Archive for June, 2011

The Debt Limit Talking Points we will be Hearing for the Next Month

The negotiations over how to raise  the debt ceiling have failed. Over the next month, both parties will try to rally their bases around the policies they prefer, while moving no closer to a deal on preventing the economic catastrophe that will occur if we do not raise the debt limit, reports Ezra Klein. After walking away from the negotiating table, Republicans are set to raise their demands from $2 trillion in spending cuts up to a balanced budget amendment in an attempt to rally their base. Democrats typically look at the very strict design of the BBA and dismiss it out of hand as a nonstarter. Meanwhile, Democrats are about to release a budget that will probably cut the debt using about 50% spending cuts and 50% tax increases. This probably means the Democratic budget won’t cut Medicare or Medicaid much, if at all (those cuts are extremely unpopular with Democrats and the general public). Republican Congressmen have balked at a deal that raises any revenue whatsoever, making a package that relies 50% on tax increases a nonstarter if negotiations were to resume.

I’ve laid out the parties’ strategy on the debt limit here, now here are the talking points both sides will be using to win the public over. Continue reading

How we got our debt

So if this is how we got our debt problem, why is the only solution to implement massive cuts to Medicare, Medicaid and Social Security?

Center on Budget and Policy Priorities

Maybe it would make more sense to end the Bush tax cuts and cut the Department of Defense  before we start talking about dismantling our social safety net.

The Wall Street Journal and “Obamacare”

It  always really disappoints me when I see ideologically biased, dishonest journalism on display. Today, Stephen Moore wrote a post in the Wall Street Journal . It reads in part:

ObamaCare Doesn’t Add Up

A new CBO report finds that the costs of Medicare and Medicaid will drive federal spending to all-time highs in coming decades. (1)

What is conspicuously missing from this report is the magical windfall from the new health law. CBO reports that it is “using the same growth rates that would have been applied in the absence of the legislation.” Now they tell us. Hence, Medicare alone is projected to nearly double over the next 25 years, from 3.7% of GDP to almost 7% by 2035. (2)

CBO warns that ObamaCare’s purported payment cuts to doctors and hospitals and the hoped-for reductions in the growth of the insurance subsidies would be “difficult to sustain over a long period.” Let us translate all this mumbo jumbo: The ObamaCare cost savings are mostly bunk. (3)

None of these scary trends is inevitable, and there is still time to get health-care costs contained. But now even CBO seems to agree that ObamaCare bends our health-care bills up, not down, in the long run. (4)

Stephen Moore seems to either completely miss (or just selectively misrepresent) the point of the CBO report. (For clarification, the CBO is the Congressional Budget Office, the non-partisan scorekeeper for all Congressional laws and bills) Let’s go point-by-point:

(1) To start, if there seems to be some tension between the headline and the sub-head its because the sub-head is mostly true while the headline is all sensational. The bills for Medicare and Medicaid will increase in the coming years because health care costs as a whole will increase. If healthcare for everyone else is increasing at a breakneck pace, its only natural that healthcare for the elderly, disabled, young and poor will also increase considerably. Of course, that has nothing to do with “Obamacare,”  which is what the headline leads you to believe.

(2) When the CBO says it is “using the same growth rates that would have been applied in the absence of the legislation,” its saying that it is using those growth rates as a baseline  and then it will “incorporate the projected effects of the legislation on the level of federal spending for health care”  as they affect the baseline they established. Somehow, surely by accident, Moore quoted the CBO out off context so he could make an ideological point not represented by the evidence. Either that, or he was commenting on a report he could not understand.

(3) In one of the two scenarios the CBO presents, it assumes that all the cost savings contained in the Affordable Care Act (ACA) will keep costs down for the coming decade, but then after that, they will prove “difficult to sustain.” Moore thinks this means “the ObamaCare cost savings are mostly bunk,” but the CBO doesn’t. It still projects that the ACA will save money for a decade but thinks that after that a future Congress will vote to spend more money to override some of the savings.

(4) Finally, Moore says that “even CBO seems to agree that ObamaCare bends our health-care bills up.” That is NOT what the CBO says. In the more pessimistic scenario the CBO says that “excess cost growth” in Medicare will drop 88 percent in the first decade of the ACA compared to what it was from 1985-2007. Thereafter, Medicare’s excess growth will still be 25 percent lower than it was before. (pgs 43, 45) Even if everything goes wrong with the law that the CBO thinks may go wrong with it, it will still save money (bend the cost curve down), according to the CBO.

In conclusion, the CBO’s conservative scenario projects that the ACA will save money and everything in this article is a distortion or misrepresentations of what the CBO says.

Is Obama to Blame for our Deficits?

Today I will tackle the question: How much of the debt accumulated since Obama became President can be “blamed” on him? Obviously, one of the harshest criticisms Republicans level against the President is that he is to blame for the large deficits that have characterized our budget under his presidency, but is this deserved? For the moment, we will leave aside the question of whether it was wise to sign into law the tax cuts and spending programs that he did, and just focus on getting a number on the amount of the debt he is responsible for. Rep Michelle Bachmann (who is running for President)  has famously used this chart to pin blame for our recent deficits on Obama:

Its a bit hard to read, but the deficit in 2009 was $1.41 trillion and according to the most recent graph on her website, the deficit in 2010 was $1.29  trillion. The projected deficit for this year is 1.5 trillion and since we’re almost exactly halfway through the year, we’ll call it $.75 trillion for a total of 3.45 trillion in debt accumulated since Obama took office.

What I will count into law are spending programs that Obama signed into law. So, to start we have the stimulus program which, to date has cost $654 billion.

The next big ticket item is the Affordable Care Act, the president’s healthcare reform measure. Contrary to popular belief, It is entirely paid for, and will even give us a surplus of over the next decade. The original bill was supposed to save $138 billion over a decade, but I believe that’s been downgraded to about $114 billion over 10 years. It was signed a little over a year ago so we’ll say that the Affordable Care Act gives a debt surplus of +$11.5 billion. 

Pres. Obama passed a budget for fiscal year 2010 and FY 2011 (fiscal year 2009 was signed into law by President Bush). Using the spending in Bush’s final budget as a baseline, Obama signed an increase in discretionary spending of $168 billion in FY 2010 and the continuing resolutions covering most of FY 2011 followed the same trajectory as FY 2010, so we’ll say he increased the deficit by $126 billion during the first 9 months of this fiscal year. Note: these include the costs of the wars, using Bush’s last budget as a baseline. That gives us a grand total of -$294 billion in spending as part of the normal, discretionary budget process.

Money for the bailouts of Fannie Mae and Freddie Mac as well as for Wall Street and the auto companies was approved and signed by Pres. Bush, though some of  it was disbursed by Pres. Obama. Because we are dealing with money signed into law by Pres. Obama and not money simply spent under his presidency (which would be unfair and would open up a huge can of worms I am not prepared to go into) we will not count their costs against Obama.

There have also been several other measures that were passed in order to aid the economic recovery. These totaled (table 1) $93 billion in 2010 and in 2011 they will total $270 billion. The recovery measures for 2011 were passed as part of a tax cut package extending the Bush tax cuts, which were set to expire at the end of 2010. Now, Obama worked out this deal with the Republican Congressional leaders who provided many of the votes for the package, so its not really fair for Republicans to brandish this package as a weapon against Obama on the deficit, but in looking at the package from a non-partisan stance, its clear that it has Obama’s signature on it, so it will count against him. Extending the Bush tax cuts will cost $375 billion in 2011.  After slicing the appropriations for 2011 in half (the year is half over) Obama signed into law -415.5 billion in tax cuts and government spending to aid the recovery.

In total, the stimulus program has cost -$654 billion, the Affordable Care Act has gained us +$11.5 billion, Obama has raised discretionary spending by -$294 billion and extra measures to aid the recovery have cost us -$415.5 billion to date, for a grand total of $1.352 trillion in spending signed into law by President Obama to date. That means Obama is “responsible” for, at most, 39 percent of the $3.45 trillion in debt accumulated since he took office. So, perhaps the lines on Michelle Bachmann’s famous graph should only be two-fifths as tall as they are.

But, (I’m sure some of you are thinking) how is  this possible? How has our deficit  gone up so much in the past two years, but yet Obama  has signed bills accounting for less than half of the balance? The thing about recessions is that during recessions, people start paying less in taxes because they have less money total, so they have less taxable income. There are also more people who rely on government programs like unemployment checks, food stamps and Medicaid during recessions. (As Paul Krugman explains) Drawing in less in taxes and giving out more in automatic government aid obviously increases the deficit, but since these changes happen automatically (Obama didn’t sign them into law) and we can’t blame the recession on Obama, he cannot be blamed for their effect on the deficit. (Note: All expansions of unemployment assistance beyond the usual 26-week period are counted against Obama, even though in the past all Presidents have expanded unemployment during recessions)

*Fair disclaimer: This analysis does not measure the cost of interest on the borrowing initiated  by Obama, which would tend to raise his total. Nor does it take into account the increased economic activity that undeniably resulted from the spending and tax breaks he signed into law, which would tend to lower his total.*

For a final primer on how our debt happened and what will drive it in the future, here’s Ezra Klein.

Debt Limit Strategy

The United States debt limit has to be raised. There is no question about that. The way appropriations in the US work is that Congress first passes a budget, and then if  the budget is not balanced, they approve an increase in the US’s debt ceiling (they authorize the treasury to lend money) to cover  the debt they just signed into law in their budget. This makes many budgets a 2-step process. Earlier this year, Congress (Republicans and Democrats) signed a budget that busts the debt limit and no one has produced an alternate that will keep us from hitting the debt ceiling on Aug 2. That means that all these negotiations leading up to a signing of the debt limit increase are just a prelude to the inevitable. So what’s all the fuss about?

(Its a long post, so skip this section and the next if you’re up-to-date on the debt limit negotiations)

Republicans are currently threatening not to increase the debt limit and thereby render all the new debt they voted into law null and void. If Aug 2 comes along and the debt limit is not raised, the Treasury will not be able to issue any more debt and so will have to stop paying for things. This would amount to a partial default by the United States and would mean that the US would have to immediately stop paying for some of the major things it does. Specifically,  it would have to completely cut 2 of its 5 major spending areas (or significant portions of all 5):

  1. The Defense Department
  2. Social Security
  3. Medicare
  4. Medicaid
  5. All other domestic spending (Education, EPA, National Parks, Homeland Security, etc )

Needless to say, stopping all payment for anyone of these programs would withdraw billions from the economy. Soldiers, doctors and government employees could go without pay or the elderly could stop getting their social security checks from the government. This would plunge the US back into a recession. That’s not to mention the harm this would do to our ability to lend and borrow money in the future. I wrote a  post  talking about how we are essentially borrowing money for free right now (its a bit of an over-simplification, but bear with me). As you probably have heard, US government debt is backed by “the full faith and credit of the United  States.” Not raising the debt limit would violate  the full faith and credit of the US for the first time in history and would convince many creditors that they should not lend to us (or at least not lend to us at such good rates) in the future. And just like that, our days of cheap borrowing are gone and the debt skyrockets because suddenly we have HUGE interest payments on all of our once cheap, cheap debt.

Now for the interesting stuff…

The Republican leadership knows very well the calamity that would ensue if the debt limit is not increased, however,  they see this as an opportunity to force Obama and the Democrats in the Senate to agree to drastically cut government spending.  If the economy gets wrecked because  the government defaults on its debt, it is very unlikely that Pres. Obama will be re-elected. Republicans are betting that if that happens, the American people will blame the man at the top (Obama)  instead of them for causing the nation’s economy to implode. Even if both Congressional Republicans and Pres. Obama get blamed, that’s still good for the Republican Party because they get to install a Republican president in 2013. So, Republicans are betting that Democrats will stop at almost nothing to get a deal worked out on the debt limit. And, since Republican votes are needed for any debt limit increase (the Republicans control the House of Representatives), that deal will have to be worked out on the Republicans’ terms.

Republicans’ demands are for $2 trillion in spending cuts over the next 10 years. Note: they are not asking for $2 trillion in debt-reduction over the next 10 years, they want $2 trillion in spending cuts.  Well, that’s kind of the same thing, right? No. Lots of time spending cuts can increase the deficit. For instance, cutting money from the IRS leads to more people cheating on their taxes, which increases the debt while lowering spending on preventive medical care can increase costs on acute care down the road. Focusing on spending cuts as opposed to debt reduction also leaves increasing taxes out of the equation and in a world where debt=revenue-spending, leaving out one side of  the equation  is a pretty big omission. Predictably, that’s where the sticking point is now.

Democrats have insisted, quite wisely I think, that this be a debt-reduction package and that it also be a compromise between the two parties. Democrats have argued that since the Republicans insist on cutting programs that benefit the poor and middle class (like Medicare and Medicaid) some tax breaks should be ended for the very rich, so that the pain from this deal is spread to everyone. You would expect a deficit-reduction “grand bargain” to be 50% tax increases (which are favored by Democrats) and 50% spending cuts (which are favored by Republicans).  Here, Democrats have come all the way down to asking that 17% of the package be revenue increases (showing their weak bargaining position).  Ezra Klein explains what specifically the Democrats have asked for: (more info here)

Specifically, the Obama administration was looking at a rule that lets businesses value their inventory at less than they bought it for in order to lower their tax burden, a loophole that lets hedge-fund managers count their income as capital gains and pay a 15 percent marginal tax rate, the tax treatment of private jets, oil and gas subsidies, and a limit on itemized deductions for the wealthy.

So, the Democrats want a compromise where the ultra-rich (hedge-fund managers, owners of private jets and oil companies)  pay 1 dollar more in taxes for every 5 dollars cut from programs that benefit the poor and the middle class. Republicans have rejected ANY plan that attempts to draw ANY extra revenue from ANY source. Note that the “tax increases” outlined above  aren’t even really tax increases at all because they don’t actually raise anyone’s tax rates. All they do is close a few different loopholes that the rich and some corporations use to get out of paying taxes. But that doesn’t matter to Republicans because ANY additional revenue for the federal government is unacceptable.

See, the debate here is not “let’s Democrats and Republicans come together to hash out a deal to reduce our debt and then raise the debt ceiling,” it is Republicans saying: “give us what we want and we will help you to raise the debt ceiling and keep the economy from imploding.” Republicans are saying that if they don’t get  their way, they will destroy the US economy. In this they are making a bet that the Democrats care more about the economy than they do, and so will be willing to agree to whatever demands  they make in order to keep the economy afloat.

The Republican Political Calculus

In an earlier post, I argued that the government should increase the money it is putting into the economy in order to help us get out of this low-growth funk. This is the view advocated by many economists and many liberals in Congress. Well, if the government putting money into the economy would help us out short term, then obviously taking money out of the economy will hurt the economy in the short term. This is part of the Republican calculus.

At the very least, Republicans expect to get a deal out of the President that will slowly sap our economic strength by removing hundreds of billions of government dollars from the economy over the next few years. Republicans are hoping that this will hurt the economy enough to deny Pres. Obama re-election next year. It is widely acknowledged that unless the economy improves, the voters will punish Obama in November 2012, so the Republicans do want a weak economy between now and then.

Republicans also hope that cutting this deal with them will alienate Obama from his liberal political base. Republicans only need Obama and a handful of moderate Democratic Senators to pass their spending cuts and increase the debt limit. If they can get Obama to agree to a plan full of painful cuts to Medicaid and Medicare and nothing in return (except their agreement not to destroy the economy), liberals will be infuriated. Especially if the plan passes with only token Democratic support in Congress, Obama will risk disenchanting his strongest supporters in advance of the coming election.

Republicans are also being so demanding because  they know that if Obama wins re-election, then come January 2013, the Bush tax cuts are up again for renewal. Obama has promised to veto any attempt at renewing Bush’s tax cuts for the richest 2% of the population. Republicans want the tax breaks for the rich to be renewed more than almost anything. At that point the dynamic will be reversed. Republicans will have to play on Obama’s terms and will have to decide whether they want to agree to Obama’s demands and let the tax cuts for the rich expire, or whether they want to let taxes rise on the other 98% of people in America in a PR nightmare. Of course, if  Obama doesn’t get re-elected they don’t have to worry about that. If  he still does get re-elected and the tax cuts for the rich expire, well then Republicans will say that it was a good thing they held the line against higher taxes on the rich when they had  the upper-hand in the debt ceiling negotiations. Because the worst thing in the world would be for the rich to have their taxes raised twice.

In conclusion, there is a good chance the debt limit is unconstitutional.

Supreme Court Again Rules Money Equals Speech

The Supreme Court ruled again that the rich have more free speech rights than you or me  when they ruled that Arizona’s campaign finance laws are unconstitutional. The Wall Street Journal explains:

The Arizona measure was enacted by voter initiative after corruption scandals rocked the statehouse. The 1998 Citizens Clean Elections Act created a voluntary public-finance system in which candidates who forgo the right to solicit unlimited private donations receive a grant upon raising a set number of $5 contributions, from 220 for a legislative race to 4,410 for a gubernatorial candidates.

In addition, when a  publicly-funded candidate faces off with a candidate who has been able to raise  large sums of money from donors or their own personal wealth, the publicly-funded  candidate receives matching funds so they can keep up with their high-spending opponent. ” But the law’s challengers—five conservative politicians and two political action committees—said the law stifled free speech. They argued that, when they raised and spent money to promote their messages, their speech was punished because it triggered government subsidies to their rivals.”

That last part of the law was what the conservative majority struck down in a 5-4 ruling, saying that giving a candidate matching funds somehow restricts the “speech” of their well-financed rival. Logically, how does this work? I have no idea. Apparently, if someone is allowed to “speak” just as much as you are… your right to free speech is being infringed… Of course even getting to that logically dubious conclusion first requires you to accept the premise that huge campaign contributions are directly equivalent to the free speech mentioned in the first amendment.

I find it very hard to believe that the writers/ratifiers of the 1st amendment intended money to equal free speech. The court’s conservative originalists (Scalia, Thomas, who believe that Constitution was written in stone the moment the founders laid pen to paper) sided with the majority on this one. It seems very hypocritical for them to on the one hand say that the original intent of the writers of the Constitution is all we consider when determining something’s constitutionality and then on the other hand to read a meaning into the free speech clause of the first amendment that its writers never intended.

Well, now you know that gobs of corporate money are protected as free speech and it is unconstitutional for you to try to respond to those gobs of corporate money with anything except more gobs of corporate money. Obviously, no one has as much right to free speech as a billion dollar corporation.

GOP Presidential Candidates Series: Herman Cain

I’ve decided that it would be good to do an intermittent series on the numerous candidates who want to run for President on the Republican ticket. Even though chances are very low that I would ever vote for one of them in the general election, the choice of who will run against President Obama is a very important one. I hope I can shed some light on the major players.

That being said,  I will start by looking at a candidate that I don’t think I could ever support (to give me time to make  up my mind about the rest!). Herman Cain is the former CEO of Godfather’s pizza, a radio host and a Baptist minister. He is  the only black man in the race on the Republican side and was raised from very humble origins in segregated Georgia to become a successful businessman. However, he has  never held any elected office, though he did run for the Republican nomination to be the US Senator from Georgia in 2004  (and lost badly). Lately he has been making some huge waves in conservative Republican circles by drawing considerable support from Tea Party Republicans. As Nate Silver explains, Cain’s poll numbers are  what makes him such  an anomaly:

In the post-reform primary era (1972 onward), there’s never really been a candidate that combined such limited name recognition, such underwhelming credentials — and such impressive polling.

So, not many Republicans know of Cain, but among the ones that do, he is very popular. This probably speaks to the anti-Washington fervor of many Republicans  more than anything, but it is very interesting that someone with no political background is being considered by so many for so high a position. Let’s leave it at that and dig into his policy positions, which is where the interesting stuff is.

Cain has said (and I have heard it repeated by some Republicans) that his candidacy would “take race off the table”  because  he could criticize Pres. Obama without being labeled a racist. Well, as this piece in Slate  magazine lays out, Cain’s candidacy might take some black/white racial issues off the table, but nominating him would bring other racial/ethnic issues to the fore.  You see, Cain has a problem with Muslims. Specifically, he does not trust Muslim doctors to operate on him (He though he was being operated on by a Muslim once, but phew!  it was only a Lebanese Christian). He also said he would not appoint a Muslim to be a federal judge or as a  cabinet official (the Slate article) because apparently Muslims are  not dedicated to this country or to the Constitution. This was not a temporary slip-up either. He has repeatedly said that he would illegally administer a religious test for people to take office in the United States. He said he would force Rep. Keith Ellison (who is  a Muslim) to swear his oath of office on a Bible, instead of on his Holy book. In a country where Herman Cain was once forced to the back of the bus and denied  the chance to drink from a “whites-only” water fountain, a President Cain would bring back prejudice and racism towards people from a different background than himself.

But its OK because  he’s only targeting Muslims, right? (sarcasm)

Among Cain’s other stances he has promised not to sign a bill that is longer  than 3 pages (though that’s probably just a stupid, populist pandering line and not a serious pledge). On his website, Cain states: “liberals have forced excessive environmental regulations that have stifled our domestic energy production, and instead, forced American consumers to rely far too heavily upon foreign oil.” I have never seen a serious study that says getting rid of regulations would significantly reduce our dependence on foreign oil. (if you know of one, put it in the comments) He really does  not like the EPA at all and has  said that he would appoint the CEO of Shell Oil and other energy executives to a commission that would get rid of regulations on their own companies. Is that a conflict of interest?

On healthcare, his website is mostly just a bunch of lies about the Affordable Care Act and then a couple of platitudes about tort reform and promoting HSAs, neither of which would address rising costs more than a percentage point or two. He also wants to expand the health insurance tax exemption for employers to include employees as well. The exemption is certainly a problem for the market, but the way to fix  it isn’t to expand it, the way to fix it is to get rid of the special tax  break for employer-sponsored insurance. Interestingly, in the “economy” section of his campaign platform he lambastes the federal government because

The federal government should not be in the business of picking and choosing industries they support financially. This happens in the form of subsidies, and special tax breaks in which the government “plays favorite” with one industry and in turn, hinders the competitiveness of another.

So he doesn’t support special tax breaks for specific industries… except he does support the biggest one of those special tax  breaks. He doesn’t support the government “picking and choosing industries” to support financially, unless its the health insurance industry, presumably…. how inconsistent.

Well, I cant find much to like here. I hope Cain fizzles out soon. America would probably be better for it. If you have any questions or disputes, leave a comment.