There are only two possibilities, mathematically speaking — either we have a balanced budget, or debt goes up. Can people of all political stripes agree on that?

Here is my question to my friends on the conservative end of the spectrum. Assuming that continuously increasing debt is intolerable, we must balance the budget, right? Okay, how do we accomplish that? There are only two variables in the balanced budget equation: spending and taxation. But you flatly reject taxation as a solution. So that leaves us trying to balance the budget ENTIRELY through spending cuts. With the deficit running at $1.3 trillion annually, we would need spending cuts in that amount to balance the budget. I would be curious just what cuts you have in mind of that magnitude. If you cannot cut $1.3 trillion in spending, and if we cannot raise taxes, then how is it mathematically possible to balance the budget? And if you cannot balance the budget, are you not advocating for for increased federal debt? The math is inescapable.

Here is my question to my friends on the liberal end of the spectrum. This is a breakdown of Obama’s FY2010 budget:

Mandatory spending: $2.184 trillion (+15.6%):
$695 billion (+4.9%) – Social Security
$453 billion (+6.6%) – Medicare
$290 billion (+12.0%) – Medicaid
$0 billion (−100%) – Troubled Asset Relief Program (TARP)
$0 billion (−100%) – Financial stabilization efforts
$11 billion (+275%) – Potential disaster costs
$571 billion (−15.2%) – Other mandatory programs
$164 billion (+18.0%) – Interest on National Debt

Discretionary spending: $1.368 trillion (+13.1%):
$663.7 billion (+12.7%) – Department of Defense (including Overseas Contingency Operations)
$78.7 billion (−1.7%) – Department of Health and Human Services
$72.5 billion (+2.8%) – Department of Transportation
$52.5 billion (+10.3%) – Department of Veterans Affairs
$51.7 billion (+40.9%) – Department of State and Other International Programs
$47.5 billion (+18.5%) – Department of Housing and Urban Development
$46.7 billion (+12.8%) – Department of Education
$42.7 billion (+1.2%) – Department of Homeland Security
$26.3 billion (−0.4%) – Department of Energy
$26.0 billion (+8.8%) – Department of Agriculture
$23.9 billion (−6.3%) – Department of Justice
$18.7 billion (+5.1%) – National Aeronautics and Space Administration
$13.8 billion (+48.4%) – Department of Commerce
$13.3 billion (+4.7%) – Department of Labor
$13.3 billion (+4.7%) – Department of the Treasury
$12.0 billion (+6.2%) – Department of the Interior
$10.5 billion (+34.6%) – Environmental Protection Agency
$9.7 billion (+10.2%) – Social Security Administration
$7.0 billion (+1.4%) – National Science Foundation
$5.1 billion (−3.8%) – Corps of Engineers
$5.0 billion (+100%) – National Infrastructure Bank
$1.1 billion (+22.2%) – Corporation for National and Community Service
$0.7 billion (0.0%) – Small Business Administration
$0.6 billion (−14.3%) – General Services Administration
$19.8 billion (+3.7%) – Other Agencies
$105 billion – Other

Why must we have a 13.1% increase in discretionary spending? Isn’t that the height of irresponsibility in these times? The economy is booming again. The stock market is up by 60% in the past year. The massive job losses  of 2007-08 have ended, and all signs point to job creation around the corner as the economy continues to expand. Surely we can have a budget that acknowledges the economic drag that $1.3 trillion annual deficits, and $13 trillion of cumulative federal debt, have.

No matter how I look at things, I come back to the same conclusion. Ideologues are America’s greatest enemy.

Advertisements

The NY Times is reporting new estimates from the Treasury Department about the extent of the government’s exposure from the TARP programs. Some of the highlights:

  • Treasury Department loans under the TARP program now total $370 billion.
  • Of that amount, a net $328 billion is projected to be recovered. That includes profits on TARP investments. The losses are centered on the TARP bailouts to GM, Chrysler and AIG. Bailouts to banks are expected to be net positive (more gains than losses).
  • The improved picture lowers the estimated deficit for the fiscal year by $200 billion.
  • Most of the exposure comes from the TARP I program from October 2008. Of the additional $500 billion in authority granted in February (TARP II), only $7 billion has had to be expended.

Of course, the article points out that there are other huge government exposures related to rescuing the financial markets, including a trillion dollars of mortgage-backed securities purchased by the Federal Reserve. But looking at just the TARP piece of the government intervention, is it just me, or does this emerging picture demonstrate a vastly more successful TARP program than we first imagined? I wonder if Geithner’s critics are going to be willing to reevaluate his performance.

The WSJ is reporting two bits of good news this morning. One, industrial production rose 0.8% in August, following a 1.0% rise in July. Both results exceeded analysts’ expectations. Fed Chairman Bernanke is now making pronouncements that the recession could be over. The second news item was that inflation remains very low. We have seen the stock markets increase by, what, maybe 35% since the bottom was hit earlier this year?

What I don’t get is how this is happening in the face of various government actions that have garnered scathing criticism from some quarters, and deep concern from many other quarters. The view advanced by many is that towering federal deficits, massive government intervention to rescue the financial markets and auto companies, the stimulus package, and worries over the cost of the healthcare reform legislation should be shaking our economy to its core.

 But that just doesn’t seem to be happening. How do we make sense of this? Do we trust the markets to give us an objective assessment of our actions? Were the doomsdayers off base? Did it turn out that the ocean of our economy was big enough to absorb and dilute the economic pollution from these governmental actions? Whatever the explanation, critics of the Administration need to take note of these positive indicators.

I have been having a very thoughtful exchange with another blogger about these tea parties, and what they represent. It finally dawned on me why I am vaguely mistrustful of the tea party movement, even though I support its basic message. I suspect I differ from most tea-party folk in terms of our understanding of what the ramifications of such a movement will mean.

Much anger is directed at frivolous, wasteful and excessive spending. By all means, let’s light the torches and demand an end to all that. But, once all of that has been taken away — all the Congressional perks, all the earmarks, all the unambiguously pork projects — what do we have? An annual deficit of maybe $700 billion instead of $1 trillion.

People have to be ready for the cold, hard reality that this means large-scale reductions in government services. This may mean that Social Security and Medicare start at 68, not 65. And that grandma has to live in the spare room instead of the nursing home, due to Medicaid cuts. And that I have to fork over $700 for a laptop for my highschooler, because the schools don’t have enough computers. And that expressways become tollways because of cuts in federal transportation funding. And that food plants are inspected less often. And that national parks are closed from November through March. And that we withdraw precipitously from Iraq and Afghanistan. And that the cost to ride Amtrak or mail a letter goes up by 50%.

The list is endless, and more importantly, it isn’t painless. In fact, it will be extremely painful.

Government may be broken, but WE broke it. Candidates told us we could have all these services, and pay less in taxes, too! Glory be! Sign me up!!! We got exactly what we asked for.

There was no betrayal, except of ourselves, by ourselves. We are not the victims, we are the perpetrators. And the pain of restoring order will be our pain, not theirs. I pray that people get that.

I hope that people are rallying for the right things and with the right motivations. It sure would be unseemly if it turned out that most people at yesterday’s “tea parties” were driven solely by the personal desire to pay less in taxes (who doesn’t want that?!!!), and not by a desire to see our country embark on a fiscally responsible future.

What does “a fiscally responsible future” actually mean, when it comes to the federal government? More than anything else, it means that government live within its means. And, as much as any of us hate to admit it personally, that is going to mean we end up contributing more to the government, not less.

Why is this? Our government runs vast deficits. Deficits accumulate into debt. This is not conservative. This is no different than you or I living beyond our means while our credit card balances grow ever larger.

Our federal government essentially adhered to conservative fiscal principles until 1986. Conservatives may not have liked government adding Social Security in the 1930s, massive road construction projects in the 1950s, or Medicare in the 1960s. But, the government paid its bills. Whatever we as a society decided our government should do, we paid for it. Between 1932 and 1980, the top federal income tax rate ranged between 63% and 92% (with a brief bump to 94% during WWII). It was a period of tremendous growth and prosperity in America. When Jimmy Carter left office at the beginning of 1981, federal debt stood at a modest $900 billion.

Then came the dawn of the Age of Tax Cutting. The top federal rate was cut to 50% in 1982, and again to 28% in 1988. It has ranged between there and 39.6% ever since. This would have been a wonderful expression of fiscal responsibly, except for one ugly fact: federal spending continued to rise unchecked: the Reagan years +7.6% annually; Bush 41 +6.7%; Clinton +3.3%; Bush 43 +6.2%. But the federal revenue is not there to support it. Beginning in the 1980s, spending up, taxes down: the federal government no longer could pay its bills.

How have we gotten by? Debt. Debt and more debt and more debt. Since 1980, our federal debt has exploded from $900 billion to $11 trillion. Our pandering politicians decided to further their own interests at the expense of our country’s financial future. They started giving us tax cuts, the political equivalent of distributing crack on the playground. It feels great to pay less taxes, and we can turn a blind eye to the giant pile of debt that builds up.

Now we have reached the point where the current deficits are so steep, and the accumulated debt is so high, that only more taxes can ever address the issue. Ask yourself this: Do you think the political leaders you sent to Congress are going to cut spending by such an astonishing amount that it balances the federal budget? And even if by some miracle that happened, what do you think is going to happen to the $11 trillion that already has been borrowed? Do you think the US is going default on its debt? No. You have to pay it. I have to pay it. There is no Chapter 7 for our government.

For these reasons, I caution people about their desire for tax cuts. Cutting taxes is our dessert. First, we have to eat our vegetables. First, we have to balance our budget and pay back our debts. Dessert will not be served for a long time.

This is my open letter to the Republican Party. I need to know if you are insincerely pandering as a minority party, or if you are being serious this time.

Republicans in Congress and elsewhere have been launching a furious attack on Obama’s economic crisis plans, and his budget proposal. There are, apparently, grave concerns about the budget deficit, the level of government spending in relation to the economy as a whole, and to the inevitable build-up of the federal debt. Bloggers and the radio folk add a polemic element, calling all of this “socialist” or even “Marxist.”

Should we expect and hope that the economy will right itself over time? There is some credible thinking along those lines, but the vast majority of credible economists conclude that government intervention is necessary to shorten the duration and lessen the severity of the recession.

Should we cut taxes? Is there an argument to be made that it is in the nation’s best interests to increase the budget deficit and increase our federal debt by reducing federal tax receipts?

Should the government intervene in a more targeted way? For example, is there something narrower that should be done to end the slide in home prices, and cope with the attendant avalanche of foreclosures? Something to prompt liquidity in the credit markets? Something to ease the hardships being felt by the unemployed, the underemployed, the business owner clinging by his fingernails?

Can you explain to me the Republican budget plan that was recently announced? [http://www.gop.gov/solutions/budget/road-to-recovery-final]. If we were to vote for you now, or next time, we will we get:

  • …a budget that “cut(s) overall nondefense spending by reforming or eliminating a host of wasteful programs deemed ineffective by various government entities”?
  • …”a simple and fair tax code with a marginal tax rate for income up to $100,000 of 10 percent and 25 percent for any income thereafter, with a generous standard deduction and personal exemption”?

You controlled the White House and Congress from 2001 through 2007, and you never proposed any of this.

Your budget document calls for reducing taxes, reducing deficits and reducing federal debt. I do not understand. Doesn’t reducing taxes add to deficits and therefore debt? On the subject of debt, you write, “The debt held by the public will exceed 50 percent of GDP this year and increase to 82 percent of GDP ten years from now. History tells us what governments do with such levels of debt and what happens to their citizens.” In fact, almost $9 trillion of the current $11 trillion of federal debt came under Republican presidents. Is this a change of heart on your part?

Can you explain to me your party’s support of bailouts in September 2008, and your opposition to them now?

Finally, can you provide me with an honest reckoning of this: How much of the Obama spending is an unfortunate necessity, arising from the huge spending increases, deficit and debt growth, off-budget spending on the Iraq war, and credit market oversight laxness of the last ten years?

In short, convince me that your President right now wouldn’t be doing exactly the same things, given current economic conditions and your party’s own history of reckless spending.

Thanks. I’ll be looking forward to your reply.

Just a simple observation today. Whatever else it is or is not, the stimulus plan is not a waste of our tax money. This money was never taxed from our pockets. We never had it to begin with. It is deficit spending, pure and simple — which is precisely why it is stimulative in the first place.