Tag Archives: taxes

Debt Ceiling Negotiations

Posted on by
Reply

President Barack Obama had some thoughts on this in a press conference the other day.  Surprise—I have some thoughts on his thoughts.

Obama said this in response to a question from CBS News‘ Major Garrett on how Obama reconciles his refusal to vote to raise the debt ceiling while a Senator (the raise would be a “leadership failure”) with his current refusal, as President, to negotiate his demanded raise of the debt ceiling:

And, you know, the fact of the matter is, is that we have never seen the debt ceiling used in this fashion, where the notion was, you know what, we might default unless we get 100 percent of what we want. That hasn’t happened.

Actually, we’ve seen this repeatedly in the recent past.  Under Presidents Ronald Reagan and Bill Clinton, for instance, spending cuts (or what passed for them—reductions in the rate of growth of spending) were explicit parts of the deal to raise the ceiling.

Obama then added this:

Now, as I indicated before, I’m happy to have a conversation about how we reduce our deficits further….

There are a couple of things about this one.  One is that bit about being “happy to have a conversation.”  A conversation is an “exchange of thoughts and feelings.”  It’s not a negotiation.  Obama is willing only to engage in idle chit-chat on this subject; he’s not willing to enter into serious negotiation.

The other thing is that nonsense, “reduce our deficits further.”  As a man of Obama’s learned education knows—as his economic advisors in the White House and in his Cabinet know—a reduced deficit is still a deficit, and so it still grows our nation’s debt.  Once again, Obama is unwilling to take our debt seriously.

Obama then concluded his evasion of the original question (he never did address Garrett’s question of how Obama reconciles his Senatorial “No” with his Presidential “Raise it now” demand on the debt ceiling) with this:

But what you’ve never seen is the notion that has been presented so far at least by the Republicans that deficit reduction will only count spending cuts, that we will raise the deficit—or the debt ceiling dollar for dollar on spending cuts.  …what we’re not going to do is put ourselves in a position where in order to pay for spending that we’ve already incurred, that our two options are; we’re either going to profoundly hurt the economy, and hurt middle-class families, and hurt seniors, and hurt kids who are trying to go to college, or alternatively we’re going to blow up the economy.

The first part of that is true.  Having seen the failure of tying reduced spending growth rates to raising the debt limit, the House Republicans now are tying actual spending cuts to raising the debt ceiling.

The rest, though, is exactly what Obama is threatening.  He’s holding out for “100% of what [he] want[s],”  or he’ll blow up our economy.  He’s the one demanding a debt ceiling raise with no strings attached (he’s even called for ceding borrowing authority to him) and refusing to discuss any alternative.  He’s the one who’s said he won’t negotiate at all on the debt ceiling.

Yet, it’s his demand for continued borrowing, for continued expansion of our debt, that is profoundly hurting the economy, the middle class, seniors, the poor (who are notably absent in his “concern” for the welfare of others).   The opposition has already agreed to raise the borrowing limit.  They just want real spending cuts, also, so as to break the DC addiction to spending, and so as to reduce—or even eliminate—the need to borrow more.

Nominations

Posted on by
Reply

Here are three and their positions on various matters of some import.

Chuck Hagel, Secretary of Defense:  President Barack Obama has put him up to forward Obama’s defense policy of global retrenchment and defense cutbacks.

Hagel thinks it’s appropriate to negotiate with terrorists—Hamas, for instance—and he refused to join a US Senate letter to the EU calling on them to label Hamas a terrorist organization.

In a 2006 op-ed for The Washington Post, he called for a troop withdrawal in Iraq—right before the successful surge, which he also opposed when it came up.

In response to current SecDef Leon Panetta’s statement that the present sequester would gut Defense, and while the Joint Chiefs of Staff were telling Congress that the sequester would lead, variously, to “a severe and irreversible impact on the Navy’s future,” “a Marine Corps that’s below the end strength to support even one major contingency,” and “an unacceptable level of strategic and operational risk” for the Army[,]” Hagel insisted that the “Defense Department, I think in many ways, has been bloated….  So I think the Pentagon needs to be pared down.”

I won’t go over his anti-gay verbal assault on a Luxembourg ambassador nominee, except to note that his attitude will impact Defense’s (repealed) Don’t Ask Don’t Tell policy.

John Brennan, Director, CIA: Obama selected Brennan to put forward Obama’s policy of no intel collection, just kill them with drones:

Brennan is closely identified with the Obama administration’s expanded policy of using drones…to strike at suspected militants in countries such as Yemen, Somalia, and Pakistan.  The Washington Post refers to Brennan as “the principal architect of a policy that has transformed counterterrorism from a conventional fight centered in Afghanistan to a high-tech global effort to track down and eliminate perceived enemies one by one.” The Post adds that Brennan is at the “core” of the White House centered effort to use drones and that “when operations are proposed in Yemen, Somalia or elsewhere, it is Brennan alone who takes the recommendations to Obama for a final sign-off.”

In truth, there’s much to be applauded about this policy; however, like all things, it can be overdone—and it is here, through the blind, unconsidered application of drone strikes.  The biggest symptom of the policy’s failure?  The utter lack of intel coming out of these strikes.  Dead men, after all, tell no tales.

Brennan compounded this failure, though, with this lie:

There hasn’t been a single collateral death because of the exceptional proficiency, precision of the capabilities we’ve been able to develop.

On top of this, Brennan has no understanding of the fundamentals of terrorism: he’s called jihad a “legitimate tenet of Islam,” insisting instead that these poor, misguided violent extremists are victims of “political, economic, and social forces.”

Jacob “Jack” Lew, Secretary of the Treasury: Obama selected him to continue Obama’s policy of extended (and extensive) borrowing and spending.  But he, too, cannot be trusted.

When Lew was Obama’s Director of OMB, he testified before Congressional committees on Obama’s budget proposals:

Our budget will get us, over the next several years, to the point where we can look the American people in the eye and say we’re not adding to the debt anymore; we’re spending money that we have each year, and then we can work on bringing down our national debt.

President Obama’s budget proposals then added at least $600 billion to the deficit every year.

As Senator Jeff Sessions (R, AL) puts it

[Lew’s] testimony before the Senate Budget Committee less than two years ago was so outrageous and false that it alone disqualifies him.

There’s more.  Lew claimed that the reason the Democratic Senate hadn’t adopted a budget is that it was being filibustered by Republicans.  This demonstrates breathtaking ignorance of the Congress, or further dishonesty, or both.  Budgets cannot be filibustered—they get up or down votes and the majority carries the outcome.  He also misrepresented the fact that the House (led by Republicans) has passed a budget every year since 2010, and the Senate (led by Democrats) have refused even to debate them.

And there’s this exchange between Bernie Sanders (I, VT) and Lew [emphasis added]:

When asked by…Sanders…at a Senate confirmation hearing in 2010, when Lew was nominated to be head of the Office of Management and Budget, whether the deregulation pushed by Rubin and former Fed Chairman Alan Greenspan had “contributed significantly” to the banking crisis, Lew responded:

“Senator, I don’t consider myself an expert in some of these aspects of the financial industry.  My experience in the financial industry has been as a manager, not an investment adviser.  My sense, as someone who has generally been familiar with these trends, is thatthe problems in the financial industry preceded deregulation.  There was an increasing emphasis on highly abstract leveraged derivative products that got us to the point, that, in the period of time leading up to the financial crisis, risks were taken, they weren’t fully embraced, they weren’t well understood.

I don’t personally know the extent to which deregulation drove it, but I don’t think deregulation was the proximate cause.”

That is a statement of such profound (faux) ignorance that it’s awe-inspiring that Lew would say such a thing out loud.  Moreover, he was one of the senior economic advisors working for President Bill Clinton when Clinton signed the legislation making all of those “derivative products” exempt from the reach of any existing government regulation or regulatory agency.

Tax Failures

Posted on by
Reply

The Foundry is offering a list of tax increases that went into effect with the start of the year, the fiscal cliff fiasco notwithstanding.  Here are some of them, and the Obama attack on jobs embodied in them is…interesting.

Payroll tax: increase in the Social Security portion of the payroll tax from 4.2% to 6.2% for workers.  This hits all Americans earning a paycheck—not just the “wealthy.”  For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”

I have trouble with this.  Conservatives do themselves no good to tout this as a tax increase.  This is, in fact, merely the expiration of a payroll tax reduction that was purely temporary from the start, and advertised and passed as temporary.  Worse, this tax holiday was nothing but vote pandering while defunding an already failing Social Security System.

Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers).

Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses.

Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles).

Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales.

These directly attack jobs and job creation.  With active disincentives on investments, these will, inevitably, fall.  With reduced investing, there is less capital available for business’ R&D, which represents new products in production, which represents new—and more—jobs in the producing.  With reduced investing, there is less capital available for business expansion, and such expansion translates directly into jobs.

Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent.

Another payroll tax hike: 0.9% increase in the Hospital Insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers).

The increase in the death tax makes it harder for small business owners to pass on to their heirs their businesses.  This hits particularly hard businesses whose value is largely tied up in physical assets, like small manufacturers and small farmers.  These folks will be faced with an increasing likelihood of having to sell their businesses, or major components of them—things they’ve spent a lifetime building up—in order to pay the death vig.  These sales/downsizings represent existing jobs that will go away with the sale/downsize.

That last payroll tax increase also will hit the small business owner especially hard.  It just got more expensive to hire additional labor or to keep existing labor.  Moreover, there’s significant opportunity cost: that 0.9% tax represents money that now cannot be committed to R&D (already expensive for small businesses) in an effort to stay competitive; or committed to improved marketing in an effort to maintain/grow market share; or committed to payroll in the form of a new hire, pay raises, bonuses; or….

 

h/t The Spirit of Enterprise

National Default on the National Debt

Posted on by
Reply

President Barack Obama and his Senators keep saying that House RepublicansCongress must raise the debt ceiling or the US will go into default.  The latest example of this claim came when Obama, through his White House Press Secretary, Jay Carney, said in response to the idea that the administration could simply mint a $1 trillion coin and then spend that,

There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default[.]

Here’s what the Constitution says on the matter (you might recall that bit of paper—a document that Progressives insist ought to be scrapped or that already is useless and non-binding; maybe its inconvenient limits on government are why).  From Article I, Section 8, in relevant part:

The Congress shall have Power…to pay the Debts…;

To borrow Money on the credit of the United States;

Thus only the Congress can borrow—or create the conditions for paying what it has borrowed.  The President, as with all laws (nearly all of which, by the way, have his signature on them—he’s actively agreed with them, except in those very rare cases where his veto has been overridden), has only to execute them—here, to spend the money authorized, to collect the taxes authorized, to borrow according to the Congress’ budget and borrowing limit.  He’s Constitutionally, and by his oath of office, required to faithfully execute those laws.

(Incidentally, a later clause in that Section 8 says this:

To coin Money, regulate the Value thereof….

Thus, only Congress can mint a $1 trillion coin, not Treasury.)

The 14th Amendment, which some Progressives like to cite as a means for Obama to bypass Congress on the national debt, says in relevant part:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

Notice that confusing part—it being more than 100 years old—”authorized by law.”  The clause not only says that the US’ debt must be paid—no getting around that—but the only debt that must be paid is that authorized by law—that budget thing (from an even older and apparently even more confusing part of the Constitution), which must be passed by Congress and signed by the President or his veto overridden.  The president cannot (not may not—cannot) create debt on his own recognizance.

On the first part above, then, Obama has it right—Congress can agree to continue spending and borrowing, or it can decide not to act (or anywhere between the two extremes: cut spending enough to fit it into current revenues, thereby eliminating the deficit and stopping the growth in borrowing altogether, or cut spending to fit within projected revenues and raise the debt ceiling somewhat, with a view to gradually reducing spending, eliminating the deficit over time, and ultimately stopping the growth in borrowing altogether, for example).

What are the practicalities of the matter?  Say the debt ceiling is not raised; what results?

The interest on our current national debt (some $16+ trillion at the end of 2012, an explosion of 60% in Obama’s first four years) ran to $220 billion.  Total revenue collected from various tax sources (including payroll taxes for Social Security, et al.,) by the Federal government was $2.5 trillion—a shade over 10x those interest payments.

In short, there is no risk of default from Congressional inaction.  There is plenty of money with which to pay the interest, thereby keeping our debt current and not in default.  There’s plenty of money with which to roll existing debt that’s coming due—essentially to refinance by paying off that old debt with new borrowing—within the current debt ceiling.  This is the same as us refinancing our homes, which we must do within our own debt ceilings, values our lenders determine based on our credit rating.  There’s even plenty of money with which to begin in aggregate paying down that debt, reducing it below those $16 trillion, and to reduce it further in subsequent years.

Thus, if Congress declines to raise the debt ceiling at all, there would be spending cuts, but no default.  Federal spending in 2012 ran to $3.7 trillion, rather more than those $2.5 trillion in collections.  Progressive (and Conservative) favored programs would be drastically curtailed.  Welfare programs like food stamps, subsidies for “green” energy companies, farm price supports, and the like would be severely curtailed.  Entitlement programs like Social Security, Medicare, and Medicaid transfers to the States would be greatly circumscribed.  Withal, no default, and not even very many existing programs eliminated.

However, if Obama and his Senators truly are concerned about “not paying for our spending on the backs of our seniors and the middle class” (and the poor—that group these Progressives have been ignoring right along), they’ll get serious about spending cuts, the deficit, and the debt.  The cuts then could occur in a deliberate, controlled manner, across programs about which Conservatives and Progressives compromise on curtailing.

Obama and his Senators know what the Constitutionally mandated priorities are.  They simply are lying when they make their claim of debt default, and the NLMSM are complicit in the claim’s spread.  What these Progressives really mean is that, absent a debt ceiling increase, they will default on their vote buying promises.  And that terrifies them, since among those to whom they “owe” their vig are unions.

What Are They Prepared to Do?

Posted on by
Reply

Kimberly Strassel asked this, and three specific questions, in a Wall Street Journal op-ed last week.

Her questions:

Question one: Do they mean it?  In the abstract, the debt ceiling is a powerful tool for forcing the president to give in to spending cuts. …

In the non-abstract, failure to raise government borrowing limits means US default—and with it potential credit downgrades, market panic and resulting economic distress.  Is the GOP willing to inflict that on the economy?  If Republican members instead run for cover, as they did with the cliff, the GOP will have been exposed as bluffers, and the administration will never again have to fear the debt ceiling.

Then,

Question two: What do they want?  Throughout the fiscal-cliff negotiations…the GOP shrunk from laying out its specific demands on Medicare, Social Security and Medicaid.

Do House Republicans have the courage to lay out big demands (say, premium support for Medicare or block grants for Medicaid), send a bill to the Senate, and sell entitlement reform to the public?  If they can’t face the demagoguery that Democrats will use against them for making substantive proposals on entitlements….

Finally,

Question three: What other hostages are Republicans willing to see shot?  Knowing he has lost his tax trump card, Mr Obama seamlessly moved on this week to the defense budget.  …Mr Obama intends to make further tax hikes the price….

Are the GOP’s defense hawks willing to stomach those cuts as a price for entitlement reform?  Having publicly campaigned against this slashing of the military, can the party stare down the president with a unified position?  Mr Obama is betting they can’t….

It’s pretty clear from the Republicans’ past performances in showdowns with Obama that all they’ll do is run for cover—too much of the party consists only of bluffers.  During the just concluded tax cliff matter, hey could have put up big demands concerning tax structure and tax rate reductions—just putting forward the Romney tax plan would have sufficed—but they quailed at the thought and shrank from their duty.  They also could have put up big demands concerning spending cuts—just putting forward the Ryan plan would have sufficed on entitlements—and big demands concerning so-called discretionary spending (so-called because all government spending is at the discretion of the Congress).  After all, Obama was publicly willing to conclude such a “grand bargain;” the Republicans should have held him to his word.  But they failed here, also.

On the matter of selling their position to the public, it’s pretty clear the Republicans have no capability for that, even if they had an actual position to sell.  They’re still not talking to us.

Vernon Pinkley, on walking the Republican halls of the House (or of the Senate), might ask, “Very pretty, Speaker/Minority Leader. Very pretty.  But, can they fight?”  The answer is, “No.”

I pointed out nearby the necessary and encouraging words of a rookie Republican Senator from Texas.  Unfortunately, there’s no reason to believe there are enough more Republicans like him to accomplish much of anything.