Debt Deal: No New Taxes!

Although tax revenue is historically low and federal spending is historically high, the tentative debt agreement (see earlier essay on Dissenting Justice) would not include a mandate to implement or even discuss tax increases. Instead, the deal would slash 2.8 trillion dollars from federal agencies over the next ten years. It would also create a special bipartisan "Super Committee" in Congress to allocate spending cuts (note: the full Congress would have to approve these cuts for them to have the effect of law).

The deal, however, would not require the special committee to consider any tax increases. The combination of lower tax revenue and higher spending, however, has created the historically high federal budget deficit. Nevertheless, Senator Mitch McConnell says tax increases are definitely "off the table." Senator Durbin says that keeping taxes off the table is a "serious mistake." The National Journal has more analysis.

Question: What exactly does Obama gain from this "deal" -- except for an increase in the debt ceiling, which (except for a few moments in history) has been routinely granted?

Social Security and the Deficit: FactCheck

Earlier this year many Democrats and progressive bloggers argued that Social Security payments do not contribute to the national deficit. This claim is not true, and FactCheck.org provides relevant analysis.

Now that Obama has put Social Security on the table in debt-reduction negotiations, a political storm over the subject has erupted. Progressives must approach the stability of Social Security from a realistic perspective. This blog post does not suggest any particular course of policy, but facts should inform public debate on the subject.

Utah Proposal: Cut the State Deficit By Cutting 12th Grade

Senator Chris Buttars, a Utah legislator, has offered a controversial plan for trimming the state's budget deficit. Buttars wants to make 12th grade optional in the state. Originally, Buttars wanted to get rid of the senior year altogether, but produced a "compromise" plan after receiving a torrent of criticism from parents, teachers, and students.

Source: Los Angeles Times.

Is "Rosy" Back? Economists Question Obama's Economic Forecasting

President Barack Obama seeks to slice the enormous federal budget deficit in half by 2013. This seems like an impossible task, especially in light of the magnitude of the deficit he inherited from Bush, the increasing rate of government spending, and the implementation of new tax cuts.

But if the economy recovers as rapidly as Obama anticipates that it will, he might actually accomplish his goal. Many economists, however, question the administration's economic forecasts because they greatly exceed the projections of private economists and the Congressional Budget Office.

Here's a clip from a Yahoo News article on the story:

"They used to joke during the Reagan years that the highest-ranking woman in the administration was Rosy Scenario," said Nariman Behravesh, the chief economist at IHS Global Insight, a major private forecasting firm.

Rosy may be back in town, said Behravesh, who called the Obama administration's forecasts "way too optimistic."

For its part, the administration insisted that it hadn't cooked the books to show greater growth, and thus more tax revenues, in coming years. But the administration forecast is far higher than the projections for growth in the overall economy, as measured by the gross domestic product, of many private analysts. . . .

GDP plays the biggest role in determining the accuracy of deficit forecasts because weaker-than-expected growth swells government payments for such things as unemployment benefits and food stamps and reduces tax receipts.

In its budget, the administration predicted that the overall economy, as measured by the gross domestic product, will shrink by 1.2 percent this year but will grow by a solid 3.2 percent in 2010. That growth would be followed by even stronger increases of 4 percent in 2011, 4.6 percent in 2012 and 4.2 percent in 2013.

By contrast, the consensus of forecasters surveyed by Blue Chip Economic Indicators in February predicted that the GDP will fall by a larger 1.9 percent this year and then increase at weaker rates of 2.1 percent in 2010, 2.9 percent in 2011 and 2012 and 2.8 percent in 2013.

Update: More Post-Obamercial Budget Analysis

From MSNBC.

Snip:

THE SPIN: "I've offered spending cuts above and beyond their cost."

THE FACTS: Independent analysts say both Obama and Republican John McCain would deepen the deficit. The nonpartisan Committee for a Responsible Federal Budget estimates Obama's policy proposals would add a net $428 billion to the deficit over four years — and that analysis accepts the savings he claims from spending cuts. The nonpartisan Tax Policy Center, whose other findings have been quoted approvingly by the Obama campaign, says: "Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next 10 years." The analysis goes on to say: "Neither candidate's plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified."

After the Obamercial: A Hint of Criticism Amidst Effusive Praise

Predictably, most media have offered very effusive praise for Obama's infomercial, including those that received millions to air it. ABC's George Stephonopolous calls it a "virtuoso performance," and the San Francisco Chronicle describes it as a "classic closing commercial."

But buried under the plethora of feel-good reviews, CBS correspondent Wyatt Andrews offers a blunt "reality check," which scrutinizes the multitudinous promises made during the Obamercial. Andrews argues that "very few independent economists believe [Obama] has identified the savings needed to offset his remarkable list of tax credits, tax cuts and spending pledges." After detailing the estimated cost of Obama's increased spending and tax reduction platform (sounds like Bush), Andrews concludes that Obama "gave us a very compelling vision with his ad buy tonight. What he did not give us was any hint of the cold reality he's facing or a sense of how he might prioritize his promises if voters trust him with the White House." In the interest of being fair, neither does McCain (see this blog entry).

Which Candidate Will Keep His Campaign Promises AND Reduce the Deficit? Neither!

The next president will face many fiscal constraints. With a soaring debt, credit crisis, spending obligations from two wars, and a federal bailout of the financial sector, the introduction of new spending programs and tax cuts that both candidates promise would strain an already stressed budget. Amid the public debate over which party will better manage the economy, today's New York Times reports that many experts do not expect either candidate to fulfill his campaign promises without hurting the deficit.



Obama promises to maintain Bush's tax cuts for all Americans -- except for those making in excess of $250,000. He also plans to create a federally sponsored health care plan, turn the war against terrorism to Afghanistan, invest in alternative energy exploration, and other initiatives. McCain promises "no new taxes," and he wishes to create a governmental health plan, fight terrorism, and propose solutions to the energy crisis as well. Both of these plans deprive the government of revenue, by maintaining tax cuts; both also increase federal spending. This combination inevitably would raise deficit levels.



Obama has stated that the additional taxation of higher income earners can fund his programs, but many economists seriously doubt this. McCain's spending initiatives are less ambitious than Obama's, but his tax plan would generate less revenue. Although some experts believe that McCain's plans could have a greater negative impact on the deficit, they all agree that neither candidate's policy's -- if fulfilled -- would create a surplus. In other words, they are both attempting to deceive the public on this issue. They will either fail to spend as much money as they promise or will raise taxes -- or will do neither of these things and add to the soaring budget deficit and national debt. But these sober options do not win votes on the campaign trail.