Why Oh Why Are We Ruled by These Fools? (Yet Another Bush Budget Edition)

Howard Gleickman of Business Week watches the clown show:

Washington's Deficit Plan? Nada: By Howard Gleckman: Waiting for Washington to get the deficit under control? Pull up a chair and relax. It's going to be a while. Despite annual deficits that are approaching $400 billion -- and that will explode as the baby boomers begin to retire over the next decade -- Washington seems unwilling to take action. There are only two solutions: raising taxes or cutting spending. Lawmakers will do neither.

Despite their brave talk about the need to control the red ink, President George W. Bush and Congress are marching in the opposite direction. At Bush's urging, lawmakers are about to approve an additional $80 billion to fund the war in Iraq for 2005. The House has voted to repeal permanently the estate tax -- at a staggering 10-year cost of nearly $1 trillion. Congress is abandoning a White House request to trim farm subsidies, and lawmakers are balking at modest cuts in Medicaid.... You don't need a green eyeshade to understand the long-range problem. Today, as a percentage of the economy, federal tax revenues are at 50-year lows -- only about 16% of gross domestic product. But spending is humming along at 20% of national output.

And that's just the beginning of the problem. As the boomers age, three government programs -- Social Security, Medicare, and Medicaid -- will suck up a mind-boggling chunk of the income the nation produces. In just two decades, those programs alone will eat up every dollar of anticipated tax revenues.... Even Federal Reserve Chairman Alan Greenspan, who gave the green light to big deficits in early 2001 when he put his stamp of approval on Bush's tax cuts, told the Senate Budget Committee on Apr. 21 that the budget is "on an unsustainable path."

For a good description of the mess, as well as some solutions, take a look at a new Brookings Institution study called Restoring Fiscal Sanity 2005.... Medicare is off the table for now because both parties are leery of touching it. Social Security reform is explicitly exempted from the budget debate, and any overhaul Congress agrees on is likely to add to the deficit. That leaves Medicaid. The budget agreement has been stalled by a battle over how much to trim the joint state/federal health program for the poor. Bush and the House want to trim $20 billion from planned Medicaid spending over five years -- about a 2% reduction. But the Senate has balked. If lawmakers agree at all, they'll split the difference at roughly $10 billion. But that would be far from enough to reduce deficits... the House and Senate... [will] cut [taxes] by at least $70 billion over the next five years -- mostly by extending the 15% rate on capital gains and dividends through 2010. Plus, if they reach a deal on the estate tax -- which would be passed outside of the budget framework -- deficits will explode....

The biggest problem by far remains taxes. Earlier this year deficit hawks such as Senate Budget Committee Chairman Judd Gregg (R-N.H.) were willing to combine spending reductions with a freeze on new tax cuts. But they were overruled by the White House.... Democrats won't cut their favorite programs while seeing ever more tax cuts. Even GOP strategists concede that deficit reduction will go nowhere unless tax hikes are in the mix. Trying to eliminate deficits on the spending side alone is "completely insane," says Ron Haskins, a senior fellow at the Brookings Institution and former House GOP aide.... [T]here's no reason to believe serious deficit reduction will be on the table for the rest of the Bush Presidency.

Comments

[P O'Neill]

We're basically reduced to the question of how bad the crisis will have to be to force a fiscal adjustment. Because as this article is merely the latest of about 1,000 or so to state: there is zero imperative coming from the White House to do anything. In Bush's mind, his social security plan was his fiscal adjustment, but of course he can't really say so, since it would make the tax-cuts --> benefit cuts linkage far too clear. But when that plan dies, he just sees extra time in Crawford to clear brush. And not read memos.

[Davis X. Machina]

Reagan proved deficits don't matter. Dick Cheney said so.

And I am Marie of Roumania.

[Tim H.]

The Republicans are not going to do anything until the crash is about a month away. The gravy train is much too attractive to give up.

[Bernard Yomtov]

Where does the $1 trillion estimate for repealing the estate tax come from? I thought annual collections were in the $25 to $30 billion range, so why doesn't it cost (undiscounted, but allowing for growth) about $300 billion?

[Conspiracy Theory]

Not to sound completely paranoid, but if the upper echelons of our government were aware of, or strongly believed in, an impending catastrophe how much emphasis would there be on putting our fiscal house in order? We can rearrange the deck chairs on the Titanic all we want, but the spending policy of this administration reveals more than than the minor attempts to address the deficits it creates.

Maybe I'm attributing more intelligence on the problem than is really there, but if you were an evengelical convinced of armageddon in the near future, how much time would you send on paying down your credit cards?

[pragmatic_realist]

Supposedly one tactic to be used to reduce medicaid is to tighten rules to prevent people from giving away their assets to their children in order to qualify sooner for Medicaid assistance in nursing homes. This will have the effect of using up assets that would otherwise be inherited by the surviving family.

People are already screaming about the supposed unfairness of medicaid's "estate recovery" process. What do you think is going to happen when medicaid takes all the money left by the repeal of the estate tax?

[realist number two]

The Republicans are not going to do anything until the crash is about a month away.

No, no one is that smart. What will happen is that the crash will come, and then perhaps someone will do something. What the something will be is up for grabs.

[ed]

starve the beast or trash the joint, one in the same.

[notyou]

"What will happen is that the crash will come, and then perhaps someone will do something. What the something will be is up for grabs."

And whatever it is, try not to be standing in its way when it comes rolling down the steps.

[Jason]

Well, if you are Republican, and you live in Missouri, you don't have to wonder what the gov't will do to navigate the "deficit disaster" scenario: they will simply eliminate--not scale back or down--programs that are "expensive" but make have positive impact on people. Missouri plans to eliminate Medicaid by 2008. Seriously. This is the true nature of the current majority party. You are a machine. You work--hard--at whatever job is "given" to you, and when you are too old or sick to continue, you die. It's that simple. Medicare will be next.

[matt]

Medicare, behind the smoke and distraction of the social security puppet show that Bush is flogging throughout the country, IS THE TARGET.

Bush may not realize this, but Rove and Co. certainly does. Looking at how they are dismantling the New Deal, how could anyone not think that after the contentious battle that was fought over Medicare back during LBJ's term, the GOP would let this program stand.

And, Jason, you are correct. They don't even intend to provide the oilcan to lubricate the squeaky joints. Just throw that exhausted worker onto the heap with the rest of the flotsam and move on.

[Jason]

Maybe I'm cynical, but perhaps it would be best to just let the conservative majority have EVERYTHING that it wants. Dismantle the entire welfare state, and let's see where stuff starts to wind down and break. Most of the (poor by most standards) rural folken in my area vote Republican, even though most can't exactly articulate why they vote that way. Perhaps they simply deserve their fate. After several years of stagflation and hopelessness, maybe people (my generation, specifically) will realize why people in the distant past put progressive programs in place: to assist the downtrodden and hopeless. People need a good old-fashioned kick in the pants to remind them just how BAD things can get. Letting the majority wreck everything would hasten this process.

[notyou]

Washing one's hands of the whole mess is an attractive course of action, Jason, but unlikely to produce the desired result. There's no reason to hope that worse economic conditions will lead the "rural poor" (and others) to finally vote in support of their economic interest when their worsening economic condition over the last 20 years has failed to do so.

There's another dynamic at work -- the re-direction of economic insecurity, frustration, and fear toward ... I don't know what else. Progressives need to get a handle on it before the worst really does settle in.

[Platypus]

When the crunch comes wouldn't one of the first things to give on the revenue side be the promised, but repeatedly delayed, reversion of the AMT? Keeping the AMT in place would help retard deficit growth and could be pitched as not a "real" tax increase.

I find it particularly interesting that fixing the AMT, which would benefit the upper middle class, was put off until after the major tax cuts for the profoundly wealthy were locked into place. Forgetting to fix the AMT would also fit into the general Rovian scheme of taxing labor and not capital.

[Thane Walkup]

So, let's go slightly Machiavellian for a moment. (Wait, when dealing with Rove, isn't this an oxymoron?)

Assume that the NeoCons are aware they might lose power at some point in the near future due to the pendulum nature of elections. Let's say they're running stuff into the ground with a target of having the fecal matter hit the high-velocity rotary blades after they lose the majority.

So the newly incoming government has to clean up the mess, by cutting spending and raising taxes.

And is voted out PDQ, replaced by a "new wave" of Repos who ride the anti-tax backlash...

[Alex]

Is there an investment vehicle with a history of reasonable
returns, denominated in the currency of a fiscally sane nation,
in which it's easy for a resident of the US to invest US dollars?

[chris]

Alex:

Gold coins, gold mining stocks, precious metal company mutual funds, Prudent Bear Fund which also runs a pretty good web site.

[K Ols]

Don't you get it? The entire purpose of running up the deficit all along was to provide the excuse to eliminate Social Security and Medicare. Plus it also includes ditching Medicaid and other social programs.

The best fix for the AMT would be to simply adjust it for inflation. The real reason it is being discussed at all because they want to eliminate it entirely because it affects rich people. They aren't interested in the problem created for the middle class. The idea is to get the middle class in an uproar so they help push for elmininating the tax entirely. It was instituted in 1969 to ensure that rich people at least paid something in taxes, but since they've refused to adjust for inflation it now hits the middle class. Just adjust for inflation and leave the tax in place. Simple.

Same thing with the $90,000 FICA Tax. Remove the tax entirely and that takes care of about 80% of the Soc. Sec. shortfall from what I understand. We can't have it removed because Congress pays into it to so all of Congress and their rich friends would see an increase in taxes instead of their FICA tax stop at $90,000.

Of course, today they come out with this junk about there are too many tax deductions. I think the entire purpose of that is to start the discussion about a flat tax which, again favors wealthy people.

[liberal]

Alex wrote, "Is there an investment vehicle with a history of reasonable returns, denominated in the currency of a fiscally sane nation, in which it's easy for a resident of the US to invest US dollars?"

I use Twentieth Century International Bond (symbol BEGBX). It invests mainly in European govt bonds, and (unlike most international mutual funds) mostly doesn't hedge back into dollars.

Caveats:
* I have no connection to this fund, other than that I own it myself.
* Invest at your own risk.

[liberal]

Anyone going to answer Bernard Yomtov's question above? ("Where does the $1 trillion estimate for repealing the estate tax come from?") I wondered that myself recently.

[bakho]

I know this is filed under "Clown Show". However, so many posts are "Why can't we have a better press corp?" For those who haven't noticed, BW has been doing it week in and week out. At times BW reads like the most pro-Dem anti-Bushynomics rag out there. BW gets it. They really get it. If only the MS media would read BW instead of NRO!!!

[govteconomist]

The $1 trillion figure includes the reduced income tax payments as the wealthy change their behavior. For example, the Joint Committee on Taxation estimates that repeal will cost $71 billion in 2015.

[Jason]

Yeah, it's funny how media that specifically targets audiences that demand useful analysis (as opposed to infotainment or $tockquote$) backed up by actual data often take these clowns (you know who they are) to task. Ugh. So tired of explaining to "true believers" why their policies are terrible for our future...and then having them appeal to "authority" in response: that's not what Rush/Hannity/O'Reilly/etc. said, you commie.