August 12th, 2011
When Standard & Poor’s reduced the nation’s credit rating from AAA to AA-plus, the United States suffered the first downgrade to its credit rating ever. S&P took this action despite the plan Congress passed this past week to raise the debt limit.
The downgrade, S&P said, “reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
It’s those medium- and long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan’s Council of Economic Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.
“We have all these unofficial debts that are massive compared to the official debt,” Kotlikoff tells David Greene, guest host of weekends on All Things Considered. “We’re focused just on the official debt, so we’re trying to balance the wrong books.”
Kotlikoff explains that America’s “unofficial” payment obligations — like Social Security, Medicare and Medicaid benefits — jack up the debt figure substantially.
“If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That’s the fiscal gap,” he says. “That’s our true indebtedness.”
We don’t hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.
“Why are these guys thinking about balancing the budget?” he says. “They should try and think about our long-term fiscal problems.”
According to Kotlikoff, one of the biggest fiscal problems Congress should focus on is America’s obligation to make Social Security payments to future generations of the elderly.
“We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population,” he says. “That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.”
“We’ve consistently done too little too late, looked too short-term, said the future would take care of itself, we’ll deal with that tomorrow,” he says. “Well, guess what? You can’t keep putting off these problems.”
To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what’s being negotiated right now in Washington.
“What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office's] numbers say we have an absolutely enormous problem facing us.”
August 4th, 2011
By: Stephanie Condon
Now that Congress has passed a bill to raise the debt limit and address the deficit, leaders have two weeks to choose delegates to a new “super committee” that will recommend further deficit and debt reduction ideas.
At least one lawmaker has taken himself out of the running for the 12-member committee, while other congressmen mull over who’d be a good fit for the “super” group.
Congressional leaders will choose three House Democrats, three Senate Democrats, three House Republicans and three Senate Republicans. They’ll have to consider which members could survive the political liability that comes with making hard decisions ahead of the 2012 elections. They’ll also have to decide whether to choose members that are typically loyal to party ideology or are more interested in compromise.
Once the group is selected, they have until Thanksgiving to draft a plan to create $1.2 trillion in savings. Seven of the 12 members would have to approve the plan to send it to Congress. The full Congress can then either approve the plan or allow across-the-board cuts to security and entitlement programs to kick in.
Sen. Ben Nelson, D-Neb., one of the senators who voted against the debt limit package Tuesday, said this morning he wouldn’t serve on the super committee if asked, the Hill reports.
“They’re not going to [ask], and if I voted for it and they asked me to, I still wouldn’t serve on it,” Nelson said on the Nebraska radio show KLIN News Talk.
The senator predicted the committee will get hung up in partisan gridlock and suggested that creating such a committee was the wrong approach to policy making.
“I don’t think we can take politics out of every difficult decision,” he said. “I don’t like to cede away or give away my responsibility, and certainly I don’t like to authorize a group of my colleagues to do what I was sent to Washington to do.”
Two other senators, Republican Sen. Saxby Chambliss of Georgia and Democratic Sen. Mark Warner of Virginia, expressed their skepticism about the new super committee on Tuesday to CBS Evening News anchor and managing editor Scott Pelley.
“I think it’s going to be very difficult for this select committee to come up with any resolution, any meaningful resolution,” Chambliss said. Added Warner, “I’m not sure the committee is going to get the job done.” (embed the video of the interview)
Both Chambliss and Warner were part of a group of six bipartisan senators who earlier this year put forward their own ideas for deficit reduction.
So far, congressional leaders have indicated there may be at least some partisan politics at play when it comes to picking the super committee. House Democratic Leader Nancy Pelosi said Tuesday that the House Democratic representation in the super committee will protect entitlement programs like Social Security and Medicare.
“I know that whoever’s at that table will be someone who will fight to protect those benefits,” she said.
Senate Republican Leader Mitch McConnell, meanwhile, reassured conservatives on Tuesday that there’d be no litmus test for appointees to the committee. McConnell clarified that after the conservative magazine the Weekly Standard reported that McConnell would not appoint members who voted against the debt deal on Tuesday.
“There is no vote position requirement to serve on the committee,” a McConnell spokesman responded, adding that the Republican leader “will have serious discussions with all those who are interested in serving prior to making any appointments.”
For what it’s worth, politicians and pundits without any say in the final decision are suggesting candidates for the super committee. Republican Sen. John McCain of Arizona said on Fox News Tuesday that Republican Sen. Rob Portman of Ohio would be a good candidate. Additionally, Washington Post columnist Ruth Marcus says that Rep. Gabrielle Giffords of Arizona, who is recovering from being shot in the head, would make a good honorary chair of the group, to remind lawmakers the importance of transcending partisan bickering.
In spite of the skepticism of some members, both McConnell and Senate Majority Leader Harry Reid have expressed optimism that the super committee will succeed.
Treasury Secretary Tim Geithner also expressed optimism in a Washington Post op-ed published Wednesday morning.
The threat of across-the-board cuts should Congress fail to pass the committee’s plan “creates a strong incentive to compromise,” Geithner wrote. He added, “Beneath all the bluster, the prospects for compromise on broader and deeper reforms are better than they have been in years.”
Regardless of who sits on the committee, they are sure to feel intense pressure from lobbyists, Politico reports. Several lobbyists told Politico they expect to see a full-court press of Congress as it weighs spending cuts and revenue increases.
Update: In an interview with the Wall Street Journal Wednesday, House Majority Leader Eric Cantor said there’s been quite a bit of interest in the committee. “The speaker is the one who makes the selection, and I have gotten a lot of calls and emails from members who want to serve and want to participate in solving the problem,” he said.
July 26th, 2011
By: Ken Thomas
President Barack Obama’s re-election campaign has canceled or postponed a series of fundraisers as negotiations continue over the nation’s debt limit.
Obama postponed fundraisers in California and Washington state in recent weeks, along with an event at the New York home of film mogul Harvey Weinstein. On Monday, Obama skipped two Washington fundraisers to continue discussions over the Aug. 2 deadline to raise the government’s borrowing limit. Vice President Joe Biden was attending one of the Democratic National Committee events. The other event was canceled.
The debt ceiling debate may affect Obama’s 50th birthday on Aug. 4. Obama could miss a high-profile Aug. 3 fundraiser in Chicago to celebrate his birthday if a resolution to the debt debate isn’t reached. The birthday event is scheduled to include performances by singer Jennifer Hudson, jazz keyboardist Herbie Hancock and rock band OK Go.
All presidents running for re-election are forced to juggle governing with campaigning. As the debt talks have dragged on for weeks, Obama has limited his travel and remained in Washington.
“It comes with the territory to some degree. In this instance, certainly this has become so consuming,” said Democratic strategist Karen Finney. “If you believe we may be close to a deal, obviously the president wants to remain here in town and be ready to do whatever needs to be done.”
The debate over the nation’s debt has become a dominant issue as his campaign builds its foundation for 2012. Obama’s campaign and the DNC raised $86 million during the spring fundraising quarter. A field of Republican presidential candidates has been hard at work in early primary states, vying to challenge Obama next year.
Republicans have criticized Obama’s handling of the debt issue, arguing that it has been shaped with 2012 in mind.
“I know the president’s worried about the next elections,” Boehner said. “But my God, shouldn’t we be worried about the country?”
Most of the canceled fundraisers are expected to be rescheduled. Weinstein’s event is expected to be held in August, while the postponed events on the West Coast have not yet been rescheduled. Biden canceled events in Atlanta, Nashville and Dallas in recent weeks but is expected to attend fundraisers in those cities this fall.
Others are pitching in for the president. First lady Michelle Obama will attend fundraisers in Salt Lake City, Utah, and Aspen, Colo., on Tuesday, while a team of campaign surrogates, including strategist David Axelrod and former White House press secretary Robert Gibbs, are expected to attend events in several U.S. cities meant to coincide with Obama’s birthday.
The fundraising postponements were first reported by the Chicago Sun-Times.
February 14th, 2011
The Washington Times
By: Stephen Dinan
President Obama projects that the gross federal debt will top $15 trillion this year, officially equalling the size of the entire U.S. economy, and will jump to nearly $21 trillion in five years’ time.
Amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out — both because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large.
Mr. Obama‘s budget said 2011 will see the biggest one-year jump in debt in history, or nearly $2 trillion in a single year. And the administration says it will reach $15.476 trillion by Sept. 30, the end of the fiscal year, to reach 102.6 percent of gross domestic product (GDP) — the first time since World War II that dubious figure has been reached.
In one often-cited study, two economists have argued that when gross debt passes 90 percent it hinders overall economic growth.
The president’s budget said debt as a percentage of GDP will top out at 106 percent in 2013, but only if the economy booms.
“I still don’t see a sense of urgency from the president about the massive federal debt,” said Sen. Lamar Alexander, Tennessee Republican. “His budget calls for too much government borrowing – even though the debt is already at a level that makes it harder to create private-sector jobs.”
Speaking on MSNBC on Monday, Jacob “Jack” Lew, the White House budget director, said their long-term plan to lower deficits will stabilize the debt.
“When we came into office, when President Obama took office, the deficit was climbing to over 10 percent of the economy. We have a plan that would bring it down to 3 percent,” he said. “That is the most rapid reduction in the deficit in history. It is what we have to do to be able to say we’re paying our bills and we’re not adding to the debt.”
The administration said debt as a percentage of GDP will stabilize at about 105 percent in the middle of this decade, though those calculations assume economic growth levels significantly above projections of the non-partisan Congressional Budget Office.
The government measures debt several ways. Debt held by the public includes the money borrowed from Social Security’s trust fund.