(Der Spiegel) Budget Disarray–US Set to Restage Greek Tragedy

Should lawmakers not reach agreement prior to the end of the year, the US budget deficit for 2013 would be cut almost in half, to $560 billion.

Which doesn’t sound like a bad thing. After all, the US is staggering under a monumental pile of debt and could potentially begin to face the kinds of difficulties that have plunged several euro-zone countries into crisis. It is a viewpoint shared by the ratings agencies — a year ago, Standard & Poor’s withdrew America’s top rating, justifying the measure by pointing to the unending battle over the debt ceiling. The agency noted that “the political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”

From afar, it is difficult to argue; the ongoing battle between Democrats and Republicans in the face of a horrendously imbalanced budget looks catastrophically absurd. As their country heads toward the edge of the abyss, lawmakers preferred to debate whether or not French fries and pizza should be considered vegetables.

Read it all.


Posted in * Economics, Politics, Budget, Economy, House of Representatives, Medicare, Office of the President, Politics in General, President Barack Obama, Senate, Social Security, Taxes, The National Deficit, The U.S. Government, US Presidential Election 2012

15 comments on “(Der Spiegel) Budget Disarray–US Set to Restage Greek Tragedy

  1. Jim the Puritan says:

    It is important for the country to go over the cliff. Our situation now is entirely artificial, created by printing and spending money. We are not prospering, we are making things worse and worse for ourselves in the long run. The day of reckoning is here and needs to be embraced.

  2. Br. Michael says:

    Agreed. Remember we are not talking actual spending cuts. We are talking about reductions in the rate of spending increases. The taxes, on the other hand are real and immediate. As for defense reductions, that’s what the Democrats want anyway.

  3. BlueOntario says:

    [blockquote]Remember we are not talking actual spending cuts.[/blockquote]
    From what I’ve read we are so.

  4. BlueOntario says:

    I’d like to point out that one difference between the nations in “southern Europe” and the United States lies in the ability to tax their citizens. For all the griping, most Americans will pay their taxes. My understanding of the European nations in threat of default is that tax collections is a shambles. While there could be a massive shift in the United States in this regard, I don’t think we’re yet at the point of popular revolt, and it does provide reason for faith in our system and that through reductions in spending we can start to tackle the national debt.

  5. Bill Matz says:

    One of the fallacies in discussions about tax fairness is that they just focus on taxes paid. A recent article by Prof. Mankiw, chairman of Harvard’s Economics Dept., instead looked at net payments (taxes paid minus transfer payments back to the taxpayer). The shocking finding is that the bottom three quintiles (60%) receive more (often much more) in transfer payments than they pay in taxes.

  6. Br. Michael says:

    No, it’s standard Washington practice to use the word “cut” to mean any refusal to spend more. In other words “A cut to projected spending increases”. That does not mean that there will be an actual reduction in current spending.

  7. Katherine says:

    According to Cato (#3’s link), there would actually be across-the board 10% budget cuts — except that half would come from defense spending and the other half from all domestic spending. There’s the rub which makes this a poison pill. Defense spending isn’t half of our spending, and entitlement and transfer payments are where the real problems lie. If it were an evenly-applied 10% on everything I might say we should let it roll.

  8. montanan says:

    We have an odd tax system. If I understand correctly, 2010 was the first year in US history in which more Americans were exempted from paying taxes (many due to the rebates during the economic downturn) than paid taxes. With more than 50% in the cart and less than 50% pulling it, it will be hard to make any progress.

    Additionally, we have all these discussions about “the rich paying their fair share”. While a progressive tax system may be the [i]right[/i] thing to do (and, though we are a higher income earning family, I believe it is), it isn’t really [i]’fair'[/i]. You can make a pretty good case that we all use roughly the same dollar amount of government services (if you ignore dollars spent on low-income subsidized housing, food, healthcare, energy, daycare, etc. and, on the other end of the spectrum, the SEC, bank regulation, etc.), so everyone ought to simply pay for what they use independent of income. In this scenario everyone would pay $10K per year (that number is completely out of thin air – it’s likely very different), regardless of income. You can also make a good case that $1000 in taxes is too heavy a burden on someone who only makes $10,000 in a year, so it would be more morally acceptable to have everyone simply pay a fixed percentage of their income in taxes. Thus, the tax rate would be fixed at (for another entirely out of thin air example) 20%. The person making $1M would pay $200K and the person making $10K would pay $2K.

    Instead, we have chosen to say many should pay nothing, while receiving their share, while some should pay a small percentage and that the percentage should rise as total income rises. Again, I am supportive of this concept – but only because of the view of the world, our brothers/sisters and of wealth that Jesus gives us. However, when you ask those who pay nothing or a small percentage – and who make up the vast majority of the electorate – what the right percentage for the high income earning is, it is no surprise that the 40% Federal tax is talked about as “not paying their fair share”. In this scenario, the person making $10K per year gets many Federal subsidies (food, healthcare, daycare, utilities, housing, etc., in addition to the government services we all have), but pays nothing, while the person making $1M pays $400K, but is constantly being told they don’t pay ‘their fair share’.

    (FWIW, while we are in a higher tax bracket and are a ‘higher income family’, we make a small fraction of $1M. I was just using that number because the math is easy and it is more illustrative.)

  9. Br. Michael says:

    [blockquote] Sequestration would mean that the Pentagon would have to absorb $600 billion in reductions over the FY 2013-2021 period compared to projected levels. Adding in the $400 billion in reductions it is already planning to make would bring the total to about $1 trillion over the next decade.

    But the letter does not mention that the baseline defense budget was projected to grow by 26 percent from $554 billion in FY 2012 to $696 billion in FY 2021, and that total (non-war) spending would be $6.2 trillion over this period. A $1-trillion reduction would mean spending “only” $5.2 trillion but would still result in a defense budget increase of almost 20 percent. In other words, there are no reductions. Defense would still grow, but not as fast. Moreover, sequestration will return defense spending in real terms to its FY 2007 level, the next to last year of the Bush administration, when no one was complaining about devastating levels of spending. [/blockquote]

    Once again: We are not talking about real cuts. We are talking about a decrease in projected spending over a 10 year period.

    My point is that we need to cut through the misleading language that Washington uses. In Wahington speak and “cut” is never a cut in terms of actually reducing current spending. Even with sequestration defense spending will still increase.

  10. Katherine says:

    Well, Br. Michael, if this is the case, then my objection to the defense part of the sequestration is not valid.

    I agree with #8, montanan. We also are in the higher marginal brackets. I don’t object to the idea that we can, and do, pay a larger percentage of income taxes than people earning less. I am a Christian, and I see that some government spending does go to support those who are in need. I do object to being painted as a heartless monster when the rates are already “unfair.” Upper income levels already pay an unfair share of income taxes. Raising rates even farther won’t go more than an inch towards solving the fiscal crisis. The proposal is just as unserious after the election as it was before.

  11. Br. Michael says:

    10, just remember that this applies to all other programs too. For example a “cut” to medicare is not a cut. It is a reduction in the rate of spending increase. The word is used to demagogue the issue and has been used quite effectively by the Democrats and the Media.

    Personally, I think the Congress should do nothing and let the current law go into effect.

  12. Jim the Puritan says:

    The “fiscal crisis” is just another attempt to scare people into allowing the government to continue the same irresponsible actions that created this situation. (I could put here a whole list, starting with “Cash for Clunkers”). The government, only a couple of years ago, said, if we can’t come up with something BETTER, AT LEAST we can agree to let these cuts, etc. go into effect. So we’re now at that point. We need to let this legislation be implemented, which is the LEAST that could be agreed to. The government needs to held accountable.

  13. BlueOntario says:

    Re. #11, no, there will be cuts.
    I believe the [url=http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/stareport.pdf]OMB report[/url] (and I give no fig for OMB) states what is required by law clearly:
    [blockquote]P. 1 …the sequestration would result in a 9.4 percent reduction in non-exempt defense discretionary funding and an 8.2 percent reduction in non-exempt nondefense discretionary funding. The sequestration would also impose cuts of 2.0 percent to Medicare, 7.6 percent to other non-exempt nondefense mandatory programs, and 10.0 percent to non-exempt defense mandatory programs.

    The percentage cuts in this report, and the identification of exempt and non-exempt accounts, reflect the requirements of the laws that the Administration is applying. With the single exception of military personnel accounts, the Administration cannot choose which programs to exempt, or what percentage cuts to apply. These matters are dictated by a detailed statutory scheme.

    p. 3 Under the assumptions required for this report about the level of discretionary appropriations for FY 2013, and without additional changes to direct spending, this report’s calculations show a sequestration of 9.4 percent for defense function discretionary appropriations and 10.0 percent for defense function direct spending. The corresponding sequestration percentages for the nondefense function would be a reduction of 8.2 percent for discretionary appropriations and 7.6 percent for direct spending.[/blockquote]
    That’s not just next year’s “spending increase” getting slashed.

  14. BlueOntario says:

    I should also point out that FY 2013 began over a month ago and money is being spent as normally budgeted. If the hit’s begin on Jan. 1 they’ll have to account for the money they’ve already spent in the reductions. A bit of a double whammy for agencies to absorb in the first year.

  15. Jim the Puritan says:

    There will also be a bonanza for lawyers because of all the law suits, since government contractors have broken the law by not giving the required plant closing notices (layoff notices) required by federal law, because Obama’s Labor Department told them not to. Whether that means damages awards against the contractors, or claims now the workers can’t be laid off and the contractors have to pay them despite not having any money from the feds to do so, I don’t know, but Obama foolishly said the federal government would indemnify them (which he doesn’t have power to do) in order to protect his re-election, and the contractors foolishly believed him.