Andrew Sullivan's thoughts on the Obama Budget

I think this is backwards. FY 2011 revenue is very low because of continued tax cut and temporary payroll cut. The FY 2012 revenue gain is primarily the expiring of the temporary measures. The 2013 gain is based on the economy improving and the expiration of the Bush era cuts.

I could be wrong though–

Kevin Drum has a good take.

Basically:

  1. The deficit isn’t a crisis. It’s a short term problem with a well understood solution. On a longer time horizon it’s a big problem with an at least partially well known solution.
  2. Republicans and conservatives who claim to be concerned about the deficit are liars.

Naturally I agree with him. I think these two points are a good starting point for any meaningful discussion of our deficit.

Just starting to look up and read leading economists opinions of the deficit. So no opinion formed yet, but so far more have said it is indeed a crisis without some tough, hard to swallow steps taken. Maybe as I read more I’ll see more opinions to the contrary.

On Medicaid: What can be done? You have a lot of people without a lot of money who count on Medicaid for their health care, at an age where health care costs can be crippling (no pun intended.) I hear amorphous statements that health care costs have to be reduced but no real specific plans that will really do that in any meaningful way. Is there someone out there with specific proposals to Medicaid that will impact the deficit?

Again, you need to contrast between short vs. long term. I’ve posted about this like 8 times in this thread it seems.

  • Our short term deficit problem is almost entirely revenue shortfalls owing to a) reduced tax receipts from the slow economy and b) Bush tax cuts. Repeal b) and get the economy growing at 3.5% again and the short term deficit isn’t a problem any more. Some further tweaks can probably even get you a surplus.
  • Our long term deficit is Medicare (not Medicaid). The problem with Medicare is an unsustainable rate of growth, and that’s occuring because healthcare in general has an unsustainable rate of growth. Fixing our healthcare system fixes Medicare. For thoughts on fixing our health care system, I refer you to the Health Care Reform thread on these boards. :)

Insofar as Republicans care about the deficit it’s mostly because a) there’s a Democrat in the White House and b) it’s an opportunity to de-fund liberal programs they hate. Note that GOP deficit reduction proposals are all nonsense like cutting funding for PBS and NPR while studiously avoiding Medicare or raising taxes.

Final note: Having a deficit isn’t necessarily a problem; so long as your debt to GDP ratio is staying constant (or even shrinking) you’re OK. It’s when debt as a percentage of GDP increases that you are on a bad path.

Actually, interest on the debt is projected to be the fastest growing part of the federal budget roaring past the entitlement programs. Obama’s budget has more spent on interest than on Medicare in 2018 with interest payments more than quadrupling before the end of the decade. CBO says $100 billion deficit today means $43B more interest payments before the end of the decade.

Right now our annual deficit is pretty good b/c we’re paying less on interest than we were a few years ago, despite adding a massive amt of debt. As the economy recovers, tax receipts will go up. But if you’re not factoring in a big spike in interest rates then you’re data is useless. The increase in interest rates means that our overall debt will be very hard to bring down even with tax increases. That’s why Debt as a % of GDP hits very big, scary numbers and US has PIGS level of Debt/GDP in the next 10-15 years. (90% of GDP is the number than Rogoff/Reinhardt peg as the critical inflection pt).

Here’s an article on interest and why you have to get the debt down pronto or interest just kills you.
http://www.washingtonpost.com/wp-dyn/content/article/2011/02/16/AR2011021606897.html?hpid=topnews

I’m not really thinking about Republicans or Democrats in terms of my questions on the deficit.

Medicaid/Medicare and true health care reform: OK, we’re screwed.

I’ll weigh in on my opinion on the depth of the crisis after I finish wading through these economists writings. My personal knowledge is just to shallow at this point.

I like how the Washington post can write an article without providing a single useful link.

wahoo: Six years is not long term.

This is silly. All political questions come down to Republican vs. Democrat. How to deal with our growing indebtedness is a political question.

Like most things in our country this is not a technical problem; we mostly know what we have to do to solve it (it’s some combination of raise taxes and reduce spending; the devil is in where we do it). The problem is political; the people tasked with solving the problem are unwilling or unable to do so.

The President’s proposed budget and the Republican counter-proposals that we’ve seen so far don’t really do much to address core issues. This is mainly due to structural reasons. To wit:

  1. There are not 60 votes for raising taxes in the Senate. You can’t so much as repeal the Bush-era tax cuts. Forget other revenue raising proposals (increasing effective corporate income tax rates, increased capital gains taxes, carbon pricing, etc).
  2. Even if there were 60 votes in the Senate for any of those things, the Republican House majority will not pass that.

As far as Medicare goes, most of the low hanging fruit in Medicare was folded into the ACA. After the ACA experience there is no way that Democrats are going to try something more radical; and even if they were Republicans wouldn’t be interested either.

In short: structural problems with our democracy will prevent us from doing anything about the budget. We’ll just go through this ridiculous kabuki dance where we trim some social programs and screw over some poor people and pretend like that’s going to make a difference.

No it’s not “Silly.” I don’t know as well as you claim to know specifically how serious the problem is, and I’ve read at least two economists who disagree on this, nor do I understand the most effective approach to mitigating the problem. For example, the interest we’re paying (as mentioned previously) is one factor that cannot be ignored. You have to separate out what is the most effective approach or approaches, then you can devolve into the political fight.

But just for elucidation: you’re the President, and you have the supermajority of the House and the Senate. You also have pictures of all of them with farm animals, so they will do what you say. What are the specific steps you will take, in detail, to address the deficit issue?

Simple guiding principle:

Deficit = tax receipts - expenditures

Want to reduce the deficit? Make #1 bigger or #2 smaller.

Most of our current deficit is due to #1 being too small. #1 is too small for two primary reasons:

  • Bush tax cuts
  • Revenue shortfalls owing to shit economy.

Addressing this is easy: Raise taxes and get the economy humming again. I’d do #1 by repealing the Bush-era tax cuts and while we’re at it let’s get some other taxes in there. A carbon tax would be nice. So would a tax on financial transactions; those fuckers are just taking rent so we might as well capture some of it for the common good. Take that money, throw it into some real stimulus (direct aid to states, say) and hopefully you get our economy plugging along again at 3.5% or more.*

On the spending side; you can do some good in the short term by withdrawing from Afghanistan and by cutting some of the defense budget. That’s probably as far as you can get with obvious spending cuts, though.

At this point you’re probably running a near-term surplus. Pay down the debt with it, etc. Long-term you are still fucked by Medicare; for thoughts on fixing that go see the HCR thread.

Anyway the point is: This stuff isn’t rocket science. Lower expenditure or raise taxes. Given the scope of our deficit there’s no way to do it on the expenditures side unless you a) destroy what little social safety net we have (IMO unacceptable) or b) gut the military (unacceptable as well, though cutting it some would be helpful). That leaves you with the revenue side of the equation, where there is a lot of room for improvement.

And this is why I say it’s silly not to think about this in terms of Democrats vs. Republicans. This isn’t a technical problem where the solution is unknown; the possible scope of solutions is well defined and well understood. It’s just a matter of which combination of solutions we choose, and at the end of the day that’s a political problem, not an economic one.

  • Tyler Cowen is of the opinion that big economic growth is not in the cards for the US and he makes a convincing case for that in his eBook The Great Stagnation. If he’s right than trying to stimulate our way into 3.5%+ growth isn’t going to work. In this case we should raise some tax revenue (corporate taxes are a good target here; if they’re going to make lots of profits while the median citizen gets nothing then we might as well do some wealth redistribution) and use it to strengthen our social safety net to help those who are going to get fucked by a prolonged period of slow economic growth.

Carbon taxes are a horrible idea, and would actually cause more pollution then they’d prevent.

A financial transaction tax is something you’d have to be VERY careful on as well, to avoid unintended consequences.

These are two points where I actually agree with the Republicans, on a purely economic basis.

Where I’d start: cap the mortgage deduction at $7,200/yr.

Needs citation.

As far as the political reality goes: We are probably fucked, to what degree I’m not sure.

The political situation is simple: The top priority for Republicans is minimizing the tax burden on the wealthy. There’s not even a secondary priority; everything else is tertiary. This means that the only way they will deal with deficit reduction is on the expenditures side. However there’s a problem: one of the tertiary priorities for Republicans is military fetishism, which means serious cuts to the military are off the table.

On the other hand, Democrats are not going to tolerate serious cuts to the welfare state; it’s already inadequate in many ways. They’ll give up some but not nearly enough to close the deficit.

Both parties have become increasingly well sorted, ideologically (with the GOP being moderately more well sorted). This means that there is very little room for meaningful compromise. The only way you will get something done is to get all three branches of government (including a filibuster proof majority in the Senate).

And there’s the rub. Getting that is hard. Keeping it together is even harder. I’m in a cynical mood today; I actually expect that our current governmental structure is simply not up to the task. There’s a fair amount of poli-sci theory that states that presidential democracies are not stable in the long term and that the US has been the exception to the rule; today I wonder if we’re not about to lose that status.

It is instructive that jeffd’s “typical liberal response” is, basically, raise taxes, and keep things more or less the same.

The lack of vision from both parties is what’s dragging everything down, where both sides instead are lockstep in these futile (and mostly imaginary) class wars where tax policy is proxy for social policy.

Reality has a well known liberal bias.

Do you have any substantive criticism to offer? Other than waah Jeff is a mean librul!

Do you have some vision wherein the deficit isn’t equal to revenue minus spending? Because if you do you can probably make a lot of money selling it to, like, the government, private corporations, and the field of mathematics.

Also: are you saying that tax raises ought to be off the table as a solution?

I’d happily support doubling taxes on the rich, or everybody… or cutting taxes for everyone with a commensurate drop in expenditures. Just like i’m as ambivalent to drug policy positions; i can justify legalizing drugs as much as i can reinstating prohibition. As long as with clear eyes we move toward whatever long term goal we have in mind and not muddle along toward the shoals and icebergs.

What we need are people brave enough to take hard ideological looks at the way we organize society and come up with possible solutions to the problems we face in the 21st C and instead of taking certain truths as absolute.

What jeffd recommends isn’t terrible policy, and would help stabilize the budget deficit, but it doesn’t satisfy my belief that we’ll only begin to address the root causes of deficits and deficit spending unless both sides are willing to put all their sacred cows up on the auction block. And so these aspirational brainstorms should aspire to loftier heights of theorycraft than simply “pre-compromising” their positions for a more “practical” solution.

Redacted cuz I was too harsh. Editing…

I see what you’re saying. But honestly I think you’re being a bit naive.

The sides exist, the “sacred cows” exist because people have principles. I don’t support increasing taxes because I’m a liberal and that’s what liberals do; it’s not a religious thing. I support raising taxes because I believe in fairly distributing the economic gains that our society has made in order to ensure that everyone shares in them. For me it’s a question of fairness; and this gets into all sorts of deeply held beliefs, philosophy, etc etc. At the end of the day it comes down to principles.

From my perspective, based on their rhetoric and behavior, conservatives want to maximize the welfare of rich people even at the cost of the welfare of everyone else. I’m sure it’s more complex than that, or at least I’m sure they’d explain it in more complex terms, but operatively that’s what it seems like. And that’s not acceptable to me. It violates my principles.

Now I realize the idea of us all sitting down and just hashing out our differences is appealing, but it’s not going to happen. And that’s not because we won’t give up our sacred cows, but rather because we have deeply held differences in our principles. You’re asking us to be unprincipled which is, I think, unworthy. I don’t think it’s what you mean to do, but it’s what you’re doing.

This problem - this conflict between opposing principles - is exacerbated by the dysfunctional structure of our governmental system. To wit: nobody can actually ever do what they want (poltically speaking). You can think of government as almost like a test bed for political beliefs: if we let liberals like me do what we want and it all goes to hell, well, that just means that liberals like me won’t ever get to do what we want for a good long time. If we’re being optimistic, it means that liberals like me might question our political beliefs. Likewise for conservatives. On the other hand - if liberals are right (and naturally I think they are) that means that our society will improve!

This is why I get frustrated by people like you Enidigm. It’s not that people like me are so blind that we can’t see past our sacred cows. You’re basically condescending to us without offering up anything of substance. If you’ve got some vision of how liberals and conservatives can come together then I’d love to hear it. Otherwise you’re just pissing in the wind.

I think there’s too much of a focus on sacrifice, which is perhaps most clear in what some of the left call the “Pain Caucus”. This idea that if we just give up enough, or suffer enough, all budget problems will be solved. Of course, the pain caucus usually makes that argument about social services that they themselves never use.
But of course it doesn’t work like that. The difference between good and bad policy has nothing to do with how “sacred” it is in the eyes of their proponents, and pretending that it is will just make us end up with a delegitimized government.