The American Progressives’ project of erecting a European-style welfare state is over, and it may be ending in default.
Chriss W. Street points out what the country’s real budget looks like (before Obamacare):
The Federal government’s spendable tax revenue of approximately $170 billion per month; is roughly just enough to cover legally required Social Security / Medicare payments ($90 billion) and debt service (ranging from $10-40 billon per month) – and the most politically sensitive payments for military and unemployment ($40 billion).
Read the whole thing. He has some good explanations of how we got here.
As the debt-ceiling showdown heads into its final stages, the political maneuvering has intensified, with both sides seeking to gain the upper hand in the public-relations war. Leaders from both parties know the stakes in this fight are very, very high; confrontations of this sort tend to become defining moments in political life, for good or ill. At this stage, anything could still happen, with many scenarios still in play. But for Republicans, there are reasons to worry that this showdown could be headed toward a political and fiscal debacle if they are not very careful.
It wouldn’t be the first time Democrats got the better of Republicans in a budget fight. In 1990, Richard Darman, who was director of the Office of Management and Budget, wanted to strike a budget deal to bring projected budget deficits down by $500 billion over five years. As a precondition for entering the talks, however, Democratic Senate majority leader George Mitchell demanded that Pres. George H. W. Bush renege, in writing, on his “no new taxes†pledge. The president did so at Darman’s urging, and from that moment on, the president’s standing and leverage plummeted. At crucial moments in the ensuing process, the tax increases kept getting larger and more onerous, and the spending cuts and entitlement reforms kept getting more ephemeral. In the end, it was just a question of how bad the political fallout would be for the president, which of course turned out to be very bad indeed.
In the current fight, it’s quite clear what President Obama and his allies are trying to accomplish. First, they want a package upon which the president can campaign in 2012. Something on the order of a “$3 trillion deficit-cutting program†(no matter how phony) — or even $2 trillion — would help the president downplay the big-spending, liberal image that most independent voters now have of him.
Second, the president wants to raise taxes without getting blamed for it. Hence the disingenuous cat-and-mouse games aimed at luring Republicans into accepting tax hikes behind closed doors so that the president never actually has to take ownership of them before they become law. Quite a trick if he can get away with it.
Third, and most important, Democrats want a deal that doesn’t give an inch on what really matters to their voting base — which is the entitlement status quo. The Democratic party has come to define itself as the party of entitlements. The New Deal. The Great Society. Obamacare. Nothing gets the Democratic heart beating quite like ensnaring the entire American middle class in entitlement dependence. For Democrats, victory means forcing Republicans to accept a budget framework that leaves today’s entitlement superstructure — and most especially centralized government management of American health care — exactly as it is today. ….
It would be far better to find a way to cut whatever spending can be cut sensibly with some Democratic support, raise the debt limit modestly, and leave the big questions on entitlement reforms and taxes to the collective judgment of the voting public in 2012.
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Glenn Reynolds adds:
So driving home from the gym just now, I heard Rush Limbaugh saying that if the GOP caves on the debt-ceiling fight we’ll see a Tea Party-backed third-party candidate for President, and the RNC will “implode†for lack of contributions. I think that’s right, but I don’t think that will happen. …
[T]he Democrats aren’t holding very many cards, and there’s no reason for the GOP to fold under the threat. Which isn’t to say that they won’t fold anyway, of course. As Teddy Roosevelt once said about Oliver Wendell Holmes, Jr., I could carve a better backbone out of a banana. . . .
Pat Buchanan left mainstream Conservatism for the Paleocon fever swamps some years ago, and has rarely ever made much sense since, but today the old Pat Buchanan is back and in fine form. In fact, Buchanan identifies precisely the tactics of bluffing and intimidation that the mouthpieces of the establishment are using to try to frighten the Republican leadership (which holds all the cards) into surrendering on tax increases to the impotent, discredited-by-reality, and sinking-daily-in-the-polls democrats. Pat Buchanan is right: the level of shrillness of the MSM commentariat is directly proportionate to their desperation. They know they’re losing.
By refusing to accept tax increases in a deal to raise the debt ceiling, Republicans are behaving like “fanatics,” writes David Brooks of The New York Times.
Anti-tax Republicans “have no sense of moral decency,” he adds.
They are “willing to stain their nation’s honor” to “worship their idol.” If this “deal of the century” goes down, as he calls the Barack Obama offer, “Republican fanaticism” will be the cause.
“The GOP has become a cult” that has replaced reason with “feverish” and “cockamamie beliefs,” writes Richard Cohen of The Washington Post. The Republican “presidential field (is) a virtual political Jonestown,” the Guyana site where more than 900 followers of the Peoples Temple drank the Kool-Aid that Rev. Jim Jones mixed for them.
Does anyone think this an appropriate description of such mild-mannered men as Mitt Romney, Tim Pawlenty and Jon Huntsman?
“The GOP’s Hezbollah Wing Is Now Fully in Control,” screams The New Republic over a recent lead editorial.
Other columnists charge the GOP with holding America “hostage” by refusing to accept tax hikes to avert a default on the debt.
What to make of this hysteria?
The Establishment is in a panic. It has been jolted awake to the realization that the GOP House, if it can summon the courage to use it, is holding a weapon that could enable it to bridle forever the federal monster that consumes 25 percent of gross domestic product.
To bully and blackmail the GOP into surrendering the weapon and betraying its principles and signing on to new taxes, that establishment has unleashed rhetoric more befitting a war on terror than a political dispute.
For how, exactly, are Republicans threatening the republic?
The House has not said it will not raise the debt ceiling. It must and will. It has not said it will not accept budget cuts. It has indicated a willingness to accept the budget cuts agreed to in the Biden negotiations.
Where the GOP has stood its ground is on tax increases. …
The Republican Party has not said it will refuse to raise the debt ceiling. It has an obligation to do so, and will.
The House has simply said it will not accept new taxes on a nation whose fiscal crisis comes from overspending.
If the GOP keeps its word, raises the debt ceiling and accepts budget cuts agreed to in the Biden negotiations, the only people who can prevent the debt ceiling’s being raised are Senate Democrats or Obama, in which case, they, not the GOP, will have thrown the nation into default.
It is the establishment that is resorting to extortion, saying, in effect, to the House GOP: Give us the new taxes we demand, or Obama will veto the debt ceiling and we will all blame you for the default.
They’re bluffing.
The GOP should stand its ground — and fix bayonets.
Moderate Megan McArdle warns that accepting the liberal Kevin Drum‘s prescription to return to Clinton era tax rates would not come even close to paying for the federal deficit but would have very serious economic consequences.
Saying “all we have to do is go back to the tax rates under Clinton” is effectively saying “all we need is another asset price bubble that funnels a huge amount of money into the pockets of the rich”. This seems neither particularly feasible, nor desirable.
If we pick, somewhat optimistically, the mean tax take of the Clinton years, that means that we need a tax hike of 5-6% of GDP. And not over 20-30 years. …
A tax hike of 5-6% of GDP doesn’t sound like much. But that’s a big tax hike if your baseline is 19%–it means that everyone’s taxes go up by about a third. If the equilibrium tax revenue at Clinton rates is more like 18-18.5% of GDP, then obviously, they have to go up even higher, from a lower baseline. If you try to concentrate the pain on the wealthy or corporations, it’s an even bigger whack. Meanwhile, state and local taxes will be going up too; they have many of the same pension and entitlement problems that the federal government does.
These aren’t little adjustments. They’re huge changes in the overall tax burden, and they will have big effects on peoples lives, and the economy.
James Taranto has a rational explanation for the lies and stupidity.
Why did Obama give this appalling speech? A pair of articles give a partial answer. The first one appeared at TheHill.com early yesterday morning, before the speech:
Anxiety over President Obama’s shift to the political center is threatening to alienate the White House’s liberal base. . . .
The concerns have surfaced after the White House rankled lawmakers on the left by agreeing to a 2011 spending bill that slashes funding for a number of programs long favored by Democrats and embracing a controversial trade agreement with Colombia. . . .
The criticisms highlight the problem facing Obama, who is trying to lead from the center without alienating his political base. The White House strategy could help the president with independents, but risks leaving liberals at home in the fall of 2012.
The second, by Salon.com’s Joan Walsh, was a glowing review of the speech:
The president came out fighting with firmness, and with a rhetoric of social justice and equality, that I haven’t seen enough of these last two years. . . . That’s the president I voted for. . . . After the speech, pundits called it the opening salvo of the Obama 2012 reelection campaign, as though there was something wrong with that. If these are the founding principles of the president’s 2012 campaign, Democrats and the country will be better off than we’ve been in a while.
Mickey Kaus notes that “Obama tends to defend the welfare state in ineffective paleolib terms. It’s mostly ‘compassion’ and taking “responsibility for . . . each other,’ whether we work or not.” It seems to us, though, that the speech was meant for the left, not the center, and paleolib terms are effective with a paleolib audience.
The optimistic reading of this speech is the cynical one: Obama knows he is going to have to compromise with congressional Republicans and is buying himself some goodwill with the base. If he was speaking from the heart, though, we’re in for a long 2012, though his may be even longer.
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Ann Althouse says exactly the same thing, more colorfully and succinctly, by quoting (and glossing) Rush Limbaugh:
“That’s what they love. That’s what they get off on. That’s their orgasm.”
“They” = the “walking human debris… those savages that make up the Obama base.”
“What they get off on” = Obama’s attack on conservatives.
He was just blowing smoke to keep the moonbat base home on the ranch while he tries to make a deal. The natives had been getting noticably restless at the idea that the welfare state is over, so Barack was just singing the lullaby they love to hear to put them back to sleep. “Compassion versus greed…. millionaires and billionaires… repeal the Bush tax cuts…”
President Obama’s extraordinary response to Paul Ryan’s budget yesterday—with its blistering partisanship and multiple distortions—was the kind Presidents usually outsource to some junior lieutenant. Mr. Obama’s fundamentally political document would have been unusual even for a Vice President in the fervor of a campaign.
The immediate political goal was to inoculate the White House from criticism that it is not serious about the fiscal crisis, after ignoring its own deficit commission last year and tossing off a $3.73 trillion budget in February that increased spending amid a record deficit of $1.65 trillion. Mr. Obama was chased to George Washington University yesterday because Mr. Ryan and the Republicans outflanked him on fiscal discipline and are now setting the national political agenda.
Mr. Obama did not deign to propose an alternative to rival Mr. Ryan’s plan, even as he categorically rejected all its reform ideas, repeatedly vilifying them as essentially un-American. “Their vision is less about reducing the deficit than it is about changing the basic social compact in America,” he said, supposedly pitting “children with autism or Down’s syndrome” against “every millionaire and billionaire in our society.” The President was not attempting to join the debate Mr. Ryan has started, but to close it off just as it begins and banish House GOP ideas to political Siberia.
Mr. Obama then packaged his poison in the rhetoric of bipartisanship—which “starts,” he said, “by being honest about what’s causing our deficit.” The speech he chose to deliver was dishonest even by modern political standards.
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Paul Ryan put it best: “He’s basically a pyromaniac in a field of straw men.â€
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Clive Crook, an Atlantic liberal and Obama supporter, found neither substance nor merit in it
Obama had a difficult assignment in this speech, partly because of the exaggerated hopes for it. … Even allowing for that, it was weak both politically and substantively. My instant unguarded reaction, in fact, was to find it not just weak but pitiful. I honestly wondered why he bothered.
There was no sign of anything worth calling a plan to curb borrowing faster than in the budget. He offered no more than a list of headings under which $4 trillion of deficit reduction (including the $2 trillion already in his budget) might be found–domestic non-security spending, defense, health costs, and tax reform. Fine, sure. But what he said was devoid of detail. He spent more of his time stressing what he would not agree to than describing clear proposals of his own. …
The speech was more notable for its militant–though ineffectual–hostility to Republican proposals than for any fresh thinking of its own. It was a waste of breath.
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Mr. Crook was clearly entirely correct, since all the President seems to have accomplished was to put the Vice President to sleep.
Paul Samuelson describes the dynamic of self-interest which has driven the federal government to the brink of bankruptcy and which inherently repels reform.
We in America have created suicidal government; the threatened federal shutdown and stubborn budget deficits are but symptoms. By suicidal, I mean that government has promised more than it can realistically deliver and, as a result, repeatedly disappoints by providing less than people expect or jeopardizing what they already have. But government can’t easily correct its excesses, because Americans depend on it for so much that any effort to change the status arouses a firestorm of opposition that virtually ensures defeat. Government’s very expansion has brought it into disrepute, paralyzed politics and impeded it from acting in the national interest. …
[D]espite superficial support for “deficit reduction†or “tax reform,†few Americans would surrender their own benefits, subsidies and tax breaks — a precondition for success. As a practical matter, most federal programs and tax breaks fall into one of two categories, each resistant to change.
The first includes big items (Social Security, the mortgage interest deduction) whose benefits are so large that any hint of cuts prompts massive opposition — or its specter. Practical politicians retreat. The second encompasses smaller programs (Amtrak, ethanol subsidies) that, though having a tiny budget effect, inspire fanatical devotion from their supporters. Just recently, for example, the documentary filmmaker Ken Burns defended culture subsidies (“an infinitesimally small fraction of the deficitâ€) in The Post. Politicians retreat; meager budget gains aren’t worth the disproportionate public vilification.
Well, if you can’t change big programs or small programs, what can you do? Not much. …
Government is suicidal because it breeds expectations that cannot be met. All the partisan skirmishing over who gets credit for averting a shutdown misses the larger issue: whether we can restore government as an instrument of progress or whether it remains — as it is now — a threat.
As we enjoy a nice spring day, punctuated by the voices of happy songbirds, as well as by the clamor of unhappy liberals moaning and wailing over the budget cuts (which they describe as “Draconian,” “damaging,” proof that “our democracy has been irretrievably lost,” the kind of result only possible through “hostage-taking“), you can get a good picture of fiscal reality from the graphic below.
Our friend Bird Dog, added a slight addendum to this illustration from Gateway Pundit, making clear just how dramatic the Obama Administration’s contribution to the $1.65 trillion deficit is, indicating how comparatively insignificant the budget deal’s reduction of $38.5 billion is by comparison.
Megan McArdle quotes her reader Trimalchio‘s explanation of why the Left’s Tax-the-Rich rhetoric is fraudulent.
For anyone who wants to discuss the revenue side of the budget debate knowledgably, I highly recommend spending some time with the IRS’s Statistics on Income. Table 1.1 under Individual Statistical Tables is a good place to start: http://www.irs.gov/pub/irs-soi…
You can see, for example, that total taxable income in 2008 was $5,488 billion. Taxable income over $100,000 was $1,582 billion, over $200,000 was $1,185 billion, over $500,000 was $820 billion, over $1 million was $616 billion, over $2 million was $460 billion, over $5 million was $302 billion, and over $10 million was $212 billion. Effective tax rates as a percentage of taxable income seem to top out around 27%.
You can estimate the effects of various proposals in the best case, which is that each percentage point increase in the marginal rate translates to an equal increase in the effective rate. Going back to 2000 (“Clinton era”) marginal rates on income over $200,000, let’s call it a 5 percentage point increase in the marginal rate, would therefore yield $59 billion on a static basis. Going from there to a 45% rate on incomes over $1 million (another 5 percentage point increase) yields an additional $31 billion. Or, instead, on top of 2000 rates over $200,000, 50%/60%/70% on $500,000/$5 million/$10 million? An extra $133 billion, or nearly 1% of GDP. That’s not accounting for the further middle class tax cuts that are usually proposed along with these “millionaires’ taxes.”
Now, compare this to deficits of $1,413 billion in 2009 and $1,293 billion in 2010, and using optimistic White House estimates, $1,645 billion in 2011 $1,101 billion in 2012, $768 billion in 2013, and continuing at over $600 billion after.
Alternatively, you might also notice that while taxable income in 2008 was $5,488 billion, adjusted gross income on all returns was $7,583 billion on taxable returns only (with an additional $680 billion on untaxable returns), which means that $2,095 billion isn’t even in the tax base. $592 billion of that difference is exemptions, which are not tax expenditures, and $1,512 billion is deductions, which are mostly tax expenditures.
My point is just that I don’t see how deficits this large can be closed with income taxes on the rich, even at marginal rates far higher than anything we’ve seen in the post-1986 era. Paying for spending at near-term levels, not even considering entitlement and interest payments that will accelerate a decade out, would have to include meaningful base broadening by eliminating tax expenditures like the mortgage interest deduction or the employer health case deduction, or would have to rely on new taxes like a VAT.
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Even if we outright confiscated the wealth of all of this country’s billionaires, we couldn’t break even for this single year.
The grand total of the combined net worth of every single one of America’s billionaires is roughly $1.3 trillion. It does indeed sound like a “ton of cash†until one considers that the 2011 deficit alone is $1.6 trillion. So, if the government were to simply confiscate the entire net worth of all of America’s billionaires, we’d still be $300 billion short of making up this year’s deficit.
That’s before we even get to dealing with the long-term debt of $14 trillion, which if you’re keeping score at home, is between 10 to 14 times the entire net worth of all of the country’s billionaires, combined.
The budget plan introduced by House Budget Committee Chairman Paul Ryan actually represents a serious effort to fix the entitlements crisis and close the enormous gap between government income and expenditures. I do not believe that I have ever seen, in my lifetime, so courageous a piece of legislation. Wall Street Journal
One can see the dramatic impact of this one hundred degree shift in politics in the fact that it immediately forced the New York Time’s substitute-for-a-conservative David Brooks right off the fence, and transformed him into a full-throated supporter.
Over the past few weeks, a number of groups, including the ex-chairmen of the Council of Economic Advisers and 64 prominent budget experts, have issued letters arguing that the debt situation is so dire that doing nothing is not a survivable option. What they lacked was courageous political leadership — a powerful elected official willing to issue a proposal, willing to take a stand, willing to face the political perils.
The country lacked that leadership until today. Today, Paul Ryan, the Republican chairman of the House Budget Committee, is scheduled to release the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes. Ryan is expected to leap into the vacuum left by the president’s passivity. The Ryan budget will not be enacted this year, but it will immediately reframe the domestic policy debate.
His proposal will set the standard of seriousness for anybody who wants to play in this discussion. It will become the 2012 Republican platform, no matter who is the nominee. Any candidate hoping to win that nomination will have to be able to talk about government programs with this degree of specificity, so it will improve the G.O.P. primary race.
The Ryan proposal will help settle the fight over the government shutdown and the 2011 budget because it will remind everybody that the real argument is not about cutting a few billion here or there. It is about the underlying architecture of domestic programs in 2012 and beyond.
The Ryan budget will put all future arguments in the proper context: The current welfare state is simply unsustainable and anybody who is serious, on left or right, has to have a new vision of the social contract.
The democrat-controlled Senate will probably decline to endorse moving to a sustainable federal government, but Congressman Ryan has framed the 2012 Electoral Debate. This is a budget that Republicans can campaign on.
I get dragged, these days, into aimless arguments with liberals on Facebook. Jim Scheltens taunted overnight: “[T]he federal deficit didn’t matter until we had a black democrat president.”
I think the Bush deficit mattered, but deficits are normal in times of war, and the 9/11 attacks inevitably resulted in military operations. Obama’s deficits are, by contrast, deficits of choice and are of a completely different order of magnitude.
Obama has scheduled $5 trillion in new debt since he took office, in part as Keynesian stimulus to snap us out of a slowdown that seemed instead to get worse. The massive debt was incurred in service to new redistributive entitlements that, we are told, will level the playing field. And to implement a new government absorption of health care, the administration has so far granted over 1,000 exemptions from its own landmark legislation. Many of the labor unions that were the most vocal supporters of the president’s agenda are the most eager to be freed from the consequences of his health care mandates. …
Debt is now the father of us all. In some sense, every cruise missile fired, every Social Security check cashed, ever NPR show aired is done so in part with borrowed money. In response, the president saw the impending doom of insolvency, appointed a bipartisan commission to draft a solution, and then ignored his own appointees’ recommendations. So far the excuse is largely that George Bush ran up debt as well, although last month Obama’s red-ink exceeded the entire 2007 budget deficit under Bush — 30 days of Obama trumping 365 of Bush.
The Obama deficit is different in character. Unlike other past presidents’ deficits, the debt resulting from currently projected federal spending has no possibility of being repaid at practicable or conceivable tax levels, the federal government as it exists is unsustainable, and that unhappy situation directly and immediately threatens America’s economic future, military capabilities, and role and position in the world.
When previous presidents overspent, we knew we could write the check today and cover it tomorrow. This time there is a real likelihood that the check will bounce, i.e. that the entitlement obligations the government has assumed are unaffordable and can in no circumstances be met. The police will not arrive to take all of us to jail, but before long, the existing systems of federal spending and entitlements will not undergo some process of orderly reform, but will collapse in a rout. The US dollar may no longer be the world reserve currency, the US may very well not be the world’s principal financial center or leading military power, and American presidents may be obliged to run US foreign policy past the foreign ministries of our leading creditors.
