Network News

X My Profile
View More Activity

Paul Ryan's budget proposal does not balance the budget

When Rep. Paul Ryan sent his alternative budget proposal to the Congressional Budget Office to be scored, there was a bit of a caveat: The CBO doesn't estimate revenues. That's the job of the Joint Committee on Taxation (yes, Washington is weird). So the CBO and Ryan's staff agreed to assume that under Ryan's plan, tax revenues remained at about 19 percent of GDP. That's within the historical range for the American tax system, so it seemed a harmless assumption.

The problem is that it wasn't accurate. The Tax Policy Center ran their own analysis and, well, I'll let them explain:

In his provocative Roadmap for America’s Future, Representative Paul Ryan (R-WI) figures that his broad tax code overhaul would eventually generate about 19 percent of Gross Domestic Product in revenues. But the Ryan plan would produce hundreds of billions of dollars-a-year less than that—about 16.8 percent of GDP—a decade from now, according to new Tax Policy Center estimates. Moreover, the plan would give a huge tax cut to the wealthy, while cutting taxes by little or nothing (and in some cases even raising taxes) for low- and middle-income people.

As a result, Ryan would likely fall far short of meeting his goal of balancing the budget and paying off the national debt by 2080, even if government spending were slashed to 1951 levels as he proposes.

More here. This isn't terribly relevant for the parts of it we discussed (which were primarily Ryan's changes to the health-care system). And Ryan still deserves enormous credit for being willing to specify exactly how he would control entitlement spending. But it's a reminder that even draconian, unthinkable limits on spending won't be enough to balance the budget. Revenues -- likely at much higher than 19 percent of GDP -- will have to be part of the picture, too.

Update The Ryan camp responds, though it's not clear to me whether they disagree. "If needed," they say, "adjustments can be easily made to the specified rates to hit the revenue targets." And it seems like those adjustments will be needed. Citizens for Tax Justice e-mails to say they also ran the numbers on Ryan's tax changes, and came up with similar results to the Tax Policy Center's analysis.

By Ezra Klein  |  March 10, 2010; 7:08 AM ET
 
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Reconciliation
Next: Taxes don't have to be hard

Comments

I find it hard to believe the "CBO doesn't estimate revenues".

I've read reports from them that clearly analyze the long-term economic impact of tax raises and tax cuts, such as Bush's tax cuts. It is impossible to do that without analyzing resulting revenues.

If they didn't analyze revenues in the Ryan plan, it was maybe because the CBO was trying to make Ryan's plan look better than it was--in other words, it was a big fat political favor meant to sway public opinion away from progressive policies. I detect yet another institutionalized pro-GOP favoritism.

Posted by: Lomillialor | March 10, 2010 7:32 AM | Report abuse

Congratulations Congressman Ryan. You have promoted the party of NO from the party of no ideas, to the party of one bad idea. This is monumental improvement. Keep up the good work.

Posted by: elijah24 | March 10, 2010 7:42 AM | Report abuse

Ezra,

so you're basically saying we need to do MORE if we truly care about balancing the budget.

So how does it compare to the President's and Democrats proposals that include up to 900 billion in interest payemnts on the debt come 2080.

Posted by: visionbrkr | March 10, 2010 8:00 AM | Report abuse

vision

The debt projectory and the resulting interest payments were created by Republicans, not Obama. Obama is just trying to deal with it. The Dem health plan bends the debt projectory in the right direction, but much more work (spending cuts and tax raises) will be needed to restore fiscal sanity from an era of Reagan's supply-side devastation which has been characterized by greed, borrowing and spending.

The dem health plan is the first serious proposal since 1994 to reduce deficits. In the meantime, the GOP has done nothing but propose more borrowing and spending, and Bush alone has doubled the national debt.

Posted by: Lomillialor | March 10, 2010 8:07 AM | Report abuse

So Ryan has a foolish plan that has no chance of happening and he still lies about what it would do? And he deserves credit? Keep buttering those sources Ezra, you'll be a model Post employee soon enough!

Posted by: endaround | March 10, 2010 8:12 AM | Report abuse

Do higher taxes lead to less economic growth, perhaps even economic shrinkage?

Do lower taxes lead to more economic growth?

If the economy is bigger in a few years (Ryan's plan) isn't that better than a smaller economy (Obama's plan).

Why has the USA outperformed Europe for 200 years? Because we avoided these hard core socialist policies that Obama & Pelosi are forcing down our throats!

Hope is defined by the absence of a reliable deterministic approach to solve a problem. This administration is all about hope. Hope is not leadership---its reckless manipulation of emotion.

Posted by: FastEddieO007 | March 10, 2010 8:43 AM | Report abuse

I really can't fathom EK's attraction-repulsion to Ryan. Very, very weird to keep presenting the most extreme and dangerous views as sober and serious. You don't see him granting the same platform to, say, Kucinich or Hamsher on the left (and as a cancer survivor at least Hamsher has had some personal experience with the healthcare crisis to color her dubious positions).

Posted by: scarlota | March 10, 2010 8:48 AM | Report abuse

The lid is off at the NY Times where a writer has unwittingly discovered that Obama's proposal ultimately leads to the insolvency of insurance companies (i.e. SIngle-Payer Trojan Horse):

http://www.nytimes.com/2010/03/09/health/policy/09rates.html

As if we all here didn't already know.

This is by design, how Jacob Hacker's plan works....we all have seen the video, and somehow the Americans who recognize and are repulsed by the sheer cynicism and duplicity of this whole strategy are characterized by Ezra Klein as being the "crazies".

Go drink your Kool-Aid Ezra!

Posted by: FastEddieO007 | March 10, 2010 8:59 AM | Report abuse

Ezra,

I think this is a fair critique. I think many small government libertarian types are willing to accept higher levels of taxation if that is required to be fiscally responsible. The problem is that Ryan seems to be the only pol from either party willing to seriously address the issues needed to restore fiscal sanity. I would bet that if you told Ryan that his proposed tax rate had to rise to 24% in order to balance the budget, he would support it.

But Ryan is absolutely correct to make entitlement reform one of the major platforms of his proposal. You cannot be serious about fiscal responsibility unless you address that issue. He is also correct to have a laser focus on the effect of policy and tax rates on economic growth. So many of the progressives that comment here imply that the level of taxation has no bearing on economic growth. Obama's own economic advisor, Christina Romer, has proven in her research the insidious effects of high marginal tax rates affect on growth. Large intrusive government dampens capital investment and the propensity for risk taking necessary for entrepreneurial activity. It crowds out private capital markets and private solutions to problems and needs that otherwise would be addressed voluntarily by market forces. Progressives rarely seem to want to take these kinds of trade-offs seriously.

Steve

Posted by: FatTriplet3 | March 10, 2010 9:04 AM | Report abuse

http://www.nytimes.com/2010/03/09/health/policy/09rates.html
~~~~~~~~~~~~~~excerpt
"You are not necessarily helping the consumer if you keep rates artificially low," Ms. Praeger said. "What’s worse for the consumer: having a premium increase or having to pay the full amount of a medical expense because the company is out of business?"

~~~~~~~~~~~~~~~

Or to extrapolite a little:

Which was better for the workers at General Motors, the status quo, or their Union bosses negotiation of huge pay raises and healthcare benefits eventually leading to GM's insolvency?


Or to extrapolite alot:
Who is better off, a poor American today using Medicaid? or a poor American tomorrow being sent to Putin, Khameni, and Chavez' torture colonies?

Posted by: FastEddieO007 | March 10, 2010 9:05 AM | Report abuse

Lomillialor,

Guess what. The days of getting away with blaming Bush and Reagan are over. In Bill Clinton, the Democratic party had a leader that was serious about fiscal responsibility. Obama, on the other hand, raised government spending by 34% in a single year. According to the administrations own figures the budget deficit will rise to 11% of GDP, a figure that hasn't been seen since WWII. Obamacare will not bend the curve and reduce costs. The growth of Medicare from 1965 to 1990 was 792% higher than Congressional projections from when the legislation passed. Maybe these predictions will be better. Maybe they will only be off by 200%. A trillion here, a trillion there, pretty soon your talking real money.

Steve

Posted by: FatTriplet3 | March 10, 2010 9:17 AM | Report abuse

Steve

CBO data proves that 4/5 of the current deficit is due to Bush's policies. Only 1/5 of it is due to Obama-created measures designed to fight the recession Bush caused.

My reminder that the GOP created virtually all of the national debt was in response to propagandists here on this board like visionbrkr and FastEddie who repeatedly spew lies and nonsense that Obama is bankrupting the country and is a socialist.

Being reminded of who actually created the debt and caused the recession is always important in an age where the mainstream media assists these liars.

Frankly, your claim that Obamacare will not bend the curve goes directly against the CBO report that says it will. This claim of yours proves you are deluded or misinformed.

Posted by: Lomillialor | March 10, 2010 9:27 AM | Report abuse

BTW Steve,

Medicare was not designed to balance the budget. Johnson intentionally did not want to score medicare so he could get it passed. He assumed incorrectly that later admins/congresses would properly manage the budgets.

The current plpan, however, does have mechanisms in place to pay for the features. That's the difference.

If future politicians decide to sabotage the current plan, they are free to do so, despite the funding mechanisms. However, if they do that, then they are incompetent and will destroy us whether or not we enact health reform. In fact, projections are WORSE without this reform than if we do it, so we really have no choice but to try. Failure is guaranteed without reform, but success at least has an outside chance with reform.

Posted by: Lomillialor | March 10, 2010 9:41 AM | Report abuse

Lomillialor -

Despite your lies, we all know whose recklessness caused our current economic pain:

http://www.kfor.com/kfor-timelinefreddieandfannie-9080306,0,5755717.story

Fortunately Republicans can spend less political capital fighting for human freedom in the middle east, and devote their energies to telling the truth about Democrats and stopping them on their path toward the insolvency of human freedom on planet earth!

Posted by: FastEddieO007 | March 10, 2010 9:43 AM | Report abuse

Here's a link that outlines the proof that the deficits (current and projected) were mostly inherited from Bush....

http://www.cbpp.org/cms/?fa=view&id=3036&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cbpp%2FfYJq+%28Center+on+Budget+and+Policy+Priorities%29

Posted by: Lomillialor | March 10, 2010 9:46 AM | Report abuse

" In fact, projections are WORSE without this reform than if we do it,"


Don't worry, in November once Republicans take over congress they will vote in favor of the provisions that reduce spending, namely cutting $500 billion of Medicare.

Only guess what, instead of spending it on a new overpriced entitlement, Republicans will use the money to pay for-----you guessed it---->Medicare.

Posted by: FastEddieO007 | March 10, 2010 9:46 AM | Report abuse

How about that obama budget?
historical!
amazing how raising deficits
seems to reduce deficits?
the media is an arm of the executive
branch of government.
thanks.

Posted by: simonsays1 | March 10, 2010 9:49 AM | Report abuse

FastEddie

We had surpluses when Bush came into office, and Bush then went and doubled the national debt in 8 years.

Reagan and the two Bushes created over 82% of the entire national debt as of Jan 2009, and their legacy will be giant deficits for decades to come unless we cut spending in all programs (including DOD, Nasa, and entitlements and vastly increase taxes).

Retired veterans like me were denied VA health benefits in 2003 after Bush signed a law to restrict veterans based on means testing, the purpose of which was to help offset some costs for his 2003 tax cuts for the wealthy.

Obama's health plan is the first plan voted on in Congress from 1994-2006 to reduce the deficit, despite the fact the GOP has owned the Congress since 1994 and had Bush in the WHite House for 8 years.

And now Dems are writing proposals to ban all earmarks, first time it will ever happen.

When Obama recently tried to get a bipartisn deficit reduction commission in place, conservative Dems and all Republicans said screw off.

Posted by: Lomillialor | March 10, 2010 9:54 AM | Report abuse

simon

I tried finding that quote, but the closest I came to was this:

Dick Cheney : "Reagan proved that deficits don't matter."

And indeed, Reagan and the two Bushes proceeded to bankrupt the USA.

Posted by: Lomillialor | March 10, 2010 9:57 AM | Report abuse

Lomillalor,

You can blame whoever you like but the point is the path we're on now is unsustainable. And if you want to go at it, it took Bush 8 years to do his damage. Obama's doing his in one and his figures don't even include HCR when all the side deals are taken out including the doc fix it then is not deficit neutral. Anyone that believes you can add 30 million people to coverage who are not receiving treatment now and reduce costs without taking any of the major cost players to task are just fooling themselves and trying to fool the taxpayer. Sorry, I'm not buying it.

Posted by: visionbrkr | March 10, 2010 9:59 AM | Report abuse

Again, Exra Klein gives "credit" to Paul Ryan for "draconian" cuts on entitlements in order to slash the budget. The conservatives on here need to give "credit" as well: if Ezra Klein and Barack Obama are at all representative, they don't make liberals like they used to.

Now, apparently, we're all supposed to agree that cutting the deficit is supposed to take priority over people's health. Sorry, I don't agree. Every piece of evidence we have informs us that our children will be healthier and will live longer than we will. Meanwhile, thousands die prematurely in this country right now due to: lack of health insurance, fine particle pollution from coal plants, from stress amd mental illness, from violent crime, etc. All of these issues are more important than the deficit. The deficit can only become more important when it rises to the level that we can predict that *it* will itself cause thousands to suffer and die in this country. That would require a crisis of confidence so extraordinary that no modern industrialized country has ever experienced it - not South Korea after the Asian Economic Crisis, not Argentina a decade ago if you're flexible enough to call it industrialized.

Posted by: therapsid1 | March 10, 2010 10:01 AM | Report abuse

Some proof about how Reagan and the Bushes bankrupted us.... All it takes is an idiot or a liar to deny the basic facts in this data and the charts...

http://zfacts.com/p/480.html

http://en.wikipedia.org/wiki/United_States_public_debt

Posted by: Lomillialor | March 10, 2010 10:04 AM | Report abuse

FastEddie,

Oh come on now, you know insurers are raking in the profits. If the Feds regulated premiums without regulating costs it'll just cut into their profits, no? We wouldn't wind up with an AIG situation in health insurance would we?

Would we????

Posted by: visionbrkr | March 10, 2010 10:06 AM | Report abuse

Three reactions.

First, revenue projections (particularly as a share of GDP) 10 years out are subject to numerous assumptions. If one were result-oriented entering the analysis, the flexibility afforded by assumption options is certainly enabling.

Second, the most significant contribution Ryan's plan makes is on the spending side, offering a serious proposal to reform entitlements. As Willie Sutton said (in his case, about bank robbery), that's where the money is. Politicians, sensitive to future beneficiaries and election cycles, who refuse to address the unfunded liabilities created by current law with respect to future entitlements are the chief reason we are embarked on a fiscally unsustainable course, one that introduces massive uncertainty into the economy. Unsustainability means things will change; lack of guts in bringing future obligations into line with reality means we can only guess about what those changes will look like.

Third, if by chance Ryan's proposed tax scheme is flawed or calibrated incorrectly it can be (a) revised to eliminate the flaws, or more likely (b) re-calibrated to generate revenues needed for the much more modest future spending entailed by his spending-side reforms.

In view of these obvious points, none of which Ezra notes, I can't help but think that with this post, Ezra has become the ultimate flack for Democratic talking points that seek to discredit Ryan's Roadmap without engaging in any serious discourse about alternatives.

Posted by: rboltuck | March 10, 2010 10:09 AM | Report abuse

memo to liberal bloggers, klein, firedoglake, etc. from communications office: Okay, the time for arguing with Ryan is over. As the boss says, "the time for talking is over", or another one of his quotable sayings: "I just don't want people talking". What you need to do now is find out the rent arrangements, or purchase arrangements of Ryan, just like we did for Stupak. Then have Maddow sneer about it on her show. One of the most precious and brilliant statements of our leader: I just don't want people talking anymore.

Posted by: truck1 | March 10, 2010 10:10 AM | Report abuse

Lomillialor,

well when you fudge the numbers sure anyone can look good.

http://www.cnsnews.com/news/print/45528

Posted by: visionbrkr | March 10, 2010 10:11 AM | Report abuse

vision : "Obama's doing his in one..."

That's pure propaganda.

The damage we currently suffer from is debt and revenue legacy of the supply-siders (Reagan and the two Bushes).

The CBO report says a failure not to reform health care costs will further bankrupt us. Obama's plan has been scored by the CBO to reduce debt over several decades, not increase it.

Obama has indicated willingness for a bipartisan debt reduction commission, yet no conservatives in either party have accepted it.

Ryan's plan was never brought to a vote in a GOP controlled Congress or White House. It is simply a ploy to delay Dem action now so the GOP can benefit politically.

The "path" you speak of is not Obama's path, it is the path set by Reagan and strict adherence to supply-side, voodoo economics that relies on uncontrolled spending and borrowing and tax reductions.

Since 1994, Dems have attempted to pay for their spending (as well paying for the GOP's as well).

Posted by: Lomillialor | March 10, 2010 10:11 AM | Report abuse

This is definitely a fair point to make Ezra. However, I'd imagine it would be easy enough for Paul Ryan to tweak his take code to get another 2.5% of GDP if he really wanted to do so.

One of the critiques in the report was that by exempting capital income from taxation, you create an incentive to 'call' labor income capital income, shifting income from the 25% tax bracket to a 0% bracket. While I'm sure Ryan would hate to do this, if he put a flat tax on corporate income of 25%, he'd eliminate that incentive to report labor income as capital income while raising lots of revenue from corporations. If his plan was on the threshold of becoming reality, I'm pretty sure he'd accept a flat corporate tax of 25% if it got him to his 19% of GDP target. I'm a bit surprised that Ryan would completely exempt capital income from taxation in any case - economic theory suggests that taxes on capital are best kept low, but distributional fairness would suggest that capital tax rates be at least equal to those faced by the lower middle class.

Posted by: justin84 | March 10, 2010 10:14 AM | Report abuse

vision

Just because you can link to a lie, it doesn't disprove accurate numbers.

Instead of blanket statements that something is fudged, please specify which number I linked to is fudged or which claim I made is a lie.

Posted by: Lomillialor | March 10, 2010 10:14 AM | Report abuse

Two things Progressives continue need to debunk:
1. Tax cuts always result in growth and subsequent addition to tax dollars and
2. You can balance budget without increasing taxes.

These 2 myths and lies of GOP must be destroyed if this country is to have any chance of survival in next few decades. Elections need to be fought on this debate.

Bloggers like Ezra - keep drilling, we have really a long, long way here.

Posted by: umesh409 | March 10, 2010 10:18 AM | Report abuse

vision : "well when you fudge the numbers sure anyone can look good."

And that has been the exact strategy by the GOP to make Reagan and the Bushes look good.

Do you understand that most of Obama's budget projections are caused by policies and laws in place when he took office, and that he has indicated he will work to ensure those dismal projections will not actually happen?

Are you so foolish to believe any President can reverse 30 years of deficit spending and borrowing in one year or even one term?

I can not predict whether Obama will actually make progress on reducing the projections, but I can for certainty explain that he was not the one who put us in this position.

Had Bush been elected to a third term, his projections would be even worse.

Posted by: Lomillialor | March 10, 2010 10:20 AM | Report abuse

hi visionbrkr - I imagine you are being satirical, but in any event, keep in mind the profit margin of all healthcare insurance companies in the USA are less than 5%.

Now that doesn't stop Democrats and Obama-Kool-Aid drinkers from characterizing a change from a 2% Margin to a 3% Margin on a given year as a "50% INCREASE IN PROFITS FOR BLOODTHIRSTY SUBHUMAN INSURANCE COMPANIES"....Ezra, how do you phrase it?...I was trying my best to quote Secretary Sebillius from MTP this weekend....did I get the talking points right....

Posted by: FastEddieO007 | March 10, 2010 10:21 AM | Report abuse

1. Tax cuts always result in growth and subsequent addition to tax dollars

2. You can balance budget without increasing taxes.

I could not have said it better. Thanks!

Posted by: FastEddieO007 | March 10, 2010 10:23 AM | Report abuse

Lomillalor,

How about this one from your liberal MSNBC:

http://www.msnbc.msn.com/id/35178623


Obama knows he's putting us on an unsustainable path which is why he's proposing the deficit commission. Not that it'll do much good because politicians of both sides worry too much about being re-elected and not enough about cutting costs.

If you choose not to see something that's right in front of your face then its your fault when the inevitable happens.


And if you bothered to read the link it didn't say that I said it was fudged. The CBO said it was off. But hey its only off by 2.3 Trillion. No biggie. Maybe fudged is the wrong word because that implies it was intentional which I don't think it was.

The point of the matter is that entitlements need to come into line especially considering the baby boomers retirements and Medicare costs looming. Its going to be a whole lot worse before it gets any better.

Posted by: visionbrkr | March 10, 2010 10:23 AM | Report abuse

In between Clintons Internet bubble/9-11 Recession and Barney Frank's subprime meltdown, Bush helped lead a very prosperous and robust economic growth.

During THAT time, the tax burden of the USA shifted heavily in onto the backs of the wealthiest Americans....


http://online.wsj.com/public/article_print/SB114670305012743294.html


~~~~~~
In the aftermath of the Bush investment tax cuts, the federal income tax burden has substantially shifted onto the backs of the wealthy. Between 2002 and 2004, tax payments by those with adjusted gross incomes (AGI) of more than $200,000 a year, which is roughly 3% of taxpayers, increased by 19.4% -- more than double the 9.3% increase for all other taxpayers.

Between 2001 and 2004 (the most recent data), the percentage of federal income taxes paid by those with $200,000 incomes and above has risen to 46.6% from 40.5%. In other words, out of every 100 Americans, the wealthiest three are now paying close to the same amount in taxes as the other 97 combined. The richest income group pays a larger share of the tax burden than at anytime in the last 30 years with the exception of the late 1990s -- right before the artificially inflated high tech bubble burst.

Millionaires paid more, too. The tax share paid by Americans with an income above $1 million a year rose to 17.8% in 2003 from 16.9% in 2002, the year before the capital gains and dividend tax cuts.
~~~~~~

Posted by: FastEddieO007 | March 10, 2010 10:29 AM | Report abuse

FastEddie,

yes i was being sarcastic. Good talking point there too. Maybe Dems and Sebelius would be better suited in having the conversation with doctors, pharma, medical device manufacturers etc than insurers.


It'll be interesting to see Sebelius speaking to AHIP today. I'm sure we'll see more fireworks.

Posted by: visionbrkr | March 10, 2010 10:31 AM | Report abuse

Obama's Deficit Commission is a rouse to further sabotage long-term economic growth with bigger tax increases.

Tax increases shrink the size of the economy. If any of you ran a business you would know this!

Posted by: FastEddieO007 | March 10, 2010 10:32 AM | Report abuse

Lomillialor,

You will find no defense of Bush from me. You will find a defense of Reagan in the person of Bill Clinton. Deficits did climb dramatically under Reagan but not because of increases in entitlements. Reagan's were not structural deficits but were largely caused by a military build-up. Bush's were structural deficits and those structural deficits have been made much, much worse by Obama. Belief in the CBO projections regarding Obamacare are just wishful thinking. CBO dramatically miscalculates the incentive effects in the bill which will lead to much higher premiums and much higher expenditures on subsidies. I know what the CBO says. I know Ezra defends that scoring. The CBO is just wrong. This weekend I made a $50 bet with a friend on how much higher expenses will be for this legislation. I said that in 10 years expenses will be at least double current projections. I also gave him 2 to 1 odds. The only reason it wasn't a $1000 bet was because he wouldn't take it.

Steve

Posted by: FatTriplet3 | March 10, 2010 10:34 AM | Report abuse

It's fair to admit both Democratic and Republican administrations have their hands dirty with regard to our fiscal situation.

It's really hard to defend the fiscal record of the Bush administration. The Bush-era prescription drug entitlement program had the fiscal effect of roughly doubling the social security unfunded liability, and currently accounts for roughly 15% of our $107 trillion worth of unfunded liabilities. From a fiscal responsibility perspective, this was an epic fail - outside of the regular budget deficits incurred during the Bush years.

http://www.fms.treas.gov/fr/09frusg/09frusg.pdf (see pp 157-158)

Also, it is difficult to contest that the FY10/FY11 budget deficits had a lot to do with the Bush structural deficits combined with a weak economy. That being said, it's alarming that we can't even come close to balancing the budget on paper by 2018-2019 (assuming steady economic growth, as the budget projections do). Balancing the budget by 2018 is child's play - it will be ever harder to do so as Medicare, Social Security and interest on the public debt continue to inflate outlays faster than the economy can grow. By failing to get the budget in order sooner, not only are taxes going to have to go up to fund spending, but they'll have to go up by more to cover all of the extra interest.

Obama should break his 'new taxes on 95% of Americans' pledge, a'la Bush 41 (who doesn't seem to be getting enough credit on fiscal conservatism from the comments here), and raise taxes (on everyone, not just the lower 95%) so that we can actually balance the budget in the medium term. I'm not exactly a huge fan of the current government spending mix and its trajectory, but whatever mix we end up with we should pay for it.

Posted by: justin84 | March 10, 2010 10:48 AM | Report abuse

16.8% of a strong GNP is far better than 19% of an anemic one. The real-world experience of recently democratized states demonstrates that maximum revenues are generated at flat tax rates of 15%-20%. The Laffer curve is alive and well.

There is a limit to the amount of tax revenue the economy can yield. Taxes are already above point of declining returns. If tax RATES are raised still further, GNP will suffer greatly. The most productive workers (the "bourgeoisie") will produce still less goods & services. Excess regulation and a complex tax code further impairs productivity and GDP. The result is stagflation.

Then the State must choose whether to compel output (ala Marx/Lenin), or decrease tax rates & regulation, or suffer insolvency. Its like a person with a substance problem who can't be helped before reaching rock-bottom. A democracy may not compel its citizens to work for its benefit.

Ultimately, Federal & state governments must ultimately limit their functions to only the things that cannot be performed by the private sector; and drastically reduce the number of government employees and their compensation.

Oh, yes, all governments should be audited by independent auditors in accordance with customary accounting principles.

Why are we not surprised that the inside-the-beltway elements (including WaPo and the hardly-objective Tax Policy Center) are congenital tax-raisers?

Posted by: Miner49er | March 10, 2010 10:52 AM | Report abuse

So long as our country remains a capitalist one, we must remember we have the capability to grow the economy to a bigger size than it is currently.

We should raise taxes eventually, but to get out of this recession we must keep tax rates as low as we can---leaving money in the hands of the people who are exploiting economic opportunities with the greatest success (i.e. paying the highest tax rates) is the most efficient way to grow the economy up to a point where we have a chance at paying down our current debt.

To increase taxes at a time like this would be like cutting off our nose to spare our face.

Posted by: FastEddieO007 | March 10, 2010 10:56 AM | Report abuse

FastEddie,

We have been cutting taxes since 2003 and we saw how it has created debt and recession.

Steve

Please backup your claim that future deficit projections are due more to Obama than to 30 years or borrow and spending and tax cutting.

Much of the future deficit projections are due to things out of Obama's control, such as loss of revenues due to the recession and out of control costs.

I too don't take stock in CBO predictions. They have never been right. However, as I said, the plan is the first since 1994 to include mechanisms in it to fund it and to reduce some costs. Just because you might rightly claim that future politicians might sabotage the current plan, doesn't mean we shouldn't try to implement needed change. By your logic we should do nothing, and as many have pointed out, doing nothing will GUARANTEE to make things worse.

In any case, don't scold me for responding to propaganda with reminders of what actually happened.

Posted by: Lomillialor | March 10, 2010 10:59 AM | Report abuse

"Much of the future deficit projections are due to things out of Obama's control, such as loss of revenues due to the recession and out of control costs."

To someone who reflexively thinks raising tax rates automatically bring in more revenue and have no significant consequences to economic growth, its easy to understand how you think "loss of revenues due to the recession".

But its not out of Obama's hands---he can end the recession by recommitting to the principles that have built us back up from recessions in the past. But focusing on cap & trade and a new generous healthcare entitlement are precisely the wrong priorities for ending this recession.

To the extend that President Barack Obama is too ideologically rigid to consider dropping the cap & trade bills and the new this new healthcare entitlement is to the extent that ending the recession is out of Obama's control.

Posted by: FastEddieO007 | March 10, 2010 11:11 AM | Report abuse

Tax Policy Center?!?!

Aren't they the "post-partisan" President's "non-partisan" experts.

I'm putting terms in quotes that apparently are used by liberal journalists such as Ezra Klein to indicate "sarcasm".

Get it, "post-partisan" = "non-partisan" = "sarcasm" !

Posted by: FastEddieO007 | March 10, 2010 11:16 AM | Report abuse

FastEddie and Umesh

You are both wrong about Myth 1:

"Tax cuts always result in growth and subsequent addition to tax dollars". The answer is more complex.

Almost all economists would agree that looking at the tax rate alone is a poor predictor of whether an increase or decrease in a tax will raise or lower revenue. Although it is quite possible to lower tax rates and increase revenue or to raise taxes and decrease revenue, the effect is determined by the rate of taxation and the degree, at the margin, at which an increase or decrease will change the behavior of participants in the market. The high marginal tax rate of Sweden of 80% in the 1980's created lots of disincentives to work or to work in the underground economy. It is almost beyond question that cutting marginal tax rates would have increased revenue. Their are diminishing returns or even negative returns to increasing revenues through tax cuts depending on what side of the Laffer curve you are on. Most economists would probably say that, in the US, for most kinds of income taxes, raising taxes would raise revenue and lowering taxes would lower revenue. No one really knows the optimum rate of taxation. But it is not ludicrous to suggest that Bush's tax cuts were irresponsible. I think they were. Especially given how much he increased the size of government with defense spending, new entitlement programs, new regulations, etc.

The second "myth" is true of course. You could certainly decrease the size of government and balance the budget. I think Ryan's proposal tries to work in that direction. I applaud him for that.

Steve

Posted by: FatTriplet3 | March 10, 2010 11:51 AM | Report abuse

Lomillialor,

I think the numbers speak for themselves. I said, "Obama, on the other hand, raised government spending by 34% in a single year. According to the administrations own figures the budget deficit will rise to 11% of GDP". That dramatic increase in the deficit is all Obama's doing. I understand the narrative that we had to spend that money to save wall street bankers, err, the economy. I don't buy it. I believe that our future will be one of high unemployment, very low growth rates, high inflation and high tax rates. Pro-growth policies would help a lot but I see none of that coming from this administration.

Steve

Posted by: FatTriplet3 | March 10, 2010 12:10 PM | Report abuse

Lomillialor,

With regards to the following:

"We have been cutting taxes since 2003 and we saw how it has created debt and recession."

The Bush tax cuts did not cause the most recent recession.

The only way tax cuts can sink the economy is if the debt grows to high enough levels to send interst rates (and usually inflation as well) through the roof. That clearly was not the cause of the 2007-2009 recession. Economic theory suggests that in general marginal tax rate cuts increase economic growth rates slightly, depending on the magnitude of the cuts.

Obama is at fault for his long-term deficit projections because, well, those are his projections. I don't blame him in the near term, because a large portion of the deficit is related to the severe recession, and there isn't any realistic scenario I can imagine in which we could easily balance the budget this year. That said, he can propose any sort of policies he wishes so that the budget is balanced when unemployment is back around 5% - of course Congress might well not comply with his budgets, but that would be the fault of Congress, not the administration. I'll admit that unnnecssary deficits under Bush and the failure to take on entitlement reform has made Obama's job more difficult, but he could propose policies that would balance the budget at some point over the next 10 years if he really wanted to. That neither the administration nor Congress has the will to balance the budget on paper - not this year but a decade from now - is a real problem.

Posted by: justin84 | March 10, 2010 12:55 PM | Report abuse

Steve

Please provide a link stating Obama raised spending by 34%

In the meantime enjoy this....

http://www.cbpp.org/cms/?fa=view&id=3036&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cbpp%2FfYJq+%28Center+on+Budget+and+Policy+Priorities%29

"Some critics charge that the new policies pursued by President Obama and the 111th Congress caused the huge federal budget deficits that the nation now faces. In fact, the tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years (see Figure 1)."

Posted by: Lomillialor | March 10, 2010 2:43 PM | Report abuse

Who's responsible for the deficit? (it's not Obama).

http://economistsview.typepad.com/economistsview/2009/03/whos-responsible-for-the-budget-deficit.html

Posted by: Lomillialor | March 10, 2010 2:48 PM | Report abuse

Lomillialor,

It is fair to point out that the budget hole that Obama needs to climb out of has a lot of Bush's fingerprints on it. The Bush tax cuts cost the Treasury a lot of revenue. You can blame a good chunk of today's deficit on them. However, if the Administration and Congress let all or any portion of the Bush tax cuts continue into the future, those tax cuts are effectively theirs. Bush/Republican Congress originally enacted those policies, but now Obama and the Democratic Congress own them. Medicare was created under LBJ, and our fiscal situation could have been a lot brighter without the program - but we're not blaming our deficits/unfunded liabilities in part on LBJ. Current politicians, for better or worse, 'own' Medicare now.

Again, Bush made Obama's job more difficult, but it is still up to the Administration (and Congress) to figure out a fiscally sustainable path, by proposing policies that will get us 'there' at some reasonable point in time (say over the next 10 years). As time goes on, it's only going to get harder.

Posted by: justin84 | March 10, 2010 2:59 PM | Report abuse

Lomillialor,

I got that figure from an analysis of OMB data. I am having trouble finding that analysis. I will post it if I can find it later.

OMB data indicates that the deficit as a percentage of GDP grew 20% in Obama's first year of office (from 69% to 83%) and is projected to grow to 100.8% of GDP by the end of Obama's first (and hopefully last) term in office. That is 46% growth in deficit to GDP percent. The last time the deficit to GDP ratio was over 100% was 1947. Where is this World War that Obama is funding?

In contrast, the deficit under Bush as a percentage of GDP grew only 23% during his entire term in office.

Steve

(http://www.whitehouse.gov/omb/budget/fy2011/assets/hist07z1.xls.)

Posted by: FatTriplet3 | March 10, 2010 4:06 PM | Report abuse

In absolute terms, total government deficit grew 208% in Obama's first year in office.

Steve

http://www.whitehouse.gov/omb/budget/fy2011/assets/hist15z6.xls

Posted by: FatTriplet3 | March 10, 2010 4:25 PM | Report abuse

Lomillialor,

The Mark Thoma link pointed to a graph and post by Dean Baker. Baker says that the numbers were taken from the CBO. Maybe their credible. Maybe his point is that the spending increases the first year of Obama was legislation enacted by Bush. But without a point to the data we can't really know.

Steve

Posted by: FatTriplet3 | March 10, 2010 4:34 PM | Report abuse

Steve, Justin

There is a difference between saying "the deficit rose under Obama by 34%" and "Obama's new spending programs have increased the deficit by 34%".

You people are hardheaded even when the evidence is waved in your face.

Obama did NOT raise spending to create the current deficit.

Obama mostly INHERITED the current deficit.

The deficit growth is due, NOT TO OBAMA'S INCREASED SPENDING, but to such things as lost revenue collection due to the recession, wars, Bush tax cuts, Medicare part-D, etc..

Again, here's a link that explains it all....

http://www.cbpp.org/cms/?fa=view&id=3036&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cbpp%2FfYJq+%28Center+on+Budget+and+Policy+Priorities%29

For more analysis, go to the following link. Somewhere on this link you will find CBO data that shows 4/5 of the deficit is due to INHERITED obligations and 1/5 is due to Obama's recession fighting and jobs policies he would not have done had it not been for the recession....

http://economistsview.typepad.com/

Posted by: Lomillialor | March 11, 2010 7:24 AM | Report abuse

Moreover,

Obama has actually REDUCED the projected deficits, not increased them.

This year's deficit was originally projected to be around $1.8 trillion. Instead, it has come in under $1.4 trillion.

http://economistsview.typepad.com/economistsview/2009/04/obama-budget-reduces-deficit.html

"The Center on Budget and Policy Priorities says that, contrary to what you may have heard, the Obama budget "would reduce federal deficits by about $900 billion over the next ten years compared to current budget policies.""

Posted by: Lomillialor | March 11, 2010 7:33 AM | Report abuse

And, here's a link showing a chart that proves the current deficit is NOT OWNED by Obama.....

http://economistsview.typepad.com/economistsview/2009/12/president-obama-largely-inherited-todays-huge-deficits.html

Posted by: Lomillialor | March 11, 2010 7:44 AM | Report abuse

Lomillialor,

I don't think I said anywhere that either today's deficit was a huge issue, nor that it wasn't basically the fault of Bush administration policies. My issue is that Obama isn't planning on brining the budget into balance over the projection period (which includes a 10 year economic boom which more likely than not won't materialize given that the current record expansion was 'just' 10 years).

Think of the national fiscal scenario as a party boat with a bunch of holes in it. Captain Bush drilled five holes into the side of the boat, and unless the holes are fixed the boat will take on water and sink. Captain Obama is taking over, and saying yikes, don't blame me for all of these holes, Bush put them in - a true statement. However, Obama's plan is to fill in one of the holes, but he's afraid that the boat passengers will be upset if they have to fix more than one hole. His plan to fix the boat thus leaves the other four holes to take on water. In the end, the boat still sinks, it just takes a little bit longer. The failure to even plan on fixing the holes is Captain Obama's fault, even if it is Bush's fault for originally drilling them in.

I know Captain Obama has a bunch of Republican detractors who will complain that the passengers will have to stop partying and spend some time and energy to fix the holes, and that will make his life harder, but Obama should still suggest that we fix all of the holes, or else the party boat is going down at some point and its bad news for all involved.

Posted by: justin84 | March 11, 2010 12:35 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company