Deficits are falling. A lot.
Remember 2009, the depths of the economic crisis? That year, the country spent way more than it brought in and ran an eye-popping shortfall that topped 10% of the size of the economy.
This year the deficit is expected to be half that — around 5.3% of GDP, the Congressional Budget Office estimates.
And by 2015, it’s projected to drop to 2.4%.
What’s more, the national debt that has accumulated from annual deficits is also projected to fall to an estimated 73.1% of GDP in 2018 from an estimated 76.3% today.
There are several reasons for the downward trend. The economy is on the mend. Incoming federal revenue has risen from 60-year lows and will soon top its historical average for much of the next decade. Spending, meanwhile, has come down from 60-year highs.
The Republican controlled house of representatives created this cliff, and has spent months burning every possible bridge they could use to cross it. If the house can’t create a budget that will pass without a veto, then they are failing in their prime duty, and probably need to be recalled through the whatever the various mechanisms are in individual states.
If the Representatives can’t muster enough votes to do that, then the house needs to reasonably extend the time frame — since this is just an arbitrary timeline that they created they can also change that timeline before the ten days are up. So there are two easy ways to avert the cliff, that mentioned by the president, and that of extending the deadline. If the house fails, I say recall them.
President Obama sharply curtailed his ambitions for legislation to avert the year-end “fiscal cliff” on Friday, urging Congress to adopt a stopgap measure to keep benefits flowing to unemployed workers and prevent taxes from rising on income under $250,000 a year.
The plan should also “lay the groundwork” for action next year to spur economic growth and rein in the national debt, Obama said at a White House news conference. But with taxes set to rise for virtually every American in just 10 days, Obama conceded that time was too short to enact far-reaching legislation now.
“I am still ready and willing to get a comprehensive package done. . . . I remain committed to working towards that goal, whether it happens all at once or whether it happens in several different steps,” Obama said.
“But in 10 days, we face a deadline,” he said. Protecting unemployed workers and 98 percent of taxpayers is “an achievable goal that can get done in 10 days.”
With that, Obama and his family boarded a flight to Hawaii for Christmas, leaving congressional leaders to untangle a long-standing political knot: how to push a tax hike of any kind through the fractious Republican House.
President Obama is taking a hard line with congressional Republicans heading into negotiations over the year-end fiscal cliff, making no opening concessions and calling for far more in new taxes than Republicans have so far been willing to consider.
Obama plans to open talks using his most recent budget proposal, which sought to raise taxes on corporations and the wealthy by $1.6 trillion over the next decade, White House press secretary Jay Carney said Tuesday. That’s double the sum that House Speaker John A. Boehner (R-Ohio) offered Obama during secret debt negotiations in 2011.
Obama has been pressing to let the George W. Bush-era tax cuts expire at the end of the year for the wealthiest 2 percent of the nation’s households, a tax hike adamantly opposed by Republicans. But Carney suggested that even the revenue generated by letting those tax cuts end would not be enough to tame the national debt and reenergize the economy.
Meanwhile, Treasury Secretary Timothy J. Geithner and other senior Democrats on Tuesday said Obama would not be willing to maintain the Bush tax rates in exchange for a cap on deductions for households earning more than $250,000 a year, a leading Republican alternative.
The American people are not just electing a president and an economic platform; they are determining and defining the very character of their society.
Throughout this American presidential campaign, there has been a strong tendency to conflate the economy with the deluge of quantitative economic indicators that purport to represent it. To the American voter, this process of abstraction seems nearly complete. The economy has effectively been replaced by a dizzying array of statistics: unemployment rates, GDP growth rates, budget deficits, trade deficits, and the national debt. We act as if ‘the economy’ were some measurable exogenous variable that voters convert algorithmically into political outcomes. But the direction of causality, crucially, points both ways: through our political decisions on the economy, we literally define and determine the character of our society.
In the 1970s, Marshall Sahlins, a pioneering economic anthropologist, delineated a typology of economic modes that is particularly useful for understanding the role of the economy in the current U.S. presidential election. Sahlins identified three general forms of reciprocity that characterize economic norms and behaviors in social relationships.
In the first type of reciprocity called “generalized reciprocity,” people do things for each other but do not necessarily expect anything concrete in return. The paradigmatic example is that of the family: a parent may invest heavily in their child in terms of time, energy, and financial resources and expect nothing more than perhaps general appreciation and love, if even that. In the second type of reciprocity which Sahlins calls “balanced reciprocity,” people do things for each other with the expectation of a commensurate reciprocating act. For example, a friend might buy you a drink or pay for a meal with the expectation that you will do something similar for them at a later point in time. Finally, in what Sahlins calls “negative reciprocity,” each party seeks to extract as much as possible for themselves at expense of all other parties. For example, in the negotiation of a corporate merger, both buyer and seller will likely seek to aggressively maximize their own benefits, sometimes to the extent of employing exploitative tactics. This most closely resembles the core model of neoclassical economics where market actors engage in an absolute zero-sum competition over profits or the distribution of a limited good.
These forms of reciprocity are not static. When a friendship disintegrates in the middle of a tough business negotiation or a marriage breaks down, economic behavior changes accordingly. But economic behavior is not merely a passive characteristic of social relationships; it also determines and defines the social relationship itself. A friend who starts to demand immediate and exact remuneration for every favor transforms the very nature of that friendship. A family member who is fit and capable but deliberately seeks to contribute as minimally as possible transforms the very nature of his or her relationship with the rest of the family.
A rift has opened in the U.S. business community over whether tax increases should be an important part of the government’s strategy for tackling the federal deficit and heading off destabilizing changes in tax and spending policies set to kick in at the end of the year.
Thomas Donohue, president of the U.S. Chamber of Commerce, speaks at the organization’s headquarters in Washington. (Bloomberg)
The latest salvo was fired Wednesday when a coalition of business trade associations and advocacy groups warned Congress against agreeing to a deal that leans on new tax revenue. The group, which includes the Chamber of Commerce, the National Federation of Independent Business, and the National Association of Manufacturers, urged lawmakers to put deep cuts in federal spending at the center of any plan to reduce the deficit.
This group, dubbed the Tax Relief Coalition, is pushing back against a rival campaign led by prominent chief executives who called on Congress late last month to include increased taxes, alongside spending cuts, in efforts to tame the national debt. Among the companies involved in the rival campaign are the leaders of Honeywell, JPMorgan Chase, UPS and Aetna.
If Paul D. Ryan had “brass,” then Mitt Romney has “gall.”
That’s the Clintonian take on Mitt Romney for seeming to dismiss 47% of Americans who don’t pay income tax when the Republican hopeful has made use of tax shelters to minimize his own federal burden.
“A guy with a tax account in the Cayman Islands is attacking other people for not wanting to pay income tax?” Bill Clinton asked Wednesday. “That’s like Congressman Ryan attacking President Obama for having the same Medicare savings he did. When you really bust somebody for doing what you did, it takes a lot of gall.”
The former president is shouldering the burden for Obama’s reelection campaign on the day of the first head-to-head presidential debate, appearing on his Democratic successor’s behalf at a college campus in New Hampshire.
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Clinton, who declared himself the “comeback kid” after a second-place finish in the state’s leadoff presidential primary in 1992, sprinkled his remarks here with allusions to that past campaign, most notably when he discussed the national debt.
As a candidate two decades ago, Clinton reminded the crowd, he often talked about the fact that the debt had “quadrupled” under 12 years of Republican rule. During his eight years in the White House, “I gave you four surplus budgets,” Clinton said.
“And then the next eight years it doubled again in times of economic growth. Because trickle-down economics doesn’t work. It doesn’t add up. Arithmetic works better,” he continued, reprising the signature refrain of his Democratic National Convention speech.
Clinton mocked Republicans for harping on the growth of the national debt under Obama, particularly given that Romney has proposed additional tax cuts and refused to specify alternative revenue sources.
“So their debt plan is to make it $7 trillion worse!” he said. “How can you take this seriously?”
IN DENVER four years ago, an inspiring presidential candidate announced that he would change America. Barack Obama promised to put aside partisan differences, restore hope to those without jobs, begin the process of saving the planet from global warming, and make America proud again.
Next week Mr Obama will address his fellow Democrats at their convention in Charlotte, North Carolina, with little of this hopeful agenda completed. Three million more Americans are out of work than four years ago, and the national debt is $5 trillion bigger. Partisan gridlock is worse than ever: health-care reform, a genuinely impressive achievement, has become a prime source of rancour. Businessfolk are split over whether he dislikes capitalism or is merely indifferent to it. His global-warming efforts have evaporated. America’s standing in the Muslim world is no higher than it was under George W. Bush, Iran remains dangerous, Russia and China are still prickly despite the promised resets, and the prison in Guantánamo remains open.
The defence of Mr Obama’s record comes down to one phrase: it could all have been a lot worse. He inherited an economy in free fall thanks to the banking crash and the fiscal profligacy that occurred under his predecessor; his stimulus measures and his saving of Detroit carmakers helped avert a second Depression; overall, he deserves decent if patchy grades on the economy (see article). Confronted by obstructionist Republicans in Congress, he did well to get anything through at all. Abroad he has sensibly recalibrated American foreign policy. And there have been individual triumphs, such as the killing of Osama bin Laden.
But this does not amount to a compelling case for re-election, in the view of either this paper or the American people. More than 60% of voters believe their country to be on the wrong track. Mr Obama’s approval ratings are well under 50%; almost two-thirds of voters are unimpressed (however harshly) by how he has handled the economy. Worn down by the difficulties of office, the great reformer has become a cautious man, surrounded by an insular group of advisers. The candidate who promised bold solutions to the country’s gravest problems turned into the president who failed even to back his own commission’s plans for cutting the deficit.
In the time it takes you to read this story, the U.S. debt will have grown by about $4.4. million.
The debt is now lurking just under the $16 trillion mark — a number huge enough to be almost incomprehensible to the layperson. One way to visualize its magnitude: If you were to spend a dollar every second, it would take you 32,000 years to spend $1 trillion, or a mere one-16th of the debt.
“The national debt is certainly a ticking time bomb. There’s no question that if we don’t do something about it, it’s going to go off,” says Robert Bixby, executive director of the Concord Coalition.
Bixby, like most economists, thinks there comes a point when the debt becomes unsustainable — when interest payments on the debt alone create an economic implosion.
“We’re spending about $200 billion on interest now. That’s much more than we’re spending on operations in Afghanistan, more than we’re spending on Medicaid,” he said.
Compounding the problem are the baby boomers. The first of the tidal wave of Americans born in the post-World War II years are now retiring. Many of them have had their retirement savings diminished by the bursting of the housing bubble and the subsequent recession. More than ever, they’re counting on government entitlements in their senior years.
Everyone is worried that Greece will default on its national debt. That’s really not news. By one estimate, since it gained its independence from the Ottomans in 1832, Greece has been in default or restructuring for half this period. The news is that this time, Germany is willing to bail it out.
Throughout the euro-zone crisis, it has become conventional wisdom to regard the Germans as narrow-minded, ungenerous and dogmatically wedded to prescriptions of austerity to treat Europe’s problems. Those criticisms are vastly overstated. Consider that Germany is being asked to take its taxpayers’ money—in a democracy—and use it to bail out a country like Greece, which is guilty of mismanagement, poor competitiveness and financial fraud. And it has said yes! In return for this, Germans are being called Nazis in Greek newspapers.
Germany was an organizer of and is by far the largest contributor to the European Financial Stability Facility, which totals a staggering 726 billion euros ($924 billion). That number will rise and, when combined with earlier funds and loans, Germany’s share will easily exceed the country’s total annual federal tax revenues. Imagine the U.S. being willing to guarantee more than $2 trillion to bail out Mexico.
Greece’s race to slice euro107 billion ($140 billion) off its national debt entered the final stretch Thursday, with markets confident enough investors will accept to write down more than half of the value of their Greek bond holdings.
If too few investors agree and the swap fails, the crisis-hit country will likely default on its debt in less than two weeks when a big bond repayment is due, prompting renewed turmoil in financial markets and knocking confidence in the global economy.
But markets appeared optimistic that Greece would muster enough support. Greece’s stock exchange was up 1.4 percent, while the Stoxx 50 of leading European shares rose 1.2 percent. The euro was trading 0.7 percent higher at $1.322.