Obama’s budget plans

This guy sure knows how to keep a blogger busy.  Matt Y. has a good summary:

  1. Obama wants the 2013 deficit to be half the size of the 2009 deficit he inherited.
  2. The 2010 deficit is going to be large.
  3. Specifically, we’ll go from $1.2 trillion in 2009 to $1.5 trillion in 2010 to $533 billion in 2013.
  4. Spending cuts are expected to come from the expiration of
    stimulus money, from a reduction in “emergency” appropriations for Iraq
    and Afghanistan, from reductions in Medicare Advantage giveaways to
    private insurance firms, and I believe from some other form of medical
    efficiencies.
  5. Revenue enhancements are projected to come from the
    expiration of the Bush tax cuts, from ending the hedge fund manager’s
    loophole, and from carbon auction permits.
  6. Overall, the idea is to get back down to a deficit of about 3
    percent of GDP, but to have a better health care system when we do it.

Comments

In other words, I have a secret plan to reduce the deficit. Reelect me and I'll tell you how.

Increasing taxes in a recession will likely have further negative economic consequences. The recent stimulus bill included taxes on certain import products too. Someone in the Obama administration should read the part of the history book covering the Great Depression and government actions that contributed to the economic collapse during that period in time.

Here's how I do the early math:

Restoring the 39.6% rate on AGI over $250K gets him .5-.6% of GDP. Don't know what the cap gains/dividend/hedge fund rates would get. Probably not much.

The Medicare Advantage thing gets less than .1% of GDP.

Against this, the tax cuts for the majority of the population -- that was a campaign pledge, and via the stimulus looks like it will be payroll tax cuts for a more restricted income group than I thought from the campaign. Looks like about .4% of GDP.

Then, demographics: over 65 population increases from about 12.6% to 13.8% in 2013. That'll cost about .9% of GDP in SS, Medicare, Medicaid without any change in per capita health care expenditure.

Adding up these items, that puts him about half a percent of GDP worse.

With the present structure of spending and tax collection, and before we take into account the long-term effects of this recession, I think the "average year" budget is about 18% of GDP receipts and 20 or 21% spending, depending on whether the defense budget is 3 or 4% of GDP.

At a minimum, the recession budgets mean higher interest payments, long-term. I think a 3% deficit, post-recession, is a reach, even without any new spending programs. That means health care expansion would have to be self-financing, among other things. I agree with Rauch/Bartlett -- 21% is long gone.

I recommend to read this piece on BHO's strategy to sell his huge-deficit budget for next FY:
http://www.politico.com/news/stories/0209/19127.html
At the end of the article you can read the following:
“A trillion is not a ‘bleak’ number, per se. It's just a number. We might need two trillion,† said the University of Texas’s James Galbraith in an email. “Deficits have to grow. They will grow. Please get used to it.†
I understand Galbraith is one of the many BHO's advisors, but let us hope his nonsense about deficits does not reflect the dominant view of BHO's team. Galbraith should start reading about California and then about Argentina and perhaps should talk to W. Buiter. In the meantime, Hillary Clinton understands that BHO will have a problem to finance the huge deficits of the next two years and is threatening China with falling together if the Chinese stop buying US securities (read
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/22/AR2009022200468.html )

Hillary would've taxed the rich, I think. The reason your quality of living has been going down against every other developed nation on Earth since Reagan is because America is the only developed country on Earth (to my knowledge) that doesn't have progressive tax rates.

Sorry David, it was the Republicans for four years (2003-2006) and the Democrats for four years (2001-2002 and 2007-2008).

Doesn't announcing a contractionary fiscal policy undermine the stimulus?

This is funny:

http://www.marginalrevolution.com/marginalrevolution/2005/01/if_i_believed_i.html

I would be interested to hear Tyrone's take on this.

Obama is a fool who does not understand that words have meaning and therefore consequences. He is no longer campaigning, he won the job and now must lead. If he continues uttering complete nonsense like is currently doing, he will destroy his and America's credibility with foreign nations. I do not see why anyone would take his claims seriously. Not even his economic advisors are speaking publicly at this point.

I'm an Obama supporter but this is just silly. We're probably in for a full year of contraction and spending to combat the contraction. The contraction will lower the tax base, the spending will increase the deficit. I don't see Obama pulling this off. I'm fine with him not pulling it off, but I can't take these promises seriously. Maybe in his second term he can start to worry about balancing the budget but one shouldn't and probably can't hope to balance the budget in an ailing economy.

It is important that the government show some attempt to be fiscally responsible in the middle term in order for long term interest rates to stay low and for foreigners to continue to finance our deficits. The Obama proposal is a decent attempt to do this.

The fundamental issue is that taxes collected will have to equal money spent. Since Ronald Reagan, Republicans have refused to accept the fundamentals of this simple arithmetic. If anyone has any doubt about who is the responsible party about fiscal matters, check out this link on the U.S. debt-to-GDP ratio under different administrations.

http://zfacts.com/p/318.html

Wyatt, this may come as surprise to you, but no one who refers to the President of the United States as "the Kenyan" will be taken seriously about anything.

The plan is simple. After reelection he will raise taxes on everyone. A Massive sweeping tax hike .

We won't see a deficit under $1 trillion again.

Anyone who believes that the stimulus spending will be allowed to expire is a fool. That spending is with us forever now just like Great Society programs are still around after 40 years of failure.

Also, why would anyone invest in the private sector when marginal tax rates could be headed back to the 70%+ levels again.

And for all the Democratic Party apologist, Clinton would have run deficits if the Democrats would have been in charge of Congress. The Republicans hate government spending when Democrats benefit and thus the last six years of the Clinton Administration saw no new government spending programs. I doubt the same thing will happen during the Obama Administration.

Brian J -

I'm not sure what you mean when you talk about "not hiding the truth with cheap tricks", but the Obama administration is hardly trustworthy, in my opinion.

With regard to the issue of raising taxes on corporations and the "wealthy", that's rarely a good idea in a severe recession. Raising corporate taxes effectively throws a wrench into the country's wealth generating engine; raising taxes on the "wealthy" -- presumptively the small percentage of the population responsible for about 60% of the tax burden -- gives them less money to spend and less to "stimulate" the economy through investment, entrepreneurial endeavors, and personal consumption.

With regard to your point on tax rates being "lower than most countries" -- that depends on your income bracket and the state where you live in the US. Tax rates in places like California and New York make the total (state + federal + city tax in places like NYC) income tax burden similar to many European countries, China, and Australia -- all of which have very high tax rates for high wage earners. Tax increases are a very sensitive political issue, regardless of size.

(Note: I live in Singapore; US citizen -- the effective tax rate here is less than 10% for a 6-digit income; but prices for housing and cars are at least 3-4x higher on average than in the US).

The US needs go go back on the gold standard. www.best-legal-aid.com

The US needs go go back on the gold standard. www.best-legal-aid.com

Is he trying to assuage the foreign debt holders and inflation hawks?

In other words, why think past 2010?

TA: "Restoring the 39.6% rate on AGI over $250K gets him .5-.6% of GDP. Don't know what the cap gains/dividend/hedge fund rates would get. Probably not much."

Not sure anyone should count on additional revenue after raising the marginal income tax rate or after raising the capital gains rate. High income folks are going to maximize their income, and they'll find ways to avoid paying the taxes.

Wouldn't raising the U.S. capital gains tax just provide incentive for investors to put their capital in other nations? and to avoid reallocations of capital from poor investments to better opportunities? How could disincentives to capital reallocation lead to the economic growth we need to overcome recession?

"Obama wants the 2013 deficit to be half the size of the 2009 deficit he inherited. "

Oh, he "wants" that, does he? Dandy. Good as done, then.

If people aren't staying in jobs they rather leave because of the health insurance, this has got to do the economy some good. Any estimates on how much good?

Hi what would you all have to say about this system check it out http://www.passporttowealth.com/?id=Casierasa is this too good to be true if it really works the way they say it would?
It seems to be like and amazing way to redistribute wealth at a reasonably low investment too.
But my question is; is this system really working for anyone or are the hundreds who claim it is working for them merely actors for posting multiple videos on social networks like youtube.
Can this system work?

Since Ronald Reagan, Republicans have refused to accept the fundamentals of this simple arithmetic. If anyone has any doubt about who is the responsible party about fiscal matters, check out this link on the U.S. debt-to-GDP ratio under different administrations.

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