More temporary and targeted tax cuts and spending increases
From the Wall Street Journal
If President Obama’s economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try.
This is not to say that Mr. Obama hasn’t made any intellectual progress across his 32 months in office. He now admits the damage that overregulation can do, though he can’t do much to stop it without repealing his own legislative achievements. He now acts as if he believes that taxes matter to investment and hiring, at least for the next year. And he now sees the wisdom of fiscal discipline, albeit starting only in 2013.
Yet the underlying theory and practice of the familiar ideas that the President proposed last night are those of the government conjurer. More targeted, temporary tax cuts; more spending now with promises of restraint later; the fifth (or is it sixth?) plan to reduce housing foreclosures; and more public works spending, though this time we’re told the projects really will be shovel-ready.
We’d like to support a plan to spur the economy, which is certainly struggling. Had Mr. Obama proposed a permanent cut in tax rates, or a major tax reform, or a moratorium on all new regulations for three years, he’d have our support. But you have to really, really believe in hope and change to think that another $300-$400 billion in new deficit spending and temporary tax cuts will do any better than the $4 trillion in debt that the Obama years have already piled up.
We’ve had the biggest Keynesian stimulus in decades. The new argument that the 2009 stimulus wasn’t big enough isn’t what we heard then. Americans were told it would create 3.5 million new jobs and unemployment would stay below 8% and be falling by 2011. It is now 9.1%. But this stimulus we are told will make all the difference.
The United States has lost its sterling credit rating.
Credit rating agency Standard & Poor’s on Friday lowered the nation’s AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion — a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.
Ever since they fudged the numbers to pass ObamaCare, Democrats have abandoned credible spending plans.
By Paul Ryan
During the negotiations over raising the debt ceiling, President Obama reportedly warned Republican leaders not to call his bluff by sending him a bill without tax increases. Republicans in Congress ignored this threat and passed a bill that cuts more than a dollar in spending for every dollar it increases the debt limit, without raising taxes.
Yesterday, Mr. Obama signed this bill into law. He was, as he said, bluffing.
Since then he has offered a lot of rhetoric but no real plan to avoid a spending-driven debt crisis. His speeches and press conferences are no substitutes for actual budgets with specific numbers and independently verified projections of future deficits and debt. Meanwhile, it has been over two years since the Democrat-controlled Senate passed any budget at all. This is a historic failure to fulfill one of the most basic responsibilities of governing.
This leadership deficit has thrown the federal budget process into chaos at the worst possible time. Even though Congress has cut spending by a significant amount, it still hasn’t dealt with the drivers of our debt—primarily federal spending on health care.
The math is scary, yet simple: In the years ahead, spending on programs such as Medicare, Medicaid and the Democrats’ new health-care entitlements is projected to skyrocket relative to the size of the economy, even as federal spending on everything else is projected to decline.
The nonpartisan Congressional Budget Office on Monday confirmed that the debt-ceiling compromise now slowly working its way through a political minefield would cut deficits by at least $2.1 trillion over 10 years.
The finding, reported in a letter to Speaker John A. Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nev.), is fresh ammunition for supporters of the plan in the face of conservative opposition that the spending cuts are too small. Liberals are also unhappy, arguing that Democrats are caving in to the GOP by not insisting on raising more revenue by closing tax loopholes on the richest.
According to the budget office’s analysis, the compromise includes an immediate spending savings of $917 billion, about the same amount proposed by Boehner last week. Using Boehner’s number might help push the overall package through the House, which is controlled by Republicans but where conservatives led by the “tea party” movement are unhappy with the overall number.
The second step in the process would come from the Congressional Joint Select Committee on Deficit Reduction, a special congressional committee that would be mandated with finding $1.5 trillion in spending cuts. If the committee fails to find that amount, there would be an automatic trigger chopping $1.2 trillion. The budget office used the smaller figure to reach the $2.1 trillion total.
Senate Democratic Leader Harry Reid has signed off on a tentative debt-ceiling compromise, saying he hopes lawmakers can finalize a deal and move to a vote as early as Sunday.
At the same time, concerns were spreading on the conservative side that the emerging plan could cut too deeply into defense spending, raising questions about whether the framework can attract enough bipartisan support.
One congressional source said the deal is not yet sealed. But Reid, becoming the first congressional leader to publicly endorse the plan, said late Sunday afternoon through a spokesman that he had signed off on it “pending caucus approval.”
But as time dragged on and House Speaker John Boehner, scheduled a conference telephone call with his rank and file, the likelihood of any vote Sunday night appeared less likely.
With pressure intensifying to produce a bill that can somehow sail through both chambers in the next two days, leaders on both sides are now scrambling to not only finalize the package but loop in their rank-and-file members.
Already, liberal groups and lawmakers were raising alarm about the possibility of entitlement cuts in the package. House Democratic Leader Nancy Pelosi, without taking a position, said she’d have to review the details, looking ahead to a meeting with Democrats on Monday.
“We all may not be able to support it. And maybe none of us will be able to support it,” she said.
But as Reid tried to build support on the Democratic side, GOP leaders were dealing with mounting concerns from party conservatives about possible defense cuts.
If Washington’s leaders need a reason to get serious about the long-term-deficit problem—now—here it is.
As the U.S. figures out how to lower its deficit, it does so at a time when it’s paying $200 billion in interest in 2011 alone. WSJ’s Gerald F. Seib foreshadows bad times ahead if Congress doesn’t immediately make inroads into the deficit.
There is a cancer eating away at the budget from within, one that steadily drains American wealth, sends much of it overseas and only gets worse over time. It is the interest America pays on its national debt.
This year the U.S. will spend more than $200 billion—roughly the gross domestic product of Chile—merely paying off that interest. That’s nearly as much as it will spend to provide health care to poor citizens through the Medicaid program.
By comparison, the spending debate now raging in Washington, over whether to cut discretionary programs by $20 billion or $60 billion this year, is about chump change, and misses the real long-range threat almost entirely.
That’s because the interest burden gets worse—much worse—as time goes on and spending grows, not so much in the programs now being discussed as on Medicare, Medicaid and Social Security. Without a change, in 10 years the federal government’s net interest bill rises to $928 billion annually. That would be 17% more than the government would pay to provide health care to the elderly through Medicare that year, and 82% more than the cost of all non-security discretionary spending programs combined.
President Obama’s 2012 budget is not a serious governing document. It’s a political one, designed to boost his re-election chances.
By repeatedly saying that his budget reduces the deficit by $1 trillion over 10 years, he hopes the numbers make him sound fiscally conservative. But he puts off 95% of the deficit reduction until after his term ends in 2013. And he assumes that economic growth in the next few years will be at least 25% higher than credible economic forecasters estimate.
Mr. Obama’s budget includes $1.6 trillion in tax increases that are real enough—but most of the spending cuts are not. For example, as Rep. Paul Ryan, the House Budget Committee chairman pointed out to me, the administration projects war costs for Iraq and Afghanistan at surge levels for the next decade, and then conjures up about $1.3 trillion in defense savings by assuming drawdowns in each theater—drawdowns that were already in the cards. Outside of this sham transaction, according to Mr. Ryan, there are only $104 billion in real spending cuts over the next 10 years.
Moreover, the administration simply ignores entitlements. This is a dereliction of duty, although it has a certain political logic: The budget is not meant to be taken seriously—it’s meant to be quickly forgotten so that the administration can turn attention to, and attack, what congressional Republicans do about federal spending.
Mr. Obama wants House Republicans to take the lead in cutting current spending and proposing future restraint in entitlement and other mandatory spending. He’s betting that letting Republicans take the lead will cripple them. This misreads public opinion. But it is plausible to believe that Republican mistakes can help revive Mr. Obama’s political fortunes. So it’s important that the GOP offers real budget cuts without coming across as angry and frenetic. Republicans need to patiently show what they are doing and why, and to express their sadness and disappointment over Mr. Obama’s failure of leadership.
Congressional Republicans need to make methodical and sensible recommendations for cutting discretionary outlays and restraining future entitlement spending. They must explain to the public why the Obama budget will lead to our nation suffering horrific tax increases, massive austerity cuts, and real human suffering. They need to show that the president’s fiscal path is, to use a favorite word of his, unsustainable.
President Obama‘s budget, released Monday, was conceived as a blueprint for future spending, but it also paints the bleakest picture yet of the current fiscal year, which is on track for a record federal deficit and will see the government’s overall debt surpass the size of the total U.S. economy.
Mr. Obama‘s budget projects that 2011 will see the biggest one-year debt jump in history, or nearly $2 trillion, to reach $15.476 trillion by Sept. 30, the end of the fiscal year. That would be 102.6 percent of GDP — the first time since World War II that dubious figure has been reached.
And the budget projects the government will run a deficit of $1.645 trillion this year, topping 2009’s previous record by more than $230 billion. By contrast, 2007’s deficit was just $160 billion altogether.
Still, amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large.
In one often-cited study, economists Carmen Reinhart and Ken Rogoff have argued that when a nation’s gross debt passes 90 percent it hinders overall economic growth.