Archive for May, 2012

Waiting for Obama

Monday, May 28th, 2012

We’ve already gone through the analysis of the Ryan, Romney, and Obama budgets and find them all lacking.   They are all basically political documents rather than practical plans to create more jobs and reduce the deficit.

As I wonder why, I’ve come to the conclusion that it is because of the way that politics is practiced in this country.

Mitt Romney said basically the same thing the other day when he complained that he can no longer have a casual conversation with the media.  That’s because everything that he says can be fodder for today’s brand of “gotcha” politics.  That is true not only of Romney but of Obama too.  It is very difficult for them to be themselves, warts and all.  Instead they have to be a caricature of themselves constructed by their respective political consultants, pollsters, and focus groups.  They have a message created by these people that includes an image designed best to communicate the message.  Those caricatures end up being prisons for both candidates.

We can sense both candidates struggling to express their humanity behind the masks that their campaigns create for them.  That makes us uneasy because we can tell that neither candidate is telling us the truth.  Those less in touch with reality express this in conspiracy theories and fanatical searches for the big lie that would expose either Obama or Romney as a fraud.  The fact is that the big lie is that they are both telling us somebody else’s story and claiming that it is their own.  The truth that this reveals is that both candidates are willing to become a different person in order to win (or retain) the Presidency.

The sad thing is that I think that Obama at least, could more easily win re-election being the person that I think he really is.

He has been told by his campaign staff that he can’t run on this record, because of the narratives that the Republicans are already attempting to pin on him – socialist, irresponsible spender, weak leader, etc.

I disagree.

He is the first President in history to pass significant healthcare reform.  The provisions that are already in place prevent insurance companies from denying coverage based on pre-existing conditions and allow families to include their children up to age 26 on their policies.  Those two provisions alone have likely benefited every family in the country.

He should be standing up and taking credit for it in every speech and asking for a show of hands of those who have a young adult on their insurance, have someone with a pre-existing condition in their family, or have a close relative or friend taking advantage of one of these two benefits.

Instead this program has been attacked as socialized medicine.

He should be standing up to this claim by pointing out that the CURRENT system is the real socialized medicine.  That’s because anybody without insurance can go to any emergency room anywhere in the country, receive treatment, and hand the bill to all of us who are insured in the form of increased rates.  It’s that practice that Obamacare ends.  Obama is, in fact, a champion for private insurance; and yet he has allowed himself to be painted as a healthcare socialist.

Obama did save the domestic auto industry and that industry is leading us out of recession because of their robust hiring rebound.  What he fails to mention in this stump speech is that, in the process, he also required this “new” auto industry to adopt the most aggressive fuel efficiency standards in history.  Auto fleets will have to average 57.5 MPG by 2025.  That’s up from the 27.5 MPG requirement today.  This will not only drive innovation which creates new markets and new jobs, but also cut our fuel consumption dramatically over the next decade.

High energy prices have driven a wave of new domestic drilling using new technology.  New sources of supply coupled with aggressive conservation campaigns promise to turn us from a net importer to a net exporter of energy.  You simply can’t understate the profound impact on domestic and global politics when the United States is no longer dependent on imported oil.

Instead of telling the country how different life will be when this country again becomes energy independent, he has to defend himself against claims that gas prices are too high.  The goal of energy independence is not to bring down gas prices, but to bring down oil-based dictatorships that use their wealth to threaten our country and warp our foreign policy.

Finally Obama has allowed himself to be boxed in by those who are intent to revise the history of our current debt crisis.  Rather than paint the Bush administration as the “deficit exploder”, he suffers that claim while Bush is portrayed as the “tax cutter”.  In fact much of the spending that did occur in his first year in office was the result of Bush policies he inherited, and his own budgets cut discretionary spending more than any President since Eisenhower.

What Obama hasn’t done, however, is adopt a bold plan to both revive the economy and reduce the deficit.  That plan was on the table during the last credit limit crisis, but fell apart when neither party could find a majority of members willing to do what was best for the country.  That was the point when Obama should have stopped playing the Washington inside politics game and gone directly to the American people.

What he should have promoted was Simpson Bowles to reduce the deficit combined with a short term investment in infrastructure to get us over the hump on job growth.  You have to have both in order to explain to the American people why popular programs like Medicare and Social Security have to be cut.  If there isn’t also some promise of job growth, it is just austerity with no near term promise of a better tomorrow in return for increased pain today.

It was a “you bet your life” or at least your presidency moment.  He would have been the first to tell the American people what every rational politician in Washington already knows – you can’t continue to have low taxes, high unemployment, big defense budgets, and generous benefit programs.  He would have hung it all out there for the American people to either accept or reject.  If they rejected it, they would also be rejecting his bid for a second term.  He would have created enemies on both the right and the left.  But he also would be betting on the basic fairness and common sense of moderates of both parties and independents.

Instead he let that moment pass, and retreated to the comfort and certainty of partisan politics.

He very well may be able to win a second term with this more conservative strategy.

We’ll see whether or not he, or perhaps Romney, will end up having another opportunity to lead the country in the way that it is begging to be lead over the next four years.

 

Tell the Truth – The President’s Budget

Thursday, May 24th, 2012

First a little bit of background

The President proposes a budget, but ultimately it is the Congress that decides how to spend the money.  So the President has to produce a much more detailed document than either Romney or Ryan, while at the same time recognizing that Congress may choose to do something completely different.

Romney and Ryan, however, can leave huge gaping holes in their spending plans, are under no obligation to explain any of the details, and can still get away with promising outcomes that only Congress ultimately is able to deliver.

So let’s look at the big numbers first

Obama proposes a .2% increase in federal spending from $3.796T to $3.803T.  When you factor in inflation it is actually a net spending decrease.  When you factor in the 2.5% growth in mandatory spending (Medicare, Medicaid, Social Security, and interest) it is actually a fairly significant decrease of 4.3% in discretionary spending.

You will see Democrats promoting this as a responsible cut in spending.

Romney has already said that there is no reduction in spending. 

Technically, they both are right.

Now let’s look at the details

The plan promises to, “trim $4 trillion from the deficit over the next decade, while boosting spending to programs to stimulate the still-ailing U.S. economy.”

It includes:

  • $140 billion in research and development spending, including $2.2 billion for advanced manufacturing.
  • $476 billion over six years in transportation infrastructure, financed in part with money that will no longer be needed in Iraq and Afghanistan.
  • Ending Bush-era tax cuts for families earning more than $250,000 a year, limited tax deductions for high earners, and the so-called “Buffett Rule,” which would ensure that millionaires pay a minimum tax rate of 30 percent.
  • A new $61 billion tax on big banks and $41 billion in additional taxes on fossil fuel producers
  • A 6% overall defense spending decrease based on a big drop in troop strength
  • A 10% reduction in foreign affairs spending in Iraq
  • An $8B fund to train 2 million workers in health care, transportation, information technology and advanced manufacturing.
  • A $452M cut to the Low Income Home Energy Assistance Program
  • A .5% cut in the Homeland Security Budget
  • No increase for NASA or Healthcare
  • A 2% increase in Transportation spending
  • A 3% increase for Energy to promote conservation, natural gas, and cheap solar.
  • A 1% cut to the EPA

Now the analysis

The CBO said that the budget would increase short term economic growth 1.4% more than what would happen without the proposed budget changes.  That is primarily due to the proposed tax cut extension for those earning less than $250K/year.

That does come at a cost, however, of adding $977B to the deficit in 2012.  Over the next decade, the deficit would grow to $6.4T, which sounds like a huge number, but when compared to the growing economy would remain below the 3% of GDP number that according to most economists is a danger point.

After 2017, however, this rapid growth would push up interest rates and failure to cut the deficit would start to drag down growth.   If nothing else were done, GDP would be negatively impacted by as much as 2.2% from 2018 to 2022.

While there are some minor differences between what the White House claims and what the CBO has forecast, they are mainly the result of the CBO using a more conservative economic model.

The major difference between this proposal and those from Romney and Ryan is that this budget has all spending and tax details spelled out.

Final comparisons

None of the proposed budgets reduce the deficit.

The Republican budgets lean very heavily on tax policy to improve the economy, but only the Obama budget, based on CBO estimates generates any significant growth.  In fact, the CBO warns that the Obama budget may result in some inflation.

The Obama budget comes closest of the three budgets to the Simpson Bowles model, but none of the budgets cut defense and entitlement programs sufficiently to actually reduce the deficit.

So what we are left with is two different political views of how government should operate, but none of them are a practical plan to reduce the deficit.

Tell the Truth – The Romney Budget

Sunday, May 13th, 2012

Let’s deal with the promises first.

Romney has promised to balance the federal budget by 2020 and shrink federal government spending to 20% of GDP by 2016. He also promised to do both of these things without cutting Social Security or Medicare benefits for either those currently receiving benefits or those close to receiving them. This alone would cause problems, since Social Security and Medicare are two of the main drivers of federal spending, but he has also promised to add 100,000 active-duty military personnel to the Navy and Air Force keeping defense spending at 4% of GDP, reducing income taxes across the board by 20%, eliminating taxes on interest, dividends, and capital gains for taxpayers making less than $200K, eliminating estate taxes, and reducing corporate taxes by 10%,

This graph demonstrates the problem.

 

Even if his tax plans turned out to be revenue neutral, which they don’t, he would have to cut federal spending on programs other than Social Security, Medicare, and Defense, by at least 25% to hit his target. According to the WSJ, that would represent the largest reduction in federal spending since the government converted back to domestic manufacturing after WWII.

Medicaid is clearly the big target here. As in Ryan’s budget, shifting these costs from the Federal government to the states is projected to save $61B. But that money doesn’t actually go away. It just gets added to the states who are also struggling to balance their budgets. The ultimate victims of these cuts are the poor and in particular children.

He also claims that repealing the Affordable Care Act will save $95B, but Politifact.com has already debunked that claim. He claims he can save $1.6B by privatizing Amtrak, $60B from the ever popular waste and fraud line item, and $47B by cutting pay and benefits for federal workers. These cuts don’t even get him close to his spending reduction target of $500B, and clearly cutting pay and benefits is going to have an economic impact since that is $47B that is being withdrawn from the economy.

He  mentioned raising the eligibility age for Medicare, but that won’t help him with his 2016 target. He also hinted that he might eliminate the Department of Housing and Urban Development and shrink the Department of Education.  Assuming you could eliminate both of those departments and the budgets that they manage, you’d only be eliminating $157B.

Add to this the same claim that Ryan made about finding money in closing loopholes, and you get the picture.

If you take into account the tax reductions that Romney has proposed, the cuts to other programs become even more historic as shown in this graph.

 

The bottom line, this budget, just like Ryan’s, is fiction.

It is a stalking horse to reduce safety net spending and cut taxes for business and the wealthy with only the promise of reducing the deficit or improving the economy.  A simple example is the tax reductions.  They include letting a set of existing tax reductions for poor people expire.  So the net result for 18M of our poorest tax payers is that they will actually see their taxes go up under the Romney plan.

You can argue about whether or not taking this much government spending out of the economy will in-fact improve the economy, but you can’t argue about the effects on the deficit.

The math simply doesn’t allow you to reduce taxes, do nothing about half the budget (Social Security, Medicare, and Defense), and make up the difference in other spending cuts. Romney’s budget will both increase the deficit, most likely create a recession similar to the one following similar sized WWII spending cuts, AND increase the misery of those living in poverty.

“He’s really vulnerable on this, not so much because the numbers don’t add up,” said Allen Schick, a political science professor at the University of Maryland, “but because to add them up you have to do things that are politically unacceptable.”

Next let’s look at the President’s budget.