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Tilting at Windmills

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February 22, 2009

OBAMA EYES DEFICIT REDUCTION.... Just yesterday, in his weekly address, President Obama said he is determined to "get exploding deficits under control." He previewed a federal request budget, due out this week, that is "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

The president added, "[W]e can't generate sustained growth without getting our deficits under control."

To that end, the White House is "putting the finishing touches on an ambitious first budget" that aims to cut the deficit in half over the next four years. Republicans who opposed the economic stimulus plan built their arguments around fears of long-term debt (I believe "generational theft" was the phrase of choice). So, will the GOP be thrilled to hear Obama's deficit reduction plan?

Probably not.

To get [to a projected $533 billion deficit -- 3% of GDP -- in 2013], Obama proposes to cut spending and raise taxes. The savings would come primarily from "winding down the war" in Iraq, a senior administration official said. The budget assumes continued spending on "overseas military contingency operations" throughout Obama's presidency, the official said, but that number is lower than the nearly $190 billion budgeted for Iraq and Afghanistan last year.

Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent.

Obama also proposes "a fairly aggressive effort on tax enforcement" that would target corporate loopholes, the official said. And Obama's budget seeks to tax the earnings of hedge fund managers as normal income rather than at the lower 15 percent capital gains rate.

This is, of course, entirely in line with the agenda presented to the electorate in 2008. As David Axelrod told the NYT, "This is consistent with what the president talked about throughout the campaign," and "restores some balance to the tax code in a way that protects the middle class."

We'll have a better sense of the details on Thursday, when the White House will release a 150-page "Economic and Budget Policy" report. This outline will be followed by the complete budget for the 2010 fiscal year, released in April, though the outline will "make clear" that the president "intends to push ahead on promises to contain health care costs and expand insurance coverage, and to move toward an energy cap-and-trade system for controlling emissions of gases blamed for climate change."

Steve Benen 8:00 AM Permalink | Trackbacks | Comments (33)

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Comments

if Obama doesn't take an axe to the massive annual pork barrel defense budget, way beyond "winding the Iraq occupation", or else put a huge surtax on the wealthy to fund their real-life game of Risk adventures using the US military, then he's not serious about deficit reduction.

if Obama doesn't go after eliminating the insurance companies from the healthcare system then he isn't serious about covering all Americans with decent, affordable healthcare.

Posted by: pluege on February 22, 2009 at 8:43 AM | PERMALINK

the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers

20% cap gains tax rate is just one more hateful reminder of Clinton to Republicans. I would suggest appeasing them by going back to the Reagan rates. 28% on not so wealthy filers.

Posted by: Danp on February 22, 2009 at 8:50 AM | PERMALINK

Good for Obama on trying to reduce the deficit, despite the benefits of stimulus spending it will increase confidence and thus shore up the economy as well, even just to hear that deficit reduction will be attempted.

Great irony from Danp about cap gains tax, the low rates (per se, I can see indexing as recognition of the changing value of money) were always a fraud since trading per se does no good. If we really want to help useful start up investing, then allow deduction of start up capital from current taxable income instead.

BTW I am worried about reports that Obama is siding with Bush to protect Admin emails from scrutiny:
http://www.google.com/hostednews/ap/article/ALeqM5hsG0My2Q3Eu9Sj2PSupnj4xeQXxAD96G4J9G0
He shouldn't be doing that IMHO, unless it can be very well justified.

Posted by: Neil B ◙ on February 22, 2009 at 8:58 AM | PERMALINK

The top ten states that receive the most federal money are Alaska, Alabama, Kentuckey, Louisiana, Mississippi, New Mexico, N Dakota, S Dakota, Virginia & W Virginia.

Oklahoma, S Carolina, Tennessee, & Arkansas are in the top 20.

Notice most of these states have voted Republican over the past few election cycles. To balance the budget, I would suggest we start by reducing the amount of money sent to these states. Then we'll see how opposed these Republicans are to "big government.'

OTOH, most of the states that receive the least in federal tax dollars are states that have voted Democratic. They would include Calif, Conn, Illinois, New Jersey, New York, Mass, Oregon and Wisconsin.

This is all per the Tax Foundation, btw.

Posted by: oswald krell on February 22, 2009 at 9:02 AM | PERMALINK

So raising taxes in a recession is the way to get the economy back on track ?

Posted by: Mike K on February 22, 2009 at 9:23 AM | PERMALINK

Mike K.

Obama is letting the Bush tax cuts to expire. That's all.

Posted by: Micheline on February 22, 2009 at 9:27 AM | PERMALINK

Oswald krell - do you have an actual link for that? And does it also show revenue by state? I couldn't find it at their generic website, and I've been looking for these rankings for a while. Thanks.

Posted by: Danp on February 22, 2009 at 9:32 AM | PERMALINK

Here's a link to the Tax Foundation's Federal Taxes Paid vs. Federal Spending Received by State, 1981-2005.
As oswald krell mentioned above, the net gainers have been Red States, the net donors have been Blue States. This chart goes back to 1981 and the situation is the same throughout the years.

If I had a wish I'd wish for a federal transaction fee of two dollars on every stock trade to be kept in place until the U.S. has two consecutive years of balanced budgets.

Posted by: Dennis-SGMM on February 22, 2009 at 9:33 AM | PERMALINK

Hmmm. I can almost hear Paul Krugman saying: "No! Don't try to balance the budget AND stimulate the economy! This is what Roosevelt did wrong in the '30s and he had to wait for WWII to get us out of the Depression!"

Posted by: MichMan on February 22, 2009 at 9:36 AM | PERMALINK

A complicating factor here: If it turns out that we are in a Japanese-style slow growth period, Obama's intentions of fiscal restraint could reverse any expansionary impacts of the stimulus package.

And if Obama announces today that some taxes will be increasing in the future, will that increase savings rates today per the Ricardian Equivalence Theorem?

Posted by: garnash on February 22, 2009 at 9:36 AM | PERMALINK

Dennis-SGMM - Thank you so much.

Posted by: Danp on February 22, 2009 at 9:48 AM | PERMALINK

Obama is implicitly saying that the Bush tax cuts lead to the budget deficit.

Posted by: Micheline on February 22, 2009 at 9:54 AM | PERMALINK

I still remember in one of the 2004 debates, when Bush said he had a plan to halve the deficit in a few years. How'd that go?

Posted by: Obama -- Not as Tough as the Steelers on February 22, 2009 at 10:06 AM | PERMALINK

On Chris Matthews "Tell me something I didn't know" section, Nora O'Donnell reported that Obama was going to include the wars in his budget numbers, just as Wash Monthly reported yesterday. Then another guest said Obama would announce tax increases as this article today shows. Not surprisingly, Chris knew neither.

Posted by: Danp on February 22, 2009 at 10:19 AM | PERMALINK

It's stunning how wonderful Barack is. We're gonna have the best economy ever, and very soon.

Posted by: happyfeet on February 22, 2009 at 10:21 AM | PERMALINK

There are some very pertinent comments. Capital gains rate of %28 would be an improvement. Reducing money to the states mentioned, except Virginia & New Mexico, would be poetic justice, but it would be ruled unconstitutional. It would be ironic if the ACLU were the group to challenge it. But President Obama is too conscientious to allow it. Most important, 2001 is too long to wait for the wealthy to start paying something approaching their fair share of taxes.

Posted by: capalistpig on February 22, 2009 at 10:23 AM | PERMALINK

Soo glad to see that "happyfeet" is so into the new American order.

Posted by: captain dan on February 22, 2009 at 10:25 AM | PERMALINK

I still remember in one of the 2004 debates, when Bush said he had a plan to halve the deficit in a few years. How'd that go?
Considering that Bush started off with a surplus and then created the deficit, about as well as you might expect from a president who wonders aloud "How many o's are there in 'stupid'?"

Posted by: Dennis-SGMM on February 22, 2009 at 10:34 AM | PERMALINK

Up thread a couple of commenters have questioned if Obama's efforts at deficit reduction will have dampen the effects of the stimulus package. I will venture that the areas of spending where he seeks reductions will have a minimal impact on the efforts to stimulate the economy.

Much of the spending reductions will occur in costs for the war in Iraq as that winds down. Although defense spending can be stimulutive, I suspect that we have gotten much less economic bang for the buck from the war and occupation of Iraq than other wars, because so much has gone to contractors for services. People building military hardware will continue to work because we need to replace so much broken hardware.

Health care reforms are another area where the Administration seeks to trim costs. The excess costs for health care in our country are going to insurance companies, not medical staff and service workers. As I understand it, much of Obama's efforts are focussed on trimming out that waste.

Retiring the Bush tax cuts, at least where they apply to the wealthy will not have a negative effect on efforts to stimulate the economy. They don't spend enough to make a difference and most of the tax savings they realize will get rat-holed. Maintaining or reducing tax rates for middle class and lower income Americans will help the economy as these are the people that support the seventy percent of the economy based on consumer spending.

Posted by: AK Liberal on February 22, 2009 at 12:13 PM | PERMALINK

Retiring the Bush tax cuts, at least where they apply to the wealthy will not have a negative effect on efforts to stimulate the economy. They don't spend enough to make a difference and most of the tax savings they realize will get rat-holed.

"Rat-holed" meaning investing in things like financial stock. I've got to hand it to you folks, this blog is an economic education. All those small business owners who will be the victims of Obama's tax increases will be checking cars in the company parking lot for Obama bumper stickers. That helps to decide the first employees to lay off. Maybe that's why the Obama bumper stickers are disappearing so fast.

Posted by: Mike K on February 22, 2009 at 1:49 PM | PERMALINK

"get exploding deficits under control."

Doesn't that just repeat the mistakes made by Hoover and FDR (1936-1937) during the Great Depression?

If tax rates are raised, won't people (and businesses) move more of their investments and cash offshore?

Lastly, are the proposed tax increases in addition to the expiration of the temporary Bush tax cuts?

I'm sure these issues, and many more, will be addressed between now and April; Krugman must be blanching at the thought of reducing the deficit. I am also sure that the Democratic Congress will have a lot of input in the process.

Posted by: marketeer on February 22, 2009 at 1:49 PM | PERMALINK

Most large businesses don't pay taxes anyway but Obama is talking about letting Bush's tax giveaways to the rich expire. Personally I would raise taxes on people making over $10 million and then again to people making over $50 million. 50% of $50 million is still $25 million, more than most people will see in a lifetime.

I'd like to see Obama do something about companies moving off-shore to reduce their taxes.

Dean Baker proposed a 0.25% tax on financial transactions. The rate is low enough that small investors would not be disadvantaged. But the large investors, the speculator would get hit a lot as they churn the market. A Transaction tax would calm the markets, Baker suggests, which sound like a good idea.

Posted by: beb on February 22, 2009 at 2:26 PM | PERMALINK

Like most non-investors, you folks don't understand their motivation. You think they will beaver away and turn over the fruits of their labor to you. Think again. You may think they are not serious but that is what happened in the 30s.

Posted by: Mike K on February 22, 2009 at 2:33 PM | PERMALINK


mike k: You may think they are not serious but that is what happened in the 30s.

"The people who presided over the last 8-years ... [don't] seem to be in a strong position to lecture on history." - Larry Summers, Obama's director of the White House National Economic Council 2/8/09

Posted by: mr. irony on February 22, 2009 at 3:26 PM | PERMALINK

Will Obama succeed in his professed plan?

Probably not.

Same bullshit we're heard from every President since Reagan. Clinton -- with less fanfare in some ways than other presidents -- was the only one to actually do it.

Posted by: SocraticGadfly on February 22, 2009 at 3:27 PM | PERMALINK

Notice most of these states have voted Republican over the past few election cycles. To balance the budget, I would suggest we start by reducing the amount of money sent to these states. Then we'll see how opposed these Republicans are to "big government.'

OTOH, most of the states that receive the least in federal tax dollars are states that have voted Democratic. They would include Calif, Conn, Illinois, New Jersey, New York, Mass, Oregon and Wisconsin.


oswald krell
_____________________________

Ok/ So tsx dollars states receive should go hand-in-hand with whether you are Rep or Dem?....That is just freaking stupid....stupid stupid stupid!

Posted by: RE Justice on February 22, 2009 at 4:25 PM | PERMALINK

Mike K @ 2:33 PM:
"...You think they will beaver away and turn the fruits of their labor over to you..."
No, to the IRS, silly; I'd just spend it.
"...But that is what happened in the 30's."
I followed the link given but it must have been an incorrect one because it lead to an article about how the Communists in Russia were destroying the "Kulaks" (non-State Farm peasants) during the 1930's; something that is totally unrelated to the topic under discussion.
(I do wonder, though, what your reaction would be if I yelled "Go Wolverines!")

Posted by: Doug on February 22, 2009 at 4:54 PM | PERMALINK

To some people the idea of fiscal responsibility is going to be encouraging. To some others it might be worrisome.

I'm a bit surprised they made the 'cut the deficit in half in the first term' statement. But, they see the numbers and know how much we've really been spending. Anyhow, combining that with letting the Bush tax cuts expire and raising the capital gains rate sounds pretty good. Maybe the Rich will put more of their money into longer-term investments instead of taking big 'compensation' packages.

Posted by: MarkH on February 22, 2009 at 5:23 PM | PERMALINK

I was going to give my bona fides as so many of you do ("I'm a transvestite single mom..."),but I believe statements should stand on their own merits.In a PG Wodehouse novel(Stiff Upper Lip,Jeeves?"),Bertie qquestions Jeeves use of an alias (Chief Inspector Withwerspoon?Why witherspoon?On the other hand,why not?).The point I'm attempting to make is picking a number like 50% is absolutely meaningless.It could as well have been 40 or 60 or 66,etc.It is divorced from reality.Now ,for a little more reality.I've been effectively making about 10 % of my potential income for the past four years.Call it pro bono or free clinics or what have you.My retirement has been savaged and will be so even more with this nonsense.It's back to the real world.
And I have a question for the commentors.Do you feel the tax rates should be raised if we are in a depression in 2011?

Posted by: Corwin on February 22, 2009 at 7:18 PM | PERMALINK

"So raising taxes in a recession is the way to get the economy back on track ?"

It depends on which taxes, how much they're raised, and the state of the economy. Moreover, he's not raising them immediately. But then, you'd know all of this if you weren't a partisan moron.

Free clue: there is virtually no correlation between tax rates and economic growth, except at the extremes.

Posted by: PaulB on February 22, 2009 at 8:17 PM | PERMALINK

"Like most non-investors, you folks don't understand their motivation"

ROFL... Dear heart, you shouldn't make assumptions about the people who post here. It just make you look (even more) foolish.

Loved the link, though. It's rare to see so much nuttiness, completely devoid of any trace of reality. It figures you'd find it compelling, though.

Posted by: PaulB on February 22, 2009 at 8:22 PM | PERMALINK

"I've got to hand it to you folks, this blog is an economic education."

LOL... Alas that so little of it has rubbed off on you. Oh, well, maybe some day you'll join us out here in the real world.

"All those small business owners who will be the victims of Obama's tax increases"

ROFL... Thanks for confirming that you know not one damn thing about Obama's plans or policies, much less anything about economics.

Posted by: PaulB on February 22, 2009 at 8:26 PM | PERMALINK

"Rat-holed" meaning investing in things like financial stock.

Okay, I'll bite. Who's buying financial stocks these days?

Posted by: AK Liberal on February 22, 2009 at 9:54 PM | PERMALINK




 

 

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