Apr 14

Obama’s Debt Plan Sets Stage for Long Battle Over Spending

WASHINGTON — President Obama made the case Wednesday for slowing the rapid growth of the national debt while retaining core Democratic values, proposing a mix of long-term spending cuts, tax increases and changes to social welfare programs as his opening position in a fierce partisan budget battle over the nation’s fiscal challenges.

After spending months on the sidelines as Republicans laid out their plans, Mr. Obama jumped in to present an alternative and a philosophical rebuttal to the conservative approach that will reach the House floor on Friday. Republican leaders were working Wednesday to round up votes for that measure and one to finance the government for the rest of the fiscal year.

Mr. Obama said his proposal would cut federal budget deficits by a cumulative $4 trillion over 12 years, compared with a deficit reduction of $4.4 trillion over 10 years in the Republican plan. But the president said he would use starkly different means, rejecting the fundamental changes to Medicare and Medicaid proposed by Republicans and relying in part on tax increases on affluent Americans.

barack obamaThe president framed his proposal as a balanced alternative to the Republican plan, setting the stage for a debate that will consume Washington in coming weeks, as the administration faces off with Congress over raising the national debt ceiling, and into next year, as the president runs for re-election.

Mr. Obama named Vice President Joseph R. Biden Jr. to lead the negotiations with Congress, which the administration hopes will produce the outlines of a deal by the end of June, though a detailed agreement might have to await the outcome of the 2012 election. Mr. Biden played a similar role in talks that averted a government shutdown at the 11th hour, over issues far less thorny than those on the table now.

In a 44-minute speech to an audience at George Washington University that included Representative Paul D. Ryan of Wisconsin, the author of the Republican plan, Mr. Obama was often combative and partisan, saying the Republican approach would hurt the elderly by driving up the cost of medical care, deprive millions of health insurance and starve the nation of investments in its future.

“These are the kind of cuts that tells us we can’t afford the America that I believe in,” he said. “I believe it paints a vision of our future that’s deeply pessimistic.”

“There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires,” the president continued, as Mr. Ryan sat stone faced. “There’s nothing courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.”

Yet Mr. Obama acknowledged that the rising medical costs and the mounting debt required action. And he warned Democrats that his administration would have to cut cherished programs and strictly limit the growth of Medicare and Medicaid. “If we truly believe in a progressive vision of our society,” he said, “we have the obligation to prove that we can afford our commitments.”

Mr. Obama said he would meet his $4 trillion deficit-reduction target by cutting spending across a range of government programs, from farm subsidies to federal pension insurance.

He called for cutting $400 billion more in military spending — twice what his defense secretary, Robert M. Gates, told Congress was the largest cut he could recommend.

In a sign of the tensions the plan may cause within the administration, officials at the Pentagon said Mr. Gates was not told of Mr. Obama’s proposal until Tuesday. In a statement, a Pentagon spokesman, Geoff Morrell, said that “further significant defense cuts” would reduce the military’s capability. “It is important that any reduction in funding be shaped by strategy and policy choices, and not be a budget math exercise,” Mr. Morrell said.

Republicans criticized the plan, both for the cuts in military spending and for what they said was an overall lack of detail.

“Republicans, led by Chairman Ryan, have set the bar with a jobs budget that puts us on a path to paying down the debt and preserves Medicare and Medicaid for the future,” Speaker John A. Boehner said in a statement. “This afternoon, I didn’t hear a plan to match it from the president.”

Mr. Boehner repeated a threat to refuse to raise the $14.3 trillion ceiling on the national debt, which the government is likely to breach in early July, unless the administration agrees to rein in spending and deficits. The administration has sought to keep the debt ceiling issue separate from the broader budget debate, and Mr. Obama addressed it only indirectly on Wednesday.

“If our creditors start worrying that we may be unable to pay back our debts,” Mr. Obama said, “that could drive up interest rates for everyone.”

Still, in what some analysts said was a gesture to Republicans, Mr. Obama said his plan would contain a trigger to require across-the-board spending cuts if, by 2014, the federal debt was still projected to be rising as a percentage of the total economy.

The trigger would apply not only to spending but also to what the administration calls “tax expenditures” — essentially payments to taxpayers for deductions for charitable donations or home mortgages.

The use of the phrase “tax expenditures” allows the administration to lump tax-related issues into the spending category. Mr. Obama was more direct in his call for allowing the Bush-era tax cuts for higher-income Americans to expire in 2012.

The president agreed to extend the cuts last December, as part of a budget deal with the newly elected Republican majority in the House. Now, with the economy getting back on its feet, Mr. Obama attacked the demand by Republicans to make the lower tax rates permanent as emblematic of their plan to enrich the wealthy on the backs of the elderly and poor.

“They want to give people like me a $200,000 tax cut that’s paid for by asking 30 seniors to each pay $6,000 more in health costs? That’s not right, and it’s not going to happen as long as I am president,” Mr. Obama said, his only line that drew applause.

While Mr. Obama’s plan does not detail specific cuts, analysts said it offered enough detail to set off a substantive debate with Republicans. Some said the proposal for capping the annual cost increase in Medicare and Medicaid to just above the economic growth rate was surprisingly conservative. Others said they were pleased that Mr. Obama had called for overhauling Social Security, even if he was vague and said it was not a leading culprit for the deficit.

“It looks like Ryan smoked him out, so to speak,” said Rudolph G. Penner, a senior fellow at the Urban Institute.

Mr. Penner said Mr. Obama’s plan hewed closely to the recommendations of his commission on deficit reduction. Mr. Obama did not explicitly endorse those recommendations when the commission submitted its report in December — a decision that fueled criticism from Republicans and some Democrats that he was not facing up to the tough choices in the budget debate.

The co-chairmen of that commission — Erskine B. Bowles, who was a chief of a staff to President Bill Clinton, and former Senator Alan K. Simpson — were in the audience Wednesday, along with Mr. Biden. At one point, Mr. Biden appeared to nod off, closing his eyes for 30 seconds.

Jackie Calmes, John Harwood and Thom Shanker contributed reporting.

Source: NY Times

Apr 10

Great Debates: Global Climate Change

climate-change A scientific issue that has become one of the major political issues of our time.  Is it a hoax and a grand conspiracy?   Or is it the most challenging issue to face human kind?

Hey!  Guess what?  This isn’t politics.  This is for our best and brightest brains around the world.  Scientists should decide weather the Earth is warming due to climate change and whether or not it is due to human activity.

The bottom line is there is still research to be done, but the fact that the Earth is getting hotter, nobody denies that.  The question is, is it from humans and that is where it becomes political.

If the Liberals want to use climate change to pass over indulgent,  economically bad laws to control how everybody uses energy, they would be  making a huge mistake.

If the Conservatives want to ignore science and act like climate change is about as important as pollution and pull out all stops to prevent change, they would be making a huge mistake.

Both must listen to the world-wide scientific community.  There is already undeniable facts that show humans are the likely reason for climate change. Intergovernmental  Panel on Climate Change (IPCC) scientists believe that it is very likely (greater  than 90 percent chance) that most of the warming we have experienced since the  1950s is due to the increase in greenhouse gas emissions from human activity.

In the end we all know that cutting down on greenhouse gas emissions is a good thing and even if they said it was a 30% chance that we were destroying the world, it would be wise to do something and do something fast.

You can see the conclusions of scientist here: Intergovernmental Panel on Climate Change

Scientists opposing the mainstream scientific assessment of global warming have varied opinions on the cause of global warming. They claim global warming can be from natural variation, ocean currents, increased solar activity or cosmic rays.

Some are unproven theories and some, like solar activity have shown to bear some truth. Solar physicist Sami Solankiet concluded “that solar variability is unlikely to have been the dominant cause of the strong warming during the past three decades,” and that “at the most 30% of the strong warming since then can be of solar origin.

More than 90% of the scientist in the field of climate change agree that is is due to human activity. There are some very reputable scientist who state an uncertainty of the cause and there are some who discount it for other reasons.

Click here to see: List of scientist opposing global warming

We do not get to choose when to listen to scientist and when not to.  They are the experts.  It’s what we pay them for, right?  We don’t question our doctors when they are conducting surgery, we don’t question how they got us to the moon, and nor should we question the experts when they say humans are the likely cause of climate change.  It doesn’t mean we don’t verify and it doesn’t mean hand over the United States energy policy to some world organization to govern the use of energy.  It means we need to be wise, listen to the experts and make the best decision to move us forward.

 

Apr 09

Great Debates: Did FDR end the Great Depression?

fdrIf you read your high school text book the answer to whether or not Franklin D. Roosevelt ended the Great Depression isn’t a question, it is stated fact.   But long held beliefs by some Republicans, especially today, say that Roosevelt did not end the Depression.   Who is right?

The Great Depression originated in the United States, and is thought to have started with the fall in stock prices that built up to the stock market crash of October 29, 1929 (Black Tuesday). It soon became a world-wide depression.

There are clearly several other factors that contributed to the Depression including panic, greed, Federal Reserve policies, failure of government regulations, the Dust Bowl and the natural cycles of economics.   But the cause is not the question here, it is how it ended.

Many modern conservatives use the simple statement, “World War II ended the Depression, not government intervention.”   The argument is that unemployment did not get better until the war started and therefore the stimulus of the New Deal did not work and in fact, government stimulus in general does not work.

The fact is unemployment did not go down to an “acceptable rate” until World War II, so is the Right right?

Lets take a look at numbers.

depression-unemployment

The New Deal programs were implemented between 1933 and 1936.   At the time of the New Deal implementation, unemployment was 25.2%.  The first point to be made is that the unemployment rate did not continue to go up and the United States did not collapse.  Many ignore the “it could have been worse” factor.  You can’t argue it too much, because we do not know what would have happened if the government would have taken the Laissez Faire (hands-off) approach.  But it is fact that after the New Deal was implemented, the United States unemployment stopped going up and in fact, went down.  In addition, GDP increased.

During the years from 1933 and the United States entry in World War II in late 1941, unemployment did bounce up and down, but ended up at about 15% at the time of the Japanese attack on Pearl Harbor.  Of course the United States began heading towards a military economy under the leadership of FDR before 1941.  In 1939, before the outbreak of war in Poland, unemployment was at about 17.2%.

Clearly the numbers show that unemployment fell by about 10% under Roosevelt before World War II.  This is undisputed fact.  Government spending, even with deficits, did in fact stop the bleeding and did lift the country out of the worst part of the Depression.

So what brought the Depression to its absolute end?  Clearly World War II.  The United States began emerging from the Depression as it borrowed and spent to build its armed forces from 1939 to 1941 and even more after its eventual entrance into the war.

So is everybody right?  Lets review.  The New Deal clearly helped America during the Depression after the hands-off policies of  Big Business and Herbert Hoover.  The New Deal did create jobs, it did stimulate the economy enough to get it back to a place where it wasn’t going to collapse, and most importantly it gave hope to a hopeless country.  So in many ways Roosevelt did end the worst part of the Depression.  He got the country turned back the right way in spirit and in actual economic numbers.

Not everything in the New Deal worked and the United States and of the world continue to dwell in high unemployment.  It wasn’t until the spending of World War II that the final blow was dealt and the Depression ended.  So, do Conservatives have a point?  Simply put, no.  As has been stated, it was massive GOVERNMENT SPENDING before and during World War II that gave the final blow to the Depression.  Conservatives have simple chosen to ignore the fact that the military build up was government spending.  Did they think it was private business?  Every single Conservative who argues that World War II ended the Depression is arguing that government spending is the way to get out of severe recessions or depressions.

When the people aren’t spending, when business isn’t spending, that leaves only the government to spend.  British economist John Maynard Keynes’ basic idea was simple: to keep people fully employed, governments have to run deficits when the economy is slowing, as the private sector would not invest enough to keep production at the normal level and bring the economy out of recession. Keynesian economists called on governments during times of economic crisis to pick up the slack by increasing government spending and/or cutting taxes.

As the Depression wore on, Franklin D. Roosevelt tried public works, farm subsidies, and other devices to restart the economy, but never completely gave up trying to balance the budget.  According to the Keynesians, this improved the economy, but Roosevelt never spent enough to bring the economy out of recession until the start of World War II.

For all the revisionist historians out there you cannot argue with the simple facts.  Like it or not, FDR did inherit a Depression which started and got worse under a Republican administration. You cannot argue that under Roosevelt’s leadership the United States got out of the Depression without a revolution or collapse, won World War II , and was left with the strongest economy in the history of the world.

Apr 02

230,000 Private-Sector Jobs Added in March

The economy gained 216,000 jobs in the month of March.   The unemployment rate edge down to 8.8%, the lowest level since March 2009.

The private sector added a total of 230,000 jobs, while local governments cut another 14,000 jobs.

This brings the total net job gain for 2010 to 477,000.

2011 jobs report graph

Source: Bureau of Labor Statistics

Apr 02

Great Debates: Does Lowering Taxes Increase Revenue?

Election after election the same proposals are put up by the Conservatives: Lower Taxes. It is an easy sell to most. What is better than lower taxes?

But wait, there’s more. Many Conservatives claim is that not only will they lower your income taxes, but the government’s revenues will go up. Let me repeat. Lower taxes equals higher revenues.

Well heck, lower taxes to one percent! Will the revenues still go up? No matter if you are a Liberal a Conservative or a Centrist, if it is true that lowering taxes will increase revenues then by all means lower them!

Is this possible or is it just political talk and unsubstantiated theory?

In the eighties supply-side economist had a chance to use a theory they devised which says if you lower taxes it will create higher tax revenues. It had other names such as George H.W. Bush’s name for it; “Voodoo Economics”. Or maybe you have heard it called “Trickle-Down Economics”. It was also the major tenet of “Reaganomics”.

Ronald Reagan enacted the largest income tax cut in history which took the top rate down from 70% to 50% and then to 28% in addition to lowering middle class income taxes.

Let’s begin with the tax rate of 70%. This was clearly way too high and it did likely prevent investment and job growth which may have actually lead to lower government tax receipts. The same was true when Kennedy lowered the top tax rate from 90% to 70%. But where does it stop? 36%? 28%? 1%? Clearly there must be a mark where revenues do not continue to rise with a tax cut. Economic 101 teaches us this.

Let’s take a look at the Regan tax cuts a little more deeply to see there true overall impact.

The numbers are quite simple from the Conservative point of view.  Tax revenues nearly doubled in Reagan’s two terms!  Tax cuts equal higher revenues!

GDP_historical

This is not lie.  They did nearly double, but before you start adding up numbers, you must remove some factors from the equation starting with inflation.  When Reagan came into office January 20, 1981 the government had collected 517.1 billion dollars in receipts in the previous fiscal year (1988).   This number and all the numbers below are in today’s dollars, otherwise inflation is included.  When he left office on January 20, 1989 the government had collected 909.2 billion dollars in tax receipts in the fiscal year 1988.  Not quite doubling, but tax revenue increased 392.1 billion dollars or about 76%.

Let’s use an example to show how easily inflation effects tax revenue.  Inflation from 1981-1989 was about 4.67%.  For example if there was $100 in tax receipts in 1981 at an inflation rate of 4.67% would result in tax receipts of about $144 by year 1989.  A 44% increase!

So when adjusted for inflation nearly one quarter of the argument is gone.  More importantly is the point that tax receipts go up nearly every year and have nearly double every decade since the Great Depression.   This is due to the fact that the population increases and thus there are more people working and thus more taxes collected every year.

Here are the numbers according to the White House OMB
Year Receipts (In Current Dollars – Billions)
1940 6.5
1941 8.7
1942 14.6
1943 24.0
1944 43.7
1945 45.2
1946 39.3
1947 38.5
1948 41.6
1949 39.4

1950 39.4
1951 51.6
1952 66.2
1953 69.6
1954 69.7
1955 65.5
1956 74.6
1957 80.0
1958 79.6
1959 79.2

1960 92.5
1961 94.4
1962 99.7
1963 106.6
1964 112.6
1965 116.8
1966 130.8
1967 148.8
1968 153.0
1969 186.9

1970 192.8
1971 187.1
1972 207.3
1973 230.8
1974 263.2
1975 279.1
1976 298.1
TQ 81.2
1977 355.6
1978 399.6
1979 463.3

1980 517.1
1981 599.3
1982 617.8
1983 600.6
1984 666.4
1985 734.0
1986 769.2
1987 854.3
1988 909.2
1989 991.1

1990 1,032.0
1991 1,055.0
1992 1,091.2
1993 1,154.3
1994 1,258.6
1995 1,351.8
1996 1,453.1
1997 1,579.2
1998 1,721.7
1999 1,827.5

2000 2,025.2
2001 1,991.1
2002 1,853.1
2003 1,782.3
2004 1,880.1
2005 2,153.6
2006 2,406.9
2007 2,568.0
2008 2,524.0
2009 2,105.0
2010 2,162.7

The next issue that Conservatives do not mention in their arrangement is the fact that many other taxes were raised in the eighties by Ronald Reagan.  The reference to the doubling of revenues under Ronald Reagan includes all tax revenues, of course including Social Security.  In 1977, the 95th Congress and Democratic President Jimmy Carter passed a law increasing the taxable maximum faster than average wage levels in 1979, 1980, and 1981.  In 1983 Social Security reform saw it raised even further.  The FICA rate went from 6.13% in 1980to 7.51% in 1988.  The fact that Ronald Regan actually raised taxes many times, including the gas tax and a large corporate tax increase.

Finally, everybody agrees that economies go in cycles and when the cycle began to grow jobs (not to say the tax cuts didn’t increase it more), naturally the tax receipts will go up.  If you pick a low point in an economy to measure tax receipts versus a high point, naturally they will show their greatest increase.

To summarize, tax receipts did go up after the massive Reagan tax cuts.  This alone gives some merit to the supply-side argument.  But to understand their true value you cannot just look at the one simple cause and the one effect, you must look at all the causes. Subtract the Social Security increases, other tax increases, population increases, economic cycles  and most of all subtract inflation and you have a number that is close to zero percent and possibly even negative growth.  Nevertheless, it is likely dropping the rate from 90% (as Kennedy did) and dropping it from 70% (as Regan did) legitimately did raise tax revenues, but dropping them to 28% was clearly over the line and decreased tax revenues.

The current top tax rate is at 35% while under Clinton it was 39.6%.  Look at the deficits under Bush and now Obama and look at the surpluses under Clinton.  Clearly there is a point where lowering taxes does not increase revenues and that point seems to be around 40%.

Conservatives may not be lying when they say tax cuts increase tax revenues, but they are incredibly misinformed and incredibly naive to make such a blanket statement.

Apr 02

Libya: Government dismisses rebel ceasefire offer

Libya’s government has dismissed as “mad” the conditional ceasefire offer made by the rebel administration.

Spokesman Moussa Ibrahim said troops loyal to Col Muammar Gaddafi would never withdraw from the rebel-held cities they were besieging.

He also condemned recent coalition air strikes as “a crime against humanity” and said there had been civilian casualties in one attack on Thursday.

Nato is investigating a report that seven civilians were killed near Brega.

The account, from a doctor in Adjabiya, could not be independently verified.

‘Crime against humanity’

libya_rebelsOn Friday, the head of the rebel Transitional National Council, Abdul Jalil Ibrahim, discussed how a truce might come about after meeting UN special envoy Abdelilah al-Khatib in the eastern city of Benghazi.

“We have no objection to a ceasefire but on condition that Libyans in western cities have full freedom in expressing their views and also that the forces that are besieging the cities withdraw,” he told reporters.

“Our main demand is the departure of Muammar Gaddafi and his sons from Libya. This is a demand we will not go back on.”

Mr Abdul Jalil, who quit as justice minister in protest at the use of violence against demonstrators, also said he believed the coalition should begin arming the rebels despite the UN arms embargo on Libya.

“We think that if the international community wants to protect civilians according to the international resolutions, they should take the appropriate measures, which include giving the go ahead to arm the rebels,” he added.

Moussa Ibrahim dismissed the offer of conditional ceasefire, describing the rebels as “tribal, violent, with no unified leadership, al-Qaeda links.”

“The rebels never offered peace. They don’t offer peace. They are making impossible demands.”

“If this is not mad, I don’t know what is,” he added. “We will not leave our cities. We are the government, not them.”

Mr Ibrahim also said six civilians had been killed by an “immoral” air strike in the eastern village of Zawia el Argobe, 15km (9 miles) from Brega.

“Some mad and criminal prime ministers and presidents of Europe are leading a crusade against an Arab Muslim nation,” he told reporters in Tripoli. “Sounds familiar? It’s a crime against humanity.”

BBC