Hillarysworld

This is major indictment of the latest move... coming from The Economist.

This is a good blog post worth reading.


Democracy in America

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Penny-wise

• Jan 26th 2010, 16:52 by M.S.

AS MY colleague noted earlier, Barack Obama will announce a three-year freeze on non-security discretionary spending in his state-of-the-union message tomorrow. The president wants to show that he is serious about reducing the budget deficit. The freeze will limit total non-security discretionary spending (about 1/8 of the federal budget) to $447 billion a year through 2013, says the Washington Post's Lori Montgomery. It's supposed to save $250 billion through 2020, says Kevin Drum.

As Michael Linden of the Center for American Progress wrote last week, you can't get a significant reduction in the deficit by freezing non-defence discretionary spending.

The federal government spent a bit more than $625 billion on non-defense discretionary programs in 2009. The Congressional Budget Office projects that, in five years, the federal government will spend about $660 billion on the same programs. Freezing non-defense discretionary spending at current levels would therefore only produce a total savings of $35 billion in 2015. That year, the budget deficit is expected to be around $760 billion. Saving $35 billion would solve less than 5 percent of the problem.

The sources of America's huge budget deficits are as follows. First, our taxes are too low for the spending we've come to expect. The 2009 deficit ran to $1.4 trillion; $231 billion of that resulted from the tax cuts passed during George Bush's administration, and another $218 billion came from increased interest payments on federal debt due to running deficits in the mid-2000s when we should have been running surpluses. (That's water under the bridge, but we have to claw the money back somehow. As we wrote in November, eliminating the tax deductions for employer health insurance, mortgage and municipal bond interest, state and property taxes, and capital gains gets you $552 billion in FY 2013.) Second, we're in the midst of a vicious recession. Federal individual tax revenues dropped 22% in 2009; corporate tax receipts fell 57%. Third, we're doing $787 billion in stimulus spending to counteract the recession, and we spent uncertain billions last year on various bail-outs to keep the financial system from collapsing. There's not much we can do about that.

Fourth, we spend too much on the military. Yesterday the CBO reported on the long-term budget implications of American defence spending.

[SNIP]

The reason to be scared about America's long-term deficit outlook is because of health-care costs. If America does not get health-care cost inflation under control, Medicare and Medicaid will bankrupt the government. But an attempt to reform the health-care sector (one that proposed $500 billion in Medicare cuts and a cap on the employer health insurance tax exclusion) has all but destroyed Barack Obama's presidency. So he is instead going to announce an inconsequential discretionary spending freeze and hope it gets him enough political traction to give health-care reform another go. Let's hope it works.
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Full article.