James Pethokoukis

Politics and policy from inside Washington

Obama’s hidden budget strategy

Mar 7, 2011 17:09 UTC

The great Jim Capretta reveals all at NRO. Here is a bit, but read the whole thing:

The Congressional Budget Office (CBO) says the total tax hike over the next ten years will exceed $800 billion — a significant sum. But that’s really just the beginning of it. The authors of Obamacare were looking for a “game-changer” that went beyond a near-term tax hike. …  Their solution: Go back to 1970s-style bracket creep. … The Obamacare tax hikes associated with Medicare — 0.9 percent on wages and 3.8 percent on non-wage income — were sold as hitting only individuals with incomes exceeding $200,000 and couples with incomes above $250,000 annually. But those income thresholds are fixed. … . Consequently, as the years go by, more and more Americans will find themselves paying much higher federal taxes for Medicare — even though they are decidedly not the “rich” people the president said he was targeting.

Similarly, the so-called “Cadillac” tax on insurance plans — sold as a way to hold down costs in the most expensive arrangements — will quickly become a tax that nearly everyone in America pays. In 2018, when the tax goes into effect (conveniently after President Obama has exited the scene), insurers and employers offering plans with premiums exceeding $27,500 for family coverage will pay the tax. But in 2019 and beyond, that threshold will not grow with medical inflation. Instead, it will increase only with economy-wide consumer prices, generally a few percentage points below the inflation trend in the health sector. As the years go by, therefore, virtually all health-insurance plans will start bumping up against the “high-cost” tax t

By 2020, the total tax hike associated with Obamacare will already be bad enough — about 0.5 percent of GDP. But by 2035, because of bracket creep, it will have more than doubled — to 1.2 percent of GDP, according to CBO. And it won’t stop there. It will keep going up every year, in perpetuity.

The piece is a good reminder how the center-left consensus is that Americans are wildly undertaxed, and that dramatic tax increases must be part of the fiscal fix.  So transparency is to be avoided at all costs.  Another reason why tax simplification is not just about making it easier for folks to fill out their taxes.

The long walk back

Mar 4, 2011 18:57 UTC

WH economic adviser Austan Goolsbee:

The 0.9 percentage point drop in the unemployment rate over the past three months is the largest such decline since 1983, and it has been driven primarily by increased employment, rather than falling labor force participation.

Though unemployment remains elevated, we are seeing signs that the initiatives put in place by this Administration – such as the payroll tax cut and business tax incentives for investment – are creating the conditions for sustained growth and job creation. The steep decline in the unemployment rate and the overall trend of economic data in recent months has been encouraging,

The overall trajectory of the economy has improved dramatically over the past two years, but there will surely be bumps in the road ahead.

A now, a chart (via Calculated Risk):

jobchart

COMMENT

I’m a little puzzled by this article by Mr. Pethokoukis. Does he see his role as a columnis/journalist as just passing along to Reuters readers whatever is fed hime by Austan Goolsbee? or other administration shills? I guess Pethokoukis doesn’t do this ALL the time. But why not stop the phoning-in journalism. I think Austan knows how to publish his own press releases.

Posted by AbrahamLesnik | Report as abusive

America, what’s gone wrong? I think it’s this

Mar 4, 2011 18:18 UTC

No one chart could sum up everything gone wrong with the U.S. economy, but this one comes close to showing America’s misplaced priorities:

usaincchart

COMMENT

Add education spending and you do just about have the whole story of America’s recent problems. Unproductive government-driven investment in health care, education, and housing is a black hole sucking up money that would otherwise be allocated according to its most productive use. This is the unintended consequence of government intervention played out on an economy-wide scale.

The solution is a full retreat of government from these area. When we will we as nation realize that? Will it even be possible to fix the mess we’ve created when we do?

Posted by dk123 | Report as abusive

Kudlow: Rising oil prices aren’t a big problem … yet

Mar 4, 2011 18:08 UTC

The Great One, Larry Kudlow, on the rise in oil prices:

In any event, I side with clear-eyed Wall Street forecaster John Ryding, who believes the $10 or so oil-price hike will reduce real growth by only one-quarter of a percent while adding a like amount to inflation. Ryding expects 3.5 percent growth this year.

Historically, a combination of spiking oil prices and an inverted Treasury yield curve signaling ultra-tight Fed money are precursors to inflationary recession. This has pretty much held true for the last six economic downturns. But right now, the oil spike is modest and Fed money printing is ultra-easy. The yield curve is steep and upward sloping, with long-term rates 350 basis points above short-term rates. This argues against recession right now.

And let’s not forget: Corporate profits remain very strong, an extension of the Bush tax cuts is helping the economy grow, and the one-time payroll tax cut may help cushion the oil shock. So at the moment, barring a blowup in Saudi Arabia, the economy will survive.

Of course, as Larry hints, the risk is if that $10 turns to a sustained $20 or $30. Then you are chopping a point off GDP growth, assuming a linear relationship between oil prices and GDP growth. At some point, that relationship breaks down and the damage being done gets far worse. The airline industry, for instance, does not seem to operate real well at $140 a barrel oil, as became clear in 2008. Even the current price levels are hitting profitability:

The airline industry will earn almost 50% less this year than in 2010, as fast-rising oil prices pummel the sector’s profitability.

The International Air Transport Association has now downgraded its airline industry outlook for this year to $8.6 billion from the $9.1 billion it estimated in December. This is a 46% drop in net profits compared to the $16 billion earned by the industry last year.

IATA raised its 2011 average oil price forecast to $96 per barrel for Brent crude, up from $84 in December. This will increase the industry fuel bill by $10 billion to a total of $166 billion.

Matt Miller vs. Paul Ryan

Mar 4, 2011 17:28 UTC

Over at the WaPo, the great Jennifer Rubin takes Matt Miller to task for his completely unfair and wrongheaded critique of Paul Ryan.  See, Matt Miller has a thesis shared by many in the MSM and center-left think tank community. It goes like this:

1. As societies get richer — and older — they demand bigger government to provide more services.

2. Thus to prevent a fiscal crisis, taxes much go up since it is impossible to substantially cut spending.

3. And since Paul Ryan advocates, to Miller at least, the impossible — spending less government money on entitlements and keeping taxes low — Ryan is not a serious person when it comes to dealing with America’s debt problem.

The problem with Miller’s thesis is as follows:

1. Raising taxes high enough to deal with exploding healthcare costs would kill economic growth, making the debt problem even worse.

2. Ryan, via his Roadmap for America, demonstrates a way to provide a safety net that does not require bigger government. Miller refuses to acknowledge the viability of free market solutions.

3.  There is no political evidence that Americans are ready for dramatically higher taxes.

COMMENT

So the reason Miller is pointing out the absurdities of Paul Ryan’s plan is that the country is struggling to clean up the fiscal mess left by … Republicans like Paul Ryan. Ryan voted for budgetary and economic policies that added $5 trillion to the national debt over eight years. He supported the budgetary and economic policies that took a $230 billion surplus and turned it into a $1.3 trillion deficit. He was proud to endorse all kinds of measures, including two wars and Medicare expansion, that cost a bundle, but which Ryan and his cohorts never even tried to pay for.
But now Paul Ryan has decided it’s time to clean up the mess he helped create, and to do so, he wants to go after Medicare and Social Security.
Ryan’s “roadmap” is a right-wing fantasy, slashing taxes on the rich while raising taxes for everyone else. The plan calls for privatizing Social Security and gutting Medicare, and fails miserably in its intended goal — cutting the deficit.
When Matt Miller suggests that’s ridiculous, Pethokoukis concludes that HE’s being unfair and wrongheaded? Come ON.

Posted by GetpIaning | Report as abusive

China is booming … unless it stops

Mar 4, 2011 16:42 UTC

If you are looking for something to worry about (via the WSJ), here you go:

wsj

COMMENT

So, it comes Jasmine Revolution.

Posted by blinded1 | Report as abusive

Obama vs. Reagan, 20 months in

Mar 4, 2011 16:34 UTC

Great context from the Heritage Foundation:

Since the Obama recovery began 20 months ago, the national unemployment rate has fallen only half a point, from 9.4 percent in July 2009 to 8.9 percent today. Contrast those anemic results with the robust job growth that occurred during the Reagan recovery in the ’80s. By the 20-month mark of the Reagan recovery, unemployment had dropped from 10.8 percent to 7.5 percent – a 3.3-point drop.

So why was the Reagan recovery so strong and why is the Obama recovery so weak? Just look at the best job markets in 2010 according to Gallup: “More than half of the 10 best job markets in 2010 were in energy- and commodity-producing states.” And what has President Obama done to help this job growth spread? Nothing. In fact, his cancellation of drilling permits across the West and his offshore drilling slowdown have undoubtedly slowed job creation in this sector. So what have been the hot job markets in the Obama Recovery? Gallup explains: “Reflecting the growth of the federal government, the District of Columbia was not only the second-best job market but also the second-most improved job market in 2010.” The Department of Labor Statistics confirms Gallup’s analysis: Since President Barack Obama was sworn into office, the private sector workforce has shrunk by 2.6 percent while shedding 2.9 million jobs, but the federal workforce (excluding Census and Postal workers) has grown by 7 percent while adding more than 144,000 jobs.

COMMENT

Infiltrator: Canada’s current Federal corporate tax rate is 16.5%, and is slated to fall to 15% in a year’s time. That isn’t ‘false’ information. Provincial corporate taxes add another 10-15% for a final tax rate of 26.5% to around 32%. The feds are pushing the provinces to lower their corporate rate to a uniform 10%, which would ultimately see Canada’s tax rate at 25% tops. America’s is currently around 40% and yes, I know about deductions &c which lower this rate. The same deductions are available here too so that’s a red herring.

Perhaps Corporate America won’t come stampeding into Canada but, at the margin, a lot of investment has likely come here due to the more welcoming tax environment.

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Some scary numbers about U.S. education

Mar 4, 2011 16:13 UTC

Some devastating factoids on U.S. education from the good folks over at Reason (I have gleaned some numbers from an article well worth reading in whole):

1. According to Department of Education statistics, in 2007-2008 (the latest year available), full-time public school teachers across the country made an average of $53,230 in “total school-year and summer earned income.” That compares favorably to the $39,690 that private school teachers pulled down.

2. According to EducationNext, government employer contribute the equivalent of 14.6 percent of salary to retirement benefits for public school teachers. That compares to 10.4 for private-sector professionals.

3. In 1960-61, public schools spent $2,769 per student, a figure that now totals over $10,000 in real, inflation-adjusted dollars.

4. In 1960, the student-teacher ratio in public schools was 25.8; it’s now at a historic low of 15.

5. In 2007, the percentage of parents with children in assigned public schools who were “very satisfied” with the institution was 52 percent. For parents whose children attended public schools of choice, that figure rose to 62 percent. Parents sending their children to private schools, whether religious or non-sectarian, were “very satisfied” 79 percent of the time.

6.  Despite all the extra resources devoted to public school teachers and students, student achievement has been absolutely flat over the past 40 years.

None of this should be surprising given the lack of productivity and efficiency inherent in government monopolies. As the New America Foundation notes:

The U.S. ranked 68th (out of 139 countries) in terms of wastefulness of government spending in the 2010-11 World Economic Forum report on global competitiveness. Experts put our public-sector productivity about 10 years behind that of the rest of our workforce. If public workers could halve that gap, the annual savings would ring in at $100 billion to $300 billion, according to a new study by the McKinsey Global Institute. That would mean the equivalent of a recurring stimulus package every three to eight years.

Debt ceiling battle could shake markets

Mar 4, 2011 15:53 UTC

“To attract any Republican votes to a debt ceiling increase, you’re going to have to come up with some serious spending reductions and some budget process reforms. There is going to have to be a significant incentive.”

That is from my chat yesterday with Senator John Thune.  Now I think it is even more evident that getting a 2011 budget will be easier than increasing the debt ceiling to pay for it. I will add, however, that I think it is smart to try and use whatever leverage is out there to gain more spending cuts and budgetary reforms.

1. But right now the two issues are on separate tracks — and it looks likely that it will stay that way. The GOP-controlled House, with its complement of small-government Tea Party members, has already passed a bill that would cut domestic spending by $61 billion this year. Such a reduction would slash discretionary programs — everything other than defense and mandatory social spending — by an average of 25 percent. The Senate, run by Democrats, prefers to keep such spending flat.

2. Democrats may have the president in their camp, but more of them face re-election campaigns in 2012 than their Republican opposite numbers. Although another short-term fix is possible, after the give-and-take of a final deal to fund the government could include cuts of around $30 billion.

3. But Republican sources say there’s a long way to go before finding common ground, even within their party, on raising the debt ceiling. Adding to the uncertainty are new polls showing the American public unwilling to accept significant cuts in Social Security and the like. Another variable is a bipartisan group currently conducting closed-door talks to fashion a 10-year “grand compromise” on the budget. Their plan could emerge smack in the middle of the debt ceiling debate.

Bottom line: The path to avoid a debt default remains murky, though both sides know it would be a disaster.

COMMENT

Anyone who thinks Science isn’t political hasn’t heard of research grants and the military-industrial complex. Science gets hugely political. And trashing liberals as part of your statement makes it even less valid, sir.

==RED

Posted by REDruin | Report as abusive

The New Underclass and Barack Obama

Mar 4, 2011 15:47 UTC

Drilling a bit deeper and moving beyond the 8.9 percent unemployment rate and 192,000 jobs created, here is what I found:

  1. The U.S. labor force remains as small as it has been in a generation
  2. More than 5 million Americans have disappeared from the job rolls
  3. If the labor force was currently at 2007 levels, the unemployment rate would be a whopping 12 percent – the worst since the Great Depression.

As it is, the broader unemployment rate, which includes those who are underemployed and discouraged workers, is still an agonizing 15.9 percent. What’s more, the Federal Reserve believes that the high number of people out of work for 27 weeks or longer is creating structural unemployment. (The longer you are out of work, the harder it is to get that next job.) No wonder the Fed now believes the economy’s natural rate of unemployment has increased from a bit under 5 percent to a bit more than 7 percent.

In short, you may have a much larger pool of the long-term unemployed than is historically typical in America, something more akin of what is seen in Old Europe.

This is why it is critical to deal comprehensively with the Axis of Economic Evil: Big deficits, high taxes and onerous regulation. America must get more competitive and productive. I find the below chart from McKinsey particularly scary since it shows how much job growth is happening in unproductive areas of the US economy.

product

COMMENT

What a load of crap…. The problem isnt the corp tax rate ninny. They dont pay as much as they do elsewhere. When the president agreed to lower the corp tax rate and eliminate the loopholes boy did you right wing nuts go silent. I guess you havent heard how well lowering the corp tax rate worked in Ireland. The fact is we have been not only allowing our manufacturing to be shipped overseas to slave labor countries without any regard for their own environment (go run a mile in bejing and breathe in heavy) we have provided tax breaks for them to do so. China doesn’t make products, our companies are making products in china. And now the latest blame on the right is with education as well.. Their answer? Cutbacks to education. How do these people sleep at night.

Posted by fromthecenter | Report as abusive
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