The Return of the Debt Ceiling Dance...

Running slightly below the radar of various Supreme Court decisions, hackers and "scandals," we should all remember the debt ceiling showdown looming for the second half (and probably the last quarter) of 2013.

Traditionally, Congress has always approved raising the debt ceiling so the United States government can pay its bills. Amendment 14, section 4 of the Constitution states that "...the validity of the public debt...shall not be questioned." In other words, we promise to pay our bills.

As most of you know, the President can not raise the debt ceiling on his own, the authority to do so lies squarely upon Congress' shoulders to increase that number. Only when President Obama requested an increase did Congress deny his request and force him into negotiations with the possibility of default. This tactic also caused the credit rating of the United States to drop. Not because we've borrowed too much money, but because we find ourselves in a place of acute government dysfunction. If nothing sensible can be agreed to and politics rules the day, it hurts our credit-worthiness around the world.

National Journal has a terrific preview on this. The GOP is already assembling its list of demands of the White House, and since President Obama has already gone on record, though some think he's bluffing, saying he will not negotiate the debt ceiling. Period.

Read the article here...

Sources:

http://www.nationaljournal.com/congress/house-republicans-draft-their-debt-ceiling-playbook-20130707

Fact Checking the 2nd Presidential Debate/Ten Websites to Review...

After every Presidential debate, various fact-checkers get to work immediately to separate fact from fiction from both participants. Reasonable Conversation has compiled a list of ten different factchecks from around the internet to provide a convenient "one-stop" place for your perusal.

The good folks at Politfact.com were hot on the trail of truth after last night's second presidential debate between President Barack Obama and challenger Mitt Romney. They've posted updated evaluations of claims made by both men on several different topics: Jobs, Energy, Taxes/Spending, Healthcare, Immigration, Foreign Policy and Education. Its a mixed bag of results showing that both men took liberties with the truth as they saw fit.

Not to be outdone, Factcheck.org has also posted their version of fact checking last evening's debate, covering many of the same issues. Here's the overview from their piece posted earlier this morning:

The second Obama-Romney debate was heated, confrontational and full of claims that sometimes didn’t match the facts.

• Obama challenged Romney to “get the transcript” when Romney questioned the president’s claim to have spoken of an “act of terror” the day after the slaying of four Americans in Libya. The president indeed referred to “acts of terror” that day, but then refrained from using such terms for weeks.
• Obama claimed Romney once called Arizona’s “papers, please” immigration law a “model” for the nation. He didn’t. Romney said that of an earlier Arizona law requiring employers to check the immigration status of employees.
• Obama falsely claimed Romney once referred to wind-power jobs as “imaginary.” Not true. Romney actually spoke of “an imaginary world” where “windmills and solar panels could power the economy.”
• Romney said repeatedly he won’t cut taxes for the wealthy, a switch from his position during the GOP primaries, when he said the top 1 percent would be among those to benefit.
• Romney said “a recent study has shown” that taxes “will” rise on the middle class by $4,000 as a result of federal debt increases since Obama took office. Not true. That’s just one possible way debt service could be financed.
• Romney claimed 580,000 women have lost jobs under Obama. The true figure is closer to 93,000.
• Romney claimed the automakers’ bankruptcy that Obama implemented was “precisely what I recommend.” Romney did favor a bankruptcy followed by federal loan guarantees, but not the direct federal aid that Obama insists was essential.
• Romney said he would keep Pell Grants for low-income college students “growing.” That’s a change. Both Romney and his running mate, Ryan, have previously said they’d limit eligibility.

Both candidates repeated false or misleading claims they have made, and we have rebutted, many times before. Obama repeated his claim that he wouldn’t put tax rates for affluent families higher than they were under Bill Clinton. Actually, he’s already signed two new taxes that will also fall on those same high-income persons. And Romney accused Obama of saying “no” to the Keystone XL pipeline. Actually, no final decision has been made, and the company says it expects to win approval and start construction early next year.

Click here to read FactCheck's full article...

Other publications providing factchecking of the debate include The Washington Post, The New York Times, The Washington Times, Fox News offers a factcheck on President Obama's claim he called the events in Libya "terrorism" in the days following the death of four Americans. The Chicago Tribune, CBS News, Bloomberg and Politico also weigh in.

Two Articles that Illustrate the Erosion of Our Surplus...

Two articles I point you toward today regarding our debt & deficit:

The first article is a report generated by the Congressional Budget Office, the Bi-Partisan group in Washington DC that provides budgetary and fiscal analysis for Congress. The crux of the report is a look back at the the CBO's baseline projections since 2001. It considers the surplus we had heading into January 2001 all the way through 2011. The CBO had projected an increase in our Country's surplus by a rough factor of four.

As we know now, the surplus didn't last for another ten years. Or nine, or eight or seven...In fact, the surplus turned into a deficit within a year and by 2002, the United States was running a deficit. As we continue to do today, of course. By a factor of just under ten.

The report is highly informative with a line by line account of where the surplus was spent. Discretionary spending is where the cost of our military operations in Afghanistan and Iraq are reflected with fairly staggering numbers. Also prominent in the growth of our debt has been the outlay for the costly Medicare Advantage program that was voted into law in 2003. Which fed directly into increasing the deficit.

Click here to read their write-up and see the table.

The second article I refer you to is one by Bruce Bartlett, former Senior Policy Adviser in the Ronald Reagan and GHW Bush Administrations, who has also worked for former Congressman Jack Kemp and current Texas Congressman Ron Paul. Bartlett provides analysis of the new CBO report and considers the claim by current day Republicans that Obama is responsible all of our debt and deficit and that we should stop mentioning George Bush' name any longer as having had a meaningful role in the creation of our current debt picture.

A preview of the article from today's NY Times Economix Blog:

Republicans assert that Barack Obama assumed sole responsibility for the budget on Jan. 20, 2009. From that date, all increases in the debt or deficit are his responsibility and no one else’s, they say.

TODAY’S ECONOMIST

Perspectives from expert contributors.

This is, of course, nonsense – and the American people know it. As I documented in a previous post, even today 43 percent of them hold George W. Bush responsible for the current budget deficit versus only 14 percent who blame Mr. Obama.

The American people are right; Mr. Bush is more responsible, as a new reportfrom the Congressional Budget Office documents.

In January 2001, the office projected that the federal government would run a total budget surplus of $3.5 trillion through 2008 if policy was unchanged and the economy continued according to forecast. In fact, there was a deficit of $5.5 trillion.

The projected surplus was primarily the result of two factors. First was a big tax increase in 1993 that every Republican in Congress voted against, saying that it would tank the economy. This belief was wrong. The economy boomed in 1994, growing 4.1 percent that year and strongly throughout the Clinton administration.

The second major contributor to budget surpluses that emerged in 1998 was tough budget controls that were part of the 1990 and 1993 budget deals. The main one was a requirement that spending could not be increased or taxes cut unless offset by spending cuts or tax increases. This was known as Paygo, for pay as you go.

During the 2000 campaign, Mr. Bush warned that budget surpluses were dangerous because Congress might spend them, even though Paygo rules prevented this from happening. His Feb. 28, 2001, budget message reiterated this point and asserted that future surpluses were likely to be even larger than projected due principally to anticipated strong revenue growth.

This was the primary justification for a big tax cut. Subsequently, as it became clear that the economy was slowing – a recession began in March 2001 – that became a further justification.

The 2001 tax cut did nothing to stimulate the economy, yet Republicans pushed for additional tax cuts in 2002, 2003, 2004, 2006 and 2008. The economy continued to languish even as the Treasury hemorrhaged revenue, which fell to 17.5 percent of the gross domestic product in 2008 from 20.6 percent in 2000. Republicans abolished Paygo in 2002, and spending rose to 20.7 percent of G.D.P. in 2008 from 18.2 percent in 2001.

According to the C.B.O., by the end of the Bush administration, legislated tax cuts reduced revenues and increased the national debt by $1.6 trillion. Slower-than-expected growth further reduced revenues by $1.4 trillion.

Read Bartlett's full article here...

A look at the 4 GOP hopeful's Deficit Reduction plans...

 I found this explanation of a new analysis by the bi-partisan Committee for a Responsible Federal Budget (CRFB) fascinating. The Washington Post's Ezra Klein does a nice job summarizing it.

From this morning's Wonkbook by Ezra Klein:


...According to a new report by the Committee for a Responsible Federal Budget, none of Ron Paul's opponents are even running fiscally conservative campaigns. Quite the opposite, in fact.

 The report takes every tax and spending policy the Republican candidates have offered and tallies them up. It does so against what the CRFB calls "a realistic baseline." That's a baseline where all the Bush tax cuts are extended, and many of the scheduled spending cuts are ignored, and debt is piling up. It's a baseline, in other words, in which Congress has made the deficit much worse. A baseline where debt is 86 percent of GDP in 2021. A baseline in which the debt is on a completely unsustainable path. And so, in theory, a baseline so bad that it should be easy for the candidates to appear responsible by comparison. But, with the exception of Paul, they don't.

 Take Santorum. He has not shied away from naming large spending cuts. He would implement Paul Ryan's plan for Medicare reform on an accelerate schedule. He would convert "Medicaid, housing, education, job training, and food stamps” to capped block grants. He would cut Social Security benefits. All in all, CRFB estimates he would reduce spending by over $2 trillion between 2013 and 2021. Unfortunately, his tax cuts would increase debt by more than $6 trillion over the same period. Net impact: $4.5 trillion in new debt, for a debt-to-GDP ratio of 105 percent.

 Newt Gingrich's plan is, remarkably, even worse for our finances. Like Santorum, he would block grant and cap almost everything in sight. In fact, he's promised to block grant and cap more than 100 programs. In total, CRFB estimates his spending cuts would shave $2.7 trillion off of the debt. But Gingrich would also spend $1.6 trillion dollars financing new private accounts for Social Security. And his tax cuts would cost more than $7 trillion. Net impact: $7 trillion in new debt, for a debt-to-GDP ratio of, wait for it, 114 percent.

 Mitt Romney's plan is more difficult to score. He saves $1.2 trillion by block granting Medicaid and cutting the federal workforce. But his new tax plan doesn't have enough detail to say how much it costs. The campaign says it will be revenue neutral, but in part because they assume it will lead to faster economic growth, and thus higher revenues. That's an assumption that would get thrown out if he sent it to Congress. He also hasn't specified which tax breaks he'll eliminate. But if he's sufficiently aggressive in that area, much of his tax plan could ultimately be offset. For now, however, CRFB estimates that if the plan isn't paid for at all, it will add $2.6 trillion to the deficit, leaving Romney's debt-to-GDP at 96 percent. The more deductions and loopholes he closes, the lower that number will be.

 Ron Paul is the only candidate whose plan puts him in the black. His cuts to federal spending are incredibly severe, saving $7.5 trillion. Comparatively, his tax cuts cost $5.2 trillion. And though his plan to end the Federal Reserve would rack up $400 billion in transition cost (and, if we're being real about this, untold trillions in market terror and future financial panics), put it all together and he cuts the deficit by $2.2 trillion, and brings debt-to-GDP down to 76 percent.

 And remember that al these tax cut plans are coming on top of making the Bush tax cuts -- with their $4+ trillion price tag -- permanent. All of this, in some sense, gives the GOP candidates too much credit. Their tax plans, with the possible exception of Romney's, are fantastical. Their proposed spending cuts are far beyond what's plausible. The point is that even unfettered by political reality or operational responsibility, three out of the remaining four candidate have proposed plans that take an unsustainable deficit path and make it significantly worse. And if they can't cut the deficit when they don't have to worry about Congress or the federal bureaucracy or the consequences of actually implementing their proposals, how will they do it when they are burdened by those constraints and concerns?

 You might wonder, of course, where Obama's proposals fit into all this. His budget estimates that debt will be 76.5 percent of GDP in 2021. That's lower than any of the Republican candidates save Paul. Though, CRFB is quick to note that 76.5 percent of GDP is "roughly double historical debt levels" and is not sufficient "to reduce the debt relative to the economy."

Sources:

http://crfb.org/document/primary-numbers-gop-candidates-and-national-debt?wpisrc=nl_wonk

http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-what-the-gop-candidates-would-really-do-to-deficits/2012/02/23/gIQANQN9UR_blog.html