Paul Krugman: Democrats and the Deficit

Paul Krugman says Democrats should abandon Rubinomics. There's nothing wrong with the underlying economic principles, but the political climate does not support it:

Democrats and the Deficit, by Paul Krugman, Commentary, NY Times: Now that the Democrats have regained some power, they have to decide what to do. One of the biggest questions is whether the party should return to Rubinomics - the doctrine, associated with former Treasury Secretary Robert Rubin, that placed a very high priority on reducing the budget deficit.

The answer, I believe, is no. ... Rubinomics made sense in terms of pure economics, [but] it failed to take account of the ugly realities of contemporary American politics. ...

In a saner political environment, the economic logic behind Rubinomics would have been compelling. ... Since the 1990s were an era of peace, prosperity and favorable demographics..., it should have been a good time to put the federal budget in the black. And under Mr. Rubin, the huge deficits of the Reagan-Bush years were transformed into an impressive surplus.

But the realities of American politics ensured that it was all for naught. The second President Bush quickly squandered the surplus on tax cuts that heavily favored the wealthy, then plunged the budget deep into deficit by cutting taxes on dividends and capital gains even as he took the country into a disastrous war. And you can even argue that Mr. Rubin's surplus was a bad thing, because it greased the rails for Mr. Bush's irresponsibility.

As Brad DeLong ... recently wrote ...: "Rubin and us spearcarriers moved heaven and earth to restore fiscal balance to the American government in order to raise the rate of economic growth. But what we turned out to have done, in the end, was to enable George W. Bush's right-wing class war: his push for greater after-tax income inequality."

My only quibble with Mr. DeLong's characterization is that this wasn't just one man's class war: the whole conservative movement shared Mr. Bush's squanderlust...

With the benefit of hindsight, it's clear that conservatives who claimed to care about deficits when Democrats were in power never meant it. Let's not forget how Alan Greenspan, ... the high priest of fiscal rectitude as long as Bill Clinton was in the White House, became an apologist for tax cuts - even in the face of budget deficits - once a Republican took up residence.

Now the Democrats are back in control of Congress. ... Nancy Pelosi, the incoming House speaker, has promised to restore the "pay-as-you-go" rule that ... would basically prevent Congress from passing budgets that increase the deficit.

I'm for pay-as-you-go. The question, however, is whether to go further. Suppose the Democrats can free up some money by fixing the Medicare drug program, by ending the Iraq war and/or clamping down on war profiteering, or by rolling back some of the Bush tax cuts. Should they use the reclaimed revenue to reduce the deficit, or spend it on other things?

The answer, I now think, is to spend the money - while taking great care to ensure that it is spent well, not squandered - and let the deficit be. By spending money well, Democrats can both improve Americans' lives and, more broadly, offer a demonstration of the benefits of good government. Deficit reduction, on the other hand, might just end up playing into the hands of the next irresponsible president.

In the long run, something will have to be done about the deficit. But given the state of our politics, now is not the time.

_________________________
Previous (12/11) column: Paul Krugman: Outsourcer in Chief
Next (12/25) column: Paul Krugman: Helping the Poor, the British Way

Update: Brad DeLong updates his post on Krugman's commentary with:

UPDATE: Most commentators--whether by accident or by design--have missed the significance of this passage in Krugman's op-ed: "Nancy Pelosi, the incoming House speaker, has promised to restore the "pay-as-you-go" rule that the Republicans tossed aside in the Bush years. This rule would basically prevent Congress from passing budgets that increase the deficit. I'm for pay-as-you-go. The question, however, is whether to go further..."

Restoring pay-as-you-go means that the Bush tax cuts expire at the end of this decade--unless, that is, som coalition finds sufficient spending reductions relative to the current baseline spending path to pay for an extension of the tax cuts.

The embrace of pay-as-you-go orders up a $300 billion rise in taxes at the end of this decade. That's a significant amount of deficit reduction all by itself, and a very significant change from Bush administration idiocy.

Comments

[evagrius]

Who "owns" the deficit? Who gets paid when the deficit is paid?

[Brian]

I'm no expert on taxes by any means, but I am aware of two things. The first is that the 1986 tax reforms did a lot to cleam up the tax code, which raised a lot of revenue but made taxes lower and fairer. And since he's been in office, Bush has done a lot to make the tax code much more muddled. If we cleaned it up now, how much money would that yield? And isn't it possible to devote a decent chunk of it to spending and deficit reduction?

[calmo]

My (possessive) fingers which I own, cannot type the answer eva, cruel poser of strange questions.

The simple answer is not The US Federal Government.
Is it?
No, that would be the simple answer.
(Ok, people that was not a real swing, but sort of a warm-up swing.)

I need to give that one a rest while I examine this curve-ball: who gets paid when the deficit is paid?
Those back-breaking illegal immigrants don't get paid enough to make a dent in that so it can't be them.
The top 1/10%.
Just a wild guess, I know, but really, lookit their stash and then lookit your's and see if it doesn't add up. Who got paid? Not you. Ergo they got paid.
Could it B this simple?
Not likely with eva kineva.
But the deficit is not something that gets paid like your dental bill. No, it's like your troubling (ok maybe somewhat derelict) chompers, grinding away, more or less chronically.
It is not those people who will pay taxes for goods and services that we now enjoy, but those very present day consumers, us. But don't feel so guilty, we taxpayers are paying now for goods and services enjoyed in previous years. When the deficit narrows, people who enjoyed consumer goods and services at bargain prices are having the rest of that price paid for by tax payers ...who may or may not be consuming and who may or may not have ever done their fair share of consuming...
And that is why The President advises : Shop Alot, Bucko?

Ok, I must pass (and floss).

[napablogger]

oh boy, here we go, Krugman is firing the first shot in the Democrats both raising taxes and raising spending. Out with the old boss, in with the new boss who is just like the old boss.

[anne]

Absolutely, positively, definitely and I do love Paul Krugman.

"I'm for pay-as-you-go. The question, however, is whether to go further. Suppose the Democrats can free up some money by fixing the Medicare drug program, by ending the Iraq war and/or clamping down on war profiteering, or by rolling back some of the Bush tax cuts. Should they use the reclaimed revenue to reduce the deficit, or spend it on other things?

"The answer, I now think, is to spend the money - while taking great care to ensure that it is spent well, not squandered - and let the deficit be."

I do love Paul Krugman.

[anne]

We were spending $8 billion a month on Iraq in 2005, then we spent $10 billion a month on Iraq in 2006. We are now spending $14 billion a month on the tragic lunacy of Iraq in 2007. Worried about the deficit, then leave Iraq immediately. We should leave Iraq immediately in any case. We must leave Iraq immediately. However, we must not in any way limit social benefit programs for the lunacy of occupying Iraq.

Spend wisely what is needed for American social benefit programs and no tax increases. Simply ask that we leave Iraq immediately.

[anne]

Finally, we have an understanding that in the tragic lunacy of spending $14 billion a month in needlessly occupying Iraq there really is a trade between guns and butter. But, we will have our butter, we must have America's social benefit programs, and Iraq is not to be allowed to bash and slash American social benefit programs.

Leave Iraq immediately, and nuture and protect America. I love Paul Krugman. I really do, I really do. I love Paul Krugman.

[Lafayette]

"There's nothing wrong with the underlying economic principles, but the political climate does not support it:"

Then change the climate?

Krugman arrives at this assessment from the point of view of the tight political balance in Congress. This need not be an impediment to change, however.

The Republicans are not going to go down in flames defending the economic policies (sic!) of this PotUS. If the Dems come up with some interesting market-based ideas that address lower- and middle-class citizens, then both parties could find common ground. Their common preoccupation is employment.

But, if the Dems stick to one or two measures that please the public but have no real lasting effect, then it will be gridlock-time once again.

What is a "real, lasting effect"? Kennedy found one when he proposed to land a man on the moon. Why? Because the race with the Russians was tight and Russian successes were garnering Communism a LOT of public acclaim around the world. Kennedy mobilized a nation by creating NASA and tasking it with getting an American on the moon.

A project just as symbolic could be launched for America. Anyone visiting America from abroad will be struck by the decrepitude of downtowns. Because of an American penchant to shop-till-they-drop, the mall concept was invented - and it worked.

But, it sucked business and life out of downtowns to the outlying malls. Why not renovate them.

How about some lesser noble projects, like high-speed rail lines (the third component of the transportation triad, the other two being air and road) linking all major centers.

How about REALLY BIG bandwidth to the house with fibre-optics. America waited for business to develop a mobile telephony system and what happened was a patchwork that couldn't communicate amongst the patches. It got behind the technology 8-ball.

How about a massive program to develop not only nuclear energy for pollution free new generation but highly efficient coal burning plants that take the CO2 out of the air and help assure Americans a better health.

How about a comprehensive health-care system based upon Romney's Massachusetts model, which employs private insurance companies but offers total coverage of the state's population.

There are plenty of projects that could be undertaken. Were the political will there on both sides of the political divide.

[Lafayette]

evagrius: "Who "owns" the deficit? Who gets paid when the deficit is paid?"

Success has many fathers, failure is an orphan.

Ascribe this failure to the American public and their renowned penchant for foreign products without the slightest concern for a persistently chronic deficit that has been around for at least half a century.

How's that? Yes, remember Kennedy's Interest Equalization Tax that tried to staunch the outflow of capital? That didn't work either, btw.

Now the common wisdom is, "Well, since our friends who are exporting all this junk like to hold our debt, why should we be concerned?" Right, tell that to your banker when he calls a loan. Why are countries any different?

Because they can't go bankrupt? Oh yes they can. And they have.

How will that happen to America? Suddenly, one day, a paradigm shift is going to take root and flower. And, it is this one: Creditor nations, rather than keep dollars, are going to say, "Why not sell them and buy other countries or assets in other currencies and spread the risk. After all, there's the Euro and the RMB and Japanese Yen ... "

When that happens, the dollar will plummet like a sky diver. And, Dick Cheney will still be barking, "Reagan proved that deficits don't matter!" If he could, Reagan would then laugh hysterically. He always liked a good joke.

In the past, when the dollar went down (as it has recently), markets have opined that it was only momentary and that it will come back up. America's industrial strength will assure that it does?

Will it? Let's hope and pray that it does. However, we'd better pray.

[anne]

Duh, for all the deficit mongers you go mongering on deficits. We are directly spending $14 billion a month in fiscal 2007 on the tragic lunacy of Iraq. The war on and occupation of Iraq will cost $2 trillion and more and more since our Secretary of Defense and President are newly assuring that we are not leaving Iraq. There is no excuse for cutting any social benefit program for the sake of the tragedy of Iraq, and we must only point out to deficit mongers that leaving Iraq solves the problem. Duh.

Ah, leaving Iraq will also save lives and limbs and minds and souls which are more critical. We must leave iraq immediately.

[Lafayette]

Krugman: "The answer, I now think, is to spend the money - while taking great care to ensure that it is spent well, not squandered - and let the deficit be. "

Yes, the obvious answer ... that simply begs the question. How, spend the money well?

Do Americans realize the serious predicament the country is in, or do they think that it only a passing hiccup and "all will be well, just wait it out".

Leadership in both parties have been notorious for their hubris. Such is a sure sign for impending disaster.

OPEC has America over a barrel on oil, and the Chinese have Uncle Sam by the short and curlies with the dollar. It is not the moment to be day-dreaming of prosperous yesteryears in high political circles.

[a]

Well actually, Rubin and BDL didn't create general-account surpluses. You had to count the Social Security surplus to get one. And this dishonest pretense that there was a surplus has allowed Bush and Co. to pretend that Social Security will go bankrupt soon, because somehow this SS money doesn't really belong to SS but to the general-account.

[ilsm]

IIRC as of 2005 the federal debt:

$.8T held by the fed (whether they ever get paid or earn interest is problematic, and if we really want to inflate the debt here is the process)

$3.3 T held by federal agencies like the SSA and those other infrastructure providers who collected more fees and held off paying SS benefits, building airports , sea ports, roads etc,,,)

$3.8T held by private entities and the CB's ( think China and Japan have a larger than comfortable share here.

So, who gets paid?

Better issue is which parts evolve to being no longer revolving???

The fed is revolving and could run the 'inflate the debt strategy'. A gargantuon credit card account.........

The private entities being a "market" could be viewed as revolving. Another but risky credit card account.

The infrastructure and the SSA are the ones who are not revolving accounts in the long term. Someday these accounts have to get cash for the stash of T Bills or whatever.

That is the issue in the debt, the part that is not revolving credit card debt.

The SS and infrastructure accounts are to be paid. And these are not interested in inflated monetary assets, they need real things.

The issue is someday the free lunch ends and real things need to be paid for.

[ken melvin]

Lafayette - tres, tres bien! I've seen, too, what the malls did to Quimperle', but how can Americans ignore what has happened to our cities, indeed, all our infrastucture. Mayhaps, this is where the deficit goes when the deficit disapopears.

[anne]

Ken and Lafayette, agreed.

We can and should spend well, and spending carefully on infrastructure development, including education, will have a beneficial employment effect. I am quite excited about this column for recognizing the domestic potential even though we will have to in time deal with the deficit. Now, is not the time.

Interesting financial comments "A" and Ilsm.

[pgl]

Brad DeLong also put this up without comment. Given the current fiscal game of chicken, this Angrybear had to offer at least some support for Rubinomics.

[pgl]

napablogger must not be aware that the 1st shot was fired in 2001. George W. Bush never cut your taxes - he only deferred them. As Milton Friedman would say - to spend is to tax.

[anne]

Now, I do respect and admire Robert Rubin, who is a wonderful person and was a superb policy maker. But, as Brad DeLong says, sort of, "we won't be fooled again." Democrats have to show that critical domestic needs can be served by government, and they need to stay away from any any any self-destructive fight with George Bush on raising taxes (remember who is now the Governor of California and why).

Spend wisely on social benefit programs, and push push push to leave Iraq immediately.

[anne]

PGL, if you are so teary about spending as taxing then get us out of Iraq immediately and save $14 billions dollars a month. Say what? I am not interested in Milton Friedmanism for Democrats.

[maria]

The first order of business should be to stop the war in Iraq and the waste of money on it, put the Pentagon on a diet, and shift those funds to starving social programs. After that is done immediately, the Democrats could work out longer range plans.

[lonesome moderate]

I'm no expert on taxes by any means, but I am aware of two things. The first is that the 1986 tax reforms did a lot to cleam up the tax code, which raised a lot of revenue but made taxes lower and fairer. And since he's been in office, Bush has done a lot to make the tax code much more muddled. If we cleaned it up now, how much money would that yield? And isn't it possible to devote a decent chunk of it to spending and deficit reduction?

This raises an interesting question that really should be studied more than it apparently has been. Economic growth wasn't that great in the Reagan or Bush 41 administrations, then it took off strongly in Clinton's first term. So, if the tax reform helped econominc growth, it took nine or ten years to do it. But that's not unrealistic, since the idea behind tax reform was that, by making the tax code more transparent and consistent, people would being making investments based more on their true long-term value and less on tax considerations.

Unfortunately, there's never been a real debate on this, because when the boom came Reagan's partisans tried to attribute it to their guy's "budget cuts", which was obvious nonsense (Reagan's domestic cuts and Pentagon increases were roughly equal), and tax cuts, which also seems highly questionable (why would 1981 tax cuts cause a 1995 boom?).

[Morgan]

Considering that governments at all levels in the US will collect $12-13,000 this year for every man, woman, and child in the country (an amount greater than in the UK, and comparable to Germany and France), it seems to me that undertaxation is not the problem.

I agree with Krugman that spending tax revenue well ought to be a priority - this is not really such a novel idea, but it is a good one.

But by what criteria do we evaluate how well government spends? Anne thinks education should get more money. I think we spend far too much already considering the results we get - maybe because we spend it poorly, maybe because we spend past the point at which more spending makes a sufficient difference. I'm not saying I'm presumptively right, I'm saying that people disagree regarding what things should be addressed by government, how those things should be addressed, and what level of spending is appropriate to address them.

I'm looking forward to our representatives debating the issues honestly and openly. I've been waiting a long time.

[anne]

More than all else in education, I would like to have dramatically lower tuitions at public college and universities. Then, we can debate away over proper spending beyond, from HeadStart to high school.

[ken melvin]

I don't think any significant money's being wasted on education. That education has become a whipping boy speaks to the power of the rightwing wurlitzer. And, goes back to the tax thing, for sure. These are those whose parents supported public education and tuition free college at some tax burden. Now, they got theirs - to hell with you jack. This is part of the same swell that brought ronnie to power. Instilled? Yeah, with a bit of latent self-centeredness, greed mixed in.

[Richard]

"In the long run, something will have to be done about the deficit. But given the state of our politics, now is not the time."

Umm, no.

This administration -- and the congress that supported it -- spent six years lying through their teeth. They lied not only about Iraq, but about the costs of tax cuts, the benefits to subcontractors as liberalization was force (on FEMA and on Iraq), the effects of increasing levels of surveilance upon civil liberties, even the true beneficiaries of drug benefits for the elderly (hint: it wasn't the elderly).

Draconian cuts to make the budget balance? No. But pointing out the shortfalls and who is benefiting from the reduced revenue? Sure. Pointing out the benefits to drug companies and bringing back bargaining to reduce the cost of branded drugs to Medicare patients? Sure. Making Iraq a cost in the budget and not off budget? Damned straight.

This congress will be judged by what it does AND by how up-front and honest they are. If it tries to pass legislation and it is vetoed, that will then fall upon Bush as ostructionist-in-chief. But not being upfront and honest about the errors of the past six years will only get them thrown out in another two or four years hence.

I'd like to see PAYGO and a slight decline in the deficit. That may be too much to hope for, and the best that can be hoped for is a decline in the rate of increase in the deficit. I'll take what I can get, but the point is that the process, right now, is at least as important as the result. And process has been very heavily damaged by this administration.

[Lafayette]

Anne: "I am quite excited about this column for recognizing the domestic potential "

Were Anne able to morph into Hilary ... and win the presidency.

It is the Christmas season and time to give wings to one's hopes. January will bring us back to earth with a great thud.

" ... even though we will have to in time deal with the deficit."

If the Chinese begin to play hardball, that just may come to pass. Presently they can obtain more by gentle pressure on the Dubya's testicles from time to time.

The Communists, by employing capitalism, have been able to achieve far more than ever they could with Marx's tenets. Cagey people ...

[Lafayette]

"Mayhaps, this is where the deficit goes when the deficit disapopears."

Perhaps, that's where it should go.

It is unlikely that commerce, having dislocated to the malls, will come back. So, the city centers could become what they were originally ... a nice place to live.

Bringing people into the town center will certainly liven the place, and perhaps even drive out the addicts and other nefarious night critters. It could mean, even, an urban revival for some places. If we got rid of the cars, that is. Without cars, people tend to walk or bicycle. That can only be more healthy for all of us.

[donna]

Hmm, I don't think I'll ever pay off my credit cards again! I'll just sell shares of my debt to other people, and then print some nice paper certificates to give them. The stores ought to be grateful I keep buying their cheap crap, so they should be more than happy to just keep buying my cheap paper certificates!

[pgl]

anne - I agree that the Iraq debacle is wasting a ton of valuable resources. And it's pathetic that the neocons want to also invade Syria and Iran. Kash over at the Street Light and Kevin Drum at Washington Monthly go after another one: oil subsidies. George W. Bush's fiscal policies are a train wreck.

[Morgan]

Donna:

Yes, if they trust you to continue to pay interest on your cheap paper certificates, and trust that they'll be able to redeem those certificates for cash or additional interest-bearing cheap paper certificates at maturity, they might very well be happy to continue to accept them in return for their cheap crap.

That might be especially true if you were the single wealthiest person in the world, were more productive than anyone else (with an income to match), had a perfect credit rating, and had a track record of being able to ramp up production quickly when demand arises.

And if they knew that they were about to go through hard times (because, say, their workforce was rapidly aging and they had huge pension liabilities), your willingness to provide cheap paper certificates which entitle them to some portion of your production in the future might be very much appreciated indeed.

[anne]

Thank you, PGL. Remember, we are not even mentioning the Gulf Coast that Bob Herbert has been writing about and which is a disgrace and where there is terrible need as though we have lost the capability of caring for ourselves. But, we have not lost such capability only the intent has been removed. Heck, we managed to build 8 Coast Guard boats to begin to replace the aging fleet and none of the 8 boats are sea-worthy.

[anne]

http://select.nytimes.com/2006/12/14/opinion/14herbert.html

December 14, 2006

Sunrise and Sunset
By BOB HERBERT

Baton Rouge, La.

They look for all the world like internment camps. The long rows of identical white trailers sit on flat, grim, barren expanses of land that are enclosed by metal fences. Armed guards are stationed at the entrances around the clock.

More than a year after the catastrophe of Hurricane Katrina, thousands of the poorest victims from New Orleans are still living in these trailer parks run by the Federal Emergency Management Agency. They have ironic names, like Mount Olive Gardens and Renaissance Village. A more accurate name would be Camp Depression, after the state of mind of most of the residents.

The "parks" are nothing more than vast, dusty, gravel-strewn lots filled with trailers that were designed to be hitched to cars for brief vacations or weekend getaways. The trailers, about 200 square feet each, were never meant to serve as homes for entire families. But in these FEMA parks, it's common for families of five or six, or even more, to be jammed into one trailer.

I stood outside a trailer at the Mount Olive encampment on Monday afternoon, talking with Geraldine Craig and her 21-year-old daughter, Danielle Craig. The women, who have been unable to find jobs, seemed baffled and depleted by their long ordeal. As we talked, Danielle's 2-year-old son, Javonta, scampered around in the dust and gravel.

Danielle's daughter, Miracle, was 5 months old when Katrina struck. The baby was ill and receiving oxygen when it became clear that the family had to evacuate. "The doctors were taking care of her and she couldn't hardly breathe," Danielle said. "After we left we ended up in a shelter, and I said that my baby needed oxygen but they told us we had to wait.

"They finally sent us to a medical building and they put her on oxygen for about two hours, but the doctor said there was nothing wrong with her."

Like so many thousands of others left destitute and all but despondent by Katrina, the family moved on — to Texas, back to Louisiana, eventually to Baton Rouge. It was too much for Miracle, who never got the proper medical treatment. She died last March. Her heart disease wasn't accurately diagnosed until an autopsy was performed.

"I felt like it was my fault," said Danielle. "I'm still depressed."

When I asked if she'd been treated for depression, she shook her head....

[anne]

When San Francisco was struck by an earthquake a century ago, Teddy Roosevelt knew just how to respond and just what would be needed to care for Calfiornians and build again. Congress responded, government administrations responded, industry responded....

[Mark Thoma]

Following up pgl, I had this draft ready, but didn't post it since I wanted to say more about the inefficiency. But the sites pgl mentions (and the Environmental Economics site as well) have this covered. I also wanted to talk about the delay in the release, but didn't know for sure why it had been delayed (technical reasons or politics?) so I decided to wait rather than post:

Do tax cuts and other incentives to increase oil drilling in publicly owned coastal waters work? Not according to this econometric study:

Study Suggests Incentives on Oil Barely Help U.S, by Edmund L. Andrews, NYTimes: The United States offers some of the most lucrative incentives in the world to companies that drill for oil in publicly owned coastal waters, but a newly released study suggests that the government is getting very little for its money.

The study, which the Interior Department refused to release for more than a year, estimates that current inducements could allow drilling companies in the Gulf of Mexico to escape tens of billions of dollars in royalties that they would otherwise pay the government for oil and gas produced in areas that belong to American taxpayers.

But the study predicts that the inducements would cause only a tiny increase in production even if they were offered without some of the limitations now in place. It also suggests that the cost of that additional oil could be as much as $80 a barrel, far more than the government would have to pay if it simply bought the oil on its own.

"They are giving up a lot of money and not getting much in return," said Robert A. Speir, a former analyst at the Energy Department who worked on the report. "If they took that money, they could buy a whole lot more oil with it on the open market." ...

In the United States, the federal government's take - royalties as well as corporate taxes - is about 40 percent of revenue from oil and gas produced on federal property... By contrast, ... the worldwide average "government take" is about 60 to 65 percent. And that figure, of course, excludes countries that do not allow any private ownership in oil production. ...

Supporters of drilling incentives say they make sense for a country that wants to reduce its dependence on foreign oil and whose biggest untapped reserves are in water thousands of feet deep where the cost of drilling a dry hole can hit $100 million. "The amount of exploration investment that a company has to endure to find and develop reserves in the U.S. is far more than in a place like Angola," said Michael Rodgers, a senior economist at PFC Energy...

The new study, prepared under contract to the Minerals Management Service of the Interior Department by Innovation and Information Consultants of Concord, Mass., is one of the few attempts to assess the impact through a rigorous
econometric analysis.

The report estimates that the current incentives would have a tiny impact that is far exceeded by swings in market prices. The report predicted that the current incentives would lead to the discovery of only 1.1 percent more reserves than if there had been no incentives at all...

Analysts said the meager impact of royalty incentives was not surprising: for oil and gas companies deciding whether to drill in deep water, the potential money involved in royalty incentives is small compared with the money at stake in changes of market prices. ...

[maria]

Beat this for brazen shamelessness:

http://news.bbc.co.uk/2/hi/middle_east/6202469.stm

Impossible.

[kthomas]

You'll have to forgive the Secretary Rice.

Hubris is a mentally debilitating disease. Many great statesmen who came before her also suffered from it. She fancies herself something she is not.

[ISO9000]

I think Krugman's being a wussy. If the Germans can sell a highly regressive 3% VAT increase to the most labour-sympathetic politically-aware social democracy on the planet for no other reason than because they fiscally need to do it, surely the Dems can muster the courage to package wisdom, patriotism logic and sense of responsibile obligation in the sense of dire need to sell total repeal of all Republican tax cuts, along with an increase in the top marginal rates, some focused restraint on mortgage interest deductions, and some reasonably considered but chunky carbon taxes all which would go a long way towards getting the US fiscally to where it needs to be visa-a-vis the rest of OECD.

[anne]

"The study, which the Interior Department refused to release for more than a year, estimates that current inducements could allow drilling companies in the Gulf of Mexico to escape tens of billions of dollars in royalties that they would otherwise pay the government for oil and gas produced in areas that belong to American taxpayers."

The New York Times has written about the absense of royalties charges and collections for months, with no evident response from the Interior Department. We have to at least suppose that the change in Congressional leadership and ability and wish of Democratic committee chairs to look to the issue led finally to the release of the study.

[anne]

The governor of California (I never remember his name) is as macho as macho can be and he became governor much because he asked for lower vehicle taxes and has stayed governor much by not raising taxes. "Hasta la vista, baby."

[Bruce Webb]

Krugman is a brilliant economist but kind of a crappy political tactician.

Short term the Democrats should take a Rubin line and focus on waste, fraud and abuse. Lord knows they have plenty of material to work with and this would allow them to establish some fiscal adult credentials while they prepare for the big push of 2009: Universal Health Care.

It is one of the oddities of our system that while Congress has a difficult time pushing new spending in the face of Presidential opposition, Presidents have limited powers to keep Congress from cutting spending. If they don't appropriate for the most part that spending doesn't occur. For example if a Democratic Congress sends forward a must pass Defense Department appropriations bill that doesn't include a bunch of boondoggle programs the President is in kind of a bind, is he really going to veto a bill that whatever else it does is paying for his war?

Democrats have been in the wilderness for a long time but they should resist trying for the home run right off the bat. Get some men on base, move them around for some scores, wear out the pitcher (or in this case cheerleader) and then start swinging for the fences. The last thing we need is to deliver a couple of innings of strikeouts from trying to light up the scoreboard early.

[don't spend $ you don't have]

David Walker, Comptroller of the US:

"...the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion..."

"...The net social insurance responsibilities ... indicate that those programs are on an unsustainable fiscal path and difficult choices will be necessary in order to address their large and growing long-term fiscal imbalance..."

Worst thing that the Democrats could do is put more people on the dole or give more to those who already are. That will only accustom yet another generation to believe that we can actually pay for these programs.

[don't spend $ you don't have]

Federal Reserve Bank of St. Louis, paper by Laurence Kotlikoff, "Is the United States Bankrupt?" p.248

"There are 77 million baby boomers...hoping to collect tens of thousands of dollars in pension and health-care benefits from the next generation. ...Our nation has done nothing to prepare for this onlaught of obligation. ...instead, it has ...censored and studiously ignored long-term fiscal analyses that are scientifically coherent, and dramatically expanded the benefit levels being explicitly or implicitly promised to the baby boomers."

[anne]

Rubbish, rubbish, rubbish. Who is on the dole; say soldiers, say, Coast Guard personnel, say veterans, say, law enforcement officers, say scientists, say safety officers. Who is on the dole? Are you on a dole, say? Public school teachers? Fire fighters? Know any fire fighters on the dole, say? When fire fighters struggle in Santa Barbara, think they are on the dole? What rubbish dole are you talking about with your dole?

Ah, I know, the dole must be for a mother and child whose home was destroyed in New Orleans. I get it.

[save_the_rustbelt]

Bushism: destroy their jobs and let them eat cake

Democrat counter: destroy their jobs and give them more EITC

Is tis what we've come to?

[anne]

Ah, I understand the dole is for my grandparents and parents who have paid for Social Security and Medicare for decades and are ever so dolish. That dole. Want to take away my grand-dad's veterans benefits? That the problem, sweet doler?

Laurence Kotlikoff will be fear-mongering till the cows come home, so what? Social Security is fine and will be fine and Medicare will be fine as well.

Want to save save save, then leave Iraq immediately but do not cry to me about some dole.

[anne]

Please, learn a little about the New Deal and understand that Democrats have always been putting people to work since 1933 and will do so again. Always the sneering Republican nonsense. There is such a demand for public school teachers about Boston, that fine retirees are being offered special schedules and assistants to bring them back to the classroom. Build the Gulf Coast again, and watch the jobs accumulate.

[maria]

KThomas.

Well I am not especially interested in forgiving her. She merits no forgiveness in my mind. And I am not sure it is hubris that she suffers from. I think she suffers from the inability to tell good from evil and is a morally obtuse brownnosing mediocrity. She deserves condign punishment for her wickedness. I was about to make a suggestion, but it was too awful to post here.

[Movie Guy]

Try applying Krugman's logic to global warming.

That's not a viable plan.

[Movie Guy]

Paul Krugman - "...the lesson of the last six years is that the Democrats shouldn't spend political capital trying to bring the deficit down.

They should refrain from actions that make the deficit worse. But given a choice between cutting the deficit and spending more on good things like health care reform, they should choose the spending.

I'm for pay-as-you-go. ...This rule would basically prevent Congress from passing budgets that increase the deficit. ...The question, however, is whether to go further.

Should they [the Democrats] use the reclaimed revenue to reduce the deficit, or spend it on other things? ...The answer, I now think, is to spend the money -- while taking great care to ensure that it is spent well, not squandered -- and let the deficit be. ...Deficit reduction, on the other hand, might just end up playing into the hands of the next irresponsible president."

Ok. That's Krugman's advice.

I'm an independent voter. I have voted Democrat for quite a while now. This is what I voted for?

This is the plan coming from key Democrat economists, inside the Beltway supporters, and both coasts?

This is as good as it gets?

This isn't what I voted for.

Well, fool me once, shame on you; fool me twice...

Where is that viable third party?

[Movie Guy]

If the Democrat leaders follow Krugman's advice, our nation shouldn't pursue deficit reduction because the citzens of the United States may elect - near term or much further out - another irresponsible president.

Screw this nonsense.

An irresponsible president can't spend any monies that the U.S. Congress doesn't allocate by legislation. Krugman doesn't mention this fact.

Krugman's real issue is the possibility of the Republicans regaining control of the Congress.

Don't let the Republicans regain control of the Congress.

[Movie Guy]

What is being proposed is a push for a plan to spend all of the monies "recovered" from the tax cuts once those cuts expire.

We're headed into a federal budget nightmare around 2012 that will force massive tax increases or further deficit growth. Huge growth in either or both. Plus the states' program related budget growth and calls for more taxation at that level.

Krugman is providing political cover to burn up the "recovered" tax cut monies while ignoring why the Clinton Administration was trying to address the need for deficit reduction.

Krugman's idea is fiscal stupidity.

[Movie Guy]

Again, try applying Krugman's logic to global warming.

That's not a viable plan.

Nor is Krugman's plan viable for the combined problems of fiscal budgets and deficits, trade and current account deficits, and the growing federal debt.

A viable approach requires a far better solution than the one put forth by Krugman.

[anne]

Thank you, dear Paul Krugman. No problem at all, leave Iraq immediately and the deficit goes poof. Beside that, we have the wonderful approach of the most popular Republican in the country, the governor of California (what ever is his name, I forget). Simply spend as we must to build America, spend on social benefit programs and let the worriers worry about nothing. And, as the governor of California has shown, do not do not do not raise taxes. We could of course even content the worriers by leaving Iraq immediately, as we should and must, but beyond that we will build America.

"Hasta la vista, baby."

[don't spend $ you don't have]

recent federal Flow-of-Funds data show that the household debt-service ratio is at a 25-year high

households have never been as leveraged as they are now, nor as illiquid (their biggest asset is their bubblicious home)

so, belt tightening will be forced on consumers too -- just as it will be forced on the government

...gotta pay the bills someday!

let's pray the democrats show some restraint (here, leadership)

[kthomas]

In the words of some guy named Perot, it's time to pay the piper.

I'm not so sure about the Democrats. The freshmen have their priorities, which is to get their local economies running again, and not just the real-estate market! The more established Democrats, which I believe we are calling Rubinites, are still trying to hold sway.

Time will tell how this pans out.

[Movie Guy]

anne - "Thank you, dear Paul Krugman. No problem at all, leave Iraq immediately and the deficit goes poof."

That is not true.

The deficit reduction attributed to a withdrawal from Iraq will only reduce deficit spending by $75-80 billion per year while other Iraq and GWOT would grow considerably.

As explained on another comment thread:

Ok. U.S. federal appropriations costs. Here are the facts.

The Cost of Iraq, Afghanistan, and Other Transnational Terrorism Operations Since 9/11

The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11
CRS Report RL33110
September 22, 2006
CRS, Library of Congress
Link

Global War On Terror: Observations on Funding, Costs, and Future Commitments
GAO report number GAO-06-885T
released July 18, 2006
U.S. Government Accountability Office
Link

Transnational Terrorism Appropriations Approved for Operations ONE, OEF, and OIF

CRS Report RL33110:

The Global War on Terrorism (GWOT) includes the following operations:

Operation Noble Eagle (ONE): enhanced base/facility security for Department of Defense, State Department, and Department of Veterans Affairs (VA); includes U.S. military bases and other homeland security expenditures

Operation Enduring Freedom (OEF): Afghanistan, Philippines, Horn of Africa, other GWOT operations

Operation Iraqi Freedom (OIF): Iraq

-----

Total GWOT Costs, FY2001-First Half FY2007,
By Operation:
ONE - $26.2 billion
OEF - $97.5 billion
OIF - $379.2 billion
other - $3.9 billion
Total GWOT appropriations to date - $506.8 billion

Total GWOT Costs, FY2001-First Half FY2007
By U.S. Department:
DoD - $401 billion
State/AID - $35.1 billion
VA - $0.7 billion
Title IX, first half FY2007 war costs - $47 billion
DoD reset costs, FY2007- $23 billion
Total GWOT appropriations to date: $506.8 billion

* DoD reset costs - repair, upgrades and/or replacement of war-worn military equipment; troop rest and training; restoring units to full military readiness upon rotation from combat operations

--------

Personal federal funding estimates for a total withdraw from Iraq (and only Iraq):

If the U.S. were to withdraw all U.S. military forces and supporting contractors from the Iraq military operation, Operation Iraqi Freedom (OIF), DoD would save roughly $75-80 billion per year max.

DoD reset costs could run about $80-120 billion total (minimum low/high estimate) or $20-30 billion per year for 2-4 years thereafter, depending on how much additional incountry and reserve stock U.S. military equipment is transferred to the Iraqi military command and police/border forces.

Increasing military strength levels and COE construction projects in Afghanistan and other DoD commitments under Operation Enduring Freedom (OEF) could cost $20-50 billion per year. Perhaps more.

Department of State/AID costs for Iraq and Afghanistan could increase by $10-30 billion per year over present levels for a few years. It will require $20 billion to upgrade Iraq's crude oil infrastructure and another $20 billion to upgrade the nation's electrical power generation system and lines.

* DoD reset costs are the repair, upgrade and/or replacement of war-worn military equipment, troop rest and training, and restoring units to full military readiness upon rotation from combat operations.

[Bruce Webb]

"Save Social Security First" was a fraud. It was in my mind a benign fraud, but fraud nonetheless.

It was clear by 1997 that Social Security was not at risk, given ordinary rates of growth going forward depletion would continue to be pushed out in time, given continued growth at 1996 rates depletion would be pushed right through the 75 year horizon. Which raises the question Why didn't someone notice? Why didn't Democrats declare victory? Why pretend that we would need substantial transfers from the General Fund? Clinton, Gore and Rubin are the farthest thing from stupid, why did they go along with this particular charade?

I suggest that they were being tactical. The immediate effect of Save Social Security First is that it prevented tax cuts from the Republican Congress. Given that Republicans wanted to privatize Social Security and were selling that on the basis of 'crisis', they were not exactly in the position to point out that Social Security was already saved.

Well if preventing tax cuts was the tactical objective, what was the strategic one? Universal Health Care. I fully believe the plan was to get Gore elected and recapture Congress and then dramatically reveal that Social Security was fine and that we really and truly could afford Single Payer.

Well Florida and Bush v Gore took care of that strategy. But the tactical need remained for both parties. Republicans need 'crisis' to sell private accounts, Democrats need 'crisis' as a defense against even more tax cuts.

Well I believe that dam is going to break. Republicans are going to have to give up their dream of killing Social Security, Democrats are going to have to concede that the overall fiscal picture after 2017 is not as bleak as currently portrayed. Once 'crisis' is removed from the equation we can have an honest debate about fiscal reality, until then not.

[anne]

Well, there is a lot of household debt but there always was and there is a big big big difference between now and 25 years ago. Long term interest rates are dreamy, and as long as the economy is sound and employment holds there is no reason to believe that consumer debt is more than the smallish problem it always has been. With a growing economy, I am not worried about debt consumer or national. But, again for them that worry there is an answer. Leave Iraq, immediately.

The responsibility for Iraq however is the responsibility of the Republican president and not the Democrats who can only push for leaving. So, we can hope.

[Movie Guy]

Bruce Webb,

You didn't mention one word about future Medicare funding needs, Medicaid funding needs, nor the fact that the U.S. Congress has to fund the revenue/budget shortfalls necessary to repay the Social Security Administration monies owned on loans taken from SS Trust Fund beginning around 2017 to satisfy ongoing SSA recipients' obligated withdrawals or demands on the SS Trust Fund.

All of the above support must be addressed plus any other program demands that require budget allocation and further deficit spending.

Is there going to be a funding crisis or more deficit spending without future increased revenues to the U.S. Government? In a word, yes.

[anne]

Poof, the deficit goes poof when we leave Iraq since in fiscal 2006 we spend $10 billion a month directly there and are spending $14 billion a month in 2007. Poof, poof. Leave Iraq immediately and the deficit goes poof. There is no problem with having debt as long as the debt is growing at a moderate rate. Leave Iraq and the debt is no problem. Poof, because we do no spend $14 billion a month directly and I dare not think of the indirect costs of the tragic lunacy of Iraq.

Iraq is, after all, costing us $2 trillion dollars in all. Sadly, the indirect costs of Iraq will be with us for generations, but, the direct costs will be gone.

Leave Iraq, immediately.

[Movie Guy]

anne - "there is no reason to believe that consumer debt is more than the smallish problem it always has been. With a growing economy, I am not worried about debt consumer or national."

Can you cite specific data to back up the first claim (consumer debt) and provide key economist/government outlooks for economic growth that support the notion that either situation is not an issue of any concern?

It is easy to make your type of claims, but where are the facts to support them?

[anne]

What amuses me is how somehow war and occupation are always completely affordable because they are costless while social benefit programs are always too costly to be afforded at any price. Say what? So, conservatives who really wish only to bash and smash Social Security worry about a program with a fine and growing surplus while Iraq goes on forever draining.

No matter, Democrats have learned the lesson of the Terminator (remember the Terminator, the governor of California Terminator). The lesson of California is do not pay attention to deficit mongers. (What is his name?)

"Hasta la vista, baby."

[Movie Guy]

anne - "There is no problem with having debt as long as the debt is growing at a moderate rate. Leave Iraq and the debt is no problem."

This is not true. And I have shown the Operation OIF (Iraq war) appropriation facts in an above post.

You pretend that eliminating a net $50-60 billion from our annual deficits solves our federal deficit budget
problem. That is simply not true.

[Bupa]

I'm so depressed.

I read Paul Krugman and Brad Delong.

I posted at Brad's cite about Hungary's experience in such matters.

Paul and Brad once screamed for the adults to return to power.

Now they strategize like 14 year old boarding school boys trying to outwit their 14 year old enemies.

I’m so depressed. What is the world coming to when the Movie Guy and Lafayette are more articulate than Paul and Brad.

Where are the adults in the Democratic party?

Some are at the Hamilton Project, except I don’t hear them saying much about global warming.

Where are the adults? We need you.

[anne]

Me, I never ever think of myself as an adult, but I know that the national deficit is not current problem because I know what low long term interest rates mean. I also know in my childish way that when debt grows about as fast as the economy grows, debt is no problem. Funny thing here is that I am really repeating lines from Warren Buffett, who is grown.

[Bupa]

Anne,

It is not Paul's specific advice that is worrying. He say's implement pay-go with today's budget deficit as the starting point. If this is done in nominal terms, unless the economy shrinks (a near term risk in real terms but not much of a medium-term risk in nominal terms) then the budget deficit in percent of GDP will fall over time...all else being equal.

But I’ve seen this attitude in Hungary. Keep the bad guys out by spending money to woo the voters. The budget deficit crept up in percent of GDP. The strategy succeeded in keeping the bad guys out for another election cycle. But now Hungary is in a mess….and the bad guys are likely to be the beneficiaries.

We need intellectual leadership by adults Anne, your own adorable juvenile tendencies notwithstanding.

Paul and Brad should stop sounding like 14 year old peevish boys and start sounding like sane technocratic councilors. The Movie Guy has it right. How are we going to solve pressing problems like global warming when the party’s advisors are petulant delinquents planning the next cafeteria food fight?

[maria]

Anne is correct that the public debt of the US government is not presently a problem; there are many nations with higher debt levels than the USA. But it may well become a problem when baby boomers retire, and for sure there is no reason at all to increase it with silly pointless wars that only harm American interests.

https://www.cia.gov/cia/publications/
factbook/rankorder/2186rank.html

[ken melvin]

New York has it's Donald; we have our Arnold.

[anne]

Interesting idea, but New York actually has Michael Bloomberg who has been successful and popular in acting like a traditional Democrat.

[Bruce Webb]

"Bruce Webb,

You didn't mention one word about future Medicare funding needs, Medicaid funding needs, nor the fact that the U.S. Congress has to fund the revenue/budget shortfalls necessary to repay the Social Security Administration monies owned on loans taken from SS Trust Fund beginning around 2017 to satisfy ongoing SSA recipients' obligated withdrawals or demands on the SS Trust Fund."

Well MovieGuy I wasn't talking about Medicare. Conflating the two is common but mostly is a trick to confuse. Once Social Security is taken off the table I fully plan to address some Medicare issues.

And since you are awfully fond of handing out homework assignments perhaps you won't mind this one: Present your best guess or assumption about productivity over the medium term (ten years) and the long term (the sixty-five years after that), and then compare them to Intermediate Cost and Low Cost assumptions. Your "around 2017" simply assumes the validity of Intermediate Cost. You are using declarative language in what is actually a contingent situation. Low Cost has actually been a better model over the last ten years than Intermediate. Under Low Cost the date is not "around 2017" but "around 2023" and the costs are lower.

Almost everyone privileges Intermediate Cost and uses declarative language in relation to it: "Social Security will go to depletion in 2041". Well yes if you accept the validity of that model, not so much if you don't. My personal judgement is that even Low Cost is too pessimistic. Certainly year to date the Trust Fund is outperforming it.

People 'know' lots of things about Social Security. Not all of those things are in fact true. I don't accept that Ultimate Productivity is going to shrink down to 1.7%. If it doesn't '2017' no longer is the correct date. You don't get to deploy 2017 without implicitly defending 1.7%. If you really think the economy is going to go into the toilet and stay there forever then say so, otherwise don't deploy dates derived from a model that assumes exactly that.

Soc Sec links aplenty at my website.

[bakho]

There is a problem. HELLO?? Bush is still president. Bush will veto any attempt to increase revenue. Tax cuts are the only legacy Bush has and he cares deeply about them. Given that Bush will veto all revenue increase, whither spending? PK is right.

[bakho]

Attach a repeal of the top income tax rate cut (put it back to 39%) to the Iraq Supplemental. Congress should make Iraq funding contingent on tax cut repeal. Bush should be told that the loss of his tax cut legacy is the result of his Iraq failure. The Bush Base that will get the brunt of the tax increase should be told that they are being punished for supporting Bush and for being unsuccessful in their intervention. Bush supporters should be told that they will continued to be punished with tax increases until Bush ends the Iraq occupation and quits wasting tax dollars on Iraq.

Bush is not responding to the mandate of the voters. He is not responding to the Iraq Study Group Carrot. It is time to get out the big stick of repealing his tax cuts.

[anne]

Though I can understand frustration, raising taxes and especially raising them punitively will be both impossible and completely self-defeating simply in an attempt.

[remember, anne]

Bloomie got elected as, say what, a Republican!

It was the only way he could get around the party "machine" (Thank God we didn't end up with Mark Green!)

Maybe we need more "democrats" like him
- successful businessman (filthy rich philanthropist, too)
- effective "manager"

let's clone him, or grow some more!

[anne]

Yes; I am pleased with Michael Bloomberg and we will find him working closely with Governor Eliot Spitzer. The two are friends, and I could not be more impressed with the way Spitzer worked at Attorney General.

[anne]

http://www.nytimes.com/2006/12/17/nyregion/17leaders.html?ex=1324011600&en=d83057b1c92f8654&ei=5090&partner=rssuserland&emc=rss

December 17, 2006

Like-Minded Leaders Face Roles That Put Them at Odds
By DIANE CARDWELL and DANNY HAKIM

One was born to money; the other is a self-made billionaire. They live just a block apart on the Upper East Side, and through the serendipitous sidewalk encounters that can make Manhattan seem like a small village, they have nurtured a warm relationship over the years that has survived their mutually brash styles.

The pair is so simpatico that when Mayor Michael R. Bloomberg arrived at his town house one night recently to find Eliot Spitzer walking his two dogs outside, "Mike leans out and says, 'Make sure you clean up,' " Mr. Spitzer recalled.

But that easy relationship will be put to its biggest test after Mr. Spitzer takes over as governor in two weeks. New York history is replete with the vicious battles that have defined interactions between City Hall and Albany, with angry fights over budget cuts, transportation financing and control over the future of a city whose policies are heavily governed by the state capital.

Already there have been hints of coming clashes, with Mr. Spitzer working to slow down projects that Mr. Bloomberg has been trying to accelerate, like the rebuilding of ground zero and the development of the Atlantic Yards complex in Brooklyn.

Although both men expressed confidence that their similar worldviews would help them work through the differences, they also acknowledged in interviews that there could be serious points of tension.

"He has a voice for the city, and I have a voice for the state," Mr. Spitzer said. "There will be disagreements of who should pay for what, but those are areas where we will work toward agreement."

That confidence stems from a relationship that has been years in the making....

[dryfly]

There is a problem. HELLO?? Bush is still president.

Dems can't win in a pissing match with Bush - be the best thing to happen to GWB, his popularity would skyrocket (like Clinton after the impeachment)... The best the Dem's can hope for is a 'push' to 2008 & hopefully find some ideas and a candidate.

Plus the Senate might as well be 50-50 it is so narrowly divided now. Then considering Johnson might not return OR Byrd (who's no spring chicken) dies and its a GOP Senate overnight.

The best the Dems can do is re-establish independent oversight (Iraq & Patriot) & show they are 'responsible' by not rubber stamping every item on the administration's wish list & contain their own members' ear marks - that alone will seriously constrain debt growth.

I'd consider that a moral victory.

Of course it all goes up the chimney if we hit a recession or ForEx nukes the dollar.

[calmo]

Thankyou bakho as always. A lot of crucial "should be tolds" here:

Bush should be told that the loss of his tax cut legacy is the result of his Iraq failure. The Bush Base that will get the brunt of the tax increase should be told that they are being punished for supporting Bush and for being unsuccessful in their intervention. Bush supporters should be told that they will continued to be punished with tax increases until Bush ends the Iraq occupation and quits wasting tax dollars on Iraq.

And I'm waiting to see how the media does this telling.
I'm hoping for a more robust coverage than that spent on the under-reported corruption (which some feel brought about this change in government, which some feel was passed over too quickly after the election and the discovery that maybe there was rampant corruption, which some feel illustrated the serious disconnection between the government and the governed --a task we used to think the media was performing for us, not on us)...and new hope, and an ebullience in PK and BDL that Bupa compares a little unfairly to "14yr olds".
Ok, I see that the evil spirit of jch has infected my once-upon-a-time beautiful prose, and it is time to quit.
Dang.

[simple tax]

Tax reform - Everyone files a simple 1040 form with the only one deduction for mortgage interest on the first house you purchase. (also keep EITC)
You save a billion dollars on tax prep and there is no way to game the system. Everyone who makes 50,000 will pay the same amount, everyone who makes 500K will pay the same amount. You treat all income - wages, investment income and dividends the same.

[bakho]

The reason for attaching a tax increase to the Iraq Supplemental is to bind costs-of-the-occupation-tax-increase together physically so they cannot be separated in the media. It would put Bush in the bind of vetoing the Iraq Supplemental and "hurting the troops" or caving to tax increases on his base which will infuriate them. If Bush vetoed such a bill, he would be wide open to irresponsible fiscal policy as well as irresponsible war policy. If Bush signed such a bill, his base would rachet up the pressure to change Iraq policy so it was not so costly. Bush wants to continue his war. You the taxpayers will have to pay for it. It is better that the bill come due now while Bush is President than later when the blame could be shifted more easily.

To do what Krugman wants in a fiscally responsibly manner, revenue must increase. To force Bush to eat crow and acknowledge that he has been getting a free ride by kicking the revenue collection down the road to his successors is politically important. There is no better way to do this than make a direct connection between Iraq and Tax Increases than the Iraq Supplemental.

[calmo]

You make so much sense to me bakho, digging out little troublesome details like "so they cannot be separated in the media", seems almost sacrilegious.
Here's hoping Pelosi's team of political strategists are listening to you.

[Mike]

What ever?.

America is great for gold( says price of gold) and terror(says CIA and World)

[Mike]

http://www.monthlyreview.org/1203duboff.htm

[Movie Guy]

U.S. National Debt interest payment obligations were slightly over $400 billion in FY2006. That expense represents a sizable increase over interest payment obligations in each fiscal year, FY2001-2005. Further increases in interest payment obligations are anticipated due to continued deficit growth in annual federal budgets and perhaps higher interest rates.

As known, growing interest payment obligations negatively impact proposed or continuing discretionary expenditures in the federal budget process absent increased deficit spending. Similarly, growth in mandatory programs' expenditures impact proposed and previously agreed upon discretionary programs' expenditures in the same manner. Taken together, the currently increasing national debt interest payment obligations and mandatory programs' expenditure increases represent a significant threat to the funding needs of existing and future discretionary programs. To accommodate discretionary program funding needs or desires, additional deficit spending or additional federal revenue sources will be required to offset the growing impacts of federal interest payment obligations and mandatory programs growth.

If the U.S. Government has to pay higher interest on its offerings of marketable Treasury securities, the cost of the debt will rise substantially due to the current issuance volume of short-term securities. In other words, there will be substantial securities turnover going forward, all of which could be subject to rising interest payment obligations under certain conditions. That's the potential risk if the U.S. Government encounters a lack of demand for federal securities in addition to continued deficits at present or higher levels, thereby causing further growth in the national debt as well as higher interest payment obligations for new/renewal issuance of federal securities.

[Movie Guy]

The annual federal deficits are a big concern in my judgment for the reasons cited in the above post and as evidenced in the following presentation. Moreover, the federal budget deficits should not be viewed in isolation by others as having no supposed impact on trade and current account deficits, consumption behavior by businesses and/or households, or not serving as impediments to the well being of important discretionary programs financially silenced or wounded (as mentioned above). Deficits that result in growing national debt obligations should be of a great concern, particularly in light the total national debt and considerable fiscal year growth as exists presently.

U.S. National Debt

National Debt Growth:

Total National Debt as of 12/21/2006 - $8,610,004,258,890
...Debt held by the public: $4,917,406,505,568
...Intragovernmental holdings: $3,692,597,753,321

FY2007 - $TBD
FY2006 - $8,506,973,899,215
FY2005 - $7,932,709,661,723
FY2004 - $7,379,052,696,330
FY2003 - $6,783,231,062,743
FY2002 - $6,228,235,965,597
FY2001 - $5,807,463,412,200
FY2000 - $5,674,178,209,886

Total growth, FY01-06 - $2,832,796,689,349

National Debt, Avg Growth/FY, FY01-06 - $472.12 billion
National Debt, Total Growth, FY01-06 - $2.83 trillion
End of FY2006 National Debt, Total - $8.50 trillion

National Debt Growth by Fiscal Year:
(end of FY data;*figures rounded down)

FY2007 - $TBD
FY2006 - $574.26 billion
FY2005 - $553.65 billion
FY2004 - $595.82 billion
FY2003 - $554.99 billion
FY2002 - $420.77 billion
FY2001 - $133.31 billion
FY2000 - $17.90 billion

U.S. National Debt Interest Payments

National Debt Interest Expense by Fiscal Year:

FY2007 - $TBD (larger than FY06 expense anticipated)
FY2006 - $405.87 billion
FY2005 - $352.35 billion
FY2004 - $321.56 billion
FY2003 - $318.14 billion
FY2002 - $332.53 billion
FY2001 - $359.50 billion
FY2000 - $361.99 billion

Estimates of National Debt under Different Conditions

Alternate Scenario 1: National Debt Growth less Iraq Operations:

Alternate Scenario 1A:

End of FY2000 National Debt, Total - $5.67 trillion

National Debt growth, FY01-06 - $2,832,796,689,349
...less Iraq OIF, total direct appropriations - $379 billion
Adjusted National Debt growth, FY01-06 - $2,453,796,689,349
Per fiscal year, FY01-06 - $408,966,689,349

Scenario 1A: National Debt, Avg Growth/FY, FY01-06 - $408.96 billion
Scenario 1A: National Debt, Total Growth, FY01-06 - $2.45 trillion
Scenario 1A: National Debt, Adjusted Total - $8.12 trillion

End of FY2006 National Debt, Actual Total - $8.50 trillion

-----

Alternate Scenario 1B:

End of FY2000 National Debt, Total - $5.67 trillion

National Debt growth, FY01-06 - $2,832,796,689,349
...less Iraq OIF, direct appropriations - $379 billion
...(estimate) less other DoD ($20 billion per FY, 02-06) - $100 billion
Adjusted National Debt growth, FY01-06 - $2,353,796,689,349
Per fiscal year - $392,299,448,224

Scenario 1B: National Debt, Avg Growth/FY, FY01-06 - $392.29 billion
Scenario 1B: National Debt, Total Growth, FY01-06 - $2.35 trillion
Scenario 1B: National Debt, Adjusted Total - $8.02 trillion

End of FY2006 National Debt, Actual Total - $8.50 trillion

-----

Alternate Scenario 2: National Debt growth less 9/11 GWOT and Iraq operations:

End of FY2000 National Debt, Total - $5.67 trillion

National Debt growth, FY01-06 - $2,832,796,689,349
...less Iraq OIF, direct appropriations - $379 billion
.Subtotal - $2,453,796,689,349
...less GWOT ONE, OEF, other - $127.8 billion
.Subtotal - $2,325,996,689,349
...(estimate) less other DoD/HS - $900 billion ($150b per year)
Adjusted National Debt growth, FY01-06 - $1,425,996,689,349
Per fiscal year - $237,666,114,891

Scenario 2: National Debt, Avg Growth/FY, FY01-06 - $237.66 billion
Scenario 2: National Debt, Total Growth, FY01-06 - $1.42 trillion
Scenario 2: National Debt, Adjusted Total - $7.09 trillion

End of FY2006 National Debt, Actual Total - $8.50 trillion

[Movie Guy]

Calculated Risk has done a very good job tracking and charting U.S. National Debt data on a frequent basis. CR's information includes the following:

National Debt charts:

Year-to-date Increase in National Debt, 2000-2006

Weighted Average Interest Rate on National Debt, 2001-2006

Interest on National Debt (in billions), 1988-2006

Interest on National Debt as Percent of GDP, 1988-2006

Calculated Risk commentary:

Nov 2005 - "The implications for the budget deficit are serious. The National Debt has increased substantially in recent years, while interest rates have been falling. This has kept the debt service payments in the low to mid $300 Billion range."

"Now that interest rates are rising, the additional interest payments will add significantly to the General Fund deficit. A small increase to 5% of the weighted average interest rate will add $59 Billion to the fiscal 2006 General Fund deficit compared to fiscal 2005 debt service."

Nov 2006 - "The Treasury Department reports that interest on the National Debt was $405.9 Billion for fiscal 2006. The fiscal 2006 interest payment is an all time nominal record."

"However, as a percent of GDP, interest on the National Debt is rising, but still low compared to the previous couple of decades. This is because the effective interest rate is very low compared to previous periods, even though the National Debt is increasing rapidly."

"As a rough estimate, interest payments will probably be in the $440 Billion to $460 Billion range for fiscal 2007."

[debt collection services]

Yes, deficits do matter. Time will tell.

David

[patrol]

Pay as you go? We need a war tax surchage called the Bush-Cheny war tax. We all will have to pay at sometime for this war, start small now and call the tax what it should be called, Bush-Cheny War Tax.

[TraderBrian]

The political role in economics, particularly regarding the relationship of interest rates, the deficit and inflation are wonderfully elaborated upon in the book "The Oil Factor" by Stephen Leeb. He sheds worthwhile light on what the government can do about the current situation, what has worked in the past that wouldn't work now and where we're likely heading from here. A book the readers of this post would definitely appreciate.