Category Archives: economy, fiscal policy

It sounds good but does he mean it?

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In today’s Omaha World Herald, Representative Lee Terry explains why he voted against the fiscal cliff deal just approved by Congress a few days ago.  It is because “raising taxes with little to no spending cuts does not make for a balanced agreement.”

Of course he is entirely correct in this assessment.  But will he stand firm in the next two months as a new deal is negotiated to either implement or replace sequestration which makes across the board spending cuts?  Will he stand firm when conservatives complain about cutting defense and liberals complain about cutting social programs?  Will be stand firm when the AARP complains about cutting entitlements?  We need to do all of these things and more!

House Speaker John Boehner has said that Republicans will be “singularly focused on the deficit and the debt” in the next two months.  But the President has said that he will not “play games” with raising our nation’s debt limit.  Will Mr. Boehner, Mr. Terry and the Republican majority in the House be prepared to withstand withering criticism from the mainstream press if the default deadline grows close without agreement for significant spending cuts?

We are rapidly approaching the moment of truth.  The future of our country depends on the fiscal responsibility of our national leaders.  Let’s hope that enough of them are made of the right stuff!

One Cheer for Lee Terry

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Congress has averted the immediate Fiscal Cliff but no significant action was taken to address our long term fiscal problems.  According to the Wall Street Journal, the deficit will shrink slightly below $1 trillion for a few years and then continue its inexorable rise. The can was kicked down the road for two months by delaying sequestration until March 1.  In other words this was a bad deal and Republicans in the House of Representatives should have voted it down and held out for a much better deal.

At least, Nebraska’s 2nd District Congressman, Lee Terry, voted against it.  Speaker John Boehner declared that the new 113th Congress would make the federal debt and deficit its singular focus.  Let’s hope that Mr. Boehner means what he says and that Mr. Terry supports him when the chips are down.

One year ago Mr. Terry voted to extend the payroll tax holiday for two months (annual cost $110 billion) and then voted against a full year extension two months later, after the die was cast.  Shenanigan’s like this are unacceptable and should be interpreted as complacency and deviousness about addressing serious problems.

House Republicans are in an incredibly difficult position.  We’ve just re-elected a President whose basic economic policy is more artificial stimulus (government spending), which just makes the deficit and debt that much worse.  The Republican House is now the sole bastion of common sense economic and fiscal policy.  We have to hold their feet to the fire.  Our survival as a strong nation depends on it.

Is Growth Over?

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                                             Is Growth Over?

In a recent New York Times op-ed column, Is Growth Over?, the Keynesian economist Paul Krugman argues that our current information technology revolution may not be potent enough to increase our economic growth rate beyond the American historical average of about 2%.

As much as we hope for a faster rate of growth, let’s assume that he is correct.  In fact our average rate of growth for 2010 – 2012 (since the recession ended in June 2009) is 2.1%.  What are the economic implications of 2% growth indefinitely into the future?  They are slower job growth, higher unemployment and therefore lower tax revenue.

High unemployment is bad enough for the millions of unemployed and underemployed.  But the fiscal implications are much worse because they affect the entire country.  We’ve already had four years in a row of trillion dollar deficits and the 2013 budget projections don’t look any better.  So continuing our present course presents a grim outlook, to say the least.

What are the alternatives?  We have two choices.  One is to boost the private sector with measures like pro-growth tax reform, relaxing onerous regulations, boosting domestic energy production and promoting international trade.  If such pro-growth policies are not politically doable, then the alternative is massive tax increases and spending cuts.

Our first priority must be to rapidly shrink the federal deficit down to zero.  Otherwise we are inviting fiscal calamity which can hit at any time without warning.  Fiscal conservatives should always remain focused on this #1 problem.  If no agreement can be reached for a rational plan to significantly reduce the deficit, then get the job done anyway that is possible.

We have got to wake up the American people to our urgent fiscal condition.  If going over the cliff is what it takes, then so be it!

No Deal is better than a Bad Deal

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It is beginning to look like President Obama and House Speaker Boehner may not be able to negotiate an acceptable deal by December 31st to avoid going over the Fiscal Cliff.  The President wants tax rates to rise for incomes above $400,000.  The Speaker has offered to raise tax rates for incomes over $1,000,000 but it is not clear if House Republicans will go along with this, even if accepted by the President.

What is the effect of such increases in tax rates?  According to the Wall Street Journal, raising taxes for incomes over $500,000 would affect 750,000 small business owners, while an income cutoff of $1,000,000 would affect 311,000 small business owners.

What will be the economic impact of restoring Clinton era tax rates on small business owners?  A recent study by Ernst & Young predicts that employment would fall by 710,000 jobs and that economic output (GDP) would decrease by 1.3% on an annual basis.

Conclusion:  although more tax revenue is needed, as well as significant spending cuts, to get our fiscal house in order, it matters where this new revenue comes from.  What we really need is pro-growth tax reform.  This means lowering marginal tax rates and curtailing deductions and loopholes.

Yes, it is preferable to avoid going over the fiscal cliff.  But a deal needs to be structured which puts us on a sound fiscal and economic track for the long term.  Principle matters.  No deal is better than a bad deal.

Avoiding the cliff and restoring confidence

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New York Mayor Michael Bloomberg has proposed a sensible way forward with an Op Ed column, “Avoid the ‘Cliff,’ Restore the Confidence” in the December 12, 2012 edition of the Washington Post . His thesis is that businesses took on too much risk in the run up to the 2008 crash but now they are sitting on hordes of cash because they lack confidence that our political leaders can come up with a serious, credible plan to reduce the deficit and put our country on a sustainable path to economic growth and fiscal health.

His proposal for accomplishing this task is remarkably similar to that outlined by David Walker and discussed in my previous post on December 10, 2012.  That is, we should adopt the Simpson-Bowles framework, including tax increases and spending cuts.  At least a significant down payment on this plan should be agreed to before the end of the year.  The agreement would include a commitment to enact broader-based tax reform and entitlement reforms in 2013.

With trillion dollar deficits for four years in a row, now going on five, we definitely need more tax revenue as well as large spending cuts.  The biggest challenge in implementing this general framework is to figure out how to raise tax revenue in the least damaging way to the economy.

The tradeoff here is between raising tax rates versus eliminating tax deductions and loopholes.  Democrats (apparently) prefer raising tax rates rather than eliminating deductions.  This is unfortunate since it is well established in economic theory, as well as plain common sense, that the lowest possible marginal tax rates will provide the greatest stimulus to private risk taking and investment. This is the only sound way to create more jobs.

Democrats may have the strongest political position in the current negotiations but the Republicans have the soundest basic economic principles.  If the Republicans are able to keep the focus on the fundamentals, we will succeed in finding the way out of our current predicament.

Jumping off the cliff with Barack

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Washington Post columnist Charles Krauthammer urges the House Republicans to make it clear that they are willing to go over the fiscal cliff if it proves to be impossible to get a budget deal which includes significant spending cuts as well as tax revenue increases.  His most recent column, which appeared in the December 2, 2012 Omaha World Herald, points out that the Republicans have plenty of leverage if they are only willing to use it.

Many economists claim that restoring the Clinton tax rates for everyone, as well as the $110 billion automatic spending cut sequester,  which would be the consequences of going off the cliff, would cause a new double-dip recession with a big increase in unemployment.  No one really wants to take the chance of finding out if this scenario would actually play out, neither Democrats nor Republicans.

With an exploding national debt, caused by trillion dollar deficits for the last four years in a row, with no end in sight in the near future if present policy continues, the Republicans will generate huge public support for substantial, but sensible, cuts in both discretionary and entitlement programs.  Nothing should be off the table, neither further defense cuts nor reforms to all of the big three entitlement programs: Social Security, Medicare and Medicaid.  Republicans will be viewed most favorably by the general public if they do not try to protect any sacred cows in this process.

The biggest cudgel held by the Republicans, is the looming need, in the next few months, to raise the national debt limit.  Republicans should wield this cudgel in an especially visible fashion, and will be supported by the American people for doing so.  This, after all, is the bottom line.  Somebody has to say no to runaway deficit spending, and the Republicans need to make very clear that they are highly committed to accomplishing this urgent task.

One way to cut spending

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The fiscal cliff is looming, the national debt is exploding and the economy is stagnant.  So what can and should Congress do to prove that it is serious about our urgent economic and fiscal problems?  Simply extending all of the Bush tax cuts and repealing sequestration amounts to kicking the can further down the road and is not a serious option.  Of course we need pro-growth tax reform, i.e. a major overhaul of our tax code to both simultaneously lower tax rates and curtail tax deductions.  But this is a big project and will take some time to be sorted out by Congress.

What can Congress do quickly, in a matter of weeks rather than months, to get the ball rolling?  The organization, Taxpayers for Common Sense, has recently provided a useful answer.  The report, Sliding Past Sequestration, proposes a plan to cut $2 trillion from the federal budget over the next ten years, or roughly $200 billion per year.  This is an example of a serious budget reform program of the sort Congress should initiate to begin to whittle down deficit spending of over $1 trillion per year.  In this proposal cuts are made in many different federal departments, including Agriculture, Energy, Interior, National Security, Transportation, and also Tax Expenditures.

Check out these possible budget cuts.  More than likely you will approve of some of them and find others to be less appealing.  Note that entitlement cuts such as for Medicare, Medicaid and Social Security are not included in this report.  Nor are cuts in education programs or social programs for low income people such as food stamps and housing assistance, for example.  Of course, adjustments in entitlement programs and social programs will also have to be made sooner rather than later.

For Congress to take the initiative to begin making big cuts in the federal budget will have a very positive impact on its public image.  There will be vociferous complaints from those affected by the spending cuts.  But this will demonstrate that the cuts are serious and will help Congress recover the credibility which is now so severely lacking.

The fiscal cliff

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What should we do about the “fiscal cliff”?  First of all, we have to recognize that it has been caused by a combination of reckless federal spending and an unwillingness to implement policies which stimulate private sector economic growth such as broad based tax reform, relaxation of onerous regulations and vigorous promotion of free trade.  This means that short term measures which merely drive up the deficit will accomplish nothing more than kicking the can down the road and are therefore not helpful.  We need a long term solution!

The most valuable single thing we should do right now is to start reforming the tax code along the lines of the Simpson-Bowles Plan.  Cut individual tax rates and offset revenue losses by limiting tax deductions.  Also cut corporate tax rates, offset again by limiting deductions.  I would also say to increase the tax rate on capital gains and dividend income from 15% to 20% (reversing one particular Bush tax cut!) which will still be a much lower rate than for ordinary income and therefore will not discourage risk taking by investors.

Growing the economy faster will shrink the deficit but we also need substantial spending cuts to make a bigger impact on trillion dollar deficits.  Of course, cutting $100 billion across the board from discretionary spending as the “sequester” does, is not the most sensible way to cut spending but we’ve got to get the job done!  So let the sequester stand unless Congress can agree on a more rational plan of the same magnitude.

Basically what I am saying is that our economic problem of slow growth and our fiscal problem of huge deficits are closely interrelated and that we are much better off to address both of these problems simultaneously.  For Congress to take the easy way out by 1) just extending all of the Bush tax cuts, 2) failing to make significant spending cuts and 3) raising the debt limit without substantial reform on taxes and spending, for Congress to proceed on this basis is to shirk its duty in a time of crisis!

Let’s hope that Congress can rise to this critical occasion and do what is sorely needed!

Solving our economic and fiscal problems

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“The Election winners must choose between fiscal calamity and compromise” said Robert Bixby, Executive Director of the Concord Coalition, in a blog post yesterday.  “There must be spending cuts, including reform of our major entitlement programs such as Medicare, Medicaid and Social Security.  And there must be tax reform that broadens the base, maintains progressivity and increases revenues.  And all of this must be, and indeed can be, done in a way that enhances economic growth.”

This is an excellent statement of our country’s dire fiscal condition at the present time, put very clearly but in a nonpartisan and non-confrontational way.  It is critical that our national leaders, all of them and from both political parties, focus their full attention and efforts, on solving this problem.  As a highly interested local office holder in Omaha NE, I will be using this blog format to state in a direct and unequivocal manner what action Congress and the President should take in the days ahead to put our nation on a sound and sustainable economic and fiscal track.

Our immediate goal must be to stabilize (i.e. stop adding to) the national debt and this means quickly shrinking the size of our annual deficit until it either disappears entirely, or is at least greatly reduced.

First of all, we need to do a better job of growing the economy.  This will not only put more people back to work, but will also raise additional tax revenue, which will shrink the deficit.  In the meantime, while we’re working harder to stimulate the economy and make it grow, we also need to get started on making huge spending cuts in our national budget.  Let’s cut from programs across the board, especially including entitlements.  This is not only the fairest and most nonpartisan way to attack the problem but will also achieve the biggest overall spending cuts.

In the weeks ahead I will be as specific as I can possibly be on where spending cuts can be made.  I will also try to stay locally focused.  In other words, I will be paying close attention to the Nebraska congressional delegation and what our own representatives are doing on tax and budget matters.  Please consider contributing your own ideas to this forum so that we can work together to effectively address our country’s urgent fiscal problems!

My purpose in creating this site

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I am so concerned about the federal deficit and the rapidly increasing national debt that I entered the recent Republican Primary for Nebraska’s Second Congressional District. The Primary was held on May 15, 2012 and the incumbent, Lee Terry, was re-nominated.  Mr. Terry went on to win re-election to an eighth term on November 6.

My platform was (and still is) to completely eliminate the deficit. I describe myself as a non-ideological fiscal conservative. By this I mean that I am highly focused on fiscal issues with no particular axe to grind besides cutting spending and increasing revenue through tax reform and economic stimulus.  Even though Presidents George W Bush and Barack Obama are primarily responsible for our huge deficits in recent years, it is Congress which enables presidents to spend money and therefore Congress bears much responsibility as well. My attitude is that any member of Congress who is not actively and clearly providing leadership in cutting spending also bears responsibility for our huge deficits.

At this point, having spent so much time and effort in the political process, I am still highly committed in a personal and emotional sense to addressing this issue. This website will be used by me to continue raising awareness on the very same issues about which I recently campaigned as an active candidate.