James Pethokoukis

Politics and policy from inside Washington

Eat our peas? When will government eat its peas?

Jul 11, 2011 18:24 UTC

The President of the United States, this morning:

It’s not going to get easier; it’s gonna to get harder. So we might as well do it now, pull off the Band-Aid, eat our peas

In Obama’s most recent 10-year budget plan, according to the CBO, federal spending would never drop below (a historically high) 23 percent of GDP. And long-term budget plans by liberal think tanks all have spending at such a level, or higher, for decades to come:

 

 

 

COMMENT

What’s wrong with peas? Even my 16-month-old daughter eats them. The president probably doesn’t know how to cook veggies properly. Turn the heat down when they’re bright green, folks.

Posted by Benzene265 | Report as abusive

The declining ‘stimulus’

Jul 11, 2011 17:53 UTC

During Obama’s news conference today (more on that later), the president said he thought lower stimulus spending was affecting economic growth. Now I doubt how much impact, if any, the $800 billion package had in the U.S. economy. But I thought this JPMorgan chart did illustrate the decline in spending:

 

[Chart] The unemployment rate they don’t want you to know about

Jul 11, 2011 17:14 UTC

The official U.S. unemployment rate is 9.2 percent. But what if that rate was adjusted just for all the discouraged folks who’ve dropped out of the labor force during the past few years? It would be over 11 percent. (And over 16 percent if you counted the underemployed.) This chart from JPMorgan makes the point:

 

No big budget deal? Blame Obama, not Boehner

Jul 10, 2011 20:29 UTC

President Barack Obama could have done two things that might have saved his Mother of All Budget Deals.

First, he could have embraced market-centered, consumer -focused reforms to Medicare. That was about as likely as him accepting an Obamacare rollback.  Second, he could have agreed — as House Speaker John Boehner and Republicans suggested —  to sharply reduce tax rates in return for fewer special tax deductions/breaks/loopholes/subsidies. Recall that is what his own debt commission recommended.

Instead, he apparently offered to keep top individual rates where they are, at 35 percent, in exchange for tax reform. Now that’s a big tax hike. But it’s also revealing. As a GOP source on the Hill put it:

Their fierce insistence on higher taxes is beyond bizarre.  …  The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

Obama agrees with the left-of-center consensus that America is dramatically undertaxed. Those tax rates from his fiscal commission would have resulted in revenue higher than the historical 18-19 percent of GDP, as seen in this chart:

But 21 percent of GDP — the highest in U.S. history — isn’t nearly enough for the Obamacrats. Even if Obamacare is successful in bringing down health costs, top liberal policy wonks think far more revenue will be needed to deal with an aging America. First, this budget from the Economic Policy Institute. It sees revenue at 24.1 percent of GDP, which still leaves a huge budget gap:

Then there is this plan from the George Soros-backed Center for American Progress, which operates as the White House’s outside think tank. It sees revenue at 23.8 percent of GDP, even adding a carbon tax and transaction tax into the mix.

 

In short, Obama sees a need for a permanently bigger government and a lot more tax revenue to fund it.  Had Obama agreed with his own debt commission and Republicans, a big agreement was possible. Or he could have proposed real reforms to entitlements. But he declined and there wasn’t a mega-deal. Don’t blame Boehner for that.

COMMENT

Blame the party of NO

Posted by kc10man | Report as abusive

Like Reagan at Reykjavik, Boehner passes on a bad deal

Jul 10, 2011 04:56 UTC

So in the end, it was bit of a Ronald Reagan moment for John Boehner on Saturday. Just as the U.S. president walked away from a bad arms control agreement with Soviet leader Mikhail Gorbachev at Reykjavik, Iceland in 1986, the House speaker passed on President Barack Obama’s mega-debt reduction deal in Washington.

In both case, the asking price was just too high. For Reagan, it was lethal limitations on his Strategic Defense Initiative. For Boehner, it was a trillion-dollar tax distraction from America’s true fiscal threat: spending run amok: “Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes.”

A GOP congressional source was a bit less diplomatic, telling me Saturday afternoon via email:

Their fierce insistence on higher taxes is beyond bizarre. After months of demanding ‘clean’ increase to avert economic calamity (default), WH threatens economic calamity (default) unless they get economic calamity (trillions in tax hikes). No wonder these guys are governing over an economic calamity (9.2% & growth malaise), w/ an economic calamity on the horizon (debt explosion as mapped out in president’s budget). The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

Indeed, as negotiations wore on, Obama got tougher on taxes (pushed hard by the hard left), and the deal he was cooking up almost certainly wouldn’t have been revenue neutral as he tweaked rates and reduced tax deductions. Not even close. Nor did it help that Obama reportedly balked at a spending-cut trigger if certainly tax reforms were not completed.

Or maybe Boehner also realized he was becoming a role player in an Obama-directed drama whose dramatic focus was securing a second-term for Obama. Either Obama got his big tax-hike deal and a) created a tea party revolt in the GOP, b) looked like a statesmen and c) partially deprived Republicans of a valuable line of attack in 2012 … or there was no deal, and Obama could hammer the GOP until Election Day for caring more about tax cuts for the rich than fiscal responsibility.

Boehner apparently will take his chances with door #2 and push for a roughly $2.4 trillion deal (with a debt ceiling hike, too) based on spending cuts already agreed to and some non-tax revenue raisers. Deeper spending cuts and structural entitlement reform would be better, but that is going to have to be a 2013 thing. Indeed, what entitlement reforms Obama was agreeing to were insufficient to Republicans.

Indeed, there were arms control agreements after Reykjavik, just as there will assuredly be more debt deals in the future. There must be or, as the Congressional Budget Office forecasts, debt as a share of GDP will explode from 70 percent today to as high as 250 percent by 2035 — assuming no economic implosion first. And no amount of tax increases will stop that. Some will push for just such options, of course. Liberal think tanks are devising plans to increase the total U.S. tax burden by at least 30 percent or more over the next two decades.

The other course is to reform entitlements and boost revenue by growing the economy faster. Boehner and the GOP, hopefully, took a step in that direction on Saturday and will take another one when they meet with Obama Sunday night.

 

COMMENT

Reagan walked away from a deal with the Russians so he could keep on playing with his very expensive silly toy, Star Wars. Whoop-de-do! A fine model of Republican thinking.

What Boehner walked out on was Obama’s attempt to get a Republican Congress to pay for eight years of Republican mis-management, two unbudgeted wars, Bushlet’s mega-payoff to Big Pharma, and eight years of borrowing from the Chinese to finance tax cuts for the rich.

Buncha spoiled brats, whining, puking and mewling.

Posted by DavidLJ | Report as abusive

Will Boehner pull a ‘Reagan at Reykjavik’ and walk?

Jul 10, 2011 00:00 UTC

Will House Speaker John Boehner commit Republicans to raising $1 trillion in taxes as part of President Obama’s last-minute push for as much as a $4 trillion debt reduction deal? Obama and the GOP meet Sunday evening, but things continue to develop quickly:

1) Various news accounts Saturday morning made it sound as if Boehner was flirting with some convoluted deal where some taxes would be raised – including the high-end Bush tax cuts – but lowered later as part of major tax reform, with maybe some of the savings from fewer deduction going to reduce debt.

2) Then on Larry Kudlow’s radio show this afternoon, the WSJ’s Steve Moore said his paper’s reporting was accurate and the GOP were being “tempted” by this offer.

3) Then I got this from a GOP congressional source later in the afternoon:

WH is demanding major, unambiguous tax hikes. To get spending caps & entitlement tweaks, greater economic pain appears to be the WH’s asking price. It is increasingly likely that we aren’t going to see a ‘big’ deal if the WH doesn’t budge. Speaker looks to be holding strong. …

Their fierce insistence on higher taxes is beyond bizarre.

After months of demanding ‘clean’ increase to avert economic calamity (default), WH threatens economic calamity (default) unless they get economic calamity (trillions in tax hikes). No wonder these guys are governing over an economic calamity (9.2% & growth malaise), w an economic calamity on the horizon (debt explosion as mapped out in president’s budget).

[Update 7:39 PM] Appears that the basic framework for future tax reform could not be resolved.

The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

That Team Obama wants higher higher taxes is not news.  But the growing GOP allergic reaction is. I think these comments gives good insight into how the GOP perceives the evolving deal. And I hope that second part is true. Tax reform should only be done in the context of lowering marginal tax rates, especially if Democrats aren’t offering entitlement reform that would move things toward a more market-based system such as the one outlined in Rep. Paul Ryan’s bold and visionary Path to Prosperity.

I also doubt whether the spending cuts being offered by the Obamacrats are largely legit and not a manipulation of the CBO baseline by a) cutting defense spending that was never going to happen and b) pushing cuts to Medicare providers that Congress will later undercut. My best guess remains a smaller spending cut deal + no tax increases + a hike in the debt ceiling.

This is Obama in his weekly radio address today:

Both sides are going to have to step outside their comfort zones and make some political sacrifices,” Obama said. “And we agree that we simply cannot afford to default on our national obligations for the first time in our history.

Obama says he wants a big deal, maybe because he needs an economic win to counter the faltering economic recovery and deprive the GOP of the “big spender” line of attack in 2012. Maybe he is finally listening to Tim Geithner and Jack Lew.  It all reminds me of President Ronald Reagan and Soviet leader Mikhail Gorbachev at the 1986 arms control summit in Reykjavik, Iceland. Reagan walked away from a deal that would have eliminated nuclear ICBM’s in a decade because it would hobbled research into the Strategic Defense Initiative. Reagan was right to walk away then, and Boehner would be right to do the same now.

 

COMMENT

Wow. Peanuts when we need boulders.

On the issue of taxes … much money goes uncollected each year. IRS estimates at least a third of a trillion dollars go uncollected under current tax law; uncollected taxes on cash-paid services, uncollected taxes on tips, double deductions by small business owners. That alone would cover much of the $4 trillion over 10 yr. target, were the IRS equipped to make it collectable. Further, we have heard of the poster-child cases of GE and Forest Labs paying zero using legal shell-based loopholes. Today, Reuters reported that Fox / News Corp. paid not just zero taxes, but was actually paid back $4 billion in refunds. While I pay north of 40% per year in combined federal taxes, I am sure Mr. Rupert Murdoch pays 18% or less per year on his much more sizable income. Cutting benefits for disabled vets and tossing grandmothers off Social Security is not an answer. Eliminating regulatory inspectors is not an answer; time and again, industry has shown a contempt for consumer safety e.g. Toyota. Enough is enough with revenue cutting … collect taxes fairly on those enjoying the benefits of a United States, as imperfect as it may be.

This is not only about the me’s; it’s about US.

Posted by SanPa | Report as abusive

Is Obama getting ready to snooker Boehner on taxes?

Jul 9, 2011 15:30 UTC

The media accounts of the tax reform deal being cooked up by President Obama and House Speaker Boehner aren’t all that clear. But it is looking like a big tax increase:

– The White House is insisting that as part of any deal the current tax rates on the middle class—the child tax credit, etc.—would be made permanent, while the lower rates on capital gains, dividends and the higher income brackets would expire after 2012. Taken by itself this would be a tax increase pure and simple and violate the GOP’s campaign pledge.

But here’s what we’re told is Mr. Boehner’s political kicker: The proposed deal would also include some kind of “trigger” device, so far undefined, that would compel House and Senate negotiators to complete tax reform discussions over the next several months. We’re told the White House has said it is open in principle to a top rate of 35% on individuals and something like 26% or 27% on corporations—in return for closing various loopholes.

More troubling than these details is the staggered timing. Republicans would be putting their fingerprints on a tax increase in return for spending cuts as a first order of business, which would raise the dividend and top income tax rates to 39.6% (from 35%), or 41% if you include the phase-out of deductions. (Plus the 3.8% payroll tax hike baked into ObamaCare.) Only then would Mr. Obama and the Democrats negotiate the details of tax reform and lower overall rates. (Wall Street Journal editorial)

– With House Speaker John Boehner’s encouragement, President Obama is pushing for congressional leaders to strike a far-reaching agreement to reduce the deficit by more than $4 trillion over 10 to 12 years, which would include more than $1 trillion in new revenues, officials said. (The Hill)

– Boehner would have to agree to revenue boosts through tax-code reform, including closure of loopholes then coupled with lower corporate tax rates, all of which is designed to spur economic growth. The new revenue could reach up to $1 trillion over a ten-year period, funds that could be used for deficit reduction. Boehner and his top aides insist there will be “no tax increases.” (Politico)

– Such a deal could go as high as an eye-popping $3 trillion in overall deficit reduction, but as much as $1 trillion would be in revenues: $700 billion from letting the Bush tax cuts for the highest income brackets expire and another $300 billion from increased revenues, from auctioning off frequencies, increased payments to federal pension plans and ending agriculture subsidies in addition to ending tax breaks such as deductions for corporate jets, yachts and race horses. The deal would come with a pledge, or clawback provision, to revisit comprehensive tax reform in the coming years so as to offset the higher taxes on the wealthy by eventually flattening and broadening the tax base. (Time)

All very confusing, but the best I can make of it is this: higher taxes now in exchange for a promise of tax cuts later to be “paid for” by reducing tax breaks/deductions/loopholes with perhaps some of that money going toward deficit reduction.

I can tell you this: Democrats need a lot more tax revenue to make their long-term budget plans works. This is why Obama has not offered a long-term budget plan. The need for massive tax increases would then be clear to all. In private, liberal economists all talk about a need for a value-added tax to raise the additional revenue.

But a liberal think with close ties to the White House, the Center for American Progress, recently released a budget plan that goes out to 2035. It shows taxes as a share of the economy rising dramatically to nearly 24% of GDP vs. around 18-19 percent historically. And I am guessing they would go even higher if the table went beyond 2035. If Boehner and the Republicans don’t hold the line now on taxes, this is the American future

 

 

COMMENT

Of course America needs tax increases: it’s mixed up in two wars, and has spent eight years borrowing from the Chinese to finance the Republicans’ payoffs to Big Pharma and tax cuts for the rich.

These guys seem to be able to calculate a golf score. Surely that’s enough math to handle that much budgeting.

Posted by DavidLJ | Report as abusive

The horrendous June jobs report

Jul 8, 2011 17:07 UTC

When economists are expecting 100,000 or so net new jobs, and the Labor Department reports measly gains of just 18,000 (plus an increase in the unemployment rate to 9.2 percent), the reaction sounds like this:

– “All in all, an employment report with no redeeming features whatsoever – employment, unemployment, hours and wages all disappointed.”- Barclays

–  ”The June jobs report was a shocker. It was far worse than expected, and weak on all key dimensions – job creation, unemployment, the length of the workweek, and hourly earnings. The recent pattern of jobs suggests that the economy hit a brick wall in May.” — IHS Global

– “Overall the June Employment Report was quite disappointing, with basically no positive offsets to the poor headline results.” — Goldman Sachs

–  ”The June employment report was universally weak and undoes the modest improvement in the economic data we have seen over the last two weeks. We are back where we started; the risk of a cold summer, similar to last year, is palpable.” — BofA Merrill Lynch

–  ”It is hard to excuse this report on supply-chain disruptions and it suggests that growth momentum evaporated as the second quarter drew to a close.”- RDQ Economics

–  ”Unfortunately, leading labor market indicators like temporary help employment, aggregate hours worked and first-time jobless claims remain weak and thus do not suggest an imminent reacceleration in the labor market.” — MKM Partners

Indeed, if the labor force, which shrank again, was as big as it was when President Obama took office, the unemployment rate would be north of 11 percent. As it is, the broader U-6 measure surged to 16.2 percent from 15.8 percent. But with an economy growing at just 2 percent or so, expectations should be low.  If the economy picks up in the second half, so should job growth.

But we have a long way to go before getting the unemployment even back to 8 percent or so by Election Day 2012, needing some 255,00 jobs a month. Obama’s political team seems to think the unemployment rate does not matter. We shall see. At his new conference today, Obama offered plenty of excuses, including blaming uncertainty over the debt ceiling:

We’ve always known that we’d have ups and downs on our way back from this recession. And over the past few months, the economy has experienced some tough headwinds — from natural disasters, to spikes in gas prices, to state and local budget cuts that have cost tens of thousands of cops and firefighters and teachers their jobs. The problems in Greece and in Europe, along with uncertainty over whether the debt limit here in the United States will be raised, have also made businesses hesitant to invest more aggressively. The economic challenges that we face weren’t created overnight, and they’re not going to be solved overnight.

Hardly the stuff for a soul-stirring campaign ad. A few other observations:

1) Will Obama now make a renewed push for a payroll tax cut extension to be part of the debt ceiling negotiations?

2) Will Tim Geithner leave sooner rather later to be replaced by someone with a job-creation background like GE’s Immelt or Facebook’s Sandberg?

3) Will Rs dig in even further against raising taxes?

4) Will Obama’s approval numbers fall below the plateau they’ve sort of been stuck on (not counting the OBL  bounce.)

5) Will the weak economy nudge another GOPer to get into the 2012?

 

 

COMMENT

Nice weblog right here! Additionally your web site rather a lot up very fast! What host are you using? Can I get your associate hyperlink on your host? I wish my web site loaded up as fast as yours lol

Why the GOP should reject tax increases, in one chart

Jul 8, 2011 00:20 UTC

Why are Republicans demanding a debt deal that has big spending cuts but no tax increases? (Besides, of course, the fact that spending is the problem and the last thing this weak economy needs is a tax hike?) Maybe it’s because the last time they agree to one of these “$2 in spending cuts for every $1 in tax hikes” agreements, they got snookered.

An explainer from Americans for Tax Reform (which created the chart):

In 1990, President George H.W. Bush was promised $2 in spending cuts for every $1 in tax hikes by Congressional Democrats. That’s not what happened.

All $137 billion in tax hikes went through. Most notable was raising the top marginal tax rate from 28 percent (the Reagan low) to 31 percent (itself a setup for the 1993 Clinton tax hike of this rate all the way up to 39.6 percent). There were also increases in “sin” taxes and the Medicare payroll tax, as well as the yacht “luxury tax” that President Obama seems so intent on re-visiting on the jet plane manufacturers.

Not only did the $274 billion in promised baseline spending cuts never materialize–baseline spending was actually $22 billion higher than what CBO projected it would be before the deal. This despite another tax hike/baseline spending cut deal in 1993 (the Clinton tax hike) and the GOP takeover of Congress in 1995.

 

COMMENT

In case anyone does not know, “The Economist” is an über-left-wing publication that parrots the DNC. The ONLY reasonable path to fiscal responsibility is TO CUT TAXES on job-creators (i.e., the “wealthy”, and TO CUT SPENDING. This is the paradoxical truth touted by JFK in 1962, and proved every time it was tried in modern history, from JFK to George W. Bush. Tax cuts increased revenues to the Treasury that Tax-N-Spend liberal politicians eagerly used on new spending programs. The problem is NOT revenues, but SPENDING!

Conservatives may tentatively control the House, but ruling-class RINO’s still hold the Senate and hold some powerful positions in the House. These closet-liberal Republicans are too willing to deal with Harry Reid and Nancy Pelosi clones in Congress.

Posted by barron2lds | Report as abusive

Kudlow on Washington’s spending problem

Jul 7, 2011 19:41 UTC

Larry Kudlow breaks it down, even has a chart!:

The blue line you see is President Obama’s budget. The green line is Congressman Paul Ryan’s budget.

Now, Paul Ryan’s is of course a couple of trillion dollars lower than Obama’s over the next ten years. But what do they both have in common? They both go up. As in spending more, not less. As in, roughly $40-45 trillion dollars more. That’s a whole lot of taxpayer money, folks. Now why is this? It’s because of something called the “current services baseline” which includes population and inflation increases built into the budget. Entitlements have their own formulas. So when you hear a politician tell you they’re cutting spending, they’re actually referring only to reducing the growth of spending. Rarely, if ever, do they actually reduce the level of spending.

Here’s yet another scam: big budget deals say they “cut” (there’s that word again) a couple of trillion dollars over ten years. But most of it is targeted for the last couple of years, as in years eight, nine, and ten. So basically it’ll never happen. It’s four or five congresses from now. Laws change. Deals are broken. At the end of the day, the only thing that really matters is next year’s budget. Will it be cut?

When I look at this budget stuff, I focus on spending, taxes, interest and debt as a share of the economy. That way I don’t get dragged down into the world of comparing baselines. Here, for instance, is how the CBO looks at the Ryan plan:

 

  •