Christian Science Monitor reports on the President’s budget strategy: “On Monday, Obama is expected to announce that he plans to cut the budget deficit in half by the end of his term. The White House projects that the inherited deficit of $1.3 trillion will be reduced to $533 billion by 2013, as the US withdraws troops from Iraq and raises taxes on business and the wealthy,”
D-Day is impressed: “President Obama’s budget has been leaked to major news organizations in time for the Sunday papers, and it seeks to close a yawning deficit over the long term through entirely unobjectionable means like ending unnecessary wars and ensuring that everyone pays their fair share for using the public commons … The other big elements of this would be to eliminate the hedge fund loophole, which would tax their income as income instead of capital gains, and to institute a cap-and-trade plan for carbon emissions, which would provide revenue to the federal government by selling carbon credits at auction. And while floating a deficit equal to about 3% of GDP in 2013, which would be remarkable given the investments being made, we would have a more efficient health care system that costs less and covers more people in return.”
Stan Collender praises end of dishonest budget gimmicks, though notes the smart politics: “There are two reasons why this probably wasn’t that tough of a call for the White House. First, the president has made transparency an issue in much of what he has been talking about since Inauguration Day. Second, the best budget strategy for the administration is to get all of the bad news on the budget out as early as possible, especially when it can be blamed on the previous president.”
Managed Care Matters on health care budget honesty: “By acknowledging the real cost of Medicare physician compensation, the President is being honest with the public about the program’s costs. That honesty is exactly what we need – a clear understanding of the system’s costs and cost drivers.”
McClatchy analysis oddly deems budget “optimistic” because “In order to achieve his goal of cutting the federal budget deficit in half, to $533 billion by 2013, President Barack Obama would need cooperation from Congress; the U.S. and world economies; Iraqi political and militia leaders; Afghan warlords and politicians; and perhaps even Iran, China and Pakistan.”
Uh, presidents need cooperation to accomplish anything. This is not news. Well, maybe to George W. Bush.
Crooks and Liars on recycled conservative lies: “In his first budget, President Obama apparently plans to keep his campaign promise to let the Bush tax cuts expire for Americans making over $250,000 a year. And just as during the election, Republican leaders are falsely claiming that Obama’s proposal constitutes a tax hike on small business owners. This time, it is Senate Majority Leader Mitch McConnell echoing John McCain and Joe the Plumber in spreading the lie.” (The Hill headline, “McConnell: Don’t raise taxes on the wealthy.”
Fiscal Responsibility Summit Today
What’s wrong with the story of entitlements wrecking the economy? Plenty.
For starters, the $56 trillion “unfunded liability” figure relies on creative accounting. Only about $6.36 trillion is the actual public debt, according to the U.S. Treasury. Most of the number Peterson cites is a combination of the 75-year worst-case projections for Social Security, Medicare and Medicaid.
These three programs face very different challenges and remedies. Social Security’s accounts are actually near long-term balance. The Congressional Budget Office puts the 75-year shortfall at only about one-third of 1 percent of projected gross domestic product.
Social Security is financed by taxes on wages — and since the mid-1970s, wage growth has stagnated. If median wages rose with productivity growth, as they did during the first three decades after World War II, Social Security would enjoy a big surplus. Even without a raise for working America, Social Security needs only minor adjustments.
Medicare really does face big deficits. But that’s because Medicare is part of a hugely inefficient, fragmented health insurance system. It makes no sense to “reform” Medicare in isolation.
No doubt Obama hopes that he can bring Peterson and others like him on board for universal coverage while promising to stem the growth in healthcare costs — and there may even be a political basis for that agreement. The more troubling question is whether he will capitulate to demands for cutbacks in Social Security as part of a fiscal “grand bargain.” That would break promises he made during last year’s campaign, when he vowed to raise taxes rather than cut benefits.
What bothers some liberal and progressive observers is that Peter Orszag, director of the Office of Management and Budget, coauthored a plan three years ago … that contemplated a combination tax of increases and benefit cuts to achieve program solvency between now and 2080. Yet there was precious little in the Diamond-Orszag proposal to please conservative or even centrist critics of Social Security — not only because it relied very heavily on tax increases to close any future fiscal shortfall, but also because it offset some of the cuts with progressive benefit improvements for the poor, widowed and disabled.
When the subject of Social Security comes up during the summit, both the president and his budget chief are already on record strongly preferring taxes to cuts in order to achieve solvency. But there is no urgent reason to tinker with Social Security today or tomorrow. And there is every reason to reassure the boomers who will soon start receiving those checks, after paying into the system for the past 40 years or more, that there will be no significant reductions. Any threatened cuts, as economist Dean Baker recently warned, would only discourage spending and reduce confidence at a moment when that is the opposite of what we need most.
A White House attempt to alter Social Security, despite its strong footing, has been shelved. NYT: “Mr. Obama considered announcing the formation of a Social Security task force at a White House ‘fiscal responsibility summit’ that he will convene on Monday. But several Democrats said that idea had been shelved, partly because of objections from House and Senate leaders … Despite Mr. Obama’s interest, his political and policy advisers are divided, with most arguing that taking on Social Security would overload a legislative system already strained by the economy and war.”
Step Closer To Temporary Nationalization?
While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock. Bank executives hope the stake will be closer to 25%, these people said. Any such move would give federal officials far greater influence over one of the world’s largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn’t indicated if it supports the plan, according to people with knowledge of the talks…
…Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup. The move wouldn’t cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements
Big Picture’s Barry Ritholtz is skeptical: “I don’t for a minute believe it won’t cost taxpyers more money — we are that much more involved with Citi — so we would have to rescue them. Let’s see if Rick Santelli decides to rant about this also.”
(Speaking of Santelli, Crooks and Liars on Santelli’s economic acumen: “Rick Santelli said the economy was healthy right before it crashed.”)
NYT looks at the “stress test” process that some say could lead to more nationalization.
First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.
Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.
Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders…
…the funds needed to bring these banks fully back to life would greatly exceed what they’re currently worth. Citi and BofA have a combined market value of less than $30 billion, and even that value is mainly if not entirely based on the hope that stockholders will get a piece of a government handout. And if it’s basically putting up all the money, the government should get ownership in return.
Calculated Risk reacts: ” For the banks that pass the stress tests, releasing the results will be a huge boost to confidence, and for the banks that fail, this gives the administration an out [so] they can be preprivatized [aka temporary nationalization.]”
In one of her first decisions, Ms. Schapiro reversed a policy of her predecessor, Christopher Cox, that had required enforcement lawyers to obtain the consent of commissioners before moving to resolve major cases. With the commission dominated by opponents of government regulation, this had the effect of discouraging cases and reducing penalties…
…She says she will work quickly to adopt rules to minimize the conflicts of interest at credit-rating agencies that many experts say contributed to the current crisis. She is exploring whether to impose restrictions on short-selling, a type of trade in which an investor profits on stock declines. One idea she is considering is the revival of the uptick rule, a regulation that prohibited short-selling while a stock is declining.
She has committed to moving quickly to let shareholders have more say in executive compensation and board elections. Other chairmen throughout the years had sought the adoption of similar proposals, only to be blocked by powerful corporate interests. She is studying proposals for greater disclosures of the qualifications of board members, particularly those involved in assessing risks and setting executive compensation.
NYT reports on momentum for “clawback” legislation, for shareholders to take back excessive executive compensation for failed execs: “Currently there is no legal mechanism for forcing the regurgitation of past pay, so such efforts would need to be bolstered by new legislation. Clawbacks also promise to be a hot-button issue at shareholder meetings in coming months. Representative Henry A. Waxman, the California Democrat who heads the House Energy and Commerce Committee, has called for recovery of executive pay at companies that collapse.”
How Will Obama Finance Health Care Reform?
According to … sources, Obama will restate his commitment to making health care available to everybody, to improving the quality of care, and to bringing its costs under control–in effect, reiterating the promises he’s made since he started running for president. He will also call for putting aside money in the budget for fulfilling that commitment–a sum, I’m told, that will be “significant” and enough to convince skeptics he’s serious about the endeavor.
Some of that money will represent savings from other government health programs. For example, Obama will propose that the government reduce the excessive payments it now gives to private insurers participating in the Medicare program. Another source of funds will be a financial contribution from medium- and large-employers who don’t provide employees with health insurance.
But even when all of this money is put together, it won’t be enough to pay the very high cost of universal coverage … although Obama will aggressively pursue reforms designed to make medical care less expensive over time, it will be many years before those reforms can yield significant savings.
Here’s where things get interesting. Obama will say he’s determined to find that remaining sum, through offsetting revenue increases or spending cuts that will allow him to stay true to his pledge of fiscal responsibility. But Obama won’t be specifying the offsets in this budget overview. Instead, he’ll pledge to work with Congress on identifying them.
Gov. Schwarzenegger urges GOP to get behind universal health care. From ABC’s This Week: “You’ve got to listen to the people. If the nation is screaming out loud, ‘We need health care reform. We want to have universal health care. We want to have everyone insured. We want to bring the costs down. We want everyone to have access.’ I mean, that’s what they want. That’s what you do.”
Stimulus Battle Marches On
Republican governors split sharply during the weekend over how to respond to the economic crisis … Several governors, nearly all of them Southerners known to have national ambitions, have been withering in their criticism of Mr. Obama’s stimulus plan …
…After initially saying they might reject any federal aid, several conservative governors said in interviews over the weekend that they were likely to reject only the money for expanded unemployment compensation because of federal strings that could require them to provide relief to part-time workers who lose jobs as well as to full-time workers. Many other states already provide such aid…
…[FL Gov. Charlie] Crist took issue with some of the Republican governors’ criticism of the unemployment compensation. “In the past five weeks, I’ve visited six unemployment offices throughout Florida,” he said. “I look into the eyes of these people, and I understand that the challenges are serious that they’re having to deal with, and I want to do everything I can to help them.”
Econospeak: “As these governors decide that the unemployed of their states are less important than a little political pandering to the rightwing, maybe we should check … how much the unemployment rate has increased from December 2007 to December 2008 [in their states.]”
W. Post on what the economic recovery plan means for our government: “The stimulus package is not only a political crucible for Obama and the congressional Democrats who pushed it through; it is also the ultimate test of government’s ability to deliver, from a vast array of federal agencies and departments down to state and local offices across the country. It will be up to thousands of Cabinet undersecretaries, regional agency directors and local contracting officers to get the stimulus money out fast enough to boost the economy and to meet Obama’s broader policy goals.”
W. Post on governors looking for autonomy: “governors of both political parties said in interviews yesterday that the Obama administration should give states flexibility to make smart investments in education, health care and transportation.” State reports govs want “influence in crafting new energy and transportation polices” particularly cap-and-trade, gas tax reform and the speedy passage of the next transportation bill.
LA Times notes the buik of infrastructure spending goiing to “old school fix-ups”: “Billions in infrastructure spending is likely to go for less-glamorous but widely distributed projects such as repaving battered streets, repairing rundown schools and replacing aging sewer lines … Brian Turmail of the Associated General Contractors of America [said]: “Just catching up on a big backlog of maintenance needs in itself will have a lasting legacy. In some older inner-city areas, if that money were used for school renovation, you wouldn’t get a Grand Coulee Dam, but you’d get a legacy that would be just as significant in those communities of going from buildings that are largely eyesores to buildings that are sources of community pride[.]”
Automaker Bankruptcy Returns As Possibility
Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.
While acknowledging the grimness of the task, administration officials involved in the auto talks said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings. They stressed the latest efforts were “due diligence” on the part of the government advisers, and that bankruptcy financing may not be necessary.
Still, people involved in talks with senior Obama administration officials said that the administration believes that the option of Chapter 11 filings by the two auto makers needs to be seriously considered.
“Everything is on the table right now,” one person involved in the matter said, adding that President Barack Obama doesn’t want to see more massive job losses in the auto industry. His administration also doesn’t want to anger the United Auto Workers by appearing to push for bankruptcy, this person added.
NYT editorial board, generally supportive of auto aid, chastises Chrysler owner Cerberus Capital Management for not putting money up: “…Cerberus said giving fresh money would violate its fiduciary duty to investors, breaking company rules limiting how much it can commit to any given investment. We suspect these rules would be more pliant if Cerberus deemed Chrysler to be a good deal. It seems the secretive private-equity fund is willing to gamble on Chrysler’s survival with the taxpayer’s dime, but not its own.”
Crooks and Liars: “Granholm: GOP wants ‘creative destruction’ for auto industry”
Climate Crisis: Cap-and-Trade Watch
Climate Progress flags the global warming news within NYT budget preview: “…yes, we will see a cap-and-trade bill on Obama’s desk in FY2010 — between October 1, 2009 and September 30, 2010 … as a matter of politics, the vast majority of the revenues from the auction will need to be returned to taxpayers — that is to say, the vast middle class. I think at least 60% to 80% needs to be refunded to start with, rising to 80% to 90% within 10 years. Otherwise conservative opponents will simply attack this entire effort as a tax…”
Grist’s Clark Williams-Derry on Europe’s cap-and-trade progress: “A few years back, Europe’s cap-and-trade system, called the ETS, was taking a beating in the press. Some of the criticism was legit: the program really did make some silly missteps in the early years … the good thing about making a mistake is that you can learn from it. And that’s just what the ETS has done … nations participating in the ETS have begun auctioning off permits rather than handing them out for free. And now, there’s evidence that the ETS has really begun to reduce emissions.”
High-Speed Rail Watch
.."Tell me how spending $8 billion in this bill to have a high-speed rail line between Los Angeles and Las Vegas is going to help the construction worker in my district," said House Republican leader John Boehner, whose district is just north of Cincinnati.
Actually, some of the money might ride his way. One offshoot of the Midwest network would connect the Ohio cities of Cleveland, Columbus and Cincinnati.
New Conservative Talking Point on EFCA
DC Examiner tries to call pro-EFCA congresspeople hypocrites for 2001 letter supporting secret ballot labor election in a Mexico case.
But those congresspeople intervened because management was depriving workers of their right to choose representation. EFCA would not take away secret ballot, only gives workers right to choose how to represent themselves.
Terrance Health contributed to the making of this Breakfast