Obama outlines plan for cutting deficit, raising taxes

 President Obama today made good on his promise to address the nation's fiscal woes and pay for his "jobs plan" first revealed in a joint address to Congress Sept. 8, 2011 with a plan to cut the nation's burgeoning budget deficit by three trillion dollars over the next ten years.

 The plan also forms the basis of his suggestions to the Congressional "Super committee" established as a part of the "budget compromise" hashed out over the summer between Republicans and the White House at the last minute in order to avoid a government shut down.

 But the long awaited plan seems to be a case of much ado about nothing, at least to us.

 As Republicans were quick to point out, the plan is half paid for by tax increases on the "rich," something which Obama himself once stated would harm the already weak economy, (see here), and does nothing to systematically reform entitlements, which threaten to consume the entire federal budget within 20 years, (in spite of Obama hinting at such systemic reforms over the summer).

 Republicans however weren't the only ones to criticize Obama's deficit-cutting plan. 

 Hillary Clinton's prior campaign manager for her 2008 Presidential bid, Mark Penn, said in an article for the liberal Huffington Post, 

He (Obama) should be working as a president, not a candidate... He should be holding down taxes rather than raising them.  He should be mastering the global economy, not running away from it.   And most of all, he should be bringing the country together rather than dividing it through class warfare." (for full article click here).

  Leaving aside for now the obvious, that it is only the "rich" who can afford to open factories and hire others, (after all, one rarely gets hired by a poor man!), and the other erroneous views of Mr. Penn that cutting government spending will result in a loss of jobs, (when in fact government spending crowds out private enterprise which is the only real engine of job growth in our system), the President's plan follows a consistent "us vs. them" theme that has emanated from the White House as a steady drumbeat of speeches promising to make the "rich" pay their "fair share" of taxes, (always a popular stump topic intended to buoy the President's support among his Democrat-left base ahead of the 2012 elections).

  And what of the fact that according to the IRS the top 10% of income earners already pay approximately 70% of all income taxes, (see here and click on table two for tax year 2008), while fully half of the citizenry pay absolutely no income taxes (while simultaneously drawing from our national "safety net?")  

  Or that the top 1%, (you know, those greedy millionaires and billionaires the President likes to talk about making pay their "fair share"), pay 38% of all income taxes? Details, smetails!  Now why do you have to go messing up perfect presidential re-election politics with the facts?

  Meanwhile, ideas like Rep. Paul Ryan's doa budget and attempts at entitlement reform, or replacing the IRS with a truly flat, fair tax national sales tax which would shutter one of the most feared and invasive government bureaucracies in our nation, capture "black market" underground income and end the loopholes that have allowed international conglomerates like General Electric-- headed by the way by Jeffrey Immelt, a known democratic supporter of Obama's-- to avoid paying any U.S. taxes at all last year on profits over 14 billion, languish on the vine without any support from the White House.

 Don't get us wrong, we are happy the President has finally weighed in on the subject of deficit reduction, (even if coming late to the party), as in doing so he is at least publicly acknowledging the importance of tackling our nation's dire fiscal woes. 

 Perhaps such gestures are merely the beginning of a process that will result in a much-needed public conversation and eventual compromise with the Republican Congress that will result in real and substantive reform sufficient to save our nation from impending economic ruin.   We can only hope.  jp  

Breaking!- Congress passes and President to sign Budget Cutting Measure

 The U.S. Congress has passed, and President Obama will sign into law, the budget and deficit cutting measure cobbled together in the nick of time to narrowly avoid a government shutdown last week.  The vote in the House drew the support of 59 Democrats and 179 Republicans to pass by a margin of 260 to 167.  Evidencing a fissure in the Republican party between more deficit hawkish Tea Party activists and the more pragmatic Majority leader John Boehner who helped craft the Eleventh hour agreement with the President and Senate majority leader Harry Reid, 59 Republicans voted against the compromise, mostly to protest what they saw as the agreement's not steep enough cuts to tackle the nation's burgeoning fiscal and debt woes.

  The measure coasted to victory in the Senate by a vote of 81 to 19, with virtually all Democrats voting in favor, (48 out of 53), along with 32 Republican Senators and Independent Joe Lieberman of Connecticut, (Al Gore's previous Vice Presidential running mate who you'll recall Democrats tried to get rid of last time around in the primaries but fought back to regain his seat as an "Independent.").

  Voting against the measure in the Senate were 15 Republican Senators along with several liberal/progressive stalwarts including Carl Levin (D-MI) and Senator Bernie Sanders, (I-VT), who previously and before passage had given an impassioned speech about the "immoral" budget cuts in the agreement to services for the nation's poor from the well of the Senate.

More details are available by clicking here or here.  jp

Did Speaker Boehner blink on government shutdown?

Well it looks like the threat of a government shutdown has been averted for now with a last minute “deal” between President Obama, House Speaker John Boehner and Senate Democratic Leader Harry Reid, click here, (though the broader policy conflicts and debate inherent in the huge deficits that must be tackled beginning next week as Republicans address the fiscal year 2012 budget will continue, see here).   Indeed, in that regard one can't help but think if such torturous negotiations were necessary over just a few billion dollars out of the trillions that currently make up the federal budget, (see here), how can Congress ever possibly make the needed trillions in budget cuts that will be needed in the future to bring spending on entitlements and other government programs under control?  (That is, at least if we are truly to reform Washington's spendthrift ways and force the government to live within its means and avoid catastrophic cuts in the future.)  Be that as it may, the conventional wisdom is that the budget deal averting a government shutdown is, at least for now, a momentous “victory” for Speaker Boehner and the Republicans, (and averts extremist political posturing from the left as well, see here).  But is that really the case or did we just witness a HUGE “blink” by the Speaker of the people's House?

In that regard it cannot be denied that, in fact, the 38.5 billion dollar cut was much lower than the 100 billion that initially had been sought and pressed for by some in the Grand Ol Party, (particularly the conservatives so influential in Republican pick ups in the mid-term election). This fact lead Tea Party aligned firebrand Michelle Bachmann (R-MN), as well as Mike Pence, (R-IN), to pledge to vote against the deal (see here and here), plainly presaging future difficulties on the thorny 2012 budget, (even as the bi-partisan cooperation extended to swift action on an 'interim' deal designed to provide money for the cash-strapped federal government that could tide it over until the language in the more complex official agreement could be finalized by staffers and voted on, see here.  For a detailed summary on what exactly is in the deal, click here). 

And while it can't be denied that such opposition remains as much about so-called ”social issues” as about economics, the fact remains that on a host of other issues many in the activist base of the party are less than thrilled, (for previous comments from Rush Limbaugh about any compromises on the budget cuts see here and here).

Indeed, the GOP leadership, while winning promises to allow up or down votes on a couple of measures in the Senate (including an effort to completely repeal Obamacare in the Democratic controlled upper chamber), had to in the end settle for accepting continued funding of Planned Parenthood, (the nation's largest operator of abortion clinics) and abandon plans to defund the progressive left's pipedream of allowing the EPA to regulate carbon dioxide emissions as a “pollutant”-- which in all likelihood now will become law in an endrun around Congress' less than enthusiastic support for controversial “cap and trade” legislation-- in exchange for a continuation of existing anti-federal-funding-for-abortion law in D.C., (otherwise known in government circles as the “Hyde” Amendment).

And while the GOP also won the right to extend funds for school choice vouchers which allow parents in the district to take their children out of failing D.C. City schools and send them to private ones just like all the U.S. Senators do with their children-- hmmmm, is this what democracy looks like?-- as well as for an “up or down” vote on repeal of Obamacare, it is hard to see much upside for the Republicans UNLESS, and this is a very big unless, the goal all along was really not so much reform now as securing the support of Independent voters in the critical 2012 elections.

Indeed, from that perspective-- and depending on the outcome in the Presidential elections-- this compromise by Boehner may be worth it all (and then some!) if it represents the beginning of a process that ends up sweeping Obama and Senate Democrats from power in 2012, (as we have been told, elections have consequences).

So did Boenher blink? While for many the obvious short-term response may be, “yes,” in a certain sense, he did, (especially when one considers how glowingly the President and Senate majority leader Harry Reid are speaking of the “agreement,” see here and here), in a much more subtantive and strategic sense it is still as uncertain as the downside to the Republicans-- or Democrats for that matter-- had a government shutdown taken place, (leading us to can only conclude that the jury is still out on the question).

In other words, in spite of everything seeming to change in a literal fortnight, really nothing has, which in turn leads us to the same conclusion as when a shutdown seemed all but certain: For the definitive answer we will just have to wait and see. jp

Government Shutdown Looms Over Budget Showdown

For the first time since 1996 the federal government appears headed for a shutdown after talks between President Obama and Republican Congressional leaders intent on wringing more money out of federal deficit spending broke off this week, (see here and here).  This comes amidst effort by Republicans to pass a "balanced budget amendment," (see here), and follows accusations by Republicans, (see here), as well as some moderate Democrats, (see here, here and here), that the President has failed to take the lead in addressing the serious and systemic national fiscal crisis identified by the President's own Fiscal and Deficit commission in its report last December, (for pdf of report click here). Indeed, the failure of President Obama and Democrat leadership to address the Commission's suggestions-- most notably the need to deal with the coming insolvency of government entitlements such as Medicare and social security and ballooning deficits, see here-- or to present any budget at all for the last fiscal year, opting instead to fund government by six temporary“continuing resolutions” since Sept 2010, has solidified opposition in the Republican-led House from their Tea party backers to business as usual in Washington, (who have wanted to cut 60 billion from the current years spending or more, see here).

In spite of meetings on Tuesday between Obama and Congressional leaders, passage of two previous short term “continuing resolutions” that have kept the government running till now and a third offered by Republicans with even steeper cuts short-term cuts and other "riders" rejected by the President, (including full funding for the military the rest of this year), the two sides remain at considerable odds.  Indeed, the latest negotiations between the parties still leaves them apart by about 7 billion dollars from what House majority leader John Boehner has told the President he can get the votes to pass, (see story here and blog entry here). This makes a shutdown tomorrow all but inevitable. But does it really matter?

In reality much of this is political theatre. From the pro-spending-cut point of view, as Senator Chuck Schumer of New York pointed out in “strategy sessions” last week caught on tape discussing how best to insure Republicans get the blame for any shutdown, Republicans are indeed somewhat “in a box,” (see story here). Pressed by the even more stringent budgetary wishes of their Tea Party friends-- including Senators like Mike Pence (R-IN) and Rand Paul (R-KY) who wants even steeper cuts to bring the Federal budget in balance within 5 years by eliminating the Federal departments of Energy, Commerce, Education and Housing and Urban Development, (see here), they risk alienating independent voters whom they need to defeat President Obama's bit for re-election-- launched this week, see here and here-- if they are seen as unduly partisan, (even if such moves would have the added advantage of avoiding, at least for now, the divisive debates about how to reform programs like Medicare and Social Security). 

And this is true even if, at least for now,  Republicans seem to enjoy substantial Tea Party and Independent support, (as it is still a long time between now and the 2012 elections, and depending on the longer-term effects of the budget showdown and political events between now and then nothing can be taken for granted, leastwise what the sentiments of Independents and the nation as a whole will be come election time twenty months from now).

On the other side, the Democrats are being pressed by their own partisans on the left who largely run the U.S. Senate, or are at least strongly influenced by the likes of socialist-leaning "Independent" Vermont Senator Bernie Sanders and Senate majority leader Democrat Harry Reid of Nevada-- who fought back a challenge by Tea Party candidate Sharon Angle to retain his seat in the historic mid-term elections-- and in the House by Representatives like Sheila Jackson Lee (D-TX) and Anthony Weiner, (D-New York), who argue that there is no real deficit or budgetary “crisis” and that any cuts would hurt the economic recovery and the most vulnerable in society who need such programs to survive.

We think the truth, as is usually the case, is somewhere in the middle, but can't deny the long-term impact to our nation's security and economic well-being that the unsustainably high levels of debt and deficit spending will (and are!) having on our country.

Indeed, just one look at the nations debt 'clock,' (see http://www.usdebtclock.org/), underscores the stark truth that our national deficit has now reached an incredible 14 TRILLION plus dollars and is growing at an unsustainable rate, (going up at least five billion a day, see here, and over 190 billion in the month of March alone! see here). Such debt levels sap private enterprise and investors' ability to create jobs by causing them to compete for capital with the public expenditures of the federal government-- which on a dollar to dollar basis is much less efficient-- and drives up interest rates which in turn further reduces private economic activity which we so desperately need to maintain our nascent economic recovery, (for more detailed discussion of economic impacts see here).

And that's besides the fact that at this rate the American government, after paying the interest on the nation's debt in 2020, will have used up all the money needed to run the entire federal bureacracy of entitlement programs and have nothing left for defense, education, or day-to-day operations necessary for the functioning of a modern society such as the judicial system and Internal Revenue Service. (Indeed, the current showdown has all but forced the President to instruct such federal departments and agencies to form 'contingency plans' on how to deal with the all-but-inevitable shutdown, see here).

And while some may, with tax deadlines right around the corner, actually breathe a sigh of relief at knowing the IRS may very well not be able to audit them or engage in other “enforcement” activities during any shutdown, that comes at a high price to many Americans whose refunds will be delayed or who need other essential government services like passports, student loans, and a myriad of other services. (NOTE TO OUR ELDERLY READERS ON A FIXED INCOME: The much ballyhooed medicare and social security programs will NOT be effected by a short term shutdown, click here).

However, an extended shutdown could damage America's stature in the world as a “safe” haven for investment in a time of instability, and even cause a spike in interest rates that will, in turn, result in even higher deficits in coming months and years as the government will be forced to pay higher returns to “lure” foreign investors like China, England and Japan into buying the U.S. government securities by which our deficit-binge-spending is financed.

On the other hand, perhaps a little pain is necessary now to spur our leaders on to action and avoid even more catastrophic consequences in the long term. Only time will tell if this high stakes game of political chicken will indeed yield any such benefits, or just cause the electorate to become even more frustrated with government in general. (Or, more saliently, result in any long-term political fallout, e.g., will a shutdown have any practical political results that would end the partisan bickering in the U.S. Senate by resulting in election of more Republicans, (or Democrats), in 2012? (and/or a new President?). Such prognostications are beyond the scope of this post and, at present, beyond our ability to forecast, so we will just have to wait and see.

Suffice to say that, in the meantime, if there's any business you have to finish with the federal government in the next 24 hours, we suggest you do so. It could be a bumpy next couple of weeks. jp

64 Senators Write Letter to Obama Urging Action Addressing Deficit, Entitlements

Continuing a now-familiar refrain of the President's seeming unwillingness to lead on the tough issues facing our nation, (see previous posts on Obama's dithering, this blog), 64 Democratic and Republican U.S. Senators urged President Obama in a letter last Friday to deal with the American deficit and entitlement crisis that threatens the nation's economic security, click here, and on which his own blue-ribbon deficit-reduction Commission reported its findings in Dec. 2010, (for Commission's report click here).

The letter, (the full text of which can be seen here), signed by 32 members of the President's own party in the U.S. Senate and joined by 32 of their deficit-hawk Republican colleagues, expresses concern over the drastic fiscal and economic consequences that will result from a failure to act.   Aside from interest on the national debt eventually exceeding all other expenditures of the federal government, such consequences include drastic necessitated cuts in social security and other programs the legislators-- and the numbers-- say will be inevitable in the absence of serious entitlement, tax and spending reform, (even if Senate Majority Leader Harry Reid unbelievably thinks "there is no crisis," see here).

Neither the Republican nor Democrat Senate leaders personally signed the letter, meaning that if push comes to shove, the Republicans need only peel away just a couple more Democrat votes to have a super-majority capable of overriding a Presidential veto on any legislation that reaches his desk, (assuming the President can be persuaded to get involved in what has long been considered the "third rail" of American politics, that surrounding "entitlement reform"). 

Indeed, such "entitlement" programs-- about which any talk of reform has traditionally evoked a visceral emotional response in the electorate-- has traditionally meant that addressing such matters has been considered an almost sure way of committing political suicide. 

These days however, the burgeoning national debt and excessive and continual budget deficits of Washington have combined to result in an openness, and indeed, demand on the part of a plurality of voters for such issues to be addressed prior to the devastating economic results of failure to act predicted by the Deficit Commission's report, (as well as other institutions like the Federal reserve and the opinion of most economists). 

In this light, although it may well be many of the Democratic Senators signed the letter as a desperate act of political self-preservation due to the potential effects of inaction on their imminent 2012 re-election campaigns during a time of growing public concern with the ballooning national debt caused by national economic woes and rampant deficit spending on everything from Tarp to new federal programs like Obamacare, it still marks a change in the political winds that, in our view, is long overdue.

And while we have written at length on the President's tendency for prevarication and procrastination when dealing with important issues which may have a political price to pay-- choosing instead a "you-go-first" attitude that defers tough political decisions to the legislative or judicial branches-- this seems just one more piece of evidence in support of that thesis, (albeit a significant one).

Like the President's stance (or lack thereof) on almost every other domestic and foreign policy issue, including Iran nukes, Tax cuts, Libya, traditional marriage, Guantanamo-- which the President, in spite of announcing resumption of military trials for terrorist suspects being held there, see here, has now and almost immediately muddied the waters on even that, see here-- this tendency is now on full display and likely to only increase the split in the Democrat party going into the 2012 elections absent strong executive leadership from President Obama.

This can only increase the chances of catastrophic losses for the Democrats in 2012, already presaged by demographic factors which strongly favor Republicans, (who only need to defend 10 Senate seats to the Democrats 23).

Fortunately, it also increases the chances the President will now take action on these critical matters facing the nation.

For the country's sake, let's hope the President gets the message from his Democratic colleagues. jp

GAO Report Strengthens Republicans Efforts to Trim Budget Deficit

 The Government Accounting Office released a report today showing billions of dollars in waste, fraud, and duplication in government programs, click here to download report, complicating the Democrats' attempts to defeat Republican efforts to trim spending in the Federal budget by 60 billion dollars. 

 The issue could prove critical, not just in the ongoing public debate on how to address our country's huge and increasing national debt, but also due to the potential for a federal government shutdown bandied back and forth between the parties in the event agreement isn't reached on how to address the one trillion-dollar-plus deficit in the fiscal year 2011 budget. 

 The revelation by the GAO also complicates matters on longer term budgetary matters such as the looming vote to raise the national "debt limit," (which absent drastic budget cuts will be required by May), and longer-term solutions to the nation's fiscal woes caused by burgeoning entitlement programs, (i.e., medicare, social security and medicaid).

 Indeed, such programs, if not reformed soon, threaten to exceed all other spending in the federal budget along with interest on the national debt by 2019, (CITE).  What does this mean in actuality? Simply this:

 Absent real and systemic reform of the entitlement mess Washington has been ignoring for years, there will be a fiscal and economic crisis so great it will make the current economic woes look like a walk in the park, with experts indicating there will be no money left for all other expenditures of the Federal government for things like food and drug safety, energy assistance, border patrol, the federal reserve system, and national defense, (not to mention "lessor" matters like nutrition programs, i.e. food stamps, the postal service, and funding for governmental departments such as the EPA, law enforcement, State Department, and the Internal Revenue Service, well, this latter might not be seen as that much of a loss to millions of Americans, lol);

 But all kidding aside, we are talking about a "European-style" meltdown such as we have never seen coming to our shores-- much more serious than that we have observed from afar in Greece and elsewhere-- with such devastating consequence so as to make the 2007/2008 economic/housing crash and ensuing bailouts and related troubles look like the 'good ol days.' 

 For one thing, we will have to pay a drastically higher percent of interest for any borrowing the Federal government must continue to do for such basic services as listed above, (as a reduction of our credit rating on the international markets will result in rising rates due to us being seen as a more "risky" investment by countries such as China who are at present bankrolling our national spending spree). 

 Moreover, the drag on our economy that such a crisis and/or increasing levels of debt would cause could not only result in a "depression-era" death spiral which would potentially bring economic growth to a crawl, (if not kill it entirely), the countries continual ability to even borrow at all would be terminal if China and other countries decided to just cease buying our national debt through things like American bonds and T-bills entirely.

 While it is an open question whether the Chinese would, in fact, want to take such drastic action, (due to the effect such action could have on their own economy), it conceivably could be precipitated by a financial crisis of their own and therefore, must, in all sobriety, be a factor in our critical and impending national discussion on entitlement and deficit reform. 

 Indeed, in spite of the White House's lack of clear leadership on these issues, it is plain from the repeated reports and warnings of economists and commissions alike, (click here to see the conclusions from the National Debt Commission instituted by President Obama himself), that this time around it will take much more than just "talk" to solve these critical and imminent problems that have been perculating for decades (and exacerbated by the increase in spending of the current Administration over the last two years).

 In that light, the warning from the GAO's report may be the "shot across the bow" of our nation's economic system that could serve as a wake up call to get us back on track. Let's hope the GAO report only adds to the pressure from an increasingly restive electorate so as to result in actual change that will avert the potential negative consequences accruing from our national debt and the resulting crushing burden on future generations that is as morally wrong as it would be economically disastrous. jp