Once merely a worthy subject of concern, America’s fiscal outlook has rapidly become the object of widespread alarm. “Aside from weapons of mass destruction and terrorism, America’s fiscal situation is the most dangerous challenge facing the country,” says Mr Gregg. “Unchecked, it will reduce growth, weaken the dollar and ultimately undermine America’s global leadership role.” The administration cannot be blamed for what is this year an almost entirely inherited deficit. Mr Obama’s new spending accounts for only about one-tenth of it. The effects of the recession, the costs of the bank bail-out and the structural legacy of the three large tax cuts and two wars bequeathed by George W. Bush account for the remainder. Nor do critics, including Mr Gregg, blame the new president for pushing through a $787bn two-year fiscal stimulus within a month of moving into the White House. “We needed to dig the economy out of a hole,” says Mr Gregg. “I understand that.”
Well, I’m glad that at least one Republican recognizes that this President inherited both a fiscal mess and a deep recession from the economic mismanagement of the previous Administration.
But politics is quick to change. The otherwise deeply unpopular Republican party is starting to sense an opportunity. A rapidly growing proportion of the US public is registering anxiety at the sea of red ink pouring out of Washington. In the past week, two prominent polls showed that twice as many Americans were concerned about growing budget deficits as reforming healthcare – Mr Obama’s overriding domestic priority.
Republicans for the past 30 years have only pretended to care about fiscal responsibility as they simultaneously push larger defense department budgets and more tax cuts. OK, healthcare reform may indeed increase government spending but why not pay for it with tax increases:
Mr Obama has also pledged to ensure that the $100bn-$150bn a year healthcare reform will be “budget-neutral” – requiring no net extra spending. Some liberals see this as a straitjacket that could pare back the benefits he promised to extend to the 47m Americans without insurance and the tens of millions who are seen as underinsured. Conservatives, meanwhile, flatly refuse to believe it. “Obama wants healthcare spending to be budget-neutral and I want to be six foot four and have a full head of hair,” says Mr Holtz-Eakin.
Look – I’m never going to be tall either but Douglas Holtz-Eakin knows that we could indeed raise taxes if the political hacks that currently lead the GOP drop their no new tax pledge. But the ultimate nonsense comes here:
But even if Mr Obama does ensure that expansion of healthcare is fully paid for, existing spending on healthcare and the Social Security retirement scheme remains on a path that will eventually bankrupt the federal government.
Oh please – the Social Security Trust Fund has a sizeable reserve that will continue to grow for the next decade. Luce sort of notes this later but why do we continue to see this kind of stupid association of Social Security finances with the rest of Federal government finances?
The Congressional Budget Office (CBO) has just released its long-term budget outlook. The dismal report warns:
“[l]arge budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States.”
However, growing budget deficits do not reduce national savings. They do just the opposite. Indeed, the private sector — households and firms taken as a whole — cannot attain a surplus position unless some other sector (the public sector or the foreign sector) takes the opposite position. Again, it is an indisputable feature of balance sheet accounting that is governed by the following identity:
Private Sector Surplus = Public Sector Deficit + Current account Surplus
Read more here http://neweconomicperspectives.blogspot.com
What I have always wondered is why "national savings" is so wonderful. The Chinese have done a very good job of this and they are now the proud owners of lots of T-Bills that are worth whatever the Unites States is willing to let them be worth.
The identity of which "Economist" speaks is fine but I see no value in it. The deficits will eventually devalue the dollar and that is fitting and proper. This devaluation will also devalue all the debt.
So ask yourself what good the trust fund is if the value of those bonds are dramatically diminished and they will be. Time to face reality. The Social security system is a pay as you go system and the FICA tax is nothing more than a way to move the tax burden from the rich to the middle class. I do not see the trust fund as any significant hedge against what will be happening as a matter of necessity. What I see is Americans with faith in the future of their country understanding that they will one day also be old and that they will need the SS system and Medicare and the like at that time.
We pay because it will eventually be out turn to receive.
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