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Manuel Balce Ceneta / AP Photo Obamaâ??s economic blueprint is based on rosy assumptions and political impossibilities. Yale Professor Jeffrey E. Garten on why it may take a scare from China to force America to get its financial house in order.
The budget submitted by President Obama is not quite dead on arrival, but itâ??s not even worth debating the point.
Set aside the fact that it is based on overly optimistic growth assumptions and policy decisions that are only remotely feasible. For example, the underlying economic projections on which the budget is based presupposes a full recovery, even though nearly all experts believe high unemployment on the order of 9 percent to 10 percent is likely to remain for all of next year and maybe beyond. From such a rosy scenario stems unrealistic projections of tax revenues and reduction of various social-welfare subsidies. The budget also assumes that a good deal of the Bush tax cuts are repealed, which is hardly a certainty.
There would not have to be withdrawals of foreign investments, just no increases to feed our ever-growing needs, to induce widespread panic in the markets and in Washington.
But beyond all that, the proposed budget will be subject to dozens of hearings by dozens of congressional committees, and the insufferable politicking of a polarized Congress in an election year. The time it takes for the dust to clear on Obamaâ??s fiscal blueprint will not make an iota of difference in dealing with Americaâ??s acute financial situation, typified not just by the largest deficits relative to our GDP since the post-World War II era, running some 11 percent of GDP when a respectable level, in the eyes of financial markets and our creditors, would be closer to 3 percent.
â?¢ Jeffrey E. Garten: The Dollarâ??s Scary Declineâ?¢ Whatâ??s in Obamaâ??s Budget?The real action will have to be next year, after the mid-term elections. But even then, itâ??s not clear whether our political system can deal with the crisis of deficits and debt, or whether it will take our foreign creditors, on whose lending we are totally hooked, to administer the shock we need to get our financial foundation on a sound footing. I suspect the latter. They wouldnâ??t have to do much, just a few public pronouncements in Beijing that Chinaâ??s central bank plans to invest excess reserves in a different way than it did in the past. In other words, there would not have to be withdrawals of foreign investments, just no increases to feed our ever-growing needs, to induce widespread panic in the markets and in Washington.
If I suspended my instincts about how the crisis would ultimately be resolved, and make an assumption that our political system could rise to the occasionâ??an assumption of historic proportionsâ??what would Washington have to do?
Most important, it would have to set a few simple goals, such as reaching a ratio of debt-to-GDP of, say, 60 percent within a decade, with interim targets along the way. By way of comparison, it is close to 70 percent now. Washington would have to establish a process that would kick in when the U.S. missed its targets, a process that would result in a combination of raising taxes and cutting spending across the board. That mechanism would have to be established in law and be subject to override only by, say, a recommendation of the president and a positive vote of two-thirds of the Senate.
To meet the targets, it would be necessary to establish new sources of revenue. Start with a national sales tax (refunded for low-income families), which, according to the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, could produce some $400 billion annually by the end of this decade ( $200 billion this year.) Add to that a gasoline tax, one that would have the additional benefits of cutting CO2 emissions and reducing imports and hence boosting national security. A $1 per gallon tax could produce over $3 billion per week, according to the Congressional Research Service (but it could start lower and eventually get beyond a dollar.) Both of these taxes are in effect in virtually all major developed nations. We would need health-care reform that holds down spending, particularly with respect to Medicare. Those with higher incomes should pay more for Medicare and Social Security as a result of a means-testing process.
We would also need a major revamp of the tax system to favor entrepreneurial activity, the major creator of jobs (and hence income, and hence more revenue and less subsidy payments from Uncle Sam.) This means special incentives for starting a business, such as easy write-offs for initial investments, and permanent tax credits for R&D.
These measures are not the entire universe of policy requirements, and some may prove infeasible. But they illustrate the arena in which we must play, and by comparison they show why the budget announced on Monday is a sham and why, in the end, it may take China and others to force us into doing what we cannot do ourselves.
Jeffrey E. Garten is the Juan Trippe professor of international trade and finance at the Yale School of Management, and served in economic and foreign policy positions in the Nixon, Ford, Carter and Clinton administrations.
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The good professor suggests, "a tax system that favors entrepreneurial activity, the major creator of jobs.... not the government." Why can't the president sink his teeth in to that concept?
I Think it's time to call Obama what he is, "Lame Duck President in Blame" All this weak, lying Radical Progressive does is blaming it on Bush... It shows how weak and in way over his head he is, He did this crap to get elected, he acts like the Prescription bill was Bushes, it was the Democrats bill that Bush watered down, and Obama voted for it, the dems also voted for the wars, they are guilty, guilty, guilty. Not to mention Obama is still in both wars, he said he would pull out of them already, and we are paying for them too. This Budge and Deficit are Obama's, He is full of crap and a BIG FAT CRYBABY who just can't handle anything, wars, budget,defense,health care,deficits.JOBS What were you thinking when you voted for this Loser???? You all must have been really depressed to have done such a stupid thing...LOL
lame duck within his own party too, pretty pathetic.
Independents, like myself, voted for Obama because the Republicans didn't have a stronger candidate. And, even if McCain would have won, I doubt he would be faring any better right now. There are many complicated issues that the country has decided to polarize itself on, making forward progress difficult. Although I would question why Bush also didn't embrace "a tax system that favors entrepreneurial activity, the major creator of jobs..not the government". After all, no matter where an individual stands politically, I think we're all dubious of the carte blanche given to big business in the last year or so.
Does this man have ONE Goal ? Is it to Overwhelm the system, then Obama's Progressive Dictatorial-like Redistributive Centralized power grab can go into affect ? He didn't say he would . . . " Fundamentally Transform The United States of America " for kicks. Interesting how little discussion there was among journalists . . . did they bother to ask . . . What EXACTLY did he mean by such a BOLD statement, and what were his ultimate plans? Transform- LINK: http://www.youtube.com/watch?v=_cqN4NIEtOY Saul Alinsky = Community Organizers = Barack Obama = Redistribution Of Wealth Redistribution- LINK: http://www.youtube.com/watch?v=UsapJii1rMY Opinion of the Constitution- LINK: http://www.youtube.com/watch?v=11OhmY1obS4&feature=related
sophia, Enjoyed your post
I want a $100 floor on a barrel of oil. Tax revenue plus incentives for business to make new energy efficient products and green tech. There would be large drops in unemployment due to this.
Good point on the energy initative, scandinavian countries, turned their small business people into curing their energy shortfalls, and they are almost 100% independent.
You really think a Democrtatic Congress and our Hugo Chavez loving president will follow your plan?
The answer to this above Question is: Get rid of this Left Leaning Radical Progressive/Populist President and put in office a fiscally responsible Congress who has to learn to compromise and work together for the Country. Not this tax small business out of business so the only thing left is Big Government. This Ideologue is dangerous for this Country and he is a Socialist, who belongs in Europe, Cuba, anywhere but here.
Cut the defense budget, pure and simple.
khepri - Do you know nothing of history? Have you no understanding of what how our enemies become more aggressive each time we cut the defense budget? It usually results in Americans being killed, before we rebuild the military. Moreover, the allocation of federal funds for Defense, is one of the few expenditures of our natitonal government, that is Constitutionally authorized. If you want get this Nation back on a solid finacial footing, there are several simple and good steps that could be implemented. 1) Kill the central bank (Federal Reserve Bank). 2) Stop deficit spending, 3) a. Cut marginal tax rates b. Better yet - Go to a Flat rate income tax, (graduated system is really a Marxist idea anyway). c. Better still - repeal the 16th Amendment and replace it with a Consuption or sales tax. 4) Repeal the 17th Amendment, have our Senators once again sent to Washington by our state legislature. This will make our Senators once again advocates for the states and against federal power. 5) If we really want to cut budgets, let us start with programs that are not authorized by the Constitution, and are therefore violations of the TENTH AMENDMENT TO THE CONSTITUTION. Programs such as wellfare, social security, medicare, medicaid, funding and regulating public schools, and dozens upon dozens of other such programs. FYI - If you think that we should have the aforementioned programs, then amend the Constitution to allow them. We should not just violate the supreme law of the land, because you think we need these programs.
A word of caution on amending the constitution. Everything else you stated should be done incrementally to get it done right. The other thing to remeber is "The most dangerous Government, is close to home"...Cicero.
to khepri....... Your lyrics may vary from thread to thread but the melody is always the same ....sup with that ? Thanx to you now, for the rest of the day I'll be hearing Edwin Starr in the back of my head.
khepri, needs a slight reminder on why we have a military. To that point we should remeber, that no one attacks a strong country. "Walk softly, but carry a big stick"....Theodore Roosevelt
Agreed! Good point. Pull out of Afghanistan and Iraq within the next few months, cut NASA to zero, kill the fighter planes (our enemies don't even have planes) stop the nuclear weapons (see above), pull out of every major country and stop pretending like anyone cares, implement a flat tax, kill the Fed, dismantle the banks that are still too big to fail, and get rid of Congress.
althea - I hope you are being sarcastic! I think that you are, however, there are some of the nuts, on this site, who'd agree with what you wrote.
I'd like to know when Barney Frank and Christopher Dodd are going to be prosecuted for their roles in the Fannie and Freddie scams? They are two of the most arrogant of the arrogants walking the halls of Congress, and yet they carry a huge responsibility for the collapse of these two agencies.
McCain and Keating walked too. Tsk Tsk.
McCain introduced legislation in the Senate committee, to address the train wreck that he saw comming down the road. It was defeated along party lines in committee, and never saw the Senate floor. Oh yeah, George W. Bush, the idiot, tried no fewer than twelve time to warn congress that same train wreck. Bush was rebuffed by Chris Dodd and Barney Frank, that Freddy and Fannie were in good shape, and that he didn't know what he was talking about. You hate to say it, don't you, but Bush Was Right!!!!!!
wrong, FarLeftFist...Keating actually served four and a half years in prison before those convictions were overturned in 1996. Barney Frank and Christopher Dodd's FNMA and FHLMC connections have cost the American Tax Payer a LOT MORE than Keating.
Right about the same time we prosecute Cheney and Bush for war crimes for creating false intel on WMD's in Iraq, leading us to a war in Iraq that lead to a war that we may never get out of....
Prof. Garten makes good sense, so we needn't expect to see any of these ideas backed by the pols. Is it just me, or do the prof's ideas for laws that force the pols to manage their spending mimic the methods for getting addicts of drugs/booze?
I don't know, but his wife sure does cook some damn good meals
Consider the hypocrisy when The President and his Administration speaks about the budget and deficit -- "By the time I took office, we had a one-year deficit of over $1 trillion and projected deficits of $8 trillion over the next decade," Obama said in his State of the Union speech. " "The Bush administration's swing from surpluses to deficits added more debt in its eight years than all the previous administrations in the history of our republic combined," David Axelrod, a senior strategist for Obama, wrote in The Washington Post. " The theme is clear. According to the Obama Administration deficits as far as the eye can see are the fault of one man: George W. Bush. They relentlessly push this message from the Obama White House. Let's do a little fact checking. "First it is important to understand that an administration only suggests a budget. Under our form of government, Congress is actually in charge of appropriating money. Hence, you have a mad scramble every two years, when committee assignments are passed out with Members of Congress elbowing each other to get a seat on the aptly named "Committee on Appropriations". So when Obama uses speeches to whine about the "fiscal disaster" he inherited from Bush, he should actually be complaining about the Democratic Congress run by Nancy Pelosi and Harry Reid that appropriated and adopted the budget during the later years of the Bush term. As the party that controlled Congress since January 2007, it is the Democrats that have held all the cards in the budget debate. They essentially wrote the budgets for FY 2008, FY 2009, as well as FY 2010 and FY 2011. Oh, and if we need to remind him, Barack Obama served in these Democratic majorities, so he cannot feign ignorance of the process. George W. Bush's Office of Management and Budget (OMB) during those years were constantly in conflict with the appropriators over spending too much money. In FY 2009, Nancy Pelosi and Harry Reid actually bypassed Bush entirely, passing only continuing resolutions to keep government running until Barack Obama could take office. Then once Obama was safely in office they passed a massive omnibus spending bill to complete the FY 2009 budgets. So what did the deficits look like during the time period Congress was controlled by the Democrats? In the FY 2007 budget, the last of the budgets written by Republicans the deficit was the lowest in the last five years, and it was the fourth straight decline in deficit spending. Once Democrats in Congress took control, the budgets and deficits exploded. " The budget just unveiled by Obama's team is so large and so out of control, he should be embarrassed to compare it to any of the Bush budgets. In a nutshell, the deficit will surge to a record-breaking $1.56 trillion. This tops the last shocking $1.41 trillion in red ink. And as Karl Rove pointed out in the Wall Street Journal, when measured against economic output, Obama looks even worse. "Mr. Bush's deficits ran an average of 3.2 percent of GDP, slightly above the post-World War Two average of 2.7 percent. Mr. Obama's plan calls for deficits that will average 4.2 percent over the next decade," Rove wrote. The deficit will remain above $1 trillion, even in 2011 when Obama's so-called "budget freeze" begins. This is because in an Obama freeze spending in a multitude of programs actually goes up. So the next time you hear the President complain about his predecessor, remember the Congress that appropriated the funds was a Congress in which he served in the majority. So who inherited what?
The ironic thing here is the House Chair for Appropriations is Democrat Charles Rangel the tax evader.... the fox guarding the hen house.
Any economics professor would agree that entitlement programs are costing the most along with the defense budget. Of course, the constitution states the federal government is responsible for the defense of our nation. According to the progressive movement, the federal government is responsible for the well being of its people even though the constitution, under the declaration of independence, states people have the right to pursue happiness, not a guarantee of it.
Defense of the nation should not be confused with perpetual war.
for all those people who have studied, scraped, saved and sacrificed to pay their own mortgages the correct way, we taxpayers are sick and tired of the federal government bailing out every idiot who never really qualified for a loan. Dissolve Fannie and Freddie! We want full transparency, NOW!
We Have Ron Reagan To Thank For Deregulating The Fed In 1983 & legalizing The Speculation of Revenue ! ( No Ethics & No Integrity , Thanks For Nothing Republicans ! ) "WithOut A First Class Tax Paying Base America Cannot Afford A First Class Infrastructure " USSR 1948 , TO AMERICAN SLAVERY
It wasn't the deregulation of the Fed, it was its creation that is the problem. This occured during the Woodrow Wilson (DEMOCRAT) administration. You can also thank LBJ, for the creation of Freddy and Fannie; Carter for the passage of the Community Re-investment Act; Obama and A.C.O.R.N. for abusing the provisions of the aformentioned act (CFR); and Clinton for using the Justice Department to intimidate Banks into giving out loans to people who could not afford said loans. In fact 90% of these loans were given out under the thuggery of Clinton's Justice Department. Before the bubble burst, The Clinton Legacy Website was boasting that they delivered these loans. I believe all of the aforementioned are Democrats. Thanks Democrats, or more accurately, thanks Progressives for nearly destroying our Republic. Well if you know anything about progressives, this was their goal all along.
The only thing to conclude from this budget is that it is a deliberate attempt to bankrupt this country. The level of irresponsibility is mind boggling.
If Obama thinks he can raise taxes on the middle class and we'll go along with it like sheep, he's in for a very rude awakening. If he thought the tea parties were annoying last summer, just wait until this summer when he realizes that the movement against increased taxes includes those professionals and educated elitists he thought he had in his pocket.
Reminder to all: the Constitution says the US was created "in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity." That's quite a shopping list. It sounds expensive. I wonder what part of it we can throw under the bus, since clearly we cannot afford it all. Maybe general welfare. After all, 'promote' could mean just advertising for charity rather than actual support. Then if nobody contributes and people starve in the streets and turn to crime in desperation, we can still say we tried. Of course, if they turn to crime in desperation we'll need to buy more policing, else we fail to insure domestic tranquility. And we can forget about a 'more perfect Union' because we just don't have it. But that would have cost nothing anyway.
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