Tag: Budget Deficit

What Spending Restraint Looks Like

In case you think government spending is out of control and the GOP RINOs and sellouts have given spendthrift Obama everything he wants, here’s some more data to chew on: over the last five years, we have spent $2.5 trillion less than Obama was projecting in 2009, including $697 billion less in 2015 alone. That’s the equivalent of having cancelled Medicaid. And, of course, those savings become baked into future projections, which means unfunded liabilities are down by trillions as well.

Is it perfect? No. It is a huge improvement? Absolutely. If the GOP had shown this kind of spending restraint while Bush was President, we would currently be running a $400-800 billion dollar surplus right now and the national debt would be about $8 trillion smaller. And that’s with the Obama stimulus included. Without, the numbers would be even further in the black.

Spending restraint. It works.

The New Order

During the debate earlier this week, Congress quietly issued an omnibus budget bill. It just passed both houses today. There is some stuff in the bill to like but a lot to dislike.

Dislikes first:

  • Provisions do tighten immigration and refugee procedures were dropped, although the visa waiver program will be tightened.
  • The bill increases overall spending.
  • The bill increased the budget deficit, albeit mostly through extending tax provisions.
  • The bill includes surveillance provisions that violate civil liberties, essentially passing CISA through the back door.

There are a few provisions I don’t have a strong opinion about at this point. The bill increases the number of H2-B visas dramatically, which is opposed in many quarters. It also drops the effort to defund Planned Parenthood. Personally, I would prefer that we drop all non-budget riders from the bill.

There’s another provision that’s kind of difficult to get a grasp on. The bill makes some tweaks to Obamacare: delaying the Cadillac tax, dropping the medical device tax and maintaining the caps on the “risk corridors”. The tax delays cost money but make Obamacare more palatable to some opponents. The risk corridors could result in insurance companies leaving the system. But the willingness of Democrats to negotiate away parts of Obamacare may portend an uncertain future for the program and an eventual overhaul. So we’ll have to see where this goes.

Now the good:

  • It lifts the crude oil export ban.
  • It make a number of tax breaks permanent or long-term, rather than having them renewed every year. This at least will mean more honest accounting. Indeed, much of the deficit increase is on paper because we’ve stopped pretending we’re going to let those tax breaks expire.
  • It replaces the sequester with more targeted spending cuts.
  • It avoids a government shutdown.

That last bit is probably the most important. The budget deal is a step toward renewing the normal budget process rather than budgeting through a series of self-created crises. It is a worrying step toward both parties agreeing to ignore the deficit. That will have to be addressed. But if we’re getting back to a normal budget process, it should at least be easier to tell what the hell Congress is doing.

Driving Toward the Glass Ceiling

I’m happy that the GOP has held out on the debt ceiling and continues to hold out for more budgetary discipline. But there are rumblings right now that have me very worried. They have broken off talks with the Democrats and are balking at any revenue increases at all. And a substantial part of the base seems to think that hitting the debt ceiling is preferable to the deal that is currently on the table.

I find that baffling. The deal that is currently on the table is a very good one and one that Republicans have usually accepted. Estimates of the ratio of spending cuts to tax hikes range from 3-1 to 5-1. If it is the latter, that is pretty much identical to the deal the Republicans proposed back in March. Moreover, the tax hikes are what they should be, what luminaries like Alan Greenspan have been advocating for years — the elimination of tax expenditures rather than hikes in marginal rates.

There’s another aspect of this: the baseline. If the Republicans do nothing, a number of policies are already programmed into the law. The Bush tax cuts will expire — raising taxes approximately six times what the Democrats are asking. The AMT patch will expire and the SGR cuts to Medicare fees will kick in. In other words, walking away now will give the Democrats everything they want.

Frankly, I’m not sure what the Republicans are holding out for. Further cuts are going to require statutory changes to Medicare and Social Security law, something that can’t be thrown together in a few weeks. We’re at the lowest level of taxation since Harry and Bess Truman were in the White House. There is little evidence that canceling tax expenditures will hurt the economy. What gives?

(I’m also not sure what they’re thinking politically. If we hit the debt ceiling, one of two things happens. Either we stop paying debt interest, which causes a default and the various economic woes. Or we stop cutting checks for military personnel and Social Security recipients. Maybe the Republicans are expecting a crowd of pitchfork waving people to descend on Washington demanding that we don’t raise taxes on people making six figures or more. I just don’t see it happening. If the government stops issuing checks, the Democrats have a winning issue in 2012 — they’re not the ones walking away from a deal. You can then welcome back Speaker Pelosi and enjoy Obama’s second term.)

There are lot of people out there who will tell you that nothing bad will happen if we default. I find this difficult to believe, given the sheer scale of our debt. I find that difficult to believe, given the near unanimity among economists that this would be Very Bad Thing — bad for the bond market, bad for the dollar, bad for the stock market, bad for unemployment.

Even if we give the debt ceiling breakers a doubt, I still don’t see it. Let’s say that there is a chance — however remote — that a default does not trigger another even worse economic crisis. Do we want to take that chance? Do we want to pull the trigger on the revolver to find out if the chamber is empty? That’s about as anti-conservative a position as I can imagine: to risk the economy because of the unwillingness to sign a great deal in favor of an ideologically pure one.

But then again, I don’t recognize today’s GOP. Heedless risk in the service of ideology defines them. They are willing to, for example, gamble hundreds of billions of dollars and thousands of lives on nation building. Pragmatic conservatism, risk reduction, bet hedging — this is something alien to today’s GOP. They are more interested in sticking to ideology than governing.

In the end, the wild card here is whether Obama decides to take the 14h Amendment solution, bypassing Congress on the debt ceiling. While Congress is constitutionally charged with debt, the ceiling is more of an historical artifact than anything else. It was implemented when the Treasury actually had to physically raise funds and therefore needed instruction on just how much to raise. In today’s electronic era, it mainly serves as a political bone.

But you know what? I think the dirty little secret of the GOP is that they want Obama to bypass them. It would obviate the need for difficult budget cuts and/or tax increases. It would let them blame Obama for something and enrage the base. It would give them fodder for ranting and raving and calling for impeachment and slagging Obama as Marxist communist Kenyan anti-colonial whatever. The only people who would be hurt are the few remaining taxpayers, investors, the employed, the unemployed, business people, etc. But the political class would be set.

What’s to lose? Only their ability to govern. But I have yet to be convinced that the GOP values the ability to govern. I’ve been surprisingly impressed by Boehner so far this year. Now is his real test: to see if he can cut a deal and save the GOP from themselves.

Update: An interesting post at powerline argues that low taxes cause higher spending by, essentially, allowing people to buy more government at a discount. I think he makes an excellent point. If taxes were high enough to pay for the government we have, there would be a lot more conservatives.

The Rainy Day

How often do you find Matt Yglesias and Megan McArdle agreeing on something? Yglesias, talking about the need to be conservative with future budget projections, says:

The other thing, of course, is that “stuff happens.” Nobody sitting down in 1925 to write a 25-year budget forecast would have made the funds available to win World War II. It’s nice to think that you have a plan that leaves headroom to engage in some deficit spending if it turns out a meteor is going to strike the earth, or Jack Layton is the leading edge of a Viltrumite invasion.

We don’t even need to go back to World War II. We can go back to 2001, when we had a projected surplus. So we spent and cut taxes. And … suddenly we didn’t have the money for a trillion dollar war. We can look at Japan, which invested zillions in “stimulus” spending, got themselves into massive debt and then got hit by one of the biggest natural disasters in history. Hell, we can look at our current situation, where we were pushed to the maximum sustainable debt and suddenly had an economic collapse. We see it in states that cut back on snowplow budgets in warm years, then scream for help when they get a blizzard.

McArdle makes the comparison to people’s personal finances.

Have you ever known anyone who got into trouble with credit cards? I don’t mean someone who had something go wrong and ended up deep in credit card debt because they had to pay the rent somehow; I mean someone who wakes up one day with $21,000 in debt, a closet full of shoes, and no idea where the money went?

The way they get into that trouble is often that they don’t budget. They consider each purchase in isolation: “can I afford these shoes? Can I make the payments on that television?” And in fact, they can afford each of their purchases. They just can’t afford all of them.

We hear this constantly on the spending side. “What kind of country are we if we can’t afford education?” “Surely, this country can afford to provide healthcare to everyone!” “Farm subsidies are such a small part of the budget!” Yes, we can afford some of these things; the problem is that we’re trying to afford all of them simultaneously.

And we’re setting ourselves up to make the same mistakes again. The liberal plans to sort of balance the budget all have taxes rising to historically high levels. The problem is that you now have no room if something really bad happens. Technically, yes, you’ve “balanced the budget”. But you’ve put yourself into such a tenuous fiscal position that a war, a disaster or an economic downturn is ruinous.

A time of peace and prosperity is not the time to be pushing your taxation level to the “break glass in case of emergencies” level. You have to leave some room for the unexpected.