Fausta's Blog

American and Latin American Politics, Society, and Culture

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Deficit at $1.5 trillion

CBO report: U.S. budget deficit to reach $1.5 trillion, highest ever

“We estimate that if current laws remain unchanged, the budget deficit this year will be close to $1.5 trillion, or 9.8 percent of [gross domestic product]. That would follow deficits of 10 percent of GDP last year and 8.9 percent in the previous year, the three largest deficits since 1945. As a result, debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011.”

Here’s the truth: The government spending is totally unsustainable.

Israpundit reminds us,

The 111th Congress Added More Debt Than First 100 Congresses Combined: $10,429 Per Person in U.S.

It was historic.
Barack Obama tripled the national deficit in one year. When Speaker Pelosi took over Congress the national deficit was $162 billion. When she exited in 2011 as Speaker it was at $1.29 Trillion dollars.
Obama topped a trillion dollars his second year, too.

Spending was up 84% under Obama.

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Compare and contrast the governors

Kimberley Strassel writes about the great divide:
Wisconsin 1, Illinois 0
With Springfield raising taxes amidst its fiscal disaster, the new Republican governor of the Badger State is telling Illinoisans, “Escape to Wisconsin.” (h/t Betsy)

On one side are wide swathes of the country that this past midterm elected reformers intent on slashing spending and reviving growth. On the other are the holdout pockets—Illinois, California, Massachusetts, Connecticut—drifting further into the abyss of tax and spend. The chasm has huge implications, not just for local and regional politics but for Washington.

For instance (quoting from the article),

  • Wisconsin is working to enact the total elimination of corporate income taxes for two years for firms that migrate
  • In Ohio, John Kasich’s Republican legislature has already introduced legislation to kill the state death tax
  • Michigan Gov. Rick Snyder’s first order of business will be to end the 22% surcharge on his state’s job-killing business tax
  • Nevada’s Brian Sandoval has vowed to kill the tax hikes passed by Democrats in 2009
  • In Iowa, South Carolina, Florida, you name it, new Republican governors have made top priorities of cutting or eliminating state corporate income taxes

This is good. However, all these governors must bear in mind that the problem is spending, not just deficits, a point lost on this WaPo headline,
Tax pledge hinders Obama’s plans to overhaul tax code, reduce deficit. No mention in the article of how Obama and the Democrat Congress have increased the deficit into stratospheric numbers.

Meanwhile, on the front page of today’s Wall Street Journal,
New Hit to Strapped States
Borrowing Costs Up as Bond Flops; Refinancing Crunch Nears.

As Strassel points out,

No state has taxed and spent itself to prosperity.


No country has, either.

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The USA is broke

In today’s WSJ,
S&P, Moody’s Warn On U.S. Credit Rating

The U.S. currently has a triple-A rating with a stable outlook at both agencies.

“The view of markets is that the U.S. will continue to benefit from the exorbitant privilege linked to the U.S. dollar” to fund its deficits, Carol Sirou, head of S&P France, said at a Paris conference Thursday. “But that may change. We can’t rule out changing the outlook” on the U.S. sovereign debt rating in the future, she warned. She added the jobless nature of the U.S. recovery was one of the biggest threats to the U.S. economy. “No triple-A rating is forever,” she said.

The Heritage Foundation recommends, No Debt Ceiling Raise Without Spending Cuts

Just yesterday, The Heritage Foundation released the 2011 Index of Economic Freedom which showed that the irresponsible spending habits of the last Congress had once again pushed the United States down the international ranking to #9, behind nations such as Denmark, Canada and first-place Hong Kong. The Index showed that runaway spending posed the greatest risk to our economic freedom, and thus our ability to reduce poverty and create economic growth. The U.S. can turn things around and continue to be a leader of this prosperous free world, but first we have to get our own bad spending habits under control. The debate over the debt ceiling provides the perfect opportunity to put us on this path.

We have time, there are options available, but action is necessary. Raising the debt ceiling, without also addressing our federal government’s spending problem, would be, as one Senator once said, “a sign of leadership failure.”

That Senator, by the way, was Barack Obama.

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Spending our way into lunacy

Paul Krugman would have you believe that we are still in a recession because the government is not spending enough.

Horsepucky.

Take a look at this:

The 2010 Spending Record
In two years, a 21.4% increase. (emphasis added)

Once again domestic accounts far and away led the increases. Medicaid rose by 8.7%, and unemployment benefits by an astonishing 34.3%—to $160 billion. The costs of jobless insurance have tripled in two years. CBO adds that if you take out the savings for deposit insurance, funding for all “other activities” of government—education, transportation, foreign aid, housing, and so on—rose by 13% in 2010.

As for the deficits, the 2010 total was $1.29 trillion, down slightly from $1.42 trillion. That’s a two-year total of $2.7 trillion, or more than the entire amount during the Reagan Administration, when deficits were supposed to be ruinous. Now liberal economists tell us that deficits are the key to restoring prosperity. But all we have to show for spending nearly 25% of GDP for two years running is a growth rate of 1.7% and 9.6% unemployment.

You would think that, if spending was the key to prosperity, we would have what used to be called “full employment” back in the olden days when I was in college – the 5% employment rate of the GWBush years.

Another bad thing:

By far the biggest percentage-gain revenue winner for the taxpayer in 2010 was . . . the Federal Reserve. Thanks to the expansion of its balance sheet with riskier assets, the Fed earned $76 billion during the year, a 121% increase. The Fed’s windfall is a perfect symbol of our current economic policy. The government is making money because it now controls so much capital, but it is robbing that money from the private economy in the process. It is never a good sign when your central bank is a national profit center.

However, as Sweetness & Light points out,

On the contrary, it is a very good sign if you are a socialist who believes in running a command economy.

That is exactly what the Democrats are after.

The spendthrift 111th Congress is the Pelosi Congress, folks.

Every Democrat you vote for keeps it that way. Remember that on election day.

UPDATE:
Don’t miss also Financial Briefing: The Road to Hell Is Paved With Good Intentions and taxpayer dollars.

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$4.4 Trillion in 31 months

Insane:

$4.4 Trillion
That’s how much the spending baseline has increased in 31 months. (emphasis added)

CBO’s mid-year review largely reinforces the bad news we already knew—to wit, that spending has exploded since Democrats took over Congress in 2007, first with the acquiescence of George W. Bush and then into hyperdrive after Mr. Obama entered the White House.

To appreciate the magnitude of this spending blowout, compare CBO’s budget “baseline” estimate in January 2008 with the baseline it released Thursday. The baseline predicts future spending based on the law at the time. As the nearby chart shows, in a mere 31 months Congress has added more than $4.4 trillion to the 10-year spending baseline. The 2008 and 2009 numbers are actual spending, the others are estimates. As recently as 2005, total federal spending was only $2.47 trillion.

Keep that $4.4 trillion in mind the next time you hear Mr. Obama or Speaker Nancy Pelosi say they “inherited” this budget mess. Let’s assume the recession that Mr. Obama inherited—Mrs. Pelosi was already in power—was responsible for causing $1 trillion or so in deficit spending. That still doesn’t explain why the annual deficit of roughly $1.4 trillion will be nearly as high in fiscal 2010, after a year of economic growth, as it was in 2009. Or why CBO says the deficit will still be nearly $1.1 trillion in 2011 even if all of the Bush-era tax cuts are repealed.

The deficit is barely declining because of the lackluster economic recovery, which continues to yield too little revenue, and especially because of the record levels of spending passed by the Democratic Congress and eagerly signed by Mr. Obama.

Soaring Spending—Not Falling Revenues—Risks Drowning America in Debt

With more realistic assumptions, the budget baseline shows that:

  • Even as war spending phases out and the economy recovers, the projected budget deficit never drops below $1 trillion, and reaches nearly $2 trillion by 2020;
  • The national debt held by the public is set to surpass 100 percent of gross domestic product (GDP) by 2020;[1]
  • By 2020, half of all income tax revenues will go toward paying interest on a $23 trillion national debt;
  • Federal spending per household, which has risen from $25,000 to nearly $30,000 over the past three years, would top $38,000 by 2020. The national debt per household, which was $52,000 before the recession, would approach $150,000 by 2020;[2] and
  • Even if all tax cuts are extended, revenues will still surpass the historical average—18 percent of GDP—by 2020. The reason the deficit will surge 6 percent of GDP above its average is because spending will surge to 6 percent of GDP above its average.

These spending and deficit trends are completely unsustainable [emphasis added]. Yet President Obama and Congress continue to push spending and budget deficits even higher with endless failed “stimulus” spending that is now expected to continue into the middle of this decade. They have also enacted a massive new health care law that—far from reining in spiraling health care costs—increases spending (and likely deficits) even further. In short, Washington is digging this budget hole deeper.

Take a look at the graph (click & scroll down for larger view):

What to do? The Heritage Foundation recommends,

Genuine spending reforms are the only way to bring the budget under control. Lawmakers should rescind the remaining funds from TARP and the failed stimulus bill, as well as repeal the unaffordable health care law. Next, they should enact tough spending caps to help lawmakers set priorities and make trade-offs. Congress should then disclose the massive unfunded obligations of Social Security, Medicare, and Medicaid; put those programs on long-term budgets; and create an entitlement reform commission.[10] Finally, lawmakers should enact the necessary entitlement and programmatic reforms that can keep government within those limits.[11]

The likelihood the Dems in control of Congress will do that?

Close to zero.

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It’s the government spending, stupid

Visit msnbc.com for breaking news, world news, and news about the economy

Here’s what happens when the interviewer is not paying attention to what the interviewee is saying:
Paul Ryan Schools Chris Matthews on Tax Hikes, Budgets and Economics 101

CHRIS MATTHEWS, HOST: Congressman Ryan, is there any tax role for reducing our $1.4 trillion to $1.7 trillion debt this year — deficit this year? Is there any role in tax increasing to help do that job?

REP. PAUL RYAN (R), WISCONSIN: I don`t think it`s a good idea, especially when we`re trying to come out of a jobless recovery in a slow- growth economy.

Look, we have got unemployment at almost 10 percent. The last thing we should be doing is raising taxes on the economy. Look, the worst thing for deficit reduction is a slow economy. You hit small businesses with these kinds of tax rate increases and you will slow down the economy further.

Look, 75 percent of those who will get hit with these higher tax rates are successful small businesses. Tens of millions of our jobs come from these small businesses. Now, if you try to blame these tax cuts and the wars for all of our fiscal problems, the numbers just don`t add up.

At best, 14 percent of the evaporation of the surplus came from these tax cuts. It all came from other circumstances: spending, economic growth declining, 9/11, all these other things.

MATTHEWS: Yes.

RYAN: So, I think what Joe earlier said is right, which is these taxes will go up. And I think that`s a mistake. And I think it`s going to hurt the economy.

MATTHEWS: Well, let me ask you one question as a follow-up.

It seems to me every Republican that goes on “Meet the Press” lately is asked, where will you cut? They say nothing. They will not mention any cuts.

(CROSSTALK)

RYAN: Chris…

MATTHEWS: No, I have had Congressman Pence on, who won`t say any cuts.

(CROSSTALK)

MATTHEWS: So, you won`t cut — you won`t raise taxes and you won`t cut spending.

RYAN: Chris…

MATTHEWS: So, in other words, all this bitching about the deficit doesn`t mean squat, because you won`t do either, raise taxes or reduce spending.

RYAN: Let me answer it, then.

MATTHEWS: Neither one.

RYAN: This year, Congress isn`t even doing a budget, but, last year, when we did a budget, I brought a budget to the floor that specifically cut $4.8 trillion of spending out of the budget and paid for all of these tax cuts and debt reduction. Two months ago, we put out $1.3 trillion in very specifically listed and enumerated spending cuts. So, I can go on with you on cuts. I can show you all the kinds of cuts.

Good answer, right? Here was Matthews’ astonishingly addle-minded response:

MATTHEWS: But that`s one-three hundredth (ph) of the deficit. That`s 0.3 of 1 percent you`ve talked about.

One-three hundredth of the deficit? $1.3 TRILLION?

The lesson continued:

RYAN: Four-point-eight trillion dollars is not .3 of 1 percent of the deficit.

MATTHEWS: OK, 4.8 trillion. OK.

RYAN: And 1.3 trillion is not peanuts.

MATTHEWS: OK.

RYAN: It`s nothing to sneeze at.

MATTHEWS: OK. Let me go.

(CROSSTALK)

RYAN: Two things –

From here it became obvious what Matthews was up to. He’s not interested in balancing the budget. He’s certainly not interested in cutting spending.

What he’s interested in is getting Republicans to say what programs they want cut so that Democrats can use that against them in the upcoming elections.

Ryan saw through the charade:

MATTHEWS: I just don`t see — I just don`t see any program cuts. You`re talking in general terms, but let me tell you this: the major Republicans that come on television will not cut Social Security, Medicare, and Medicaid. They won`t cut the military. They can`t cut debt servicing. They won`t — they won`t get rid of a major cost of government.

They`ll talk about, you know, let`s freeze discretionary spending or discretionary and domestic in some sort of generalized way. But they won`t get rid of government. They seem to like government. In fact, they love to talk against it.

RYAN: Go to Americanroadmap.org and you will see a very comprehensive piece of legislation that the CBO has scored that`s actually paying off the debt –

Indeed, this Roadmap was released last week, but I digress:

MATTHEWS: OK.

RYAN: — with specific reforms to the entitlements you mentioned.

MATTHEWS: Name a major piece of the 1.4 trillion to 1.7 trillion. No, just take –

RYAN: OK.

MATTHEWS: — just take a chunk out that 1.4 trillion by getting rid of a big program or good expenditure that people now watching can understand.

Straightforward question. Now watch Ryan give a straightforward answer that Matthews will summarily brush aside like a fly in front of the camera:

RYAN: I would rescind the unspent stimulus funds. I would rescind all the TARP funds that aren`t spent. I would do a federal hiring freeze and pay freeze for the rest of the year. And I would go back and cut discretionary spending back to `08 levels and freeze that spending going forward.

Now, you and I can get into a debate about Keynesian economics, whether it worked or didn`t. I don`t think it did. We increased domestic discretionary last year by 84 percent. I don`t think we should continue to build that kind of a base. Let`s go back and cut discretionary spending back to `08 levels.

MATTHEWS: OK.

RYAN: Rescind stimulus, rescind TARP and do a federal hiring and pay freeze. Those are just a few ideas that add up to $1.3 trillion right there.

Now, let’s understand that at the beginning of this segment, Matthews asked Ryan how he plans on reducing our $1.4 to $1.7 trillion deficit. The Congressman just gave cuts to eliminate $1.3 trillion, and Matthews dismissed it totally:

MATTHEWS: OK. Congressman Crowley, I still don`t see any cuts in entitlements there. But go ahead.

Matthews is just not paying attention. Must be that tingle up his leg acting up again.

Here’s the link to American Roadmap.org.

If you’re wondering what your tax bill will look like next year, go do the worksheet at the 2011 Income Tax Calculator.

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The upcoming tax sunami

At IBD:
The Tax Tsunami On The Horizon

Through the end of this year, the federal estate tax rate is zero — thanks to the package of broad-based tax cuts that President Bush pushed through to get the economy going earlier in the decade.

But as of midnight Dec. 31, the death tax returns — at a rate of 55% on estates of $1 million or more. The effect this will have on hospital life-support systems is already a matter of conjecture.

Resurrection of the death tax, however, isn’t the only tax problem that will be ushered in Jan. 1. Many other cuts from the Bush administration are set to disappear and a new set of taxes will materialize. And it’s not just the rich who will pay.

The lowest bracket for the personal income tax, for instance, moves up 50% — to 15% from 10%. The next lowest bracket — 25% — will rise to 28%, and the old 28% bracket will be 31%. At the higher end, the 33% bracket is pushed to 36% and the 35% bracket becomes 39.6%.

But the damage doesn’t stop there.

The marriage penalty also makes a comeback, and the capital gains tax will jump 33% — to 20% from 15%. The tax on dividends will go all the way from 15% to 39.6% — a 164% increase.

Both the cap-gains and dividend taxes will go up further in 2013 as the health care reform adds a 3.8% Medicare levy for individuals making more than $200,000 a year and joint filers making more than $250,000. Other tax hikes include: halving the child tax credit to $500 from $1,000 and fixing the standard deduction for couples at the same level as it is for single filers.

Letting the Bush cuts expire will cost taxpayers $115 billion next year alone, according to the Congressional Budget Office, and $2.6 trillion through 2020.

But even more tax headaches lie ahead. This “second wave” of hikes, as Americans for Tax Reform puts it, are designed to pay for ObamaCare and include:

  • The Medicine Cabinet Tax
  • The HSA Withdrawal Tax Hike.
  • Brand Name Drug Tax.
  • A third and final (for now) wave, says ATR, consists of the alternative minimum tax’s widening net, tax hikes on employers and the loss of deductions for tuition

Go read the whole thing.

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Depression 2010?

Robert Samuelson asks whether we have avoided a second Great Depression:
Depression 2010?

The case that we have dodged a second Great Depression rests on a narrower notion: that the Depression was preventable; and that advances in economic knowledge allowed us to do so. If we knew then what we know now, governments could have averted the tragedy. Despite some disagreements, economic scholars subscribe to a broad consensus about what went wrong in the 1930s. Government central banks, like the Fed, were too passive. They didn’t halt bank panics. Intervention at decisive moments (perhaps the failure of the Bank of the United States in late 1930 or Austria’s Credit Anstalt in spring 1931) could have changed history. Instead, mounting unemployment and falling prices fed on each other. Debtors couldn’t repay loans, leading to more bank failures, a contraction of credit and deposit losses. But this time the mistakes were not repeated. Despite criticism, banks were “bailed out.” Money was pumped into credit markets to pre-empt a downward spiral.

By this reading, the world has bought itself time to deal with underlying problems. As the economic recovery strengthens and lengthens, the politics of confronting unstable export-led growth (for Asia) or unsustainable welfare spending (for developed countries) will grow easier. People will be more optimistic about the future; they will be more open to necessary, if not popular, adjustments. This could happen. The world may muddle through, making gradual and messy changes that ultimately defuse another large crisis.

But there is another more sobering reading of the Great Depression. It is that painful and once unthinkable changes are made only under the pressure of acute crisis. One reason that central banks were so passive is that they clung to the gold standard: Relaxing credit policies too dramatically to rescue banks might lead to a loss of gold; people would demand metal to replace paper money. Gold was abandoned in various countries only after it seemed untenable. Similarly, the post-World War I debt problem wasn’t “solved” until repayment was impossible. As for Britain’s place as global leader, the United States assumed that role only in World War II.

Against that backdrop, today’s unresolved problems — over the welfare state, leadership in the global economy — become more ominous. They suggest that major adjustments won’t be made until they’re compelled by some sort of crisis. This possibility defines the present economic drama. Will the recovery encourage conscious changes? Or is recovery providing a false sense of security? The stakes are, of course, enormous, because — as everyone knows — the economic suffering of the Great Depression transformed many countries’ politics for the worse and led to World War II.

I’m not optimistic at all.

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