http://money.cnn.com/2010/11/11/news/economy/simpson_bowles_tax_reform/index.htm
By Jeanne Sahadi, senior writerNovember 12, 2010: 7:57 AM ET
NEW YORK (CNNMoney.com) -- So much to love. So much to hate.
That's what everyone will find in the tax reform proposals laid out this week by the co-chairmen of President Obama's fiscal commission.
And that may also be the best indication that Erskine Bowles and Alan Simpson got something right.
The truth is, there's no escaping the need to make serious tradeoffs on taxes if the goal is to create a tax code that supports economic growth, provides enough revenue to fund everything Americans want their government to do, and achieves real deficit reduction when paired with spending cuts. (10 biggest cuts the co-chairmen recommend)
Of course, politicians aren't yet willing to acknowledge those tradeoffs. Most Republicans still cleave publicly to the idea that taxes are the devil's spawn and must be beaten back. And most Democrats think that only the wealthiest should ever have to pay more in taxes.
That doesn't mean there isn't something for them to like in the Bowles-Simpson proposal.
For one thing, the co-chairmen propose simplifying the tax code, while lowering rates. They would also eliminate the Alternative Minimum Tax (a.k.a. the crazy-making-calculate-your-taxes-twice-to-see-if-you-owe-more tax).
Think you're smart about the deficit? Try this
In exchange, their proposal calls for a reduction -- or the complete elimination -- of the hundreds of tax deductions, credits and exemptions in the code.
Tax breaks reduce the amount of revenue the government takes in by more than $1 trillion a year, much of which comes from just a few of the biggest and most popular ones like the mortgage interest deduction.
Many experts regard tax breaks as a stealth form of spending. That's because the lost revenue doesn't appear anywhere on the federal budget. And once a break is passed into law, it's rare that anybody reviews its effectiveness.
"They're unsustainable. They have no oversight. And they really cost this country a bundle," Simpson told CNN.
Still, as the co-chairmen know all too well, removing them will elicit all sorts of "shrieking," as the ever-tart-tongued Simpson has put it many times. Tax breaks are enjoyed by many powerful special interests -- to say nothing of many Americans.
Fewer breaks = lower rates
Bowles and Simpson offer two options that slash tax breaks. And by doing so, they can lower income tax rates.
In their "zero plan" option, breaks are eliminated altogether. Under that scenario, individual income tax rates -- which they reduce from six brackets to three -- can fall substantially.
For instance, the lowest two rates (10% and 15%) could fall to 8%. The middle two rates (25% and 28%) could drop to 14%. And the top two rates (33% and 35%) could drop to 23%.
The corporate rate, meanwhile, could drop to 26% from 35%, to make it more attractive for companies to invest in the United States.
On the other hand, of course, lawmakers could choose to retain tax breaks. But the fewer they prune, the less rates can be lowered.
The second option from Simpson and Bowles, building on a bipartisan proposal in Congress, would reduce the mortgage interest deduction. The tax break would apply only to the first $500,000 of a loan on one's primary residence, about half of what counts today.
The second option would also repeal the state and local tax deduction and various other itemized deductions.
Individual tax rates under that plan would be 15%, 25% and 35%.
Another big proposed change under both reform plans would affect investment income. Capital gains and dividends, which are currently taxed at 15%, would be taxed as ordinary income -- that is, at higher rates.
More revenue on tap
The Simpson-Bowles tax reform options would raise an estimated $80 billion in additional revenue in 2015 and $160 billion by 2020. Their plan overall would cap federal revenue at 21% of GDP.
Who exactly will be paying in all that extra revenue? A specific break-out by income groups is still in the works.
It is likely that more people would end up with higher -- rather than lower -- tax bills, a commission staffer said. But he also noted that the revised tax code would probably be more progressive.
No one will like paying more, of course. But the staffer said the comparison shouldn't be to what someone is paying today but rather to what that person is likely to pay in the future if no changes to the tax code or to the federal balance sheet are made.
Translation: Taxes are going up one way or the other. The question is will those higher taxes be levied in a system that is widely considered to be outdated, overly complex and highly inefficient, or in a system that is simpler and smarter?
Showing posts with label national debt. Show all posts
Showing posts with label national debt. Show all posts
Sunday, November 14, 2010
Friday, September 17, 2010
Obstacle to Deficit Cutting: A Nation on Entitlements
http://finance.yahoo.com/banking-budgeting/article/110680/nation-of-entitlements?mod=bb-budgeting
by Sara Murray, WALL STREET JOURNAL
Thursday, September 16, 2010
Efforts to tame America's ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.
At the same time, the fraction of American households not paying federal income taxes has also grown -- to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center, a nonpartisan research organization.
A little more than half don't earn enough to be taxed; the rest take so many credits and deductions they don't owe anything. Most still get hit with Medicare and Social Security payroll taxes, but 13% of all U.S. households pay neither federal income nor payroll taxes.
"We have a very large share of the American population that is getting checks from the government," says Keith Hennessey, an economic adviser to President George W. Bush and now a fellow at the conservative Hoover Institution, "and an increasingly smaller portion of the population that's paying for it."
The dimensions of the budget hole were underscored Monday, when the Treasury reported that the government ran a $1.26 trillion deficit for the first 11 months of the fiscal year, on pace to be the second-biggest on record.
Yet even as Americans express concern over the deficit in opinion polls, many oppose benefit cuts, particularly with the economy on an uneven footing. A Wall Street Journal/NBC News poll conducted late last month found 61% of voters were "enthusiastic" or "comfortable" with congressional candidates who support cutting federal spending in general. But 56% expressed the same enthusiasm for candidates who voted to extend unemployment benefits.
As recently as the early 1980s, about 30% of Americans lived in households in which an individual was receiving Social Security, subsidized housing, jobless benefits or other government-provided benefits. By the third quarter of 2008, 44% were, according to the most recent Census Bureau data.
That number has undoubtedly gone up, as the recession has hammered incomes. Some 41.3 million people were on food stamps as of June 2010, for instance, up 45% from June 2008. With unemployment high and federal jobless benefits now available for up to 99 weeks, 9.7 million unemployed workers were receiving checks in late August 2010, more than twice as many as the 4.2 million in August 2008.
Still more Americans -- 19 million by 2019, according to the Congressional Budget Office -- will get federal aid to buy health insurance when legislation passed this year is implemented.
The expanding federal safety net has helped shelter many families from the worst of the downturn. Charlene A. Mueller-Holden doesn't fit the stereotype of a person on benefits. Laid off from J.P. Morgan Chase & Co. (NYSE: JPM - News) in January 2008, Ms. Mueller-Holden, 38, drew unemployment for 99 weeks.
The Newark, Del., resident knocked $40 a month off her mortgage payments through the federal Making Home Affordable Program, designed to keep people in their homes by helping them modify or refinance their mortgages. But when her unemployment benefits ran out, Ms. Mueller-Holden and her husband, a government employee, couldn't afford the $1,008 monthly payments.
She turned to the Delaware State Housing Authority which, under a federally subsidized program aimed at helping families with children stay in their homes, gave her $1,000 a month for five months toward mortgage payments. She and her two sons ate lunch for free at the local school this summer, and she has applied for free lunch for one of her sons who will be a first grader this year.
Ms. Mueller-Holden's family earned too little to pay federal taxes last year, and received an extension on their state taxes. "Quite frankly, I don't care about the deficit," says Ms. Mueller-Holden. "It's going to take years upon years upon years to pay this all back," she says, so it's better to focus on job growth now and deal with the deficit later.
Government data don't show how many of the households receiving government benefits also escape federal taxes. But there is certainly some overlap between the two groups, since many benefits are aimed at those earning too little to pay income taxes and at people who don't have jobs, and who thus don't pay payroll taxes.
Cutting spending on these "entitlements" is widely seen as an inevitable ingredient in any credible deficit-reduction program. Yet despite occasional bouts of belt-tightening in Washington and bursts of discussion about restraining big government, the trend toward more Americans receiving government benefits of one sort or another has continued for more than 70 years -- and shows no sign of abating.
An aging population is adding to the ranks of Americans receiving government benefits, and will continue to do so as more of the large baby-boom generation, those born between 1946 and 1964, become eligible. Today, an estimated 47.4 million people are enrolled in Medicare, up 38% from 1990. By 2030, the number is projected to be 80.4 million.
The difficulty of restraining benefits when so much of the population depends on them is now on view across Europe, where efforts to rein in deficits are forcing governments to cut popular entitlements. European countries have traditionally provided far more generous welfare benefits than the U.S. has, including monthly allowances for children regardless of income, free college tuition and universal health care. Public retirement programs are also bigger, since the combination of aging populations and low birth rates means fewer workers are paying into the system.
In recent months, political leaders in Europe have struggled to convince voters that change is necessary. German Chancellor Angela Merkel has exempted pensions from her government's planned budget cuts, reflecting the growing power of the retiree vote. French President Nicolas Sarkozy is facing mass protests, including a national strike week, as he tries to raise France's minimum retirement age from 60 to 62. Greece's government had to face down demonstrations this year when it slashed pension benefits, as it was forced to do to get bailout money from other European countries and the International Monetary Fund.
Still, Europe does offer examples that change is possible. Germany slashed benefits for the long-term unemployed in 2004, a step that analysts credit with prompting more Germans to get jobs as well as improving the country's budget balance. Cuts to entitlements are politically possible, says Daniel Gros, director of the Center for European Policy Studies, a nonpartisan think tank in Brussels, "but societies need some time to get used to the idea."
The U.S. government first offered large-scale assistance during Franklin Delano Roosevelt's New Deal. The Social Security Act, passed in 1935, created the popular retirement program as well as unemployment compensation, the early stages of what became known as "welfare" and assistance to the blind and elderly. In the 1940s, the G.I. Bill offered unemployment benefits, education assistance and loans to veterans. That same decade, Washington began offering free or reduced-price lunches to children from low-income families and, a decade later, monthly benefits to the disabled.
Lyndon Johnson's Great Society programs brought food stamps plus Medicare and Medicaid. In the 1970s, Supplemental Security Income was created on top of routine Social Security benefits for the poorest of the elderly and disabled, and so-called Section 8 vouchers began subsidizing rental housing. The earned-income tax credit was launched in 1975 to offer extra cash to low-wage workers, and grew in the 1990s to become one of the government's principle antipoverty programs.
Benefits for children were expanded in 1997 with the State Children's Health Insurance Program during the Clinton administration -- and were expanded again in 2009. Shortly after President Barack Obama took office, Congress passed the American Recovery and Reinvestment Act, the stimulus bill, which among other things extended unemployment compensation and offered incentives for states to cover more workers.
All this is expensive. Payments to individuals -- a budget category that includes all federal benefit programs plus retirement benefits for federal workers -- will cost $2.4 trillion this year, up 79%, adjusted for inflation, from a decade earlier when the economy was stronger. That represents 64.3% of all federal outlays, the highest percentage in the 70 years the government has been measuring it. The figure was 46.7% in 1990 and 26.2% in 1960.
When the economy recovers, some -- but not all -- current recipients of federal aid are likely to lose their benefits, which some say is reason enough to keep them going for now.
"If there became an expectation that government was going to provide over half of the population's well-being to a significant degree without requiring anything of the recipients, there would be reason for concern," says Robert Reischauer, a former Congressional Budget Office director and now president of the Urban Institute, a liberal-leaning think tank in Washington, D.C. "I don't think that's where we are or where we're headed."
The public appears divided on what to do. A new Allstate/National Journal poll found that 35% of voters want the government to make sure future retirees receive all the benefits they've been promised even if it means raising taxes. Another 34% said the government should make retirement programs "financially sustainable" by making some cuts to those benefits and raising some taxes, and 22% said they'd be willing to see benefits cut to restrain the programs' rising costs.
The call for restraining benefits resonates with voters like Robert Letherman. "You name it, someone is lining up to get bailed out, or a handout, courtesy of the hard-working American taxpayer," says Mr. Letherman, 39, a real-estate developer in Elkhart, Ind.
Mr. Letherman says he has struggled through the recession like many others, but doesn't qualify for government assistance. His income has declined 40% since 2007. Some $4 million in development projects percolating in the spring of 2007 have since been shelved.
He supports helping people in need, says Mr. Letherman, but believes many people game the system. Extended unemployment benefits, for example, give some Americans an excuse not to go back to work, he says. If it were up to him, government would be half the size it is now.
He favors eliminating pensions for all government workers, excluding military and intelligence personnel, and would impose a nationwide sales tax to pay off the country's debt. "If we continue down the path of deficit spending, the great recession of 2008 will be nothing compared to what we will face in five, 10, 20 years," he says.
Cutting federal benefits while the economy is still weak would be a mistake, some analysts say, because it could hinder recovery by giving consumers less money to spend.
Paul Hester has relied on government benefits since he lost his job in June 2009. The 54-year-old microbiologist has a master's degree and was earning a salary of $50,000 at the Indiana State Department of Health. He says he regularly looks for jobs, but has landed only two interviews in the past year.
Influenced by the credit wariness of parents who lived through the Great Depression, the Indianapolis resident has always been thrifty. He once watched his dad walk into a dealership, "plop down $10,000 in cash and buy a car." Mr. Hester has one credit card, and before he was unemployed, he tried to pay it off every month.
He lives on $375 a week in unemployment checks and his health-insurance premiums are subsidized by the federal government under a provision in the fiscal stimulus enacted by Congress in February 2009. His daughter, a college sophomore, pays for part of her schooling with Pell Grants, a federal program for low-income students that is set to expand because of new legislation that increased the number and size of grants.
"I don't like taking government money," says Mr. Hester, but "what else is there?"
-- Marcus Walker contributed to this article.
Write to Sara Murray at sara.murray@wsj.com
__________
Don't know whether these entitlements cause people to become lazy. The WSJ article definitely implies people tend to stay away looking for work when they can get a free handout. Here are a couple of articles that discuss poverty level is at an all time high:
http://www.nytimes.com/2010/09/17/us/17poverty.html
http://money.cnn.com/2010/09/16/news/economy/Census_poverty_rate/index.htm
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091602698_pf.html
http://www.sacbee.com/2010/09/17/3036096/poverty-in-california-continues.html
And here is an article, titled, "Household wealth takes step backwards":
http://money.cnn.com/2010/09/17/news/economy/household_net_worth/index.htm
by Sara Murray, WALL STREET JOURNAL
Thursday, September 16, 2010
Efforts to tame America's ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.
At the same time, the fraction of American households not paying federal income taxes has also grown -- to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center, a nonpartisan research organization.
A little more than half don't earn enough to be taxed; the rest take so many credits and deductions they don't owe anything. Most still get hit with Medicare and Social Security payroll taxes, but 13% of all U.S. households pay neither federal income nor payroll taxes.
"We have a very large share of the American population that is getting checks from the government," says Keith Hennessey, an economic adviser to President George W. Bush and now a fellow at the conservative Hoover Institution, "and an increasingly smaller portion of the population that's paying for it."
The dimensions of the budget hole were underscored Monday, when the Treasury reported that the government ran a $1.26 trillion deficit for the first 11 months of the fiscal year, on pace to be the second-biggest on record.
Yet even as Americans express concern over the deficit in opinion polls, many oppose benefit cuts, particularly with the economy on an uneven footing. A Wall Street Journal/NBC News poll conducted late last month found 61% of voters were "enthusiastic" or "comfortable" with congressional candidates who support cutting federal spending in general. But 56% expressed the same enthusiasm for candidates who voted to extend unemployment benefits.
As recently as the early 1980s, about 30% of Americans lived in households in which an individual was receiving Social Security, subsidized housing, jobless benefits or other government-provided benefits. By the third quarter of 2008, 44% were, according to the most recent Census Bureau data.
That number has undoubtedly gone up, as the recession has hammered incomes. Some 41.3 million people were on food stamps as of June 2010, for instance, up 45% from June 2008. With unemployment high and federal jobless benefits now available for up to 99 weeks, 9.7 million unemployed workers were receiving checks in late August 2010, more than twice as many as the 4.2 million in August 2008.
Still more Americans -- 19 million by 2019, according to the Congressional Budget Office -- will get federal aid to buy health insurance when legislation passed this year is implemented.
The expanding federal safety net has helped shelter many families from the worst of the downturn. Charlene A. Mueller-Holden doesn't fit the stereotype of a person on benefits. Laid off from J.P. Morgan Chase & Co. (NYSE: JPM - News) in January 2008, Ms. Mueller-Holden, 38, drew unemployment for 99 weeks.
The Newark, Del., resident knocked $40 a month off her mortgage payments through the federal Making Home Affordable Program, designed to keep people in their homes by helping them modify or refinance their mortgages. But when her unemployment benefits ran out, Ms. Mueller-Holden and her husband, a government employee, couldn't afford the $1,008 monthly payments.
She turned to the Delaware State Housing Authority which, under a federally subsidized program aimed at helping families with children stay in their homes, gave her $1,000 a month for five months toward mortgage payments. She and her two sons ate lunch for free at the local school this summer, and she has applied for free lunch for one of her sons who will be a first grader this year.
Ms. Mueller-Holden's family earned too little to pay federal taxes last year, and received an extension on their state taxes. "Quite frankly, I don't care about the deficit," says Ms. Mueller-Holden. "It's going to take years upon years upon years to pay this all back," she says, so it's better to focus on job growth now and deal with the deficit later.
Government data don't show how many of the households receiving government benefits also escape federal taxes. But there is certainly some overlap between the two groups, since many benefits are aimed at those earning too little to pay income taxes and at people who don't have jobs, and who thus don't pay payroll taxes.
Cutting spending on these "entitlements" is widely seen as an inevitable ingredient in any credible deficit-reduction program. Yet despite occasional bouts of belt-tightening in Washington and bursts of discussion about restraining big government, the trend toward more Americans receiving government benefits of one sort or another has continued for more than 70 years -- and shows no sign of abating.
An aging population is adding to the ranks of Americans receiving government benefits, and will continue to do so as more of the large baby-boom generation, those born between 1946 and 1964, become eligible. Today, an estimated 47.4 million people are enrolled in Medicare, up 38% from 1990. By 2030, the number is projected to be 80.4 million.
The difficulty of restraining benefits when so much of the population depends on them is now on view across Europe, where efforts to rein in deficits are forcing governments to cut popular entitlements. European countries have traditionally provided far more generous welfare benefits than the U.S. has, including monthly allowances for children regardless of income, free college tuition and universal health care. Public retirement programs are also bigger, since the combination of aging populations and low birth rates means fewer workers are paying into the system.
In recent months, political leaders in Europe have struggled to convince voters that change is necessary. German Chancellor Angela Merkel has exempted pensions from her government's planned budget cuts, reflecting the growing power of the retiree vote. French President Nicolas Sarkozy is facing mass protests, including a national strike week, as he tries to raise France's minimum retirement age from 60 to 62. Greece's government had to face down demonstrations this year when it slashed pension benefits, as it was forced to do to get bailout money from other European countries and the International Monetary Fund.
Still, Europe does offer examples that change is possible. Germany slashed benefits for the long-term unemployed in 2004, a step that analysts credit with prompting more Germans to get jobs as well as improving the country's budget balance. Cuts to entitlements are politically possible, says Daniel Gros, director of the Center for European Policy Studies, a nonpartisan think tank in Brussels, "but societies need some time to get used to the idea."
The U.S. government first offered large-scale assistance during Franklin Delano Roosevelt's New Deal. The Social Security Act, passed in 1935, created the popular retirement program as well as unemployment compensation, the early stages of what became known as "welfare" and assistance to the blind and elderly. In the 1940s, the G.I. Bill offered unemployment benefits, education assistance and loans to veterans. That same decade, Washington began offering free or reduced-price lunches to children from low-income families and, a decade later, monthly benefits to the disabled.
Lyndon Johnson's Great Society programs brought food stamps plus Medicare and Medicaid. In the 1970s, Supplemental Security Income was created on top of routine Social Security benefits for the poorest of the elderly and disabled, and so-called Section 8 vouchers began subsidizing rental housing. The earned-income tax credit was launched in 1975 to offer extra cash to low-wage workers, and grew in the 1990s to become one of the government's principle antipoverty programs.
Benefits for children were expanded in 1997 with the State Children's Health Insurance Program during the Clinton administration -- and were expanded again in 2009. Shortly after President Barack Obama took office, Congress passed the American Recovery and Reinvestment Act, the stimulus bill, which among other things extended unemployment compensation and offered incentives for states to cover more workers.
All this is expensive. Payments to individuals -- a budget category that includes all federal benefit programs plus retirement benefits for federal workers -- will cost $2.4 trillion this year, up 79%, adjusted for inflation, from a decade earlier when the economy was stronger. That represents 64.3% of all federal outlays, the highest percentage in the 70 years the government has been measuring it. The figure was 46.7% in 1990 and 26.2% in 1960.
When the economy recovers, some -- but not all -- current recipients of federal aid are likely to lose their benefits, which some say is reason enough to keep them going for now.
"If there became an expectation that government was going to provide over half of the population's well-being to a significant degree without requiring anything of the recipients, there would be reason for concern," says Robert Reischauer, a former Congressional Budget Office director and now president of the Urban Institute, a liberal-leaning think tank in Washington, D.C. "I don't think that's where we are or where we're headed."
The public appears divided on what to do. A new Allstate/National Journal poll found that 35% of voters want the government to make sure future retirees receive all the benefits they've been promised even if it means raising taxes. Another 34% said the government should make retirement programs "financially sustainable" by making some cuts to those benefits and raising some taxes, and 22% said they'd be willing to see benefits cut to restrain the programs' rising costs.
The call for restraining benefits resonates with voters like Robert Letherman. "You name it, someone is lining up to get bailed out, or a handout, courtesy of the hard-working American taxpayer," says Mr. Letherman, 39, a real-estate developer in Elkhart, Ind.
Mr. Letherman says he has struggled through the recession like many others, but doesn't qualify for government assistance. His income has declined 40% since 2007. Some $4 million in development projects percolating in the spring of 2007 have since been shelved.
He supports helping people in need, says Mr. Letherman, but believes many people game the system. Extended unemployment benefits, for example, give some Americans an excuse not to go back to work, he says. If it were up to him, government would be half the size it is now.
He favors eliminating pensions for all government workers, excluding military and intelligence personnel, and would impose a nationwide sales tax to pay off the country's debt. "If we continue down the path of deficit spending, the great recession of 2008 will be nothing compared to what we will face in five, 10, 20 years," he says.
Cutting federal benefits while the economy is still weak would be a mistake, some analysts say, because it could hinder recovery by giving consumers less money to spend.
Paul Hester has relied on government benefits since he lost his job in June 2009. The 54-year-old microbiologist has a master's degree and was earning a salary of $50,000 at the Indiana State Department of Health. He says he regularly looks for jobs, but has landed only two interviews in the past year.
Influenced by the credit wariness of parents who lived through the Great Depression, the Indianapolis resident has always been thrifty. He once watched his dad walk into a dealership, "plop down $10,000 in cash and buy a car." Mr. Hester has one credit card, and before he was unemployed, he tried to pay it off every month.
He lives on $375 a week in unemployment checks and his health-insurance premiums are subsidized by the federal government under a provision in the fiscal stimulus enacted by Congress in February 2009. His daughter, a college sophomore, pays for part of her schooling with Pell Grants, a federal program for low-income students that is set to expand because of new legislation that increased the number and size of grants.
"I don't like taking government money," says Mr. Hester, but "what else is there?"
-- Marcus Walker contributed to this article.
Write to Sara Murray at sara.murray@wsj.com
__________
Don't know whether these entitlements cause people to become lazy. The WSJ article definitely implies people tend to stay away looking for work when they can get a free handout. Here are a couple of articles that discuss poverty level is at an all time high:
http://www.nytimes.com/2010/09/17/us/17poverty.html
http://money.cnn.com/2010/09/16/news/economy/Census_poverty_rate/index.htm
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091602698_pf.html
http://www.sacbee.com/2010/09/17/3036096/poverty-in-california-continues.html
And here is an article, titled, "Household wealth takes step backwards":
http://money.cnn.com/2010/09/17/news/economy/household_net_worth/index.htm
Monday, February 15, 2010
Curbing debt: Shoulda, coulda. Now gotta
http://money.cnn.com/2010/02/15/news/economy/reducing_debt/index.htm
By Jeanne Sahadi, senior writerFebruary 15, 2010: 9:07 AM ET
NEW YORK (CNNMoney.com) -- In the past five years, the administrations of both parties have tried to reform three big-ticket items: the tax code, health care and Social Security.
The reform efforts would have helped put the federal budget on a more sustainable course.
But all have been tabled in one form or another because of partisan resistance to key ideas.
Now policymakers' work is infinitely harder as they wake up to the realization that they must deal soon with the country's long-term fiscal problems.
At stake ultimately is the United States' status as a first-class economy.
"It's going to take bold strokes to deal with this challenge. It's going to take big ideas, and it's going to take political courage because it's every hot-button issue that's out there. It is Social Security. It is Medicare. It is revenue. All of them," said Senate Budget Chairman Kent Conrad, D-N.D., at a hearing last week on fiscal sustainability.
The president's yet-to-be formed bipartisan fiscal commission will be asked to propose ways to hit two key targets:
As things stand today, federal spending -- much of it in Medicare and to a lesser degree Social Security -- is on track to grow much faster than the economy for decades.
To achieve better fiscal balance after the economy recovers means that lawmakers will have to agree to measures that run contrary to the ideologies of the left and the right: Cut spending and raise taxes.
"And [the plan] must have the support of the leadership of both political parties," said Alice Rivlin, former vice chairman of the Federal Reserve, former White House budget director under President Clinton and former director of the Congressional Budget Office.
Rivlin and former Republican Senator Pete Domenici have formed a bipartisan debt-reduction task force that will craft a debt-reduction budget plan for Congress and the public to consider by the end of the year.
They, like other deficit-hawk groups, are suggesting that lawmakers seriously reconsider a number of proposals made in the past five years. Here are just five that likely will get more play in coming months.
Raise the Social Security retirement age: Currently, the full retirement age is set to hit 67 in 2027. Moving up that timetable, and then adjusting the retirement age by just 1 month every 2 years after that, could take care of nearly a third of the long-term shortfall in Social Security.
"As life expectancy increases, we just can't afford to support people in retirement for as long as we have currently under these programs," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told lawmakers.
Slow the growth of entitlement benefits: To protect lower income seniors who depend most heavily on their Social Security benefits, one option would be to slow the growth of initial benefits for higher income people.
In terms of Medicare, MacGuineas said, one option is to ask higher income retirees who can afford it to contribute more to the cost of their benefits.
Reduce health insurance tax breaks: Everyone agrees controlling health costs is one of the biggest steps needed to reduce the growth in U.S. debt over time. One of the most effective ways to do so is to reduce or eliminate the tax breaks workers get when they buy their insurance at work.
Currently, the portion of premiums paid by employers is treated as tax-free compensation to workers, and there is no limit on how much employers may contribute. The cost in forgone revenue over 10 years is $2.5 trillion, Conrad said.
A cap would mean workers would pay income tax on the portion of their employer's contribution above the cap.
The theory is that workers would avoid paying income tax by choosing lower-cost plans over time.
Broaden the tax base: Close to half of tax filers will end up with no net federal income tax liability for 2009 thanks in large part to a complex host of credits, exemptions, deductions and exclusions. Those tax breaks reduce federal revenue intake by roughly $1 trillion a year.
"If we can get rid of a lot of tax expenditures, we can lower [marginal tax] rates actually below today's level and still raise additional revenues," said Rudolph Penner, a former CBO director who is now the co-chair of the Committee on the Fiscal Future of the United States.
Consider new revenue options: Generating more income tax revenue can be helpful, but raising taxes too high can dampen economic growth. So lawmakers will be looking for other sources of revenue on top of income taxes.
Among the ideas being considered is a national sales tax known as the value-added tax or a possible energy tax. To top of page
By Jeanne Sahadi, senior writerFebruary 15, 2010: 9:07 AM ET
NEW YORK (CNNMoney.com) -- In the past five years, the administrations of both parties have tried to reform three big-ticket items: the tax code, health care and Social Security.
The reform efforts would have helped put the federal budget on a more sustainable course.
But all have been tabled in one form or another because of partisan resistance to key ideas.
Now policymakers' work is infinitely harder as they wake up to the realization that they must deal soon with the country's long-term fiscal problems.
At stake ultimately is the United States' status as a first-class economy.
"It's going to take bold strokes to deal with this challenge. It's going to take big ideas, and it's going to take political courage because it's every hot-button issue that's out there. It is Social Security. It is Medicare. It is revenue. All of them," said Senate Budget Chairman Kent Conrad, D-N.D., at a hearing last week on fiscal sustainability.
The president's yet-to-be formed bipartisan fiscal commission will be asked to propose ways to hit two key targets:
- to get annual deficits to 3% of gross domestic product by 2015;
- to then stabilize the nation's total accrued debt at something far lower than 77% of GDP, which is where it would be by 2020 under President Obama's proposed 2011 budget.
As things stand today, federal spending -- much of it in Medicare and to a lesser degree Social Security -- is on track to grow much faster than the economy for decades.
To achieve better fiscal balance after the economy recovers means that lawmakers will have to agree to measures that run contrary to the ideologies of the left and the right: Cut spending and raise taxes.
"And [the plan] must have the support of the leadership of both political parties," said Alice Rivlin, former vice chairman of the Federal Reserve, former White House budget director under President Clinton and former director of the Congressional Budget Office.
Rivlin and former Republican Senator Pete Domenici have formed a bipartisan debt-reduction task force that will craft a debt-reduction budget plan for Congress and the public to consider by the end of the year.
They, like other deficit-hawk groups, are suggesting that lawmakers seriously reconsider a number of proposals made in the past five years. Here are just five that likely will get more play in coming months.
Raise the Social Security retirement age: Currently, the full retirement age is set to hit 67 in 2027. Moving up that timetable, and then adjusting the retirement age by just 1 month every 2 years after that, could take care of nearly a third of the long-term shortfall in Social Security.
"As life expectancy increases, we just can't afford to support people in retirement for as long as we have currently under these programs," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told lawmakers.
Slow the growth of entitlement benefits: To protect lower income seniors who depend most heavily on their Social Security benefits, one option would be to slow the growth of initial benefits for higher income people.
In terms of Medicare, MacGuineas said, one option is to ask higher income retirees who can afford it to contribute more to the cost of their benefits.
Reduce health insurance tax breaks: Everyone agrees controlling health costs is one of the biggest steps needed to reduce the growth in U.S. debt over time. One of the most effective ways to do so is to reduce or eliminate the tax breaks workers get when they buy their insurance at work.
Currently, the portion of premiums paid by employers is treated as tax-free compensation to workers, and there is no limit on how much employers may contribute. The cost in forgone revenue over 10 years is $2.5 trillion, Conrad said.
A cap would mean workers would pay income tax on the portion of their employer's contribution above the cap.
The theory is that workers would avoid paying income tax by choosing lower-cost plans over time.
Broaden the tax base: Close to half of tax filers will end up with no net federal income tax liability for 2009 thanks in large part to a complex host of credits, exemptions, deductions and exclusions. Those tax breaks reduce federal revenue intake by roughly $1 trillion a year.
"If we can get rid of a lot of tax expenditures, we can lower [marginal tax] rates actually below today's level and still raise additional revenues," said Rudolph Penner, a former CBO director who is now the co-chair of the Committee on the Fiscal Future of the United States.
Consider new revenue options: Generating more income tax revenue can be helpful, but raising taxes too high can dampen economic growth. So lawmakers will be looking for other sources of revenue on top of income taxes.
Among the ideas being considered is a national sales tax known as the value-added tax or a possible energy tax. To top of page
Sunday, February 14, 2010
US debt will keep growing even with recovery
http://news.yahoo.com/s/ap/20100214/ap_on_bi_ge/us_deficit_crunch
By TOM RAUM, Associated Press Writer Tom Raum, Associated Press Writer
WASHINGTON – It's bad enough that Greece's debt problems have rattled global financial markets. In the world's largest economic and military power, there's a far more serious debt dilemma.
For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels.
The government already has made so many promises to so many expanding "mandatory" programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.
Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project.
That doesn't leave room for much else. What's left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power.
The U.S. debt crisis also raises the question of how long the world's leading power can remain its largest borrower.
Moody's Investors Service recently warned that Washington's credit rating could be in jeopardy if the nation's finances didn't improve.
Despite election-year political pressure from voters for lawmakers to restrain spending, some recent votes suggests that Congress, left to its own devices, probably isn't up to the task of trimming deficits.
Both the Obama administration and Democratic leaders have put job creation ahead of deficit reduction for now.
The Senate faces an important vote after it returns on Feb. 22 from its President's Day recess on a bill intended to stimulate job growth. The legislation offers a $13 billion payroll tax credit for companies that hire unemployed workers, including an additional $1,000 tax credit for workers retained for a full year.
Proposed belt-tightening steps by President Barack Obama, including a freeze on some nondefense, nonentitlement spending, would make only a small dent in the mountain of debt.
The budget he submitted to Congress this month proposes record spending of $3.8 trillion for 2011. Taxes in next year's budget will support only $2.5 trillion of that spending, leaving $1.3 trillion to be borrowed.
The president's budget is a best-case outlook, from the administration's vantage point.
It doesn't take into account future liabilities from the growth of entitlement benefits and is based on projected economic growth that depends on a solid recovery. It assumes Congress will pass all of Obama's initiatives, including spending cuts and tax increases previously rejected by Congress.
Congress already has rejected a bipartisan deficit commission that could have forced Congress to take painful steps on tax increases and entitlements.
The commission would have been modeled on one that makes military base-closing decisions, forcing Congress to take up or down votes. The Senate turned aside the legislation last month after some original Republican supporters jumped ship once Obama endorsed the plan.
Proponents say this type of commission is the only way to make painful debt decisions. Obama says he'll create a bipartisan commission by presidential order instead.
"In the end, solving our fiscal challenge — so many years in the making — will take both parties coming together, putting politics aside, and making some hard choices about what we need to spend, and what we don't," Obama said in his weekly Saturday radio and internet address.
Still, his commission wouldn't have the power to force a congressional vote.
Obama's call for fiscal austerity came at the same time he signed legislation lifting the cap on government debt from $12.4 trillion — which is close to being breached — to $14.3 trillion to permit more borrowing.
The same law puts in place new budget rules praised by deficit hawks that would require future spending increases or tax cuts to be paid for with higher taxes or other spending cuts. "After a decade of profligacy, the American people are tired of politicians who talk the talk but don't walk the walk when it comes to fiscal responsibility," Obama said.
It's not clear when the debt's day of reckoning will arrive. But the overall national debt over the next few years will rise to 100 percent of the gross domestic product — a level viewed as alarming by the International Monetary Fund and international economists.
The Social Security system, the biggest social spending program, has begun paying out more in benefits than it collects in payroll taxes. For the past quarter-century, Social Security had produced a surplus that helped finance the rest of the government.
Medicare, the health care program that now covers 45 million elderly and disabled people, is in worse shape. It's been paying out more than it takes in since 2008 and its trust fund is projected to run out of money in 2017.
Carmen Reinhart, an economics professor at the University of Maryland and a former IMF official, suggested the nation's fast-growing indebtedness may not have a visible impact at this point on ordinary Americans. But some day it will pounce.
"One thing we can say with a fair amount of certainty," she said. "We never know when the wolf will be at our door. The wolf is very fickle and markets can turn very quickly. And a high debt level makes us very vulnerable to shifts in sentiment that we cannot predict."
By TOM RAUM, Associated Press Writer Tom Raum, Associated Press Writer
WASHINGTON – It's bad enough that Greece's debt problems have rattled global financial markets. In the world's largest economic and military power, there's a far more serious debt dilemma.
For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels.
The government already has made so many promises to so many expanding "mandatory" programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.
Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project.
That doesn't leave room for much else. What's left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power.
The U.S. debt crisis also raises the question of how long the world's leading power can remain its largest borrower.
Moody's Investors Service recently warned that Washington's credit rating could be in jeopardy if the nation's finances didn't improve.
Despite election-year political pressure from voters for lawmakers to restrain spending, some recent votes suggests that Congress, left to its own devices, probably isn't up to the task of trimming deficits.
Both the Obama administration and Democratic leaders have put job creation ahead of deficit reduction for now.
The Senate faces an important vote after it returns on Feb. 22 from its President's Day recess on a bill intended to stimulate job growth. The legislation offers a $13 billion payroll tax credit for companies that hire unemployed workers, including an additional $1,000 tax credit for workers retained for a full year.
Proposed belt-tightening steps by President Barack Obama, including a freeze on some nondefense, nonentitlement spending, would make only a small dent in the mountain of debt.
The budget he submitted to Congress this month proposes record spending of $3.8 trillion for 2011. Taxes in next year's budget will support only $2.5 trillion of that spending, leaving $1.3 trillion to be borrowed.
The president's budget is a best-case outlook, from the administration's vantage point.
It doesn't take into account future liabilities from the growth of entitlement benefits and is based on projected economic growth that depends on a solid recovery. It assumes Congress will pass all of Obama's initiatives, including spending cuts and tax increases previously rejected by Congress.
Congress already has rejected a bipartisan deficit commission that could have forced Congress to take painful steps on tax increases and entitlements.
The commission would have been modeled on one that makes military base-closing decisions, forcing Congress to take up or down votes. The Senate turned aside the legislation last month after some original Republican supporters jumped ship once Obama endorsed the plan.
Proponents say this type of commission is the only way to make painful debt decisions. Obama says he'll create a bipartisan commission by presidential order instead.
"In the end, solving our fiscal challenge — so many years in the making — will take both parties coming together, putting politics aside, and making some hard choices about what we need to spend, and what we don't," Obama said in his weekly Saturday radio and internet address.
Still, his commission wouldn't have the power to force a congressional vote.
Obama's call for fiscal austerity came at the same time he signed legislation lifting the cap on government debt from $12.4 trillion — which is close to being breached — to $14.3 trillion to permit more borrowing.
The same law puts in place new budget rules praised by deficit hawks that would require future spending increases or tax cuts to be paid for with higher taxes or other spending cuts. "After a decade of profligacy, the American people are tired of politicians who talk the talk but don't walk the walk when it comes to fiscal responsibility," Obama said.
It's not clear when the debt's day of reckoning will arrive. But the overall national debt over the next few years will rise to 100 percent of the gross domestic product — a level viewed as alarming by the International Monetary Fund and international economists.
The Social Security system, the biggest social spending program, has begun paying out more in benefits than it collects in payroll taxes. For the past quarter-century, Social Security had produced a surplus that helped finance the rest of the government.
Medicare, the health care program that now covers 45 million elderly and disabled people, is in worse shape. It's been paying out more than it takes in since 2008 and its trust fund is projected to run out of money in 2017.
Carmen Reinhart, an economics professor at the University of Maryland and a former IMF official, suggested the nation's fast-growing indebtedness may not have a visible impact at this point on ordinary Americans. But some day it will pounce.
"One thing we can say with a fair amount of certainty," she said. "We never know when the wolf will be at our door. The wolf is very fickle and markets can turn very quickly. And a high debt level makes us very vulnerable to shifts in sentiment that we cannot predict."
Monday, February 1, 2010
Obama unveils 2011 budget with $3.83T in spending
http://news.yahoo.com/s/ap/us_budget
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – 37 mins ago
WASHINGTON – President Barack Obama unveiled a multitrillion-dollar spending plan Monday, pledging an intensified effort to combat high unemployment and asking Congress to quickly approve new job-creation efforts that would boost the deficit to a record-breaking $1.56 trillion.
Obama's new budget blueprint preaches the need to make tough choices to restrain run-away deficits, but not before attacking what the administration sees as the more immediate challenge of lifting the country out of a deep recession that has cost 7.2 million jobs over the past two years.
The result is a budget plan that would give the country trillion-dollar-plus deficits for three consecutive years. Obama's new budget projects a spending increase of 5.7 percent for the current budget year and forecasts that spending would rise another 3 percent in 2011 to $3.83 trillion.
"Until America is back at work, my administration will not rest and this recovery will not be finished," Obama declared in his budget message.
Addressing the fact that his budget first projects big increases in the deficit before starting to lower these imbalances, Obama told reporters, "It's very important to understand, we won't be able to bring down this deficit overnight given that the recovery is still taking hold and families across the country still need help."
Obama's budget offers tax cuts for businesses, including a $5,000 tax credit for hiring new workers this year, help for the unemployed and $25 billion more for cash-strapped state governments. All the temporary measures would boost the deficit over the next two years by $245 billion.
The deficit for this year would surge to a record-breaking $1.56 trillion, topping last year's then-unprecedented $1.41 trillion gap, a number which had dwarfed the previous record of $454.8 billion set in 2008 under former President George W. Bush.
The administration is forecasting that deficits over the next decade will add an additional $8.5 trillion to the national debt, even if Congress adopts the administration's package of proposals to trim future deficits starting in 2011. Those include a three-year freeze on spending for government programs, an effort which does not touch popular benefit programs such as Social Security and Medicare and which also exempts defense and homeland security. It also proposes a boost in taxes on the wealthiest Americans, families making more than $250,000 annually, by allowing the Bush tax cuts of 2001 and 2003 to expire.
Republicans were not impressed with Obama's deficit cutting, saying that it fell far short of the bold steps needed in light of the fiscal challenges the country is facing.
"This country is sinking into a fiscal quagmire," said Sen. Judd Gregg, the top Republican on the Senate Budget Committee. "These circumstances call for a bold, game-changing budget that will turn things around."
The administration argued that Obama inherited a deficit that was already topping $1 trillion when he took office and, given the severity of the downturn, the president had to spend billions stabilizing the financial system and jump-starting economic growth.
Obama's new budget carries forward the pledge he made in his State of the Union address: To put full attention on reviving the moribund U.S. economy, an effort to convince recession-battered voters that Democrats are in tune with the issues that affect their lives.
Obama's new budget assumes enactment of a comprehensive health care program, the issue that dominated the president's first year in office. Passage of that proposal is currently stalled with Democrats trying to figure out how to cope with the loss of a key Democratic seat that gave them the 60 votes they needed to overcome a Republican filibuster.
Obama's job proposals would push government spending in 2010 to $3.72 trillion and increase that amount to $3.83 trillion in the 2011 budget year, which begins on Oct. 1.
The deficit in 2011 would total $1.27 trillion, the third straight trillion-dollar-plus imbalance. The deficit would fall to $828 billion in 2012 but would remain at levels surpassing any previous deficits through 2020.
The deficit for this year would be 10.6 percent of the total economy, a figure unmatched since the country was emerging from World War II. The administration does not trim the deficit below 3.6 percent of GDP for any year in the next decade, failing to meet its goal of lowering the deficit to 3 percent of GDP by 2015.
White House Budget Director Peter Orszag said the administration will rely on a deficit commission which the president will create by executive order to recommend ways to further reduce the deficit plus cope with deficits projected to soar further in the next decade with the retirement of millions of baby boomers.
Much of the spending surge starting in 2008 reflects the cost of massive economic stimulus measures passed by Congress to deal with the worst economic downturn since the Great Depression. The surge in the deficits reflects not only the increased spending but also a big drop in tax revenues, reflecting the 7.2 million people who have lost jobs since the recession began and weaker corporate tax receipts.
Obama's new budget attempts to navigate between the opposing goals of pulling the country out of a deep recession and getting control of runaway deficits. The administration insists that once the recession is history, the government will turn its attention to attacking the deficits.
On the anti-recession front, Obama's new budget proposed extending the popular Making Work Pay middle-class tax breaks of $400 per individual and $800 per couple through 2011. They were due to expire after this year. The budget also proposes making $250 payments to Social Security recipients to bolster their finances in a year when they are not receiving the normal cost-of-living boost to their benefit checks because of low inflation. Obama will also seek a $25 billion increase in payments to help recession-battered states.
In a bow to worries over the soaring deficits, the administration proposed a three-year freeze on spending beginning in 2011 for many domestic government agencies. It would save $250 billion over the next decade by following the spending freeze with caps that would keep increases after 2013 from rising faster than inflation.
Military, veterans, homeland security and big benefit programs such as Social Security and Medicare would not feel the pinch. Federal support for elementary and high school education would get what the administration termed the biggest increase in history. The Pell Grant college tuition program which would see an increase of $17 billion to just under $35 billion, helping an additional 1 million students.
The budget reveals some of the changes the administration is seeking in an overhaul of the No Child Left Behind school accountability law. The administration wants to change how schools are judged to be succeeding or failing, looking not only at a single year's test score but at how kids and schools are progressing over time.
In Obama's new budget, there would be substantial increases for homeland security and veterans programs — exempt from Obama's partial freeze — with a 3.4 percent increase in the Pentagon's core budget to $549 billion for next year.
The administration would kill $175 billion worth of Environmental Protection Agency clean water accounts used as a pork-barrel kitty by Congress.
Obama also kills his predecessor's signature space program to return astronauts to the moon. NASA had already spent $9.1 billion on the program, which was projected to cost $100 billion by 2020. Obama's new budget said NASA will be "launching a bold new effort" with an extra $1.2 billion annually for five years, money expected to be used to encourage private companies to build, launch and operate their own spacecraft for the benefit of NASA and others. NASA would pay the private companies to carry U.S. astronauts.
The new Obama budget will also include a proposal to levy a fee on the country's biggest banks to raise an estimated $90 billion to recover losses from the government's $700 billion financial rescue fund.
___
AP writers Andrew Taylor, Stephen Ohlemacher, Seth Borenstein, Darlene Superville and Libby Quaid contributed to this report.
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – 37 mins ago
WASHINGTON – President Barack Obama unveiled a multitrillion-dollar spending plan Monday, pledging an intensified effort to combat high unemployment and asking Congress to quickly approve new job-creation efforts that would boost the deficit to a record-breaking $1.56 trillion.
Obama's new budget blueprint preaches the need to make tough choices to restrain run-away deficits, but not before attacking what the administration sees as the more immediate challenge of lifting the country out of a deep recession that has cost 7.2 million jobs over the past two years.
The result is a budget plan that would give the country trillion-dollar-plus deficits for three consecutive years. Obama's new budget projects a spending increase of 5.7 percent for the current budget year and forecasts that spending would rise another 3 percent in 2011 to $3.83 trillion.
"Until America is back at work, my administration will not rest and this recovery will not be finished," Obama declared in his budget message.
Addressing the fact that his budget first projects big increases in the deficit before starting to lower these imbalances, Obama told reporters, "It's very important to understand, we won't be able to bring down this deficit overnight given that the recovery is still taking hold and families across the country still need help."
Obama's budget offers tax cuts for businesses, including a $5,000 tax credit for hiring new workers this year, help for the unemployed and $25 billion more for cash-strapped state governments. All the temporary measures would boost the deficit over the next two years by $245 billion.
The deficit for this year would surge to a record-breaking $1.56 trillion, topping last year's then-unprecedented $1.41 trillion gap, a number which had dwarfed the previous record of $454.8 billion set in 2008 under former President George W. Bush.
The administration is forecasting that deficits over the next decade will add an additional $8.5 trillion to the national debt, even if Congress adopts the administration's package of proposals to trim future deficits starting in 2011. Those include a three-year freeze on spending for government programs, an effort which does not touch popular benefit programs such as Social Security and Medicare and which also exempts defense and homeland security. It also proposes a boost in taxes on the wealthiest Americans, families making more than $250,000 annually, by allowing the Bush tax cuts of 2001 and 2003 to expire.
Republicans were not impressed with Obama's deficit cutting, saying that it fell far short of the bold steps needed in light of the fiscal challenges the country is facing.
"This country is sinking into a fiscal quagmire," said Sen. Judd Gregg, the top Republican on the Senate Budget Committee. "These circumstances call for a bold, game-changing budget that will turn things around."
The administration argued that Obama inherited a deficit that was already topping $1 trillion when he took office and, given the severity of the downturn, the president had to spend billions stabilizing the financial system and jump-starting economic growth.
Obama's new budget carries forward the pledge he made in his State of the Union address: To put full attention on reviving the moribund U.S. economy, an effort to convince recession-battered voters that Democrats are in tune with the issues that affect their lives.
Obama's new budget assumes enactment of a comprehensive health care program, the issue that dominated the president's first year in office. Passage of that proposal is currently stalled with Democrats trying to figure out how to cope with the loss of a key Democratic seat that gave them the 60 votes they needed to overcome a Republican filibuster.
Obama's job proposals would push government spending in 2010 to $3.72 trillion and increase that amount to $3.83 trillion in the 2011 budget year, which begins on Oct. 1.
The deficit in 2011 would total $1.27 trillion, the third straight trillion-dollar-plus imbalance. The deficit would fall to $828 billion in 2012 but would remain at levels surpassing any previous deficits through 2020.
The deficit for this year would be 10.6 percent of the total economy, a figure unmatched since the country was emerging from World War II. The administration does not trim the deficit below 3.6 percent of GDP for any year in the next decade, failing to meet its goal of lowering the deficit to 3 percent of GDP by 2015.
White House Budget Director Peter Orszag said the administration will rely on a deficit commission which the president will create by executive order to recommend ways to further reduce the deficit plus cope with deficits projected to soar further in the next decade with the retirement of millions of baby boomers.
Much of the spending surge starting in 2008 reflects the cost of massive economic stimulus measures passed by Congress to deal with the worst economic downturn since the Great Depression. The surge in the deficits reflects not only the increased spending but also a big drop in tax revenues, reflecting the 7.2 million people who have lost jobs since the recession began and weaker corporate tax receipts.
Obama's new budget attempts to navigate between the opposing goals of pulling the country out of a deep recession and getting control of runaway deficits. The administration insists that once the recession is history, the government will turn its attention to attacking the deficits.
On the anti-recession front, Obama's new budget proposed extending the popular Making Work Pay middle-class tax breaks of $400 per individual and $800 per couple through 2011. They were due to expire after this year. The budget also proposes making $250 payments to Social Security recipients to bolster their finances in a year when they are not receiving the normal cost-of-living boost to their benefit checks because of low inflation. Obama will also seek a $25 billion increase in payments to help recession-battered states.
In a bow to worries over the soaring deficits, the administration proposed a three-year freeze on spending beginning in 2011 for many domestic government agencies. It would save $250 billion over the next decade by following the spending freeze with caps that would keep increases after 2013 from rising faster than inflation.
Military, veterans, homeland security and big benefit programs such as Social Security and Medicare would not feel the pinch. Federal support for elementary and high school education would get what the administration termed the biggest increase in history. The Pell Grant college tuition program which would see an increase of $17 billion to just under $35 billion, helping an additional 1 million students.
The budget reveals some of the changes the administration is seeking in an overhaul of the No Child Left Behind school accountability law. The administration wants to change how schools are judged to be succeeding or failing, looking not only at a single year's test score but at how kids and schools are progressing over time.
In Obama's new budget, there would be substantial increases for homeland security and veterans programs — exempt from Obama's partial freeze — with a 3.4 percent increase in the Pentagon's core budget to $549 billion for next year.
The administration would kill $175 billion worth of Environmental Protection Agency clean water accounts used as a pork-barrel kitty by Congress.
Obama also kills his predecessor's signature space program to return astronauts to the moon. NASA had already spent $9.1 billion on the program, which was projected to cost $100 billion by 2020. Obama's new budget said NASA will be "launching a bold new effort" with an extra $1.2 billion annually for five years, money expected to be used to encourage private companies to build, launch and operate their own spacecraft for the benefit of NASA and others. NASA would pay the private companies to carry U.S. astronauts.
The new Obama budget will also include a proposal to levy a fee on the country's biggest banks to raise an estimated $90 billion to recover losses from the government's $700 billion financial rescue fund.
___
AP writers Andrew Taylor, Stephen Ohlemacher, Seth Borenstein, Darlene Superville and Libby Quaid contributed to this report.
Wednesday, November 11, 2009
Donating this year? Uncle Sam needs your help
http://money.cnn.com/2009/11/11/news/economy/national_debt/index.htm
If you're irked by the U.S. debt, you can make tax-deductible contributions to pay it down. Fiscal year 2009 saw $3.1 million in donations. Only $12 trillion left to go!
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- You've probably heard about the country's giant debt load - $12 trillion and rising.
Did you know you can help reduce it?
Under a little-known law enacted in 1961, Uncle Sam accepts tax-deductible contributions to pay down the country's debt.
Not that the Treasury Department does much to publicize the program.
You can find it under the header "Accepting Gifts" in the U.S. Code. Or, if you're not an avid reader of dusty legal books, you can check the FAQ section on the Web site of the Bureau of Public Debt, an agency within Treasury. Or flip to page 91 of the IRS' 2009 Instruction Booklet for Form 1040.
Contributions made are typically small -- under $100. But there have been a few humdingers over the years.
The largest single gift ever made was in 1992 for $3.5 million, said Mckayla Braden, a spokesperson for the Bureau of the Public Debt.
For fiscal year 2009, all donations totaled just over $3 million. That's well more than what was donated in any single year in the decade prior. But it's far less than the nearly $21 million collected in 1994.
The money credited to the "Gifts to Reduce the Public Debt" account in theory reduces the amount of money the government has to borrow to finance its debt. But the dent is not deep or lasting.
"We might have to finance a tiny bit less that week," Braden said.
The nuts and bolts
So who are the folks who send Uncle Sam money of their own volition?
"Usually someone dies and leaves a gift. And many contribute regularly," Braden said. "On average, we get five donations a week."
Sometimes, she said, a large donation is made by an estate but is paid out over a number of years.
The names and addresses of the donors are not released. And blessedly, unlike most charities that reward you for giving by bombarding you with solicitations for more money, Uncle Sam will acknowledge your gift but then never bother you again.
There are two ways to give. One is to send a check directly to the Bureau of Public Debt, an agency within the Treasury Department. The address: Attn: Dept G, Bureau of the Public Debt, P.O. Box 2188, Parkersburg, WV 26106-2188.
The other is to include a check -- separate from any tax payment you make - with your federal income tax return.
Hate writing checks? You soon may be able to donate online. "We are going to make it very easy in the future to make gifts to reduce the public debt through PayPal on a regular basis," Braden said.
Would you give?
CNNMoney.com's video team took to the streets of New York to ask random passers-by if they were aware of the program. No one was.
When asked if they'd contribute now that they know, the majority said that wouldn't be happening.
One woman put it this way: "They can use my tax dollars to do that and work it out." One man was a little more blunt. "Hell no. Hell no."
But others weren't so put off.
"I think I could give $10 to $20. And if everyone could do that it would make a good dent in the debt," another woman said. Another man figured he could "help the government out" with a hundred bucks.
Of course, with the national debt at $12 trillion, it would take more than a few $100 contributions to get back to even -- 120 billion of them, in fact.
- CNNMoney.com's Ian Orefice and CNN's Ross Helman contributed to this report.
First Published: November 11, 2009: 4:11 AM ET
If you're irked by the U.S. debt, you can make tax-deductible contributions to pay it down. Fiscal year 2009 saw $3.1 million in donations. Only $12 trillion left to go!
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- You've probably heard about the country's giant debt load - $12 trillion and rising.
Did you know you can help reduce it?
Under a little-known law enacted in 1961, Uncle Sam accepts tax-deductible contributions to pay down the country's debt.
Not that the Treasury Department does much to publicize the program.
You can find it under the header "Accepting Gifts" in the U.S. Code. Or, if you're not an avid reader of dusty legal books, you can check the FAQ section on the Web site of the Bureau of Public Debt, an agency within Treasury. Or flip to page 91 of the IRS' 2009 Instruction Booklet for Form 1040.
Contributions made are typically small -- under $100. But there have been a few humdingers over the years.
The largest single gift ever made was in 1992 for $3.5 million, said Mckayla Braden, a spokesperson for the Bureau of the Public Debt.
For fiscal year 2009, all donations totaled just over $3 million. That's well more than what was donated in any single year in the decade prior. But it's far less than the nearly $21 million collected in 1994.
The money credited to the "Gifts to Reduce the Public Debt" account in theory reduces the amount of money the government has to borrow to finance its debt. But the dent is not deep or lasting.
"We might have to finance a tiny bit less that week," Braden said.
The nuts and bolts
So who are the folks who send Uncle Sam money of their own volition?
"Usually someone dies and leaves a gift. And many contribute regularly," Braden said. "On average, we get five donations a week."
Sometimes, she said, a large donation is made by an estate but is paid out over a number of years.
The names and addresses of the donors are not released. And blessedly, unlike most charities that reward you for giving by bombarding you with solicitations for more money, Uncle Sam will acknowledge your gift but then never bother you again.
There are two ways to give. One is to send a check directly to the Bureau of Public Debt, an agency within the Treasury Department. The address: Attn: Dept G, Bureau of the Public Debt, P.O. Box 2188, Parkersburg, WV 26106-2188.
The other is to include a check -- separate from any tax payment you make - with your federal income tax return.
Hate writing checks? You soon may be able to donate online. "We are going to make it very easy in the future to make gifts to reduce the public debt through PayPal on a regular basis," Braden said.
Would you give?
CNNMoney.com's video team took to the streets of New York to ask random passers-by if they were aware of the program. No one was.
When asked if they'd contribute now that they know, the majority said that wouldn't be happening.
One woman put it this way: "They can use my tax dollars to do that and work it out." One man was a little more blunt. "Hell no. Hell no."
But others weren't so put off.
"I think I could give $10 to $20. And if everyone could do that it would make a good dent in the debt," another woman said. Another man figured he could "help the government out" with a hundred bucks.
Of course, with the national debt at $12 trillion, it would take more than a few $100 contributions to get back to even -- 120 billion of them, in fact.
- CNNMoney.com's Ian Orefice and CNN's Ross Helman contributed to this report.
First Published: November 11, 2009: 4:11 AM ET
Monday, July 13, 2009
National debt and federal budget
http://dailybail.com/home/peter-schiff-of-course-were-not-going-to-pay-back-the-chines.html
This may or may not be funny, depending on how you look at it. But I think Peter Schiff is spot on.
Here is a similar clip by Pete Peterson, on Charlie Rose on PBS:
http://dailybail.com/home/pete-peterson-on-charlie-rose-we-are-headed-for-default-clip.html
And here is an interesting clip on the perspective of President Obama's announcement that he would reduce the federal budget by $100 million:
http://dailybail.com/home/president-obamas-budget-cuts-visualized-video.html
This may or may not be funny, depending on how you look at it. But I think Peter Schiff is spot on.
Here is a similar clip by Pete Peterson, on Charlie Rose on PBS:
http://dailybail.com/home/pete-peterson-on-charlie-rose-we-are-headed-for-default-clip.html
And here is an interesting clip on the perspective of President Obama's announcement that he would reduce the federal budget by $100 million:
http://dailybail.com/home/president-obamas-budget-cuts-visualized-video.html
Subscribe to:
Posts (Atom)