Wednesday, July 13, 2011

Debt ceiling blues

Ok people, we are now, what, like 2 weeks away from Armageddon? Pretty impressive.

I thought I'd offer some thoughts.

First off, there shouldn't be a debt ceiling. Looking at US debt experience in WWI and WWII should be enough to convince one of that. Maybe some kind of conditional ceiling, like 70% of GDP with a suspension for declared wars and a provision to get back to 70% within 5 years of the cessation of hostilities.

Second, I am actually with the Republicans here on the no taxes part of the negotiations. Look, we already have substantial tax increases baked into the next few years. Expiration of the Bush tax cuts and a host of new taxes and fees to finance Obamacare. Absent a Republican sweep in 2012, taxes are already going up a lot in the near future. If anything, I would cut taxes now.

Third, I believe that we need to cut spending soon. I am not a fan of Federal spending being at 25% of GDP and rising, but there are better places to start than social security. How about starting with the ridiculous subsidies we give farmers and big business that distort and cause harm around the world. Stop the Ethanol madness, the sugar subsidies, the cotton subsidies, the "green jobs" subsidies. Then turn to the Pentagon. People, defense is a public good. My consumption of it does not reduce the quantity available for your consumption. Thus, there is no reason for defense spending to rise continually with population/GDP. Get the hell out of Iraq and Afghanistan. Get out of Germany and Japan. WWII ended more that 50 years ago. Oh, and get out of Greece too (yes we have soldiers in Greece!). Cut defense spending by 25% at a minimum. Oh and let's eliminate NASA too while we are at it.

Fourth, I really admire Obama's spin job on the negotiations. First he wants a "clean" raising of the debt ceiling, then he demands that taxes have to rise in order to raise the debt ceiling, and he is getting a lot of buying that it's the Republicans who are recklessly killing the debt ceiling increase

16 comments:

Tom said...

"we need to cut spending soon..." I agree -- what is going to motivate the CongressDweebs to do that? Their record on this is ... consistent. Be it Ds in charge or Rs with the Ring of Power, they always Ssssspend. If the SS payments are curtailed and the oldies can't get their free money, maybe THAT will motivate Congress to cut something, somewhere just to keep up the Grand Ponzie Scheme going another few years.

Jacob T. Levy said...

" I am actually with the Republicans here on the no taxes part of the negotiations. "

Not if you think ethanol subsidies are a place to look for deficit reduction.

The ethanol subsidy takes the form of a tax credit, and the GOP position is that *no* tax credit may be closed if the result is an increase in revenue-- that is, if it is applied to the deficit rather than being neutralized with tax cuts elsewhere.

"First he wants a 'clean' raising of the debt ceiling, then he demands that taxes have to rise in order to raise the debt ceiling, and he is getting a lot of buying that it's the Republicans who are recklessly killing the debt ceiling increase"

You skipped the step where the GOP-- not Obama-- insisted that significant reductions in the medium-term deficit be part of any debt ceiling increase. It's true, once they insisted on that, Obama has insisted that the deficit reduction package include tax increases. But the House could always just pass a clean debt ceiling increase, confident in the knowledge that the Senate would pass it and Obama would sign it. It remains the Republicans who've handcuffed themselves to the negotiating table.

John Thacker said...

It remains the Republicans who've handcuffed themselves to the negotiating table.

Absurd, it takes two parties to play a game of chicken. The President has, for example, vowed that he'd veto any one-year agreement. It's ridiculous to claim that only one party is being reckless. It takes both to refuse to compromise, and it's philosophically incoherent to claim that a "clean" debt ceiling increase is any more of a reasonable starting point, especially since that "clean" increase assumes both automatic tax raises from current law as well as automatic spending increases from programs increasing according to their baseline.

If a "clean" debt ceiling increase involved spending not being assumed to increase over the rate of inflation, that would be one thing. But somehow "clean" means that we can assume that spending will increase faster than inflation.

A fair amount of the sugar subsidies don't count in the deficit, because it's an import quote that does the real damage, and that is off balance sheet. It would be great to eliminate them, but that kind of idiocy doesn't even show up in the Federal spending numbers. (Does that make it worse?)

John Thacker said...

The Obama administration and the Democrats are chaining themselves to the table and playing this game of chicken as much as the Republicans, and somehow getting people like Jacob Levy to view them as less obstructionist.

The only way that makes any philosophical sense is if you are closer philosophically to the preferred solution of the Democrats. So I guess Jacob is another person who prefers more spending and higher taxes.

Jacob T. Levy said...

"it's philosophically incoherent to claim that a "clean" debt ceiling increase is any more of a reasonable starting point, especially since that "clean" increase assumes both automatic tax raises from current law as well as automatic spending increases from programs increasing according to their baseline."

Well, it's generally fair to treat precedents and longstanding practices as a reasonable starting point, and the debt ceiling has always been increased "cleanly"-- separately from budgeting decisions and tax law debates-- in the past.

Beyond that, John Thacker misstates about taxes. By definition, a clean increase does not change current law on taxes. Current law is: the temporary extension of the Bush tax cuts is temporary, and they *all* expire next year. That means that under current law taxes will rise in two years relative to current policy.

Note that the "grand bargain" deal that Boehner rejected apparently included making current *policy* permanent below the $250,000 income threshold, that is, it represented a substantial tax cut compared with current *law*.

Let me say that again: *the deal that was last on the table included a large tax cut compared with current law.*

Anonymous said...

Let me nitpick a bit. The sugar subsidies are in the form of import quotas, and, therefore, off budget. As such, no reduction in federal spending would derive from eliminating sugar subsidies. These subsidies should definitely be eliminated, but doing so will not help the budget deficit.

Mr. Overwater said...

I don't know if this article from 2010 is accurate, but it sounds like there is a subsidy through the Feedstock Flexibility Program in addition to the import quotas (are there also tariffs?):
http://www.cagw.org/newsroom/releases/2010/sugar-subsidies-remain-costly.html

Anonymous said...

Thanks for the link, Mr. Overwater. I stand corrected.

Anonymous said...

Person: defense is a normal good.

You should expect it to rise with national GDP.

Matthew Yglesias said...

Look, we already have substantial tax increases baked into the next few years. Expiration of the Bush tax cuts and a host of new taxes and fees to finance Obamacare

The White House negotiating position is that we need higher taxes relative to current policy (i.e., relative to what we would get with full extension of the Bush tax cuts) not relative to current law. The press hasn't explained this very well, but you're confused if you think you agree with the Republicans.

Anonymous said...

theoretically, you're on the right track regarding the ineffiencies regarding subsidies and defense spending.

now you can tell me what percent of $13 trillion would be saved by trimming all subsidies?

ideas are great. but they're better when backed by numbers.

Anonymous said...

"First he wants a 'clean' raising of the debt ceiling, then he demands that taxes have to rise in order to raise the debt ceiling."

This is simply not accurate. Obama wanted--and, presumably, would still sign--a clean bill.

The Republicans said, "No way, pal. You want to raise the debt ceiling, you also have to sign off on a deficit-reduction package with it."

Obama's position at this point is, sure, we can do that, but it can't be all spending cuts--you have to include revenues in the package.

Obama has never, to my knowledge, made increased revenues a condition for raising the debt ceiling--only for agreeing to the defecit reduciton package that Republicans have insisted on. They can pass a clean bill any day, and we're done.

J Thomas said...

now you can tell me what percent of $13 trillion would be saved by trimming all subsidies?

I can't, and neither can anybody else.

Take a simple example. Farmers pay less for gasoline because we want them to grow more food. If they paid full price, food would be more expensive. Could we export as much of it? Maybe not. If the difference in gasoline price kept us from exporting, then our balance of payments problem would not be as bad. Because if that was true (and I don't have numbers to say whether it is or not), we buy expensive oil, and sell it cheap to farmers, and they burn it to grow cheap food which we sell cheap. We pay farmers to export food below cost.

How much of our business is like that? How many companies would go out of business without their subsidies? How many would go out of business without the subsidies of their customers? Maybe getting rid of subsidies would free up a whole lot of labor which could be used to do productive things -- which now is used to do unproductive things which make a profit because of their subsidies. How long would it take for us to put those people to work doing productive things?

Maybe you could estimate how much it would cost each individual industry to lose its subsidies. How can you possibly estimate the tax revenues we'd get from an economy that was getting giant shifts in demand?

To do that experiment responsibly we might cut all the subsidies by 5% per year, zeroing them out in 20 years.

But I'd like to see it done suddenly, after everybody has time to store a year's worth of food etc.

Brian J said...

Point by point:

1. I agree.

2. Well, I am not surprised, but why? Taxes have gone down, not up, in recent years (at least in the sense that people are paying lower rates). The argument isn't so much over new taxes, but rather the future of the Bush tax cuts. I can't speak for anyone but myself, but a reasonable compromise of leaving in place the marginal rate cuts and making up the lost revenue through closing expenditures would be fine. For any number of reasons, it'd receive large if not universal Democratic support. If that were the position of the Republican caucus, we'd have sealed this one a long time ago. Needless to say, it isn't.

What taxes would you cut, by the way?

As for ObamaCare, last I checked, the total new tax revenue funding it would come to about $410 billion, but that's over ten years. That's hardly the sort of monumental increase people like to pretend it is. Why do you act as if it's so big?

3. Well, perhaps. There's probably a lot that could be cut without inflicting too much (temporary) pain in the future--a lot that should be cut--but the future isn't now. The big driver is obviously health care costs. As Dean Baker and others have shown, if we get those cost under control, basically equaling other OECD countries, we'd be looking at surpluses. Perhaps that is too optimistic, but the point that the real cost problem is health care, health care, health care shouldn't be lost in this discussion. As Austin Frakt has said, the rest is an ideological sideshow.

4. I admire your spin job here. Do you really doubt that, if Obama had the choice for a clean debt ceiling increase, he'd take it? Perhaps he would. As Kevin Drum has said, his actions suggest he does want to do something genuine. That said, why do it in a hostage situation? Why do it with a bunch of people who refuse to consider even one penny of tax increases despite the fact that they've been cut? I try not to get too hung up on ratios, since Medicare changes (like those to payment providers) might skew things, but 85/15 clearly represents what they want more than what most Democrats want. And yet that isn't good enough.

Brian J said...

"It's ridiculous to claim that only one party is being reckless. It takes both to refuse to compromise, and it's philosophically incoherent to claim that a "clean" debt ceiling increase is any more of a reasonable starting point..."

Nonsense. As I said above, I try not to get too hung up on ratios, but it's clear that the Democrats offered to give up far more than the Republicans. They aren't refusing to compromise. Yet this wasn't good enough. When one side refuses to do anything involving one of two ways to solve a problem, it's the side that is being unreasonable.

The Anti-Gnostic said...

While I agree with the ultimate conclusion, this is just plain wrong: "People, defense is a public good. My consumption of it does not reduce the quantity available for your consumption."