Monday, February 14, 2011 by The Independent/UK
by David Usborne
Americans are about to get a first glimpse of what tight-fisted federal government looks like with President Barack Obama releasing an austerity-tinged draft budget this morning even as Republicans move to push through a short-term spending plan featuring a far more radical range of spending cuts.
The arrival of President Obama's 2012 budget blueprint in Congress will be the starting pistol for a fight over federal spending that might just lead to a ground-breaking pact by both parties on getting US spending habits under control. The White House is also seeking an agreement on raising the debt ceiling.
More likely, however, the debate will degenerate quickly into warfare, with Republicans seeking to outbid each other on who is more serious about tackling deficits, and Democrats battling to defend social programmes close to their hearts. The end result could be legislative gridlock and perhaps even a government shutdown.
The Obama draft will tread a line between offending Democrats, with some of their favourite domestic programmes singled out for cuts, while going far enough to convince moderate Republicans he is serious about budget discipline. Officials say it will deliver on a promise made in the State of the Union Address to begin a five-year-freeze on non-defence domestic spending.
"After a decade of rising deficits, this budget asks Washington to live within its means, while at the same time investing in our future," President Obama said in his weekly radio address on Saturday. "It cuts what we can't afford to pay for what we cannot do without."
Yet yesterday the Republican chairman of the House Budget Committee, Paul Ryan, excoriated Mr Obama for not going far enough in his plan. "It looks like the debt's going to continue rising under this budget," he said. "Presidents are elected to lead, not to punt. This president has been punting."
More urgent than the 2012 budget are steps that must be taken to set spending levels for the rest of this fiscal year, ending in October. The Republican majority in the House of Representatives will this week try to pass a resolution to cut $60bn (£37.5bn) from government spending over seven months. Translating to annual cuts of $100bn or more, it reflects the demands of conservatives sent to Congress by the Tea Party.
The Republican proposals will meet opposition in the Senate, where Democrats still have a slim majority. But were it to pass Congress in its current form, it would inflict instant pain on a huge range of programmes. Low income students would see grants for university fees slashed, for instance, the education and environmental protection departments would have their budgets scythed, and Mr Obama would see his plans for investment in innovation, clean energy and high-speed trains eviscerated. The agency that oversees public broadcasting the US – a favourite target of conservatives – would simply be shut.
"Next week, we are going to cut more than $100 billion. And we're not going to stop there," said the House Speaker John Boehner, who dare not take anything less than a hatchet to spending levels for fear of triggering a mutiny from the right wing of his party. "Once we cut the discretionary accounts, then we'll get into the mandatory spending. And then you'll see more cuts."
There is also the parallel challenge of dealing with the country's debt, which is now brushing against its maximum legal ceiling of just over $14 trillion. To ensure that government can keep functioning – and keep paying the existing debt – it must get permission from Congress to increase that ceiling, preferably before April.
Bumping up the ceiling should happen almost automatically. But this time, conservative Republicans intend to use the request to squeeze the White House on a broader deficit-cutting strategy.
Behind all of this lies the debate – with which Britain is entirely familiar – over the relative needs of cutting spending and reducing government debt while not smothering economic recovery.
"Anything considered draconian is going to appeal to a certain crowd that's out there saying we've got to cut our way out of the problem," commented Ben Nelson, a key moderate Democrat in the Senate. "But for most of us, if you cut the wrong things, then you impair your ability to grow your way out."
Monday, February 14, 2011 by RobertReich.org
by David Usborne
Americans are about to get a first glimpse of what tight-fisted federal government looks like with President Barack Obama releasing an austerity-tinged draft budget this morning even as Republicans move to push through a short-term spending plan featuring a far more radical range of spending cuts.
The arrival of President Obama's 2012 budget blueprint in Congress will be the starting pistol for a fight over federal spending that might just lead to a ground-breaking pact by both parties on getting US spending habits under control. The White House is also seeking an agreement on raising the debt ceiling.
More likely, however, the debate will degenerate quickly into warfare, with Republicans seeking to outbid each other on who is more serious about tackling deficits, and Democrats battling to defend social programmes close to their hearts. The end result could be legislative gridlock and perhaps even a government shutdown.
The Obama draft will tread a line between offending Democrats, with some of their favourite domestic programmes singled out for cuts, while going far enough to convince moderate Republicans he is serious about budget discipline. Officials say it will deliver on a promise made in the State of the Union Address to begin a five-year-freeze on non-defence domestic spending.
"After a decade of rising deficits, this budget asks Washington to live within its means, while at the same time investing in our future," President Obama said in his weekly radio address on Saturday. "It cuts what we can't afford to pay for what we cannot do without."
Yet yesterday the Republican chairman of the House Budget Committee, Paul Ryan, excoriated Mr Obama for not going far enough in his plan. "It looks like the debt's going to continue rising under this budget," he said. "Presidents are elected to lead, not to punt. This president has been punting."
More urgent than the 2012 budget are steps that must be taken to set spending levels for the rest of this fiscal year, ending in October. The Republican majority in the House of Representatives will this week try to pass a resolution to cut $60bn (£37.5bn) from government spending over seven months. Translating to annual cuts of $100bn or more, it reflects the demands of conservatives sent to Congress by the Tea Party.
The Republican proposals will meet opposition in the Senate, where Democrats still have a slim majority. But were it to pass Congress in its current form, it would inflict instant pain on a huge range of programmes. Low income students would see grants for university fees slashed, for instance, the education and environmental protection departments would have their budgets scythed, and Mr Obama would see his plans for investment in innovation, clean energy and high-speed trains eviscerated. The agency that oversees public broadcasting the US – a favourite target of conservatives – would simply be shut.
"Next week, we are going to cut more than $100 billion. And we're not going to stop there," said the House Speaker John Boehner, who dare not take anything less than a hatchet to spending levels for fear of triggering a mutiny from the right wing of his party. "Once we cut the discretionary accounts, then we'll get into the mandatory spending. And then you'll see more cuts."
There is also the parallel challenge of dealing with the country's debt, which is now brushing against its maximum legal ceiling of just over $14 trillion. To ensure that government can keep functioning – and keep paying the existing debt – it must get permission from Congress to increase that ceiling, preferably before April.
Bumping up the ceiling should happen almost automatically. But this time, conservative Republicans intend to use the request to squeeze the White House on a broader deficit-cutting strategy.
Behind all of this lies the debate – with which Britain is entirely familiar – over the relative needs of cutting spending and reducing government debt while not smothering economic recovery.
"Anything considered draconian is going to appeal to a certain crowd that's out there saying we've got to cut our way out of the problem," commented Ben Nelson, a key moderate Democrat in the Senate. "But for most of us, if you cut the wrong things, then you impair your ability to grow your way out."
+++++++++++
Monday, February 14, 2011 by RobertReich.org
President Obama has chosen to fight fire with gasoline.
Republicans want America to believe the economy is still lousy because government is too big, and the way to revive the economy is to cut federal spending. Yesterday, Republican Speaker John Boehner even refused to rule out a government shut-down if Republicans don’t get the spending cuts they want.
The President has to reframe the debate around the necessity of average families having enough to spend to get the economy moving again. He needs to remind America this is not 1995 but 2011 — and we’re still in a jobs crisis brought on by the bursting of a giant debt bubble and the implosion of total demand. The answer: progressive taxation. Today Obama poured gas on the Republican flame by proposing a 2012 federal budget that cuts the federal deficit by $1.1 trillion over 10 years. About $400 billion of this will come from a five-year freeze on non-security discretionary spending – including all sorts of programs for poor and working-class Americans, such as heating assistance to low-income people and community-service block grants. Most of the rest from additional spending cuts, such as grants to states for water treatment plants and other environmental projects and higher interest charges on federal loans to graduate students.
That means the Great Debate starting this week will be set by Republicans: Does Obama cut enough spending? How much more will he have cut in order to appease Republicans? If they don’t get the spending cuts they want, will Tea-Party Republicans demand a shut-down?
Framed this way, the debate invites deficit hawks on both sides of the aisle to criticize Democrats and Republicans alike for failing to take on Social Security and Medicare entitlements. Expect Erskine Bowles and Alan Simpson, co-chairs of Obama’s deficit commission, to say the President needs to do more. Expect Alice Rivlin and Paul Ryan, respectively former Clinton hawk and current Republican budget hawk, to tout their plan for chopping Medicare.
It’s the wrong debate about the wrong thing at the wrong time.
To official Washington it seems like 1995 all over again, when Bill Clinton and Newt Gingrich played a game of chicken over cutting the budget deficit, the hawks warned about the perils of giant deficits, and the 1996 general election loomed over all. Washington politicians and the media know this playbook by heart, so it’s natural for them to take on the same roles, make the same arguments, and build up to the same showdown over a government shutdown and a climactic presidential election.
But the 1995 playbook is irrelevant. In 1995 the economy was roaring back to life. The recession of 1991 had been caused (as are most recessions) by the Fed raising interest rates too high to ward off inflation. So reversing course was relatively simple. Alan Greenspan and the Fed cut interest rates.
In 2011 most Americans are still in the throes of the Great Recession, which was caused by the bursting of a giant debt bubble. The Fed can’t reverse course by cutting interest rates; rates have been near zero for two years.
Big American companies are sitting on almost $2 trillion of cash because there aren’t enough customers to buy additional goods and services. The only people with money are the richest 10 percent whose stock portfolios have been roaring back to life, but their spending isn’t enough to spur much additional hiring.
The Republican bromide – cut federal spending – is precisely the wrong response to this ongoing crisis, which is more analogous to the Great Depression than to any recent recession. Herbert Hoover responded the same way between 1929 and 1932. Insufficient spending only deepened the Great Depression.
The best way to revive the economy is not to cut the federal deficit right now. It’s to put more money into the pockets of average working families. Not until they start spending again big time will companies begin to hire again big time.
Don’t cut the government services they rely on – college loans, home heating oil, community services, and the rest. State and local budget cuts are already causing enough pain.
The most direct way to get more money into their pockets is to expand the Earned Income Tax Credit (a wage subsidy) all the way up through people earning $50,000, and reduce their income taxes to zero. Taxes on incomes between $50,000 and $90,000 should be cut to 10 percent; between $90,000 and $150,000 to 20 percent; between $150,000 and $250,000 to 30 percent.
And exempt the first $20,000 of income from payroll taxes.
Make up the revenues by increasing taxes on incomes between $250,000 to $500,000 to 40 percent; between $500,000 and $5 million, to 50 percent; between $5 million and $15 million, to 60 percent; and anything over $15 million, to 70 percent.
And raise the ceiling on the portion of income subject to payroll taxes to $500,000.
It’s called progressive taxation.
The lion’s share of America’s income and wealth is at the top. Taxing the very rich won’t hurt the economy. They spend a much smaller portion of their incomes than everyone else.
Sure – take some steps to cut federal spending over the longer term. Cut the bloated defense budget. Tame the growth in healthcare costs by allowing the federal government to use its bargaining clout — as the nation’s biggest purchaser of drugs and hospital services under Medicare and Medicaid and the Veterans Administration – to get low prices. While we’re at it, cut agricultural subsidies.
But don’t believe for a moment that federal spending cuts anytime soon will get the economy growing soon. They’ll have the opposite effect because they’ll reduce total demand.
The progressive tax system I’ve outlined will get the economy growing again. This, in turn, will bring down the ratio of the debt as a proportion of the total economy — the only yardstick of fiscal prudence that counts.
But we can’t get to this point – or even to have a debate about it – if Obama allows Republicans to frame the debate as how much federal spending can be cut and how to shrink the deficit.
The President has to reframe the debate around the necessity of average families having enough to spend to get the economy moving again. He needs to remind America this is not 1995 but 2011 — and we’re still in a jobs crisis brought on by the bursting of a giant debt bubble and the implosion of total demand.
Republicans want America to believe the economy is still lousy because government is too big, and the way to revive the economy is to cut federal spending. Yesterday, Republican Speaker John Boehner even refused to rule out a government shut-down if Republicans don’t get the spending cuts they want.
The President has to reframe the debate around the necessity of average families having enough to spend to get the economy moving again. He needs to remind America this is not 1995 but 2011 — and we’re still in a jobs crisis brought on by the bursting of a giant debt bubble and the implosion of total demand. The answer: progressive taxation. Today Obama poured gas on the Republican flame by proposing a 2012 federal budget that cuts the federal deficit by $1.1 trillion over 10 years. About $400 billion of this will come from a five-year freeze on non-security discretionary spending – including all sorts of programs for poor and working-class Americans, such as heating assistance to low-income people and community-service block grants. Most of the rest from additional spending cuts, such as grants to states for water treatment plants and other environmental projects and higher interest charges on federal loans to graduate students.
That means the Great Debate starting this week will be set by Republicans: Does Obama cut enough spending? How much more will he have cut in order to appease Republicans? If they don’t get the spending cuts they want, will Tea-Party Republicans demand a shut-down?
Framed this way, the debate invites deficit hawks on both sides of the aisle to criticize Democrats and Republicans alike for failing to take on Social Security and Medicare entitlements. Expect Erskine Bowles and Alan Simpson, co-chairs of Obama’s deficit commission, to say the President needs to do more. Expect Alice Rivlin and Paul Ryan, respectively former Clinton hawk and current Republican budget hawk, to tout their plan for chopping Medicare.
It’s the wrong debate about the wrong thing at the wrong time.
To official Washington it seems like 1995 all over again, when Bill Clinton and Newt Gingrich played a game of chicken over cutting the budget deficit, the hawks warned about the perils of giant deficits, and the 1996 general election loomed over all. Washington politicians and the media know this playbook by heart, so it’s natural for them to take on the same roles, make the same arguments, and build up to the same showdown over a government shutdown and a climactic presidential election.
But the 1995 playbook is irrelevant. In 1995 the economy was roaring back to life. The recession of 1991 had been caused (as are most recessions) by the Fed raising interest rates too high to ward off inflation. So reversing course was relatively simple. Alan Greenspan and the Fed cut interest rates.
In 2011 most Americans are still in the throes of the Great Recession, which was caused by the bursting of a giant debt bubble. The Fed can’t reverse course by cutting interest rates; rates have been near zero for two years.
Big American companies are sitting on almost $2 trillion of cash because there aren’t enough customers to buy additional goods and services. The only people with money are the richest 10 percent whose stock portfolios have been roaring back to life, but their spending isn’t enough to spur much additional hiring.
The Republican bromide – cut federal spending – is precisely the wrong response to this ongoing crisis, which is more analogous to the Great Depression than to any recent recession. Herbert Hoover responded the same way between 1929 and 1932. Insufficient spending only deepened the Great Depression.
The best way to revive the economy is not to cut the federal deficit right now. It’s to put more money into the pockets of average working families. Not until they start spending again big time will companies begin to hire again big time.
Don’t cut the government services they rely on – college loans, home heating oil, community services, and the rest. State and local budget cuts are already causing enough pain.
The most direct way to get more money into their pockets is to expand the Earned Income Tax Credit (a wage subsidy) all the way up through people earning $50,000, and reduce their income taxes to zero. Taxes on incomes between $50,000 and $90,000 should be cut to 10 percent; between $90,000 and $150,000 to 20 percent; between $150,000 and $250,000 to 30 percent.
And exempt the first $20,000 of income from payroll taxes.
Make up the revenues by increasing taxes on incomes between $250,000 to $500,000 to 40 percent; between $500,000 and $5 million, to 50 percent; between $5 million and $15 million, to 60 percent; and anything over $15 million, to 70 percent.
And raise the ceiling on the portion of income subject to payroll taxes to $500,000.
It’s called progressive taxation.
The lion’s share of America’s income and wealth is at the top. Taxing the very rich won’t hurt the economy. They spend a much smaller portion of their incomes than everyone else.
Sure – take some steps to cut federal spending over the longer term. Cut the bloated defense budget. Tame the growth in healthcare costs by allowing the federal government to use its bargaining clout — as the nation’s biggest purchaser of drugs and hospital services under Medicare and Medicaid and the Veterans Administration – to get low prices. While we’re at it, cut agricultural subsidies.
But don’t believe for a moment that federal spending cuts anytime soon will get the economy growing soon. They’ll have the opposite effect because they’ll reduce total demand.
The progressive tax system I’ve outlined will get the economy growing again. This, in turn, will bring down the ratio of the debt as a proportion of the total economy — the only yardstick of fiscal prudence that counts.
But we can’t get to this point – or even to have a debate about it – if Obama allows Republicans to frame the debate as how much federal spending can be cut and how to shrink the deficit.
The President has to reframe the debate around the necessity of average families having enough to spend to get the economy moving again. He needs to remind America this is not 1995 but 2011 — and we’re still in a jobs crisis brought on by the bursting of a giant debt bubble and the implosion of total demand.
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