Spiritual wickedness in high places

This election is going to turn on a relatively small number of voters in a relatively small number of states.

These are the voters who haven’t already decided who they are going to vote for.

In the 10-12 swing states that will decide this election, these undecided voters represent roughly 10% of the electorate.  In the other states leaning or solidly in either candidate’s column, their leads exceed the margin that these undecided voters could influence.

So what do they want?

According to the AP, these voters want more details about Romney’s economic proposals and Bain Capital record, less bickering between the parties and a greater sense of inspiration and leadership from both candidates.

They also understand that this is a vague wish list, but it happens to be the issues that will move them from one candidate to the other.

What is also striking is what is NOT on this list.  This group, for example, is not going to be moved the by jobs reports.  Most feel that the economy, or at least short term improvement in the economy, is beyond the ability for either candidate to deliver.  They also aren’t questioning Obama’s personal history or Obamacare.

So what does that mean for both candidates who have been running very controlled campaigns designed to minimize the mistakes and quickly respond to criticisms?

Here’s my take.

Romney is going to hold out as long as he can hoping that the economy will deteriorate to the point where he can win without providing more information about either his personal finances or his economic plans.  He is certainly not going to do much before the Republican Convention in hopes that the national coverage associated with the convention and his choice of a VP will give him a bounce that will close the gap in the battle ground states.

Obama is going to continue to hammer Romney on his failure to provide specifics while Romney will attempt to deflect that criticism by claiming that he would rather talk about the economy while at the same time avoiding any specifics on what his plans really are to improve it.

This will likely not help either candidate because the undecided will view it as more bickering and less leadership and inspiration.

Romney will eventually be forced to reveal more personal and policy information.  When he does, he will lose.  That’s because on a policy level, his numbers won’t add up.  On a personal level, the information he releases will not answer any questions, but only raise more questions.

Until that happens, we have one of these weird end games that in chess would just result in a draw.  Neither candidate is going to make a bold move because they don’t have to.  Romney is hoping between the economy and the convention to close the gap without releasing any more information.  Obama is hoping that the economy does not get any worse, and that his unrelenting attacks on Romney will eventually force Romney to release more information.

They could very well stretch this whole thing out until November and frustrate undecided voters in the process.

Here’s what I wish they would do to demonstrate leadership and inspiration.

Romney should promote himself as the candidate who can square the circle.  He should be claiming that he is the only one who will be able to reform that tax system, close loopholes created by the rich and powerful, create an incentive-based hiring program, a federally subsidized jobs training program, and capital gains incentives for domestic investments that result in new jobs.  He could have promoted himself as someone who understands the need for healthcare reform and would IMPROVE the Affordable Care Act rather than repeal it.

Obama needs to call the Tea Party Republicans out for the hypocrites that they are regarding government spending and jobs.  He should be using the current conservative Republican bleating about sequestration as evidence to the American people that those who said that debt was THE most important thing and were willing to put the country into default rather than approve one dollar of tax increases are now suggesting that we NEED all of this deficit spending to keep all of the defense industry jobs that will be lost if the defense budget is cut.  He needs to defend government spending as an effective stimulus tool, and propose a whole series of “targeted” jobs programs.  Things like “first fired first hired”.  Eliminate time limits on unemployment insurance until unemployment numbers go under 8% for at least six months, and provide mortgage protection for homeowners who have been laid off until they are able to get new jobs.  This gets paid for through meaningful entitlement reform.

In other words, Romney the conservative should be touting his WILLINGNESS to raise taxes on the rich by closing loopholes.  Obama the liberal should be touting his willingness to reform the entitlement programs in order to continue to invest in job growth.

Just like the undecided, it is a wish list that probably won’t come true.

The economy isn’t recovering as fast as it should because Obama, at least according to the Republicans, has the wrong plan.

The evidence is that the unemployment rate is still too high.  Whether that is the published unemployment rate or the real unemployment rate doesn’t really matter.  I think that we can all agree that there aren’t enough jobs for the number of people who would like to work.

Obama says that the major drag on the economy right now is the continued downsizing of government at the state and local level.  This is primarily teachers and first responders (fire and police).  The data support his claim even though he was criticized for the observation.

Obama’s plan is to funnel more money short term to states and cities to help them retain more of these employees and invest in infrastructure to create construction jobs.  The hope is that this growth in both private and public sector employment will improve state and local revenue to the point that they can retain more of these public sector workers when the federal money runs out.  We are already seeing this sort of revenue growth here in Michigan as a result of the robust rebound of the auto industry, though the Republican governor is unwilling to use this increased revenue to refund his education cuts.

What is Romney’s plan?

Here’s what we know so far.

Romney last September said that his administration would create 11.5M jobs in his first term by growing the economy at a 4% rate.  The problem is that his plan has no math associated with it to demonstrate how he plans to create those jobs.  Is he, for example, claiming credit for all of the jobs that economy creates if it expands at a 4% rate, or just the jobs that his policies would add over and above the jobs that would have been created anyway if his policies were not enacted?

Here’s how the experts across the political spectrum responded.

“Nowhere in the 160 page plan could I find a stated job creation number,” wrote Rebecca Thiess of Enterprise Policy Institute. “The math doesn’t just appear to be fuzzy — it appears to be nonexistent.”

“It is a plan from the Republican candidate for president designed to maximize corporate profits. What it doesn’t do is help the middle class or create jobs.” David Madland of the Center for American Progress

The Wall Street Journal called Romney’s fifty-nine-point economic tome “surprisingly timid and tactical considering our economic predicament.”

Last month, in response to the poor May jobs report, he did offer more specifics.  Those included:

• Taping our energy resources to “put a lot of people to work in the energy sector.”
• Repealing Obamacare, which is “scaring small businesses from hiring.”
• Balancing the budget so people know “investing in America is going to yield a return in dollars worth something.”
• “Open(ing) up new markets in American trade.”
• Revamping the National Labor Relations Board and lowering tax rates on employers, both of which would make it easier to hire people.

Economists were just a skeptical about this plan as they were his original plan.

“On net, all of these policies would do more harm in the short term,” responded Mark Hopkins, a senior adviser at Moody’s Analytics. “If we implemented all of his policies, it would push us deeper into recession and make the recovery slower.”  That’s mainly due to the deep cuts in government spending that would be required to balance the budget.  The CBO also supports this conclusion that even implementing the $500B+ in planned cuts currently on the books could drive the economy into recession and those cuts are far short of what would be required to balance the budget.

We have also already heard, as a result of the oil pipeline controversy, that all the experienced oil and pipeline people are already working and even the construction job estimates may be inflated.

Romney hasn’t said what new markets he would open beyond what Obama is already doing.  The balance of trade under Obama has been declining because of increased exports and cheap oil.  He has also outlined a future based on increased domestic energy production which could turn the US into a net exporter.  Future growth of trade for the next couple of years will likely depend on how quickly Europe recovers more than anything else.  That’s because slowing growth in Europe will affect the rest of the world’s ability to buy too.

Romney has provided no data which suggests that the Affordable Care Act, deficits, NLB regulations, or lower tax rates will spur hiring.

In fact the data suggests exactly the opposite.

According to analysis by Moody’s commissioned by the Fiscal Times, US businesses are more profitable over the past few quarters than they have been in the last 50 years.

“Giving more tax breaks to corporations that are awash in cash is not going to lead to anything,” said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University after serving as President Clinton’s chief economic adviser and top economist at the World Bank. “It’s a lack of demand that’s really impeding investment.”

Lack of demand is the result of unemployment, underemployment, and personal incomes which have lagged corporate profits.  Recent data supports this claim that middle class families are reluctant to spend because they are still recovering from the 40% loss in net worth that they suffered during the recession.  It is middle class consumers, not corporations or wealthy individuals, which drives our economy.

What is even more troubling is that the percentage of corporate profit going to employees as a whole is dropping.  That’s good news for investors but bad news for workers and our economy.  That means that it is going to take middle class families who rely on salary rather than investment income, longer to recover than it might have in past recessions because corporations are keeping a higher percentage of the profits they generate for themselves.

Aaron Smith, a senior economist at Moody’s Analytics, said, “What is clear going forward is that in the absence of debt and government support, we’re going to need the labor share to stop declining if consumers are to regain their prowess as drivers of the U.S. economy.”  In other words, without direct government stimulation to drive up employment which as we get below 8% unemployment levels will also drive up wages, the current corporate position on wages points to continued slow growth.

Summary

The Romney jobs plan is a fiction.  His economic recovery plan will not only fail, it will make things worse because it will continue to shrink the public sector workforce that is currently dragging down the recovery.

The Republican supply side solution is based on several false premises.  The first is that corporate profits are the driver for employment.  The second is that Obama’s policies are suppressing corporate profits.  Corporate profits are the highest they have been in recent history and we are still struggling with high unemployment.  The current economic conditions have created what the Republican plan is supposed to deliver (smaller government and higher corporate profits) AND IT’S NOT WORKING.

The REAL solution is to invest both in public and private sector hiring to stimulate demand which will ultimately grow the economy.   The CBO essentially said the same thing in their most recent report.  Keep taxes low and don’t reduce the size of government any more, and the economy will grow at 4% all on its own.  That plan comes with a risk, however, because it will add to the debt and adopting a rational program that reduces the debt by restructuring Medicare and to a lesser extent Social Security appears to something he problem is that neither party seems willing to address.

Next up: A look at the current recovery in a little more detail

CBO came out with their annual report on the economy.

As you might expect, it wasn’t pretty.

The country is essentially caught between a rock and a hard place.

On one hand, without any other changes in current policy, federal debt will hit 93% of GDP in ten years.  That reflects some improvement from the outlook issued a year ago based on the spending cuts enacted as a result of the debt crisis compromise.

“Current Policy” by the way is that tax levels don’t change (existing tax cuts get extended) and current Medicare benefits remain unchanged.

The CBO also warned that if the current tax cuts are allowed to expire in 2013 and the full scheduled set of $560B in federal spending cuts that have been agreed to are enacted, the economy will likely go into recession.

Finally, if Congress renews the tax cuts and does not enact the budget cuts, the economy would likely grow at 4.4% which would put us among some of the fastest growing economies in the world.

What we are left with then is this Scylla and Charybdis moment that has absolutely nothing to do with ideology.

Neither political party has a whole solution.  Both parties have part of the solution and part of the risk.

We can’t continue to reduce the size of government and as a result extract more dollars from the economy.  If the cuts that are currently on the books are implemented, we risk recession.  That means the Republican strategy to aggressively reduce government spending is now officially dangerous.

This Congress can’t even kick the can down the road as other Congresses before them have done.  That’s because the debt crisis is now a clear and present danger that could become a reality within the next decade.

What is left is a very thin line through the middle of this problem.  Spending cuts have to continue but they have to be more gradual and occur only after the economy has improved to the point where it can absorb them.  Taxes also have to go up because you just can’t cut enough government spending fast enough to bring the deficit down and also not risk shocking the economy into recession.  Those new tax increases also have to be gradual and take effect only when economic growth is strong enough to withstand the shock.  Finally Medicare has to be reformed, but only in a way that doesn’t affect the ability of seniors who depend on that program to continue to receive care.  Otherwise, there is also a risk of recession as seniors reduce their spending in order to cover their higher medical expenses.  Some sort of means test is an example.

These sorts of highly coordinated actions imply a Congress that recognizes the problem, is on the same page with regard to the solution, and is willing to put the good of the country ahead of personal and party issues.

The bad news is that both parties are blaming the other for getting to this point.

The additional bad news is that a deeply divided congress is not going to be able to walk this thin line with any precision UNLESS those who hold elected office finally agree to put down their swords and work together to get us onto firmer ground.

It will be interesting to see how all of this plays out.

We also can’t raise taxes in any significant way without a similar risk.  So the Democratic strategy of raising taxes on the rich also has to be examined very carefully.

Perhaps the best outcome would be continued gridlock, except that Congress will have to act to limit the cuts already scheduled and to renew the tax cuts that are scheduled to expire.

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.

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.

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.

Why is it so difficult for our leaders to tell the truth?

Politics these days seems to be an exercise of saying as little as possible about specifics so that you don’t give your opponent, who is also not saying anything specific, something they can use to criticize you.  Since both campaigns are playing the same game, what we end up with is “fake” statements of truth followed by claims that the other guy really can’t be trusted.

Here’s an example from Romney:

“Our next president is going to face difficult choices. Among these will be the future of Social Security and Medicare. In their current form, these programs will go bankrupt. I know that, you know that, and even our friends in the other party know that. The difference is that I will be honest about strengthening and preserving them, and they won’t.”

He states the obvious regarding difficult choices and specifically difficult choices in entitlement programs, but he doesn’t say what he is going to do about it.  He only says that you can’t trust the other guys to do anything about it.

Here’s what Obama has said about Social Security

“it faces real long-term challenges in a country that is growing older… both parties should work together now to strengthen Social Security for future generations. But we must do it without putting at risk current retirees, the most vulnerable, or people with disabilities without slashing benefits for future generations”

It does seem as though he acknowledges that there is a problem, but he doesn’t say how he is going to solve the problem either.  He only says that it’s not going to include slashing benefits or putting any of the current people who depend on the system at risk.

Fortunately when it comes to financial plans,we have two budget proposals to compare.  The first is the Ryan Budget.  The other is the Obama budget.  Romney has yet to release a detailed budget, but we can look at some of the things he has said.

First up, the Ryan budget.

The whole purpose of the Ryan budget is to reduce the deficit.

The problem is that it fails at this most basic goal.  According to the Tax Policy Center, the tax cuts that are included in the Ryan budget actually add $418B to the budget deficit every year starting in 2015.

Ryan responds that he intends to close the gap between spending and revenue by eliminating some tax deductions, but he does not specify which ones he is going to reduce or eliminate.

Sound familiar?

This is more political standard procedure.  Those who share Ryan’s view that the government wastes money, are quick to agree with Ryan that there MUST be at least $418B in tax deductions that can be cut to make Ryan’s numbers balance.  In order to actually reduce the deficit, he’s going to have to find more than that.

When you actually look at the list of existing tax deductions, however, the stark reality comes into view.

The Congressional Research Service took a look at the 20 tax credits, exclusions and deductions that have the biggest impact on tax revenue. Together, they account for 90 percent of the revenue lost through tax deductions in the code.

Here they are:

Let’s just go through these from the top.

Is Ryan going to eliminate the deduction businesses who offer health insurance to their employees are able to take for their cost of providing that insurance?  Not likely when Ryan at the same time supports repeal of the healthcare reform bill because in his opinion it weakens the current employer-based system.

How about the next one?  Well this one also benefits employers who provide retirement benefits.  Unlikely that Ryan, who is attempting to privatize social security and Medicare is going to touch this one either.

The next one is the single most popular deduction in the tax code, mortgage interest.  With the home construction industry in the tank, he won’t even mention this one.

How about taxing the benefits that elderly receive through Medicare?  He is already treading on thin ice in suggesting changes to Medicare and Social Security.  Forcing seniors to pay tax on the $200,000 worth of benefits that they may have received last year would reverse the whole purpose of Medicare and drive seniors into the ranks of the Democrats faster than any other thing the Republicans could do.

Capital Gains?  Nope that’s Republican bread and butter there.  That is biting the hand that feeds you.

To save any remaining suspense, analysts for the Congressional Research Service drily concluded, “Given the barriers to eliminating or reducing most tax expenditures, it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues through base broadening.”

And if you were to make all of the changes that might be feasible, the CRS estimates, you could finance “about a one or two percentage point reduction for each (tax) bracket” through reducing or eliminating existing tax deductions.

Just as a reminder, Ryan proposes a 10-percentage-point deduction for the wealthiest of Americans.

So that leaves the basic question, “How are you going to reduce the deficit AND deliver a 10 point reduction in tax rates when tax loopholes will only get you two of those points?”

The bottom line.

It’s not going to happen.

The Ryan budget is a fiction.

It is a stalking horse which allows Republicans to continue to suggest that overly  generous social spending is driving up the deficit.

The truth is that any hope of reducing the deficit has to include economic recovery which will produce higher tax revenue.  There just aren’t enough people working and paying taxes to support the cost to run the government.  Now you can say that the government is too big, but the reality is that regardless of what the size of the government is today, a campaign to dramatically reduce the size of government in the near term is will also drive up unemployment and make the deficit and revenue problems worse.

Right now that government needs to invest in infrastructure.  Infrastructure like roads and bridges generates near term employment in the construction industry and long term benefits in terms of business growth.   And yes, these infrastructure investment WILL increase the short term deficit, but they are the only reliable way to reduce the deficit over the long term.

Next let’s see what candidate Romney has to say on the subject.