By  Associated Press, Published: September 8

WASHINGTON — In an early show of optimism, Republicans and Democrats on a powerful committee charged with cutting deficits pledged Thursday to aim higher than their $1.2 trillion target, work to boost job creation and reassure an anxious nation that Congress can solve big problems.

Tax reform as well as cuts to benefit programs such as Social Security and Medicare will be among the options considered, members of the so-called supercommittee emphasized, although no specific proposals were debated at an opening session than ran scarcely an hour.

While they readily acknowledged numerous obstacles to a deal, committee members said it was essential to try at a time the economy is weak, joblessness is high and the country gives every sign of intense frustration with its elected leaders.

Compromise “is the difference between a divided government that works for the country and a dysfunctional government that doesn’t,” said Rep. Chris Van Hollen, D-Md., the last of a dozen members to speak.

The panel, co-chaired by Rep. Jeb Hensarling, R-Texas, and Sen. Patty Murray, D-Wash., lawmakers from opposite ends of the political spectrum, hopes to help broker a deal somewhere in the middle — on an issue where failure is the rule.

Shortly after the session, at least one Republican member threatened to quit if the panel considers cuts in defense beyond the $350 billion over a decade that Congress approved last month as part of a package of deep spending reductions and an increase in the debt limit.

“I’m off the committee if we’re going to talk about further defense” cuts, Arizona Sen. Jon Kyl said he told panel members. Speaking at a defense forum, Kyl said the military “has given enough already, and any further hit would be inimical to our national security around the globe.”

The committee, three members from each party in each house, faces a deadline of Nov. 23. Its most consequential sessions are expected to take place in closed door sessions that will give President Barack Obama and congressional leaders from both parties the opportunity to influence the outcome.

Ironically, the committee owes its existence to earlier failed attempts at sweeping deficit-cutting compromises, most recently an abortive negotiation between Obama and House Speaker John Boehner, R-Ohio.

Their talks collapsed over the summer, at a time Republicans were demanding deficit cuts in exchange for passage of legislation to raise the debt limit and prevent a first-ever government default.

In the end, the two sides agreed to increase the debt limit by enough to let the Treasury pay its bills through 2012 while also cutting $1 trillion over a decade from one category of government programs.

It was a significant sum, but far less than the White House and some Republicans had been hoping for. Nor did it change the tax code or significantly affect Medicare, Medicaid, Social Security, farm programs and other costly benefit programs than many lawmakers say must be part of any attempt to slow and ultimately reduce the nation’s debt.

That is particularly true of Republicans, although Democrats are largely unwilling to go along unless their GOP counterparts will agree to higher revenues at the same time.

“I approach our task with a profound sense of urgency, high hopes, and realistic expectations,” Hensarling said as he gaveled the session to order. He said the task “will not be easy, but it is essential,” and said the panel “must be primarily about saving and reforming social safety net programs that are not only failing many beneficiaries but going broke at the same time.”

A fellow Republican, Sen. Pat Toomey of Pennsylvania, added another item to the agenda moments later, speaking of “wasteful tax subsidies” that should be eliminated and calling for changes that can turn the tax code into an engine for more economic growth.

“When huge, iconic American corporations can pay little or no income tax, well that’s indefensible,” he said. “So I think we ought to wipe out those special interest favors, have commensurately lower rates, encourage the economic growth that will generate more revenues, generate more jobs.”

Among Democrats, Murray stressed the importance of compromise, saying that in meetings with constituents last month, they “asked why it was that every time they turn on their televisions, they hear about more political battling, more partisan rancor_but nothing more being done for people like them.”

She added pointedly that she was pleased that other members of the panel “have refrained from drawing in the sand or carving out areas that can’t be touched” as part of any deal.

The committee is scheduled to hold a public hearing next week at which Douglas Elmendorf, head of the nonpartisan Congressional Budget Office, is expected to explain the forces that have driven the annual deficits into the $1 trillion-plus range, and left the country with a debt of $14 trillion.

The legislation that created the committee also approved a $400 billion debt limit increase, and permitted Obama to request yet another $500 billion increase, with an option for Congress to block it. An attempt to do so failed in the Senate on Thursday evening.

If the committee fails to produce a 10-year package of cuts of at least $1.2 trillion, across-the-board spending cuts would take place that would and simultaneously allow the president to seek another increase in the federal debt limit of the same size.

On the other hand, any agreement on cuts totaling up to $1.5 trillion that are approved by both houses of Congress would permit Obama to request a dollar-for-dollar rise in the debt limit. There is no upper limit to the amount of deficit reductions the panel can recommend.

The committee proceedings were briefly interrupted by demonstrators who shouted “Jobs Now!” in a hallway outside the room. The group dispersed after police threatened them with arrest.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed

As presented in InvestorsInsight.com

 

One of the great privileges of traveling and speaking as I do is getting to
meet a wide variety of very interesting people. Of late, I have become friends
with David Walker, former Comptroller General of the US, who is now
crisscrossing the country warning of the deficit crisis. It is a message that my
book Endgame resonates with. If we do not bring the deficit down below
the growth rate of nominal GDP, we become Greece. We hit an economic wall and
everything collapses. It will be a real and true Depression 2.0. Fixing this is
the single most important topic and task of our generation. If we do not,
worrying about P/E ratios, moving averages, long-term investments – anything
else, in fact – is secondary. Solve this and we can go back to the usual
issues.

This week’s Outside the Box is a presentation that David made recently.
Powerful stuff. I urge you to forward this on. The message must be heard so that
we can as a nation get this right. The world does not need a crippled USA.

David released a short statement about the Navy Seals getting Osama
(finally!). It echoes my own thoughts.

“All Americans should come together in appreciation for the work of America’s
intelligence agencies and special forces who planned and executed yesterday’s
Osama Bin Laden operation. While his death is a key milestone in the fight
against terrorism, the battle is far from over. More importantly, as I said in a
CBS 60 Minutes segment in 2007, ‘The greatest threat to America is not a
person hiding in a cave in Afghanistan or Pakistan, it is our own fiscal
irresponsibility.’ That statement was true then and it is even more true now.
It’s now time for the President and the Congress to work together and address
the fiscal debt bomb that represents a much greater threat to our country’s and
families futures.”

My flight was cancelled, so I am in Toronto for one more night. The folks at
Horizon Funds have graciously offered to take me to an early dinner and a
private wine cellar, as I have a 4:30 AM (ugh) wake-up call and will turn in
early. I hate 4:30 AM. That is not a civilized time of day. If I wanted to live
like Dennis Gartman I could learn to deal with it, but I guess occasionally one
does what one must.

One final thought. While getting OBL is a wonderful thing, it does little to
change the reality of the Middle East, and may even finally create a true martyr
(albeit one who was living well, and not in a cave). The world remains
unsettled. Every speaker at my recent conference was asked what keeps them up at
night. Every speaker mentioned the Middle East, some rather pointedly. It is a
true wild card. But let us enjoy for the moment some token of pleasure for the
just end of the planner of the 9/11 tragedy.

I will report more about the conference in future letters.

Your having a lot to think about analyst,

John Mauldin, Editor
Outside the Box


Restoring Fiscal
Sanity in the United States: A Way Forward

By: Hon. David M. Walker, Founder and CEO of the Comeback
America Initiative and Former Comptroller General of the United States
(1998-2008)

Two hundred and twenty two years ago, the American Republic was founded. The
United States had defeated the world’s most powerful military force to win
independence, and over a several year period, went about creating a federal
government based on certain key principles, including limited government,
individual liberty, and fiscal responsibility. That government was established
by what is arguably the world’s greatest political document – the United States
Constitution.

Our nation’s founders understood the difference between opportunity and
entitlement. They believed in certain key values including the prudence of
thrift, savings and limited debt. They took seriously their stewardship
obligation to the country and future generations of Americans.

The truth is, we have strayed from these key, time-tested principles and
values in recent decades. We must return to them if we want to keep America
great and help to ensure that our future is better than our past.

Believe it or not, to win our independence and achieve ratification of the
U.S. Constitution, the U.S. only had to go into total federal and state debt
equal to 40 percent of the size of its then fledgling economy. Fast forward to
today, when the U.S. is the largest economy on earth and a global superpower –
but total federal debt alone is almost 100 percent of the economy and growing
rapidly. Add in state and local debt, and the total number is about three times
as much as the total debt we held at the beginning of our Republic – and it is
headed up rapidly. As the below graphic shows, our total federal debt has more
than doubled in just the past ten and a half years.

America has gone from the world’s leading creditor nation to the world’s
largest debtor nation. We have also become unduly dependent on foreign nations
to finance our excess consumption. Many of these foreign investors have shunned
our long-term debt due to concerns over future interest rates and the
longer-term value of the dollar. And PIMCO, the largest Treasury bond manager in
the U.S., also recently sold their Treasury security holdings due to a lack of
adequate return for the related interest rate risk.

And who is now the largest holder of Treasury securities? It’s the Federal
Reserve. I call that self-dealing. The Fed may be able to hold down interest
rates for a period of time; however, they cannot hold them down forever. The
Fed’s debt purchase actions are just another example of how Washington
policymakers take steps to provide short-term gain while failing to take steps
to avoid the longer-term pain that will surely come if we fail to put our
nation’s fiscal and monetary policies in order.

The Fiscal Fitness Index

In March 2011 the Comeback America Initiative (CAI) and Stanford University
released a new Sovereign Fiscal Responsibility Index (SFRI) – or as my wife Mary
refers to it, a Fiscal Fitness Index. We calculated each country’s SFRI based on
three factors – fiscal space, fiscal path, and fiscal governance.

Fiscal space represents the amount of additional debt a country could
theoretically issue before a fiscal crisis is imminent. Fiscal path is an
estimate of the number of years before a country will hit its theoretical
maximum debt capacity. (The U.S. will hit its maximum within16 years, but will
enter a “fiscal danger zone” within 2-3 years). Fiscal governance is a value
based on the strength of a government’s institutions, as well as its
transparency and accountability to its citizens. Unfortunately, the U.S. ranks
far below the average in all three of these categories – in particular, the
fiscal governance category.

The overall SFRI index showed that the U.S. ranked 28 out of 34 nations in
the area of fiscal responsibility and sustainability. And when you see which
countries rank around us, it’s clear that we’re in a bad neighborhood. We’re
only a few notches above countries like Greece, Ireland, and Portugal, all of
which have recently suffered severe debt crises. That report also showed that
the U.S. could face a debt crisis as soon as two to three years from now, given
our present path and interest rate risk. Below is the full list of rankings.

On the positive side, the CAI and Stanford report showed that if Congress and
the President were able to work together to pass fiscal reforms that were the
“bottom line” fiscal equivalent of those recommended by the National Fiscal
Responsibility and Reform Commission last year, our nation’s ranking would
improve dramatically, to number 8 out of 34 nations. In addition, we would
achieve fiscal sustainability for over 40 years!

So what are our elected officials waiting for? Do they want a debt crisis to
force them to make very sudden and possibly draconian changes? If not, they need
to wake up and work together to make tough choices. That’s what New Zealand did
in the early 1990s, when that country faced a currency crisis. Due to tough
choices then and persistence over time, New Zealand now ranks number 2 in the
SFRI – second only to Australia, which the Kiwis are not happy about! If New
Zealand can do it, America can too!

The Recent Budget Policy Proposals

In order for us to begin to restore fiscal sanity to this country, President
Obama has to discharge his leadership responsibilities as CEO of the United
States Government. He got into the game with his fiscal speech on April 13, in
which he largely embraced the work of his National Fiscal Responsibility and
Reform Commission, although with a longer timeframe for implementation and less
specifics on entitlement reforms. The President also endorsed the debt/GDP
trigger and automatic enforcement concept that CAI had been advocating. Under
this concept, Congress could agree on a set of statutory budget controls that
would come into effect in fiscal 2013. Such controls should include specific
annual debt/GDP targets with automatic spending cuts and temporary revenue
increases in the event the annual target is not met. In my view, a ratio of
three parts spending cuts, excluding interest savings, to one part revenue would
make sense.

House Budget Committee Chairman Paul Ryan recently demonstrated the political
courage to lead in connection with our nation’s huge deficit and debt
challenges. His budget proposal recognizes that restoring fiscal sustainability
will require tough transformational changes in many areas, including spending
programs and tax policies. Chairman Ryan’s proposal includes several major
reform proposals, especially in the area of health care. For example, he
proposes to convert Medicare to a premium support model that will provide more
individual choice, limit the government’s long-term financial commitment and
focus government support more on those who truly need it. He also proposed to
employ a block grant approach to Medicaid in order to provide more flexibility
to the states and limit the governments’ financial exposure. These concepts have
varying degrees of merit; however, how they are designed and implemented involve
key questions of social equity that need to be carefully explored. And contrary
to Chairman Ryan’s proposal, additional defense and other security cuts that do
not compromise national security and comprehensive tax reform that raises more
revenue as compared to historical levels of GDP also need to be on the table in
order to help ensure bipartisan support for any comprehensive fiscal reform
proposal.

The President and Congressional leaders should be commended for reaching an
agreement that averted a partial shutdown of the federal government and resolved
funding levels for fiscal 2011. While it took way too much time and effort, this
compromise involved real concessions from both sides and represents a small yet
positive step towards restoring fiscal responsibility. But this action is far
from the most important fiscal challenge facing both the Congress and the
President. After all, Washington policymakers took about 88 percent of federal
spending, along with much-needed federal tax reforms, “off the table” during the
recent debate over the 2011 budget. In essence, they have been arguing over the
bar tab on the Titanic when we can see the huge iceberg that lies ahead. The ice
that is below the surface is comprised of tens of trillions of dollars in
unfunded Medicare, Social Security and other off-balance sheet obligations along
with other commitments and contingencies that could sink our “Ship of State”. It
is, therefore, critically important that we change course before we experience a
collision that could have catastrophic consequences. As you can see in the
series of pie charts below, mandatory programs like Social Security and Medicare
already take up the largest share of the federal budget and, absent a change in
course, will continue to do so in increasing amounts in the next several
decades.

The Federal Debt Ceiling Limit

Now that the level of federal funding for the 2011 fiscal year has been
resolved, there has been an increasing amount of attention on Congress’ upcoming
vote to increase the federal debt ceiling limit. As is evident by the chart
below detailing the debt ceiling limit per capita adjusted for inflation since
1940, the U.S. started losing its way in the early 1980s. Fiscal responsibility
was temporarily restored during the 1990s, when statutory budget controls were
in place, but things went out of control again in 2003, the year after those
budget controls expired.

In essence, raising the debt ceiling is simply recognizing the federal
government’s past fiscally irresponsible practices. But while federal law
provides for the continuation of essential government operations even if the
government has not decided on a budget or funding levels for a fiscal year, such
a provision does not exist in connection with the debt ceiling. Therefore, if
the federal government hits the debt ceiling during a time of large deficits,
which is the case today, dramatic and draconian actions will have to be taken to
ensure that additional debt is not incurred. This would likely include a
suspension of payments to government contractors, delays in tax refunds, and
massive furloughs of government employees. In addition, since Social Security is
now paying out more in benefits than it receives in taxes, the monthly payments
may not go out on time if we hit the debt ceiling limit. That would clearly get
the attention of tens of millions of Americans, including elected officials.

However, although failure to raise the debt ceiling is not a viable option
given our current fiscal state, we must take concrete steps to address the
government’s lack of fiscal responsibility. We must also do so in a manner that
avoids triggering a massive disruption and a possible loss of confidence by
investors in the ability of the federal government to manage its own finances.
Such a loss of confidence could spur a dramatic rise in interest rates that
would further increase our nation’s fiscal, economic, unemployment and other
challenges.

In order to begin to restore fiscal sanity, Congress could increase the debt
ceiling limit in exchange for one or more specific steps designed to send a
signal to the markets, and the American people, that a new day in federal
finance is dawning. To be credible, any such action must go beyond short-term
spending cuts for the 2012 fiscal year. The debt/GDP trigger and automatic
enforcement concepts I advocate above are one specific step Congress could take.

The S&P’s revised outlook on the long-term rating for U.S. sovereign debt
should be yet another wake-up call for elected officials and other policymakers
in Washington. S&P’s action serves as a market-based signal that independent
ratings agencies believe the U.S. is on an imprudent and unsustainable fiscal
path and that action is needed in order to maintain investor confidence. In my
view, this action should have been taken place some time ago; however, it is now
likely that other rating agencies will reconsider their ratings positions on
U.S. Sovereign debt.

Moving Past Partisan Politics

The American people need to understand that doing nothing to address our
deteriorating financial condition and huge structural deficits is simply not an
option. Failure to act will serve to threaten America’s future position in the
world and our standard of living at home. Therefore, both major political
parties must come to the table and put aside their sacred cows and unrealistic
expectations. As John F. Kennedy said, “The great enemy of the truth is very
often not the lie — deliberate, contrived and dishonest — but the myth —
persistent, persuasive, and unrealistic.”

Given President Kennedy’s admonition, liberals need to acknowledge that we
need to renegotiate the current social insurance contract. For example, contrary
to assertions by some, Social Security is now adding to the federal deficit and
is underfunded by about $8 trillion. As you can see below, it will face
escalating annual deficits beginning in 2015.

There is no debate that last year’s health care reform legislation will
result in higher federal health care costs as a percentage of the economy. (See
the chart below). In addition, according to Medicare’s independent Chief
Actuary, based on reasonable and sustainable assumptions, last year’s health
care reform legislation will end up exacerbating our deficit and debt challenges
rather than helping to lessen them. He estimated that the cost of the health
care law to the Medicare program could be over $12 trillion in current dollars
more than advertised.

Conservatives need to acknowledge that we can’t just grow our way out of our
fiscal hole. They need to admit that all tax cuts are not equal and there is
plenty of room to cut defense and other security spending without compromising
our national security. And while conservatives are correct to say that our
nation’s fiscal challenge is primarily a spending problem, they must recognize
that some additional revenues will be needed to restore fiscal sanity. The math
just doesn’t work otherwise.

All parties must acknowledge that we can’t inflate our way out of our problem
and that we must take steps to improve our nation’s competitive posture. This
means that some properly targeted and effectively implemented critical
infrastructure and other investments may be both needed and appropriate even if
they exacerbate our short-term fiscal challenge.

Washington policymakers need to understand that the same four factors that
caused the recent financial crisis exist for the federal government’s own
finances. And what are those factors?

First, a disconnect between those who benefit from prevailing policies and
practices and those who will pay the price and bear the burden if and when the
bubble bursts. Second, a lack of adequate transparency and accountability in
connection with the true financial risks that we face. Third, too much debt, not
enough focus on cash flow, and an over-reliance on narrow and myopic credit
ratings. Finally, a failure of responsible parties to act until a crisis was at
the doorstep.

There is growing agreement that the greatest threat to our nation’s future is
our own fiscal irresponsibility. In fact, as I noted in 2007 and Joint Chiefs
Chairman Admiral Mullin stated last year, our fiscal irresponsibility and
resulting debt is a national security issue. After all, if you don’t keep your
economy strong for both today and tomorrow, America’s standing in the world and
standard of living at home will both suffer over time – and waiting for a crisis
before we act could also undermine our domestic tranquility.

So where should Washington go from here?

First, Congress and the President should reach a compromise agreement on an
appropriate level of spending cuts in 2012 while also providing for some
additional properly designed and effectively implemented critical infrastructure
investments. Second, they should agree to re-impose tough statutory budget
controls that will force much tougher choices on both the spending and tax side
of the ledger beginning no later than 2013. Third, they should authorize and
fund a national citizen education and engagement effort to help prepare the
American people for the needed actions and to facilitate elected officials
taking them without losing their jobs. Fourth, they should create a credible and
independent process that will provide for a baseline review of major federal
organizational structures, operational practices, policies and programs in order
to make a range a transformational recommendations that will make the federal
government more future focused, results oriented, successful and sustainable.

Spending levels certainly need to be cut. After all, the base levels of
federal discretionary spending increased by over 30 percent between 2007 and
2010 during a time of low inflation. At the same time, all parties must be
realistic regarding how much should be cut and how quickly it can be achieved.
In my view, we should be targeting greater cuts than have been recently
considered, but over a longer period of time: for example, real spending cuts of
$125-$150 billion over several years. If we did so, the related savings would be
significant and would compound over time.

As the National Fiscal Responsibility and Reform Commission, CAI, The No
Labels political movement (of which I am a co-founder), and others have noted,
everything must be on the table – and all political leaders need to be at the
table – in order to put our nation on a more prudent and sustainable fiscal
path. This includes a range of social insurance program reforms, defense and
other spending cuts, and comprehensive tax reform that generates additional
revenues, including both individual and corporate tax reform. We must keep in
mind that the private sector is the engine of innovation, growth, and jobs. In
addition, many businesses are taxed at the individual, rather than the
corporate, level.

Realistically, it will take us a number of years to get back into fiscal
shape. And while it would be great if we could do a “grand bargain” and enact a
broad range of transformational reforms in one step, that just isn’t realistic
in today’s world. Therefore, what is a reasonable order of battle to win the war
for our fiscal future?

First and foremost we need to enact budget process reforms, re-impose the
type of budget controls and engage in the fact-based citizen education and
engagement effort referred to previously. The next order of battle items should
be corporate tax reform and Social Security reform. Why corporate tax reform?
Because it can help to improve our competitiveness, enhance economic growth and
generate jobs.

And why Social Security reform? Because we have a chance to make this
important social insurance program solvent, sustainable and secure for both
current and future generations. We can also exceed the expectations of all
generations and demonstrate to both the markets and the American people that
Washington can act before a crisis forces it too.

The above efforts should be followed by broader tax reform and
Medicare/Medicaid reforms. We will then need to rationalize our health care
promises and focus more on reducing health care costs in another round of health
care legislation. We must also begin a multi-year effort to re-baseline the
federal government’s organizations, operations, programs and policies to make
them more future focused, results oriented, affordable and sustainable.

In summary, the truth is that the government has grown too big, promised too
much and waited too long to restructure. Our fiscal clock is ticking and time is
not working in our favor. The Moment of Truth is rapidly approaching. As it
does, let us hope that our elected officials must keep the words of Theodore
Roosevelt in mind: “In any moment of decision the best thing you can do is the
right thing, the next best thing is the wrong thing, and the worst thing you can
do is nothing.” And “We the People” must do our part by insisting on action and
by making the price of doing nothing greater than the price of doing something
We must insist that our legislators offer specific solutions to defuse our
ticking debt bomb in a manner that is economically sensible, socially equitable,
culturally acceptable, and politically feasible We need to recognize that
improving our fiscal health, just like our physical health, will require some
short-term pain for greater long-term gain. The same is true for state and local
governments.

We’ll soon know whether Washington policymakers are up to the challenge and
whether they will start focusing more of doing their job than keeping their job.
They need to focus first on their country rather than their party. And yes, the
President and Congressional leaders from both political parties need to be at
the table and everything must be on the table in order to achieve sustainable
success. Let’s hope they make the right choice this time!

All of us who are involved with the Comeback America Initiative (CAI) will do
our part. All that we ask is that you do yours. The future of our country,
communities and families depends on it.

For more information about the Comeback America Initiative and No Labels,
check out www.tcaii.org and www.nolabels.org.

Deficitation

July 27, 2011

I thought I would only write 1 newsletter this week.

 

You know….

 

Keep it light…

 

Talk about the summer fun

 

 

As much as I am trying to enjoy this summer

 

I am finding that I once again have to speak up

 

 

 

I wrote several newsletters in the past

 

Discussing the deficit and government spending

 

 

It just amazes me that Washington

 

Is going out of their way

 

Not to bring a serious resolve to the issue

 

 

Short term……Long term

 

 

What steps must be taken?

 

 

Putting party politics aside

 

 

That will send a message to the financial world

 

That we are done drinking the kool aid

 

 

The US will take responsible steps

 

To control our cost

 

And bring our economy in line

 

 

We can no longer continue to borrow $.43 cent of every
dollar

 

To support our economy

 

 

The chart below shows the growth of government

Over the past 40 years

 

 

TotReceipt     Tot Expense  Surplus/Deficit

 

1970      $192B          $195B              $2.8B

 

1980      $517B        $590B               -$73B

 

1990      $1.031T     $1.253T         -$221B

 

2000      $2.025T   $1.788T        +$236B

 

2010      $2.165T   $3.833T     – $1.555T

 

 

They are talking of doing a short term deal

 

 

Cutting spending by $1.2T over the next 10 years

 

 

That’s about $120B a year

 

Although they say most of it is on the back end

 

 

Smoke and Mirrors….

 

 

Every family has to deal with budget issues

 

 

We are all held to responsible spending

 

 

Even when we borrow money

 

 

Banks look at acceptable levels of

 

Debt to Income

 

 

 

We are a great nation…

 

Difficult decisions have been made in the past

 

To bring us to where we are today

 

 

Let Washington send a strong message

 

 

That we are back…

 

 

And ready to do business responsibly.

As reported in Huffington Post

WASHINGTON — President Barack Obama is renewing an old fight with the business community by insisting that $400 billion in tax increases be part of a deficit-reduction package. His proposals have languished on Capitol Hill, repeatedly blocked by Republicans, often with help from Democrats.

Some would raise big money. Limiting tax deductions for high-income families and small business owners could raise more than $200 billion over the next decade. Others are more symbolic, such as scaling back a tax break for companies that buy corporate jets.

The corporate jet proposal would raise $3 billion over the next decade, according to GOP congressional aides. That’s a relatively small sum in the big scheme of Washington budgets, but Obama and Democrats call attention to it repeatedly in their effort to portray Republicans as defenders of corporate fat cats.

No matter how Democrats characterize their proposals as revenue raisers or plugging tax loopholes, GOP leaders oppose them all, arguing that raising taxes in a bad economy would only make matters worse.

“If we choose to keep those tax breaks for millionaires and billionaires, if we choose to keep a tax break for corporate jet owners, if we choose to keep tax breaks for oil and natural gas companies that are making hundreds of billions of dollars,” Obama said this week, “then that means we’ve got to cut some kids off from getting a college scholarship, that means we’ve got to stop funding certain grants for medical research, that means that food safety may be compromised, that means that Medicare has to bear a greater part of the burden.”

The White House has identified about $600 billion in tax increases it wants over the next decade. About $400 billion of them were offered as part of deficit-reduction talks led by Vice President Joe Biden. That would be paired with more than $1 trillion in spending cuts.

Some of the tax proposals are vague and budget experts have yet to calculate just how much they would raise. For example, limiting deductions for high-income families and small businesses could raise anywhere between $210 billion and $290 billion, depending on what threshold is established as high income.

Obama is proposing to eliminate $41 billion in tax breaks for oil and natural gas companies, raise taxes on investment fund managers by $21 billion and change the way many businesses value their inventories for tax purposes. The change in inventory accounting would raise an estimated $70 billion over the next decade, hitting manufacturers and energy companies, among others.

Treasury Secretary Timothy Geithner has given Congress an Aug. 2 deadline for raising the current debt ceiling, currently $14.3 trillion, to avoid defaulting on the government’s financial obligations for the first time in the nation’s history. He warns that a default could trigger potentially dire consequences for an already anemic economy, including higher interest rates, tighter credit and new rounds of job layoffs. The government hit the debt ceiling in May and has been juggling accounts since then to make all its payments.

Obama says he is proposing a balanced approach that spreads the pain among people who rely on government services and those most able to finance them.

While Republican leaders argue that raising taxes is bad policy, bad politics and too unpopular to pass the Republican-controlled House, several GOP senators have said they are willing to consider eliminating unspecified tax breaks to reduce the deficit.

Two weeks ago, 33 Republican senators joined a 73-27 majority to repeal a $5 billion annual tax subsidy for ethanol gasoline blends. On Wednesday, Sen. Ron Johnson, R-Wis., said, “I would like to do away with special tax breaks but not legitimate business deductions.”

But GOP leaders insist there is no support among Republicans to impose the kind of tax increases Obama is proposing.

“The president is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House,” Speaker John Boehner, R-Ohio, said. “The votes simply aren’t there, and they aren’t going to be there because the American people know tax hikes destroy jobs.”

Among the tax increases proposed by the White House and the amount they’d raise over the next decade:

_ Limit itemized deductions, including those for charitable contributions and mortgage interest, for families and small business owners making more than $500,000. Under current law, if a taxpayer’s top income tax rate is 35 percent – the highest rate – a $100 deduction is worth $35 in tax savings. For several years, Obama has proposed limiting itemized deductions for people making above $250,000 to 28 percent, meaning a $100 deduction would be worth only $28 in tax savings at most. That would raise $293 billion. Increasing the income threshold to $500,000 would raise “in the ballpark of $210 billion,” said Maryland Rep. Chris Van Hollen, one of the House Democratic negotiators in the Biden talks.

_ Change the way businesses value their inventory, raising an estimated $70 billion. Current law allows businesses to lower their taxable profits – and their tax bills – by using an accounting method that can inflate the cost of goods sold. Obama proposes to phase out the practice, known as last-in, first out, or LIFO.

_ Increase taxes on investment fund managers, mainly hedge funds and private equity firms, raising about $21 billion. Investment managers typically pay capital gains taxes on their fees, with a top rate of 15 percent. Obama wants to tax the fees as regular income, with a top tax rate of 35 percent.

_ Eliminate about $41 billion in tax breaks for oil and natural gas companies. Obama has called for eliminating tax breaks for all oil and gas companies every year since he took office in 2009. The biggest is a deduction for production expenses that is available to all manufacturers. In May, the Senate rejected a smaller proposal that targeted the five biggest companies: Shell Oil Co., ExxonMobil, ConocoPhillips, BP America and Chevron Corp.

___

Associated Press writers Jim Kuhnhenn, Andrew Taylor and Laurie Kellman contributed to this report.

James
Pethokoukis

Politics and policy from inside Washington

 

So I took a crack at the budget
simulator
cooked up over at the NYTimes Web site. It starts out with a
projected 2015 deficit of $418 billion and a projected 2030 deficit of $1.355
trillion. My goal was to do it through 100 percent spending cuts.

nytimes

Here is what I did:

1.  Eliminated earmarks  ($14 billion)

2. Cut the pay of civilian workers by 5 percent ($17 billion)

3. Reduced the federal workforce by 10 percent ($15 billion)

4. Reduced nuclear arsenal and space spending  ($38 billion)

5. Reduce military to pre-Iraq War size and further reduce troops in Asia and
Europe ($49 billion)

6. Reduce Navy and Air Force fleets ($24 billion)

7.  Cancel or delay some weapons programs ($18 billion)

8. Reduce the number of troops in Iraq and Afghanistan to 60,000 by 2015
($149 billion)

9. Enact medical malpractice reform ($13 billion)

10. Increase the Medicare eligibility age to 68  ($56 billion)

11. Reduce the tax break for employer-provided health insurance ($157
billion)

12. Cap Medicare growth starting in 2013 ($562 billion)

13. Raise the Social Security retirement age to 70 ($247 billion)

14. Reduce Social Security benefits for those with high incomes ($54
billion)

15. Tighten eligibility for disability ($17 billion)

16. Use an alternate measure for inflation ($82 billion)

In the end, my budget would have a minuscule 2015 deficit of $80 billion and
a 2030 surplus of $187 billion. Now I would have preferred an option for deeper
domestic spending cuts. The Heritage
Foundation has ideas
for over $300 billion worth. And I think eliminating
hundreds of billions of tax breaks and lowering tax rates across the board would
boost growth and revenue. The simulator only lets me use the Bowles-Simpson plan
which would lower rates by cutting tax expenditures —  but uses some of the
dough for deficit reduction. Plus, the simulator assumes no impact on growth
from higher taxes or lower taxes. Also, there is no doubt the Medicare cuts
would be rightly labeled as “rationing.”  But Americans really have only two
choices, I think: severe government healthcare rationing (since right now
healthcare costs are rising much faster than GDP growth) or voucherization.

The simulator also shows how tough it is to balance the budget through tax
increases alone. If you went for every tax increased offered, you would still
have a slight deficit in 2030. And again, that assumes zero impact on economic
growth from a) letting all the Bush tax cuts expire; b) eliminating tax breaks;
c) adding a national sales tax, carbon tax and bank tax. That is a fantasy.
Letting all the Bush tax cuts expire, for instance, would probably knock 2-3
percentage points from GDP next year.

Deficitly

May 25, 2011

With all the commotion going on around us

Osama…..tornadoes….floods

The public has been spared the talk on the debt ceiling

Did you hear the gang of six talks fell apart?

They were seen as representing the best hope

For a bipartisan deal to reduce the deficit

Senator Tom Coburn dropped out

Citing differences over entitlement spending,

Saying the 3 Republicans and 3 Democrats were

Unable to bridge differences over Medicare and Social Security

The clock is ticking,

We already exceeded the debt limit.

Now we are just shuffling payments

While waiting for a resolve.

How did we get to
this point?

There is some great information on the internet about this
subject.

Stephen Bloch did some extensive research on the deficit

And how it relates to each President

His report is titled:

US Federal Deficits, Presidents and Congress

Below are some of the facts I found interesting

  • First data he found showing
    a deficit was traced back to 1910
  • The single best predictors
    of deficits for most of the century have been war.
  • Starting in the 1970’s, it
    became harder to see a connection between war and deficits:
    • Permanent deficits became
      a way of life, regardless of whether there was a war going on.
  • The Deficit did not break
    the $1 trillion mark until 1981
  • The Deficit did not break
    the $5 trillion mark until 1995
  • During the first seven
    years of G W Bush presidency, the deficit was increased by almost twice
    the dollar amount as it had been for 32 years. (Running from JFK through
    GHW Bush).
  • When GW Bush entered
    office the deficit was $5.807 trillion
    • When GW Bush left office
      the deficit ballooned to $11,909 trillion.
    • The deficit increased
      $6,102 trillion
  • Since Obama entered office
    the deficit has grown to $14,268 trillion
    • That an additional $2,359
      trillion

Some other interesting facts:

  • Military spending has
    increased 81% since the year 2000
  • Fraud constitutes at least
    ten percent ($100 billion) of the nearly one trillion in taxpayer dollars
    that Medicare and Medicaid will spend this year.
  • The current tax system of
    the United States will collect about 18% of the GDP(Gross Domestic
    Product)
  • Spending needs are much
    higher, currently around 24% of GDP.

What makes up the 24%?

I referred to an article by Jeffrey Sachs (Economist and
Director of Earth Institute, Columbia University)

Focusing on best estimates for 2021, a decade from now

  • Social Security outlays
    will total around 5.2% of GDP
    • As Americans age and as
      health care cost have multiplied, The cost of Social Security and
      Medicare have risen from 1.7% of GDP in 1980 to 5.1% of GDP in 2011
  • Medicare will total around
    3.6% of GDP
  • Medicaid, assuming no
    drastic cuts, will total around 2.9% of GDP
  • Other mandatory programs
    for the poor, such as food stamps, will total 2.1% of GDP
  • Total defense spending is
    around 5% of GDP, most agree that defense should be cut and be around 3% of
    GDP
  • Most projections put
    interest cost on debt around 2.7% of GDP
  • Discretionary spending
    (cost used on public goods and services that cannot be provided
    efficiently by the private economy alone) will be around 4.5% of GDP

Now if you go and add up all these categories,

You will see that cost will total around 24% of GDP

In Paul Ryan’s plan, taxes would be kept at 18% of GDP and
spending would be cut to 19% of GDP.
However the deficit is still expected to grow to $16 trillion by 2021.

The Obama plan would have a slightly higher tax collection,
around 19% of GDP (by allowing Bush tax cuts expire for those making over
$250,000), while allowing the deficit to grow to $19 trillion by 2021.

Guess what!!!!!

 

They are still going
the wrong way!!!!!

Many experts feel that both of these current plans, as
presented seem practically impossible.

In several opinion surveys,

The public has spoken clearly about what to do:

  • Do not balance the budget
    by slashing Medicare, Social Security, or programs for the poor;
  • Increase spending on
    education and infrastructure;
  • Tax the rich and giant
    corporations.

This is not a practical solution either…….

It is our responsibility to stop the bleeding

Everyone will have to proportionally share in the sacrifice

Will someone step forward and have the vision and leadership,

To usher in this era……….

Will the public be accepting to the reality of their
resolution….

Or will we continue to allow our excesses to undermine us.

Let us know your thoughts…… email george@hbsadvantage.com

By
Published: May 8, 2011
 

The past three years have been a disaster for most Western economies. The United States has mass long-term unemployment for the first time since the 1930s. Meanwhile, Europe’s single currency is coming apart at the seams. How did it all go so wrong?

Well, what I’ve been hearing with growing frequency from members of the policy elite — self-appointed wise men, officials, and pundits in good standing — is the claim that it’s mostly the public’s fault. The idea is that we got into this mess because voters wanted something for nothing, and weak-minded politicians catered to the electorate’s foolishness.

So this seems like a good time to point out that this blame-the-public view isn’t just self-serving, it’s dead wrong.

The fact is that what we’re experiencing right now is a top-down disaster. The policies that got us into this mess weren’t responses to public demand. They were, with few exceptions, policies championed by small groups of influential people — in many cases, the same people now lecturing the rest of us on the need to get serious. And by trying to shift the blame to the general populace, elites are ducking some much-needed reflection on their own catastrophic mistakes.

Let me focus mainly on what happened in the United States, then say a few words about Europe.

These days Americans get constant lectures about the need to reduce the budget deficit. That focus in itself represents distorted priorities, since our immediate concern should be job creation. But suppose we restrict ourselves to talking about the deficit, and ask: What happened to the budget surplus the federal government had in 2000?

The answer is, three main things. First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade. Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so. And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs.

So who was responsible for these budget busters? It wasn’t the man in the street.

President George W. Bush cut taxes in the service of his party’s ideology, not in response to a groundswell of popular demand — and the bulk of the cuts went to a small, affluent minority.

Similarly, Mr. Bush chose to invade Iraq because that was something he and his advisers wanted to do, not because Americans were clamoring for war against a regime that had nothing to do with 9/11. In fact, it took a highly deceptive sales campaign to get Americans to support the invasion, and even so, voters were never as solidly behind the war as America’s political and pundit elite.

Finally, the Great Recession was brought on by a runaway financial sector, empowered by reckless deregulation. And who was responsible for that deregulation? Powerful people in Washington with close ties to the financial industry, that’s who. Let me give a particular shout-out to Alan Greenspan, who played a crucial role both in financial deregulation and in the passage of the Bush tax cuts — and who is now, of course, among those hectoring us about the deficit.

So it was the bad judgment of the elite, not the greediness of the common man, that caused America’s deficit. And much the same is true of the European crisis.

Needless to say, that’s not what you hear from European policy makers. The official story in Europe these days is that governments of troubled nations catered too much to the masses, promising too much to voters while collecting too little in taxes. And that is, to be fair, a reasonably accurate story for Greece. But it’s not at all what happened in Ireland and Spain, both of which had low debt and budget surpluses on the eve of the crisis.

The real story of Europe’s crisis is that leaders created a single currency, the euro, without creating the institutions that were needed to cope with booms and busts within the euro zone. And the drive for a single European currency was the ultimate top-down project, an elite vision imposed on highly reluctant voters.

Does any of this matter? Why should we be concerned about the effort to shift the blame for bad policies onto the general public?

One answer is simple accountability. People who advocated budget-busting policies during the Bush years shouldn’t be allowed to pass themselves off as deficit hawks; people who praised Ireland as a role model shouldn’t be giving lectures on responsible government.

But the larger answer, I’d argue, is that by making up stories about our current predicament that absolve the people who put us here there, we cut off any chance to learn from the crisis. We need to place the blame where it belongs, to chasten our policy elites. Otherwise, they’ll do even more damage in the years ahead.

JIM KUHNHENN   04/11/11 06:13 PM ET   AP

WASHINGTON — President Barack Obama, plunging into the rancorous struggle over America’s mountainous debt, will draw sharp differences with Republicans Wednesday over how to conquer trillions of dollars in spending while somehow working out a compromise to raise some taxes and trim a cherished program like Medicare.

Obama’s speech will set a new long-term deficit-reduction goal and establish a dramatically different vision from a major Republican proposal that aims to cut more than $5 trillion over the next decade, officials said Monday.

Details of Obama’s plan are being closely held so far, but the deficit-cutting target probably will fall between the $1.1 trillion he proposed in his 2012 budget proposal and the $4 trillion that a fiscal commission he appointed recommended in December.

The speech is intended as a declaration of Obama’s commitment to seriously tame the deficit while outlining his long-term budget principles – key components of his campaign for re-election in 2012. After gingerly avoiding any discussion until now of cuts in the government’s massive benefit programs for the elderly and poor, Obama will acknowledge a need to reduce spending on Medicare and Medicaid while at the same time tackling defense spending and calling for increased taxes on the wealthy, White House officials said.

If that sounds like a reprise of last week’s budget fight that barely avoided a government shutdown, it isn’t. The stakes are far higher, the political risks greater and the goals more ambitious. At issue are long-term budget deficits and a $14.3 trillion national debt that many say could threaten the nation’s economy.

The cuts accomplished last week were for $38.5 billion over the next six months; the cuts envisioned now are for trillions of dollars over the next 10 years.

Obama’s speech, to be delivered at George Washington University, comes as Congress readies for a fierce fight over raising the nation’s debt limit. Republicans have vowed to use that vote as leverage to extract greater budget discipline from the Democrats and the president.

Setting the terms of the debate and the likely brinkmanship to follow, White House spokesman Jay Carney said on Monday: “What I’m saying is that we support a clean piece of legislation to raise the debt ceiling. … We cannot play chicken with the economy in this way.”

The president’s speech also comes amid liberal apprehension over recent Obama spending concessions and a desire among some Democrats to make proposed GOP cuts in Medicare a 2012 election issue.

House Republicans, led by the chairman of the House Budget Committee, Paul Ryan, last week unveiled a plan that would cut $5.8 trillion over 10 years with a major restructuring of the nation’s signature health care programs for the elderly and the poor. Meanwhile, six senators have formed a bipartisan group to work on their own plan to rein in long-term deficits by making changes to Medicare and Medicaid and examining a fundamental overhaul of the tax system that would yield additional revenue.

Obama is expected to concede a need for overhauling Medicare and Medicaid and to even make adjustments to Social Security, always considered politically risky territory. But he will distinguish his plan from the Republican budget, which would shrink Medicare by shifting the program to private insurers and send block grants to states to pay for Medicaid, the health care program for the poor.

Unlike the Republican plan, Obama is also expected to call for cuts in defense spending and for tax increases, repeating his 2012 effort to increase Bush-era tax rates for families making more than $250,000. Obama shelved that plan in a budget compromise with Republicans.

His 2012 budget blueprint didn’t touch the health care entitlements or Social Security. Now that he plans to, some of his own supporters are wary, arguing that the president ceded too much ground when he cut a tax deal with Republicans last December and in yielding spending cuts last week.

“I want to have confidence, but I’ve got to see something,” said Barbara Kennelly, a former Democratic congresswoman and president of the National Committee to Preserve Social Security and Medicare, an advocacy group. “They can’t continue to give in.”

Many liberals say Obama has not been a strong bargainer.

“Their weakness in getting the most out of negotiations is their strategic belief that they don’t want to be seen as fighting, they want to appear above the fray and beyond partisanship,” said Lawrence Mishel, president of the labor-leaning Economic Policy Institute. “They also believe that they shouldn’t get out there on a position where they may not succeed. These are characteristics that make for a weak negotiator.”

Republicans on Monday said Obama’s speech was overdue.

“I’m anxious to hear what the president has to say,” House Speaker John Boehner said on Fox News. “We’ve been waiting for months for the president to enter into this debate with us. I can tell you that privately I’ve encouraged the president: `Mr. President, lock arms with me, let’s jump out of the boat together. We have to deal with this, this is the moment in time that we’ve been given to address the problems.

“Forget the next election, forget the next poll that’s going to come out. It’s time to do the right thing for the country.'”

The speech is expected to affirm Obama’s stand on the spending he is not willing to cut, chiefly in the areas of education, energy, infrastructure, research and innovation. On Medicare, the federal insurance program for senior citizens, the president is expected explain his case for cost savings without putting “all the burden on seniors,” as his senior adviser David Plouffe put it.

In choosing to wait until now, White House officials have looked at past precedents, including President George W. Bush’s plan to partially privatize Social Security, and have seen the pitfalls of staking out major policy initiatives that come undone in Washington’s combative environment.

Democrats have been torn over what Obama should do. Many believe the weight of the debt is a powerful issue with independent voters and that Obama needs to engage Republicans with a legitimate counterproposal and then conduct the “adult conversation” he professes to desire.

The debate over Medicare and Medicaid may not be resolved before the 2012 election, potentially making it the defining element of the presidential campaign.