RSS Feed MenuWhat is the much-discussed Paul Ryan plan?
You probably know the plan’s main elements: A huge cut in Medicaid, a big cut in the value of future Medicare coverage for those under age 55, substantial cuts in discretionary domestic spending, plus a big tax cut aimed primarily at upper-income taxpayers.
Theoretically, this plan constitutes the first step toward the 2012 federal budget. But only very theoretically. The Senate will not pass it, and the president will not sign anything like the Ryan plan. If anything, the Ryan plan pushes us toward a future in which the federal government is funded for the next two years by stopgap continuing resolutions, postponing big decisions until after the 2012 elections.
So is the plan an electioneering document — the first draft of the Republican campaign message for 2012? Again, probably not. The campaign message will be determined by the presidential nominee, not by the chairman of the House Budget Committee. Review the probable nominees, and it’s hard to imagine Mitt Romney or Tim Pawlenty or Haley Barbour or Chris Christie running for president on the basis of a platform much more radical than that offered by Ronald Reagan in 1980.
Third option, then: Is the plan a negotiating ploy, a first offer to get serious bipartisan talks started with Democrats on entitlement reforms? Possibly. But the plan seems as likely to provoke the Democrats into fighting rather than negotiating. From a Democratic point of view, the Ryan plan looks like a Republican demand for all the marbles: Spending cuts for Democratic constituencies to fund tax cuts for Republican constituencies. More relevantly, from a Democratic point of view, the Ryan plan looks like a lethally unpopular demand for all the marbles — exactly the same demand that Democrats turned so decisively against Republicans in 1995. For Democrats, the Ryan plan is not a good faith opening gambit. It’s a temptingly vulnerable political target.
If the plan is not a real-world budget proposal, not an electioneering document, not a negotiating position — then what is it?
Answer: The Ryan plan is a Republican “memo to me” — an attempt by a party emerging from a troubled history to answer the question, “Who are we?” The answer is not aimed at the general public, but at Republicans themselves.
It goes like this: “Perhaps we used to be the people who introduced Medicare Part D. No longer. We have rediscovered our identity as the people who shrink government, not the people who expand it. Here is the proof.”
This “speaking to ourselves” mission explains many things about the plan that are otherwise puzzling.
- Why are there no revenue enhancements of any kind — not even fees or excise taxes that have no negative impact on incentives or savings?
- Why is Medicare protected in its existing form for a decade while the changes to Medicaid go into effect immediately?
- Why is Social Security exempted entirely?
- Why is agriculture treated so lightly — $30 billion in savings over 10 years, all of them (interestingly) to be decided by the Agriculture Committee, a unique concession by a Budget Committee otherwise determined to centralize decision-making?
Pose these questions and the answers become obvious:
These days, Americans over 55 vote heavily Republican. Under-55s lean Democratic, under-30s overwhelmingly so. (That’s the reverse, by the way, of the situation that prevailed as recently as the 1980s). Farmers vote Republican. Medicaid recipients do not. The deficit grows because the deficit reduction plan includes a big additional tax cut to upper-income taxpayers. And so on.
Well, that’s politics. The president’s health care and stimulus plans were larded with much grosser payoffs to Democratic constituencies.
But notice what Ryan’s plan does not do.
It does not credibly address the number one concern of Americans: jobs. The job numbers attached to the plan have become instant targets of ridicule. Not even the actual authors of the numbers believe them. See Noah Kristula Green’s article at FrumForum.com:
The Ryan budget touts analysis from the Heritage Foundation which argues that the unemployment rate will reach 2.8% by 2021. (For comparison, ‘natural’ unemployment is estimated to be around 5%.) FrumForum contacted the Heritage Foundation’s Center for Data Analysis to ask about this figure. Heritage responded that they came to this conclusion using a CBO baseline as they were requested to do, and that they view the baseline they were asked to use as one which was too optimistic to begin with.
More surprising still, the debt reduction plan actually increases the debt over the medium term — by even more President Obama’s budget would. Ryan’s plan tries to minimize this awkward fact by inserting it within a chart on page 57 that portrays the deficit from 1960 to 2080, a long enough timeframe wherein the worsening of the deficit situation over the period from 2012 to 2021 seems to shrink into historic insignificance.
The real message of the Ryan plan is: Upper-income tax cuts now; spending cuts for the poor now; more deficits now; spending cuts for middle-income people much later; spending cuts for today’s elderly, never.
Jobs first, deficit later is actually the right timing of priorities. But the upper-income tax cuts of 2001 and 2003 markedly failed to translate into higher incomes for ordinary Americans. The Ryan plan offers no reason to hope that another round of the same medicine will deliver better results.
As politics, the message is even worse than the economics. Cut Medicaid and Medicare to fund tax cuts? Isn’t that the issue that returned Bill Clinton to the White House in 1996? Don’t all the polls show that Medicare and even Medicaid are popular, and that more tax cuts for the wealthiest Americans are not? Isn’t this a formula for a GOP bloodbath in 2012? And if the plan did somehow become law, is it not a formula for an economy in the 2010s that will underperform for most people in the same way that the economy of the 2000s underperformed for most people?
Those are the questions that will worry economists and swing voters alike. But the plan is not written for economists and swing voters. It is written for the GOP core. Yet one has to wonder: What happens to a party that invests so much energy talking to itself? I am reminded again of the best anecdote in Karen Hughes’ memoir, “Ten Minutes From Normal.”
Walking on the beach one day, the former Bush communications director noticed a small plane trawling a huge advertising banner. The banner read something like: “Jill come back. I am miserable without you. Jack.” Hughes thought: “Bad message, Jack. Too much about you, not enough about her.”
That’s advice Republicans should ponder as they absorb Paul Ryan’s inward-focused budget ideas.
Originally published in The Week.
PatrickQuint // Apr 6, 2011 at 3:17 pm
ottovbvs: “Except these aren’t cuts they’re effectively dismantling the programs, even if you accept the highly debatable proposition that access to Medicare and Medicaid need to be cut.”
Ryan may want to dismantle the programs. I agree that the Ryan plan is bad. Let’s talk about alternatives.
The long-term structural deficit of the US is huge. You fix that with long-term, structural cuts to the programs as well as other cost-cutting measures.
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balconesfault: “Actually this bears no resemblance whatsoever to what Republicans propose nor is it likely to.”
It was turn of phrase. I meant “Here’s what the Republicans *should* do to get a grand bargain.”
I blame the intertubes for the missing tone.
Let’s have a productive discussion about how to handle the deficit and avoid a sovereign debt crisis without tanking the economy.
ottovbvs // Apr 6, 2011 at 3:23 pm
You fix that with long-term, structural cuts to the programs
Er…delightfully vague, but what do you mean by this? I don’t dispute we have a deficit problem and laid the broad numbers out for you. We gotta find $900 billion and in practice Medicare/Medicaid/SS are off limits apart from some minor tweaks like raising the retirement age slightly and raising FICA caps. Without SS/Medicare two thirds of the seniors in the country are going to be moving in with their kids.
think4yourself // Apr 6, 2011 at 4:14 pm
Seems to me that the place to start a productive conversation is the President’s debt commission:
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf
It creates almost 4 trillion in savings by 2020, balances the budget by 2037. It does not raise top tax rates (it doesn’t lower them by 30% as Ryan’s plan does) but does create additional tax revenue by eliminating deductions. It does call for Medicare cost shifting (beneficiaries pay more of first dollar) and does call for tort reform (all GOP priorities), but doesn’t turn Medicare into a voucher program. It does address Social Security which Ryan’s plan does not. It’s not perfect but it’s a good place to have a conversation about debt, not ideology.
The Commission’s plan has elements that both parties do not like and is even-handed. Ryan’s plan is a GOP manifesto aimed at Supply Side economics that are not proven (Laffer Curve says that at some point lower rates produce less tax revenues. Economists argue with Liberals saying that happens when rates get below 50% and Conservatives say that happen something below where we are currently now – but not proven).
Finally, Ryan’s plan is dead on arrival. If it where to ever make it to the President’s desk in it’s current form (it won’t, the Senate won’t approve it), the President won’t sign it. Even if in the future we have a change in office where the GOP holds Legislature and the Presidency, the Senate would filibuster.
PatrickQuint // Apr 6, 2011 at 4:00 pm
Frumplestiltskin: “PatrickQuint, not a bad set of proposals, you need to flesh out what those substantial cuts to entitlements are.Raising the retirement age is not a cut, raising the cap on SS taxes isn’t either, I also don’t think the adjusting the COLA to one that represents the true inflation rate for seniors should count as a cut since it will accurately reflect their inflation rate even if long term it saves a lot of money.”
Right you are. A lot of what I said shouldn’t really count as cuts. My mistake. You’re also right that a lot of those proposals need fleshing out. Unfortunately, I’m not well-versed enough in the subject to propose anything more specific with confidence.
If you have some idea of what specific cuts might both work and be anywhere near doable, then I’d love to hear them. What I tried to do is take a stab at what the final product might look like, if all actors were roughly rational starting today (so the Republicans and Democrats are stuck with what they’ve said and done so far).
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ottovbvs: “We gotta find $900 billion”
Not today we don’t. Huge, immediate cuts in spending can mess with the economy in a big way. The balance between recession 2.0 and a sovereign debt crisis is to find is to keep spending stable enough to avoid tanking the economy while convincing the world that the US can and will pay off the debt. This means cuts that make the long-term fiscal situation look good while minimizing the pain now.
Raising the age for Social Security eligibility is a way of keeping the money (demand) flowing today while making the long-term prospects look better. That’s the kind of fix we should be looking for.
The big money of the medical costs is in drugs and end-of-life care.
You deal with drug costs by breaking the deterrents on cheaper drugs. Big pharmaceuticals seem to be in coalition to keep sources of cheap drugs out of the country. They’ll be angry if you mess with this, but they’ll be angry at any measure to control Medicare/Medicaid costs. Screw ‘em.
You deal with end-of-life care by planning for it, and by finding ways to keep the terminally ill comfortable and out of a hospital bed. I’m open to suggestions about how to write that policy. Yes, I remember the “death panels” talk, and I’ll be happy to point out a boatload of Republican contradictions apparently ignored by the base they pander to. Republicans can and will pull a 180 on end-of-life care policy of one of their movers can spin it for them.
ottovbvs // Apr 6, 2011 at 4:19 pm
Not today we don’t.
Well of course we don’t but at some point in the reasonably near future we do. So apart from a few minor tweaks to SS you agree there’s no more there. On Medicare/Medicare you agree the problem is cost not access and Ryan’s plan does nothing to address that. But getting cost out of healthcare is the work of generations so what do we do in the meantime? You have to increase the tax take…it’s unavoidable.
Non-Contributor // Apr 6, 2011 at 4:04 pm
Fix unemployment and a lot of the issues go away.
ottovbvs // Apr 6, 2011 at 4:22 pm
Not true. Even if we return to full employment it’s only estimated to bring in another $400 billion at current tax rates when the total deficit is $1.5 trillion.
Non-Contributor // Apr 6, 2011 at 5:05 pm
The big problem is private sector savings. Once business start spending the deficit will come down.
armstp // Apr 6, 2011 at 4:04 pm
My questions are two:
1) who actually wrote this plan, as I do not think Ryan has the intellectual capacity and he has done no major legislation in the past? who is behind the scenes that is writing this BS? Koch consultants?
2) where are all the right-wing nuts who usually comment on this site? where are their comments on this very good discussion of the Ryan plan? I guess this shit is hard to defend even for a FF right-wing blogger?
TerryF98 // Apr 6, 2011 at 4:24 pm
WillyP,WillyP where are you, come out and defend this crap sandwich.
ottovbvs // Apr 6, 2011 at 4:25 pm
who actually wrote this plan,
His staff and that of other right wing Republicans. These guys are all products of the revolving door and up until six months ago were working at right wing think tanks, lobbying firms, and forth.
PracticalGirl // Apr 6, 2011 at 4:12 pm
A really good article and some fantastic responses.
A smart poster (I’ve lost the thread, but you know who you are) pointed to cuts in Medicare plus tax cuts for the wealthy as suicide. Reason number one that Republicans will never sign on to something as base-alienating as the Ryan plan, especially in an election year.
Specific to the tax cuts…Sigh. There is virtually no proof that tax cuts for the wealthy leads to jobs creation, and plenty of empirical evidence to the contrary.
Set aside Federal taxes for a moment and concentrate on the top ten states for jobs growth:
1. Texas
2. North Carolina
3. Tennessee
4. Virginia
5. Nevada
6. Florida
7. Georgia
8. Colorado
9. Utah
10. South Carolina
Out of those ten states where the highest rates of job growth is occuring, NONE have lower tax rates for the wealthy. Three have no state income tax and the rest either have rates that increase for those making more money or tax everybody at the same rate. And the state creating the most jobs-Texas- actually has instituted a corporate tax franchise tax that slides upward with increasing corporate income.
Constant tax rates or higher rates for the wealthy is a jobs killer? Bull. Shit.
ottovbvs // Apr 6, 2011 at 4:31 pm
Reason number one that Republicans will never sign on to something as base-alienating as the Ryan plan, especially in an election year.
They’ve signed up for it by default. THIS is their 2012 budget plan, they have to bring it to floor or something fairly similar, it’s going to be THE legislative issue of the next 12 months. They’re only hope for a distraction is if Obama invades Russia or is caught with the proverbial dead girl or live boy.
ram6968 // Apr 8, 2011 at 12:34 pm
and obama said: republicans, show us your cards….and they did…..and here comes 2012…..well played
armstp // Apr 6, 2011 at 4:26 pm
Why are we even talking about the deficit and debt? Is it really a problem?
We have a big deficit because of the economic downturn and the Bush tax cuts. The CBO predicts that even if we do absolutely nothing on spending and the Bush tax cuts are left to expire in 2012 the deficit as a percentage of GDP will drop from its current high 9% to a normalized 3% by 2015. The 60 year historic average for the deficit is 2.5% of GDP. We have had deficits every year for the last 60 years except only 5 years, so we run deficits +90% of the time.
Total debt as a percentage of GDP is high, but similar or lower to other OECD countries and we have been here before. We will eventually grow out of the debt.
There is no need for dramatic changes to any programs. However, to improve the fiscal position over time we clearly want to do something about healthcare costs. We should also lower defense spending, as most of it is just a waste. Beyond that no big deal. Total government spending is about 23% of GDP and factoring out emergency economic spending and it is currently closer to 21-22%, which is very close to the 60 year 20-21% average.There is no big up tick in government spending and therefore no problem with spending. As most of you know the real difference is on the revenue side. We are collecting the lowest amount of tax revenue since 1950. So if we are really serious about the deficit and really consider it a problem, then the obvious answer is just a slight increase in taxes. Problem solved.
ottovbvs // Apr 6, 2011 at 4:37 pm
Total debt as a percentage of GDP is high, but similar or lower to other OECD countries and we have been here before. We will eventually grow out of the debt.
Actually it’s one of the highest and we won’t just “grow out” of it. Ultimately as you point out we have to bring the tax take back to its historical average as a percentage of GDP. But then that’s what the whole argument is about. Republicans are just committed to an ideology that will not allow them to accept this.
armstp // Apr 6, 2011 at 4:49 pm
Otto,
A couple of points:
* we have to grow out of it because there is no way in hell we will get to big enough surpluses to actually start to pay it down. We cannot even just get to a simple balanced deficit, never mind big surpluses. GDP is the denominator. If GDP goes up with the recovery, total debt as a percentage of GDP will just fall. Mathematics.
* what is the right level of debt per gdp? Why does it matter?
2010 Est. Debt per GDP:
Japan 225% of GDP
Italy 118%
Singapore 102%
Belgium 98%
Ireland 94%
France 83%
Germany 79%
Israel 77%
UK 76%
Austria 70%
Netherlands 65%
Spain 63%
U.S. 59%
http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt
Sure the U.S. is going higher in 2011, but so are these other countries.
Certainly households and corporations run considerably higher debt levels relative to income. The credit rating agencies are not particularly worried as we maintain our AAA credit ratings. I think the real question is what is the appropriate level of debt? No one is even talking about that. Why? Isn’t that the first question that should be answering before we are even talking about major changes to social and government policy? What problem are we actually trying to solve here?
The Ryan plan is just Kabuki politics. I do not even know what the problem is he is trying to solve.
ottovbvs // Apr 6, 2011 at 5:05 pm
Er…this is per capita debt not deficit as a percentage of GDP which is what you first mentioned. And all these circumstances are different. Japan has the highest but the vast majority of their debt is owned by their own citizens and no one says Japan doesn’t have a huge problem. The US has a deficit problem period. Current deficit predictions are based on a return to historical US growth rates and we’ve still got a deficit that is around 8% of GDP when it needs to half that. You seem to have the strange idea that GDP grows but the deficit doesn’t. Mathematics?
armstp // Apr 6, 2011 at 5:22 pm
otto,
you need to read what you quoted from my quote more closely.
but, if you want to talk about deficit per GDP, it will fall to 3% of GDP according to the CBO. That is normalized. It will not be a problem at 3%. It is temporarily high because of the economic downturn.
“You seem to have the strange idea that GDP grows but the deficit doesn’t. Mathematics?”
Actually, the deficit is expected to significantly decline over the next 5 years with no spending cuts. It should be down to about $500 million in four years, according to the CBO. So the numerator will go down and the GDP denominator will go up, so the ratio of deficit to GDP will go down significantly. Mathematics.
Non-Contributor // Apr 6, 2011 at 4:30 pm
They should just reduce federal taxes for everyone. Or take the federal returns and redistribute the money to the states.
Worrying about entitlement programs is a waste of time.
PatrickQuint // Apr 6, 2011 at 5:02 pm
ottovbvs: “You have to increase the tax take…it’s unavoidable.”
I think I said it before in this thread, but the rich and the large corporations have had their recovery. If they were going to create jobs then they would have done so by now. I say go for the tax hikes.
Then there’s tax reform. It’s the Gordian Knot of special interests and the holy grail of good policy. The problem is that all them money in Washington is arrayed against it.
It’s the hidden spending in the federal budget. Targeted tax cuts are just spending on the other side of the equation. It’s cooking the books to give money to interest groups without making it look like spending. This is where the real budget cuts *should* come from. However, reality seems to get in the way. It’s just too attractive a tool to the politicians and lobbyists. Talk about waste and fraud.
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armstp: “Why are we even talking about the deficit and debt? Is it really a problem?”
It’s a problem because the government needs to find people willing to buy the debt on the cheap. If it doesn’t, you’re stuck with some ugly options to deal with the debt in a hurry. You can print money to pay the debt and collapse the currency. You can make sharp cuts to government spending and crush the social safety net and/or defense. You can increase taxes drastically and crush economic growth. You’ll probably take some combination of the bad news above.
All it takes is for some foreign government, like China or the Saudis to say “you know what, I want a better return on your debt this time” and it all goes to hell. This depends entirely on perception and so it’s quite unpredictable. Once that happens you don’t have an election cycle to fix the problem. You don’t have a year. You might have a month, depending on how public the negotiations over the debt are. As soon as people get wind of someone demanding higher interest on the national debt things get real ugly real damn quick.
Now, you seem to actually have a handle on all that armstp. The debt is a problem only so long as it looks like it’s going to keep spiral out of control.
armstp // Apr 6, 2011 at 5:11 pm
Patrick,
The majority of the debt is owed to the U.S. public. There is no evidence that foreign investors are not continuing to line-up to buy our debt. In fact, quite the opposite. Our Treasuries as a source of stability are more popular than ever. Nobody is particularly concerned with the financial situation of the U.S. Certainly financial markets are not showing there is a problem.
The Chinese and the Saudi are not going anywhere. You are just fear-mongering. Where are they going to go and who cares? Today, the Chinese and the Saudi’s don’t buy our debt because they like us, they buy it because it makes financial sense. You have not proven that his is a real issue, beyond fear-mongering. Another conservative narrative. The Chinese own all our debt (which they do not) and we will be held hostage. In fact, I could make the counter argument that the U.S. actually holds these countries hostage. By the way where are the Chinese and Saudis actually getting these dollars from to buy these Treasuries?
ottovbvs // Apr 6, 2011 at 5:20 pm
There is no evidence that foreign investors are not continuing to line-up to buy our debt.
That’s certainly true at the moment but at some point when the economy returns to full capacity the bond vigilantes ARE going to show up if we don’t get the deficit under control. Government expenditures are set to climb steeply with the retirement of baby boomers, population growth, etc etc.
armstp // Apr 6, 2011 at 5:24 pm
Otto,
That bond vigilanties comment is just a blanket statement with absolutely no proof that it is true. There is no historic precedent. Investing is all a relative game. You pull your money out of Treasuries and then where do you put it? Where will you get better risk adjusted returns? That is all that matters? There is a reason government and investors invest in government Treasuries.
ottovbvs // Apr 6, 2011 at 5:44 pm
“There is no historic precedent.”
You’re starting to sound as silly as Ryan or Willy p. Firstly you don’t seem to know the federal budget is increasing in real terms and then according you long bond rates have always been at their current 3.3% yield when in fact during the past thirty years it’s been as high as 14%. When the US economy is operating at full capacity there lots of other things to invest in like commercial real estate, equities, commodities, or you don’t invest at all but spend it on fancy cars. Investing is indeed a relative game and when bonds look like a lousy investment you don’t buy them.
armstp // Apr 6, 2011 at 9:57 pm
Otto,
Your comment does not make a whole lot of sense. I am not sure what investing in real estate or other things has to do with investing in Treasuries? I think you need to understand risk adjusted returns. People invest in Treasuries because it is essentially risk free.
As for your comment on the real debt or deficit growing I am not sure what you mean.
Non-Contributor // Apr 6, 2011 at 5:25 pm
Selling treasuries is a self imposed constraint that is actually is a carry over from when the US was on the gold standard. The government was so concerned about a run on gold (converting dollars to gold) that they instituted the selling of long term securities as a hedge.
The argument about auctions failing is fantasy. So what if the securities don’t get sold.
ottovbvs // Apr 6, 2011 at 6:43 pm
So what if the securities don’t get sold.
The govt has raise the coupon (ie. interest) on its bonds to attract buyers. That means interest rates on mortgages, car loans, credit cards, et al go up!!! The Greeks are currently paying around 12%
Non-Contributor // Apr 6, 2011 at 7:06 pm
Its an auction. The Fed sets the rate if there are no buyers so be it, auctions sometimes fail. As for Greece, their are doing what states do when they sell municipal bonds, totally different.
indy // Apr 6, 2011 at 7:22 pm
The Fed sets the rate if there are no buyers so be it, auctions sometimes fail.
I’m not sure what you are asserting here. You know we run a deficit, correct? And that if we don’t raise money through the debt market, we can’t meet our obligations since we don’t have enough revenue to cover them?
Non-Contributor // Apr 6, 2011 at 8:58 pm
Selling securities is a policy constraint. It’s not needed for funding and now with Bernanke allows interest on reserves it is really not needed at all.
Regardless, the Fed sets the rates and lets the quantity adjust where as under the gold standard quality was set and prices adjusted.
ottovbvs // Apr 7, 2011 at 10:51 am
He’s advancing the MMT philosophy that the bond market is not required because as a sovereign state we can just print money to fund the debt and therefore don’t need to finance it with bonds. It’s as crazy as Austrianism but it’s being peddled by the far left. Paul Krugman of all people completely demolished this nonsense a couple of weeks back.
JeffreyME // Apr 6, 2011 at 5:59 pm
If Ryan had any balls, he would not have given all of us 55 and over a free pass.
Thanks, David, for an honest look at this train wreck of a proposal. The Ryan plan promises to force a huge number of Americans to choose between financial ruin or impaired health/death. If you don’t believe me, take a look at some of the medical treatments for your Medicare eligible parents. When your mother, father, spouse or child need tens of thousands of dollars in life-saving medical care, what will you do?
NRA Liberal // Apr 6, 2011 at 6:08 pm
The cadres running the T.O.P. think this country is ready for the Ayn Rand Revolution.
They’re wrong.
Never get high on your own supply.
LauraNo // Apr 6, 2011 at 8:51 pm
NRA, they’ve been getting high on their own supply ever since they stole an American presidential election, then proceeded to run up deficits and start illegal/ unnecessary wars they didn’t pay for, they even stooped to torture and told themselves that was patriotic, etc., etc. I fear there is brain damage there now from all that pot.
indy // Apr 6, 2011 at 6:15 pm
Nobody is particularly concerned with the financial situation of the U.S.
That’s an interesting statement. Just look around. EVERYBODY is concerned. The concern is somewhat overwrought, but it is real enough.
If you mean that investors are not particularly concerned, they will be. We are in a pretty unsettled period right now. If the ship starts stabilizing, there will be an adjustment if we don’t seriously start making headway with the debt. And it won’t be pretty.
ottovbvs // Apr 6, 2011 at 6:46 pm
All the dopes aren’t in the Republican party apparently. Amazing isn’t it?
indy // Apr 6, 2011 at 6:52 pm
At this point I’m just happy that debt/spending is at the top of the stack and not, you know, the impending collapse of the country.
indy // Apr 6, 2011 at 6:30 pm
Certainly households and corporations run considerably higher debt levels relative to income.
You realize, of course, that people can pay 20-30% to service their consumer debt, right? Corporations pay less, depending. There is generally a relationship between level of debt and how much you pay to service it. Every dollar you pay to service debt means a dollar less to invest in the future of the country. Debt does matter, I’m afraid.
ottovbvs // Apr 6, 2011 at 7:03 pm
armstp // Apr 6, 2011 at 5:22 pm
Actually, the deficit is expected to significantly decline over the next 5 years with no spending cuts. It should be down to about $500 million in four years, according to the CBO.
Er no.
Annual deficits under Obama’s budget plan would be about $976 billion from 2011 through 2020, according to a CBO analysis of Obama’s plan released Friday
I think the Obama budget has them going to around 4% of GDP by 2020 assuming ALL the Bush tax cuts expire. The CBO is more pessimistic.
armstp // Apr 6, 2011 at 10:07 pm
Otto,
I do not think it is fair to use the initial Obama 2012 budget numbers, as this is not even law yet and is at best the beginning negotiating position. The final budget will look very different. Obvious, once it is negotiated with the GOP it will have less of a deficit outlook.
So if you look at the CBO baseline projection, which is what they are currently going with, the deficit shrinks to $500 bn by 2015 and about 3% of GDP.
My facts are 100% correct.
And even if you take the 2012 Obama budget initial proposal as a fait de complete, a 4.1% deficit per GDP by 2015 would cut the deficit per GDP in half from today and is not a significantly big number to worry about and is very manageable.
Again I will emphasis my initial point: are we sure there really is a deficit and debt problem? The big numbers of today will largely correct themselves as the economy returns. There is no need for big panic driven changes to social and government policy. The deficit and debt is largely a strawman created by the fear-mongering of the right in order to push a small government agenda. Of course we have deficits during economic downturns, but they generally go away when the economy returns.
ottovbvs // Apr 7, 2011 at 7:58 am
armstp // Apr 6, 2011 at 10:07 pm
My facts are 100% correct.
A)You claimed:
Actually, the deficit is expected to significantly decline over the next 5 years with no spending cuts. It should be down to about $500 million in four years, according to the CBO.
B)The CBO in their latest projection of March 2011 say:
In all, deficits would total $9.5 trillion between 2012 and 2021 under the President’s budget (or 4.8 percent of total GDP projected for that period)—$2.7 trillion more than the cumulative deficit in CBO’s baseline. Federal debt held by the public would double under the President’s budget, growing from $10.4 trillion (69 percent of GDP) at the end of 2011 to $20.8 trillion (87 percent of GDP) at the end of 2021.
C)And whether unfair or not to use the president’s budget your facts are demonstrably incorrect (the CBO doesn’t write the budget it scores it). I don’t dispute that much of the rhetoric about the deficit is overblown but it’s still a serious problem in the longer term. Denying this is as ridiculous as claiming that there is no historic basis for the bond vigilantes showing up in bond markets.
armstp // Apr 7, 2011 at 4:36 pm
Otto,
1) I suggest you read the CBO report a little closer. You are again using the CBO projection based on the Obama 2012 budget, which as I say above is at this point not fair to use and relatively useless. You need to look at the CBO baseline projections, which is all that counts at this point. I am not sure why you are repeating yourself. Do you not get this point? The Obama 2012 budget at this point in meaningless. The CBO is not changing their baseline projects based on this initial, very initial, sketch of a 2012 budget.
Here I will do the work for you.
Look at the first chart on this link.
http://www.cbo.gov/doc.cfm?index=12103
The baseline projection takes the deficit down to about 3% of GDP, which is a more normalized level.
Now if you open up the PDF and look at the entire March report you will see on page 15 the CBO baseline project of a $513 bn in 2014. That is a considerable drop from where it is too day.
What about these numbers do you not get?
“your facts are demonstrably incorrect ” No my facts are completely correct. See the links above. The CBO uses its baseline as its forecast. You can use an irrelevant first cut of a preliminary budget if you want, but that is not what the CBO uses and not its baseline and not what economists use. Everyone, but you, including the CBO, does not put too much emphasis on a very preliminary budget that will likely be completely different 6 months from now. That is why the CBO does not change its baseline forecast until a budget become actual legislation.
2) “but it’s still a serious problem in the longer term. Denying this is as ridiculous as claiming that there is no historic basis for the bond vigilantes showing up in bond markets.”
You have not proven this. I dare anyone to prove to me that the current deficits and debt are a serious problem? Why? Explain.
There is plenty of evidence that investors, credit rating agencies and economists are not particularly worried about the deficit and debt, even in the long-term.
Here is a question for you: at what level of both debt and deficit does it stop being a problem or if you are running any deficit and debt do you always consider it a problem?
If you think the latter you have no idea about economics and finance, as it is perfectly economically efficient to run deficits and debts.
At what point is the debt and deficit manageable?
Again, why does it matter?
There is no financial crisis in the U.S. We are coming out of the largest recession since the Great Depression. That has caused a temporary deficit and a spike in the debt. With growth over the next five years the CBO baseline projects are showing that we will grow out of it, like we always do. Because of the demographics long-term there are issues with healthcare costs in this country. That is about it.
ottovbvs // Apr 6, 2011 at 7:19 pm
armstp // Apr 6, 2011 at 5:22 pm
Actually, the deficit is expected to significantly decline over the next 5 years with no spending cuts. It should be down to about $500 million in four years, according to the CBO.
From the CBO’s own latest summary of March 2011. $9.5 trillion of deficits between 2012 and 2021. And remember this is assuming the Bush cuts go as they probably will. Nice if your facts were correct but they are not.
In 2012, the deficit under the President’s budget would decline to $1.2 trillion, or 7.4 percent of GDP, CBO estimates. That shortfall is $83 billion greater than the deficit that CBO projects for 2012 in its current baseline. Deficits in succeeding years under the President’s proposals would be smaller than the deficit in 2012, although they would still add significantly to federal debt. The deficit would shrink to 4.1 percent of GDP by 2015 but widen in later years, reaching 4.9 percent of GDP in 2021. In all, deficits would total $9.5 trillion between 2012 and 2021 under the President’s budget (or 4.8 percent of total GDP projected for that period)—$2.7 trillion more than the cumulative deficit in CBO’s baseline. Federal debt held by the public would double under the President’s budget, growing from $10.4 trillion (69 percent of GDP) at the end of 2011 to $20.8 trillion (87 percent of GDP) at the end of 2021.
This is a problem. Not immediate, getting the economy on track a higher priority at the moment but if you don’t think this is a problem then you are silly as Ryan in reverse.
politicalfan // Apr 6, 2011 at 7:35 pm
ottovbvs-
Responding to your earlier reply.
Yes, I get your point clearly, he voted for Sarah Palin. However, my point is that it comes off as constructive criticism (or an obvious fine tune this area Republican pal). He is always giving Palin free advice that she never takes. I don’t think his left leaning commentors make him want to vote Democrat all of sudden, with all due respect.
“It does not credibly address the number one concern of Americans: jobs. The job numbers attached to the plan have become instant targets of ridicule. Not even the actual authors of the numbers believe them.”
Medinnus-
“Agreed – as far as it goes. As a former Republican-turned-Independent, I want the Republicans to stop pushing unAmerican ideas like:
* Branding anyone who disagrees with you as “Not a real American” or a “traitor”.
* Promoting a Christianist (the Western version of Sharia) agenda
* Hating minorities and homosexuals
When they do that, and start actually acting like real Conservatives, and not unthinking Tea Party bigot drones, I’ll stop considering them the Enemy. Until then… they are precisely that.”
This is part of the problem instead of a solution. (author unknown) I am not into painting everyone with a broad brush.
geojen // Apr 6, 2011 at 7:45 pm
Here’s another thing: In my parent’s situation, my dad is 55, my mom 51. So he would get medicare, and she would have to get private insurance? This is just so crazy.
nhthinker // Apr 6, 2011 at 8:54 pm
Ryan’s plan levels out at 19% tax revenue as a percentage of GDP.
The Corker-McCaskellCAP Act reduces total federal spending – discretionary and mandatory spending combined – to a target of approximately 20.6 percent of gross domestic product (GDP), the historical average of federal spending. Beginning in 2013, the CAP Act will establish federal spending limits that will be gradually reduced over 10 years to 20.6 percent.
Let’s first agree on the tax revenue as a percentage of GDP.
Republicans and Independents can live with 19-20.6%.
Most non-NeoCon Republicans can live with major military reductions.
So… adding a Military cut- and using that to pay down the debt is a possibility.
Keeping tax revenue less than 20% of GDP AND paying down the debt is critical to getting jobs back to America.
ottovbvs // Apr 7, 2011 at 8:15 am
Republicans and Independents can live with 19-20.6%.
Republicans, and even that is doubtful, might be able to but I see you’re claiming independants as well. Why not also claim Democrats also, and 7th Day Adventists, Jehovah’s Witnesses’, Christian Scientists, one could go on forever. Since the war tax has averaged 22-23% of GDP and that’s where we need to get back to in order to fund govt properly.
LauraNo // Apr 7, 2011 at 10:21 am
“Keeping tax revenue less than 20% of GDP AND paying down the debt is critical to getting jobs back to America”.
Why? I don’t understand why it keeps being asserted that lower taxes will bring jobs back. Or reducing the debt. Or both. Lower debt didn’t keep the jobs here in the first place. Tax revenue has been higher than 20% and jobs didn’t leave, it’s lower now and jobs are not coming back or being created. Taxes are lowest in I forget how long. This is all just wishful thinking I fear. The rich, the middle class and the poor were all doing much better in the 90s with the much higher taxes. Common sense says the tax rates don’t determine much at all, tho GOP sure likes to think so.
Steve D // Apr 6, 2011 at 9:03 pm
Here’s what I’d do if I were President and we had a Government shutdown.
1. National Parks stay open. Lock up buildings but you don’t need people on duty to have people drive through. If you fall off Half Dome, we’ll clean it up once the shutdown ends.
2. Issue an emergency proclamation: all applications not processed within 30 days of submission due to offices being closed are deemed approved. Regulatory agencies would suddenly find themselves completely marginalized.
3. In general, the shutdown is not allowed to halt any other activities. If you can’t do something because someone isn’t there to issue paperwork, you get to do it.
4. All State actions are allowed to proceed in the absence of Federal activity.
sweatyb // Apr 6, 2011 at 10:15 pm
so… anarchy? I’m glad you’re not president.
ottovbvs // Apr 7, 2011 at 8:09 am
Regulatory agencies would suddenly find themselves completely marginalized.
Yeah lets marginalize those pesky FAA and FDA pen pushers. We don’t need them.
baw1064 // Apr 6, 2011 at 9:18 pm
“Under-55s lean Democratic, under-30s overwhelmingly so.”
So Ryan’s plan is designed to make sure things stay that way? Um, how exactly do these people plan to win any elections at all after about 2020?
TerryF98 // Apr 6, 2011 at 9:40 pm
You are asking these tools to think beyond the next news cycle, not gonna happen.
WillyP // Apr 6, 2011 at 11:49 pm
No I’m fine here on the sidelines. God Bless Paul Ryan.
PatrickQuint // Apr 7, 2011 at 11:33 am
The 59% debt/GDP number doesn’t include intragovernmental debt. Total debt outstanding is closer to 97%, soon to exceed 100%.
http://www.nytimes.com/2010/03/16/business/global/16rating.html The Aaa debt rating was “tested,” according to Moody’s. This story, and other like it, is why I’m concerned about the debt and deficit. From the article:
“Growth alone will not resolve an increasingly complicated debt equation,” Moody’s said. “Preserving debt affordability” — the ratio of interest payments to government revenue — “at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”
There you go. That’s the rationale for long-term structural measures to protect the Aaa credit-worthiness of the country. For at least a brief time recently the markets thought that money was safer with Warren Buffett’s Berkshire Hathaway than with the US government.
The article is about a year old, which tells you that this has been a concern for a while now. Bill Gross seems to think that the US will keep it’s Aaa for a while, but a continuation of big deficits will threaten the credit rating. He says that treasury bonds are already less stable (command a higher rate of interest) than other forms of sovereign debt as well as some private bonds.
ottovbvs // Apr 7, 2011 at 11:48 am
This was kite flying by the media and various other people with an agenda. I’d also take what Bill Gross says with a large pinch of salt but philosophically he’s right. We can’t live indefinitely with deficits of a $trillion a year or ultimately the bond vigilantes will show up. We need a serious effort to get them down once we’re out of the recesssion and at bottom this is only going to be achieved by finding another $500 billion from taxation.
indy // Apr 7, 2011 at 1:08 pm
What was the credit rating of all those ‘toxic’ assets again? Right up until the day they were ‘toxic’, they were triple-A. The US will maintain a triple-A up to that day too.
armstp // Apr 7, 2011 at 4:52 pm
PatrickQuint,
Moody’s makes some good points, but so what. So in the worst case scenario they lower the U.S. rating from Aaa, pretty much their highest rating, a notch or two. Big deal. That is not a crisis. Not even close.
If the numbers go in the direction the CBO is predicting in its baseline forecasts, the rating agencies will have zero concerns, as they really have today.
Otto,
You are showing your simple minded thinking.
“We can’t live indefinitely with deficits of a $trillion a year or ultimately the bond vigilantes will show up.”
Yes, you can live with trillion dollar deficit forever, if the economy is say a +$20 trillion economy. That would be 5% of GDP, which is completely manageable. However, no one is saying we will have trillion deficits. In fact, the CBO is saying it will shrink to $510 billion in only 3 years in 2014.
Patrick,
It is not economically efficient to operate a business or a government or a household with zero debt. There is nothing wrong with taking cheap money (which treasuries are, particularly now) and investing that in the future, by using it to pay for good government. The U.S., as almost all countries, has operated with debt and deficits through its entire history. It is only a concern now because it has temporarly spiked, as it has in all countries, because of the economic downturn and because the GOP is using it as their strawman to push their small government agenda.
indy // Apr 7, 2011 at 1:14 pm
ottovbvs // Apr 7, 2011 at 10:51 am
He’s advancing the MMT philosophy that the bond market is not required because as a sovereign state we can just print money to fund the debt and therefore don’t need to finance it with bonds. It’s as crazy as Austrianism but it’s being peddled by the far left. Paul Krugman of all people completely demolished this nonsense a couple of weeks back.
It sounds a lot crazier than Austrianism to me.
PatrickQuint // Apr 7, 2011 at 2:27 pm
ottovbvs: “This was kite flying by the media and various other people with an agenda.”
Moody’s and S&P are partisan? Really?
The agencies are issuing very soft warnings here, agreeing that the country will be fine as long as the deficits start to go away. You don’t need to go all Sarah Palin on us and blame the lame-stream media for conservative bias.
—
armstp: “I think the real question is what is the appropriate level of debt?”
I don’t see a reason why there should be any federal debt. Could someone educate me as to the virtues of owing money?
baw1064 // Apr 7, 2011 at 4:13 pm
“I don’t see a reason why there should be any federal debt. Could someone educate me as to the virtues of owing money?”
I take it that you paid for your education and your house completely with cash? BTW, do you own any bonds, CD’s, or have any bank accounts? How do those manage to pay any interest except by somebody going into debt?
nuser // Apr 7, 2011 at 10:44 pm
Well Ollie, this is a fine mess you have gotten us into!