Today we hear quite a lot about the U.S. debt ceiling or debt limit. So in this article I try to draw upon Internet news, political news, and economic news for sources to examine this situation. Before deciding about the politics of the debt limit, one must understand it – what it is, from where it came, and how Congress uses it.
Debt Ceiling ORIGIN, Composition, and Purpose
A statutory ceiling on federal debt was established in 1917 under the ‘Second Liberty Bond Act.’
The debt is the total outstanding liability owed by the US Federal Government to:
- U.S. Citizens
- Corporations
- Foreign Governments
The debt can be classified into two general categories:
- Public accounts, consisting of treasury bills, bonds, and notes
- Government accounts, owed by the federal government to itself, consisting primarily of Social Security and similar trust funds
The debt ceiling’s original purpose was an instrument established by Congress to limit the Treasury Department’s ability to borrow, but it has increasingly lost its effectiveness. It has been waived ten times in the last decade. And a vote to increase the debt limit has often been tied to “must pass” spending increases.
Debt Ceiling MYTHS
Here are some myths about the debt ceiling:
- Failure to pass a debt ceiling increase means defaulting on our debts – Refusing to raise the debt limit does not mean defaulting on our debts. The U.S. Treasury currently takes in more than enough revenue to pay both the interest and the principal on the debts we currently owe. The government would have to prioritize its expenditures – for example, sending out checks for the troops’ pay and Social Security first.
- Failure to pass the debt-ceiling increase on time would be unprecedented – Both the administration and the media sound as if we are at the edge of economic Armageddon if we have not raised the debt ceiling. That’s not quite so.
- It’s always a “clean bill” – The administration is insisting that it would be shocking for Congress to add any conditions to the debt-ceiling increase. But such conditions are far from unprecedented.
- This is not about future spending – The administration insists that raising the debt ceiling is just about paying for spending that’s already occurred. Depending on how high it is raised, it may be about paying only for spending that is already authorized – or much more. Authorized and spent are not the same thing.
- Only Republicans oppose raising the debt ceiling – The media and the administration want to turn this into a partisan fight. The ongoing narrative is that radical Republicans in thrall to the Tea Party want to wreck our finances, while Democrats responsibly want to pay our bills.
Debt Ceiling SCARES
Here are some scares that the administration and MSM try to promulgate:
- Treasury Secretary Timothy Geithner has warned that failing to lift the debt ceiling would have “unthinkable” consequences.
- Timothy Geithner said, [not raising the debt ceiling will] “shake the basic foundation of the entire global financial system.”
- Joshua Green, a senior editor at The Atlantic, wrote, “If Congress fails to raise the federal debt limit, the government will default, which all parties agree would have catastrophic effects on the economy.”
- The Associated Press reported that if “borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it, ‘the resulting’ damage would ripple across the entire economy, eventually affecting nearly every American.”
- When Democratic Senator Mark Warner of Virginia asked at a hearing what would happen “if we were to default and not raise that debt ceiling,” Federal Reserve Chairman Ben Bernanke replied ominously: “It would be an extremely dangerous and very likely recovery-ending event.”
When/If the Debt Ceiling IS raised, what happens?
In a release this afternoon (2 Jun 11), the Moody’s ratings agency said it would put the U.S. credit rating under review if Congress and the Obama administration don’t make progress on increasing the debt limit. “If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction.”
The United States is at risk of having its pristine credit rating lowered if politicians in Washington cannot agree on a plan to bring down the nation’s deficits over the long term, ratings agency Standard & Poor’s said Monday (18 Apr 11). This means that there is a one-in-three chance that S&P could downgrade the nation’s “AAA” credit rating within two years. S&P said its outlook change was based on the growth of the United States’ deficits over the last several years as a percentage of gross domestic product, the broadest measure of economic activity.
Back in April, Standard & Poor’s threatened to reduce America’s top-shelf credit rating. Now another investment agency, Moody’s, has issued a similar warning. In fact, Moody’s is more urgent. S&P spoke of a one-in-three chance that our credit rating would take a hit within the next two years. Moody’s is talking about downgrading our AAA credit rating within the next few weeks. There is also a difference in the stated reasons both agencies gave for issuing their warnings. S&P was explicitly worried about our mounting national debt, while Moody’s is worried that we won’t make it bigger. This is an important warning shot fired by the credit market. Standard & Poor’s used a rifle, while Moody’s used a pistol. Raising the debt ceiling without budget reforms in place means we would dodge the Moody’s pistol shot and run smack into the S&P rifle bullet, which was fired to warn us of much more serious, long-term danger.
When/If the Debt Ceiling is NOT raised, what happens?
The United States has hit its debt limit on 16 May, 2011, and the world hasn’t come to a screeching end, the sky isn’t falling, and no one is really talking about it. The Obama Administration and Geithner have continually warned about a “double-dip recession,” yet, America is still in a recession and hasn’t gotten out of it. “Recovery Summer,” in fact was the opposite, the economy hasn’t recovered.
If Congress fails to raise the debt limit by August 2, the Treasury has only two options: It can default on its debt – meaning, stop paying its creditors around the world – or continue to pay creditors but halt any other federal spending above what the government collects in taxes. In effect, that would mean an overnight spending cut of about 40 percent. Here are six consequences if the Treasury is forced to choose one of those options:
- Cut $125 Billion Per Month – The federal government must borrow an additional $125 billion each month to finance all of its commitments. If the Treasury chooses to continue to pay creditors but stop all other federal spending, the government will have to begin reducing its spending by $125 billion every 30 days.
- Treasury Bonds Collapse – If the government defaults on its debt, economists say that prices for Treasury bonds would collapse and interest rates would probably soar to record highs.
- Cut Medicare and Social Security – To reduce spending by $125 billion a month, the government would have to make deep cuts to the two giant entitlement programs.
- Stock Market Plunge – Wall Street generally agrees with Geithner that it would be a disaster if the U.S. defaulted on its debt.
- Government Furloughs or Mass Layoffs – The federal government would most likely turn to furloughs or mass layoffs to immediately cut spending.
- Sky-High Mortgage and Interest Rates – If the government defaults, interest rates on mortgages would shoot up.
Dilemma and Debate
Current spending growth is unsustainable. The Government Accountability Office estimates entitlement spending on Social Security, Medicare and Medicaid alone will amount to more than 20 percent of GDP by 2080, if current policies are unchanged. Excessive government spending and high tax rates reduce economic freedom and thus the range of choices open to individuals. When government runs large deficits and adds to the national debt, private investment can be crowded out. Today, the gross federal debt is approaching 100 percent of GDP. In addition, unfunded liabilities of Social Security and Medicare total more than $100 trillion. Studies by leading economists Kenneth Rogoff and Carmen Reinhart have shown that when sovereign debt exceeds 90 percent of GDP, real growth tends to slow.
China, and others holding U.S. sovereign debt, will suffer huge losses if the United States cannot get its fiscal house in order and return to constitutionally limited government. By undervaluing the yuan against the dollar, China has accumulated more than $3 trillion in foreign exchange reserves, with a substantial amount invested in U.S. government securities.
For most of America’s history, adherence to the framers’ “Constitution of Liberty” did limit government spending, and the private sector flourished. Whether that ethos of liberty returns will determine the future path of U.S. fiscal and monetary policies.
Two of the biggest companies to warn of fallout from the debt-ceiling fight are life-insurance giant MetLife and private-equity powerhouse KKR. MetLife is brief in its warning, which appears in the quarterly report it filed May 10. It’s wrapped into a broader “risk factor” disclosure about “difficult conditions in the global capital markets and the economy,” and warns of market and economic volatility more generally. KKR is more specific. With its quarterly report filed on May 5, it added an entirely new section to its risk factors, warning of potential harm from a “failure or the perceived risk of a failure to raise the statutory debt limit of the United States…”
Financial firms aren’t the only ones worried about the debt ceiling. Hansen Medical, a small maker of medical robots in Mountain View, Calif., warns about the debt ceiling debate in its May 10 quarterly report. Seattle Genetics, a biotech company focusing on cancer and autoimmune disorders, warns of the debt ceiling debate in its May 6 quarterly report.
The debt ceiling is NOT the problem
The Treasury is out of money, but not out of games. Now that it has finally been made clear that in order to accommodate the debt ceiling by adding marketable debt, the Treasury has no choice but to literally plunder retirement accounts, we now know that in order to fit in the just announced $110 billion in new bond issuance over the next week, Tim Geithner will have to reduce US retirement funding (the bulk of which, the Social Security Trust Fund already lost $1.1 trillion in the past year) by at least $45 billion.
It should be noted that the debt ceiling is not the problem. Raising it solves the duplicity of Treasury behavior but doesn’t resolve the fact that we are caught in a debt death spiral that will result in the collapse of the dollar, producing hyperinflation and the likely collapse of our government.
Congress must accomplish three things to put the United States on a path to financial responsibility: (1) cut current spending, (2) restrict future spending, and (3) fix the budget process.
- Responsibility for the Debt Lies with Congress – When the Constitutional Convention met in Philadelphia in May 1787, the delegates who attended were well aware of the problems of the national debt, the state debts, and the poor financial reputation of the government. The Framers of the Constitution sought to reassure lenders that, even though it might change its form of government, the United States would honor its debt. The Framers included in the Constitution several other provisions that fixed responsibility for the national debt on the Congress of the United States. Legislative powers fix upon Congress the responsibility for the national debt.
- Congress Let Debt Get Out of Control – To spend more money than you have, you borrow, creating debt. Congress has grossly overspent beyond its means, creating a huge national debt. From a debt of $79 million when the Revolutionary War ended, the United States has racked up a debt of nearly $14.294 trillion. To put today’s debt in perspective, consider:
- It would take essentially everything that Americans produced (GDP) in all of last year to pay off the existing national debt of $14.294 trillion.
- The debt when the American Revolution ended was about $34 per American, which in today’s, inflation-adjusted dollars would be about $653 per American. Today, the debt owed by each American is over $45,000, nearly 68 times the size of the debt when the American Revolution ended.
- Cut Current Spending, Restrict Future Spending, and Fix the Budget Process – As federal borrowing approaches the current debt limit, Congress must reach agreement to accomplish three things to put the country on a path to financial responsibility.
- Cut Current Spending – In making cuts in current spending, Congress should emphasize cuts in continuing programs because, given the budget practices of government that look to existing budgets as baselines for setting future budgets, the current cuts likely will result in related reductions in future spending.
- Restrict Future Spending – In designing effective statutory restrictions on future spending, Congress should seek to reduce spending, with a reasonable transition period, to not more than the modern historical level of federal revenues.
- Fix the Congressional Budget Process – To do this, Congress should:
- amend existing federal laws that provide permanent or indefinite appropriations for federal agencies or programs (including entitlement programs), so as to retrieve congressional control of spending for those agencies and programs.
- estimate and publish the projected cost over 75 years of any proposed policy or funding level for each significant federal program.
- require a calculation of cost of a proposal that takes account of that response information available to Congress when it decides whether to pursue the actions.
Default on the debt does not occur when government borrowing reaches the debt limit. When the government reaches the debt limit and cannot borrow more money to pay its bills coming due, it must, as a practical matter in the absence of guidance set by law, establish priorities in paying the bills.
Congress should proceed with an orderly change of course in federal spending – taking action to cut current spending, restrict future spending, and improve federal budgeting – and at the same time it addresses the debt limit.
Failing to Control the Spending that Causes Debt, Congress Has Raised the Debt Limit Regularly – Early in the past century Congress enacted the first aggregate public debt limit, on federal bonds. Throughout the 20th century and into the present century, Congress has from time to time raised the debt limit and also has authorized the government temporarily to exceed the debt limit.
Fifteen weeks after the Japanese attacks on the U.S. territories of Hawaii, Guam, Wake Island, and the Philippines, Congress doubled the debt limit. Following the Japanese surrender on September 2, 1945, Congress took up the debt limit again -to cut it to $275 billion on June 26, 1946. Congress left the debt limit of $275 billion in place, but several times enacted legislation that temporarily authorized the government to borrow money in excess of the debt limit. Finally, on September 2, 1958, Congress raised the debt limit to $283 billion.
Since then Congress has raised the debt ceiling 30 times, and it now stands at $14.294 trillion.
WARNINGS from Europe – What could happen
- The European Debt Crisis – The “Vienna initiative” was a plan, drawn up in 2009, that halted the rot of financial contagion spreading through central and eastern Europe. It is now being discussed as a possible model for resolving Greece’s sovereign-debt crisis. The need to come up with a new plan for Greece is mounting. On May 20th, 2011, Fitch, a ratings agency, cut the country’s debt rating by another three notches. Yields on Greek ten-year bonds this week reached 16.8%, more than twice what they were a year ago.
- Greece’s Monetary Policy – Greece, struggling to avoid default on its massive national debt, obviously is in bad shape. This year it will run a budget deficit equal to 9.5 percent of its GDP. That actually is a significant improvement over last year, when its deficit topped 15 percent of GDP. Greece also provides an object lesson to those who believe that budget deficits are the result of low taxes. Greek taxes run as high as 40 percent on incomes above €70,000 per year. It’s not low taxes that caused the Greek crisis, but high spending. (Sound familiar?)
- Greek Coup? – Despite last year’s 110 billion euro Greece bailout there remains serious concern that the periphery EU nation will be unable to continue its debt repayments. Due to the increasing severity of the problem, and the ongoing resistance to additional support, the Central Intelligence Agency has now issued a report warning on how worsening Greek unrest could bring rise to even a military coup. A number of European Union countries including Germany, Finland, and the Netherlands have lost already lost interest in and support for extending any further bailout funds to Greece as its austerity measures continue to flounder.
- EU Safety Net Frays – “There can be no more illusions about getting help from the state,” said Ms. Gema Díaz, at home on a recent evening in a charmless, government owned complex on the outskirts of the city. Hers is a story repeated across Europe, fueling the protests and strikes that have tied up airports, blocked highways and, in Greece, even turned deadly. For millions of Europeans, modest salaries and high taxes have been offset by the benefits of their cherished social model – a cradle-to-grave safety net which, in the recent boom years, seemed to grow more generous all the time. Now, governments across Europe say they have little choice but to pull back on social benefits, at least for now.
- Greece, Ireland, Portugal Bailouts – It was a year ago that the European Union produced its big bazooka to quell the euro area’s sovereign-debt crisis: a €750 billion fund to safeguard the single currency, following within days of the €110 billion bail-out of Greece. It did not work. Ireland has since been bailed out, and a rescue of Portugal is in the works.
- Debt Ceiling Warnings from Europe – As the debate over America’s debt burden intensifies, Europe’s social and economic problems provide a warning to the United States. For over a decade, continental Europe has witnessed political and economic decline, culminating in a sovereign debt crisis which has brought the single European currency to its knees. What are the lessons from Europe on where the spiraling debt crisis will end? The Government in Britain has chosen to swallow the bitter pills of austerity cuts and deficit reduction. The Conservative-led coalition has pledged to eliminate Britain’s structural deficit by 2015, as well as to cut 490,000 public sector jobs. Sweden, which is also outside the Eurozone, has successfully steered its economy through this crisis. Having learned valuable lessons in the 1990s, Sweden’s center-right government has chosen to incentivize work and maintain budget discipline, which has led to economic growth of 4.5 percent in 2010.
Conclusion
Let us Americans analyze these different European approaches and what lessons they can offer America’s next presidential candidates. Politicians (of both parties) have only to look to Europe for a free, painless lesson about what awaits this country. But, as we (taxpayers) know, politicians tend to cling to their beliefs, even in the face of contrary evidence (Reid and Schumer come to mind).
But that’s just my opinion.
Great summary and overview, Warren B.
I had read that we are ”technically” not on a recession….anymore.
We had our 3 quarters of anemic growth ending it in 2009.
But the ”recovery” has been a non-jobs recovery, a non-home-sales recovery and a put-your-cash-in-a-pillow recovery.
It could go south at any time.
One thing that I hate about all the so-called plans from Boehner, Ryan, Reid and the unwritten one from Obama is that they ALL increase government programs’ spending.
Some of them slow the rate of that growth, but all of them grow the government.
Fact is, the media trots out some would-be victim of any real cut in federal spending and everybody’s heart bleeds in response.
We are going to have to take some strong and stinky medicine if we are going to survive as a nation.
Obama seems to favor the Cloward – Piven strategy that overloads the entire nation’s welfare systems so that he can replace them with a national system of a guaranteed annual income and an end to poverty as we know it.
He’s the only one of our nation’s leaders who seems to be on target to win his contest.
There seems to be a lot of confusion in the general public about the debt ceiling and many think that raising it will result in additional spending down the road – rather than the more accurate notion that it will allow the US to borrow money to pay bills which were approved in the past by both sides and are now coming due.
Here are some Bipartisan Policy Center figures:
Program Cost (billions)
Social Security $49.2
Medicare/Medicaid $50.0
Unemployment $12.8
Welfare & Food Programs $9.3
Military Active Duty Pay $2.9
Veterans’ Affairs $2.9
Pentagon Vendors $31.7
FBI & Federal Courts $1.4
Debt Interest $29.0
Housing Assistance $6.7
Pell Grants & Other Ed. $20.2
IRS Refunds $3.9
Health & Human Services $8.1
Salaries & Benefits Fed Workers $14.2
Total for just those programs $242.3
Incoming Funds $172.4
Balance $(69.9)
Ignoring the fact that we would need to pay at least some federal workers to process the necessary payments and deliver them, let’s take Federal Salaries & Benefits completely out of the equation. Now we only need to get rid of another $55.7 billion to break even. Pell Grants and such – we’re down to $35.5 billion. IRS refunds, that gets us to $31.6 billion.
Housing assistance, Health & Human Services Grants – $16.8 billion. We could to stop investigating and prosecuting federal criminals — that would bring us to $15.4. Completely cut Welfare & Food programs and we’re still short $6.1 billion.
We’re left with reducing benefits for SS (the elderly), Medicare/Medicaid (the sick), Military (active duty, veterans, and their support/supplies), and interest on the debt. Not an easy choice and political suicide for any who would dare attempt it.
Rita, don’t know what the BPC is using for their figures. Take, for example, HHS. Their entire budget in 2010 was $78.4 billion. So what’s the $8.1 billion quote all about? Think the HHS is overabundant in agencies, subagencies and more sub sub agencies? Or a’wash in federal employees that really aren’t needed? In fact, HHS was only formed in 1953 and then included a smaller Dept of Education and also Social Security (HEW). Dept of Ed was split out to become it’s current monster late 70s, early 80s, and in 1995, they made the new Social Security monster it’s own entity. To boot, the HEW (now HHS) was created during an era when the POTUS had authority to do so, unless Congress veto’ed it’s creation. Eisenhower used that authority to do so… a pox on his house, IMHO.
How did we survive as a nation with a more streamlined version… or at all?
Talk about other worthless agencies with big 2010 budgets, there’s the Dept of Energy with $24.1 billion, Dept of Education with an annual budget of $56 bil, plus got stimulus funds to the tune of $102 billion in 2009, $51 billion in 2010, and on target for another $23 billion this year. Ironically, the Dept of Ed is one of the smallest agencies with only 5000 federal employees back in 2007.
So I have no clue what the BPC is using, save that they must be addressing only what they feel is expendable. So they, as well as you, are incorrect if you think that benefits need to be reduced for the entitlement programs… which is what got us into this mess to begin with… and sacrificing military benefits. Your order of priorities is puzzling, to say the least.
Me? I think it’s quite simple. The problem is the entitlement programs on a runaway spending train. That needs reform. And government spending can be reduced by shinking the size of these mammoth agencies. An axe should be taken to the ga’zillions of federal agencies, and the dead weight thrown back into the private sector to generate revenue, instead of being people that just recycle taxpayer funds (who pay their salaries) then giving back some of those taxpayer funds to the feds in the form of their income taxes. They contribute nothing when it comes to revenue growth. They only feed on others’ labors and accomplishments. And that most especially includes Congressional elected officials at the top of the list. They should be part timers… home for part of the year as a private citizen generating revenue, and not being a parasite/leech full time, feeding on the taxpayers blood.
@Rita: Rita- While it is true that some cuts are less desirous than some others, these cuts will always hurt someone– and it does have to be done.I would like to see the elimination of the Dept. of Education- after all, most baby-boomers went to school and college without the benefit (or detriment) of the Dept. of Education.
Another is the EPA- its intended goals have been hijacked by progressive eco-weenies to the point where it is an obstructive program, not a beneficial one. Now it exists only to block any drilling for fossil fuels, and while I would like to see “commom sense” green fuels, none now exist in the US, so until there are some that will really work in reeality, and not just in some progressive’s wet dream, I think the EPA has to go- now there’s some money saved. Toss in the Dept. of Commerce, and we have something approaching balance.
It is one thing to pay what is owed and quite another to pay for things authorized yet not spent — yet.
Those latter are the things we will have to readjust.
Sure, free-spending politicians passed those older budgets into law with promises of 10 years worth of growth in each program, but all of that can and should change.
There is no reason to continue to waste taxpayers money on bridges to nowhere or shrimp on treadmills when austerity is the only way to save our nation.
_________________
Rita, I think the last thing we ought to take out of the equation are federal employees, their salaries and benefits!
Let them retire early, be furloughed once a month or even more than that, and especially, let them begin to match the private workers for productivity levels!
America’s private sector workers are at their most productive EVER.
But federal workers grouse and moan if they have to do even 1/3rd of the work a private worker does every day.
Remember Cash For Clunkers?
An auto buyer could get UP TO $4,500 for the right auto with trade-in.
BUT the federal program in the Department of Transportation opened THREE NEW DIVISIONS just to administer the Cash For Clunkers program!
So, our federal workers at DOT sucked off $6,000 per car that went through the Cash for Clunkers program!
Four other forms had to be filled out by federal employees at the National Highway Traffic Safety Administration (NHTSA).
(Forms 1070, 1071, 1073 and 1075)
$12 million more was spent by DOT and NHTSA just to pay federal employees to fill out those forms.
Add to this, the federal government web site, Recovery.gov contracted out another $18 million just to modify a web site for Cash For Clunkers.
An attorney in private practice, were he/she to take assets under his/her control and expend them, would be disbarred, put in jail, and be unemployed. This happened to my brother-in-law.
The Congress stole the Social Security Trust Fund and spent it. This was criminal misfeasance.
The Congress will suffer no civil or criminal penalties for their crimes.
The Congress IS the law.
The Congress routinely spends money which it does not have. The Congress routinely binds its successors to spending money: these are called “entitlements.”
How does a citizen become entitled to Federal money? What do you have to do? Breathe?
A private company, spending what it does not have, goes bankrupt. A private company, publishing a prospectus which is false in its facts, has its principals indicted and sent to jail.
Why is Congress immune from Federal prosecution?
I know. They ARE the law. They need obey no law. They are lawless, but subject the rest of us to their law-breaking.
We need a different Congress.
@Blake:
“While it is true that some cuts are less desirous than some others, these cuts will always hurt someone- and it does have to be done.”
I agree. But it’s a NIMBY-type problem. If asked about each of the programs I listed individually, many voters would say “of course we should fund that…and that…and that” without realizing that we can’t afford them. Almost everyone believes that if the government just cut wasteful spending, everything would be all hearts, flowers and rainbows. In reality, eliminating waste alone won’t get us to where we need to be – it will involve cutting programs that many voters would consider “essential”.
Until they can be re-educated, any politician moving against those programs stands a very good chance of being voted out of office in the next election. It creates a self-perpetuating cycle. We have a glut of politicians when what we need are true public servants who can get themselves elected (hard to do if one is advocating cuts to the aforementioned programs), are willing to do what is necessary no matter how unpopular, and then “suffer” the consequences. And sadly it would take several consecutive such servants to enact lasting change.
The biggest thing that the liberal/progressives in Congress and Obama are misleading the public about is the idea that taxes are the key to balancing our budget, or, in the case of some, that tax hikes should be included within any talk of reducing the deficits by way of a balanced approach.
Why do I say that it is misleading? Because the tax increases that Obama, and the liberal/progressives in Congress keep harping on will only gather in $70 Billion or so per year in additional revenue, and only if the economy starts growing at a faster pace than it is now. $70 Billion, when we are talking about deficits well north of $1 Trillion. Balanced? Hardly. And what’s more, the negative effect on the economy of those added tax hikes is unknown.
To have a truly balanced approach to lowering the deficit, tax hikes would have to be somewhere in the neighborhood of $500-700 Billion per year, with corresponding spending cuts. Keep in mind that the current estimated “cost” of keeping ALL of the Bush tax cuts in place(over the Clinton-era tax rates) is around $340 Billion per year(average over ten years). This means that another $160-360 Billion in tax hikes would have to be administered, above and beyond the Clinton-era tax rates, for taxes to approach the level of spending cuts required in a balanced approach to reducing the deficit.
Remember, Obama has already pledged that the bottom 95% of taxpayers won’t see one dime in new taxes(yes, I know that pledge has been broken already). So, let’s say that we go along with him, and raise taxes on the top 5% of wage earners in order to get to that $500 Billion number(average estimated deficit over ten years is $1 Trillion per year). How much would taxes have to be raised on them to satisfy that? Well, a total of around 20% in their effective tax rates would have to be realized, whether solely in rates themselves, or a combination of rate increases and “loophole” closings.
The problem with all of this talk about tax increases is that the negatives to the economy are widely known, as Dr. Thomas Sowell has pointed out;
http://www.investors.com/NewsAndAnalysis/ArticlePrint.aspx?id=578623&p=1
What would happen is a double whammy if such tax hikes were enacted:
-One, the higher income earners would place more of their earnings within tax shelter investments, taking that money off the table and out of the private economy. An exact amount is unknown, but an off the hand guess would be in the neighborhood of $1 Trillion.
-Two, the money that government took in due to those tax hikes would also be removed from the table and out of the private economy. Now, while some of that may, eventually, find it’s way back into the economy, the vast majority of it ends up in the hands of pure consumers who do not produce anything, and add nothing to the GDP itself.
-Combined, less money in the hands of private enterprise would lead to a contraction in the economy, and stagnant GDP growth rates for a period of time.
And all of this doesn’t even touch on the fact that even if such tax hikes are enacted, the liberal/progressives in Congress, and Obama, do not, and have not, been willing to enact the spending cuts necessary immediately. No, they wish to put that off into the future, where only the idea of the spending cut would remain, and never actually be done.
The liberal/progressives and Obama are not serious about the issue, and never have been. All they want is another credit card paid for by mommy and daddy to continue their free spending ways, not caring that mommy and daddy are being driven deeper and deeper into debt, possibly to a point they can never climb out of. Unless their credit debt is held to current levels, bankruptcy will happen. The question is merely a matter of when.
Exactly… it runs under the assumption of a rosy GDP projected growth, and not accounting for smaller growth… most especially because of the tax deterrent for businesses. They assume the turnips can churn out the same amount of blood with the increased taxation, and despite a continual decline in the housing market and stagant to increasing unemployment.
Gotta get a set of those rose colored glasses these elected ones use for myself. Sure must make the world look purdy…..
My thoughts, edited and brought over from another thread – Simple House/GOP solution … Double the terms of the CCB (it has passed the house once) and send it back to the Senate and WH. Every time it fails double it again.
The “no planners” will only wish for the original back. Don’t let that happen. The backup baseline room for negotiations is 25% of the last one sent.
The cry is “no substance”. Well this would be a good start. Let the screams of indignation begin.
BTW, Warren… stellar contribution in this post. A big “atta boy” to you.
@MataHarley:
Funny that you presented it that way. Back in 2008, during the Presidential debates, Obama used the analogy of using a scalpel to the budget while McCain “talked” about taking a hatchet to it. At the time, I was discussing this on another site, and I laughed at the people defending Obama’s ‘scalpel’ analogy, and stated that the budget didn’t need a scalpel, carving knife, machete, or hatchet, but instead, needed a northwoods logger with his massive chainsaw.
I still think that way. “Use the right tool for the job”, is what my father always says. And for the job of balancing the budget, nothing less than a chainsaw will work.
I’m actually starting to think that the best outcome would be for neither side to blink. Hold firm to core principles. Let the Deadline pass. Furlough Federal workers. Reduce Social Security payments. Have T-Bills downgraded. Maybe even a delay in interest payments (default). Let chaos ensue.
What could emerge, from the ashes, is precisely what this country needs. A third (centrist) party. Built on the concepts of pragmatism, consensus-building, and, when necessary and appropriate (such as right now), compromise. The country has had it up to its ears in true believer, take no prisoners radicalism. Enough.
http://www.theatlantic.com/politics/archive/2011/07/the-clearest-sign-yet-that-boehners-bill-will-pass-the-house/242647/
– Larry Weisenthal/Huntington Beach, CA
@MataHarley: MataHarley, Re: comment #9 “They contribute nothing when it comes to revenue growth. They only feed on others’ labors and accomplishments. And that most especially includes Congressional elected officials at the top of the list. They should be part timers… home for part of the year as a private citizen generating revenue, and not being a parasite/leech full time, feeding on the taxpayers blood.”
VERY GOOD POINT!
I could not agree with you more.
Allow me to point out an ugly reality for you, Larry. Any “chaos” that ensues is specifically chosen, and implemented, by Obama and Geithner, and will be chosen for political purposes.. not for expedience. For it is they who decide what will and will not be paid. Thus, the onus of that ensuing “chaos” lies squarely on their shoulders alone.
There need be no “chaos”. If you, as a family, find your income short, do you not triage what is vital and what is not? Do you not shave down expenses to fit within your reduced income budget?
Or do you simply choose to take that vacation instead, pay the interest only on your credit cards, and dump food and the mortgage expenses? If the Zero and Tax Bum Tim take the route of slashing Medicare, stiffing SS and veterans, they are doing exactly that.
So would “chaos” be beneficial? Unless Obama and Tax Bum Tim can sell to the public, thru the media, that the GOP was the ones choosing what bills get paid, and what doesn’t, it’s a serious political price they need to pay. I believe they will feel no compunction to stiff grandmama and the military in order to play political games they think will work in their favor to hold power. Thus I have no doubt they will take the partisan route, and then furiously fingerpoint to absolve themselves of their genuine responsibility. If the audience is dumb enough, they’ll buy it. And apparently, there’s a large swatch of “dumb” out there to play on.
@johngalt, would this do the trick? I’m a thumbs up… LOL
@MataHarley:
LOL! That’s a massive chainsaw, for sure.
In other words, they will do the same thing they have been doing since Obama first started campaigning for the Presidency. I would actually be surprised if they doing anything other than that.
@Mata: I agree that there need be no crisis, at all. It could be managed in so many obvious ways. Why, for example, should Obama and Geithner be given the opportunity to work their selective mischief? The only way they get that “opportunity” is if a debt ceiling compromise is not reached. The only reason that a sensible compromise is not being reached is that our current two party system has become totally dysfunctional.
What the country now needs is either a new, centrist party or else a switch to a parliamentary system.
– Larry Weisenthal/Huntington Beach, CA
@MataHarley, #15:
Things might suddenly go into a terminal spin beyond anyone’s control. Many seem to want to ignore the fact that public sector spending is all done in the private sector economy. With the economy already in a weakened state, suddenly reducing that flow of funds into the private sector by 40 percent might trigger a cascade of events that wipes out the entire system.
I doubt if the GOP would be able to turn total economic chaos into 2012 election wins. People wouldn’t really give a d-mn whose fault it was.
Why so drastic in all solutions, Larry? You have a dirty baby in need of a bath, and a filthy bathtub, filled with stagnant, dirty water.
So your solution is to buy a new tub, and adopt a new baby???
I think I’ve been pretty clear with my mid July post about this whole debt ceiling farce, and how both parties are playing we… all taxpayers of all political stripes.. the fools. Neither party is offering a real solution, and I’m beginning to believe it’s because they are all far too stupid to see the base problem.
Instead they all seem to want to keep the government and agencies the size it is and think they can pay for it anyway, and ignore the increasing numbers to the entitlement programs rolls that are driving the primary amount of our debt. And we’ve already seen they’ve got the idiotic notion that health care costs can be controlled by price fixing insurance premiums.
By heavens, the level of “dumber than dirt” in the beltway is no less than astounding.and seriously depressing.
No, we don’t need to change the structure of our government to British Parliament. And no we don’t need a “new party”. What do labels do anyway, Larry? People’s political beliefs are not defined by their party registration since most are a combination of both. And your “centrist” idea? That’s interesting… there was a massive “centrist” running in McCain, and he was shunned by your party in favor of a Euro-socialist. Shunned by the GOP as just another Dem-lite (which he is…). And for those like me who don’t identify with either, the choice between Bozo on the left, and Emmett the Clown on the right made me nauseous.
Political officials need to be held to responsibility. But first the public may need to start screaming a little louder about appropriate cuts… as in shrinking the size of these ga’zillion agencies and paring back to reality.
Additionally, they need to learn the difference between “cutting” and “reforming”. You don’t keep Medicare/SS the same and just figure out a way to spend less on it…. which is what the Dems want to do, as well as some GOP. You need to reform how it works, and get it out of the future generations way as a fiscal anchor around their neck. You cannot operate programs that are funded by the upcoming generations that benefit only the current generation. This pyramid scheme depends upon each generation being more prolific in numbers and revenue to keep up with inflation of services. Not only a ponzi scheme idiotic, but it’s a dangerous projection. What if we did have a plague or war that wiped out a significant portion of that working youth? Or, as we’ve seen, the voluntary reduced birth rates?
Nope…
1: empty the dirty bathwater (eliminate non-fiscally responsible elected officials),
2: clean the tub (reform medicare/SS and genuinely institute health care reform that focuses on reducing the overhead costs of delivering health care services, and
3: keep the baby (no English Parliament or new parties… neither of which accomplishes whit since everyone remains the same, but with a new label/tag).
@MataHarley:
“So I have no clue what the BPC is using, save that they must be addressing only what they feel is expendable. So they, as well as you, are incorrect if you think that benefits need to be reduced for the entitlement programs… which is what got us into this mess to begin with… and sacrificing military benefits. Your order of priorities is puzzling, to say the least.”
To clarify, those BPC figures are just a portion of what is coming due for the month of August only. The list only covers the named programs for a single month. Many of the items the government currently “owes” (and that you point out) aren’t included. The numbers came from the BPC which doesn’t label any of those programs as necessary OR expendable – they make no judgment regarding the programs’ worthiness one way or the other.
The commentary beneath the list is mine and is meant to illustrate just how far in the hole we are. I personally consider many of the items on that list to be rather important — but important or not, they all will have to face varying levels of cuts – some of them painfully deep – if the government wants to “live within its means.”
As Blake said, those cuts are gonna hurt someone – it can’t be helped. Our elected officials have some very hard choices to make and no matter which ones they choose, some voters are going to want to punish them for it. We just have to hope that we 1) have public servants who are willing to make those hard choices and 2) try to educate the voters as to why such steps are necessary.
Oh for heavens sake, @Greg, every bit of it is controllable. The available funds are triaged to vitals, reduction of agencies and dead weight civil servant leeches are released into the wild of private entrepreneurship, and all investors and global credit rating industry wants to see is that the US is attacking it’s massive debt with some sensibility, and not just increasing the credit card limit while ignoring the problem.
It ain’t rocket science, and it’s only armaggedon if you have idiots at the helm. Which we do, but we have to assume there is some integrity and brain cells somewhere within the WH and Treasury.
But notice the way you think? Let me repeat what you said…
You apparently see the private sector’s health as revolving around government handouts. Perhaps this is the major flaw with your political philosphy. It’s this “re” distribution of wealth that you demand as the foundation for a central government.
Forget the government handouts. They wouldn’t be needed if the government weren’t picking their pockets.
The private sector would benefit handily in three ways…
1: They would have more cash assets left in their pocket by not being robbed, free to grow, expand or profit and spend that benefits other businesses
2: There would be less dead weight employees to support and recycle their stolen earnings and
3: Eliminated government employees are thrown back into the private sector pool where they no longer recycle taxpayers cash, and instead generate new revenue to contribute.
What you don’t get is that the ratio of public sector to private sector work force has been increasing, with more on the taxpayers payroll. Public sector employees contribute no revenue… they just redistribute existing private sector revenue. At this point, it’s a little over 16% of the entire workforce, and that doesn’t include all the new agencies and employees that have been created by both O’healthcare and Frank-Dodd financial “reform” (spit….)
This means there is only 84% of the workforce that is supporting everything… government, welfare/entitlement reforms and future spending… with original and fresh revenues. Of those, many don’t pay taxes at all, so that number whittles down considerably in reality as well.
The private sector needs more entrepreneurs and revenue generators. We need less leeches. When a nation becomes so burdened that more than 50% of the population is drawing off the work of the other half, you are in the spiral too deep to get out.
@MataHarley:
If I could I would give your post the thumbs up over and over for the rest of the day. You put words to what I have been feeling.
@mata: Not too much energy for the whole R vs L thing, right now. Answer to SS is simple: raise retirement age, means test, remove yearly cap on payroll tax. Answer to Medicare is the same as the answer to health care: change payment to providers from payment for services provided to payment for health care outcomes obtained.
McCain couldn’t be McCain, in 2008’s GOP. If McCain had run as McCain, I’d have voted for him. But he ran as Dick Cheney. Romney can’t be Romney. Pawlenty can’t be Pawlenty. The only somewhat centrist who’s more or less being himself is Huntsman, and he’s got no chance. Same thing for the Dems, where no one can get nominated who’s not pro-public employee union, and what not.
What’s worse than politics at the Presidential level is politics at the legislative level — particularly in the House. Districts are gerrymandered to eliminate the possibility of a competitive election between the two parties; so our congresspeople are all radical right GOP and radical left Dem.
This blog (and liberal versions thereof) reflects the talk radio mentality, save for the fact that the discussions sometimes have considerably more meritorious substance. But the “attitude” is the same — belittle and delegitimize the opposition. And, depressingly, this is now the way the country is being run, at the national level.
So the result is what you see now being played out in Washington. It’s depressing; so I’m redirecting my attention to the upcoming college football season, where I’ll be closely following the exploits of Denard Robinson and Brady Hoke.
– Larry Weisenthal/Huntington Beach, CA
@Rita, can’t disagree much with your clarifications, save I would beg to differ with you on what you consider “important” in that list. Thus the NIMBY attitude enters the debate fray.
Me? What is important is only what I believe is within the realm of Constitutional duties of a central government, as opposed to the sovereign states. And the feds have far more than meddled outside their Constitutional authority on most of that list. However since the actual existence of these agencies has rarely been challenged in our court system, the criminals get away with the crime because no charges are pressed.
This is not to be confused with Congressional right to create such agencies. However what they do create, and it’s authority within the founding concept of a limited central government vs sovereign state governments, can most certainly be questioned. And that ability of the POTUS to create these, only faced with Congressional veto (ala Eisenhower and the HEW/HHS) was removed nine years later. I guess Congress wanted the power to grow government all by itself, and not share that with the POTUS.
@Hard Right, thank you for the kind words, But mostly thanks to find out I’m not so isolated in my anger, disgust, frustration and depression with pretty much everything and everyone in the beltway these days.
@MataHarley:
This is what has been on my mind for a while now, and that I’ve hinted at in other articles. Those public sector employees do nothing for the GDP. The GDP of our country grows through efforts, big and small, in the private sector, from the grocery store clerk ringing up your groceries to the corporate CEO making multi-million and multi-billion dollar decisions for the company he runs.
Public sector employees merely are another middle-man between the money, or wealth, created by the private sector, and the return of that money into the private sector. And in the middle, there is waste and inefficiency which evaporates some of that wealth into thin air.
With the ratio of private sector to public sector employees changing, and not for the better, more and more of the GDP, or wealth, that our nation produces evaporates because of the inefficiency and waste.
And the liberal/progressives’ answer to this? Employ more people in the public sector, by either actual jobs, or the dependency upon entitlement programs. The only word that comes to mind is stupid. Just plain stupid.
@openid.aol.com/runnswim:
As will I, my friend. Let’s hope that the combo of Robinson and Hoke, with Mattison on the defensive side, will result in an unforgettable season. Go Blue!
The assertion that public sector employees and public sector expenditures contribute little of consequences to the GDP makes about as much sense to me as the assertion that the wealthiest members of the population are somehow personally responsible for the bulk of wealth produced.
@John: Someday I’d like to hear about when you were in A2 and other such stuff. If you feel like it, send me a private email to runnswim@a.o.l.c.o.m. – LW/HB
@openid.aol.com/runnswim:
“Answer to SS is simple: raise retirement age, means test, remove yearly cap on payroll tax.”
Great, why not just call it the Great Ponzi Scheme Redistribution of Wealth Program? Just tell all those people who have been working for 20 years “You know that money you have been paying into a program that you have been promised to get back when you reached 65, well, since the American health care system, that we keep saying is so rotten had managed to create technology that allows the probability that you are going to live longer, we are going to break our promise because we stole all the money during the fat years and now we don’t have the money for the lean years.”
Means test? Abolish limits on payroll taxes? Why not just be honest and tell those who have managed to reach some level of financial success that you are going to take their money and not give it back?
“Answer to Medicare is the same as the answer to health care: change payment to providers from payment for services provided to payment for health care outcomes obtained.”
Yeah, and all those people who suffer from terminal diseases, and have no hope of living in spite of the health care provided, can just do without the medical treatment that makes the disease a little less debilitating. Hell, they’re gonna die anyway, right? So that person with Altzheimers can just do without any medical treatment, or that person with terminal cancer can just pound sand. Isn’t that exactly what Dr. Emauel, Rahm’s brother, proposed, denying care to those whose life has less value and are really hopelessly terminal? Now there’s a pure Marxist solution you have there, Doc. Why not just admit you believe in forced redistribution of wealth, ala Marx, and be done with it?
How about this: we eliminate all social welfare for people who have been on it for over a year? People sometimes needs a hand up, but why do we have generational welfare? Drug/alcohol test for ALL welfare recipients. You continue to keep having kids that you can afford (because hey, we can’t tell people how many kids to have)? Fine, when you do, if you can’t support them, we take them away from you. Unemployment? Well, that is also simple; you never draw more than you have paid into the system. If you paid $5,000 into the system, when that is gone, you’re own your own. Find a charity to help you. Oh, that’s right; Obama wants to end the deduction for donations to charities. There is NO insurance policy in the world that pays you more than the agreed amount of benefits. Now we are paying people to sit on their ass watching Oprah for 99 weeks.
But I understand that the welfare queens and crackheads that live off welfare are the sacred cow of the Democrats.
@retire.
Belittle and delegitimize.
Q.E.D.
@openid.aol.com/runnswim:
What did I say that was not true? The fact that you want to put the screws to everyone who has paid into Social Security based on a promise made in 1936? The fact that you want those who have achieved some level of financial success to be kicked out of a program they have paid for their entire working life?
Here’s a thought: you are probably one of those millionaires that make $200,000/yr (fuzzy math on Obama’s part) and have a couple of thousand dollars hanging around like Obama claims to, so why don’t you just write the IRS a check and add a note for them to use that money to pay down our debt instead of screwing people out of the benefits they have paid for all their working lives?
Mata (#9), right on! Glad you jumped in before me, as you are always say it better and save me a ton of time I don’t really have right now.
Larry I’m SO glad you have at least finally seen the “light of the left.” I agree as well that both sides are disgusting, and in IMO, what our country needs, for starters, is NON CAREER POLITICIANS, as Mata pointed out and the fact that the per intention of the founding fathers, our representatives were never to be “career”, but part-times, with real lives and real jobs. FYI, the state of TX legislative branch only meets once every two years!
I also very much agree with your gerrymandering point Larry. We also need, national open primaries.
As for Obama and “chaos”, well, many of us know, that’s the way he, and the Alinskyites roll. IMO, nothing in his presidency is or will be more defining than his ‘management’ of this debt crisis. For every naysayer who failed to not only not believe, but even entertain the fact that Obama was purposely trying to destroy the country, well, it’s now being brought to us all “live.” At the very least, even his most staunch supporters have to admit that he is more interseted in re election than saving the country that he never really loved and still resents.
I have mixed feelings on the “let the chips fall” position. Originally I was very strong on it, knowing that everything we are watching is political theater and a band aid at best, while the hemmorage is continuing. One thing I do like about it, is that the buck HAS to stop with Obama. Yes, I realize he will play the political game in the distribution, but the mere fact that he would “allow” it, despite having had total control of the house prior, tells us everythinhg we need to know about the “real” Obama. I could easily make the case as to why Obama would WANT to go over the cliff, starting with the fact it’s a no brainer for raising taxes, as it will be we the taxpapers who will be “paying off the collection agencies.”
The other part of me, and on this I somwhat agree with Larry, that we need a “do over.” I”m not big on a party do over as much as a “reality check.” Like it or not, nothing gets more real than pain. It may well be, that it would take total chaos, to wake up half of this country to the political reforms that need to take place. Mata I don’t discount your “dirty bathwater”, only the reality that we need the real bottom for a new start.
All said, that chaos could be putty in Obama’s hands, and even more scary, he is still the POTUS. Power (from a radically left thinker) and choas is not my first choice. It’s a real balancing act, despite the fact that Aug 3rd (or is it Aug 2nd) is a made up “scary deadline day.” But rest assured, the real scary day when we do hit the wall can’t be too far away at a rate of 4B a day in spending.
What a delight to see you here again, Patricia. Your even tone and diplomatic cyber whispers have been missed. LOL
Yes, I was actually surprised to read Larry’s acknowledgement that chaos wasn’t necessary, but did we really want to give that opportunity of “mischief” to Obama and Tax Bum Tim? Well, if the other choice is simply increasing the debt limit for the price either of the political prostitutes (Dems or GOP) are demanding for that service, yes… I do. It is their responsibility under our structure.
As you rightfully point out, the record of any incumbent POTUS for a second term is a judgment on how they handle a crisis. Since this has been a “crisis” mode from Inauguration Day, I’d say the record is pretty deplorable, and getting worse. But this comes with the job… and now, once again, we will have to see where Obama’s priorities lie… with his political career and favorability ratings by pitting grandma and the veteran against the nation’s economic future? Or with the genuine welfare of the nation which necessitates wise distribution of the revenue until something real is offered by anyone in Congress about shrinking government and genuine reform of the entitlement programs taking us down.
The same can be said for the elected officials in Congress. While the media laps up the political theatre, and we in the blog world jump to opine and whine, it’s a bad joke played on all of us. And it’s sad to think of how few people actually realize that neither party has our interests at heart.
@retire:
I’m critical of your comments, because you are speaking only in derisive slogans. If you want to have a serious discussion, where discussion is a two way street, that is one thing. But if you simply want the opportunity to rant and belittle, I’d rather spend my time on the Bleacher Report.
– Larry
@openid.aol.com/runnswim:
You want a “serious” discussion, Larry. First you have to admit that you are flaming progressive that espouses Saul Alinsky philosophies. Then we can have a serious discussion.
@retire:
You made the charge; now back it up:
Here is a summary of Saul Alinsky’s “rules for radicals:”
I’d like you to compare and contrast the writings of you (on this blog) and me (on this blog) and then tell the readers which of us more closely adheres to Alinsky’s “rules for radicals.”
– Larry Weisenthal/Huntington Beach, CA
retireo5 just curious (#35): what’s the deal with the “label ID”, which Curt has never required of any reader on FA?
Heck, if old Saul could resurrect from the grave, I would LOVE to engage him in conservation on the FA board.
Larry, those points are only a small part of Saul Alinsky’s Rules For Radicals. But I cannot have a “serious” discussion with anyone who thinks that Congress should construct another redistribution of wealth program as you proposed, by means testing for Medicare and upping the age for SS. It will just be another broken promise that was made in 1936.
You are a flaming progressive. At least have the cajones to admit it.
@Patricia:
what has Curt, or the practices at FA got to do with my calling down someone who thinks it is fine for the DHS to violate the Fourth Amendment?
And when my comments are directed to a specific person, what business is it of yours?
Larry Is it possible that Retire05 is actually Saul Alinsky?
Memo to Larry and J.G. 2011 marks the return of The Fighting Irish to their rightful place atop the College Football Polls. Go Irish beat The Wolverines in Ann Arbor 9/10/11. The two winningest programs in college football history.
@retire:
You comment on SS and Medicare. There should be no broken promises. In the early 1980s, Reagan massively cut marginal tax rates and estate taxes, but raised the (regressive) payroll and self-employment taxes. But he agreed that SS should go on budget and that SS should receive T bills (the so-called ‘trust fund’) for any surpluses paid in. Today, those T bills total $2.7 trillion, but the likes of Ann Coulter and her ilk claim that SS is now bankrupt. During his Presidency, George W Bush effectively said the same thing. I doubt that either Coulter or Bush would state that Goldman Sachs, China, Japan, and other holders of T Bills are only holding monopoly money, but that’s the implication for social security, according to many conservative writers and politicians.
So who’s welching on the deal?
Every year, I get an annual statement of the total amount I’ve paid into SS and the monthly amount I’m entitled to draw, depending on when I retire. It’s easy to calculate that I’ll get back (if I remain healthy and enjoy my projected life expectancy) considerably more than if I’d put that money into mutual funds and had the discipline to sit on them. So there is running room, with respect to adjusting SS payouts. No one ever promised you that you’d be able to retire at 65. No one ever promised you COLAs according to formulas used in the past. But the implied promise was that SS would be there for you, and it will be there for you, with some common sense stewardship.
With respect to means testing, you may not agree with it, but it’s an idea with a lot of bipartisan support. It has pros and cons, and it is deserving of the vigorous debate which it is certain to receive.
With regard to removing the caps on annual payroll taxes, this would simply change payroll (and self employment) taxes from a regressive tax (which it is now) to a flat tax.
Quoting me:
You retort:
The above simply indicates that you are uninformed about the concept of basing payment for outcomes, as opposed to volume of services rendered. To become better informed, you might start here. The reason why the payment for services system fails is that doctors (sellers) make the purchase decisions for the buyers (patients). During the recession, lots of people lost health insurance and stopped going to doctors. But the doctors just started providing more services to the remaining patients and doctors’ incomes didn’t go down, despite having fewer customers. They just sold more healthcare to the customers who remained. This is the fatal flaw in the hypothesis that health care, as provided under the current private practice model, has the same market efficiencies as other sectors of the capitalist economy.
– Larry Weisenthal/Huntington Beach, CA
@Wheeler:
In your dreams.
@openid.aol.com/runnswim:
If you really think the Social Security funds are secure, well, revel in your delusions. I also, can do the math on the return on my Social Security payments. At the current level, I will have to reach age 72 1/2 in order to just break even. However, had I that additional money through the years, to invest as I did my savings, I would be in a hellofa lot better shape, even with the fall of the markets in 2008. And yes, Larry, the promise was that people could draw their SS at age 65, a promise made by FDR who pushed that bill, much like Obamacare, on a frightened populace who was still going through a depression and were fearful about their future. Seems the Dems love to play on people’s fears. And where did I even mention COLA (you have a nasty habit of putting words into people’s mouth, don’t you)? But as gas, groceries and all goods have increased in the last two years, seniors have not gotten a raise, but I bet Harry Reid did.
Your comments about how doctors just bilked current patients so that their revenue would remain the same is the sickest thing I have ever heard. I guess they are cutting off people’s feet (according to Obama) to make money. Perhaps the doctors in your failed state of California conduct business that way, but I can tell you that the doctor’s I know are now giving away their services as much as they are getting paid for them. And to claim that doctor’s made the “purchase” decisions for adults either proves that you don’t know what the hell you are talking about or the people you deal with on a daily basis are too stupid to make their own decisions.
No, health care is not efficient when every doctor in the nation (except in Texas) has to worry about being put out of business because of some over zealous tort lawyer. So he/she orders unnecessary tests to cover his/her ass in litigation. And doctors are not allowed to advertise their fees. Perhaps if they were, as independent businessmen, the ones who overcharge would quickly be put out of business.
None of that eliminates the fact that you believe in wealth redistribution and that the “rich” (you know, those making over $200/K a year, the Obama millionaires and billionaires) should pay more just because they reached a fiancial level that other have not.
@retire:
You don’t understand how health care works in the real world. I’ve explained it before, on this blog. You are speaking in personal anecdotes (and uninformed anecdotes, at that). I’m speaking about the macroeconomic real world.
Lay people have no clue — truly. A doctor needn’t be unscrupulous to prescribe a medication (or operation or test) which makes him more money than an alternative treatment or test which makes him less money; he simply needs to be human.
Here’s a brief example which illustrates what I’m writing about:
http://www.cancerdecisions.com/content/view/525/2/lang,english/
http://www.cancerdecisions.com/content/view/526/2/lang,english/
You go on to say:
The precise form of malpractice tort reform introduced into Texas during the past decade was invented in California and introduced into California law 30 years ago. It caps pain and suffering and punitive damages at $250K, but doesn’t cap actual damages. Actual damages can (and do) frequently exceed $1 million. Additionally, a single malpractice suit is something which stays forever as a blot on the doctor’s reputation (and malpractice premiums). For this reason, there is no disincentive to order “unnecessary” tests. The impact of malpractice tort reform has been extensively studied in both California and Texas. Health care costs were not favorably impacted in any way. There was no reduction in “defensive” tests.
Doctors are allowed to advertise fees (and some do). Where on earth did you get the idea that they are not?
With regard to your own social security situation: will address after I’ve looked up some insurance actuarial data.
– Larry Weisenthal/Huntington Beach, CA
@openid.aol.com/runnswim:
Yes, Larry, any doctor who perscribes tests that are not necessary, to simply improve his revenue numbers, IS unscrupulous. I don’t know any doctors (and I know quite a few) that conduct their business in that fashion. Almost all I know donate much of their time to groups like Doctors without Borders and even the dentists I know make trips, on their own dimes, to perform oral surgery on patients in third world nations, to fill cavities, and help those who would otherwise have no help. Of course, as is typical of your arrogance, you say that I do not understand how health care works in the real world, indicating that I should bend to your ever superior knowledge. Like that is going to happen.
Now, as to my SS situation; I suppose you will come back telling me (to once again bend to your superior knowledge) that I don’t know what my own numbers are and how much I am scheduled to receive at age 65. Sorry, doc, you’re not privy to that information so you have no way to argue any differently.
@rich wheeler:
First night game between the two schools. In Ann Arbor. With throwback uniforms. Must see TV, no matter which college football program one roots for. Go Blue!
@Greg:
As I’ve said before, Greg, you are ignorant when it comes to basic economics.
Public sector employees contribute nothing to the GDP because they do not produce anything. And just because they spend their salaries in the private sector marketplace means very little. That money would be spent, or invested, anyway, were the public sector employees not in the mix. As I stated, all they are is an added middle-man between the wealth companies create, and the spending of that wealth. And due to the inefficiency of government, much of that wealth taken from the private sector and sent to the public sector employees disappears into thin air.
And no one has ever said that the wealthiest members of society are responsible for the bulk of wealth created. Most of us conservatives know that the small business interests, across the nation, create the bulk of the wealth in this country.
@retire05: Oh I dunno retire05, maybe it has something to do with bullies killing a good thread.
@Patricia:
Or perhaps it has to do with past debates that you have not been privy to but think you have the right to stick your nose in anyway?
Now, unless you have some vested interest in my argument with Larry, I suggest you remain on the sidelines as long as I am addressing him SPECIFICALLY.
Larry, INRE your solution to SS and an age increase. It is true that when this unpopular bill was thrust to Congress, it was designed to beat the average life expectancy of 58. It’s interesting that the government SS site, itself, addresses this but by softening that blow of reality. They tend to mush the facts by saying that since the birth rate was a particular factor, it was likely that if any child made it to adulthood, it was likely to collect.
Now that’s not even a logical cover for what they intended. Likely to collect with seven years over the average? They had to be banking on a high rate of deaths for babies, assuming none of those would even be around beyond the life expectancy. And the infants, of course would not be contributing as they would not be of employment age.
Naturally, with better medical care, the infancy deaths are down, and life expectancy far surpasses the originally negotiated age that was seven years above the average. But none of that even negates the ponzi scheme structure. In it’s first year of implementation, over 53000 beneficiaries were paid lump sums… none of whom paid into the system. This means, of course, they were busy robbing Paul to pay for Peter.
Same with Medicare, when the first two to sign up were those financially destitute icons, Harry and Bess Truman. Really now… these two needed Medicare? As I’ve repeatedly said, and refer back to my Aug 2009 post on Hall vs Sebelius, Medicare should be an option, not a mandate. And if even just 1% of the wealthy over 65 citizens wanted to opt out and obtain private care instead, they could save the system billions. However that was cinched by Bill Clinton regulatory changes, mandating that opt outs mean forfeiting SS retirement benefits as well. That’s just insane.
But that was then… this is now. While I understand your mentality is to closer match life expectancy, and return to that gamble that not enough will live long enough to actually collect their mandated government social security pensions, the timing could not be worse. We’re now in an elongated period of high unemployment, unfriendly business environment, and a time when businesses are learning to be lean, mean and function on a skeleton crew with just temporary help in the good moments.
This means that those approaching Social Security are in hell and a handbasket if they are the ones laid off, and finding new work will be virtually impossible. It’s also an age where returning for retraining in a new career is a waste of time. You’d be at retirement age or so when you emerge, and competing with desperate college grads fighting for the same jobs. You’re an employer… you gonna hirer the old work horse? Or a fresh face where you can get more mileage? Especially when you know, with mandated O’healthcare, one is going to cost you more in insurance claims than another. But hey… good news. We ol’ farts can suck up some taxpayer retraining funds that the government will be happy to pay… even tho to no end.
For many, the only hope on the horizon is the goal post of retirement. And indeed, such an early retirement actually frees up a job for the hopeful college grad. So I have to say that if you’re going to move the goal posts for retirement, you’re going to have to make it an age where it’s beyond the expected recovery (assuming we have one…) for the economy and for jobs. Otherwise you’re dooming a segment of the boomer population to a serious vacuum period inbetween.
Something else about this treasury note and SS trust fund solvency business. I don’t know how many times this has been addressed in the media, but an IOU does not translate to an immediately issued government check to a beneficiary. Merrill Matthews at Forbes took on Obama’s budget spinmeister, Jacob Lew, on this very subject. It’s a shell game of money and IOUs.
There is not $2.6 nor $2.7 trillion in an imaginary lock box. Only Treasury IOUs. In order to pay back those IOUs, money must be diverted… or perhaps more accurately put, absconded… from either the General Revenue funds, or borrowered. Either way, it adds further to the debt because Congress… *both* parties…. could not keep their mitts off such a convenient piggy bank.
Even were there the cash in the system, accessible, the same problem leers it’s ugly head as Medicare. There’s no account with your name, or mine, on it safely tucked away. Our money is gone, and they are using the generations coming up to pay for this. It may not reach it’s pinnacle at the same time as Medicare, but it’s apex is looming nonetheless.
Personally, I’d love to opt out and tell them to give me my due in a lump sum, and I’ll fend for myself with my retirement fund. Unlike some who predict with a bizarre certainty they would be ahead of the financial game, I can’t say that I’d necessarily have done better if I had that cash or not. But at least it would have been my own responsibility to make it grow, or blow it. I’m certainly not interested in giving it to bank robbers for safe keeping either.
BTW, Larry… note how Jacob Lew frames the argument that there’s no problem with social security…
Hey… if we’re “paying social security back”, where has the money gone to begin with that we have to “pay it back”? Oh yes… stolen to spend on other things…. So when the “loan” from the trust fund, filled with IOUs, is paid back, it’s just more revenue spending or borrowing.
MATA, WHAT ABOUT NUMBER ONE STOP FOREIGN AID ANYWHERE, HOW MANY BILLIONS WOULD THAT BE, STOP THE PARTICIPATION IN THE LIBYAN WAR WITH NATO, THAT IS MORE BILLIONS,
STOP OTHER PARTICIPATION OF WAR IN AFGHANISTAN MORE BILLIONS RECALL THE TROOPS,
OUT OF THE MUSLIM COUNTRIES. MANY MORE BILLIONS ,
GET RID OF THE UN, SEND THEM AWAY TO FIND ANOTHER PLACE THEY CAN RENT.
MORE BILLIONS ALMOST INSTANTLY.
THEN CHECK THE WASTE IN AMERICA
Mata,
you made excellent points and nailed it. (I know we have had our off times, but I give credit where credit is due).
You are correct about the original SS bill. FDR was fully aware that the average life expectancy of a white male was only 58, 60 for a white woman, under 50 for a black male. By moving the goal post 7 years out, he was betting the odds that most people would not live long enough to collect and widows would only collect a portion of the original benefit, reducing the federal burden.
And what happens if the income level restrictions are lifted? Why would anyone who earns enough to pay for their own health care, and provide for their own retirement, not just opt out by any means possible? Ironic how Congress seems to pass bills that affect the American population but doesn’t include them (like Obamacare). And remember, as members of unions negotiated for retirement benefits, like continuing their health insurance once they retired, it was the rocket scientists in the Congress that passed a law that Medicare would become the primary, which allowed for two things: it let companies off the hook for paying the bulk of insurance premiums for retirees (as premiums were reduced once an employee reached 65) and it let the insurance companies off the hook for paying out the bulk of benefits.
Again, great post. Kudos.
@Ms. Bees, I’m not anti-foreign aid, depending on what it’s for, if it’s shared technology achievements, and/or related to national security. Therefore I don’t support abandoning Afghanistan or Iraq. Definitely not Israel. Not to mention when you are part of bombing a foreign nation to smithereens, there is something to be said for reconstruction aid… as well as shared benefits by helping them exploit their natural resources. Oh how I wish Iraq actually WERE a war for oil….
All in all, foreign aid is a blip on the spending screen. Yes, it should be reexamined and triaged by importance as it relates to intel, responsibility and national security. But it’s not a blanket delete either.
While I think there is much foreign aid we can eliminate, not all can be eliminated and still maintain safety and US intel channels. However I think that the UN is ripe for the “chainsaw” as well…..
Oh yes.. for those panicking about the downgrade in credit rating. May I remind everyone there are few nations in better shape? Germany’s busy bailing out Greece for a second time, etal, etc. It’s not like the US fiscal condition is unique. So when you do an apples to apples, such a downgrade… based more on controlling spending vs debt ceiling/credit card limit increases… it’s really not anything to panic about.