Taxes and Debt
July 26, 2011 - the debt crisis' last week??? From the NY times:
How the Deficit Got This Big
By TERESA TRITCH
Published: July 23, 2011
With President Obama and Republican leaders calling for cutting the budget by trillions over the next 10 years, it is worth asking how we got here ó from healthy surpluses at the end of the Clinton era, and the promise of future surpluses, to nine straight years of deficits, including the $1.3 trillion shortfall in 2010. The answer is largely the Bush-era tax cuts, war spending in Iraq and Afghanistan, and recessions.
Despite what antigovernment conservatives say, non-
defense discretionary spending on areas like foreign aid, education and food safety was not a driving factor in creating the deficits. In fact, such spending, accounting for only 15 percent of the budget, has been basically flat as a share of the economy for decades. Cutting it simply will not fill the deficit hole.
The first graph shows the difference between budget projections and budget reality. In 2001, President George W. Bush inherited a surplus, with projections by the Congressional Budget Office for ever-increasing surpluses, assuming continuation of the good economy and President Bill Clintonís policies.
But every year starting in 2002, the budget fell into deficit. In January 2009, just before President Obama took office, the budget office projected a $1.2 trillion deficit for 2009 and deficits in subsequent years, based on continuing Mr. Bushís policies and the effects of recession. Mr. Obamaís policies in 2009 and 2010, including the stimulus package, added to the deficits in those years but are largely temporary.
The second graph shows that under Mr. Bush, tax cuts and war spending were the biggest policy drivers of the swing from projected surpluses to deficits from 2002 to 2009. Budget estimates that didnít foresee the recessions in 2001 and in 2008 and 2009 also contributed to deficits. Mr. Obamaís policies, taken out to 2017, add to deficits, but not by nearly as much.
A few lessons can be drawn from the numbers. First, the Bush tax cuts have had a huge damaging effect. If all of them expired as scheduled at the end of 2012, future deficits would be cut by about half, to sustainable levels. Second, a healthy budget requires a healthy economy; recessions wreak havoc by reducing tax revenue. Government has to spur demand and create jobs in a deep downturn, even though doing so worsens the deficit in the short run. Third, spending cuts alone will not close the gap. The chronic revenue shortfalls from serial tax cuts are simply too deep to fill with spending cuts alone. Taxes have to go up.
In future decades, when rising health costs with an aging population hit the budget in full force, deficits are projected to be far deeper than they are now. Effective health care reform, and a willingness to pay more taxes, will be the biggest factors in controlling those deficits.
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July 14, 2011
The Mother of All No-Brainers
By DAVID BROOKS
Published: July 4, 2011
The Republicans have changed American politics since they took control of the House of Representatives. They have put spending restraint and debt reduction at the top of the national agenda. They have sparked a discussion on entitlement reform. They have turned a bill to raise the debt limit into an opportunity to put the U.S. on a stable fiscal course.
Republican leaders have also proved to be effective negotiators. They have been tough and inflexible and forced the Democrats to come to them. The Democrats have agreed to tie budget cuts to the debt ceiling bill. They have agreed not to raise tax rates. They have agreed to a roughly 3-to-1 rate of spending cuts to revenue increases, an astonishing concession.
Moreover, many important Democrats are open to a truly large budget deal. President Obama has a strong incentive to reach a deal so he can campaign in 2012 as a moderate. The Senate majority leader, Harry Reid, has talked about supporting a debt reduction measure of $3 trillion or even $4 trillion if the Republicans meet him part way. There are Democrats in the White House and elsewhere who would be willing to accept Medicare cuts if the Republicans would be willing to increase revenues.
If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increases.
A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.
The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.
This, as I say, is the mother of all no-brainers.
But we can have no confidence that the Republicans will seize this opportunity. Thatís because the Republican Party may no longer be a normal party. Over the past few years, it has been infected by a faction that is more of a psychological protest than a practical, governing alternative.
The members of this movement do not accept the logic of compromise, no matter how sweet the terms. If you ask them to raise taxes by an inch in order to cut government by a foot, they will say no. If you ask them to raise taxes by an inch to cut government by a yard, they will still say no.
The members of this movement do not accept the legitimacy of scholars and intellectual authorities. A thousand impartial experts may tell them that a default on the debt would have calamitous effects, far worse than raising tax revenues a bit. But the members of this movement refuse to believe it.
The members of this movement have no sense of moral decency. A nation makes a sacred pledge to pay the money back when it borrows money. But the members of this movement talk blandly of default and are willing to stain their nationís honor.
The members of this movement have no economic theory worthy of the name. Economists have identified many factors that contribute to economic growth, ranging from the productivity of the work force to the share of private savings that is available for private investment. Tax levels matter, but they are far from the only or even the most important factor.
But to members of this movement, tax levels are everything. Members of this tendency have taken a small piece of economic policy and turned it into a sacred fixation. They are willing to cut education and research to preserve tax expenditures. Manufacturing employment is cratering even as output rises, but members of this movement somehow believe such problems can be addressed so long as they continue to worship their idol.
Over the past week, Democrats have stopped making concessions. They are coming to the conclusion that if the Republicans are fanatics then they better be fanatics, too.
The struggles of the next few weeks are about what sort of party the G.O.P. is ó a normal conservative party or an odd protest movement that has separated itself from normal governance, the normal rules of evidence and the ancient habits of our nation.
If the debt ceiling talks fail, independent voters will see that Democrats were willing to compromise but Republicans were not. If responsible Republicans donít take control, independents will conclude that Republican fanaticism caused this default. They will conclude that Republicans are not fit to govern.
And they will be right.
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Anderson Independent Mail
April 24, 2011
My Southern Perspective
A treatise on taxes and the national debt
by Mark Hopkins
The United Stales and most of the world have been in a recession for the past three years. During this period, our government continues to spend more money than is generated and the national debt continues to rise. It now exceeds $14 trillion.
Someone smarter than me once said. "If the hole you are in is getting deeper, stop digging."
It is obvious that we need to make some major spending cuts or generate more tax money for the operation of our Government The "experts" in Washington, D.C.. say you should never raise taxes during a recession. What shall we do?
In the early 1980s, President Ronald Reagan influenced Congress to lower taxes. The economy improved but the national debt was increased approximately 20 percent during his eight years in office. President George H.W. Bush vowed not to raise taxes during his presidency. (Remember. "Read my lips. No new taxes"?) and the national debt grew an additional 17 percent.
President Bill Clinton influenced Congress to raise taxes. We had national prosperity during his eight years in office and a balanced budget his last three years.
President George W. Bush influenced Congress to lower taxes. The budget again became unbalanced and our national debt rose another 27 percent.
So, do we lower taxes to stimulate the economy and generate more tax money to help balance the budget? Or, as was true in the Clinton years, can we raise taxes to balance the budget and expect better economic times as a result?
From most accounts I've read and seen, most taxpayers seem to think taxes are too high. But are they? The Organization for Economic Cooperation and Development in Europe says that of the 34 countries on the industrialized nations list, the U.S. ranks dead last in taxes per capita. The US. pays 24 percent of its total economy to taxes collected by all levels of government. By comparison, the Japanese pay 28 percent and the British pay 34 percent.
The Danes pay the most, 48 percent of their GDP to the government in taxes.
If taxes in the US. were raised to equal those in Japan, we would balance the budget overnight without all of the proposed cuts to Medicare, Social Security, education and the many other programs that support our way of life. A family generating $50,000 in income would pay an additional $2,000 in taxes.
Am I for higher taxes? Of course not. Am I for laying off teachers from our schools, cutting Social Security benefits, Medicare and support for the disabled. Again, No. But it is decision time. We have to stop digging.
Anderson resident Mark Hopkins is former president of three colleges, including what was then Anderson College. He is a consultant in international higher education.