James Pethokoukis

The bipartisan Committee for a Responsible Federal Budget has taken a crack at deciphering President Barack Obama’s murky new budget plan, called the “Framework for Shared Prosperity and Shared Fiscal Responsibility.” And its findings are devastating:

Using CBO rather than OMB numbers, we estimate that the plan is unlikely to result in a declining debt-to-GDP ratio, and would thus rely on the proposed “Debt Failsafe” to achieve further savings.

And that could mean higher taxes or additional spending cuts. As it is, the Obama Framework would save 40 percent less than the Ryan “Path to Prosperity.”  More:

The President’s Framework falls short of both he Fiscal Commission recommendations and those from the House Budget Committee, both of which would reduce the deficit by over $4 trillion and reduce the debt to below 69 percent of GDP by the end of the 10-year period. … Measured against CBO assumptions, it does not appear that the $2.5 trillion of deficit reduction in the President’s Framework would be sufficient to reduce the deficit to 2.5 percent of GDP in 2015 or 2 percent in 2020, as claimed. Using reasonable phase-in assumptions, we estimate that unless the debt failsafe is employed (as it would be in this circumstance), deficits would remain at or above 3 percent of GDP throughout the decade. As a result, debt would continue to slowly increase as a share of the economy, reaching 77 percent of GDP by 2021.

And here are the various debt trajectory paths:

And here is how the various plans compare on the details:

Just like in my analysis here and here, the CRFB found that the Ryan Plan cuts more debt than the Obama Plan. Also note that while  the White House said its plan relied just 25 percent on higher taxes (33 percent if you exclude interest), the CFRB found that it actually relies 30 percent on higher tax revenue (40 percent if you exclude interest.) And since the debt trigger would be pulled, even higher taxes would be possible, as well additional spending cuts.

Conservatives have many flavors of views on this, as can be seen at an online symposium over at National Review Online. Here are two of the more interesting takes:

1) Pass it quickly, with conditions. This is the Doug Holtz-Eakin plan:

Conservatives should attach to the debt limit annual caps on total spending for the next ten years equal to those in the House-passed budget. There are other viable contenders ranging from alternative spending limits (such as those proposed by Senator Corker) to a balanced-budget amendment that limits taxes and spending (such as that of Senators Hatch, Cornyn, and Toomey). But the House has already agreed to the levels in the budget. If it passes those caps quickly, the onus will be on the Senate to pass a debt-limit increase and on the president to sign it. If either balks, the battle shifts from raising the debt limit to whether there should be spending restraint.

2)  First, make sure default is not an option. From Phil Kerpen:

To win the debt-ceiling showdown, the Republican House leadership must first do what all 47 Senate Republicans did when they voted for the Toomey-Vitter amendment …   also known as the Full Faith and Credit Act and championed in the House by Tom McClintock (R., Calif.) and Scott Garrett (R., N.J.), would take away from the administration the discretion to default on Treasury bonds. It would require bondholders and Social Security recipients to be paid first in the event the debt ceiling is reached. There is more than enough revenue on a cash-flow basis to take any default risk off the table.

Passing this legislation in the House — even though the Democrats already have stopped it in the Senate — would help educate the public that default is not at stake. … By passing the Toomey-Vitter bill, the House can gain real leverage to demand that the administration make deep cuts in spending and fundamental reforms like the Medicaid block grants at the heart of the Ryan budget — or face the daunting prospect not of default, but of operating the government on a cash-flow basis.

This analysis by Sean Trende of RealClearPolitics should give the White House pause:

The six incumbents who have successfully stood for re-election since World War II have enjoyed, on average, growth in per capita real disposable income (RDI) of 11.7 percent over the course of their term. The unsuccessful presidents have fared worse — about 8 percent growth on average.

So far, RDI is up 1.2 percent over the course of the Obama presidency. To hit the 11.7 percent mark over the course of his term, income would have to grow by about 1.4 percent in each of the seven quarters between now and late 2012. Since the 1980s, we’ve had 24 total quarters where RDI growth was above 1.4 percent.

The short-term future prognosis for RDI is not good: It actually shrunk from January to February of 2011. Moreover, government transfer payments and taxes are an important portion of RDI; they actually account for almost all of the RDI growth over the course of the president’s term. But the expiration of the payroll tax cuts and unemployment benefits at the end of the year will apply further downward pressure to this measure.

The most recent Pew poll suggests that a majority of the country currently characterizes the state of the economy as “poor,” while only 8 percent classify it as “excellent” or “good.” Only 20 percent believe the economy is recovering.

And as Sean also notes, the economy seems to have hit a soft patch: GDP growth has slowed, wages are flat or falling, housing remains ugly. In addition, things like the S&P warning and high borrowing levels may also be undermining voter confidence.

This is how 2012 looks right now to elections guru Larry Sabato:

Here is how the math works: Include the “Leans” states with the “Likely” and “Safe,” the numbers are as follows: 247 Democratic EVs,  180 Republican EVs, 111 Undecided. Just counting “Likely” and “Safe,” the numbers are as follows: 196 Democratic EVs, 170 Republican EVs, 172 Undecided.

Of the tossup states, I would give the Rs IN (11), FL (29) and certainly at least one of VA, NC or OH. Some Leans D in the Upper Midwest are vulnerable, too.  Tight as a tubesock!

Tell me what happened, Reuters:

The company, which has come under fire over the past month for reports of an unusually low 2010 U.S. tax bill, pointed out that its consolidated first-quarter tax rate was 53 percent as a result of the NBC Universal sale.

And as BBrand X noted:

GE’s consolidated tax rate was 37 percentage points higher than a year earlier, reflecting the company’s projection that the rate would rise significantly after the NBC sale.

The company’s taxes have been in the public spotlight since the New York Times reported March 24 that GE had a tax bill of zero in 2010, an assertion the company called misleading on its GE Reports website. The criticism prompted a hoax press release last week.

GE has rebuffed the tax bill claim specifically and said the company received no rebate, refund or payment from the government on its 2010 taxes.

Indeed, GE predicted this:

GE’s tax rate has been lower in recent years due to financial crisis losses at GE Capital. From 2008-2010, GE Capital suffered nearly $32 billion in losses as a result of the financial crisis. That’s not a “tax avoidance strategy.” Absent such unusual losses, GE’s overall effective tax rate would have been 15 percent over the past several years, which is comparable to the average for other multinational corporations. Our 2011 tax rate is slated to return to more normal levels with GE Capital’s recovery.

And the company has this cold:

The United States is virtually the only major industrialized country that taxes overseas earnings of companies. GE and many other companies — and, for that matter, Congress and administrations over many decades — have supported deferral of tax on foreign earnings for all companies. Doing so makes U.S. companies more competitive globally. This is not a “shelter,” it is good policy.

The U.S. shouldn’t even be taxing overseas income. Better to simplify the system, tax territorially and lower the tax rate to at least 15 percent  And don’t forget that even when you factor in various tax breaks and loopholes, the U.S. STILL has the highest average effective corporate tax rate among advanced economies.

Economist Jim Capretta, co-author of the must-read “Why ObamaCare is Wrong for America,” writes the piece I’ve been waiting for him to write about Paul Ryan’s Medicare plan. First, a brief description of the Ryan plan:

It includes a proposal to reform Medicare. Everyone who is 55 and older today will remain in the current Medicare structure. Those below age 55 will get their entitlement in the form of “premium-support credits,” which will be applied to private health plans of their choice on an annual basis. The government will oversee this new Medicare marketplace, organize the information and choices for the beneficiaries, and ensure that all of the plans meet minimum standards.

The program will begin in 2022, at which point the premium-support credits will reflect what the traditional Medicare program costs at that time. In the years after 2022, the premium support credits will be increased commensurate with the rise in consumer inflation, as measured by the consumer price index (CPI).

It is the bit about inflation that Democrats are attacking.

Well, according to the president’s speech — and columns by Alan Blinder, Paul Krugman, and Ezra Klein — it’s the fact that the Medicare “premium-support credits” could be used only for private insurance, and that the credits themselves would be indexed on an annual basis to consumer inflation, not health costs. They argue that, as the years go by, the credits will fall farther behind the actual cost of insurance, and leave seniors with larger and larger premium bills.

But, as Capretta points out, there is a similar system embedded within Obama’s heath reform:

There’s something vaguely familiar about how the Ryan Medicare plan is supposed to work. Inflation-indexed credits. Competing private insurance plans. Government oversight of the marketplace. Oh yeah: That’s the description of Obamacare that advocates have been peddling for months.

Here are the facts. In the new state-based “exchanges” erected by Obamacare, persons with incomes between 133 and 400 percent of the federal poverty line will be eligible for new, federally financed “premium credits” — dare we say “vouchers”? These vouchers can be used only to purchase the private health-insurance plans that are offered in the exchanges. There will be no “public option” to choose from. Initially, the vouchers will be pegged off of the average cost of silver plans in the exchanges, with a limit on the premium owed by the consumer based on their income. In future years, however, growth in the government’s contribution will be limited, first to the rise in average incomes and then the CPI.

That’s right: Obamacare’s new health-entitlement vouchers are indexed to general consumer inflation too. So if Ryan’s Medicare plan is “cruel” and “inhumane” because the credits supposedly fall behind rising costs, then the exact same criticism can be leveled against Obamacare.

Capretta then goes to highlight just how Ryan’s approach will reduce healthcare costs.  Read the the whole thing.

President Obama’s approval/disapproval ratings are now an upside-down 45 percent/50 percent, according to the RealClearPolitics average. If those numbers were to hold until Election Day 2012, Obama would be a decided underdog for a second term, at least that is what statistical  modeling tells:

Mr. Obama’s approval ratings have been varying in recent months: between about 45 and about 50 percent. If Mr. Obama’s approval rating is at the top of that range, 50 percent, on Nov. 6, 2012 — about where it is now — the model figures that his chances of winning re-election will be greater than 80 percent. But if his approval rating is at the bottom of the range instead, at 45 percent, his chances for a second term will be only about one in three, and he’ll have to hope that the Republican nominee is a weak one.

And here are Obama numbers in chart form:

Almost as worrisome for the White House is this chart looking at the direction of the country:

I think what’s at play here is more than just gas prices, though that’s a big part of it. You also have the sliding dollar, S&P’s debt warning, high unemployment, flat or falling incomes, a depressed housing sector. Obama may have won in 2008 even without the financial crisis, but it was that meltdown that allowed him to crush John McCain. And since then, he keeps repeating how his policies have pulled America out of the ditch, like in a speech last year in New York:

“After they drove the car into the ditch, made it as difficult as possible for us to pull it back, now they want the keys back. “No! You can’t drive. We don’t want to have to go back into the ditch. We just got the car out.”

But the recovery feels both weak and unsustainable, like nothing has been fixed since 2008. Do Americans feel like the nation is on the verge of another 25-year boom or like it’s on the precipice? Right along with the slide in Obama’s approval ratings and this latest downturn in public confidence has been the decline in the dollar. Just look at the US Dollar Index: