The deficit

[Ddrak]

Where it's coming from:

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[Lurker]

I indirectly linked to that before.

Almost none of our current and projected deficit is due to Obama's policies. It's important to remember that as the same crowd that got us into this mess and that pretends to care about deficits (but really only cares about their own tax burden) tries to use deficits to attack Obama.

Also important to take a look at what's going on in the Senate, as the entire Republican caucus plus Ben Nelson voted to sabotage the economic recovery, damaging struggling states and hurting millions. Whether they did this out of ignorant fear of adding to the short term debt or because they put their party over the country and hope it benefits them for November, I don't know. Not sure which is worse. Remember this as the same people that voted against this legislation use unemployment and slow economic growth to attack Obama.

On deficits... here was Obama at the G20 press-conference.

Q Are there steps your administration can take now to build confidence that the U.S. will, in fact, meet its deficit reduction goals in the medium and long term?

THE PRESIDENT: Several steps we’ve already begun to take: Number one, as I indicated, the budget that we’re presenting -- three years discretionary domestic spending freeze. And I’ve sent a clear signal to the leadership when we met, even if we do not get the entire budget package passed through Congress, that top line number needs to stay firm. And I’m serious about it.

We’ve initiated a whole host of measures to cut programs that aren’t working, including, by the way, in the defense area. Bob Gates has been, I think, as successful as any Secretary of Defense in recent memory in actually killing programs, which I think anybody who follows Washington knows is very -- very difficult.

We have instituted PAYGO. And although there were baselines built in that took into account the fact that some of this stuff was not going to be solved overnight, it is starting to provide budget discipline to Congress as they move forward.

And we have set up this fiscal commission who will provide reports starting in November -- and one of the encouraging things, although there was resistance, ironically, on the part of some of the Republicans who originally had been co-sponsors of legislation to create the fiscal commission and they, in fact, ended up voting against it -- what’s been encouraging, based on what I’m hearing both from Democrats and Republicans, is that there’s been a serious conversation there. People are looking at a whole spectrum of issues to get at what is basically a structural deficit that preceded this financial crisis.

Even if -- the financial crisis made it much worse, but even if we had not gone through this financial crisis, we’d still have to be dealing with these long-term deficit problems. They have to do with Medicaid; they have to do with Medicare; they have to do with Social Security. They have to do with a series of structural problems that are not unique to America. Some of it has to do with an aging population. And we’ve got to look at a tax system that is messy and unfair in a whole range of ways.

And so they're looking at the gamut of steps that are going to be taken. And one of the interesting things that's happened over the last 18 months as President is for some reason people keep on being surprised when I do what I said I was going to do. So I say I’m going to reform our health care system and people think, well, gosh, that's not smart politics, maybe we should hold off. Or I say, we’re going to move forward on “don't ask, don't tell,” and somehow people say, well, why are you doing that, I’m not sure that's good politics.

I’m doing it because I said I was going to do it. And I think it’s the right thing to do. And people should learn that lesson about me, because next year when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, because I’m calling their bluff. And we’ll see how much of that -- how much of the political arguments they're making right now are real, and how much of it was just politics.

Obama inherited the current deficit problem. Almost none of it is of his making. I'm guessing that the commission is going to offer some tough suggestions, a mix of tax increases on upper wage earners, cuts in unnecessary programs, and tweaks to entitlement programs like social security. All of those things are necessary to bring our budget deficit under control. And we'll see who's really serious about deficits and who just cares about their own bottom line.

[Kulaf]

Bush is out of office. You cannot blame Obama not ending the Bush tax cuts on Bush.....nor not pulling out of Iraq on Bush.....nor expanding the war in Afghanistan on Bush.....nor the fact that that graph trends up on Bush.

[Lurker]

I'm simply pointing out that Obama inherited these problems from Bush and that Bush policies are the single largest contributor to the deficit. Sure, Bush is out of office. But that doesn't change the fact that the crowd who caused these problems are now trying to blame Obama for them as if he caused them.

It's also harder to fix things after they've been completely screwed up.

It's harder to take away irresponsible and unaffordable tax cuts than to not have done them in the first place.

It's harder to withdraw from an uneccessary war than to not to have invaded in the first place.

It's harder to get things right in Afghanistan after that conflict was ignored and we diverted focus and resources.

It's harder to balance the budget after eight years of passing trillions in spending without any effort whatsoever to pay for any of it.

So spare me the "Bush is out of office and Obama hasn't fixed everything" bullshit. It's an exceedingly dishonest and lame deflection. Also, the graph trends up because of the irresponsible Bush era tax cuts. I'm sure you the cuts for top wage earners expire given your deep concern over deficits. You'll back Obama on that, right?

[Partha]

They will never back Obama on it for one of two reasons.

1) They are dead certain that they will be the rich, and therefore to tax the rich means to tax them in the future.

2) They are economic terrorists, willing to trash the country to be protected slaves of the rich in their 'utopian' libertarian future. This also covers their authoritarian complex whereby they need a strong 'Daddy' to give them marching orders.

[Kulaf]

Funny I seem to recall using that same arguement about health care reform and how hard it will be to fix if this screws it up.

[Lurker]

There was no "screw up" with Bush's policies, they had the budgetary effect that was predicted and projected. Other than the Iraq war where no effort was made to calculate the total potential cost, it was clear the other polices would add trillions to the deficit and no attempt was made to pay for any of it.

To put it more simply: If the Bush tax cuts and spending performed as projected by the CBO they would add trillions to the deficit, which they did. We're now left trying to dig out of that hole. If health reform performs as predicted by the CBO it will result in lower deficits.

Other than that it's the exact same argument!

[Embar Angylwrath]

I think the gist of your position is to point fingers, nothing more. The Dems could have slammed through any legislation/tax repeal/war funding modification etc they wanted to, and the Reps couldn't have said boo about it (maybe boo-hoo though).

The deficit wasn't a surprise to Obama, he knew what he was signing up for. So the real dishonesty is to continue to blame Bush era policies when he knew what he was inheriting, AND when he and his party had every opportunity to fix them if they really wanted to.

Who's more to blame for a house burning down? The guy who started the fire, or the people who have the water who refuse to attempt to put out the blaze?

[Lurker]

Sorry Embar, but when rubes and propagandists make absurdly false attacks like, "Obama quadrupled the deficit. All in a just a few months." it's not unreasonable for me to correct the record. If you were more honest about how we got into the mess we're in and what's required to get out of it there'd be no reason to "point fingers" at the people actually responsible... but you're not, so there is.

Obama campaigned on a responsible withdrawal from Iraq, and that's what he's doing. As for slamming through a repeal of the tax cuts and attacking the deficits Bush left, that wasn't possible due to the recession. Preventing another depression was a bigger priority by far than short term deficits. Still is.

And to answer your question, the guy who started the fire is more to blame. It's also a bit absurd to point to the guy trying to put out the fire and accuse him of starting it in the first place. That's "the real dishonesty", and you were first in line spewing that line of attack around here.

=====

To summarize: If you were honest and didn't try claim Obama caused a deficit he inherited, if you didn't make false statements about him doubling spending and quadrupling the deficit, there'd be no reason to correct the record. Then we'd be able to have an adult discussion about how and when to attack the deficit.

[Embar Angylwrath]

That sounds like you're defending the Bush tax cuts while simultaneously condemning them....

[Lurker]

We've discussed this before. I'm not knee-jerk opposed to tax cuts and they do provide economic stimulus, although not as much stimulus as direct government spending. The stimulus package Obama passed soon after taking office was 1/3 tax cuts aimed squarely at the middle class. I supported that. Now, while there's a huge difference between short term targeted tax cuts while battling a deep recession and the long term across the board tax cuts Bush enacted in 2001 and 2003, cuts that were not properly targeted and that added several trillion to the deficit, we have to wait until the economy recovers a bit more before allowing the cuts for top wage earners to expire.

It's not hypocritical to say that the Bush tax cuts were the wrong policy move at the time they were enacted but that it was correct to delay eliminating them while battling the worst recession in nearly a century. That might be more complexity than someone who only relies on headlines can handle, but it's not contradictory.

[Embar Angylwrath]

So what's your solution? Current debt-GDP stand about a little over 60%, and because of the massive deficit spending, its projected to go over 100% in the next five years (and I'm not counting inter-agency debt, money the government owes itself). The IMF estimates the US would have to reduce the deficit by 12%, which is a larger adjustment than Greece had to make, and you saw what happened there.

If you say you can't signicantly raise taxes or cut spending.. then you've basically thrown up your hands on the deficit issue (which is why you seem to want to dig up old threads and take potshots instead of tackling the problem).

Maybe in your mind debt-GDP ratios aren't really important. That's certainly a viewpoint held by others, but not by me, although Japan has a debt-GDP of over 200%, and some use that as talking point that the US could chug along. However, my answer to that is.. countires can buy Japan's debt as long as the world economy seems sound (thus reducing overall risk on the debt). But who will buy the US debt if the world looks to the US as the foundation of the world economy? But that's a side note.

Anyway growing debt-GDP ratios by 40% in five years is insane, and its unsustainable. We need to take a weed-whacker to the budget and eliminate programs and expenditures, its the only way. Personally, I'd start with the TSA, its just for show. May not make a big dent, but I have a hard-on for those rat bastards.

[Kulaf]

There was no "screw up" with Bush's policies, they had the budgetary effect that was predicted and projected. Other than the Iraq war where no effort was made to calculate the total potential cost, it was clear the other polices would add trillions to the deficit and no attempt was made to pay for any of it.

To put it more simply: If the Bush tax cuts and spending performed as projected by the CBO they would add trillions to the deficit, which they did. We're now left trying to dig out of that hole. If health reform performs as predicted by the CBO it will result in lower deficits.

Other than that it's the exact same argument!

http://www.epi.org/publications/entry/i ... efs_ib154/

CBO was projecting a 5.6 trillion budgetary surplus when Bush asked for a 1.6 trillion tax cut. So while they might have had the "budgetary effect that was predicted and projected", they were based on a CBO projection of a future surplus. Of course we all know what else happened in 2001 that had a ripple effect on the economy......would you have liked to see Bush ask to repeal the tax cuts during a recession? And if then, why not repeal them now?

[Lurker]

Kulaf,
The Bush tax cuts in 2001 were partially excusable. They went to the wrong people, in my opinion, but whatever. By 2003 it was pretty well understood that we couldn't afford another round of long term across the board tax cuts for the wealthy. Bush went ahead and did them anyways, tax cuts that were so poorly targeted they provided very little economic stimulus but contributed hugely to the deficit, as Bush's own economic team documented when they proposed them.

=====

So what's your solution?

...

If you say you can't signicantly raise taxes or cut spending.. then you've basically thrown up your hands on the deficit issue (which is why you seem to want to dig up old threads and take potshots instead of tackling the problem).

When people claim Obama caused a problem he didn't I'll correct the record. Sorry if you consider that pointing the finger or taking pot shots. Try to be more honest in the future.

As for my solution, I don't think we can tackle deficits until the recovery is stronger. We need another round of stimulus that needs to be financed with deficit spending. After that, in a year or two, everything needs to be on the table. We need to restore revenue that was stripped away by Bush, and that's going to mean tax increases. Do you disagree? And we also need to take a serious look at entitlements and spending, including defense spending.

As Obama said, he's going to start "presenting some very difficult choices to the country", and it's not helpful when one of the political parties is filled with children who aren't serious about tackling problems. It's not helpful to knee-jerk oppose tax increases when there is no chance, absolutely none, of solving our budget problems without them.

Here's some rudimentary budget simulators to play around with. (here and here)

[Embar Angylwrath]

I don't disagree that tax adjustments will need to be made, however, we HAVE to move away from putting a greater and greater share of taxes on a smaller and smaller portion of the population. And its inherently unfair that people who pay no federal income tax at all receive a tax refund. I think at last count about 45% of Americans pay no federal income tax, while 5% pay about 50% of the overal income tax bill. That sound like responsible tax policy to you?

[Kulaf]

IMO the earned income credit needs to go. The retirement age for social security needs to be increased by about 10 years. We need a tax increase across the board to pay for everything that people seem to want. We need REAL Medicare reform.

What we really need is across the board tax reform. Right now there are so many taxes which nickle and dime us to death it is rediculous. It contributes to the fallacy that Americans are grossly undertaxed.

[Lurker]

we HAVE to move away from putting a greater and greater share of taxes on a smaller and smaller portion of the population. And its inherently unfair that people who pay no federal income tax at all receive a tax refund. I think at last count about 45% of Americans pay no federal income tax, while 5% pay about 50% of the overal income tax bill. That sound like responsible tax policy to you?

You can't just look at federal income taxes. Total tax burden must be taken into account. I think it would be bad tax policy and worse economic policy to increase the burden on people who can least afford it.

And while a superficial look at the numbers can make it seem like the wealthy are getting hosed, the fact is their tax burden has gone down more than any other demographic. The reason their share of total taxes has continued to rise while their actual tax burden has gone down can be seen in the graph below.



So no, I don't think it's a good idea to remove the earned income tax credit or to significantly raise taxes on the middle class. The wealthy have seen their tax burden fall while their income has soared. I don't oppose an across the board tax increase as long as it's very progressive.

[Embar Angylwrath]

I don't see the relevance of that graph. All it shows is after-tax income. It doesn't show tax rates.

http://www.taxpolicycenter.org/taxfacts ... ?Docid=456

As you can see from these tables (info provided by CBO), the lower quintiles have seen an enormous percentage drop in effective tax rates relative to the top quintile, which has dropped a bit, but has mostly remained pretty stable. So 4 out of 5 of the quintiles have seen tax decreases over time, with the lowest quintile now having a negative effective tax rate (we pay them to not pay income taxes.. how daft is that???)

Personally, I favor "choice" taxes over income taxes (a variation on a sales tax). We already have some of that as a "luxury" tax. We could use more of that. I would tax:
1. All foods that are nutrtionally deficient, which includes most fast foods, snack foods, soda, etc. Obesity drives 10% of our annual healthcare costs. Don't ban the foods (if you really want to call them that), but treat them like liquor and smokes.
2. Cars that have a low mpg. Again, don't ban them, but if someone wants to drive a gaz-guzzling hog (as I do), make them pay for the priveledge through a tax.
3. Legalize grass. Tax it. Tax the fuck out of it. If a joint costs $0.10 to make and market, and the government put a $5.00 tax on every joint, this nation would be rolling in dough. And does anyone want to make the argument that legalizing a psychoactive substance and then heavily taxing it is regressive?

I'd also eliminate the mortgage interest deduction, but grandfather in (or slowly phase out over time) those that have already made a home purchase. The government shouldn't be favoring homeonwers over renters, and I say that as a homeowner who takes advantage of that sweet deduction every year.

I'd cut defense spending, especially if the Pentagon says it doesn't want something. Like the F-35 engine, which was crammed down the throat of the Pentagon even when Gates said it wasn't needed. The spending prioities in the Pentagon are absurd. Do we really put the US at risk when we all the ships afloat and we're building outnumber the next 13 navies COMBINED? (Eleven of which are allies). Is it really necessary that by 2010 we have a 20-1 advantage over China in stealth fighters? Military spending has more than doubled since the 9/11 attacks. The Pentagon has a beuracracy as bloated as as Washington. Time to cut spending there, but we have people in congress trying to protect jobs in their districts/states, and when any cut comes up that threatens jobs, they work to sink it. Shameful.

And.. if we need to deficit spend, we would be well advised to put that spending in areas that are investments in America's future. That means infrastructure, energy and education. Hardening our grids against failure (be that EMP attack, solar flares, what have you) would create jobs and also have a lasting benefit. Investment and government support in sustainable and renewable energy, with an effort ala the moon shot, is a great investment. The US absolutely needs to find alternative energy sources. We can't rely on the mid-east (and, if they flip us the bird, go begging to Canada), for oil.

Finally...as with any group or organization, the best investment is in the minds of those in the group. Our K-12 system is broken. It needs to be revamped, bottom to top. I bet if we combined a pay package based on location AND performance, we'd get better teachers and administrators to move into challenged districts, which would help educate those that need it the most. But the unions oppose that. God forbid there be a stratification in the performance of teachers.

So... tax usuage of certain products, spend on investment, eliminate fucked-up spending. Anyone have a problem with that?

[Lurker]

I don't see the relevance of that graph. All it shows is after-tax income. It doesn't show tax rates.

...

As you can see from these tables (info provided by CBO), the lower quintiles have seen an enormous percentage drop in effective tax rates relative to the top quintile, which has dropped a bit, but has mostly remained pretty stable. So 4 out of 5 of the quintiles have seen tax decreases over time, with the lowest quintile now having a negative effective tax rate (we pay them to not pay income taxes.. how daft is that???)

Well, combining the graph I posted with the table you linked, the top 1% saw their federal tax rate drop 5% from 1995 - 2006 while their income increased by over 200% in the same period. That's a larger decrease in burden and a far, far, far larger increase in income than any other group. I think that's relevant information.

And while the lowest quintile does have a negative effective income tax rate, they do not have a negative total federal tax rate. They pay taxes (plus state, local and sales taxes), just not federal income taxes.

We have a progressive tax system and it really needs to remain progressive. There's no way to flatten federal income tax rates while maintaining adequate federal revenue without greatly increasing the tax burden for the non-wealthy.

The rest of your post was full of good suggestions. Can't argue with most of that.

[Harlowe]

I love when you two start honestly discussing an issue. You're both intelligent guys, but look at an issue from completely different viewpoints, so it's always interesting to follow your posts ...you know, when the stars align this way!

And I agree Embar, great suggestions. Although, I think we need to get further in the economic shitter in order to make legalizing pot look appealing enough to take that leap anytime soon. If we're desperate enough, I can't imagine why you wouldn't do something that would bring in the kind of tax revenue and stimulus that would. Just treat it like alcohol.