Risk of Debt Default Rests Solely with Obama
With government funding negotiations at a standstill, and agreement to reopen the government may also include a deal to increase the debt ceiling. As it currently stands, Treasury expects the ceiling to be reached on October 17.
This has generated the usual apoplexy about the dangers presented by not increasing the country’s borrowing authority, with the President repeatedly claiming he will not negotiate over “paying the bills the United States has already incurred.”
The President, however, is fully able to make the payments on those obligations to avoid default. The real threat is failing to confront the unsustainable spending and debt practice in Washington. Richard Finger lays it out neatly at Forbes.com:
Inconvenient as they may be, some facts are in order. The fiscal 2013 debt service for the twelve months ending September 30 will be somewhere around $420 billion. (Per the Bureau of Fiscal Service the actual figure of 11 months through August was just under $396 billion). IRS revenues for the calendar 2012 tax year will probably be around $2.3 trillion. That equates to over a five and a half times debt service coverage. So having enough money is not even close to the issue. There has been some discussion of what some are naming “prioritization of payments”.
Finger goes on to explain the dangers of a true default: tanking the value and stability of the world’s most common collateral would send financial markets into chaos. Not making treasury payments would result in inconceivable pain for not just the U.S. but the global economy as well.
But the government has more than enough cash on hand to avoid this kind of catastrophe – what it doesn’t have is the revenue to satisfy trillions in other spending programs. Payments on the debt could be prioritized to keep the country from ever entering into default. However, sustained spending reform to manage the other U.S. obligations, services and entitlements would be subject to severe and indiscriminate cuts.
The President and his allies in Congress have spent years decrying the reckless nature of across-the-board spending cuts. They should be eager, then, to come to the table to negotiate serious spending reform, lest sequester-style governing become the rule and not the exception. Raising the debt limit with no discussion of current spending practices will only lead to the kind of pain Democrats declare they are trying to avoid.
Broad Coalition Urges Congress to Create Committee to Reduce Government Waste
Today, Americans for Tax Reform and its Cost of Government Center were joined by forty-one activists, scholars and thought leaders to urge Congress to create a Committee to Reduce Government Waste. In direct contrast to all other Congressional committees, this new body would be authorized only to cut spending. This committee existed for a brief period in the middle of the 20th century and was able to roll back some of new spending programs created under the New Deal. A similar effort could benefit taxpayers today.
Excerpted below is the letter sent today to Senator Pat Roberts (R-Kan.) and Congressman Jeff Duncan (R-S.C.), the lead Republican sponsors in Congress.
Your bill would create a Standing Committee that would focus solely on eliminating the redundancies and inefficiencies that add to the cost of government. While several committees exist today that encourage and promote new spending, this Committee would have the unique responsibility of decreasing outlays and finding savings. Tasked with this singular goal, the Committee could pave the way for significant spending reform.
The bickering over the past few months over a two percent cut in federal spending shows that fiscal restraint is hard to come by. Institutional changes, such as implementing a committee focused only on cutting spending, is the only way to ensure lasting reform for taxpayers.
Thus, we urge support of your bill to create the Committee to Reduce Government Waste, and look forward to working with you in the 113th Congress to promote fiscal responsibility.
To read the letter in its entirety, click here.
ATR Supports the RSC Plan to Balance the Budget with No Net Tax Hike
This week, the Republican Study Committee released its FY 2014 budget plan which tackles the federal government’s mounting debt without raising taxes. By focusing on cutting spending, the plan will balance the budget by 2017 and provides an outline for reforming the growing pressures of entitlement programs and big government spending.
The RSC budget transforms the U.S. tax system for the 21st century. It would create an optional personal income tax structure far simpler than the current one. This system would feature only two tax rates with a top rate of 25 percent, a generous family exemption (families of four pay no income tax on their first $50,000 of income), and no other deductions or credits. It cuts investment taxation to 15 percent and indexes capital gains to inflation. Those wishing to could remain in the current system.
The RSC budget also lowers the world’s highest corporate income tax rate to 25 percent while enacting a territorial tax system with repatriation. It kills the death tax and ends the marriage penalty. It repeals all $1 trillion in Obamacare tax hikes by repurposing them for comprehensive tax reform.
The budget rolls spending back to its pre-“stimulus,” pre-Obamacare levels and freezes outlays until the budget reaches balance in 2017. After nearly five years of failed spending programs, this forces lawmakers to start prioritizing scarce tax dollars.
The plan repeals the $1.2 trillion in new Obamacare spending and saves Medicare from looming bankruptcy due to skyrocketing healthcare costs and unstable demographic pressures. The RSC budget adopts the commonsense reforms proposed in the House Conference budget that puts patients, not bureaucrats, in charge of their health care decisions.
The budget will put states in charge of Medicaid. The plan empowers local officials to efficiently use tax dollars to aid their communities, releasing policymakers from the strings attached to federal control. The proposal applies the successful model from the 1990s of block granting welfare reform to food stamp programs.
The RSC budget makes changes to strengthen Social Security and reform the program for today’s demands. The plan will adjust the formula by which benefits are calculated, offering more realistic projections for the program’s long term costs. The plan also proposes a gradual increase in the retirement age to accurately reflect modern life expectancies.
This is a conservative blueprint for the reforms that are necessary for lasting American prosperity. Just as the House Conference Budget does, the RSC budget affirms that when lawmakers are willing to do the hard work, the budget can and should be balanced without punishing taxpayers for Washington’s spending addiction.
Taxpayers Sacked on Super Bowl Sunday
This Sunday, 179 million Americans will watch the Super Bowl. If you’re one of these football fans, make sure you save room on the couch for one uninvited guest: Uncle Sam.
For every aspect of the time-honored football tradition, you’re shelling out a little more thanks to government taxes and fees. From the team gear you buy to the beer you imbibe, taxpayers are getting sacked – here are some of Super Bowl Sunday’s tax penalties:
False Start (5 yards) Sipping soft drinks? Almost a third of the cost of your soda comes from taxes and fees; a full 28 percent.
Offside (5 yards) Don’t think you can escape Big Brother’s watchful eye by heading to the bar. The government adds on 31 percent when dining out.
Delay of Game (5 yards) If you’re savoring a California wine to cheer on the 49ers, you’re not off the hook; 33 percent of the price of wine comes from government.
Intentional Grounding (10 yards) According to the National Retail Federation, 7.5 million households purchase a new TV for the big game, but the cable package that comes with that new flat screen isn’t cheap. Before you’ve even had a chance to change the channel to watch the Puppy Bowl, government bites off 43 percent of your cable bill.
Pass Interference (10 yards) Of the $1 billion in beer sales in the two weeks surrounding last year’s Super Bowl, a full 44 percent of the cost is due to government taxation.
Helmet-to-Helmet Contact (15 yards) Perhaps you’re one of the 17 million purchasing team apparel and accessories in advance of the game? Taxes and tariffs are going to run up the cost of your new jersey by 46 percent.
Roughing the Passer (15 yards) Taking shots each time your team scores? Government guzzles up a whopping 56 percent of the price of spirits.
Personal “Fowl” (15 yards or automatic first down) The National Chicken Council estimates 1.23 billion chicken wings will be eaten on Sunday, a number that is actually 12.3 million fewer than the previous Super Bowl. Why? Thank Big Brother again: Corn prices are driven skyward by the costly and destructive federal ethanol mandate, also known as the Renewable Fuel Standard. During last year’s drought this ate up the country’s corn crop and drove up prices, leaving little for chicken farmers. Meaning government is the only one getting its fill this Super Bowl Season.
Does President Obama Want the Clinton-Era Tax Rates? No.
Today, the President held his first press conference since being elected to a second term. President Obama was given the opportunity to come clean on the size of the tax hike he wants on small business employers when MSNBC White House Correspondent Chuck Todd asked him:
“Are you -- is there no deal at the end of the year if tax rates for the top 2 percent aren't the Clinton tax rates, period, no if, ands or buts? Any room in negotiating on that specific aspect of the fiscal cliff?”
The President has repeatedly argued that he wants “to go back to the tax rates under Clinton.” However, because of the 3.8 percent surtax on investment income in his health care law, President Obama actually wants rates to be above where they were under Clinton. In fact, President Obama’s health care law is a $123 billion tax hike on investment income, a tax increase that will land on top of the majority of small businesses that are already facing higher income tax rates under the Obama tax plan.
|2013+ (current law)||23.8%||43.4%|
While the President dodged answering the question in the press conference today, the correct answer would be “no.” President Obama doesn’t want taxes to go back to the level they were in the Clinton-era. He wants them to be higher.
Lessons Not Learned? "Grand Bargains" Don't Work
Faced with the coming threat of the largest tax hike in history, commentators are salivating at the idea of another "grand bargain" that gets Republicans to agree to raise taxes on American families and employers. Any lawmaker willing to consider such a deal is poised to become another fool of history.
The 1990 Budget Deal: Starting May of 1990, President George H.W. Bush huddled with Democrat House and Senate members at Andrews Air Force Base.
- What was Promised: Congressional Democrats convinced a number of Republicans to join them in a bipartisan deal promising $2 in spending cuts for every $1 in tax increases. President Bush signed the deal on November 5, 1990.
- What Actually Happened: Every penny of the tax increases ($137 billion from 1991-1995) went through. Not only did the Democrats break their promise to cut spending below the CBO baseline by $274 billion—they actually spent $23 billion above CBO’s pre-budget deal spending baseline. 34 House Republicans broke their own Taxpayer Protection Pledges and went along with this one-sided “deal.” As a result, Republicans lost 8 seats in the 1990 Congressional midterms, and President Bush only received 38% of the vote in the 1992 Presidential election.
The 1982 Tax Equity and Fiscal Responsibility Act: Rather than bring spending in line with declining revenues, overspending and the resulting deficit caused widespread hysteria regarding the country’s fiscal health in 1982.
- What was Promised: President Reagan signed the deal on September 3, 1982, agreeing to a budget deal with Congressional Democrats that promised $3 in spending cuts for every $1 in tax hikes.
- What Actually Happened: The spending restraint never materialized – instead, the resulting tax hike made up almost 1 percent of GDP ($37.5 billion) and amounted to the largest peacetime tax increase in American history.
Moral of the story: When bipartisan deals are struck promising to cut spending and raise taxes, the spending cuts don’t materialize but the tax hikes do.
Spending Under Obama Far Above Historical Average
Earlier this week, MarketWatch’s Rex Nutting claimed President Obama has not increased federal spending dramatically. Despite four years of evidence to the contrary, Nutting posits that the whole “misunderstanding” comes from widespread naiveté of the federal budgeting process—in fact, federal spending has grown 27 percent in just the last four years alone.
To start, Nutting claims that since the 2009 Fiscal Year began in October of 2008, President Bush is responsible for the “major spending decisions in the 2009 fiscal year.”
Really? For someone who spent an entire article bloviating on his budget acuity, Nutting has evidently not been paying attention to how federal spending actually works.
First, Nutting’s thesis relies on how the federal budget should work, rather than how it actually does work. As we trudge into the third straight year in which Democrats have refused to pass a budget, it is obvious that just because Congress is required to pass a budget before the beginning of the fiscal year doesn’t mean it does.
Budgets are hardly worth the paper on which they are written. It is the accompanying appropriation legislation that puts meat on its bones. Nutting glosses over the fact that the final appropriations package for FY2009 wasn’t signed until March 2009…by President Obama himself.
Secondly, Nutting’s account redacts the accomplishments so loudly lauded by the White House in its first year: Obama’s American Recovery and Reinvestment Act, which increased discretionary spending by 84 percent, the $410 billion omnibus bill he signed into law in the spring of 2009 and expansion of the TARP bailouts.
Attributing Obama’s first year to Bush allows Nutting to claim an “annualized increase” of only .4 percent under the current administration. Allowing Obama to take credit for his “stimulus” plan, the appropriations package and expansion of TARP, even the Washington Post estimates the annual rate of growth under President Obama to be 5.2 percent.
However, year-over-year spending comparisons don’t tell the whole story. The legacy of the Obama Administration is the growth in the overall size of government; how it crowds out private enterprise and increases burdens on families and businesses. In total, spending has increased by 27 percent since Obama came into office.
Historically, federal spending has averaged 21 percent of GDP. Under the Bush Administration, spending averaged 19.6 percent. In Obama’s first four years alone, spending has averaged 24.4 percent of GDP. Looking at the President’s most recent budget, spending does not fall, as Nutter claims, but increases – the President plans to spend $47 trillion over the next ten years, keeping spending at 23 percent in perpetuity.
None of this is to say that the Bush administration was the image of fiscal restraint. President Bush put us on the train for big government; the Obama Administration has accelerated it to breakneck speeds, and is headed off the tracks.
ATR & COGC Support Ending Obamacare Slush Fund
Tomorrow, the House of Representatives will vote to extend current student loan rates, holding the interest rate on federally-subsidized loans at 3.4 percent. After all but eliminating private participation in the student loan market with the 2010 Affordable Care Act, Congress should refrain from further manipulation of lending practices. However, the bill on the floor of the House sets off these new costs by making significant spending cuts elsewhere in the federal budget – ensuring that the policy, though misguided, keeps the size of government the same.
Specifically, the House bill would eliminate the Prevention and Public Health Fund, an Obamacare slush fund that was created under the Affordable Care Act. Scored to originally cost $15 billion over the next ten years, the fund has already doled out millions in tax dollars to state and local entities under the guise of public health. In reality, these federal funds have been used to mount aggressive social engineering campaigns, targeting consumers and local businesses.
These funds have been used in direct conflict with federal law, which prohibits use of tax dollars for lobbying purposes. Across the country, groups have abused federal funds to advocate for regressive taxes on consumer products or, in some cases, outright bans on goods. Far from impacting public health, this slush fund has served only to pad the pockets of big government allies and increase the government burden on taxpayers.
Rather than reject this paternalist fear-mongering, the Senate has proposed raising taxes on small businesses to extend current interest rates. Lawmakers who favor raising taxes on job creators over repealing an illicit slush fund will need to explain to voters how they are actually committed to protecting the interests of young job seekers.
The best antidote for student debt is a paycheck. Short-term management of interest rates does little to solve the long-term problem of economic uncertainty and fiscal insolvency. However, cutting spending in tandem with efforts to ameliorate the effects the Obama-Pelosi-Reid economy has had on young people is a crucial step towards real government reform.
We disagree that H.R. 4628 expresses sufficiently the appropriate role of government in lending practices. However, this disagreement is insignificant in the current economic context. Ultimately, Congress must be committed to policies that erase economic uncertainty, reward entrepreneurship and provide jobs. A commitment to not growing government while pursuing these goals is an encouraging first step.
"Bipartisan" Budget Resolution Claims Phony Spending Cuts
The budget resolution introduced by Rep. Steve LaTourette (R-Ohio) and Rep. Jim Cooper (D-Tenn.) claims to net $4 trillion in savings over the next ten years. We have already pointed out how $1.6 trillion of these supposed savings comes from tax hikes. Supposing the remaining "savings" were actual spending cuts, this would represent a spending cuts-to-tax hikes ratio of roughly 1.6 to 1.
However, according to its own numbers, the spending cuts are a sham. It claims $502 billion in their grand total comes from spending caps instituted in the Budget Control Act (BCA). Since these caps have already become law, the savings would already be included in the baseline. The lawmakers can't claim credit for them now.
Secondly, the Cooper-LaTourette budget erases the sequester required by the BCA and claims to substitute these savings (only by half the amount required by the law) with new caps on discretionary spending. Problem is, these caps ignore the supplemental spending the congressmen write into the bill. The plan calls for $424 in war spending over the next ten years, but does not include that spending in its caps.
Taking the sponsors' original claims of $1.2 trillion in discretionary spending cuts, subtracting the $502 billion in cuts already in law and the $424 billion in war spending that would come from their spending caps means the Cooper-LaTourette budget provides for only $200 billion in real discretionary spending cuts.
Adding this to the tax hikes disguised as savings (and giving them credit for all of the mandatory spending cuts that are claimed) this results in a 1:1 spending cut to tax hike ratio. Effectively, the bill contains no productive tax and spending reform. Any lawmaker supporting this resolution is not serious about controlling the size of government, its burden on taxpayer and the nation's growing debt.
ATR & COGC Support RSC Budget Plan
The Republican Study Committee has offered its own budget alternative that builds off the important reforms encompassed in the Republican Conference Budget to continue to cut spending and limit the size of government.
The RSC Budget provides serious proposals to cut spending and improve the tax code, restoring fiscal restraint in federal budgeting.
The budget alternative would bring spending to pre-“stimulus,” pre-bailout levels, erasing the budget-busting Pelosi-Reid-Obama spending binge of the past four years.
In addition, the budget mirrors the House Republican Conference Budget bold move towards lasting entitlement reform. It also eliminates Obamacare, allows state flexibility in welfare and Medicaid spending and adopts the Budget Chairman’s “premium support” model to save Medicare.
Importantly, the RSC Budget does not raise taxes. The plan instead instructs on pro-growth tax reform, bringing down the tax burden on families and employers to restore American prosperity.