by hilzoy
From the Washington Post:
“Congress raised the limit on the federal government’s borrowing by $781 billion yesterday, and then lawmakers voted to spend well over $100 billion on the war in Iraq, hurricane relief, education, health care, transportation and heating assistance for the poor without making offsetting budget cuts.
On vote after vote in the House and Senate, lawmakers demonstrated the growing gap between their political promises to rein in spending and their need to respond to emergencies and protect politically popular programs. The votes followed last weekend’s GOP leadership meeting in Memphis, at which virtually every speaker called on the party to renew its commitment to fiscal discipline and to control federal spending and the deficit. (…)
With no brakes on spending and no moves afoot to raise taxes, the federal debt is now raising at an unprecedented clip. The government bumped up against its $8.18 trillion statutory debt ceiling last month, forcing the Treasury to borrow from employee pension funds to keep the government operating. After weeks of pleading from Treasury Secretary John W. Snow, the Senate took the politically unpalatable but economically critical step of raising the ceiling for borrowing to $8.96 trillion. Under House rules, the debt limit was raised last year without a vote when lawmakers approved a budget.
It was the fourth debt-ceiling increase in the past five years, after boosts of $450 billion in 2002, a record $984 billion in 2003 and $800 billion in 2004. The statutory debt limit has now risen by more than $3 trillion since Bush took office.”
And just a few days before, Republicans rejected a proposal to reinstate the PAYGO rules that require new spending and tax cuts to be paid for:
“Senate Republicans on Tuesday narrowly defeated an effort to impose budget rules that would make it harder to increase spending or cut taxes, a move that critics said that showed Republicans were posturing in their calls for greater fiscal restraint.
In the first of several politically charged budget and spending issues confronting Congress this week, the Senate rejected on a 50-to-50 tie a proposal to restore what are known as “pay-go” rules, a requirement that tax cuts and some new spending be approved by 60 votes or offset by budget savings or revenue increases.
Democrats and a handful of Republican allies said that the added discipline was essential to getting a handle on the mounting federal debt and that the rules had been instrumental in reducing red ink before they were allowed to lapse in 2002.
“For those who say they are fiscally responsible, here is your chance,” said Senator Kent Conrad of North Dakota, senior Democrat on the Budget Committee. “You are going to be able to prove with one vote whether you are serious about doing something about these runaway debts and runaway deficits or whether it is all talk.”
But Republicans said the push to add the rules to the budget was a back-door effort to make it harder to extend President Bush’s tax cuts.
“The practical effect of this is to raise taxes,” said Senator Judd Gregg, Republican of New Hampshire and chairman of the Budget Committee.”
Let’s get one thing out of the way. Extending [UPDATE: Failing to extend — it was late] President Bush’s tax cuts is not “raising taxes”. The Republicans enacted tax cuts with some completely silly sunset clauses so that they could pretend that the tax cuts cost less than they did. Very well: since they helped themselves to the lower budget figures when they were debating the tax cuts, let them live with them now, and stop saying that [UPDATE: failing to] enact legislation to extend those tax cuts is “raising taxes”.
Now: why would anyone think that the effect of the PAYGO rules would be to make it harder for the Bush tax cuts to be extended? Why, because if Republicans don’t have the option of continuing to rack up debt that will burden our economy for years to come, they will have to raise taxes. And why is that? Because the tax cuts are far and away the biggest contributor to our budget problems. Here’s a nifty graphic from the Center on Budget and Policy Priorities:
Yep: in 2007, tax cuts for the top 1% of the population will cost more than the entire budget for Homeland Security. Would you rather repeal those tax cuts, or eliminate all our Homeland Security spending? (I know DHS needs to be reformed, but it does not need to be eliminated, along with all other homeland security spending.)
Comparing the CBPP’s figures on the effects of the tax cuts to the CBO’s Budget Projections, I find that in 2007, the projected budget deficit, in its entirety, is projected to be $265 billion, while the tax cuts will cost $240 billion. That is: by repealing the tax cuts we could eliminate about 90% of the deficit in 2007. In 2007, the tax cuts will cost us just under two thirds of all discretionary spending outside of defense and homeland security, so anyone who wants to pay for them by just cutting the odd program here and there will have to think again.
For anyone who feels so inclined, here’s a link to the President’s budget request for FY 2007. Scroll down to table S-3, and you’ll find discretionary spending broken down by department. To balance out the tax cuts, you’ll need to cut enough departments to make the little numbers under ‘2007 Request’ add up to $240billion. You can cut out the entire department of the interior, and save a mere $10.1billion. Add in the Department of Agriculture: another $19.7billion. Conservatives might want to eliminate the EPA: alas, that gets you a mere $7.3billion. It would take a lot of departments to get to $240billion — unless, of course, one of those departments was Defense ($439.3billion).
One last figure: we could retain all the tax cuts, maintain spending, and change the 2007 deficit to a hefty surplus by taking one simple step: getting into our handy time machine, going back in time, and persuading earlier Congresses to pay for their spending at the time, instead of borrowing. Our debt payments in 2005 were $352,350,252,507.90, and the interest payments are rising all the time. (They will rise a lot faster as interest rates go up.) But even if they mysteriously stay static, they’re still well above the annual cost of the tax cuts for any year before 2014. That’s the price we have to pay now for not living within our means in the past.
If we want to get serious about the deficit, repealing the tax cuts and reinstating PAYGO are the only way to do it. But the Republicans in Congress have become the official Party of No: No fiscal discipline, No adherence to their fiscal principles, No thought for the economic situation of future generations, No sense of responsibility to their country, and No concern for those of us who will eventually have to pay for their little spending spree.
“Starve-the-beast” in action.
Okay, I’ll try to be positive. Maybe emphasizing Republican fiscal irresponsibility will work on the campaign trail. Like Kerry, we can start talking about that top one percent when new taxes come up. We’ll show people the budget because most really don’t understand where the money goes.
But I saved this comment from over at Barry Rithholz place:
“Whatever socialist “steps” America takes to milk their productive citizenry like cash cows–which they will have to do ever more aggressively to preserve an unsustainable social model–will simply encourage capital flight, and eventually physical flight.
Costa Rica, Nicaragua, New Zealand, Switzerland, Estonia, Hong Kong… there are plenty of places for an expat to escape the grasping hand, thanks to proliferating rule of law and the miracle of modern communication technology. And there are plenty more potential places with quality of living built in–white sandy beaches, friendly locals and whatnot–who will embrace tax competition and rule of law with open arms when they see the advantages of doing so. …See ya on a sandy beach somewhere” …trader75
It’s gonna be a really tough fight.
Interesting: the 2007 budget I’m looking at has DHS pegged at 33 billion. Or 35 billion, or 41 billion, depending on which part of the budget you look at. I guess after looking, it shouldn’t be surprising that someone is citing $60 billion, somewhere, but I’d guess that’s a statistical outlier.
Treating budget numbers as random variables; that’s depressing.
Republican congressmen love sunsets in the tax code because:
(a) as you state, it makes it look like they cost less (as you mention)
(b) they can constantly beat the drum on extensions, otherwise it’s “raising taxes” (as you also mention); and
(c) it keeps the lobbying $$ flowing as large corporate clients have to come back again and again to extend the provision they got enacted previously.
It all a bunch of simple tricks and nonsense; and causes all sorts of economic distortions and uncertainty (I’ve been in meetings where people spent considerable amounts of time structuring deals around certain provisions because they might not be extended).
Also, shouldn’t the following:
stop saying that enacting legislation to extend those tax cuts is “raising taxes”.
be “not enacting”? Also in a sentence earlier in that paragraph.
There are times when I feel like we’re standing on the railroad tracks, staring at this on-coming freight train of fiscal disaster, but not really believing it will hit. I’m pretty sure that it will hit in time to make sure my generation doesn’t get any Social Security benefits. Enjoy your retirement party, Boomers. Hopefully the rest of us will be able to clean up the mess without mortgaging the house to China.
OMG. . . that graphic makes me want to throw up. TGB, I think it [the train] *will* hit, and not only in time to make sure we non-Boomers miss out on Social Security benefits after working to ensure the comfort of our elders. It’s worse than that: we’re going to get whomped well before we hit retirement age. Which, btw, I’m guessing will be 80 by the time we get there. That’s if there is such a thing as retirement by then, which looks to be increasingly unlikely.
Coming soon to a theater near you: George W. Bush and Bill Frist in: BrokeBudget Mountain!
Perhaps trader75 – the commenter Bob quotes – could explain what harm will be done to the US if Paris Hilton moves to Estonia. Or if trader75 does, for that matter.
An attractive chart of U.S. Govt. spending that made the rounds yesterday.
on the other hand, think what kind of mischief BushCo could get into if they had another $60B to play with.
slarti: I think the Homeland Security figure is for all Homeland Security spending. See here, table S-5 (from the President’s budget.)
Ugh — right you are. Is this one of those times when I have to say that I’m updating, or does it count as ‘correcting a typo’? I’ll say just in case.
“…could explain what harm will be done to the US if Paris Hilton moves to Estonia.”
I presume trader75 plans on taking his money with him. I don’t really understand the dynamics of capital flight crises (Mexico?) but I don’t think they’re fun. I also am not sure that the current account deficits doesn’t mean we haven’t been in capital flight for quite a while, with the real wage declines a consequence.
I think there are too many negatives in that last sentence. I need some sleep.
I’m not a full-on deficit hawk; Max Sawicky is my expert of choice in tax matters. But even he agrees we have to change the trajectory so as to get to lower deficits, at a minimum.
Repeal of the Bush tax cuts for the wealthiest is the most obvious, effective, and societally least painful step we can take in that direction. And yet: one of the two Democratic candidates for U.S. Senate from Virginia actually supports making the Bush tax cuts permanent! That by itself pushed me to contribute and volunteer for his opponent, James Webb.
Yes, that table says rougly $30 billion in a number of different spots, while the char above shows it as more like $60 billion
Not that the chart quibbles change your point in the least, hilzoy, just to be clear. Still, it’s nice to be able to verify when possible, and when one figure is roughly twice as big as it seems that it ought to be, I don’t know what to make of the accuracy of the rest.
OTOH I’m probably just overlooking something that’s completely obvious to everyone but me. If that’s the case, please point it out to me so I can go off and be embarrassed for a while.
Slarti: table S-5 at the link I gave above has requested funding for DHS at $27,776million, but total Homeland Security spending, including all agencies, at $58,282million. I think this is what the chart is getting at — I went through the same thing last night, since I was looking at a different set of figures that broke down spending by department, and thought: wait, what is this? — since in my experience CBPP has always been extremely reliable. That’s when I started reading the footnotes, etc.
Ah, I see. But when you take the DoD portion out, it’s still roughly $30 billion. The important thing, though, is the number has got some basis.
Thanks for pointing out that which you had already pointed out. I wasn’t looking at the right number on that table; I was looking at the bottom line.
As I recall, current (or at least recent) conservative thinking is that:
1) The deficits are no big deal (based on loopy arguments about percentage of GNP);
2) That the Republicans were reponsible for the balanced budgets of the 90s, so they can stop the binging whenever they allegedly want to; and
3) The budget problems are just hangovers from the internet crash and 9/11 (though this doggerel is getting a little long in the tooth).
Sounds like druggy reasoning to me:
1) I am not using that much — I have it under control.
2) I’ve stopped before, so I can stop again if I need to.
3) If I’ve been overdoing it lately, its not my fault.
Take another hit on the bong and keep up the deficit spending.
And what part of this is not pretty much predictable from first principles?
I maintain that the majority of the US electorate is in favor of a modest form of a social state: moderate social insurance programs, moderately progressive taxation, etc. Social Security is enormously popular; Medicare solved a real problem. The scope of such programs that are favored by the majority are slowly increasing: for example, most polls that are reported now seem to show that the majority favor government intervention to assure universal medical insurance coverage. Most members of Congress are aware of this, at least at the level of knowing that running on a record of actually making significant spending cuts on any of the major social programs (say, a 10% real and immediate cut in Medicare payments) is an excellent way to lose an election.
At the same time, there is a minority of voters who are willing to make large campaign contributions in exchange for a promise to cut taxes. Why not — if a million-dollar contribution can buy $5M in tax savings, it’s a rational thing to do. And given large campaign funds, it is possible to find other issues which can yield enough votes to win elections. As the real intent is to deliver on the tax cuts, but not to deliver corresponding spending cuts, the deficits are inevitable when the side funded by the tax-cut contributions are in power.
JFTR I ran some quick calculations using some of my own resources, and the reduction in upper-bracket rate on the top 1 percentile of income, when scaled for increase in tax revenue between the last year I could find top-percentile data for (2003) and 2007 results in approximately $60 billion reduction in tax revenue for that year.
So, if we raise taxes back to the old level just on the upper-bracket (which I’m not all that hard over against, given that we keep coming up with spending plans resulting in 12-figure deficits), what are we going to do about remedying the other 95+% of the deficit?
Slarti: As of 2004, I was for repealing the tax cuts on households making over $250,000. But now, after the intervening spending-like-a-drinken-sailor, I’m for repealing them all. CPBB on the implications:
As I noted above, that would nearly eliminate the deficit. And for most of us, that would be a bargain in the long run.
If I got to get more fancy, I’d also eliminate most, if not all, farm subsidies, Star Wars, and some bits of the commerce department.
I’d also think hard about defense spending — I think it’s way distorted by contractors who hire lobbyists, the practice of putting plants in all sorts of key congressional districts, etc.. Thus I assume that there are unnecessary programs in there — as well as necessary programs, like languages and peacekeeping training, that are not adequately funded in part because they do not involve large plants and huge contracts. Obviously, I odn’t know which they are. One of the many reasons I liked the idea of Wes Clark becoming President was the thought: he knows what the military actually needs, and he knows these distortions very well, and might thus be in a position to do something, without being (as many civilians would be) subject to being mau-maued as soft on defense.
I’d also simplify the tax code, stealing a page from Clark’s tax policy and making it possible for people with uncomplicated financial lives to do without tax returns altogether. (Since all the info needed to deal with such people is already available to the government from W2 forms etc. It would, in my perfect world, be surveyable on the internet, and anyone who wanted to file a return could.)
Slarti,
First, a nit — since the annual deficit is more like $400 billion than $1.2 trillion, we are looking at the remaining 85%, not 95% of the deficit.
The answer is that the tax cuts for the top 1% is not the entirety of the Bush tax cuts, just the bulk of the income tax cuts to individuals. Repealing the tax cuts to corporations, as well as the non-income tax cuts, would bring the percentage into around the 50% range.
As I noted on a thread last year, federal spending is roughly at its average in the post 1960 period, while revenues are at the lowest point of that period. Public perception of these items is nothing like this.
I will add that the bulk of difference between my $400 billion estimate of the deficit and CBO’s $265 billion (and therefore my comment that it will solve half the problem, not 90%) has to do with items not on the government’s books for CBO purposes, such as the War in Iraq and Katrina relief.
Interestingly relativism: less highly progressive == regressive.
As for the projections, I have a hard time believing any projection that’s more than a couple of years. Can we speak to something that’s closer to the present tense?
Besides, CBPP’s tables have personal income tax revenues increasing by about 14% from 2010 to 2011, which sort of points to some change in tax code coming into play.
DTM: yeah, 85%. Dunno what I was thinking.
Slarti: offhand, I’d suspect the change is due to the sunset provisions. Like I said, the GOP cleverly decided to make the tax cuts look smaller by having them expire in various years. So if a tax cut is scheduled to expire in 2011, not extending the tax cuts would, in fact, produce a big jump in tax revenues. — It was a stupid and mendacious thing to do. My favorite part is what Krugman calls the ‘throw momma from the train’ clause: the estate tax has one year of nonexistence, after which it returns in its entirety. If you had wealthy elderly parents, you’d have a very large incentive to see that they died in that year.
Well, then, my point is that you can’t double-book the removal of the tax cut.
And for that reason, I favor rolling back some (OK, most) of the tax cuts, like that one, before they take full effect. Just leave the estate tax in place: as I’ve said before, the likes of me have already made out like bandits, and if we can’t stand on our own two feet by now, there’s really no one to blame but us. Certainly I’d rather see tax cuts go to someone who might e.g. use the money to go to the dentist instead of trying to pull rotten teeth out with pliers, or get a new pair of shoes for her kid.
Slart: who’s double-booking it? We’re just in favor of failing to extend them, and (in my case) rolling them back immediately.
I mean, more specifically, that if CBPP’s figures for 2011 take into account that the tax cuts have been sunsetted, they you cannot then make a case for that rolling back the tax cuts AGAIN would remove the deficit.
Unless you’re making a case for undoing the tax cut twice, in which case never mind.
Slarti: they’re estimating the cost of extending the tax cuts, so I don’t think they are. The President’s budget, by contrast, asks us to score proposals on the assumption that the tax cuts are extended, which (deceptively, imho) makes the cost of extending them come out to be zero.
You can see the CBPP breakdown of tax cuts into ‘enacted’ and ‘extended’ in Appendix, Table 1, at the top.
And I’m counting this as a way of closing the deficit because, in years like 2007, making the (enacted) tax cuts go away would, in fact, eliminate virtually all of the deficit. Repealing them now would let us realize that benefit now. Letting them go unextended would return us to that happy state of affairs once they all sunset.
Ah, I see: apples n’ oranges. I’m looking at OMB tables for projected deficits and CBPP tables for projected revenues.
Sorry.
Ah, OMB projects a deficit of over 350 billion for next year. You’re saying not extending the tax cuts could take care of that completely?
I have to say, being able to check out budget figures for oneself is one of the cosmic wonders of the internet, along with the availability of the entire US code, and candidates’ position papers. — Back when I was a teenage politico, I knew that there were ‘position papers’, and used to live in hope of actually being able to see one for myself, so that I could get into the wonky details. Alas, it never happened. Now they are just a click or two away. Being a policy wonk manque, I am in bliss.
Slarti: “Ah, OMB projects a deficit of over 350 billion for next year. You’re saying not extending the tax cuts could take care of that completely?”
No; but it would take care of $240 billion of it. — I was using the CBO’s projections, here: they project a deficit of $265 billion in 2007. I wonder what accounts for the difference? — Alas, I need to go off and do some work now, but when I return I’ll try to figure it out.
“I wonder what accounts for the difference?”
I shouldn’t guess, but Congress just passed a $90 billion Iraq supplemental.
I have to say, being able to check out budget figures for oneself is one of the cosmic wonders of the internet, along with the availability of the entire US code,
The internet is dreamy that way. Unfortunately, not all of the world’s wonky details have been so liberated.
This week I needed to know what the California Electrical Code had to say about electrical machinery certification (specifically, what else beside UL Approval qualifies as certification for portable shop tools). So I clicked over the the State’s website, found my way to building codes and finally the electrical code itself.
It isn’t actually available online.
Exclusive deal with the code’s publishers. In addition to publishing the code, they also provide some of the standards and boilerplate used by the State in crafting the code. That re-use, apparently, gives the publisher the exclusive. I’m welcome to visit a copy of the Code, for free, in person at any of a number of depositories across the state. Or I can buy one of my own.
Anyhow, carry on.
Still working, but I just thought of the likely explanation for the deficit projection discrepancy: the CBO is required by law to assume that current policies remain in place, including, for instance, not fixing the AMT. I’m not sure that would necessarily impact the 2007 figures, since they do get to consider proposals on the table when they’re doing projections of their effects, and this is after all a projection of the 2007 budget, but it;s a regular source of discrepancies between CBO and other deficit projections, and usually means: go with the other ones.
Silly me.
Slarti: if you want to really get depressed, go to the bureau of the public debt site I linked above, and calculate what proportion of your taxes and mine went to debt service in any given year. (Debt service being, of course, the cost of not being responsible earlier.) Then contemplate the likely rise in interest rates, and its effects on future budgets.