Category Archives: budget negotiations

Obama to Boehner: “John, I’m Getting Tired of Hearing You Say That”

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This was President Obama’s reply, during fiscal cliff negotiations, when House Speaker John Boehner declared, for the umpteenth time, that “ The U.S. has a spending problem.” 

I can understand the president’s irritation. How could anyone believe that we have a “spending problem?’

Look around. Consider the state of our bridges, our roads and our crumbling inner city public schools. Are we spending too much on the nation’s infrastructure?

Next, think about unemployment. During this recovery we have lost 750,000 public sector jobs.  Republicans are intent on “starving the beast” (of government) and as a result Washington has not given states the financial support they need continue delivering public services. Across the nation, public school teachers have been laid off in droves, while class sizes increase at unprecedented rates.  Does this sound like government spending run amuck?

One in five American children now lives in poverty. Seventeen million children find themselves in homes where they can’t be sure of getting enough to eat.  (a.k.a. “food-insecure households.”)  At the end of the month, many kids go to bed hungry because the government Food Stamps program (now known as Supplemental Nutrition Assistance Program, or SNAP)  gives families less than $1.50 per person per meal. Are we being overly generous?

During the past two wars, we sent millions of American men and women to Iraq and Afghanistan –many went back for repeated tours. In some cases, their bodies were not  broken–but their minds were.  Now 1.3 million Vets seeking mental health services are told they must wait of 50 days before getting treatment.   A recent government report suggests that 22 Vets die by suicide every day – about 20 percent of all Americans who kill themselves. Are we spending too much on healthcare for Veterans?

Let me suggest that we don’t have a spending problem. We have a revenue problem. Current federal revenue levels are at their lowest levels since the 1950s. 

                      How Anti-Tax Pledges Have Weakened the Nation

In a recent post, Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, nailed it: “The tax system doesn’t raise enough revenue.  And that’s not just the recession; it’s also tax policy and anti-tax pledges  . . . The system has become less progressive, with the largest declines in effective tax rates at the top of the income scale.

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U.S. Media Loves “Fiscal Cliff” Metaphor; The Economist Recognizes that It’s An Imaginary Line in the Sand

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In the U.S., pundits cannot resist the fiscal cliff metaphor: it’s colorful, punchy and easy to understand. It’s just two words long. What’s not to like?

It’s not true.

The metaphor assumes that if Republicans and Democrats fail to reach an agreement on the budget by the end of the year, the U.S. economy falls over a cliff,  crashes, and burns.  The “cliff “metaphor complements the equally imaginative “iceberg metaphor” that some fear-mongers use to portray the deficit. (Think Titanic) 

It’s all a bit more complicated than the metaphors suggest.

What few conservatives mention is that the deficit has already begun to dissolve:  since 2009 the deficit has fallen from 10% of GDP to 7% in the fiscal year that ended on September 30th.  By historic standards this is still enormous, and must be addressed. But  the numbers demonstrate that, over time, we can reduce the deficit without renting the nation’s safety nets.

As for the cliff, there is no precipice—just an imaginary line, drawn in the sand, as Republicans and Democrats play “chicken.”

The Economist understands all of this. The lead story in the most recent issue focuses on the “cliff” and points out that “worries” about what will happen if we go over that precipice are “understandable”  but “overblown.” The “risk of economic catastrophe is minimal.” Any damage would be short-term. 

I don’t always agree with the Economist: the UK publication has its own sometimes eccentric slant on things. But on the whole, it is a thoughtful publication—well-researched and fact-checked.  Moreover, in this case, distance may give the Economist a perspective on the problem that some in the U.S. lack.

                                   Exaggerating the Threat to the Middle-Class      

Yesterday’s New York Times suggests that if we cross that line in the sand, an already beleaguered the middle-class will suffer great hardship, and this “Complicates Democrats’ Stance in Talks.” 

The analysis suggests that Democrats don’t dare just stand back and let Bush’s tax cuts expire– as they will if party leaders don’t reach a settlement by year-end: “Only a small handful of policy voices on the left are making the case for the tax cuts to fully expire. In part, that is because the economy is still growing slowly, and tax increases have the potential to weaken it.” But it is also because “If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011.”

This assumes that once we miss the January 1 deadline, tax hikes for the middle-class would become permanent—which, of course, is not true. Talk about how much more a family would pay over the course of 2013 falls somewhere between hyperbole and hysteria, ignoring what everyone knows:

“If the Bush tax cuts expire, Democrats will presumably simply propose to restore them in January for those [families] earning less than $250,000,” the Economist observes, “daring Republicans to block them.” 
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“Fiscal Cliff” Talks: An Update

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Today, for the first time since the election, President Obama and House Speaker John Boehner met alone, face-to-face, at the White House to discuss ongoing negotions over the budget.   (I can’t help but see the photo, which shows Obama with a hand on Boehnr’s shoulder, as a reference to the “Saturday Night Live” skit that appeared last night.  

I’m more and more hopeful about the budget negotiations. Recentlly, I wrote that Obama had “won round one,” explaining that I believed CNN’s report that  the Republicans and Democrats have reached a deal on taxes. “Both sides agree the wealthy will pay more, so now fiscal cliff talks come down to how much Republicans can wring out of the White House in return for giving in on taxes.”  Based on everything I know about the economics and the politics of the situation, this makes sense. /

Since then Boehner has said:  “No progress has been made.”

This does not change the story:  If, as CNN’s sources say, (and I believe) Republicans have conceded that taxes cuts for the top 2% must expire Janauary 1, while cuts for the remaining 98% will continue, that doesn’t mean they are ready to make the agreement public.

Understandably, Republicans are not willing to acknowledge that they lost round one of negotiations until they can also announce that they won something in round two.  Nor does  President Obama want to blind-side Boehner by letting it leak that a tax deal is in place. That would be counter-productive.

                          The Inside Story and the Outside Story

Recentlly, the Washington Post’s Ezra Klein reported:  “Right now, the fiscal cliff negotiations are proceeding on two tracks.

“One track includes the press releases, public statements and legislative tactics the two parties are deploying to prove the purity of their faith and their commitment to beating the other side to a bloody pulp. Watch these closely and it’s easy to get depressed.  . . ‘There isn’t a progress report;’ Republican House Speaker John Boehner sighed Friday, ‘because there’s no progress to report.’

“The other track includes the offers, counteroffers and red lines proposed by Boehner and President Obama. If you look at these closely, a deal is taking shape.”

 I agree with Ezra about the “two tracks”. But I don’t agree regarding the “shape” of the deal that is emerging.

First, I agree that  the majority of Republicans in Congress have accepted the fact that the Bush-era tax breaks for folks earning over $200,000 (and couples earning over $250,000) will have to expire. I won’t try to guess when politicians will complete the two stages of bargaining and be ready to announce a deal. We may go right up to the January 1 deadline.

Moreover, it is  possible that when it comes to cutting government spending, too many Republicans will remain stubbornly, and foolishly, intransigent — insisting on concessions that would inflict pain on the middle-class.

If that happens, I predict that President Obama will let us sail over the so-called “fiscal cliff.”  He knows this wouldn’t do any permanent damage to the economy.  As Rutgers reported today, even Wall Street does not seem panicked by the prospect: “Investors have peered over the cliff and realized they are looking at a gentle slope . . . . some investors say lawmakers still have time in early 2013 to strike a deficit-reduction deal without imperiling the economy. A survey of 62 Wall Street money managers released on December 5 showed market losses would be manageable if the U.S. goes over the fiscal cliff, even though worries still run deep.

Many on Wall Street understand that, early in the spring, the administration could undo Draconian spending cuts, while lowering tax rates for the 98%. Public pressure will ensure that happens. (In the meantime, the Treasury Secretary could lower withholding rates so that middle-class Americans didn’t suddenly see their paychecks trimmed.)

But taking a ride down that slope would do lasting damage to the GOP.  Polls show that voters would blame Republicans. This is why I think that, in the end, Republican leadership in Congress will do whatever it must to make a deal before January.  As I indicate in the post below. Tea Party extremists in the Republican party are being side-lined.

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Obama Wins Round One of Budget Negotiations

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CNN is reporting that the “Fiscal cliff deal is down to wrangling over the details.” While others in the media continue to say that talks are stalled, everything I know about both the economics and the politics of the situation tells me that CNN is right.

At 4:30 this afternoon, CNN updated its story: “Both sides agree the wealthy will pay more, so now fiscal cliff  talks come down to how much Republicans can wring out of the White House in return for giving in on taxes.

“To President Barack Obama, it’s all about first locking in additional revenue from raising taxes on high-income owners, an outcome the GOP has long rejected.”

President Obama had made it clear that negotiations over government spending on safety nets such as Medicare wouldn’t begin until Republicans accepted a higher marginal tax rate for individuals earning over $200,000 and couples earning over $250,000.

The president dug in, and, according to CNN, he has won round one.

“Retiring Republican Rep. Steve LaTourette of Ohio told CNN on Thursday that he sensed a shift in the House GOP approach during a conference meeting the day before.

“A GOP source told CNN that talks between staff members on both sides resumed Thursday for the first time this week, after Obama and Boehner spoke by phone the day before.”

A Two-Step Approach

It is not clear whether negotiations over so-called “entitlements” will be concluded before the end of the year. But CNN, reports

“All signs point toward a two-step approach sought by newly re-elected Obama — an initial agreement that would extend lower tax rates for income up to $250,000 for families, while letting rates return to higher levels from the Clinton era on income above that threshold.”  That agreement on taxes will be signed and sealed before the end of the year.

“Even conservatives such as Oklahoma Sen. Tom Coburn and Louisiana Gov. Bobby Jindal acknowledge the obvious — taxes on the wealthy are going up despite opposition by Republicans.

“‘Whatever deal is reached is going to contain elements that are detrimental to our economy,’ Jindal wrote Thursday in an opinion piece published by Politico. ‘Elections have consequences, and the country is going to feel those consequences soon.’”

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How Much Will We Save If We Raise the Age When Seniors Can Apply for Medicare to 67? Less than Zero

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The budget deadlock continues.

President Obama is clear: if we want to strengthen the economy, we can no longer afford President Bush’s tax cuts for the wealthiest 2% of all Americans. At the same time,  he is equally firm that he will continue tax relief for the other 98%.

House Speaker John Boehner has responded by characterizing Obama’s proposal as coming from “La-la land.”  Once again, Boehner has insisted that his party will not agree to let marginal tax rates for Americans earning over $200,000 ($250,000 for couples ) rise back to where they were in the 1990s.

Instead, Boehner proposes slicing social safety net programs. As part of the package, he continues to insist that we raise the age when Americans can apply for Medicare from 65 to 67. If we did this, the Congressional Budget  Office says, Medicare spending would decline by about 5 percent. 

                                     “We Are Not Living Longer”

On the face of it, lifting the eligibility age for Medicare might sound like a reasonable idea. After all, longevity has increased. Can’t we wait a couple of years before we ask the government to cover our health benefits?

First, “We” are not living longer. “Some of us” are living longer. But low-income and median-income Americans (who most need these benefits) die sooner than the  politicians who propose that we raise the age requirement for Medicare.

Research from the Social Security administration shows that increases in life expectancy have not been shared.  In 1977, life expectancy at age 65 for a man who was in the bottom half of earners during his peak earning years was 79.8 years; a 65 year-old male who was in the top half of earners at the same point in his career, could assume that he would live roughly 10 years longer,  to 80.5

Over the past 30 years, the gap has widened, During those three decades life expectancy  grew dramatically for the top half of earners, while remaining nearly flat for the bottom half. 

Education serves as another marker for life expectancy: According to the Center of Disease Control (CDC) between 1996-2006, the difference in life expectancy at age 25 between those with less than a high school education and those with a bachelor’s degree or higher increased by 1.9 years for men and 2.8 years for women.  On average in 2006, 25-year-old men without a high school diploma had a life expectancy 9.3 years less than those with a Bachelor’s degree or higher.  Women without a high school diploma had a life expectancy 8.6 years less than those with a bachelor’s degree or higher.

Race also plays a role. For example, a white male born in 2009 can expect to live to be 76.3 while an African-American male born that year is likely to  die shortly after he turns 70.  Lift the age when he becomes eligible for Medicare to 67, and he may be  be suffering though the final stage of a chronic disease before he qualifies. Yet, he, like every other working American, will have contributed to Medicare for decades.

Finally, occupation helps determine how long you live. Low-income workers are more likely to be engaged in work that is physically grueling. By age 65, the body is wearing out. At that point, a person needs Medicare.

As David A. Smith, Director, Public Policy Department, American Federation of Labor and Congress of Industrial Organizations (AFL–CIO) testified at a 1998 hearing on the Future of Social Security before the House Ways and Means Sub Committee on Social Security:  “It is clear that people who spend their work lives scrubbing floors in a nursing home, moving 5 liter engine blocks around a factory floor, pouring steel into a Bessemer mill, or hauling bricks around a construction site can count on a shorter life span and a shorter work life. They are more likely to experience work place injuries and to lack the continued physical endurance necessary to perform their jobs very far into their 60’s.”

As a simple matter of fairness, asking those who have worked harder to wait another  two years before receiving Medicare seems cruel.

                                       The Bogus Financial Argument 

Admittedly Republicans might not acknowledge the “fairness” argument. If you believe that a person’s health is a matter of “personal responsibility,” you might say that if the poor are aging faster than the rest of us, it is because they smoke, eat too many carbs, and generally “don’t take care of themselves.”                                           

But, fairness aside, when you look at the numbers, it turns out that the claim that we can save billions by requiring that everyone wait until 67 before applying for Medicare is bogus.
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As We Approach the Fiscal Cliff: What is the GOP’s Primary Goal?

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In theory, the GOP’s main concern is the deficit. We must reduce it they say—and we must do it now–or face a financial Armageddon. But somehow or other, “cutting the deficit” always turns out to mean “reducing entitlement programs.”

Let me suggest that cutting those entitlements programs is the GOP’s primary goal.

Why would I say this?

Earlier this week , wh en Republican House speaker John Boehner presented his party’s counter-proposal for solving the budget deadlock, he once again put lifting the eligibility age for Medicare from 65 to 67 near the top of his list. Yet, it you take a hard look at the numbers, it becomes clear that this proposal would not save money–or strengthen the economy. Moreover, entitlement programs did not create the current deficit.

Begin with forcing seniors to wait until they are 67 before they can apply for Medicare. As I explain in the post above, this proposal simply shifts costs to employers, the states, everyone buying insurance in the Exchanges, other Medicare beneficiaries, and 65 and 66-year-olds themselves. It does not lower the nation’s total healthcare bill. Indeed, the GOP’s remedy would wind up costing us twice as much as we now spend providing Medicare benefits for people who are 65 and 66. (See graph in the post above).

I am not  the first person to make this argument. The Kaiser Family Foundation and the Center for Budget Policy and Priorities  offer  eye-opening numbers that prove the point.  One would think that, if the GOP’s main goal were to save the economy, Republicans would be interested in these numbers.

One would be wrong.  They ignore them (and seem to have persuaded the mainstream media to follow suit.) Why would conservatives close their eyes to the financial facts? The GOP has an agenda, and it’s not about the deficit. The party’s main fear is “creeping socialism.”

Conservatives use the deficit as an excuse for slicing benefits that they acknowledge will inflict pain on the people who most depend on Medicare, Medicaid and Social Security—the elderly and the poor.

 

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Health Care Reform: Stage Two

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Last week, my editorsat  the Health Insurance Resource Center (Healthinsurance.org) challenged me to write a letter to President Obama and suggest what he should do next to advance reform. They were looking for a “new, big idea.”

After thinking about it, I concluded that we don’t need another big idea.  The Affordable Care Act (ACA) contains a great many ideas. Now we need to implement them.

Critics of Obamacare have suggested that as we approach 2014, Washington needs to turn its attention to containing healthcare costs. In particular, they suggest that Medicare is too expensive.

But the fact is that if you read the legislation (and I have, more than once) , you’ll find that it already cuts Medicare spending by some $716 billion. And it does this without cutting medical benefits and without slashing Medicare’s reimbursements to doctors.

In addition, the ACA includes many carrots and sticks designed to encourage hospitals and doctors to provide more efficient, less costly, safer care. In the future they won’t be paid for doing More;  they’ll be paid for doing it Better–for Less. Only health care providers have the power to truly reform our wasteful health care system. Already we’ve seen some evidence that they are responding to the incentives: Medicare spending has slowed.

Finally, and most importantly, President Obama should reject any attempts to re-negotiate the ACA during budget talks. The ACA is not on the table. It is now the law of the land. The American people do not want to listen to politicians continue to debate healthcare. (They want their elected leaders to focus their attention on just one Big Idea: Jobs)

The election gave the president the green light to go ahead with reform.. Now, the administration needs to implement the legislation to so that we can see what works and what doesn’t. This will take time–but only then will we be in a position to revise, refine and improve on reform legislation. .

I hope you’ll read the entire post--and come back here to comment.

 

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