…because I’m an economist and a mom–that’s why!

Congress Says They’ll Support Energy Policy As Long As It’s Ineffective Energy Policy

March 31st, 2009 . by economistmom

It seems like a story out of “The Onion”–but it’s just CQ reporting very matter-of-factly on the Senate’s progress (or “regress”) today on the budget resolution (emphasis and some commentary added):

Sens. John Thune, R-S.D., and Barbara Boxer, D-Calif., offered competing amendments addressing the impact any climate change legislation may have on electricity and other energy costs.

Republicans charge that Obama’s cap-and-trade plan would lead to higher consumer electric and fuel bills [as it's intended to do to reduce the consumption of carbon-intensive fuels] making it, in essence, a tax.

Administration officials acknowledge the plan would cause energy bills to rise [such that the policy would achieve its intended effect] and say that is why they propose dedicating $537 billion of the revenues raised by the sale of pollution credits to a middle-class tax cut [which would mitigate the burden on middle-class households without removing the proper price signals].

Thune offered an amendment stating that any energy legislation moving later this year should achieve its goals “without increasing gasoline or energy prices.” [i.e., should achieve its goals without being structured so as to achieve its goals!]

Boxer, chairwoman of the Environment and Public Works Committee, offered what she called a “supplement” that essentially allowed a variety of ways to offset price increases that might occur because of climate change legislation. Her amendment was adopted by a largely party-line vote of 54-43.

The Thune amendment was then adopted by 89-8.

“Senator Thune’s amendment doesn’t go far enough,” Boxer said. “We believe that revenues from a climate bill, should we pass one, and I certainly hope we will, would be used to offset any kind of an increase in electricity and gasoline prices [again, removing any kind of effectiveness in the climate policy], and we would have the revenues from a cap-and-trade system to do just that.”

Thune said Boxer’s amendment was an attempt to give Democrats political cover.

“Don’t believe for a minute” that the tax rebates in Boxer’s proposal “would go back to consumers,” he said.

That’s so sad that it’s funny–or so funny that it’s sad…

Back on Tour

March 30th, 2009 . by economistmom

On Friday I was back “on tour” with the Fiscal Wake-Up Tour, this time being my first time on the Tour as a representative from the Concord Coalition, although I’ve been working at Concord for almost a year now. (The last time I had been a panelist on the Tour was back in late 2006 representing the Brookings Institution.)

We visited Princeton University, and this time I brought a really good prop. I wish I could say that’s me looking really young in the above photo, but it’s my oldest daughter, Allie, who came along to see not exactly the Tour, but Princeton. (In the photo with her are, L to R, Gene Steuerle of the Peterson Foundation, my Concord colleague Harry Zeeve, and Alice Rivlin of Brookings.) Having talked about my four kids very often whenever I speak about the importance of fiscal responsibility, I found myself unable to even mention I was a mom when I actually had one of my kids there–let alone point Allie out to the audience! (She would have been absolutely horrified.)

No, that’s me (the older version of Allie) in the photo below, with another great “prop” who showed up at the forum during the Q&A. This chemical engineering professor visiting from China (Beijing) very courageously, but graciously and humbly, remarked at how he had just come to this country a couple months ago and was very interested in learning how China’s investment in U.S. Treasuries was doing–which is why he was attending this fiscal policy/economics event. He also expressed confidence in and optimism about the strength of the U.S. economy. I thanked him and his country for having lent us so much money all these years and expressed hope that it will continue to be a mutually-beneficial relationship. At the same time, I said that the U.S. still must change our ways so that we don’t become unsustainably dependent on the kindness of strangers–or even the kindness of kind friends.

Allan Sloan Says Forget About the AIG Bonuses…

March 29th, 2009 . by economistmom

…They’re small potatoes compared with all of the money the government’s giving Wall Street.

Same Old Lines, Just Switching the Parts

March 28th, 2009 . by economistmom

It’s almost like magic (poof!)–how the roles in the debate over the federal budget have been reversed now that the Democrats are in charge, with the Republicans now using the same old talking points that the Democrats used during the Bush Administration. Here are some parts of (Republican) Senator Judd Gregg’s response to today’s Presidential radio address that make me sentimental about my days on the Democratic staff of the House Budget Committee…

First, there’s the old “compare this president’s debt to the debt of all previous presidents” strategy:

In the next five years, President Obama’s budget will double the national debt; in the next ten years it will triple the national debt.

To say this another way, if you take all the debt of our country run up by all of our presidents from George Washington through George W. Bush, the total debt over all those 200-plus years since we started as a nation, it is President Obama’s plan to double that debt in just the first five years that he is in office.

(It’s always handy to refer to the nominal dollar value of the debt if you want to make the point that it’s growing by an enormous amount over time.)

Let me here note that in return, the Democrats of the House Budget Committee are bragging about the deficit reduction accomplished in their proposed budget plan in the same manner that the Bush Administration used to brag about their budget (emphasis added):

WASHINGTON – The House Budget Committee today passed by 24 to 15 a budget resolution for Fiscal Year 2010 that embraces President Obama’s goal of cutting the deficit in half by 2013 and funding critical initiatives in health care, energy, and education…

A well-understood, critical component of the above talking point: don’t dare extend the budget window far enough to reveal the deficit coming back up.  Hence the five-year, not ten-year, window adopted by the congressional budget committees–it makes bragging (and “success”) easier.  And to the extent the deficit is easy to cut in half because it starts at an unusually-high level, and to the extent that it will come down mostly due to an economic recovery rather than hard policy choices…well, just try not to mention that.

And now, it’s the Republicans accusing the Obama budget of intergenerational inequity…Boy, does this part of Senator Gregg’s response bring back memories:

[President Obama's budget] will lead to an immense national debt that not only threatens the value of the dollar and puts at risk our ability to borrow money to run the government. But it will also place our children at a huge disadvantage as they inherit this debt which will make their chances of success less than those given to us by our parents. It is not right for one generation to do that to another generation.

But don’t worry too much… the Republicans still hold dear to their hearts this line (again, from Senator Gregg’s response):

[President Obama] also is proposing the largest tax increase in history, much of it aimed at taxing small business people who have been, over the years, the best job creators in our economy.

In fact, I’d like to critique this line of argument that Senator Gregg emphasized several times in his remarks:

[T]he budget of the President spends too much, taxes too much and borrows too much.

It can’t be true that a budget plan could both tax too much and borrow too much.  As I’ve argued before, the problem with the Obama budget is that it both spends a lot and cuts taxes by too much (i.e., taxes too little).  That’s how you get to the borrowing too much part.

Not Yet the Home of the Brave

March 26th, 2009 . by economistmom

Two op-eds in today’s Washington Post basically scold the Administration and Congress for being wimps when it comes to tax policy and fiscal responsibility.  The Brookings Institution’s Alice Rivlin says:

Designed to facilitate a rapid economic rebound, the [Obama] budget’s humongous multiyear deficits (overwhelmingly attributable to the recession itself, the financial rescue and the temporary stimulus) are both inevitable and appropriate. But as the economy recovers, that higher spending should be recouped. The “pay-fors” in the Obama budget are well designed, but they are not big enough to compensate for the increased spending once economic growth returns.

Obama would shift tax burdens from average working Americans to those who earn most, but the proposed shifts are modest and, on balance, would reduce future revenue…

The pay-for package is persuasively designed, but it will not fully compensate for the rising spending…

Congress could greatly improve the president’s budget by accepting its main outlines but adding steps to reduce long-run deficits. Lawmakers could phase out the income tax cuts at a lower level by protecting, say, 92 percent of taxpayers from tax increases instead of 95 percent. They could convert tax deductions to tax credits in a way that raises more revenue or redesign the climate-change proposal to increase revenue faster (perhaps adding a small gas tax increase that would rise in the future).

Congress could increase funding for health-care reform by including part of employer-paid health benefits in taxable income. It could put the Social Security system on a sustainable long-term basis by making minor tweaks to benefits and revenue to take effect a decade or more hence. Or it could pare back future spending on programs not contributing to raising productivity. All of this may sound politically poisonous, but so does unsustainable long-term borrowing.

There is also a serious risk of Congress making the president’s proposal much less fiscally responsible by accepting the new spending and tax cuts but rejecting the pay-fors. That is a scary scenario that only strong, responsible congressional leadership can avoid.

And E.J. Dionne similarly chimes in on the lack of fiscal courage regarding tax policy, accusing the politicians of playing “deficit dodge ball”:

The debate on the budget is phony, the howling on deficits a charade. Few politicians want to acknowledge that if you really are concerned about long-term deficits, you have to support tax increases.

That’s why the most significant moment of President Obama’s news conference on Tuesday was not his dodge of a question on AIG but his defense of the least popular tax increase in his budget: limits on the benefits wealthier taxpayers get for their charitable contributions and mortgage payments.

It has been a long time since a president was willing to defend raising taxes. You have to go back to Bill Clinton and his 1993 budget. The consequences for Democrats who voted for that budget — no Republicans did — were grave. Republicans swept the 1994 elections and held on to the House for 12 years. No wonder politicians are so phobic about taxes.

Obama himself is going only part of the way on tax increases. He is still arguing that he can fix things with hikes on just the top 5 percent of taxpayers.

He’s right that a large share of any increase should hit those who enjoyed the biggest income gains over the past decade. But in the end, no politician (with the possible exception of libertarian Ron Paul) is willing to cut the budget enough to contain the deficit without a general tax increase down the road…

In an ideal world, Obama would come right out and say we’ll need broad-based tax increases. But that would be suicidal right now. Witness the reaction to his effort to put a 28 percent ceiling on deductions. His proposal would affect only 1.2 percent of taxpayers, yet even that idea seems to be dying in Congress…

Fine, kill it. But then, how else will we pay for health-care reform? Obama’s across-the-board limits on itemized deductions would raise $318 billion over 10 years. Does anyone have a less painful way to raise that much money?…

The task of those who genuinely care about deficits is to make the world safe for tax increases. Under current conditions, it’s a whole lot easier for politicians to talk a lot about deficits, and then just let them grow.

So I challenge you politicians:  where’s the “real man” around here when it comes to tax policy?

Thinking Outside the Bush Tax Cuts Box?

March 25th, 2009 . by economistmom

The Obama Administration seems to realize we have a revenue problem and may have to rethink our tax policy strategy to go beyond which parts of the Bush tax cuts we want to keep and which we want to let expire.  From a front-page story in today’s Washington Post (by Lori Montgomery, my emphasis added):

White House budget director Peter Orszag reacted favorably to the Senate blueprint, saying it would “fulfill the president’s objectives” on health care, education, clean energy and deficit reduction. Orszag acknowledged that the Making Work Pay credit may be lost, but said the administration has “two years to figure this out” before the temporary version of the credit — established in the recent economic stimulus package — expires.

In the meantime, Orszag said, Obama is launching a comprehensive review of the federal tax system that aims to simplify the tax code, unify myriad individual credits, reexamine the corporate tax structure and identify ways to collect the billions of dollars that chronically go unpaid by individual and corporate tax dodgers. A special panel of economic advisers headed by former Federal Reserve Board chairman Paul A. Volcker will lead that effort, Orszag said, and report back to Obama by December.

“The only constraints are no tax increases for families earning below $250,000 a year and no tax increases in 2009 and 2010,” when the economy is likely to be weak or emerging from the recession, Orszag said.

I think the Obama Administration realizes that with those “only constraints” (pretty darn big ones), you can’t afford to leave all those holes and other inefficiencies in the federal tax system if you expect to be able to both pay for your new spending and get deficits back down to sustainable levels.

So it will be interesting to see what the Obama Administration comes up with by December.  And I hope it gets a better reception on Capitol Hill than the report of President Bush’s tax reform panel did.

Another Debt Documentary: Ten Trillion and Counting

March 24th, 2009 . by economistmom

I had been interviewed for this Frontline documentary months ago (by Forrest Sawyer no less–it was a thrill!), but a change in producers has deprived me of my 15 seconds of fame…alas. Still, I kept in touch with the production crew while they continued working on it, I’m glad they completed the project, and I’ll be watching this evening, for sure (and will be DVR-ing it).

From a NYTimes review of it (I’m happy to see some of my friends who did make the program):

The makers of “Ten Trillion and Counting,” Tuesday’s “Frontline” on PBS, want to make really, really, really sure that you know that George W. Bush, not Barack Obama, put the country in the economic mess it’s in now. More than half the program is devoted to cataloging the Bush administration’s economic policies, which, as portrayed here, come across as appallingly reckless, a burden that will grind us down for generations to come.

Though it may be accurate, it’s an emphasis that is unfortunate for two reasons. One is that it leaves the smart-sounding commentators assembled here not much time to talk about what matters now: how we get out of the mire. The other is that it could cause anyone who still has any regard for Mr. Bush to tune out the program as just another exercise in Bush-bashing. This is a program everyone needs to watch if the search for solutions is ever going to get beyond the simplistic, accusatory catchphrases that sometimes seem to pass for economic-policy debate in Washington…

There is a succinct history lesson on how the Republican “starve the beast” economic philosophy — if you keep taxes low, government spending will automatically be kept low for lack of money — ran off the rails. And then, the program says, Mr. Bush took things a step further by cutting taxes while starting a war.

“We borrowed money from China to give tax cuts to the best-off people in our society and leave our kids paying the bill for a war that we chose to fight,” says Matt Miller, a senior fellow at the Center for American Progress, a liberal-leaning research group. “That was really unprecedented.”..

Now it is Mr. Obama who will have to make the case for sacrifice, though the Iraq war is winding down, and the one in Afghanistan is somewhat murky in the public mind. Good luck.

“It’s hard to sell a message of pain to Americans,” says David Wessel of The Wall Street Journal. “It’s hard to tell them that we have lived beyond our means and we’re going to have to spend less money on benefits that you enjoy, and we’re going to have to collect more taxes from you than we do now because we overpromised in the past. That’s a very hard message to deliver when unemployment is low and everybody’s feeling good. It’s an impossible message to deliver when people are frightened that they’re going to lose their houses, lose their jobs and their kids are going to be out of work.”…

So I hope you’ll tune in tonight (or “hit record”), as I will!

It’s Not Easy Being Nice to Bad Neighbors (AIG)

March 23rd, 2009 . by economistmom

In President Obama’s 60 Minutes interview with Steve Kroft, he tried to explain why the AIG bonus scandal needs to lead to a better relationship between Wall Street and Main Street:

“You’ve got a piece of legislation that could affect tens of thousands of people. Some of these people probably had nothing to do with the financial crisis. And some of them probably deserve the bonuses that they got,” Kroft said. “I mean is that fair?”

“Well, that’s why we’re gonna have to take a look at this legislation carefully. Clearly, the AIG folks gettin’ those bonuses didn’t make sense. And one of the things that I have to do is to communicate to Wall Street that, given the current crisis that we’re in, they can’t expect help from taxpayers but they enjoy all the benefits that they enjoyed before the crisis happened. You get a sense that, in some institutions, that has not sunk in; that you can’t go back to the old way of doing business, certainly not on the taxpayers’ dime,” Obama said. “Now the flip side is that Main Street has to understand, unless we get these banks moving again, then we can’t get this economy to recover. And we don’t wanna cut off our nose to spite our face.”

It reminded me of (Federal Reserve Chairman) Ben Bernanke’s interview with 60 Minutes (from just the week before), when Bernanke explained why rescuing some badly-behaving Wall Street firms was for the good of not just Wall Street, but all of Main Street:

“You know, Mr. Chairman, there are so many people outside this building, across this country, who say, ‘To hell with them. They made bad bets. The wages of failure on Wall Street should be failure,’” [Scott] Pelley remarked.

“Let me give you an analogy, if I might,” Bernanke said. “If you have a neighbor, who smokes in bed. And he’s a risk to everybody. If suppose he sets fire to his house, and you might say to yourself, you know, ‘I’m not gonna call the fire department. Let his house burn down. It’s fine with me.’ But then, of course, but what if your house is made of wood? And it’s right next door to his house? What if the whole town is made of wood? Well, I think we’d all agree that the right thing to do is put out that fire first, and then say, ‘What punishment is appropriate? How should we change the fire code? What needs to be done to make sure this doesn’t happen in the future? How can we fire proof our houses?’ That’s where we are now. We have a fire going on.”

I think what Main Street’s skeptical about is whether sending the “fire department” (the federal government funded by (future) taxpayer dollars) to put out the badly-behaving neighbor’s fire will actually work to prevent the neighbor’s house, and one’s own house, from burning down.  And then it’s sort of like after the fire caused by our naughty neighbor has caused our own house to burn down anyway, the insurance company (hah!–also the federal government funded by (future) taxpayer dollars) pays the naughty neighbor’s claim, but not our own.

That’s why the outrage over the AIG bonuses.  Main Street just doesn’t see AIG as a “neighbor.”  Or at least not as a good neighbor worthy of their kindness and generosity.  And come to think of it, unfortunately even the part of Main Street that’s not the Detroit automotive industry doesn’t even see “Main Street Detroit” as their “good neighbor” worth saving for the good of all of Main Street USA.  Although these days the AIG debacle is probably making the Detroit auto industry look as good as Mr. (Fred) Rogers in Mister Rogers’ Neighborhood.

Bailout for Chrysler or Bonus for Fiat?

March 22nd, 2009 . by economistmom

Warren Brown writes in today’s Washington Post that the “Chrysler-Fiat Alliance is a gamble worth taking.”  As he explains (my emphasis added):

Chrysler now is seeking an “alliance” with Italy’s Fiat SpA to fill a gaping, expensive and risky-to-fill product hole for small, fuel-efficient cars.

Fiat has the expertise and technology to fill that hole. And it has been working with Chrysler on a technology-swap proposal that would give it a 35 percent stake in the American car company.

Fiat’s proposal is based on the belief that the recession won’t last forever, but that America’s dominance of global automotive sales and its love of big trucks might be a forever thing. Chrysler is a leader in truck manufacturing in the American market.

Fiat also has floated the idea of acquiring another 20 percent of Chrysler, for the less-than-princely sum of $25 million, at a later date.

That seems to be a steal for Fiat, but a lousy deal for U.S. taxpayers who already have loaned Chrysler $4 billion — and a deal made worse now that Chrysler is seeking $5 billion more in U.S. taxpayer loans.

Fiat gets a controlling interest in Chrysler for $25 million in cash after American taxpayers invest $9 billion in the company? The math didn’t seem right…

Warren goes onto the case that Chrysler’s CEO, Robert Nardelli, makes for the wisdom of the partnership, citing the arguments Nardelli made to Chrysler employees last week:

He said the proposed partnership with Fiat could be worth as much as $10 billion, “equal to or greater than the total amount of loans we have requested from the U.S. Government.” Nardelli added that partnering with Fiat, which has authored small-car hits such as the Fiat 500, could save Chrysler up to five years in the design and development of small, fuel-efficient automobiles…

Yet Warren seems to recognize that the costs and the benefits in the potential partnership are not so mutual–or at least not so equally distributed between Chrysler and Fiat:

In its talks with Chrysler, Fiat is betting that last year’s crazily fluctuating fuel prices and the U.S. sales success of some cleverly designed small models, such as the BMW-sponsored Mini Cooper and the Mercedes-Benz-sponsored Smart, have paved the way for a larger small-car market in America.

If Fiat is right, Fiat wins its bet. And Chrysler, Nardelli says, preserves or creates more than 5,000 stateside jobs. If Fiat is wrong, Fiat wins anyway, because it would have gained access to truck manufacturing technology in a market that traditionally has loved and demanded big trucks…

But Warren’s hint of uneasiness about the one-sided-bet nature of the deal from Fiat’s perspective seems to have come even before the news on Friday that Fiat, contrary to Nardelli’s claims on Thursday, would not assume any of Chrysler’s debt to the U.S. government.  Warren’s column mentions nothing of this latest development in the partnership negotiations.

From a Reuters story (reporting from Fiat’s Italian home, emphasis added):

MILAN (Reuters) - Italy’s Fiat SpA on Friday said it would not assume any debt from would-be partner and troubled carmaker Chrysler LLC CBS.UL, less than two weeks before Chrysler is to meet U.S. demands for a crucial loan. 

Fiat denied a statement by Chrysler that it would assume 35 percent of that company’s debt to the U.S. government.

“Fiat Group intends to make it absolutely clear that the proposed alliance will not entail the assumption of any current or future indebtedness of Chrysler,” Fiat said in a statement…

…and from an AP story (reporting from Chrysler’s hometown, emphasis added):

DETROIT (AP) — A public tiff between Italian automaker Fiat SpA and Chrysler LLC apparently ended Friday when Chrysler rescinded a statement on its Web site that Fiat would be responsible for part of Chrysler’s debt if the two companies join forces.

Chrysler, in a Web video on Thursday explaining why an alliance for the two companies would be good for Chrysler and the country, said Fiat would be responsible for 35 percent of what Chrysler owed to the U.S. government.

But Fiat on Friday denied that it would be responsible for any of Chrysler’s debt.

The two companies are talking about an alliance in which Fiat would take a 35 percent stake in Chrysler in exchange for Fiat’s small-car technology.

Chrysler, in a statement issued Friday, reversed the claim it made on the Web and said Fiat would become an equity holder.

“To clarify, this does not mean Fiat would assume responsibility for any of Chrysler LLC’s debt,” the statement said…

Hmmm….That sounds like a pretty sweet deal for Fiat, being able to claim a share of Chrysler’s profits without having to share in the burden of Chrysler’s new debt to the federal government (a debt which will help make those profits possible).  Fiat will get the up-side potential with none of the down-side risks.  The problem is that it’s American taxpayers (well, really future taxpayers, since we’re not paying for these loans to the automakers with any current taxes) who are taking on the risk of Chrysler’s possible demise even with the federal loans–should Chrysler still fail to turn a profit and thus find themselves unable to repay the loans.

With all the outrage about a small portion of the federal bailout of AIG going to executive bonuses, I think we need to worry about how Americans would feel about a Chrysler bailout where a much larger portion could potentially go to the profits of a foreign-owned company and the incomes of foreign executives.  While Americans are probably more sympathetic to saving U.S. jobs at Chrysler and in the American auto industry more generally than in saving the jobs on Wall Street, maybe we need to think about whether the benefits of any additional loans to Chrysler (in saved jobs) will be worth the costs (including additions to the federal debt that go towards the profits of foreign corporations), and how that calculation might depend on the terms of any partnership between Chrysler and Fiat.  Shouldn’t the federal government have some say in the terms of that partnership, if their loans are needed to create the profits that will accrue to both of the partners?

Am I missing something here?  I mean, why shouldn’t the federal government insist that a Chrysler-Fiat partnership has to be a true one–one where both parties have a stake in both the profits and the debts?

Warren concludes his column with his plea for more federal aid for Chrysler: 

Let them have the money.

The chance that they will succeed and pay it back, plus interest, is greater than any likelihood Congress will succeed in retrieving the bonuses paid to AIG’s executives.

I agree, but I’m just wondering if giving away bonuses to foreign-owned Fiat for helping “save” Chrysler is more analogous to giving away bonuses to the AIG executives (who were paid those bonuses to stay at AIG and help turn things around) than Warren recognizes.  Americans have a hard enough time with federal aid to specific American industries and firms as it is–let alone aid that benefits a specific foreign firm.

Why Does Obama’s Fiscal Vision Look So Much Like Bush’s Fiscal Legacy?

March 20th, 2009 . by economistmom

The Congressional Budget Office (CBO) today clarified what the Obama Administration thinks about the Bush tax cuts (the cuts enacted in 2001 and 2003).  They’d like to keep most of them!  And they don’t seem to mind deficit financing them, which is why the extension of the “Bush tax cuts” alone, even without the added interest costs, adds about $2 trillion to the 10-year budget deficit under the Obama budget.

CBO shows that the new official, current-law baseline produces a 10-year deficit of $4.4 trillion.  This is $1.3 trillion worse than they forecast in January (see Table 1-3 on pages 6-7), due to the cost of newly enacted legislation ($1.3 trillion, primarily the recovery package) and a deteriorating revenue base (coincidentally, another loss of $1.3 trillion).  Partially offsetting those worsening factors was that lower interest rates and inflation reduce government outlays (by $1.4 trillion).  (There was another $140 billion added to the 10-year deficit due to “technical changes”.)

Incidentally, CBO’s previous (January) current-law baseline was already $1.5 trillion worse than the current-law baseline the Administration showed in its February budget documents, because CBO had already been more pessimistic than the Administration in their economic forecast.

According to today’s CBO report (see Table 1-5 on pages 12-13), relative to what’s in the books as current law, the President proposes to add $4.8 trillion to the 10-year budget deficit (more than doubling it to $9.3 trillion), in this way:

  • $2.1 trillion in net tax cuts ($1.9 trillion of which are extended Bush tax cuts, alone);
  • $1.1 trillion in mandatory spending increases, including the refundable portions of new or expanded refundable tax credits not included in the “net tax cuts” figure;
  • $600 billion in increased discretionary spending (above baseline’s assumed growth with inflation); and
  • $1.0 trillion in higher net interest costs (debt service).

So the biggest single proposal in the Obama budget contributing to the deterioration in the 10-year budget outlook is, contrary to public perception, not big spending on bailouts or stimulus or even longer-term health care reform, and not temporary tax cuts that are designed to provide immediate stimulus to the economy at only near-term cost, but rather permanent extension of most of the Bush (2001 and 2003) tax cuts–with costs that grow dramatically over time. It explains why the Obama budget (according to CBO projections) will not only fail to make trillion-dollar-plus deficits an extraordinary and temporary phenomenon (with the 2019 deficit climbing back to $1.2 trillion), but will fail to stabilize the public debt as a share of GDP (with the ratio exceeding 80 percent by 2019).

President Obama doesn’t have to feel “stuck with” the Bush tax cuts.  In fact, Congress will have to write and pass new legislation, which President Obama will have to sign, in order to keep any of the “Bush tax cuts” beyond December 31, 2010.  So now that they’re so clearly a central part of the Obama budget, it’s probably time we stop calling them the “Bush tax cuts” and start calling them the ($2 trillion in deficit-financed) “Obama tax cuts.”  But we’re still not “stuck with” them.

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