could use to sustain itself and sell to other countries. Maybe tap into the Yellowstone Park thermal core to power the entire nation’s electricity grid and sell the excess energy to Canada.
… or the USA discovered a cure for cancer that it could export to other countries for a very steep price
… or a Eastern Hemisphere war erupts between Russia, Japan, China which leaves their economies devastated while the USA factories are selling them tanks and fighter jets for them to annihilate each other with.
Since those pie-in-the-sky scenarios are not likely, I don’t think the USA can generate enough wealth to outpace and pay back its reckless credit-card binge. Yes, the USA has many resources and will still be generate wealth; the issue is that it doesn’t quantitatively generate enough wealth to service the massive debt it created now.
A large portion of the budget is servicing the payments on previous borrowing. There is no solution based on budget cuts alone. It has to be a combination of tax hikes and spending cuts.
The answer is to raise taxes. Unfortunately anyone that prepossess raising taxes never gets elected. The during the Clinton years taxes where raised and the American people said thank you to those responsible to those balancing the budget by voting them out of their jobs.
The Republcans from 2000 to 2006 or 2008 set up essentially a budget bomb. They kept certain things off the main budget instead funding them through special spending bills (like the cost of the Iraq war) in order to make the deficit look less severe even though it was adding to the national debt. They designed medicare part D to start paying out immediately, but to delay the funding for it until 2009. They did what they could to raid the treasury and pass the buck down the line - and now Obama comes in and gets stuck with these bills, in addition to a massive recession (and loss of revenues) due at least in part of the policies of that same regime, and even if Obama didn’t propose a penny of new spending he would still be swamped with debt.
The American Public seems to be under the impression that everything was fine and then Obama took office and suddenly proposed 4 trillion in new spending. This is certainly how fox news is spinning it. But Obama is basically stuck with a gigantic mess - time bomb spending designed to come due when he took office, and a massive recession and loss of revenue to go with it. There is absolutely nothing Obama could’ve done to keep the deficit to a reasonable number - he could only affect the new spending since he took office - which has been significant, but only a very small fraction of the actual budget. Less than either the delayed spending bills coming due or the policies that were enacted (like the bailout, which someone gets blamed on him) before he took office, and for that matter less than what higher tax revenue would cover if the economy hadn’t been looted and burned.
If raising taxes were the answer, the U.S. government would be awash in surplus. The government’s per-capita revenue today dwarfs what it was in the 1970’s or 1980’s, yet here are the deficits.
The problem is that government spends money without limit, constrained only by the public’s distate for debt. In other words, they spend every nickel they’ve got, and then borrow as much as is politically palatable. If you raise taxes, you simply lower the pressure on politicians to constrain spending, and spending increases even faster.
Look at the result of the boom years of the 90’s - the government realized hundreds of billions of dollars of savings from the end of the cold war, and record tax revenues because of the dot-com boom. It managed a surplus for a very short while, but then all the pressure to keep spending down vanished, and the size of government exploded.
Tax increases will lead to a very temporary reduction in the deficit, followed by an even steeper increase in the size of govenrment, resulting in a government in even worse fiscal shape ten years from now as it is today.
If tax increases were the answer, why are so many other countries that have much higher taxes than the U.S. still up to their eyeballs in debt? I guarantee almost every one of those tax increases was justified as a deficit-fixing measure.
Much of the problem is that Obama is not, at heart, a national politician. He is still, at his core, a “community organizer.” He thinks he is still toiling at the local level, tapping into an inexhaustible supply of cash from the Government Teat. As such, he thinks that money grows on trees, and flows for free from the Federal Government.
At the Community Organizer level, this is a tenable attitude. The money they can spend is a drop in the bucket at the federal level. But now, since he is in charge of the Big Board and the Big Budget, he is in a position to wreak havoc with his “grows on trees” and “infinite bucket” attitude.
Too bad he is not smart enough to realize that the game has changed, and he is now working at the position where money is a SCARCE RESOURCE. With luck, he’ll wise up before he bankrupts us all…TRM
What has led you to this way of thinking? I would appreciate knowing the reasoning that arrived at this conclusion. I’ve had the impression that he’s spending because economists are telling him it’s a necessary evil at this point to avoid a recession. Could you please step me through the facts that led you to think this way?
SENIORBEEF, would you have any links/cites to back up what you posted above about ‘budget bombs’? If need be, I’ll go off looking for them myself, but if you already have them, it would be helpful and appreciated.
I had this article handy (and the graphic) from the NYT. It’s from June 2009, so it doesn’t cover the new stuff since then, but it demonstrates how much of the deficit is the result of Bush policies and how little is due to new spending.
As far as the Iraq war, as far as I know it’s common knowledge that it was never funded on the budget but instead was paid for with special appropriations bills. So when Obama did the honest thing by including it on the budget, suddenly we have several hundred billion in “new” deficits even though it had always been adding to the national debt, just not as part of the budget deficit. It’s making an honest record out of Bush’s accounting practices, but it gives the false impression that Obama is making new deficit spending.
As far as medicare part D, I’m actually heading out the door shortly so I can’t find anything - but my understanding is that it was designed there was no revenue collected for it in the first few years of the program, and a massive bill would start for it in 2009. I can try to substantiate this later.
Of course it does. The population has stayed relatively stable, while the GDP has skyrocketed. What you’ll have a much harder time proving is that taxes as a percentage of income have gone up since the 1970’s and 1980’s.
The reason you’ll have a difficult time proving it is because it isn’t true. The tax percentage rate for all tax brackets is lower now than in 1970. We’re talking “half as much” for the richest bracket. The early 80s was the WORST for the little guy as the taxable income threshold was the lowest inflation-adjusted value of all time. In the late 80s there were a few years where tax percentage rates were very close to what they are today, except the little guy was fleeced harder than today, and the rich guys were given a break compared to today.
It’s very difficult to find a time since the Depression when taxes were lower as a percentage than they are now.
And, in case you forgot, there were some pretty fantastic deficits during the Reagan years. Nobody cried then, because they had jobs and money on account of those deficits.
Thank you. I don’t participate much in this forum, but I love to follow along and see if I can learn something. Cites are always helpful in understanding where the poster is coming from, and if the poster has a leg to stand on.
Tax rates dropped dramatically in the early 80’s, and the debt steadily increased.
Tax rates started going up in the late 80’s and early 90’s (though still less than they were in the 70’s), the deficit started to come down, and even the debt (as % of GDP) was reduced.
Tax rates were lowered again in 2002, and the deficit and debt have both increased since.
In particular, I take issue with this statement:
Look at that last graph. The purple bar graph represents revenue, the blue line represents expenses. Taxes went up in 1993, revenue started going up, and yet expenses fell and continued falling for the rest of the decade. Taxes were cut in 2002 and spending immediately started going up; exactly the opposite of what you predict.
I’ve heard all sorts of slogans about the magic effects of taxes and revenue. “If we cut taxes, the growth will more than make up for the shortfall.” “We must cut taxes to starve the beast so the politicians will be forced to cut spending.” I’ve never seen any evidence for any of it. The only thing that has worked in my lifetime is to elect people who actually do something about spending, in good times and bad, and not just talk about it.
One of the problems is that almost halfof households owe no income tax at all, and an even larger fraction are net recipients of government transfers. They thus have every reason to vote for more government spending, because, hey, it ain’t coming out of their pockets.
Here is an interesting post on Obama’s budget projections. Note that there is not even a plan for eliminating deficits for the next for the next decade, even AFTER the economy recovers and we ought to be running surpluses.
George Bush must have been one hell of a community organizer, then. He’s the one who ran two wars and pushed an expensive new Medicare program while not worrying about how to pay for them - and cutting taxes, to boot.
Do you think the deficit would be improved if the lack of a stimulus drove us into a depression where unemployment soared still more? California is cutting the hell out of our budget, and things get worse and worse. Business people know that in the long run you can’t cut your way to profitability - you have to grow revenue. The way to do that nationally is to have the economy grow again, at which time some tax increases make sense. if Bush had done that, then the deficit when we fell off the cliff would have been more reasonable, and we’d have more room for the spending needed.
Do it your way, and we will all be bankrupt.
I won’t claim to know anything about economics but this just sounds bad. When does the over spending stop, when things get better? Perhaps a bit too much of wishful thinking? It’s like the saying all bleeding stops eventually.
One reality check is the Obama administration is putting it all on the table for everyone to see. During the Bush administration, there was the federal budget (along with its deficit), plus all the off-budget items that Bush and Co. did not want you to see. Much of the war on terror during Bush (think war funding) was not voted as part of the annual budget so the average person would not make the connection that a $70 billion vote for six month war funding in Iraq was essentially $70 billion added to the national debt.
It should be possible to review previous budget outlays and total expenditures and you should find all that added debt that did not show up in the published annual deficits. As Obama said during his SOTU address last week:
Bush and Co., with the complicity of the Democrats hid this spending in plain site by not including it in the annual federal budget. We will never know but we can surmise that had McClain been elected president, this off-budget spending would have continued.
