I am at a loss to explain how any bunch that calls themselves “The Reality Based Community” could believe that the president was serious last week when he introduced a plan to increase spending for education, transportation, energy, and health care while purporting to cut $4 trillion of federal spending in 12 years - without messing significantly with Medicare, Medicaid, and Social Security. Even raising taxes on “the rich” and cutting an unstated amount from defense doesn’t come close to that 4 trill in savings. Besides, has there ever been a US congress in history that, when presented with more cash as a result of a tax increase, didn’t spend $2 for every dollar in budget cuts? The answer to that question is no. Hence, this titanic disconnect from reality that many on the left continue to experience.
You have a government set to steadily increase spending on autopilot as a result of demographic change and rising health care costs. And you have a Democratic President urging congress to enact spending cuts. But you have conservative politicians refusing to make a serious effort to reach an agreement out of some blend of taxophobia and fear of giving the President a win. The result, again, whether the right realizes it or not, is a gift to the wing of the Democratic Party that disagrees with Obama about the desirability of enacting spending cuts.
Our deficit problem is not a consequence of profligacy or lack of discipline, says Matthew. Federal spending is on “autopilot” - which must be a liberal wet dream or something - and it is simply a matter of “demographics” that’s the cause of our budget woes. In this scenario, Yglesias and other liberals posit deficit ghost riders - sort of like the Furies but without the redeeming characteristic of being figments of the classical Greek imagination - circling high above the capitol, putting lawmakers to sleep as the federal budget spins wildly out of control, whispering in their ears that all is well…all is well…
Despite my conservative leanings, like most liberals, the left side of my brain has a deficit of operable neurons, so my math skills leave much to be desired. But even a math-challenged twit like me can see that unless the president plans on increasing taxes even more than he has suggested, and cutting defense spending a lot more than he has let on, or actually attempt to deal with the unsustainable spending on entitlements, 2+2 are not adding up to anything close to 4.
“I remain skeptical that the administration will take this effort seriously, especially after it all but ignored its previous debt commission and President Obama had to be dragged kicking and screaming to consider minimal spending cuts for the rest of this fiscal year,” Cantor said in a statement.
“A serious effort to get our fiscal house in order is sorely needed, however, which is why I believe this commission should commence with a clearly defined target and purpose, under a time frame to produce that result — so that it doesn’t end up in the graveyard of previous commissions that failed to improve our nation’s finances.”
At the same time, some Democratic sources said their own party’s picks for the meeting aren’t as credible as they could be. Senate Majority Leader Harry Reid (D-Nev.) and House Minority Leader Nancy Pelosi (D-Calif.) only named a total of four appointees instead of eight: Senate Finance Chairman Max Baucus (D-Mont.), Senate Appropriations Chairman Daniel Inouye (D-Hawaii), House Budget ranking member Chris Van Hollen (D-Md.) and Assistant Democratic House Leader James Clyburn (D-S.C.). But it’s not the numbers that are the problem.
Pelosi’s picks for the talks make the meeting “look silly” because Van Hollen and Clyburn “are just going to do what Pelosi wants, and she’s not interested in compromise,” said a senior Democratic aide. “The picks for this task force all reflect a lack of seriousness.”
Obama called for the bipartisan talks during an April 13th address on fiscal policy and announced that Vice President Joseph Biden would take the lead. During his speech, the president bashed the House GOP budget proposal put forward by Budget Chairman Paul Ryan (R-Wisc.) and said he would not accept more tax breaks for the rich at the expense of entitlements. Ryan, who was seated in the audience during the speech, later called Obama’s remarks “excessively partisan.”
The president of the United States has zero interest in seriously cutting either his own budget deficits or sign off on any plan that would address our massive national debt, now at $14.3 trillion. We know this because his proposals in his speech for closing the budget gap don’t even come close to addressing the current $1.6 trillion deficit. They don’t come close to addressing the deficit as far as they eye can see either - a number that is conservatively estimated at $9.3 trillion over the next decade..
Revenues from increased tax rates on the rich are expected to bring in $1 trillion of the $4 trillion Obama says he can bridge that gap but the rest of the president’s proposal is laughable. $2 trillion in unspecified budget cuts - including a giggle-worthy statement that the Secretary of Defense will be able to find hundreds of billions more in cuts beyond the $400 billion in savings over the next decade already proposed. And $1 trillion saved in “interest on the debt.”
That might make it into late night comedy routines soon. Those savings are assuming interest rates will stay at or near 0%. Anyone who has taken a trip to the grocery store recently knows that this will be impossible once inflation begins to heat up. It is much more probable that the part of the budget dedicated to servicing our debt will outstrip Medicaid spending by 2018.
This is the reality of our debt situation:
Over the 10 year budget window, the net annual cost of servicing the federal debt is expected to grow at a 15.8% annualized rate, from $196 billion in 2010 to $928 billion in 2021 (S-1). If this weren’t bad enough, closer analysis reveals that the actual debt servicing costs could be much higher. Absent a string of good fortune (that’s sadly unlikely to materialize), the federal government could be effectively insolvent within the decade – as debt levels and servicing costs exceed financial capacity.
In the Administration’s baseline estimate, the public debt will rise from 62.2% of GDP in 2010 ($9 trillion) to 77% of GDP in 2021 ($18.9 trillion). Amazingly, this doubling of the national debt and 23% increase in the debt to GDP ratio relies on very favorable assumptions about the directions of interest rates. Over this period, the effective interest rate implied by the ratio of net interest expense to public debt is 3.5%. This happens to be the average for the 5-year constant maturity Treasury rate over the past 10 years. However, the average 5-year borrowing cost for the 10 years ending in January 2000 was 6.3%, while the average 5-year borrowing cost for the 10 years ending in 1990 was 10.4%. Stress testing the President’s budget against these different interest rate assumptions reveals that public debt dynamics could trigger federal insolvency in relatively short order.
Republicans are treating the proposed “commission” with as much seriousness as the president showed in announcing it. Obama’s savaging the GOP in that speech while piously proclaiming his desire to work together to solve the deficit problem was easily one of the most cynical political ploys in my lifetime. He will demagogue the deficit issue from now until November and, given the Punch and Judy GOP field of candidates to face him, it is likely he will win a second term.
But then where will we be? A couple of trillion more in the hole with still no chance to come to an agreement that would meaningfully address the deficit. Obama has chosen political expediency over the health and happiness of the American people.
Goddamn him for it.