Debt Limit Deal: Almost 100% of the burden will be borne—via spending cuts—by the poor and the middle-class.

[웃 910]

Good News and Bad News in Debt Limit Deal

Federal Budget and National Debt, Budget Deficit, U.S. Congress, U.S. Economy

August 01, 2011 —

Let’s give our political leaders credit for reaching an agreement on the debt limit. After years of cutting taxes and raising spending, reducing the medium-term debt is clearly a step in the right direction. But it is only the first step of a long journey, and it is a problematic one at that. The new budget deal comes in two main parts. The first imposes cuts in discretionary spending of almost $1 trillion over the next decade. The second creates a congressional commission that, by the end of the year, would offer a plan to cut entitlements and “reform” (as opposed to “raise”) taxes and reduce future deficits by $1.5 trillion. Congress would vote up or down on the plan and if the plan failed, a cut in federal spending would be enacted to save that amount. The cut would be split 50-50 between defense and everything else, except Social Security, Medicaid, and Veterans’ benefits. Medicare would be limited to a 2 percent programmatic cut, which would be placed directly on providers, not beneficiaries.

The Deficit and the Economy

The $3 trillion in savings over the next 10 years will put a dent in the overall debt picture but is nowhere near enough to solve the whole problem. That’s not a criticism—it would have been too much to expect the whole problem to be solved all at once—just an assessment. We are not out of the woods, though we may be a little closer to finding a path.

Who Pays?

An even bigger problem is the deal itself. The deal is all spending cuts and no tax increases. In practical terms, that means the burden of closing the gap will be placed on poor and middle-class households, rather than high-income or wealthy households. It’s true that the second part of the deal involves the potential for tax reform, but the Republicans have been united in their “no new taxes” pledge and the Democrats accommodated them both directly, in requiring no new taxes, and indirectly, in stating that the trigger mechanism, in case the Commission’s report is not enacted, will be all spending cuts and no tax increases.

It does not seem fair or reasonable to impose virtually the entire cost of this part of the fiscal burden on poor and middle-class households, but that is exactly what this bipartisan act of Congress and the White House does. Without tax increases in either part of the current deal or in the foreseeable future, there is no way to get the well-off to pay anything close to their fair share of the fiscal burden. The top 1 percent own 33 percent of the wealth and receive about 15 percent of the income in the country. These shares have risen over the past 30 years. They are being asked to bear none of the burden of closing the fiscal gap.

News flash: rich people don’t get direct spending from the government. Instead, almost 100% of the burden will be borne—via spending cuts—by the poor and the middle-class. Low- and middle-class households have seen stagnating or declining earnings over the past few decades, and they have been hit hard in the Great Recession by the housing market collapse and the job market collapse. Now, they are being asked to shoulder—via spending reductions—all of the fiscal reduction agreed to so far. To paraphrase Tevye in Fiddler on the Roof, such households might be wondering why policymakers “couldn’t choose someone else once in a while.”

What Next?

The good news is that a default crisis was averted, though it could have been averted much more easily, and that a deficit reduction plan has been put in place. The bad news is that the plan imposes the full cost of deficit reduction on low- and middle-income households, gives the wealthy a free pass, and bodes poorly for future negotiations, which, like it or not, will require tax increases or draconian cuts in entitlements.

http://www.brookings.edu/opinions/2011/0801_debt_deal_gale.aspx?p=1

[Obama 2012 1,714]

oh darn, you mean people might have to actually get out and get a job? Might actually have to start saving on their own instead of stealing from their neighbors wallet?

Oh the horror of it all!

[Ste 6]

oh darn, you mean people might have to actually get out and get a job? Might actually have to start saving on their own instead of stealing from their neighbors wallet?

Oh the horror of it all!

I take it you've not checked the latest unemployment figures.

But it's ok. Not taxing the richest will mean more jobs due to the 'trickle down' effect... Yeah right.

Edited August 1, 2011 by Ste

[Obama 2012 1,714]

I take it you've not checked the latest unemployment figures.

But it's ok. Not taxing the richest will mean more jobs due to the 'trickle down' effect... Yeah right.

Hey buddy, I know you're new around here and all, but the "richest" do pay taxes. They pay most of them actually. Despite what your little left-wing blog might be telling you.

What do unemployment figures have to do with it anyway? That just tells us that we have some lazy fat arses out there that need to get up and be productive and stop leeching off the system.

[웃 910]

oh darn, you mean people might have to actually get out and get a job? Might actually have to start saving on their own instead of stealing from their neighbors wallet?

Oh the horror of it all!

You must prefer >$500 billion deficits (red line) to <$100 billion deficits (blue line)

And you must prefer multiple-trillion dollar deficits (actual) to multiple-trillion dollar surpluses (projected in 2001 before the wars/tax cuts bankrupted the country):

Edited August 1, 2011 by Lord Infamous

[Obama 2012 1,714]

You must prefer >$500 billion deficits (red line) to <$100 billion deficits (blue line)

And you must prefer multiple-trillion dollar deficits (actual) to multiple-trillion dollar surpluses (projected in 2001 before the wars/tax cuts bankrupted the country):

Edited August 1, 2011 by DJ Kyo

[Mr. Big Dog 10,747]

And guess which spending skyrocketed the most. Yes, that which the self-proclaimed "fiscal conservatives" refuse to touch in any meaningful way.

Defense: +167% from 2000 to 2011.

Edited August 1, 2011 by Mr. Big Dog

[웃 910]

Thank you. I agree completely. "Federal tax revenues take major hit, biggest single year decline since great depression driven by unprecedented drops in corporate taxes and individual income taxes"

How can I trust a source that abbreviates average (avg.) as ave. (avenue).

[OnMyWayID 1,489]

Duh..

We are spending more than we are putting in...

If you are getting money (entitilements) - you are going to get less

If you are paying money (taxes) - you are going to pay more.

Debate all you want on the percentages the rich should be paying yada yada yada .. In the end we need more people putting in and less people taking out. That simple... but please feel free to throw up a few more charts.

BTW: I am one of those that puts in much more that I take out.. I am proud that my money goes to pave roads, pay for schools, support various government workers that run much of the services that improve all of our lives, etc, etc.. I understand that in the future I will be paying even more and I am OK with that. I just wish I could get something closer to a "thank-you" as opposed to being villified and constantly being told that *you* are not happy with the amount of *my* money you are receiving.

[Mr. Big Dog 10,747]

I thought you said that there is no revenue problem? This chart would suggest otherwise...

[Ste 6]

Hey buddy, I know you're new around here and all,

Ouch! I'm new in this section of this forum, but I assure you I've been participating in other forums for years. This one's no different.

but the "richest" do pay taxes. They pay most of them actually.

Of course they do, but it's not the point. We should be thinking about the tax burden for the whole population, and how each section of society is able to cope.

Despite what your little left-wing blog might be telling you.

Ouch again! Ok, I submit. You know best, since you can apparently read my mind. (I try to avoid political blogs.)

What do unemployment figures have to do with it anyway? That just tells us that we have some lazy fat arses out there that need to get up and be productive and stop leeching off the system.

Right. That's what it tells us. How could I have been so stupid.

[Obama 2012 1,714]

Thank you. I agree completely. "Federal tax revenues take major hit, biggest single year decline since great depression driven by unprecedented drops in corporate taxes and individual income taxes"

Why are you laughing?

The economy went into a recession. That's what happens. Revenues go down. OMG who would have thought that!

[Obama 2012 1,714]

I thought you said that there is no revenue problem? This chart would suggest otherwise...

There isn't a revenue problem. The chart only shows that it can't blame the tax cuts for anything... Revenues actually increased when the tax cuts took effect. Though you choose to ignore that fact.

[웃 910]

Why are you laughing?

The economy went into a recession. That's what happens. Revenues go down. OMG who would have thought that!

What did they say the revenue drops were driven by?

[Obama 2012 1,714]

What did they say the revenue drops were driven by?

loss of jobs. loss of business. markets crashing, etc.

It's not a new concept.

You really should go back and take economics and accounting 101.