14 July 2011

Musings on the debt-ceiling showdown

It's no secret that this site is an avowed opponent of big government and believes that America's debt crisis is solely a function of out-of-control spending and government profligacy in virtually every area the state infects.

The fact is that out-of-control discretionary spending, unfunded wars and a looming entitlement crisis are pushing America to the brink of fiscal collapse. Both Republicans and Democrats share equally in the blame. George W. Bush -- enabled by first a Republican Congress, then a Democratic one -- doubled the size of the national debt in just eight years. Despite his assurances that he would do something about the deficit, Barack Obama has managed to be even worse than his predecessor, with his last fiscal budget clocking in with a $1.4 trillion deficit. Democrats in Congress have even failed to pass a budget. Short of taxing the rich and shrieking about rich yacht owners, the Democrats have done little to demonstrate any concern whatsoever with the massive fiscal crisis. President Obama -- as with the perpetual warfare state, executive power and civil liberties -- has completely ignored Candidate Obama's own words. Given that Obama promised to cut the deficit in half in four years, his presidency has been an utter failure.

But I was bitterly disappointed to see Mitch McConnell and Eric Cantor walk the GOP away from a plan that would cut the deficit by an estimated $4 trillion over the next decade. Here's why:

1. Big-picture legislation requires compromise. There is not a single piece of significant legislation passed in the last 50 years that did not require each side to give, even a little.

2. Ronald Reagan, the ultimate conservative icon and the greatest president of the 20th century, presided over some sort of tax increase 11 times in 8 years. For conservatives to suggest -- as Cantor has implied -- that any tax increases are completely off the table because they are "not conservative" is preposterous. It's yet another example of the 21st century Republican Party wrapping itself in only part of Reagan's legacy while completely ignoring others.

3. Politically, Republicans (again, particularly Cantor) need to be careful about defending taxes and loopholes, such as the capital gains tax, that benefit only the wealthiest Americans. While most Americans do not want marginal rates to increase, the GOP is playing a very dangerous game by appearing to align themselves behind policies that only benefit the rich.

4. We've noted this before, but it is highly misleading for Republicans to suggest that the way to a balanced budget is through tax cuts, as Tim Pawlenty has. Marginal rates increased incrementally in 1993, and due to a combination of increased revenue and spending cuts, the government was running a surplus by 1999. That increase was reversed by the Bush tax cuts in 2001, and in FY 2002, the government began running a budget deficit and has never recovered. It is so mind-bogglingly stupid for anyone to suggest that cutting taxes automatically increases revenue, or raising taxes cuts revenue, that I cannot take them seriously.

5. Just so we are clear, my ideal tax reform would include 2 items: (i) throwing out the entire tax code, including all tax breaks and loopholes; and (ii) instituting a flat tax of 22 percent, applied equally to individuals and corporations.

6. For conservatives to suggest -- as Gov. Pawlenty has implied -- that it would be better for the U.S. to default on its obligations than to raise the debt limit is as unconservative a policy as one could concoct. Conservatism values stability, order and reason; it eschews radical change. And if the U.S. government defaults, it would throw the global financial market into upheaval. This is not in any way conservative. It is suicidal and stupid.

7. Since he took office, President Obama has engaged in egregious demagoguery on Social Security, but the fact that he put not only Social Security, but Medicare, on the table is significant. This has upset liberals like Glenn Greenwald, who have shrieked about taking money out of seniors' pockets and giving it to Wall Street.

8. The most critical part of any long-term deal is revamping Social Security and making it sustainable. As such, please ignore the atrocious AARP ads.

9. Finally, most damning to the Republicans: In March 2011, the House GOP blasted out a fantastic, in-depth study of comparable debt crises that had taken place over the past several decades across the globe. The report found that successful policy solutions to these crises had an average ratio of about 85% spending cuts to 15% revenue increases. In March, this was considered the "conservative" avenue. It has recently come to light that Republicans walked away from a package with a ratio of roughly 83/17. Minimally, walking away over such a small change in ratio makes the GOP look petulant at best, and hyper-partisan at worst.


Anonymous said...

Let's face it - we have the most dysfunctional democracy around. I thought it was bad when the former President's father - a former President himself - stacked the US Supreme Court with judges who subsequently decided in favour of his son in a Presidential election. This was an election where a contentious Florida result was certified by a partisan Secretary of State for Florida who was appointed by the younger President's brother. Come on! Is this what the Founding Fathers really had in mind? No, even when we have none of the nepotic nonsense, America still can't land a budget resolution. But the USA could put some guys on the moon. Wait a minute - that was back in '69, wasn't it. What the hell happenned?

LoneButlerDem said...

I take exception with two of your comments. First, that President Obama is that bad. That fact that I, as a liberal and progressive, feel he is to much a centerist, says a lot about the way he has governed. He was handed the biggest ball of crap that any in-coming President has been handed since the Great Depression. Secondly, to suggest that Social Security has to be a part of any deal to reduce the deficit shows your lack of knowledge about the program. How can a program that has a huge surplus currently and will pay all benefits in full until 2037 be the cause of the current deficit? What the Social Security Trust Fund has allowed is lose and fast budget gimmicks by both Democrats and Republicans. Each party used the program's huge surplus to make their budget proposals look more in balance. As you correctly point out, the current deficit is caused by tax cuts by Bush without a matched reduction in spending. Additionally, needing to pay for two wars that were totally unfunded and well as TARP. The Stimulus added to the deficit too, but I would argue, in absence of consumer spending, the government had to step in or the economic down turn would have been much worse.

The Commissioner said...

I appreciate both comments...

Anon: I'm not sure where to start, but two points in response ... One, our system was designed with inertia in mind. Because the Founders were so fearful of the English crown, they intentionally divided (and subdivided, etc.) power. I don't take issue with the way our system is set up, but rather how some so-called conservatives are willing to risk another global financial meltdown over a few revenue increases - which technically aren't even "taxes." Also, to imply that there is some sort of grand right-wing conspiracy that was spearheaded by the Supreme Court in 2000 is sort of absurd. Anyone who has read Kennedy or O'Connor opinions knows that they were equally close ideologically to 2000-era Gore as Bush. Those two justices kicked conservatives in the teeth so frequently that it's tough to argue with a straight face that there was some sort of fix in. I'm not sure that's what you were arguing, but your comment certainly implies that. And in addition, in recount after recount after recount, Bush was declared the winner time and again. The only time I'm aware of that Gore was declared the winner was on appeal to the Florida Supreme Court, which had reversed a lower state court. The U.S. Supreme Court simply reversed the FL SC and reinstated the decision of the state court below. Look - with 20/20 hindsight, Gore probably would have been a better president than Bush. But it's tough to make the argument that Bush didn't win by perfectly legal process.

The Commissioner said...

LoneButlerDem: If you've hung around here any length of time, you'll know that we routinely refer to Bush as the most fiscally destructive president in American history. (Nothing about Bush's economic record can be remotely considered "conservative," so the fact that any conservative attempts to defend his record is ridiculous.) In fact, you didn't even mention Medicare Part D, which some actuarial estimates score as being more of a strain on the deficit than Social Security over the next 50 years, the reason being that Medicare Part D was, and continues to be, completely unfunded.

Now that my thoughts on Bush are out of the way, I can't believe any objective observer can look at the Obama record and conclude that he has succeeded by any metric. He passed a massive "stimulus" that only spent something like 15% of the money in the first 9 months after passage. I didn't oppose the idea of a stimulus, but I did oppose something that the CBO said would be more destructive long-term than would be helpful near-term. If a stimulus is what you want, fine - Obama should have worked with the moderate group of senators that coalesced around McCain, Graham, Conrad, et al. and passed a package that (i) was about half the total cost of the actual final bill (ii) spent nearly all of the funds in the first 6 months, to kickstart economic growth and (iii) included a trigger that stopped stimulus spending once there were two consecutive quarters of positive economic growth. This would have accomplished the same objectives without the baggage - namely, the long-term strain on the deficit as set out by the CBO. Obama could have gotten 70+ senators behind it, but instead, as has been said time and again, he and congressional Democrats couldn't "let a good crisis go to waste." A bipartisan deal was there, and Obama wasn't interested.

Further, given virtual carte blanche on the stimulus, Obama assured Americans that unemployment would remain at or under 8%. We've routinely flirted with double digits. YES - Bush was fiscally destructive, and Obama inherited a terrible financial climate. But at some point, he becomes responsible for stagnant economic growth, out-of-control deficits and the stimulus not having its promised effect. He promised us the moon in 2008 and flat-out has failed to deliver. He's been in office for two and a half years. At what point does this become his economy?

Next, on the deficit. Again, Bush's record has been well-documented here. But Obama has evinced little to no concern for the sea of red ink we're swimming in. Obama frankly deserves more blame for this because he campaigned, you'll recall, on a deficit reduction platform. In a way, he outflanked McCain with this argument, tying McCain to Bush's destructive policies. As a result, it's eminently fair to hold him to his campaign rhetoric. I didn't hear a peep from the White House about the deficit until Republicans regained control of the House, at which time Obama realized that the deficit necessarily must get on his radar. At this point, I have a hard time taking any of Obama's positions on the deficit seriously, if for no other reason than we have run consecutive $1.4 trillion deficits in 2010 and 2011. If we're going to give Clinton credit for balanced budgets and surpluses, then Bush and Obama deserve criticism for the same reasons.

The Commissioner said...

Finally, it is indisputable that Social Security will be insolvent sometime between 2038 and 2042. Of course, revenues currently outpace expenditures. Obama, and you, are correct that it has yet to add a dime to the deficit. But this is because the majority of baby boomers are still in the workforce, so that argument is disingenuous. By 2018, expenditures are expected to begin outpacing revenues. Every actuarial report I've ever seen concludes that Social Security will be flat broke by the time I'm 60. That means that, either, we will have to break promises to my generation of retirees, or run massive deficits to make up the difference. Taking the longview of things, if we are to meet all of our obligations to current payors, Social Security will be by far the biggest drain on our finances. That's why entitlement reform is such a huge deal.