James Pethokoukis

Politics and policy from inside Washington

A government shutdown is perhaps postponed … temporarily

Feb 28, 2011 15:30 UTC

Reuters outlines the basics:

Playing for time to overcome a deep partisan impasse over the budget, senior lawmakers backed away on Sunday from a possible government shutdown. Washington will run out of money on Friday and non-essential services will halt unless action is taken. A short-term fix to buy time seemed increasingly likely.

Amid concern about damaging the fragile economic recovery, Republican House Speaker John Boehner said lawmakers have “a moral responsibility” to address the huge U.S. budget deficit.

“That means working together to cut spending and rein in government — not shutting it down,” he said in remarks to be delivered to a religious broadcasters’ convention. ”This is very simple: Americans want the government to stay open, and they want it to spend less money. We don’t need to shut down the government to accomplish that.”

He said the House will pass a short-term bill that will keep the government running with some cuts, Boehner said.

President Barack Obama on Saturday urged Congress to find “common ground” on spending cuts to prevent a shutdown.

“We’re very focused on trying to avoid a shutdown,” said Representative Chris Van Hollen, the top Democrat on the House Budget Committee, in a C-SPAN TV interview on Sunday.

House Republicans on Friday detailed $4 billion in spending cuts for a two-week stopgap bill, which the leader of the Democratic-controlled Senate indicated could be acceptable.

A few thoughts:

1) The temporary budget fix merely pospones the pain for a couple of weeks. House Republicans still have to deal with Tea Party members who want deep cuts and see the CR as a way of leveraging their authority.

2) There is also less fear that a shutdown would hurt Rs since many believe the public better understands the severity of budget issues than in 1996 — but this opinion is hardly unanimous.

3) As the 2011 budget battle is prolonged, more of a chance it dovetails into the debt ceiling issue making a resolution even more problematic.

If China’s provinces were countries

Feb 26, 2011 20:59 UTC

Great, creative graphic from The Economist:

china

Mary Meeker’s look at USA Inc.

Feb 25, 2011 18:17 UTC

Mary Meeker, the famed technology stock analyst now at venture firm Kleiner Perkins, has produced a ginormous report/PowerPoint presentation that looks at the United States as if it were a corporation. Now there’s little factually in the report that couldn’t be found by perusing the Congressional Budget Office website or the recent report put out by President Barack Obama’s debt commission. And I think her menu of policy recommendations isn’t particularly novel either. I wish, for instance, she had looked at Rep. Paul Ryan’s plan to reform healthcare:

meeker3

But Meeker and her team sure put together some 400 pages of pretty — and pretty informative — charts.

A look at unfunded obligations:

meeker1

And a look at where the money is coming from and where it is going to:

meeker2

COMMENT

I feel that Ms. Meeker’s presentation is a unique way to understand America’s financial situation. I began an independent project to read the 400-plus pages and write an 8 page summary and analysis on the presentation. Please read the full summary here: http://easollars.wordpress.com/2011/06/2 7/summary-of-mary-meekers-usa-inc-financ ial-statement/

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Scott Walker chops away at Democrat foundation

Feb 25, 2011 17:27 UTC

National Journal’s Reid Wilson paints a great picture of Scott Walker’s threat to government unions and the Democratic Party:

Consider how crucial unions are to the Democratic coalition. As Republican-allied groups like American Crossroads and the American Action Network poured millions into television advertising, the single-largest outside actor in the 2010 elections was the American Federation of State, County, and Municipal Employees.

AFSCME spent $87.5 million on the 2010 elections, an amount the Wall Street Journal calculated as about 30 percent of all spending for Democrats by outside groups. The Service Employees International Union and the National Education Association combined to spend another $84 million for Democrats, more than even the U.S. Chamber of Commerce spent during the midterms.

All three unions represent millions of the public-sector employees who are at risk of losing collective-bargaining rights in states like Wisconsin, Indiana, and Ohio. And all three, along with the rest of Big Labor, are spending big money on lobbying and public relations campaigns to defeat those legislative proposals.

If unions fail to stop the GOP assault, Republican victories would represent a major chink in the Democratic armor. A loss of some collective-bargaining rights means a speedier decline in membership. In turn, that means fewer dues-paying members to fund political activities in 2012 and beyond.

But Republicans don’t even need to win every legislative battle to sap union resources. The battles themselves can suck up money that might otherwise go to turnout operations for Democratic candidates.

Why a U.S. government shutdown is worth it

Feb 25, 2011 15:20 UTC

The cost-cutting battle lines are drawn in the U.S. Congress. But the fight will affect only maybe a sixth of spending, with big-ticket items like defense and Social Security getting a bipartisan pass for now. Still, tackling even that small slice would save money and reassure markets. A temporary government shutdown would be a small price to pay.

Republicans, who control the House, want to cut $61 billion a year from discretionary programs, excluding defense and other security items, which depending on each politician’s chosen definition total $500 billion or somewhat more of the $3.5 trillion federal budget for 2010. Cost cuts on that scale, though, could lead to an impasse with the Democrat-controlled Senate next month. Meanwhile, President Barack Obama has called for a five-year freeze at current spending levels, saving an average of $40 billion a year over 10 years.

Neither approach would put the nation’s finances on a sound footing. Even hacking at defense spending would only help for a while. What’s needed is a real effort to tackle future spending on Social Security and government healthcare programs. And anyway, even if an aggressive plan like that put forward by House Budget Committee Chairman Paul Ryan came to pass, spending on these so-called entitlements would still most likely rise before it started falling.

But this key: Controlling discretionary spending therefore still has a role to play, and the reductions being proposed by the House GOP could be the start of a sustained effort. Cuts in this area could be faster off the mark, as evidenced by both Republicans and Obama showing willingness to consider them. Moreover, an initial taste of austerity, even if it looks modest, would compound into big future gains.

Suppose non-defense discretionary spending was cut, frozen for 10 years, then increases at the 2.7 percent annual rate normally assumed by the Congressional Budget Office. Compare that to the case where there’s no cut and no freeze and the cost just goes up every year. The present value of those savings over 80 years isn’t too far off the estimated $8 trillion present-value shortfall in Social Security funding, according to calculations from the e21 think tank.

That suggests that cuts in discretionary spending could ultimately be almost as important as Social Security reform. The coming fight, if not quickly resolved, could leave the government forced to close its offices for a while. But if those are the stakes, it could be worth a brief involuntary holiday for bureaucrats.

COMMENT

We had an approaching SS and Medicare problem years ago. Now it’s not a problem it’s a terminal illness. To make up the current deficit gap with something close to 50% spending cuts and 50% tax increases we would have to double the tax generated from income and corporate income taxes and give a 20% across the board cut to spending.

However, doubling the income tax rates would put the top rate at 70% with state and local rates bringing the marginal tax to 80% that won’t fly. Either people will hide the income or they will drop out. – Please go to med school and become a surgeon so the gov can take all of your money and you can earn as much as the liquor store owner who lives much better hours. :) You could increase salaries to get the same effect but note by a vote in congress.

Even if you get an extra $550bil out of taxes – which would be a 50% increase in the taxes paid (probably not doable) you still need at least a 20% across the board cut in spending including SS, Medicare, Defense and everything else except debt payments. Ain’t gonna happen – see $100bil in cuts last month.

Then for around every 2% increase in the Fed interest rates you’ll need another 10% across the board cut.

So, do all of these things and add some fairy dust and it will all turn out ok. Otherwise our kids our toast.

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Civil War 2.0 may turn governors into presidents

Feb 24, 2011 18:04 UTC

Six men with the rank of general during the Civil War went on to become  president of the United States. But a new kind of union battle — one being fought in places like Trenton and Madison and Columbus and Indianapolis — may be forging the next generation of leaders who will ascend to the White House. How state governors fare as commanders in this escalating conflict with Big Government Labor may determine who makes it all the way and who falls short.

For the most part, the political backlash against public unions is happening in the states. That’s where employee benefits are creating long-term budget problems. Total unfunded pension and healthcare liabilities could be as much as $3.5 trillion.

Savvy governors can thrust an issue like public sector compensation into the national consciousness and create a political niche for themselves.  And American voters like to promote state bosses  to national CEO. President Barack Obama was never a governor, but two-term predecessors George W. Bush, Bill Clinton and Ronald Reagan all were. The last sitting U.S. senator before Obama to go directly to the White House was John Kennedy in 1961.

In New Jersey, Chris Christie’s efforts at austerity have made him a leading 2016 GOP contender with many Republican activists still hoping he’ll change his mind and make a run against Obama next year. Wisconsin Republican Scott Walker has burst into national prominence by trying to strip public unions of some bargaining rights. And in liberal New York, Democrat Andrew Cuomo’s adversarial approach to labor might help his centrist appeal should he cast an eye on the Oval Office.

Among Republican activists, it’s almost impossible to be too tough on unions. That’s where the risk of overreach starts cropping up. Indiana’s Mitch Daniels, a possible 2012 candidate, already has killed collective bargaining for state workers. Yet conservatives balk because he won’t prohibit making union membership a condition for employment. Daniels sees that as a needless fight with organized labor, whose influence is already waning. As Josh Barro of the Manhattan Institute notes on his blog:

As of 2010, only 8.2 percent of private-sector workers in Indiana were members of unions. That’s a bit above the national average of 6.9 percent, owing to the state’s industrial base, but it’s also falling faster than in most states: down 37 percent in the last decade, compared to 22 percent nationally. Private firms don’t appear to fear excessive union power in Indiana; indeed, the state has had significant success in drawing non-union Japanese auto factories.

The political subtleties sometimes get lost in the heat of battle. Some in the Tea Party are bashing Christie for increasing the state’s spending in his newly announced budget. But the governor is trying to negotiate a deal with Democrats to go easier in exchange for sweeping pension reform. And if Walker should settle for something less than total surrender or go too far by firing workers, his sudden ascent could come to a halt.

The fight against public unions and for fiscal responsibility may look like to create a clear path to the presidency for now. But governors going down that road will need to beware of the many political mines strewn along the way. Still, a future American president may have his or her mettle tested in this new civil war.

COMMENT

Cal13, even if they can’t begin collecting signatures yet, whoever wants to recall Gov. Walker can certainly get started organizing. Has that happened?

At all?

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Obama’s dangerous debt dodge

Feb 22, 2011 22:04 UTC

Americans need to fully grasp just how scary dangerous the nation’s debt problem really is. Washington sure won’t deal it unless given a firm shove by voters. The tea party needs to get a lot bigger.

So President Barack Obama does them no favor by downplaying debt interest costs to make his budget look better. While his focus on the “primary deficit” — the budget shortfall not counting debt payments — can provide a helpful fiscal snapshot, it ultimately misleads as to the true scope of the challenge.

Obama certainly isn’t the first president to try and put a favorable spin on some unpleasant financial numbers. George W. Bush, for instance, consistently neglected to include the cost of the Iraq and Afghanistan wars when submitting annual defense budgets to Congress. And recall that Bill Clinton loved to crow about putting Uncle Sam back into the black. But his surpluses would have mostly vanished if he, as continues to be the custom, hadn’t been quietly borrowing excess funding from the Social Security trust fund.

In his new conference last week, Obama stated that by the middle of the decade, his just-released budget would “not be adding more to the national debt. …  We’re not going to be running up the credit card anymore.” Yet from 2015 through 2021, the Obama budget would add $4.7 trillion to the national debt. And public debt as a share of the overall economy would rise to 77.0 percent from 76.1 percent.

But the president tossed in a qualifier: “Our annual spending will match our annual revenues.” Well, that clears things up. If you don’t count $3.7 trillion in interest payments as part of spending, the budget is balanced in 2017 and then slowly builds a tiny surplus.

The technocrats at the IMF would surely applaud. They view elimination of primary deficits —  by balancing revenue and regular spending — as a key first step to restoring fiscal health for heavily indebted nations.

But America needs to take many more steps. Obama’s primary surpluses will quickly disappear in coming decades as government healthcare spending explodes.  And if the economy grows a bit more slowly than what White House economists now forecast – say, more like the predictions from the Congressional Budget Office – Obama’s primary deficits would never disappear at all.

It also seems risky to downplay interest costs when America’s finances are more vulnerable to interest rates than those of many nations because it has to refinance its debt relatively frequently. Through September, according to the IMF, the typical maturity on U.S. debt was 4.7 years against an average of 7.1 years for advanced economies. The UK’s average was 13.3 years, with Germany and France at about half that. Even troubled Greece and Portugal borrow for longer, on average, than the United States.

Meanwhile, total federal debt net of what’s held in government accounts is currently running at 62 percent of GDP and is forecast in the budget to reach 77 percent of GDP in 2021. Mr. Market, in the form of bond investors, isn’t yet making big enough waves to force politicians to act.

Obscuring the difference between fully balancing the budget and a somewhat less disciplined approach may help ensure voters won’t, either. Unfortunately, Obama’s new attentiveness to the primary deficit looks like a political dodge.

COMMENT

Well of course you can ignore interest payments in your budget, just ask any banker or loan officer!

Posted by zotdoc | Report as abusive

Obama’s centrist shift evaporates

Feb 18, 2011 19:45 UTC

President Barack Obama’s much-trumpeted move to the center? Apparently, it doesn’t go much beyond using buzzwords such as “innovation” and employing CEOs as stage props. His 2012 budget introduction and Wisconsin incursion make that clear.

This was the week for the president to show that he had really learned the lessons of both the 2010 midterms and the shortfalls of his own economic policies. Instead, it was the American public that learned something. It learned that Obama pretty much is who he is – and he’s probably not going to change.

He’s the guy who was the U.S. Senate’s most extreme liberal. He’s the guy who told Joe the Plumber that he wanted to “spread the wealth around.” He’s the guy who tried to use the Great Recession to greatly expand the welfare state.

He’s that guy.

Obama’s 2012 budget was the first revelatory moment of the week. Even with rosy economic projections, it would still add another $9 trillion to the national debt from 2011 through 2021. And it did nothing to address entitlements, the key drivers of America’s long-term fiscal problems, even though his own debt commission gave him a plan with bipartisan support.

Even worse, Obama attempted to hide the budget’s alarming profligacy. In his news conference, Obama stated that by the middle of the decade, his just-released budget would “not be adding more to the national debt. …  We’re not going to be running up the credit card anymore.” Yet from 2015 through 2021, the Obama budget would add $4.7 trillion to the national debt. And public debt as a share of the overall economy would rise to 77.0 percent from 76.1 percent.

But the president tossed in a qualifier: “Our annual spending will match our annual revenues.” Well, that clears things up. If you don’t count $3.7 trillion in interest payments as part of spending, the budget is balanced in 2017 and then slowly builds a tiny surplus.

Yet Obama’s narrowly define surpluses will quickly disappear in coming decades as government healthcare spending explodes. And if the economy grows a bit more slowly than what White House economists now forecast — say, more like the predictions from the Congressional Budget Office — Obama’s primary deficits would never disappear at all.

But just as entitlements are the root problems of the federal budget, at the state level it’s the fat pension and healthcare benefits — unfunded to the tune of $3.5 trillion — awarded to government unions by the politicians they elected.

The result is the Battle of Madison as Gov. Scott Walker of Wisconsin tries to get a handle on a budget shortfall of $3.6 billion, as well as longer-term fiscal problems. He probably didn’t expect an encouraging word for the White House, and he was not disappointed.

As Obama told a Milwaukee television reporter: “Some of what I’ve heard coming out of Wisconsin, where they’re just making it harder for public employees to collectively bargain generally, seems like more of an assault on unions.”

Entitlements and government unions are both products of the heyday of American liberalism from the 1930s through the 1970s. Just like when Mikhail Gorbachev ascended to power in the old Soviet Union with the goal of modernizing and preserving that system, Obama hopes to do the same with America’s union-backed welfare state by making it — and funding it — more like Europe’s.

If Scott Walker in Wisconsin and Chris Christie of New Jersey are successful at the state level and Rep. Paul Ryan at the national, Obama may instead preside over its collapse.

COMMENT

Obama is clearly and without doubt a MARXIST. Just review his past and present associations.

COMMUNISM is alive and well in the U.S.A.

Americans need to wake up and see that liberals have bankrupted the country with entitlement programs that are too costly for American taxpayers, rich and poor alike.

It’s time to cut government spending by 50% STARTING AT THE EXECUTIVE AND LEGISLATIVE BRANCHES OF GOVERNMENT.

A TAXPAYER REVOLT IS COMING!

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No ‘substantial effect’ on long-term budget woes

Feb 14, 2011 19:50 UTC

Hey, it’s not just me pointing out the many flaws in the Obama budget. This from the Committee for a Responsible Federal Budget:

Unfortunately, the Administration does not achieve either of the fiscal goals it established for
its own Fiscal Commission. For one, the budget does  not reach primary balance in 2015.
Instead, at just over $600 billion, the deficit remains more than $100 billion away from
primary balance. Secondly, the budget does not make meaningful improvements to the longterm fiscal outlook. Few of the policies in the budget would have a substantial effect on the
trajectory of spending or revenues outside of the ten-year window.
As noted above, the level at which the budget stabilizes the debt – 77 percent of GDP – is
way too high. It is well above historical levels (about 40 percent of GDP) and the traditional
target of 60 percent of GDP – and could threaten the government’s ability to borrow in case
of a real emergency down the road. It also begins to creep up again at the end of the ten-year
window, and likely will grow substantially beyond this window.
Unfortunately, the budget doesn’t make any meaningful improvements to the largest
problem areas of the budget. The budget does keep defense costs from increasing, trim
Medicare and Medicaid spending a bit, and limit tax expenditures for high earners. But these
measures only scratch the surface when the Administration should be calling for real
defense cuts, serious changes in federal health spending, and fundamental tax reform – as
well as Social Security reform designed to achieve 75-year sustainable solvency.

Unfortunately, the Administration does not achieve either of the fiscal goals it established for  its own Fiscal Commission. For one, the budget does  not reach primary balance in 2015.  Instead, at just over $600 billion, the deficit remains more than $100 billion away from  primary balance. Secondly, the budget does not make meaningful improvements to the longterm fiscal outlook. Few of the policies in the budget would have a substantial effect on the  trajectory of spending or revenues outside of the ten-year window.

As noted above, the level at which the budget stabilizes the debt – 77 percent of GDP – is  way too high. It is well above historical levels (about 40 percent of GDP) and the traditional  target of 60 percent of GDP – and could threaten the government’s ability to borrow in case  of a real emergency down the road. It also begins to creep up again at the end of the ten-year  window, and likely will grow substantially beyond this window.

Unfortunately, the budget doesn’t make any meaningful improvements to the largest  problem areas of the budget. The budget does keep defense costs from increasing, trim  Medicare and Medicaid spending a bit, and limit tax expenditures for high earners. But these  measures only scratch the surface when the Administration should be calling for real  defense cuts, serious changes in federal health spending, and fundamental tax reform – as  well as Social Security reform designed to achieve 75-year sustainable solvency.

COMMENT

perhaps it would help us all understand if someone would put in plain english the effects of having a high and prolonged defecit. I’m conservative, but so far, I don’t see how the defecit has done much to the average joe in america. Certainly hasn’t hurt the stock market lately.

Posted by zotdoc | Report as abusive

Obama budget reveals Obama’s core

Feb 14, 2011 18:54 UTC

Here’s what President Barack Obama’s new budget tells me: He hasn’t shifted to the center, he’s shifted into 2012 campaign mode, one that let’s him be who is really is.

The budget is a political document that bets voters really don’t care much about deficits. (Over the next decade from 2012-2021, it would add another $8 trillion dollars to the national debt and take the national debt as a share of the overall economy to 77 percent from 62 percent in 2010). As such, Obama will portray himself as the jobs-first, going-for-growth candidate who does a bit of fiscal gardening on the side — just a few prudent budgetary snips here and there.

And on the other side (at least as painted by Team Obama): the fiscally austere Ryan-Rand Republicans who would savage Social Security and Medicare and recklessly slash critical investments necessary to win the future. No wonder his budget calls for cutting expected deficits over the next decade by just $1.1 trillion vs. the $3.9 trillion (including $556 billion in entitlement cuts) advocated by his own debt panel. To support his commission would mean going off message and losing a valuable campaign issue.

Any slight chance that Obama might chart a bold path on debt reduction probably died when the UK recently reported an unexpected economic decline, a drop some economists incorrectly blame on Prime Minister David Cameron’s tough-love budget. No way is Obama going to risk a renewed economic slowdown and his potential reelection. As it is, his budget forecasts average 2012 unemployment of 8.6 percent. That means Obama expects to try and win a second term in the most hostile employment climate since the Great Depression.

Oh, and tax cuts? Not there. This budget adds little to Obama’s vague State of the Union talk of cutting U.S. corporate tax rates, soon to be the highest among advanced economies. Obama only calls only for “beginning the process of corporate tax reform. Overall, he wants to raise a variety of taxes, including $700 billion in income and capital gains tax rates on wealthier Americans.

Of course, that merely circles us back to the driving force (besides ambition) behind the Obama presidency: to redistribute wealth after decades of growing income inequality and to finish weaving the social safety by creating universal healthcare. He certainly didn’t run to become an Eisenhower Republican — as Bill Clinton once referred to his administration — and comfort jittery bond markets. But markets will eventually have their say — and maybe sooner rather than later.

COMMENT

But the GOP is NEVER in campaign mode, right? This article reveals James Pethokoukis’ core more than anything else.
So let’s talk honestly about the budget. Republicans don’t care if their agenda puts hundreds of thousands of Americans out of work, by design. THey don’tcare if their cuts undermine education, law enforcement, infrastructure, and public safety. They don’t care if their budget plan undermines economic growth, competitiveness, and innovation.
But if the Obama administration wants to cut wasteful spending on military projects the Pentagon doesn’t want, all of a sudden, the GOP not only cares, but they are demanding unnecessary spending that looks, feels, and smells very much like earmarks and “make work projects” that benefit certain Republican districts.
And you have the gall to accuse Obama of being in campaign mode?

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