The Fed Shutdown Poll and Megathread

[The Minsky Moment]

In 2010, federal revenue as % of GDP was under 15 percent.  This number was cyclically impacted but absence a significant increase in tax, it is unlikely to get above 19%.

Total actual federal spending is at 23.8%. 

Net interest is 1.4%.  That is almost certainly only going to increase at this time, as interest rates paid by the feds are unusually low.
Of this 13.2% is mandated: social security (4.4), medicare and medicaid (5.0), other (3.7)  (figures are netted out and rounded).
The "other" consists, in descending order by amount of: unemployment benefits, retirement benefits for federal employees, earned income and child tax credits, food stamps, and veterans benefits.
One can expect unemployment benefits to decline significantly in the future; however this is more than offset by the fact that in 2010, "other" included a $110 billion profit from TARP, which is unlikely to recur.

Let's take these in order:
1) Social security - if untouched, these outlays will only increase in the future.  The likelihood of significant cuts being made can perhaps be gauged by the fact that the Ryan plan, which probably represents the maximal starting point for discussions about cuts, does not touch social security.  Ryan's earlier roadmap plan did discuss social security reform, but would actually have increased outlays even more until around 2055 (though at the same time increasing payroll tax).
2) Medicare/Medicaid: Absent massive restructuring of the provision of health care in the US, costs are not likely to decrease.  realistically that limits what can be done in the short term to cut federal outlays.  Again, the Ryan proposal does not contemplate decreasing these outlays, indeed it would involve increasing them as a percentage of GDP, just much more slowly than under the current anticipated baseline.
3) "Other" - cuts in this amount will be complicated by the disapperance of the massive TARP windfall in future years.  But let's say for the sake of argument you could cut 25% across the board for everything else in this category.  Assuming a return of unemployment benefit costs to "normal levels" that gives back about 1 percent of GDP.

So the mandated baseline + interest is about 13.6% assuming strenuous, Ryan-like efforts to cut.  With interest costs and social security likely to arise, I think a 15 percent baseline is reasonable, again assuming stringent cuts in "other" and a Ryan-style gutting of medicare and medicaid.

That leaves 4% for all discretionary spending if balance is to be obtained at the current tax structure.
Actual discretionary spending in 2010 is 9.3%
Defense alone is at 4.7%.

Interestingly, the way the Ryan proposal deals with this problem is to ignore it.  The Ryan proposal would cut all spending other than social security and health benefits to 6% of GDP by 2022 and to 3.5% of GDP by 2050.  This is not remotely feasible.

It should be apparent that even if determined efforts are made to cut down the federal budget, taxes have to rise.  My rough guess would be a rise until revenue levels ar reached 22 percent of GDP assuming strenuous efforts to cut spending, 24 percent if moderate but still significant efforts.  This would involve an increase in revenue take of over 15% in the strenuous case or 25% in the moderate case.

[KRonn]

Pres Obama's budget plan was just announced. At first look, it seems to me like some good ideas for thought and progress in the budget debate.      

http://www.cnn.com/2011/POLITICS/04/13/obama.deficits/index.html?hpt=T1&iref=BN1

Obama calls for $4 trillion in deficit reduction over 12 years

Washington (CNN) -- President Barack Obama unveiled his long-awaited deficit reduction plan Wednesday, calling for a mix of spending reductions and tax hikes that the White House claims would cut federal deficits by $4 trillion over the next 12 years without gutting popular programs such as Medicare and Medicaid.

Obama's plan includes a repeal of the Bush-era tax cuts on families making more than $250,000 annually -- something sought by Democrats but strongly opposed by Republicans. The president also called for the creation of a "debt fail-safe" trigger that would impose automatic across-the-board spending cuts and tax changes in coming years if annual deficits are on track to exceed 2.8% of the nation's gross domestic product.

The president claimed that by building on or adjusting the health care reform bill passed last year, $480 billion would be saved by 2023, followed by an additional $1 trillion in the following decade. For example, he proposed tightly constraining the growth in Medicare costs starting in 2018.

"Doing nothing on the deficit is just not an option," Obama said in the speech at George Washington University, adding that "our debt has grown so large that we could do real damage to the economy if we don't begin a process now to get our fiscal house in order."
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Obama's approach seeks to carve out a political middle ground between conservatives -- who are pushing for deficit reduction based solely on spending cuts and expected economic growth -- and liberals, who are generally resisting entitlement reform and seeking higher corporate and personal taxes.

He called for political leaders to put aside orthodox party ideology and work together for the good of the country, saying "we can solve this problem" while noting that "any serious plan to tackle our deficit will require us to put everything on the table, and take on excess spending wherever it exists in the budget."

At the same time, Obama blasted the House Republican 2012 budget proposal unveiled last week, saying it would "lead to a fundamentally different America than the one we've known throughout most of our history."

"These are the kind of cuts that tell us we can't afford the America that I believe in and that I think you believe in," Obama said of the plan by House Budget Committee Chairman Paul Ryan, R-Wisconsin, who sat in the audience Wednesday. "I believe it paints a vision of our future that's deeply pessimistic. "

The administration's package stands in sharp contrast to Ryan's blueprint, which calls for cutting the debt by $4.4 trillion over the next decade while radically overhauling Medicare and Medicaid and dropping the top personal and corporate tax rate to 25%.

Under the Obama plan, Pentagon spending would fall by roughly $400 billion by 2023, while federal pensions, agricultural subsidies and other domestic programs would also face the budget ax, according to the White House.

In total, nonsecurity discretionary spending -- Washington jargon for the 12 percent of the federal budget aside from defense spending, debt payments and the big entitlements such as Medicare, Medicaid, and Social Security -- would be cut by a total of $770 billion over the next 12 years.

The $770 billion figure is in line with recommendations put forward by Obama's bipartisan debt reduction commission last December, according to the White House.

Obama's plan contained no specific proposal for Social Security, the government-run pension plan that will run out of money in coming decades. The president does not believe that the program "is in crisis (or) is a driver of our near-term deficit problems," a White House statement noted.

But Social Security does face "long-term challenges that are better addressed sooner than later," the statement added, and Obama expressed a willingness to consider changes to help the program maintain its solvency down the road.
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RELATED TOPICS

    * Barack Obama
    * John Boehner
    * The George Washington University
    * Federal Budget
    * U.S. Congress

Obama said Vice President Joe Biden would begin meeting with legislators from both parties in early May with the aim of forging agreement on a deficit reduction plan by the end of June. According to the White House, the meetings would include eight Congress members and eight senators -- equally split between the two parties.

The president, however, strongly opposed the proposed Medicare and Medicaid overhaul outlined in Ryan's 2012 GOP budget proposal.

Under Ryan's plan, the government would stop directly paying Medicare bills for senior citizens in 2022. Instead, recipients would choose a plan from a list of private health insurance providers, which the federal government would subsidize. Individuals currently 55 or older would not be affected by the changes.

Medicaid, which provides health care for the disabled and the poor, would be transformed into a series of block grants to the states. Republicans believe state governments would spend the money more efficiently and would benefit from increased flexibility, while Democrats warn that such a move would shred the health care security provided to the most vulnerable Americans in recent generations.

"I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs," Obama said. "I will not tell families with children who have disabilities that they have to fend for themselves. We will reform these programs, but we will not abandon the fundamental commitment this country has kept for generations."

The Republican "vision is less about reducing the deficit than it is about changing the basic social compact in America," the president asserted. "It ends Medicare as we know it."

At the same time, Obama said that Democrats also must recognize the need for significant change in America's fiscal structure and practices.

"To those in my own party, I say that if we truly believe in a progressive vision of our society, we have the obligation to prove that we can afford our commitments," the president said. "If we believe that government can make a difference in people's lives, we have the obligation to prove that it works -- by making government smarter, leaner and more effective."

GOP leaders, who were briefed by Obama at the White House before his blueprint was officially released, blasted the president's call for higher taxes on those making more than $250,000.

"We can't tax the very people we expect to reinvest in our economy and create jobs," House Speaker John Boehner, R-Ohio, told reporters. "Washington has a spending problem, not a revenue problem."

As Obama and the Republicans spar over long-term deficit reduction plans, they also need to tackle the budget for the remainder of the current fiscal year, which ends September 30.

The House is scheduled to vote Thursday on a deal reached late last week that would cut spending for the year by $38.5 billion.

The package cuts funding for a wide range of domestic programs and services, including high-speed rail, emergency first responders and the National Endowment for the Arts.

Under the terms of the deal, roughly $20 billion would be taken from discretionary programs while nearly $18 billion would come from what are known as "changes in mandatory programs," or CHIMPS, which involve programs funded for multiyear blocks that don't require annual spending approval by Congress.

Republicans generally opposed CHIMP cuts because they affect only one year, with funding returning to the preauthorized level in the following year.

Democrats and Republicans also have to contend with an impending vote to raise the nation's debt ceiling. Congress needs to raise the limit before the federal government reaches its legal borrowing limit of $14.29 trillion later this spring or risk a default that could result in a crashing dollar and spiraling interest rates, among other things.

Republicans have repeatedly stressed that any vote to raise the cap has to be tied to another round of spending cuts or fiscal reforms.

The administration, in contrast, has called for a "clean" vote on the cap, which would raise the limit without adding any conditions. White House Press Secretary Jay Carney has warned that trying to force the issue is tantamount to playing a game of "chicken" with the economy.

While meeting with reporters after his meeting with Obama, however, Boehner indicated that the president might be open to a compromise on that vote.

CNN's Dan Lothian contributed to this report

[Hansmeister]

Apparently Obama surprised everyone and decided to go the full demagogue route today.  Curious timing since the 2011 budget hasn't passed yet and many on both sides were getting cold feet.  It's almost as if Obama wants the gov't to shut down.

Funny how Obama kept calling for an "adult conversation" on the budget and the first chance he had he goes off on an infantile rant.  I doubt there will be a raising off the debt ceiling next month unless he grows up.

[The Minsky Moment]

Pres Obama's budget plan was just announced. At first look, it seems to me like some good ideas for thought and progress in the budget debate.      

So you say but I have it on good authority that it was really just an infantile rant by a demagogue.

On second thought, scratch the word "good"

On third thought, scratch the word "authority"

In fact, scratch everything except "infantile rant".  I definitely recall one of those.

[Berkut]

And this is why the Teabaggers are pissed.

Arguments like this one - the basic premise that the Feds should forever and all time get an increasing bite of the GDP pie. There will *never* come a time when the Dems say "Yeah, that is the right amount - we should not need anymore than what we have now..."

The interesting part about the attacks on Ryans plan is to point out that it isn't feasible (likely true). But the response is NOT to say "Hey, cutting X% just isn't possible, how about we cut Y% instead?" Rather it is "Hey, cutting X% won't work, so obviously you guys are totally full of shit, so lets just keep increasing spending and taxes some more instead!"

The Teabaggers are not necessarily all that rational, but their anger is perfectly understandable, given these kinds of arguments, that are invariably of the form "We cannot possibly run the federal government on X% of GDP, therefore lets not try to cut ANYTHING ever, and just increase taxes instead!"

I have yet to see a single critique of the Ryan plan, for example, that included a alternative plan that cuts spending in an agressive manner, even if it also includes tax increases. Hell, I could probably even get behind some tax increases if that is what it takes to balance the budget - but I suspect that if we see tax increases, those increases will NOT go to reducing the deficit, but instead will just fund some more programs that will eventually be "untouchable" so we can later say "Gosh, there is just no way the federal government can possibly operate on 23% of GDP! That plan is not feasible!"

[KRonn]

He also has some ideas for cuts, structural changes. Yes, some demagoguery, too much but he's playing to the Dem base, just as the Repubs would. But at least he's stepping up a good deal with some concrete ideas. Opens up the debate more, finally acknowledging the seriousness of the deficit/budget problem with some real ideas for debate and hashing out by both parties. 

[Hansmeister]

He also has some ideas for cuts, structural changes. Yes, some demagoguery, too much but he's playing to the Dem base, just as the Repubs would. But at least he's stepping up a good deal with some concrete ideas. Opens up the debate more, finally acknowledging the seriousness of the deficit/budget problem with some real ideas for debate and hashing out by both parties.

Outside of Pentagon cuts he only has some magical Medicare and Medicaid savings thru gains in efficiency.  Weren't those magic reductions in waste, fraud, and abuse supposed to pay for Obamacare?  They are complete bullshit numbers pulled out of his ass.  Unless you fundamentally change Medicare and Medicaid you're not going to save anything.

[The Minsky Moment]

Arguments like this one - the basic premise that the Feds should forever and all time get an increasing bite of the GDP pie. There will *never* come a time when the Dems say "Yeah, that is the right amount - we should not need anymore than what we have now..."

The interesting part about the attacks on Ryans plan is to point out that it isn't feasible (likely true). But the response is NOT to say "Hey, cutting X% just isn't possible, how about we cut Y% instead?" Rather it is "Hey, cutting X% won't work, so obviously you guys are totally full of shit, so lets just keep increasing spending and taxes some more instead!"

I am not sure if this was intended as a response to my long post.

But if it is . . . my point is that if you fully implement the Ryan proposal but assume a more realistic but still brutal trajectory for discretionary spending - say a 25% cut, you still need 22% or more of GDP in revenue.  Acutally more over time, because the Ryan proposal doesn't tackle growth in social security spending.

this is not intended as advocacy of a point of view, just reporting results of calculations.

The simple fact is that the current federal revenue take is now so far below spending commitments that even relatively sharp cuts in spending won't bring the budget back into balance. 

Don't shoot the messenger.

[MadImmortalMan]

Arguments like this one - the basic premise that the Feds should forever and all time get an increasing bite of the GDP pie. There will *never* come a time when the Dems say "Yeah, that is the right amount - we should not need anymore than what we have now..."

This is a good point, and something that most dems generally don't think about. But I personally can imagine a point at which I would believe the government is doing the correct amount of things and should not take on more.

[Hansmeister]

Arguments like this one - the basic premise that the Feds should forever and all time get an increasing bite of the GDP pie. There will *never* come a time when the Dems say "Yeah, that is the right amount - we should not need anymore than what we have now..."

The interesting part about the attacks on Ryans plan is to point out that it isn't feasible (likely true). But the response is NOT to say "Hey, cutting X% just isn't possible, how about we cut Y% instead?" Rather it is "Hey, cutting X% won't work, so obviously you guys are totally full of shit, so lets just keep increasing spending and taxes some more instead!"

I am not sure if this was intended as a response to my long post.

But if it is . . . my point is that if you fully implement the Ryan proposal but assume a more realistic but still brutal trajectory for discretionary spending - say a 25% cut, you still need 22% or more of GDP in revenue.  Acutally more over time, because the Ryan proposal doesn't tackle growth in social security spending.

this is not intended as advocacy of a point of view, just reporting results of calculations.

The simple fact is that the current federal revenue take is now so far below spending commitments that even relatively sharp cuts in spending won't bring the budget back into balance. 

Don't shoot the messenger.

The problem is that we currently have an extremely progressive tax system which will always lead to wild swings in revenue.  We need a broader, lower tax base instead of the high marginal rate tax system we have now, which would ensure a more stable tax income than the current feast or famine system.  Curiously, changes in income tax rates over the last few decades have had almost no impact on federal revenue on the aggregate, except for the increasingly wild swings in revenue during the economic cycle.

[MadImmortalMan]

Would the impact of simply canceling all deductions be significant enough?

[The Minsky Moment]

The problem is that we currently have an extremely progressive tax system which will always lead to wild swings in revenue.  We need a broader, lower tax base instead of the high marginal rate tax system we have now, which would ensure a more stable tax income than the current feast or famine system. 

Except that salary and wage income doesn't swing that much.  Interest and capital gains is more variable, but those are less subject to progressive rate taxation.

A even bigger source of variability is the corporate income tax, which probably should be scrapped altogether.  Again, progressive rates are not the source of the problem there.

Of course, if you want both less variability and less progressivity, the obvious solution is a VAT or some similar variant . . .

[Hansmeister]

The problem is that we currently have an extremely progressive tax system which will always lead to wild swings in revenue.  We need a broader, lower tax base instead of the high marginal rate tax system we have now, which would ensure a more stable tax income than the current feast or famine system. 

Except that salary and wage income doesn't swing that much.  Interest and capital gains is more variable, but those are less subject to progressive rate taxation.

A even bigger source of variability is the corporate income tax, which probably should be scrapped altogether.  Again, progressive rates are not the source of the problem there.

Of course, if you want both less variability and less progressivity, the obvious solution is a VAT or some similar variant . . .

I would like a low across the board tax rate that is applied to all income, with refundable tax credits for health care and children to create a little bit of progressiveness without the whole "punish the rich" approach dems seem to favor.  Eliminate all other deductions.  Eliminate the corporate tax rate and replace it with a VAT.

The whole thing would be much more equitable and much easier to administer as well as not subject to exploitation by lobbyists.  Hence, it has no chance of passing.

[Habbaku]

The problem is that we currently have an extremely progressive tax system which will always lead to wild swings in revenue.  We need a broader, lower tax base instead of the high marginal rate tax system we have now, which would ensure a more stable tax income than the current feast or famine system. 

Except that salary and wage income doesn't swing that much.  Interest and capital gains is more variable, but those are less subject to progressive rate taxation.

A even bigger source of variability is the corporate income tax, which probably should be scrapped altogether.  Again, progressive rates are not the source of the problem there.

Of course, if you want both less variability and less progressivity, the obvious solution is a VAT or some similar variant . . .

I would like a low across the board tax rate that is applied to all income, with refundable tax credits for health care and children to create a little bit of progressiveness without the whole "punish the rich" approach dems seem to favor.  Eliminate all other deductions.  Eliminate the corporate tax rate and replace it with a VAT.

The whole thing would be much more equitable and much easier to administer as well as not subject to exploitation by lobbyists.  Hence, it has no chance of passing.

[Admiral Yi]

I'm profoundly dissapointed by Obama's proposal.  Only 480 billion over 10 years, and leaves that fucking retarded Schumer line intact.

If only the Republicans would put up a sane candidate.