Category Archives: debt ceiling

Winning on the Debt Ceiling?

As the debt ceiling debacle continued in Washington, it didn’t seem like it was about the American people as much as it was about the coming election. Both Democrats, Republicans, and members of the Tea Party, were fighting tooth and nail to protect their priorities. Since they hear how hard it is to find a job from their constituents they were doing everything they could to protect theirs. That meant no compromise, no reform on entitlements, and no new taxes. In the meantime, the economy continued to spiral and American’s felt they were left without a government.

Whenever I go out with friends, politics is the last thing I bring up. No one ever wants to talk about it and strong emotions are always loudest which brings down the mood. But this week was different. After three weeks of absolute absurdity people started to come up to me to vent their frustration. The conversation would usually start with “what the hell is going on?” or “I can’t believe this is happening” and then proceeded for at least an hour (individually) of them complaining about how members of Congress have completely lost their minds. They were so frustrated they needed to vent, and I don’t blame them.

In the same week economists came out with revised numbers for the economy that showed we are basically still in a recession, the posturing got even worse. While government spending was the only thing keeping the economy going, all politicians were arguing about was how much of that spending should be cut. Then, instead of having a serious conversation about how to make sure Social Security will be there for future generations (the people who I was talking to) both sides were blaming the other on how they wanted to ruin it. Instead of coming together and dealing with the issue in a responsible matter, it wound up becoming a contest of who would blink first.

But why anyone in Congress thought this bickering would help them is beyond me. Gallup shows that both President Obama and everyone in Congress’ job approval was already pretty low, but sunk even further these last couple of weeks. It didn’t matter who they were either. Old, young, black, white, male, female, Democrat or Republican, people resoundingly disapproved of the way things were being conducted. Just like George W. Bush united the country against him during his final term, politicians united all American’s against them over the debt ceiling. When the news that Congress finally came to a deal was posted on Google Plus, tons of comments came in, and most people didn’t care as much for the plan as much as they were happy it was over.

While Obama overplayed his hand by asking for a grand bargain, Republicans refused to budge on any of their priorities, and Democrats refused to make any changes that might reduce the deficit or secure government programs. Personally, I wanted more government spending on specific items such as construction which is absolutely needed. We can’t keep letting our bridges fall, and it would have created jobs. One of my friends (who is getting his Masters in economics) told me that job creation is actually the best way to reduce the deficit. With more people earning money, more money would have been put into Social Security to secure the system, and other taxes could have been used to reduce the deficit. It would also be cheaper to do it now while prices are still low.

But really, some of the worst news came out today. Journalists, bloggers, and pundits, were discussing who had won and lost. It plays right into what American’s were complaining about this entire time. Whatever the specifics of the plan are, or how it turns out at the end, nobody won this debate. The way all politicians conducted themselves embarrassed the American people here and abroad. In a time when some American’s are living off food stamps and struggling to afford rent, people in Washington should conduct themselves in a matter that is attributable to the times, and stop wondering why mud is being thrown in their direction.

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Filed under Congress, debt ceiling, Democrats, Republicans

Congress is Full of Debt

Newt Gingrich compared getting members of Congress to vote your way was like herding cats. They are small, quick, and can scratch. Tonight, John Boehner has a big slash right down his face which will leave a permanent scar on his tenure as speaker.

Americans are already fed up with what they have seen these past three weeks, but this brings it to an entirely new level. It is one thing if politicians can’t decide what to do and are debating the issues, but Congress isn’t fooling anyone by calling this a debate. The more appropriate term might be a pissing contest. When John Boehner can’t get his own plan through the body he is supposed to be leading, it shows the American people we have the wrong people in office.

The members of Congress who consider themselves members of the Tea Party would have been better off voting for Boehner’s plan. They won in part because of a low turnout, but the antics they have put on are irresponsible. No matter what they say on the campaign trail it won’t stop voters from realizing these guys are nuts. If they were serious about staying in office they would realize more people, independents, will be voting in the next election. Not only can they not tell them one good thing that has come about since they took over the House, but they can’t say they have accomplished anything at all.

Because of their ideologically driven agenda, the Tea Party is willing to risk America defaulting on its loans. Once it was announced Congress won’t even be holding a vote tonight, the price of credit default swaps on US treasuries was at its highest point since the 2008 financial crisis. That means people on Wall Street and around the world are losing confidence in Congress (ie America) causing the markets to fall even more. But that’s just in the short term. If a default does happen students loans, mortgage rates, and America’s debt (which, of course, the Tea Party says it wants to lower) will grow exponentially.

Even if Boehner passes what he says is his plan, it won’t matter to the American people. He overplayed his hand, and whether he gets a deal tonight or not, he will become just the second Speaker in history who only served one term.

I’m not going to say Boehner’s job is easy. Getting votes for controversial legislation never is. But, somehow, sixty-two other Speakers have managed to get it done. We’re talking about Sam Rayburn dealing with Dwight Eisenhower, Newt Gingrich dealing with Bill Clinton, and obviously it wasn’t easy for Nancy Pelosi to deal with Blue Dog Democrats when the health care debate was going on. There are always challenges and you have to figure out a way to work around it. Speaker Boehner walked away from that challenge when he told President Obama he was leaving the negotiations they were having.

John Boehner should realize his speakership is over and figure out a way to avoid the possible, ever more likely default. If there was a tie for who had more mud on their face these past couple of weeks, Republicans just fell into the puddle. Their whole body is covered in it, but unfortunately we still have another year of these guys in office.

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Filed under Congress, debt ceiling, John Boehner

Are Third Party Candidates Practical?

After Thomas Friedman’s article on Sunday, there has been a lot of talk about a third party coming into the fold of American politics. American’s on both sides of the aisle are disgusted at what they are seeing. While all polls show people want a compromise on the debt ceiling, plans are being rejected on the left and right while the Congressional Budget Office is saying those plans won’t do any good anyway. So why can’t a third party break into the system?

One problem is money. Running races are expensive, particularly if you plan to go nationwide. In New York a candidate running for state Senate has to raise around three hundred thousand dollars just to be considered a serious contender. That’s not easy to get, particularly in the beginning when chances are not a lot of people have heard of you.

Getting the right people to run can also be hard. One of the reasons why the Tea Party was successful in the last election is that they ran candidates who were known in the state or district, had respectable jobs, family, and could stick to talking points. When new party’s come into play they are always coalesced around people on the extremes who are passionate about what they believe. Being an outsider is always good because you can say what the people want to hear without having any real responsibility. It also keeps the energy going because you are around people with similar views, and would probably be friends with them even if you met them another way. However, being too extreme can lead to political gaffes (i.e. Sarah Palin) that can swing the race.

Democrats and Republicans are also already very entrenched within the system. Here in New York, there is the Working Families Party (WFP) which has been around since the early 1990’s. They run grass roots campaigns and have a line on the election ballot. But in order to maintain a strong premise within the state, they work with Democrats. After going door to door for a few months telling people about the candidates they have endorsed, the people who said they would vote for that candidate are reminded about voting on WFP’s line. The more votes they garner the more political influence they have. The Party then tells the elected politicians how many votes they got for them and how many in their district actually favor more progressive policies. But that politician is still a Democrat, and probably wouldn’t be in office if he/she wasn’t because of the money raised to pay the people to go knock on doors.

I don’t think the Tea Party is as a powerful force in American politics as they claim to be. They got their candidates through primaries in more conservative areas, not to mention that the two extremes are the ones who show up for the primaries. Combined with a low Democratic turnout in the general election, they were able to get more seats then they probably should have. I’m not saying they didn’t run good campaigns, but their timing couldn’t have been worse for Democrats.

The internet is one of the major reasons people are excited about something new coming to American politics. It has made it a lot easier to organize and get messages out to the public, and quickly. It has also helped with fundraising efforts for political and grass root campaigns. But the messages that are sent out only goes to those who want to hear what these groups or individuals have to say. And obviously the money being raised is from people who would be donating anyway. But if it’s a local campaign or issue that is being funded by outside influence, it probably means you’re not reaching the people you need to.

What must frustrate political insiders though is that there hasn’t been a way to figure out how to reach those independents that can make or break issues. Eventually, politicians and interest groups are going to want to find a way to do it, especially as social media will become a part of our everyday lives. Someone is going to be willing to spend money to hire a smart programmer to create an algorithm that will find those independent voters. This is going to bring privacy and freedom of the internet issues to a whole new level.

The fact is no one is going to win politically over this debt fight. Both sides look incompetent and unable to lead. But the Tea Party/GOP are the ones who look extreme right now. Even though
Democrats are playing to the middle, that’s where most American’s are, and ultimately they are the ones who will decide the election. They won’t be voting for someone who seems too ideologically driven. Plus, with Obama back on the ballot, there is going to be a lot more people who are going to want to vote for him no matter what. Liberals will not like any of the other candidates, but times are too important for people to not want to participate.

Plus, whoever runs on this third party will need to be the right person. None of the Tea Party candidates can be taken seriously for President because they are too driven by ideology, that’s one of the reasons why we see the libertarian Ron Paul getting a lot of attention but going nowhere in the polls. Obama was the right person for the Democrat party in 2008. But remember, he played the game well.

So, are third party candidates viable? Not yet. It’s going to take a lot of effort by a lot of smart and talented people who can figure out a way to balance the energy to fight the man, along with promoting policies middle class American’s can agree to.

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Filed under debt ceiling, Democrats, Obama, Republicans

Deal on the Debt Ceiling

With Senator Tom Coburn coming back to the Senate’s gang of six (or seven if you count President Obama) a deal on the debt ceiling was finally able to come together. It is a bipartisan effort that will reduce the countries deficit in half by 2013, but both Democrats and Republicans can give their constituents something to chew on.

There will be a little over $4 trillion in cuts on overall spending. $500 billion will be immediately cut on items the gang have already agreed to, which includes slicing $100 billion out of Medicare. The rest is a combined effort by Senate committees that have numbers they have to meet according to the deal. The Finance Committee is also in charge of making changes to the tax code, but you can kiss the Alternative Minimum Tax goodbye. All the bills with the cuts that the committees bring to the Senate floor have to garner 60 votes to pass. But if no bill is brought within six months the debate becomes open to the entire body.

Since I know you’re wondering what the talking points for each side will be, they are broken down below;

President Obama: If you thought he won reelection after killing Osama Bin Laden, he just finished building the coffin for whoever the GOP nominee is. He looks like the leader here by getting the debt ceiling raised with the amount of cuts he asked for. For now, he can also say they will be reforming Social Security to make it solvent for future generations, without cutting benefits to those who need it now. But most importantly, he owns the middle. NBC’s poll that came out today showed that the majority of people wanted both sides to compromise. The only ones who didn’t were the diehard liberal and conservatives. But while members of Congress weren’t able to come to a compromise Obama can say he brought both sides together and got them to agree to take responsible actions.

Congressional Democrats: They kept their promise and made sure no changes were made to Social Security. Republicans running against them this year can’t say they voted to reduce their entitlements, and as of today there is only $500 billion in cuts. It keeps government spending strong which is what the economy needs as demand for products is high.

Republicans: Big cuts are being made to government spending to the point where the deficit will be cut in half from 9.3 percent of GDP today, to 4.4 percent of GDP in 2013. Plus, taxes are being reduced by getting rid of the Alternative Minimum Tax. That means there will be an extra $1.7 trillion in people’s pockets to spend which (as some argue) is a stimulus package for the economy.

So, like I said, everyone is getting something, but here’s the problem; this entire plan relies on Congress to actually do something. All the committees have been assigned homework that is due within six months, but we’re talking about a body that hasn’t been able to come together on anything for a year and a half. If moderate Democrats and Tea Party members want to actually be able to say in 2012 they were able to cut $4 trillion out of the budget, they need to meet the numbers agreed to in the deal, on top of agreeing to reforms on Social Security.

And before I forget, this deal has only been agreed to by the Senate. No house members were involved, and members of the Tea Party may not like the fact the deal doesn’t automatically cut the $4 trillion out of the budget.

Both sides have more to gain by making this sound easier then it will actually be. So maybe next week when the Senate votes to raise the debt ceiling, and then go off to start finding those cuts, the gang of six deal will be praised. But if they are not able to agree to some of these changes, those talking points won’t work next year.

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Politics, Policies, and the Debt Ceiling

There’s been a lot of talk on left leaning blogs about how President Obama has moved to the right on the current debt ceiling negotiations. He has asked for more spending cuts than Republicans, along with reforms to Social Security and Medicare, which would, reduce the countries long term deficits. But what is missing in their arguments is the political reality that the White House is facing.

People who have read my past writings know I don’t always agree with the actions Obama has taken. But as both political parties like to say “elections have consequences” and we’re seeing one of them now. Not raising the debt ceiling would be catastrophic for the country. Standard and Poors lowering America’s credit rating would be the last thing America would have to worry about. The stock market would drop more than it did in 2008, and interest rates would be at an all time high. So if you thought banks weren’t lending money now, people wouldn’t be able to take any money because there would be no way they would be able to pay it back.

It’s clear that the Tea Party Republicans are the ones actually in charge of the House of Representatives, and Speaker John Boehner has no influence over them. The numbers simply aren’t there to increase the debt ceiling. But since our constitution says Congress has the power of the purse, Obama needs to find a way to get a majority. Most posts I have read blame the reason on the White House asking for tax increases which Republicans have pledged not to do, but when have Republicans ever wanted to raise taxes? This is nothing new and the left shouldn’t be acting like it is. What the major difference is, is that no matter what the Tea Party will refuse to raise the debt ceiling. They don’t believe the August 2nd deadline is real, even though Eric Cantor does, and believe tax increases will hurt the economy. They are zealots when it comes to these issues and no one is going to be able to change their mind. It forced Obama to make concessions to real Republicans, not Tea Party members but Conservatives, to get them to vote for an increase on the debt ceiling.

Raising the ceiling is a hard vote because the vast majority of people don’t want their elected officials to do it. It is much easier to say, like the Tea Party is doing, that they will not raise it and have a better shot at winning reelection. With the lack of leadership in Congress it makes it a lot easier for this minority to have a bigger voice and come up with small sound bites.

Mitch McConnell, realizing the disaster that would take place if the debt ceiling isn’t raised, was going to allow Obama to raise ceiling on his own, and then have Congress vote whether to veto this action. But this would be a loss for both sides. A vote would still have to be taken forcing all members to be on the record of increasing America’s debt. Republicans show they weren’t able to govern, and Democrats show how little influence they have even though they still control the Senate.

Where Obama screwed up is that he had bad timing. Both sides agree we need entitlement reform, but if done right it can be a progressive issue. When the think tank Third Way came out with a proposal on how to talk about reforming Social Security and Medicare one of their main points was to make it about small adjustments. “Democrats should invert the traditional messaging on entitlement reform, which has tended to emphasize the heroic, major sacrifices being proposed, and thus serves only to make it more politically painful and scary.” By emphasizing tax increases for the rich, and reminding the people currently receiving these benefits this is not about the present but the future of these benefits, it would have been a lot easier for him to make changes to the system. But now that Obama is lumping small changes in these entitlements with raising the debt ceiling, it makes it a big deal and wound up scaring a lot of people. If he really wanted to figure out a way to make sure Social Security and Medicare would be there for future generations, he should have done it earlier.

After Nancy Pelosi convinced the President not to cut much spending, at his press conference today Obama said he would like to see the $2.4 trillion in cuts that were being discussed in the Biden group as part of the debt ceiling deal. The $4 trillion he originally asked for was never mentioned, which is a win for liberals. What is considered big now is making changes to the safety net, as Obama said today “$2.4 trillion without any revenue would cut too many programs that would hurt people” and he’s right. The policies he is proposing aren’t crazy, it’s responsible, and many other Presidents, or Presidents to be, have wanted to do the same thing. It was Senator Truman and his commission who cut programs in the military that were deemed a waste on tax payer money. President Clinton also cut programs in the mid 90’s in order to reduce the deficit and emphasize the programs that worked.

If the Democrats were still in control of Congress the debt ceiling would still be a contentious vote because so much money has been spent. But the arguments would be much different. There wouldn’t be Tea Party Republicans refusing to cooperate. Instead there would be Blue Dog Democrats hoping enough moderates are in favor of the package being voted on so they could vote no. What the Democrats and Blue Dogs have in common is that they wanted to keep the majority while the Republicans want to take it.

Those politics don’t make for good policy when America’s economic structure is on the line. Obama has finally been using the bully pulpit much more recently, as he knows it will benefit him. He did so right before the fundraising quarter ended by holding a press conference, and has done it again three more press conferences in the past eleven days in order to look like the mature one in the room, and it’s worked. His campaign raised a lot of money and polls show Americans like the way he is handling this situation. But he hasn’t come out with a plan on his own that would give his opponents ammunition. What Obama is betting on is that neither side wants to see what will happen August 3rd, and I hope he’s right.

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Filed under Boehner, Congress, debt ceiling, Deficit, Economics, Eric Cantor, President Obama, Third Way

The Blind Leading The Dumb

There aren’t many instances when you get an email from the New York Times at one in the morning on a Saturday night, but when the Speaker of the House is begging for his political opponents to help him, you know something flew over the cuckoo’s nest.

We already knew Johns Boehner was a weak leader, but instead of the Tea Party Republicans using their influence behind closed doors, they are now openly defecting from the person they elected to run the House of Representatives. Eric Cantor didn’t leave Vice President’s Biden’s negotiating table because there was no progress being made. What he said is they have done enough and the final pieces need to be decided by the leaders. Translation: My party isn’t going to like this and if I want to be Speaker in 2014 I can’t have anything to do with it.  So he cuts off ties with the guy who is supposed to be his partner. What Cantor is blind to though is that he could become just as weak of a leader as Boehner is if he does ascend to the position.

Does Cantor really think that the same members of the Tea Party in Congress are going to allow him to raise the debt ceiling because he is sucking up to them now? We’re talking about an ideologically challenged minority that has no credible policy wonks on their side. Michael Tanner, Senior Fellow at the conservative CATO Institute, argued that cuts by themselves aren’t going to solve the debt problem. “That is why Republicans should not get hung up on seeking any particular amount of spending cuts. The dollar amount matters far less than getting the structural and institutional changes that will actually bring down the size, cost, and intrusiveness of government in the future.” Of course, the Affordable Care Act did change the structure of Medicare, and the non-partisan Congressional Budget Office said it would reduce the deficit.

But the Democrats have also been lacking serious leadership as well. So many debates are taking place right now that have no business being debated. From increasing taxes slows job creation, to government spending hurts the economy, none of the Democrats who have an office in the Capitol have said much to tell the American people not to believe it. President Obama holding a press conference the other week was a step in the right direction that put the Republican’s on the defensive, and he needs to do more of them.

One person who chooses her fights wisely though is Nancy Pelosi. When Obama thought about conceding more to the GOP on health care, it was the last Speaker who reminded everyone they are not going to get another chance at it. She has recently been more vocal when the President was again going to cave into Republicans on cutting benefits to the elderly, the lefts best talking point since the House passed Representative Ryan’s budget. Now that Boehner needs her help, she’s already gotten him to halve the amounts of cuts he was originally asking for.

Boehner knows his colleagues aren’t going to be supporting him on the debt ceiling, it’s going to be up the real leader in Congress to make sure America doesn’t default on its debt.

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Triangulation On Taxes

Time is running out on playing politics and real decisions are going to have to be made. As the President and Speaker play golf, the rest of Congress needs to decide how to raise the debt ceiling without completely leaving the poor and working families in the dust, and both sides know more revenue is going to have to come from somewhere.

Before going into the first of four meeting this week to discuss the debt ceiling, Majority Leader Eric Cantor said “We have hit the point at which we are at some really tough stuff. Big numbers, everything as I have said before is on the table except tax increases.”

As negotiations continue, Republicans are asking for over one trillion dollars in cuts that won’t include Medicare or Social Security. So that means other programs that involve grants for research, food stamps, public housing, and infrastructure, are potentially on the chopping block. The GOP is serious about the cuts, but they’re not evil beings who want to see people suffer.

In this time of economic ups and downs, taxes need to be raised in order to keep the programs running that are helping people stay afloat, and Republicans know this. Even though their most conservative supporters don’t want them to raise taxes on anyone, the party that was built by Abraham Lincoln does not want to be become the party who turned its back to the poor.

A New York Times article on Monday discussed lowering the tax rate for multinational corporations who hold assets abroad, where they will bring the money back and invest it. The amount of money is worth billions, some by single companies, and is sitting in accounts around the world where they are barely touched. Republicans have always been in favor of lowering corporate tax rates, but many Democrats have argued these companies do not pay any taxes even under the current rules.

However, this proposal seems to be gaining momentum as Senator Chuck Schumer is negotiating a deal, with both sides, for lowering the rates into a jobs package being put together in the Senate that focuses on infrastructure. According to the article on CNN “While the repatriation holiday alone is a non-starter for most Democrats, pairing it with an infrastructure program could marshal labor support. It’s an approach backed by former Service Employees International Union president Andy Stern, who’s emerged as the most vocal proponent of the tax holiday on the left.”

But while corporate tax rates might be lowered, a part of the deal will be to close the loopholes corporations currently use to avoid paying them in the first place. But no matter how you cut it, say it, or write it, closing loopholes is a tax increase.

Once the deal is cut, Eric Cantor will be talking about how cutting spending and lowering the overall corporate rate will create jobs. But cutting spending has nothing to do with creating jobs, in fact, it could make the entire situation worse. Right now states want to hire people to strengthen their infrastructure but they need the money to do it. But banks aren’t lending, and since the GOP refuses to spend any money, states are stuck.

On the second point, if the overall tax rate is lowered, the IRS wouldn’t be collecting as much as they would now if they enforced the rules already on the books. But if the deal passes they would be collecting more money because the rules will be easier to enforce, and presumably there will be more money to collect. But politicians could be taking a huge gamble. There is no guarantee these corporations will bring back the money, or European governments won’t lower their taxes even further so those corporations keep their money where it is.

And don’t forget, most of Europe’s taxes are collected through a Value Added Tax System (VAT) which allows them to collect money before these large corporations accountants and lawyers figure out how to hide it.

Democrats will declare this a victory too. Many liberal economists are trying to figure out ways for the government to put more money in people’s pockets. One idea has been to lower the amount being taken away out of people’s paychecks for Social Security and Medicare. So yes, economists do consider tax reductions a stimulus. But the only stimulus that takes place is through the money that people spend when they receive their cut, which right now isn’t much. In this climate they are more likely to save it or spend it on necessities like rent, healthcare, and food (like that last one did), which only had a small and short impact on the overall economy.

The Tax Code is a complex monstrosity that should be put into a shredder and thrown into a furnace. But let us digress, and come to the realization that even if this plan does come together, there is no way to determine how many jobs will be created or how much it will reduce the deficit. It is a possibility for a short term solution, that requires long term thinking, and no one can say how much good it will really do. In the end it is just another example of how current economic models and the advice given to politicians are defunct.

 

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Filed under Budget, Congress, debt, debt ceiling, Democrats, Economics, Eric Cantor, Political Economy, Politics, taxes, VAT