The Fiscal Cliff thread.

[Elessar78]

Excerpt from White House Burning by Simon Johnson and James Kwak

"The fundamental problem is that gov't spending on Social Security and health care will grow faster than tax revenues. In our "optimistic" scenario, where all recent tax cuts expire and the rest of the gov't (other than Social Sec and health care) remains at the early 1930s levels mandated by the 2011 debt ceiling agreement, the deficit will grow to 5% of GDP around 2030 and continue upward. (The Nat'l Debt will be at 68% of GDP in 2030 and rising). If, instead, the income and estate tax cuts are extended, the deficit will be over 8 percent of GDP in 2030 (with the national debt at 103 percent of GDP) and climbing rapidly. In the latter scenario, the economy will not be able to grow fast enough to keep pace with both rising interest payments on the debt and rising primary deficits. Before we reach that point, however, something will have to give; the only question is what.

If the short-term deficit problem is due to tax cuts, the long-term deficit problem is largely due to health care. If the tax cuts were allowed to expire and, in addition, gov't health care spending could magically be kept at 2021 levels, there would be no long-term deficit problem. . . . There is no magic wand, however, that can freeze health care spending. So the federal gov't does have a long-term deficit crisis—but it is the product of a national health care crisis."

"Our health care problems are broader than our deficit problems. The long-term deficit could be eliminated, if you were willing to eliminate Medicare, medicaid, CHIP, and gov't subsidies for buying health insurance. But that would only shift costs onto indiv. families and increase total health care spending . . . Such a solution only makes sense if we care about the budgetary health of the US gov't but not the real health (and financial health) of the people it serves."

Early on the authors outline reasons why the US pays 2x as much per person on health care as the typical industrialized country, yet we have lower life expectancy than the others:

- our insurance system incentivizes health care providers to order too many tests and procedures

- doctors are encouraged to become specialists, instead of PCPs

- we over-consume health care because we only see part of the cost

- higher administrative costs

- high income inequality (or else would be doctors would turn to other professions)

- malpractice insurance costs forces doctors into "defensive medicine" that orders too many tests and procedures to shield themselves from lawsuits.

[Larry]

Larry,

In response to what I wrote above. I've not seen Democrats argue directly that "deficits don't matter", but the democratic line certainly seems less concerned over spending than the GOP. I don't see why Democrats should embrace "entitlement reform" (which seems like a euphemism itself for something like "screwing over the poor") unless there really is an impeding problem. As in, we are certain that the 25% cut in benefits is right around the corner; we are in the middle of a debt crisis. But the GOP, certainly wants to act like there is a crisis, we are Greece, etc. because they don't want to spend any money to pay for the social programs that were established years ago.

What's funny to me is that whoever was in for Rush today (and another right wing commentator, so it can't be a coincidence) were running with the talking point that its Obama creating all these crisis points because he can make big changes during times of a crisis (ie. the Rahm Emmanuel quote from 2008). I think it's the GOP that has been more interested in creating false crises points to get urgency on cuts they would like to see.

I'll certainly agree that there is a widely held belief that the D's don't care about deficits.

But there's plenty of historical evidence that says that that belief isn't true.

Both of our recent Presidents (and political Parties) have enthusiastically passed major entitlement programs.

But only one of those Parties actually bothered to raise enough revenues so that their program didn't run up the deficit. (For the first decade.)

One Party passed rules, demanding that any bill that raises the deficit, has to be "paid for", somehow. The other Party's first action, upon gaining power, was to unanimously repeal that rule.

One of my Facebook friends posted a link to this "article". It's really, really, slanted. (I think it's pretty clear that, while they don't come out and actually say it, that they're at least targeting those people who think that our current deficits are entirely due to the Bush tax cuts.). But, I think that the actual facts that they use, to try to support their propaganda, are, actually, facts.

Common Dreams: Deficits Were On Purpose To Cause This “Crisis”

Before ‘W’ got in and made changes in taxes and military spending we were paying off the debt. Bush said the deficits that resulted from his changes were “extremely positive news.” (Yes, that is in quotes, click the link.) Before that Reagan also caused deficits on purpose. He called it “starve the beast” — as if democracy is a “beast” that needs to be killed. So don’t fall for all this deficit hysteria, let’s just fix what caused the deficits and move on.

Any time any DC elite complains about “the deficit” remind them that when Clinton left office we had a huge surplus, so big that at the rate it was being paid down the entire US debt was going to be paid off in 10 years. Bush demanded that we give back the people’s money and Greenspan warned of the danger of paying off the debt. Etc. Etc. Etc. Then Bush doubled military spending — and started two wars on top of that!

So we went from big surplus to huge, huge deficits. Bush said it was “incredibly positive news” when we went back into deficit spending. He said it was good news because it continued the plan to use debt to force the government to cut back. He said that. It was the plan. (Don’t take my word for it, click the links.)

[Elessar78]

I'll certainly agree that there is a widely held belief that the D's don't care about deficits.

The Ds don't care about deficits? I know this isn't your sentiment but the GOP is the party that doesn't care about deficits. Reagan "proved" deficits don't matter. Cheney cites that as proof that deficits don't matter. Bush 43 certainly did not care about deficits.

So for all the rhetoric about "tax and spend" Liberals, if it were true, at least we tax (create revenue) to cover the spending. Instead of pulling stunts like cutting taxes AND jacking up spending.

Deficits don't matter until they do. Like I posted above, a time is coming eventually when health care spending and social security outpace growth. My tin foil hat theory is that this is the GOPs long-term play. Eventually we won't be able to afford medicare, medicaid, chip, etc and they'll be no other avenues to keep it viable. So guess what? They just go away. Scorched earth politics.

[Tulane Skins Fan]

So, the GOP just woke up and decided there was a health care system problem... interesting.

4 years later I'm still waiting for the GOP to propose something that helps solve this problem.

---------- Post added January-3rd-2013 at 09:37 AM ----------

TSF, all you're saying is don't add any more to the debt but grow the economy so while debt to GDP is at 95%, in 10 years it could be down to 85%, 75% and so forth?

Debt is different from the deficit. The deficit is the difference between yearly intake and expenditures. The debt is the overall amount of money the government owes. (I realize you probably know this.)

I'm saying you reduce the deficit to a point in which GDP is growing faster than money owed, so that the deficit is not as significant. I think that's what you are saying, but I don't know what percentage we should try to get it to. I just know that we don't want a government running in the black.

[Larry]

BTW, I really should state:

No, I don't think that the Dems are these fiscally conservative people who have a deep concern about deficits. I assume that they know just as well as the R's do that the best, time tested, way to stay in power, is by handing out free candy.

I think it's very likely that the Dems deficit controlling actions are merely because they know that they're vulnerable to the image that's been created. Not out of any deep concern over deficits.

OTOH, I will point out that, while the Dems probably don't care about deficits, that yes, there is ample support for the conclusion that the Republicans actually do like them. That they make useful weapons.

[GibbsFactor]

Jim Antle ‏@jimantle

We are about to have the first Ron Paul-less Congress since the 104th.

[JMS]

Jim Antle ‏@jimantle

We are about to have the first Ron Paul-less Congress since the 104th.

You say that like it's not a good thing.

[Gallen5862]

http://www.washingtonpost.com/politics/house-approves-97b-in-sandy-aid-with-some-republican-dissent/2013/01/04/6a232c1c-5681-11e2-bf3e-76c0a789346f_story.html

Congress passes $9.7 billion in Sandy aid, with some House GOP dissent

Congress has approved $9.7 billion in new aid for victims of Hurricane Sandy, with a face-saving quick move by the House taken three days after Speaker John A. Boehner earned scathing criticism from New York and New Jersey Republicans for canceling a late-night vote on the funds.

The bill, which will allow the Federal Emergency Management Agency to pay out claims to those who held federal flood insurance, was approved in the House on a 354 to 67 vote. After the House action, the Senate also adopted by bill in a quick unanimous voice vote, sending it to President Obama.

[Elessar78]

An idea put forth by Dionne, Jr.

http://www.washingtonpost.com/opinions/ej-dionne-jr-the-real-deficit-argument/2013/01/06/7e07b314-5830-11e2-9fa9-5fbdc9530eb9_story.html?hpid=z2

Contrary to all the scare talk you keep hearing, Robert Greenstein, president of the Center on Budget and Policy Priorities, notes that we could put the deficit on a sustainable path for the next 10 years with one more deficit-reduction package equal to about $1.2 trillion, plus the resulting interest savings.

By sustainable, I mean keeping the debt from growing as a share of gross domestic product and holding it at around 73 percent of GDP for the next decade. This is a more than reasonable number by international standards. To put it in perspective: According to the International Monetary Fund, in 2011 Canada’s debt was at 85 percent of GDP, Germany’s was at 81.5 percent — and Greece’s was at 163.3 percent.

Holding the debt ratio in the low 70s is well within our sights. It could be achieved through a combination of $600 billion in cuts and $600 billion in additional revenue through tax reform — or through modest taxes on carbon or on financial transactions. (Okay, for now, I am dreaming on the last two, but they are still good ideas.) The cuts could be made without wrecking Medicare, Medicaid or Social Security, and without eviscerating government’s capacity to invest in the future.

[JMS]

An idea put forth by Dionne, Jr.

Holding the debt ratio in the low 70s is well within our sights. It could be achieved through a combination of $600 billion in cuts and $600 billion in additional revenue through tax reform — or through modest taxes on carbon or on financial transactions. (Okay, for now, I am dreaming on the last two, but they are still good ideas.) The cuts could be made without wrecking Medicare, Medicaid or Social Security, and without eviscerating government’s capacity to invest in the future.

I think Dion needs a calculator. Our federal debt is about 16 Trillion today... Our GDP is about 15.9 trillion today... So we are already above 100% debt to GDP ratio. And even if we cut 600 billion A YEAR, or half of the federal deficit, or 100% of the US Defense budget; That still wouldn't return us to the days o of 70% debt to GDP anytime soon cause we would still be running a 600 billion dollar deficit annually.... At 2% growth our economy is growing at about 300 billion a year, given the federal revenue is about 15% of GDP, or 45 billion a year; Given Dione's "formula" it would take more than a decade to balance the budget much less return us to 70% debt to gdp ratio.... Even if we cut the entire Defense budget, which nobody other than Dione is suggesting.

The most important thing in Dione's formula is to hold down new spending and figure out a way to modestly and responsible trim existing spending. If we do that, and the economy continues to grow, we will get better... It will just take time.....

Oh and I would throw in Japan who's debt to GDP ratio is %220 of gdp.

[Thiebear]

Lets not get all crazy with the explosion of growth you have JMS: This isn't India with 6%+

from the Huffington Post:

http://www.huffingtonpost.com/2013/01/02/fiscal-cliff-deal-economy_n_2396189.html

The fiscal cliff deal delays or prevents some of the worst consequences of the cliff from taking place, but not all of them. The hit to growth will be something on the order of 1.3 to 1.75 percent, according to a handful of early estimates. That's meaningful for an economy widely expected to muddle along at 2.3 percent gross domestic product growth next year, according to the latest survey of economists by the Wall Street Journal.

So we went from an expected 2.3% down to lets say an optimistic 1% (at the lowest possible hit in the above explanation).

then comes February: Republican's cave again as that is what they do and we get 'more' taxes on 'something'.

but: they stand up enough to get "SPENDING" cuts which is also bad for an economy like ours.

with that subtracting a minimum of 1% again (probably lower than it will be: Again).

Wahlah!!! The perfect solution by our leadership for a craptacular year that was already showing signs of not improving.

The longer this lasts, the scarier another recession or disaster is to the bumbling Feds who seem okay with the current situation.

My worst case scenario: (The President ordering the debt ceiling to 20Trillion by order) now looks like the best solution when it comes to additional damage to growth.

[zoony]

GOP would love nothing more than another recession... At this point it is all they can do to save their failed ideology

[Thiebear]

GOP would love nothing more than another recession... At this point it is all they can do to save their failed ideology

The GOP gets blamed for another recession for 4 years. 2 of which will be campaign years of constant media:

90% of the Media, the amazingly adept Dem strategists and the WH pulpit

60 tea party members blame Repub leadership

20% of the Repubs up for re-election in blue states blame leadership

have no fear it will go as expected.

And Boehner will make some vague statement about the tea party and walk away for a week.

[JMS]

My worst case scenario: (The President ordering the debt ceiling to 20Trillion by order) now looks like the best solution when it comes to additional damage to growth.

You see I think that would be an ideal solution. It doesn't give the President any new authority... It just mean the country is going to pay for the debt authorized by Congress... What's going on today is Congress is passing these budgets, inuring the debt, and then acting like it has the authority to not pay for the debts when it comes time to pay up..

It's fundamentally bad for the economy because it sow's uncertainty... it's potentially devastating to our credit rating and the global economy too; as intellects like GOP congresswoman Micheal Bauchman get to pontificate on their vast economic knowledge.

If Obama made such a declaration that by the 14th Amendment to the constitution he was going to raise the debt ceiling without asking a dysfunctional congress permission..

Then congress would have to debate the budgets they authorize, rather than debating the payment for the budgets they authorize; as it should be.

[Wrong Direction]

I've been waiting for this narrative to present itself. You decide on the merits of this argument:

http://www.forbes.com/sites/ralphbenko/2013/01/28/how-president-obama-lost-his-shirt-to-john-boehner/

How President Obama Lost His Shirt to John Boehner

The House, under the leadership of Speaker John Boehner, has precipitated a postponement in the debt ceiling fight until May. This represents a strategic choice by Boehner to make the Sequester fight, not the debt ceiling fight, the next major engagement. Much of the mainstream media now is accusing Congress of “kicking the can down the road.” They are missing the strategic implications.

In retrospect, at the Battle at Fiscal Cliff, Boehner took President Obama to the cleaners. He did it suavely, without histrionics. While Obama churlishly, and in a politically amateurish manner, publicly strutted about having forced the Republicans to raise tax rates on “the wealthiest Americans” Boehner, quietly, was pocketing his winnings.

Dazzled by Obama’s Ozymandias-scale sneer most liberals failed to notice that Boehner quietly made 99% of the Bush tax cuts permanent. As Boehner himself dryly observed, in an interview with The Wall Street Journal’s editorial board member Steve Moore, “”Who would have ever guessed that we could make 99% of the Bush tax cuts permanent? When we had a Republican House and Senate and a Republican in the White House, we couldn’t get that. And so, not bad.’”

…

Boehner, deftly, also dramatically raised the threshold, on which Obama had campaigned, at which the modest 3.6% rate increase kicked in. Yet his biggest win may have been in making the Alternative Minimum Tax patch permanent. This changes the baseline with profoundly positive implications for future tax reform and economic growth.

Boehner thereby won a triple jackpot, a bonanza for conservatives and supply-siders … while Obama, giving up all that for a trivial symbolic victory, lost his Progressive shirt. The mainstream media, with a few exceptions such as Howard Kurtz at the Daily Beast, was too deep in the tank to report that the Emperor has no clothes.

But Obama ended up, at least, shirtless. Next … off come the pants. Here come the real spending cuts.

…

Boehner, last week, again bested Obama by pushing the debt ceiling fight back to May. This is a double whammy by Boehner. According to specialists, by structuring the law to allow new borrowing only to the extent of obligations “outstanding on May 19, 2013, exceeds the face amount of such obligations outstanding on the date of the enactment of this Act” Boehner effectively instituted a spending freeze. This, in the face of Obama’s relentless demand for even more spending, is a victory for anti-profligacy hawks.

There’s a much bigger whammy embedded. Pushing the debt ceiling fight back to May, as the New York Times put it, “re-sequenced” the fight. Re-sequencing was not an idle gesture. It was a major tactical win by the House. The Times reported that “’The president stared down the Republicans. They blinked,’ said Senator Charles E. Schumer, Democrat of New York.” Schumer speaks with macho naiveté.

The Democrats, apparently, still don’t know what Boehner has hit them with. Thanks to the Sequester anti-profligacy conservatives now negotiate from strength. What are the implications of putting the Sequester fight before the debt ceiling fight? Steve Moore:

“The Republicans’ stronger card, Mr. Boehner believes, will be the automatic spending sequester trigger that trims all discretionary programs—defense and domestic. It now appears that the president made a severe political miscalculation when he came up with the sequester idea in 2011.

“As Mr. Boehner tells the story: Mr. Obama was sure Republicans would call for ending the sequester—the other ‘cliff’—because it included deep defense cuts. But Republicans never raised the issue. ‘It wasn’t until literally last week [columnist’s note: just before the deadline] that the White House brought up replacing the sequester,’ Mr. Boehner says. ‘They said, ‘We can’t have the sequester.’ They were always counting on us to bring this to the table.”

“Mr. Boehner says he has significant Republican support, including GOP defense hawks, on his side for letting the sequester do its work. ‘I got that in my back pocket,’ the speaker says. He is counting on the president’s liberal base putting pressure on him when cherished domestic programs face the sequester’s sharp knife. Republican willingness to support the sequester, Mr. Boehner says, is ‘as much leverage as we’re going to get.’”

…

As the Center for Strategic and International Studies, and nobody’s patsy, crisply notes about the Sequester: “This cut is significant to be sure, but it does not reach that of previous postwar drawdowns.”

…

It now should be clear to every Tea Party Patriot that Boehner is acting with integrity, with acute political sophistication, as an authentic conservative serious about reducing the debt by reducing spending. His claim, to Moore, that “he has significant Republican support, including GOP defense hawks … for letting the sequester do its work,” promises to be a game changer.

…

Boehner, having shrewdly identified the conservatives’ point of maximum leverage, appears poised for an historic victory. Boehner may prove himself to be the guy big enough and smart enough finally to engineer something that eluded even the great Reagan: pushing federal spending onto a downward trajectory.

…

[Larry]

I'm seeing a whole lot of the author trying madly to claim Republican victories by redefining a lot of things.

For example, claiming that extending the Bush tax cuts for the bottom 98% as a Republican victory. News flash: the Demicrats voted to extend he bottom 98%, two years ago. And a few months ago. The tax cuts in the bottom 98% ddnt get made permanent, because h Republicans refused to allow their hostages to escape.

Or claiming Republican victory for letting sequester hit. The Republican House has voted like 20 times to try to prevent sequester from hitting defense spending. It's not like suddenly letting those cuts hit is suddenly a Republican victory.

But yes, I certainly ASSUME that the GOP picked March for a political reason.

[PeterMP]

I think when you are campaiging and have a pledge to not raise taxes at all that its hard to argue that a tax increase can be called a victory.

Just w/ respect to income taxes, Boehner went from no increases on ANY taxes, to only those making over $1,000,000 to those making over $400,000 AND an increase in the capital gains and the estate tax.

The fact they couldn't make 99% permanent before was because they didn't want 99% of them to be permanenet, they wanted 100% of the permanent so they wouldn't LET 99% of them become permanent.

As far as I know, Democrats and Obama are generally supportive of the AMT so the changes there aren't really a win for Republicans and Obama has been supportive of letting the vast majority of the Bush tax cuts stay in place.

In terms of the sequestration, we'll see. If he's really got his ducks in a row and the Democrats don't, then maybe he'll "win" that battle, but sometimes when you think you've won, you really lost.

**EDIT**

It occurs to me that in politics a good compromise is one that allows both groups go back to their supporters and claim they "won".

[Wrong Direction]

**EDIT**

It occurs to me that in politics a good compromise is one that allows both groups go back to their supporters and claim they "won".

I'll just add that I strongly doubt that Obama minds cuts to the social safety net as much as is presented in that article. I think both parties know that taxes and spending are out of wack, they just can't find a political way to put their name behind something that would fix it. So this whole game of deadline politics gives both sides the political cover to make changes while blaming the other side for 1) deadlines and 2) wanting so much worse, so we had to save what we could.

If I were a smidgen crazier, I'd say that Obama, Reid, Boehner, McConnell and Pelosi are all part of the NWO and they've just created this fake story for the public, knowing all along what's going to happen at each step.

[Larry]

**EDIT**

It occurs to me that in politics a good compromise is one that allows both groups go back to their supporters and claim they "won".

A valid point.

IMO, if they can do it without engaging the reality distortion ray, that's even better.

[Mad Mike]

Jim Antle ‏@jimantle

We are about to have the first Ron Paul-less Congress since the 104th.

[PeterMP]

I'll just add that I strongly doubt that Obama minds cuts to the social safety net as much as is presented in that article. I think both parties know that taxes and spending are out of wack, they just can't find a political way to put their name behind something that would fix it. So this whole game of deadline politics gives both sides the political cover to make changes while blaming the other side for 1) deadlines and 2) wanting so much worse, so we had to save what we could.

If I were a smidgen crazier, I'd say that Obama, Reid, Boehner, McConnell and Pelosi are all part of the NWO and they've just created this fake story for the public, knowing all along what's going to happen at each step.

I suspect Obama knows there has to be some reform the safety net. He's only been talking about the need for entitlement reform as long as he's been talked about as being President.

I suspect Boehner has some idea what he'll go for, and I suspect that Boehner knows he's not going to get a Paul Ryan over all and Obama has some idea of what he'd settle for.

I wouldn't be at all surprised if they staked out public positions pretty far from what they'd settle for, settle on something in the middle, and then both declare victory.

And if it works out that way, I suspect I won't be overly upset (in fact, I can of hope it does).

[Gallen5862]

http://www.washingtonpost.com/business/economy/senate-votes-to-temporarily-suspend-federal-debt-limit/2013/01/31/256cae78-6bde-11e2-ada0-5ca5fa7ebe79_story.html?wpisrc=al_comboPNE_p

Senate votes to temporarily suspend federal debt limit

Congress gave final approval Thursday to a plan to temporarily suspend the legal limit on the national debt, permitting the Treasury Department to keep borrowing and lifting the threat of a government default until early August.

The measure, approved by the Senate 64 to 34, now goes to the White House for President Obama’s signature. Without congressional action, the administration had predicted that the Treasury would run out money to pay the nation’s bills by early March.

On May 19, the debt limit will kick back in and automatically reset at a higher level, reflecting the additional borrowing. Treasury officials can then begin taking what they call “extraordinary measures” to continue paying the nation’s bills.

The Bipartisan Policy Center predicts that the Treasury will run up about $450 billion in additional debt during that period and that the date of a potential default will be postponed until the beginning of August. In recent days, administration officials have advised lawmakers that the center’s analysis matches the White House calculations.