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The Fiscal Impact of Obama's Budget Speech

Thursday, April 14, 2011

US President Barack Obama along with House Minority Leader John Boehner of Ohio (2nd L), House Minority Whip Eric Cantor of Virginia (2nd R) and House Republican Conference Chairman Mike Pence (R) (Getty)

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, David Leonhardt, writer of the "Economic Scene" column for the New York Times, broke down the fiscal impact of President Obama's deficit reduction plan, and how it differs from the Paul Ryan proposal.

Bush tax cuts - back on the table

Rep. Paul Ryan's 2012 budget calls for a 10 percent tax cut for corporations and top income earners. President Obama's counter proposal, presented yesterday, raises the top tax rate by 4 percent.

The stage is set for a fight over the recently-extended Bush tax cuts, and if or when we should let them expire. According to David Leonhardt, if we're as serious about deficit reduction as we're all pretending to be, there's at least an historical argument for putting them out to pasture.

When you look at CBO numbers, the biggest contributors [to the deficit] were, one, what you could call the Bush policies—tax cuts, the Medicare prescription drug programs, the wars—and the second biggest were the two recessions, first in 2001 and again in 2007. They were far bigger as a share of the deficit than the stimulus, so it's absolutely true that the Bush tax cuts and the Medicare prescription drug program are big drivers of the short term deficit. Maybe the easiest way to see this is if you repeal all the Bush tax cuts, you'd do about 75 percent of the deficit reduction that economists say we need to do over the next 5 years.

Closing loopholes, but which ones?

Obama and Ryan may want to take taxes in opposite directions, but each policy touts the same revenue-raising measure: closing tax loopholes. Trimming back exclusions, deductions and credits looks good on paper, said Leonhardt, but the devil will be in the details—something both politicians are short on.

We should not take too seriously a plan's own claims to close tax loopholes...You and I and most listeners can quickly agree with the notion that loopholes should be closed and the tax code should be fairer, simpler, and rates should be lower. That all sounds very good, but the fact is that the big loopholes are very popular: the employer-provided health insurance exemption, the mortgage interest deduction, the tax exclusion for 401k contributions. When people say 'close loopholes,' it's not that meaningful. What we need to know is how are you going to close loopholes.

Cutting during recovery

Leonhardt said it was necessary to keep an eye on our debt and deficits, but was ambivalent about taking drastic and immediate action in the middle of an economic recovery. The recent round of spending cuts, and likely more on the way, have in recent weeks made economic forecasters more pessimistic about growth for the rest of the year, he said.

Why might we want to put off tackling Washington's spending problem? To make his argument, Leonhardt offered two comparative approaches to fiscal woes taken by two very different countries.

Look at what's happening in England, where they're trying the austerity approach; their economy is doing really badly. You don't hear this comparison as often, but I think it's interesting: if you look at China, which did by far the biggest stimulus in the world as a share of their economy, they recovered better than anyone. I'm not saying it's only because of the stimulus, but if you go talk to people in China, they're really pleased with it and they think it played an important role.

The (eventual) end of Medicare

The most controversial piece of either budget proposal is Ryan's plan for Medicare, which he would transform into a voucher system subsidizing the purchase of private health coverage for seniors. "The end of Medicare as we know it," so-called by President Obama.

Interestingly, Leonhardt said the plan was both too conservative and too radical—conservative for the old promises it keeps, radical for giving them an expiration date.

It's too conservative in that it says to anyone 55 or older—more than a third of adults, many of whom will be alive for decades and run up enormous Medicare costs, and who have not paid enough Medicare taxes to cover their bills, not even close—it says to them, 'Nothing will change in Medicare. You can go on Medicare, we will do nothing to try to restrain Medicare costs, you can run up bills that are vastly larger than you ever paid as taxpayers, and we will pass that bill on to everyone younger than 55.'

To those people paying the bill, those people under 55, we say, 'You don't get Medicare. You get something less generous, but we don't have any choice.' I think it's deeply unfair to make that big divide and say, 'I've got this great plan, it's really great, it won't harm you, it will save vast amounts of money—but don't worry: so long as you're 55, you won't have to be any part of it.'

Does Ryan's plan sound familiar?

Many commentators are starting to notice that Ryan's health care policies actually sound a lot the ones put forth in President Obama's overhaul last year. Providing tax credits to low-income citizens so that they can participate in health care "exchanges," or artificial markets, isn't that far off from providing a voucher for seniors to purchase a private plan.

Leonhardt said that evinces just how conservative Obama's reform was too. Ryan's plan simply takes it a few steps further by doing away with Medicare entirely.

It really puts the lie to the notion that last year's health care reform was a radical bill. It has flaws, but it's not radical. It's clearly to the right of the health care reforms proposed by Nixon and Clinton. It decides to follow a market system, it doesn't begin expanding Medicare, it doesn't tell the uninsured, 'You'll participate in a government program like Medicare.' It instead sets up markets. Ryan would expand that so there would be no more single payer system, the elderly would be subsidized, and insurance would be an entirely private market.

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Comments [18]

David

Leonhardt,is either a liar or is ignorant. While it's true that Dumbya Bush added trillions to the deficit thanks to those unwarranted wars in both Iraq and Afghanistan, there were many Democrats who also voted for those criminal actions. And let's not conveniently forget that many Democrats—including then Senators Obama and Biden—who voted for the corporate welfare bailouts of the banks and the two car companies. Add to that the fact that Pres. "Change" Obama has not only not ended our presence in Iraq, has extended the war in Afghanistan, has instituted drone attacks on civilians in Pakistan and Yemen, and has attacked Libya (which, in his own words from four years ago, we had no right to do because they were not a threat to us), he has not only continued the wasteful, expensive, atrocious foreign policy of Dumbya Bush, but has not even closed Gitmo—and he has extended the Patriot Act. Folks, we're in a third term of George Bush. Add Obama's crony capitalism "stimulus" money to favored corporate lobbyists, and you can see that things have "changed" in this country since Obama took office—for the worse. It's pretty pathetic if you can be even worse than George Bush, but that's what happens when you expand the U.S. military empire and enlarge corporate welfare. (Did you really expect anything less from Obama when his largest campaign contributor was Goldman Sachs?)

Apr. 14 2011 11:06 AM
Mike from Brooklyn

At some point, someone has to pay attention to the elephant in the room - we have been at war for a decade. In that time, we've only reduced tax revenue. This is the only time taxes have not been raised in wartime. We have to pay for the wars - ALL OF US - not just the kids getting arms blown off overseas. Taxes have to be raised on everyone.

Also, whether on the state or federal level, it should be noted that "cutting spending" means laying people off. I am a social worker and I've been out of work for a year. For people in public service like myself, that's unacceptable. Those of us who can't find work don't need more laid-off workers to compete with for zero jobs. And what happens to the income tax revenue generated by those soon-to-be-unemployed workers?

And of course, it should be noted that, when spending is cut the people laid off are not the stereotypical worthless do-nothing bureaucrats - those people will NEVER lose their jobs. It's essential workers that get laid off. The bureaucracy is invulnerable to lay-offs because they decide who gets laid off and they will not sacrifice themselves for the greater good.

Apr. 14 2011 10:54 AM
jawbone

I'm pretty sure I heard David Leonhardt say that those who have Medicare would not let other peole have it. I can't check until the audio is available (transcripts would be sooooo useful).

BUT, Obama himself took single payer "off the table," despite a solid, near supermajority of the American public, saying over and over (IF they were asked) that they wanted a single payer system simiilar to Medicare, despite an existing bill in the House that could have been passed.

Obama himself refused to accept Hillary's proposal to at least allow those 55 and over to BUY IN to existing Medicare.

Obama made a deal behind closed doors, at the very beginning or before the launch of his camaign to pass what he himself called "health INSURANCE reform," and promised the Big Health Industry Players there would be no such thing as the undefined "public option." But he continued to tell the public that it WAS something he strongly desired. He LIED.

At the time, the best way to "fix," to actually SAVE MEDICARE is to have single payer universal health CARE for everyone, to implement Medicare for All Improved.

Why did Leonhardt say that those who have Medicare didn't want to expand it to others???? Why did Brian let him say that?

Without challenge?

Apr. 14 2011 10:50 AM
andy from brooklyn

Hi Brian,
Discussions always revolve around various scape goats but we never talk about the monetary system itself - namely our Federal Reserve, which by the way has never been audited - maybe it is time to re-evaluate the source of our money!

Apr. 14 2011 10:48 AM

don’t mississippi and alabama have low taxes? they also have low wages, low test scores, poor healthcare.
i don’t want in live in the 3rd world

Apr. 14 2011 10:46 AM
Robert from NYC

That speech of Ryan's could just a well been directly at himself! How's that for irony!

Apr. 14 2011 10:36 AM

Vouchers DO sound scary, and depending on the exact implementation, could make things worse. But, if designed as the universal, foundation of a free-market health plan, with requirements to meet certain minimum standards of care and fairness, it can work (and does in other countries even today). Providing there are incentives to improve efficiency and raise the average level of service. See http://www.businessweek.com/technology/content/jul2009/tc20090716_430025.htm

Apr. 14 2011 10:31 AM
Laura A Job from Westchester

How do these tax plans relate to AMT?

Apr. 14 2011 10:26 AM
Mike from Jersey City

Folks, this is a Hans Christian Anderson moment. The emperor has no clothes. We're going to solve health care with a committee of "experts." You mean, like the ones that designed Social Security, Medicare and Medicaid? How's that working for us?

Apr. 14 2011 10:25 AM
Brooklyn_Working_MOM from Brooklyn NY

Itimized deductions are already limited in two ways:
ALL deductions are reduced if AGI in over certain levels

AMT wipes out MOST of the itimized deductions like State/local Tax and Medical expense deduction is raised to 10% of AGI.

This really hits New Yorkers pretty hard as we have the highest state/local taxes in the country, not to mention among, if not the highest cost of living in the country.

Apr. 14 2011 10:23 AM
RLewis from the bowery

Why didn't Obama frame this as, "how do we transition out of a recession"? I think non-economist Americans can understand something that simple.

Apr. 14 2011 10:20 AM
Amy from Manhattan

I'm not saying they aren't both major contributors to the US budget problems, but the stimulus was a set amount; the tax cuts for the highest-income people are ongoing (until they expire & aren't renewed).

Apr. 14 2011 10:18 AM
John Lobell from NYC

How long are we going to continue this static scoring? When I grew up, the top bracket was 90%. If anyone thinks people worked hard to earn that money and give 90% to the government, they are wrong. Higher brackets do not always raise the money.

Recall when Clinton lowered rates on capital gains, and raised them on dividends, many corporations stopped paying dividends and hyped growth in stock prices.

BEHAVIOR CHANGES. Punish earning, and there will be less of it.

Apr. 14 2011 10:18 AM
Mike from Jersey City

Brian, a columnist from the NY Times as your "objective" economic analyst? C'mon, even Fox does better than that.

Apr. 14 2011 10:17 AM
Ed from Larchmont

It seems to me that there are too few young people, that the problem is demographics. And no matter how taxes and cuts are balanced, there really is no solution to demographics except a lower standard of living.

Apr. 14 2011 10:17 AM
chris from new york

no, actually david we do know that the ryan plan will bring in far less revenue than the obama plan; obviously if we lower the top rate 25% it will bring in far far less money than if we have a rate of 39%.

stop mincing words and tell it like it is!!!

the ryan plan is not a deficit reduction plan- it is a tax reducing plan and a medicare killing plan.

why are you an apologist for the right all of a sudden!! the CBO said it was "deficit neutral"!!!!

Apr. 14 2011 10:16 AM
Mike in Westchester from westchester

Just got to listen to the president's debt reduction speech on YouTube. Great!

It's centrist, sane, and one can see the chess match unfolding now. Republicans are once again allowing themselves to be "gingriched", so independents will shift back to support the president vision that fixes problems without destruction to the American social fabric.

Apr. 14 2011 10:07 AM
Marianne from Staten Island

The Heritage Foundation - now cheerleading Paul Ryan's plan - predicted in 2001 that the Bush tax cuts would not only balance the budget but virtually pay-off the entire national debt by 2010.
How did that work-out?
How many jobs were created in the nearly 10 years and what did it cost us in dollars?

Republicans have never cared about the deficit or the debt. (Remember Cheeney? “Deficits don’t matter!”)
The rich never sacrificed and the job-creation they promised never materialized although their benefits were enormous.
Who got the benefit?
This quarter JPMorgan Chase reported a profit of $5.6 billion while profiting on an investment that harmed its client Sigma -- and this is before the housing crash).
Nevertheless executives’ compensation there is skyrocketing.

The oil companies getting outrageous tax subsidies while gas prices are above $4.
GE paying no taxes at all.
Are these the millionaire job creationists Mr.Ryan is protecting?

Apr. 14 2011 09:58 AM

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