GECON200-Topic #3: Tax and Spend

The Center for Budget and Policy Priorities recently released a study that shows a breakdown of the source of the budget deficit in the years to come.Noticeably the TARP and stimulus only make up a small portion of the deficits in future years since these are one time expenditures (doled out over the course of a few years). However, the recession, two wars, and tax cuts make up a large majority of future deficits.

President Obama’s proposed budget, projects an increase in the deficit in the near term, but reductions by the end of the decade. The President has also called for a bipartisan panel to come up with proposed solutions to the deficit, however the panel was met with disapproval in Congress.

Subsidies are an important way the government stimulates some activities while discouraging others. In particular farm subsidies are a huge deal in the U.S., with frequent calls to change policy but few results. A new proposed cut to farm subsidies looks to be dead in the water. Tax expenditures (through subsidies and credits) have become a growing portion of our tax code. One of the problems with tax expenditures, is that politically they are easy to start but very difficult to end.

Questions you might try to answer:

  • Do you believe that we currently need to balance our budget as a nation and ‘live within our means’?
  • If we are going to balance our budget, should we prioritize cutting spending or raising taxes? In either scenario, discuss the political feasibility of your proposal.
  • Many pundits are against the expiration of the “Bush Tax Cuts”, particularly in the time of a recession. Where do you stand on this, and why?
  • Consider the rising cost of Medicare to the government, and what we need to do in order to tackle this problem.
  • While farm subsidies are only a small portion of our government’s ‘tax expenditures’, subsidies are a very important part of our overall government strategy of giving incentives to promote or discourage certain behavior. What do you believe we should do about tax subsidies?

20 thoughts on “GECON200-Topic #3: Tax and Spend”

  1. As easy as it would be to say, the United States must start having a balanced budget from now on; it is impractical if not impossible. What President Obama is proposing in his long term budget is to reduce the national debt to approximately 4% of annual GDP by 2020 from where it currently stand at roughly 10% (1). The bi-partisan panel he has proposed seems to be one of the best solutions in order to avoid situations similar to the obsolete fighter jet production. Things often stalemate in Congress even though we all agree things need to change. We MUST cut out what is merely not necessary and then see where we are.

    From the CBPP link, it is clear that a majority of the accruing debt is due to the Bush tax cuts. This is the first thing that needs to go. The burden this group of policies is putting on the back of our nation is clearly detrimental. I agree with Rep. Jim McDermott’s (D., Wash.) assessment: “There’s no proof that the Bush tax cuts had anything but a negative effect”. Those Americans affected by the expiration of the tax cuts are only those who make between $250,000 and $373,650, less than 2% of the population (2).

    Our nation faces a very different fiscal landscape than it has in the past. Things such as allocations for ‘green’ energy jobs and a growing cost of Medicare squeeze the budget more and more annually. For example, over $450 million has been allocated for green jobs to help ‘cities, counties and states implement programs that use energy better’ from the Energy Efficiency and Conservation Block Grant (3). The best way I see to keep up with the new demands that our society and our government face is to raise taxes. This can begin with the expiration of the Bush tax cuts.

    (1)http://www.usatoday.com/news/washington/2010-02-01-budget-analysis_N.htm
    (2)http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201001191713dowjonesdjonline000448&title=among-democratscalls-to-extend-bush-tax-cuts
    (3) http://www.eecbg.energy.gov/

  2. Although many critics suggest that the budget deficits our nation now faces come from the new policies pursued by President Obama and the 111th Congress, statistics show that this isn’t the sole cause of the deficit plaguing our nation. The failure of beleaguered mortgage giants Fannie Mae and Freddie Mac in early September certainly didn’t help the Obama administration with this deficit quandary. The Troubled Assets Relief Program (TARP) enacted by the Bush administration and Congress as a rescue package attempting to offset the damage produced by the GSEs was very costly at the time. Together, TARP and the GSEs accounted for $245 billion of 2009’s fiscal deficit (1). This is not to say, however, that Obama shouldn’t take partial blame for this deficit. In actuality, there was almost $200 billion in costs from President Obama’s economic stimulus bill, along with increases in programs such as food stamps and unemployment benefits (2). Needless to say, TARP and the stimulus bill only make up a small portion of the nation’s deficit in the next decade, because they are both one-time expenditures. The fiscal deficits within the next decade primarily come from wars in Iraq and Afghanistan, recovery measures, the economic downturn, and yep, you guessed it, the infamous legacy of Bush Policy (1).

    Currently, the Obama administration is working ardently to come up with solutions to better the deficit predicament. Something that I find can get in the way of conciliation would be gridlock. Although this isn’t such an issue now as it was a decade ago, gridlock is always a barrier to an appeased Congress. There is already an intense Republican opposition in response to Obama’s bipartisan commission agenda. The House and Senate Republican leaders have signaled strongly that they will not cooperate (3). I find it hypocritical of Senator Judd Gregg of New Hampshire to decline an interview to see if he would serve on the commission if asked. After all, he was the chief co-sponsor of the Bipartisan Task Force for Responsible Fiscal Action Act of 2009 (4). Overall, I see this kind of behavior present within the Congress detrimental, negligent, and troublesome to any prospects for our nation’s economy in the foreseeable future. In my opinion, the Congress needs to get its act together and members should come to terms with one another regardless of political affiliation before any anticipation of economic accomplishment comes forth.

    Sources:
    1) http://www.cbpp.org/cms/index.cfm?fa=view&id=3036
    2) http://www.foxnews.com/politics/2009/10/07/budget-deficit-hit-record-trillion/
    3) http://www.nytimes.com/2010/02/02/us/politics/02budget.html
    4) http://gregg.senate.gov/news/press/release/?id=31b25d12-a0ec-4532-b14d-9a7f311a8529

  3. $1.6 trillion dollars, that number is the United States’ national deficit for 2010. Just to put that in perspective, the perceived national deficit is enough money to purchase 924,444,444 packages of ramen noodles, enough to feed a single college student for approximately 78.5 hours during finals week. But in all seriousness, the deficit is massive and our national debt is only growing, by approximately 1.6 trillion dollars per year (1). An even bigger problem, however, is the fact that no one on either side can seem to agree long enough to do anything about it. I feel as though a bi-partisan panel created by Congress is the best way to fix this issue. While Obama’s panel is a step in the right direction, bringing republicans and democrats together to solve the issue, Congress is by no means legally bound to uphold their recommendation. Thus, with a Congressionally assembled panel two things are accomplished: One, both sides cannot complain they were not equally represented and two, the decision cannot be discarded by those who feel their financial toes are being tread upon.

    Two obstacles face a trimming of the deficit: those who oppose raising taxes and those who oppose cutting spending due to job loss. I see no other way around these two measures as a feasible means of cutting the deficit. Those hit hardest by budget trimming are programs like NASA, which has had its Constellation program, costing a total of $230 billion by 2025, slated to be cut (2). Granted, I can understand NASA’s complaints, but will another mission to the moon truly change anything? Howard McCurdy, an expert on space policy at American University, stated, “scrapping Constellation would not harm overall exploration prospects so much as it would draw attention away from the moon and toward more distant parts of the galaxy.” (3) Those in higher income brackets would also feel the pull from the White House; individuals making over $200,000 per year and married couples making over $250,000 per year would lose their Bush-era tax cuts, bringing in an additional $1.1 trillion in the next ten years (4). Now, I would like to point out, that despite constant criticism from both sides of Congress, no one has proposed anything better. America may just have to “suck-it-up”, so to speak, and pay for current and past economic mistakes to ensure that our government does not go bankrupt. Taxes will scare the American people, and anger the super wealthy, but I feel Buddhist meditation master Patrul Rinpoché said it best, “A person may have all the money and wealth in the world, but that does not change the fact that he only must have enough riches to feed, clothe, and shelter himself.”

    (1) http://zfacts.com/p/790.html
    (2) http://www.gao.gov/new.items/d09844.pdf
    (3) http://www.usnews.com/money/personal-finance/articles/2010/02/02/breaking-down-obamas-budget.html#
    (4) http://www.huffingtonpost.com/2010/02/01/obama-budget-drops-bush-e_n_444730.html

  4. In an ideal world, we would just be able to go around slapping people across the face and tell them that they need to “person up” for the betterment of the whole, even if the betterment won’t come right away. Unfortunately, I can’t just go around slapping people that need to be slapped, so we must explore other alternatives to fixing the budget.

    Like Matt, I agree that Obama’s proposals appear to be the best solution to these problems. However, I am no economic expert, so that doesn’t exactly mean a whole lot to anyone. I’m going to go out on a limb here and say that a pretty hefty chunk of why we’re having such a hard time solving this problem is more of a political thing. From the articles provided, it seems to me that we have all of the tools to help ease us out of the recession, Congress just can’t agree on how to put them to work. The politics of the situation have made it so that valid plans to solve the deficit, including Congressman Paul Ryan’s (R), which eventually achieves a balanced budget, get attacked as being “vicious,” even if President Obama agreed with some of his ideas previously. (1)

    I also feel that giving aid to state and local governments is in the best interest of the country. In my opinion, it makes sense to start at the smallest level (which is where everyone functions) before you work at the top, otherwise there might be some kinks in the system. (That’s just me speculating; again, no econ expert here). Governor Christie of New Jersey’s administration estimates a $1.2 billion deficit in the fiscal year that runs through June 30. The state also faces an $8 billion to $11 billion shortfall next fiscal year (2). Such economic crises will surely lead to a drop in fist-pumping. Arizona also faces a dismal deficit of $2 billion, which is only topped by California’s deficit. The Arizona State Senate President even says “it amazes me we’re having this much trouble [with the budget crisis]. This is the easy part.” (3)

    1. Gerson, M. (2010, February 10). No deficit of cynicism. The Washington Post, pp. A17.

    2. Riccardi, N. (2009, November 27). The nation; arizona budget crisis deepens; with lawmakers facing a deficit of almost $2 billion, the state’s plight is ranked second only to california’s. Los Angeles Times, pp. 24.

    3. Tamari, J., & Bureau, I. T. (2010, February 5). Christie plans speech to lawmakers on budget deficit. The Philadelphia Inquirer, pp. B08.

    1. So you are basically saying that grass roots politics is the best way to solve this issue. Although aid to state and local governments can help, sometimes I feel like that is risky business. I guess it just depends on what type of aid you are talking about. For example, block grants are a possible solution because they give states general provisions as to how the money provided to aid them is to be spent. On the other hand, we definitely want to avoid creeping categorization because that’s when a lot of states get into trouble with money needing to be placed in certain areas that solely benefit the federal government’s agenda. Rather than allowing states to prioritize where they feel the money should be spent, the federal government tends to give money for narrowly-defined purposes which aren’t always the most beneficial for the states. But I definitely agree that the Congress seems to have a lot of issues on agreeing with plans that are legitimate, thus my spiel on gridlock.

      1. You can take the approach that the federal government may not always know the most beneficial, narrowly defined ways to use the federal funding. Or on the other hand, you can view the situation in that the federal government has a certain agenda that it is trying to accomplish and that setting aside funds strictly for unemployment compensation or education for example. In my opinion, revenue sharing that we saw come to an end in the Reagan administration, is not necessarily the best way to go.

  5. There is no one cure-all solution to the huge problem our country faces in trying to reduce the growing deficit. However, if the government decreases spending slightly in certain areas over a prolonged period of time, the deficit will hopefully inch somewhat closer to the percentage economists recommend. One of the areas that would directly decrease government spending is agriculture. Issuing farm subsidies has become one of America’s largest corporate welfare programs. With Obama’s proposed 2011 budget, the government would lower the direct payments to farmers from $40,000 to $30,000 a year. This in turn would add to saving the government $11 billion (1) and taxpayers $2.2 billion over ten years (2).

    It may be true that farmers have already made business decisions and this “sudden” decrease in government support would affect farmers greatly, but what one must realize is this is over the course of ten years. Farmers will learn to adjust and so will consumers. Like Heritage Foundation’s Riedl said, “Obviously people aren’t going to stop buying food.” (3) We must learn to prioritize and take new bold measures or else our country is not going to go anywhere in terms of lowering the deficit.

    Furthermore, farms in the U.S. have a huge variety of sizes, production abilities, and profits. These farm subsidies that are in place don’t seem to account for this large range, seeing that farms making over $500,000 annually used to be able to get government money. The 2008 bill did try to get rid of this injustice, but the payments are still applied to farmers that don’t make more than $500,000 a year from farm profits. (1) That’s still a lot of farmers getting government money. So really, the proposed cuts in agricultural funding will only prevent non-struggling wealthy farmers from getting more money than they need and providing just enough financial support to smaller farms so our country doesn’t starve.

    1.http://business.theatlantic.com/2010/02 has_the_time_come_to_cut_farm_subsidies.php

    2.http://www.desmoinesregister.com/article/20100201/BUSINESS01/100201007/Obama-proposes-cutting-farm-subsidies–boosting-school-lunch

    3.http://news.yahoo.com/s/ap/20100210/ap_on_bi_ge/us_farm_scene_subsidies_3

    1. Yes, there is going to be some protest in response to lowering the subsidies the government is providing to the farmers. However, I would have to agree that this method will be better for the economy on a holistic level in the span of a decade or so. It’s not like we are planning to discontinue providing aid for farmers; we are just planning on reducing the amount spent on the agricultural portion of our economy so the government saves money, and we as taxpayers benefit as well.

      What I find funny about these subsidies is that after handing out commodity subsidies that pay farmers to increase their production of crops, Washington then turns around and pays other farmers NOT TO FARM 40 million acres of farmland each year (1). Counterproductive, much? This just epitomizes the economic inconsistencies of the current US farm policy.

      Source:

      1) http://www.heritage.org/Research/Agriculture/bg2043es.cfm

  6. The amount of money that the federal government plans to spend is becoming unfathomable. The deficit (and the entire federal government for that matter) has become so removed from everyday American life that it is almost virtual or intangible. We don’t realize that our $12.4 trillion debt is REAL money that we will have to pay back at some point in time. “Politicians and bureaucrats are in charge of spending money of the faceless, nameless taxpayer, who has no direct control over how the money is spent. And therefore, they have very little incentive to spend it wisely” (1). Obama constantly speaks of “fiscal responsibility” and “balancing the budget”, but instead of striving to truly reduce government spending, he signed a new law that will raise our legal debt ceiling by $2 trillion to a total of $14.3 trillion (2). Spending more money (or allowing more money to be borrowed) is the exact opposite direction we need to be travelling.
    Fundamentally as a society, we need to decrease our dependence on the government and take personal responsibility for our own actions and well-being. This includes completely revamping government entitlement programs (i.e. handouts) like social security and Medicare. This will have to be a long transitional process, but forcing people to take responsibility for their own retirement will be just first step in stopping ridiculous spending on government entitlements required by law.
    We cannot continue spending money that we do not have. In 1997, the Balanced Budget Amendment failed to pass the Senate (3), and from then on, our national debt has increased by $7 trillion (4). I propose that Congress pass this law that requires the president to balance the budget every year. Yes, that means zero deficit, or even a surplus. We would see very quickly that if the budget were balanced through massive tax increases, the American people would become very angry. We must reduce government spending, not just figure out a new way to pay for it.

    1) http://socialismdoesntwork.com/government-waste/
    2) http://www1.voanews.com/english/news/economy-and-business/Obama-Raises-Debt-Ceiling-84297252.html
    3) http://www.cnn.com/ALLPOLITICS/1997/gen/resources/infocus/budget/amendment.html
    4) http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

  7. Finding a solution to balance our national budget is certainly not as easy task. It will take many steps and time and everyone must contribute their part, both the government and the American citizens. Obama’s proposed budget “projects that the deficit will peak at nearly $1.6 trillion in the current fiscal year, a post-World War II record, and then decline but remain at economically troublesome levels over the remainder of the decade.” (1) This is something Americans do not want to hear. We need not just long-term solutions but some short ones as well. President Obama obviously cannot fix this issue alone; Congress needs to help as well. The President’s idea of a bipartisan panel in my opinion is a great idea. That way Republicans and Democrats can decide together about how to cut costs or raise revenue in areas including Social Security, Medicare and taxes. (2) But Congress seems to not want to cooperate and axed the idea, afraid that their respective state will be hurt if they cut spending in that area.

    If no one can agree to cut spending, then the only solution is to raise taxes. As Obama’s term in office continues, his disapproval rating has slowly been increasing, and had a little spike since the beginning of the New Year. (3) I do not think that raising taxes will help this rating decline.

    So if each branch of the government and its citizens will not agree on a solution, then what do we do? Obviously there will have to be a compromise, and someone will have to give up something. I think the best thing to do is to install a “rotating” bipartisan council. That way its members aren’t permanent, and each congressman can have a chance to guide their fellow congressmen in where to cut spending. This will certainly help Obama’s proposed budget look a little less giant, and spending will be cut in specific states for only a limited amount of time. Where spending is cut will have to be up to the council’s digression, and with this in place hopefully we do not have to see an increase in taxes. The Obama administration has to stop pointing fingers at the past administration and get to work on getting us out of this crisis.

    Sources:
    1. http://www.nytimes.com/2010/02/02/us/politics/02budget.html
    2. http://online.wsj.com/article/SB125911304434363357.html
    3. http://www.pollster.com/polls/us/jobapproval-obama.php

    1. I feel like the reason that Obama and his administration is pointing fingers is in response to a lack of responsibility taken by Congressional Republicans. As I stated in my blog, the vast majority of the deficit that our country is facing and will continue to face is due to the Bush tax cuts. Those policies have left our country in a huge shortage of tax revenue in the past couple years and will continue to do so until they are altered or abolished.

  8. The main strategy to avoid deficit is probably the most basic principle of economics: spending less than one earns. But this is much easier said than done, especially in the federal government’s case. With a plethora of costs for which it is responsible and a high standard of living in the United States, it is difficult for the government to find areas in which it can simply cut funding.
    Although they can try raising taxes and letting the Bush tax cuts expire, even Democratic Congressional Campaign Committee Chairman Chris Van Hollen (Md.) admits that the projected $850,000 in revenue that this will bring will not take care of the deficit (1). For this reason it is imperative that the government makes smart decisions with its money and put it into things that will spur further activity instead of throwing the money away. Tax subsidies are a positive thing as long as they are consistent with the goal of “preventing a short-term deficit increase due to stimulative policy from adding excessively to federal debt in the long run” set forth by the Congressional Budget office (2). Citing an example from class, the government could simply put the money into a project such as manufacturing expensive planes and throwing them in the ocean just to stimulate the economy but using this money as an agricultural subsidy and supporting local farms thereby reducing our trade deficit is a positive use for our money that will not only stimulate our economy but trim the deficit as well.
    In short the key to reducing the deficit is simple, make wise decisions with our money.

    (1) http://thehill.com/homenews/house/80133-democrats-supporting-ending-tax-cut-but-see-it-as-tough-sell
    (2) http://www.cbo.gov/ftpdocs/111xx/doc11100/02-2010-Employment_Testimony.pdf

  9. I do not believe that it is necessary to balance our budget as a nation and ‘live within our means.’ However, with the national deficit at $1.6 trillion dollars for the year 2010 something needs to be done. I believe the best way to control the deficit would be to cut unnecessary spending from the government rather than raising taxes. However, the fact that this year is a congressional election year is causing a gridlock, in Congress, on solutions to the reducing the size of the United States deficit. Many members of Congress are looking out for their own political wellbeing rather than the economic wellbeing of the country. Congress recently rejected a proposal to create a bipartisan panel to find ways to cut the national deficit. A bipartisan panel, in my opinion, would be the best solution because no one wants to raise taxes or cut jobs in their own districts. However, sensing political advantage, Republicans are resisted President Obama’s call for a bipartisan commission to cut the debt. Even seven Republican senators who had co-sponsored a bill to create a commission voted against it recently (1). If the bill had been passed the law would have required that the government to make the changes suggested by the panel. This means that if the bill had passed cuts in government spending would have definitely been made.

    President Obama has now signed an executive order to create an 18-member National Commission on Fiscal Responsibility and Reform (1). Fourteen of the members would have to agree on any deficit-reduction plan. If that happens, House Speaker Nancy Pelosi and Senate Majority Leader Harry M. Reid have both agreed to put the panel’s suggestions to a vote before the end of the year (2). The problem with this plan is that there is no guarantee that any of the panel’s suggestions would ever make it through Congress. However, until Congress can see that the economic state of the country is more important than their political status we can only hope that President Obama’s National Commission can help spark some changes.

    1. http://www.nytimes.com/2010/02/17/business/economy/17gridlock.html?hp
    2. http://www.nytimes.com/2010/02/02/us/politics/02budget.html?pagewanted=1

  10. Farm subsidies have long been a controversial issue. With the budget such a large budget deficit reform is once again being called for. A major probable is that the distribution of the subsidiaries is greatly uneven. “The Environmental Working Group maintains a searchable database detailing how 75 percent of farm subsidies have gone to 10 percent of the beneficiaries in recent years, though the data goes only through 2007.”(1) It seems that many are not getting needed aid and there it is likely that favoritism is involved in the dispersal of the subsidies. It has been a complaint that huge mega-farms are getting unnecessary assistance that was intended for small family-run farms. Reform is greatly needed because “… the Agriculture Department recently said it will work with the Internal Revenue Service to stop payments to people who exceed the income limits after learning 2,702 millionaires received farm payments from 2003 to 2006 and were probably ineligible.”(1) Taxpayers’ money could be going to other social needs such as education and healthcare. With such massive budget issues it is important that these slip-ups do not happen because they add up and can become very costly. Obama’s Administration proposes to lower the caps on aid an individual farm can receive and lower the maximum income that qualifies farmers for aid.
    Many question the practice of using subsidies at all in the farm industry. If cutting back farm subsides means shrinking the farming industry in America is this necessarily a bad thing? Importing the some goods means we could receive them cheaper them if we produced them ourselves. Also, the WTO frowns upon theses subsides because they inhibit trade and do not allow foreign products equal opportunity in domestic markets.
    Unfortunately is unlikely much will change in the near future because of the political culture in our country. Agriculture interests make large campaign contributions in our country, especially in the Midwest. Their representatives in congress will be loyal to them and put the interests of their constituents before those of the nation as a whole. It is unlikely we will be able to cut back the farm subsidies to help fix the budget.

    (1)http://news.yahoo.com/s/ap/20100210/ap_on_bi_ge/us_farm_scene_subsidies_3

  11. The numbers continue to rise, showing beyond a shadow of a doubt that the US’s deficit is steadily increasing. The current deficit stands at just over one and a half trillion dollars – – a staggering amount. In attempts to handle this problem, President Obama has presented a budget that temporarily increases deficit spending by reduces it in the long run. The issue in solving this problem exists in the disparities between the two parties. In order to decrease the deficit, one of two (or a combination of the two) actions must be taken: either taxes must be raised, or spending must be cut. This is where the debate between the two parties takes place: the Republicans are starkly opposed to raising taxes, while the Democrats for the most part oppose cutting spending. (1) Seeking a compromise between the two, Obama’s plan offers a little of both by increasing taxes for the wealthy and making cuts in agriculture and farming subsidies.
    Ultimately, I think Obama is on the right path by seeking a middle ground between taxing a cutting spending. However, I currently see two problems facing Obama in passing any change: with unemployment at nearly 10%, raising taxes would seem to be foolish move, and secondly, between the combination of the recession and the health care reform debate, it seems unlikely that any cuts will be made to Medicare, Medicaid, Social Security, etc. (2) I believe, however, that in order to accomplish any decrease in our deficit we must focus on the long-term goal rather than the short-term. In this sense, spending in deficit, raising taxes, and cutting spending, though potentially harmful in the present are necessary steps to take in order to accomplish the long-term goal of reducing the deficit. Putting off dealing with the problem would be a mistake, and yet we need to have a clear plan with clear goals that finds a balance between spending and taxing. (3) I find it inevitable that taxes are raised, and I think that people will just need to accept this fact. Over the past few decades they’ve been steadily rising (especially under Bush), and people have adjusted. (2) The American public may be opposed to higher taxes, however, in order to solve this problem I think people need to be accepting of the necessary changes required for a better long-term.

    (1) http://www.nytimes.com/2009/02/27/us/politics/27web-budget.html?_r=1&pagewanted=2
    (2) http://www.businessweek.com/news/2010-02-07/hyperbole-distortion-won-t-narrow-u-s-deficit-albert-hunt.html
    (3) http://www.americanprogress.org/issues/2009/12/path_to_balance.html

  12. One might recall the incessant clamoring at the fiscal irresponsibility of the Bush administration, so the audacious fiscal actions of the current administration should be held to the same scrutinizing standard. With regards to the question as to whether or not the priority should lie with reducing current state spending or levying taxes to reduce the budget deficit, I rely on some recent research to propound my position of reducing the relatively excessive federal spending projects. Christina D. Romer and her husband David Romer have found some interesting things through research done at the University of California, Berkley (1). Traditional Keynesian theory maintains the superiority of spending over tax policy as a method to revive an economy. The Romers maintain that while spending has a multiplier of less than two (each dollar spent by the federal government will raise GDP somewhere between $1 and $2), tax cuts have historically raised GDP by $3 for every $1 cut (2). The Romers have a compelling argument that is also backed by Harvard economists Alberto Alesina and Silvia Ardagna who in August 2009 published a study called “Large changes in fiscal policy: taxes versus spending” measuring success in tax cuts versus failure in spending in 21 nations since 1970 (3). The results of that study firmly place faith in tax policy to boost GDP versus government spending to prop up demand.
    The empirical evidence is in. In January of 2009 economists from Macroeconomic Advisers were calculating that unemployment, which was then at 7.2%, would peak at 8.3% with stimulus measures enacted (4). With unemployment now at 10.6% of the labor force, a new approach might be attempted. An effective attempt would not only single out fiscal policy as an effective tool, but also include monetary policy that synchronizes with fiscal policy (5). A policy path paved with the wisdom of history would be a safe route to take versus depending on outdated Keynesian models that do not account for the economic complexity that has evolved since the 1930’s when Keynes published his work.

    (1) http://www.econ.berkeley.edu/~dromer/
    (2) http://www.nytimes.com/2009/12/13/business/economy/13view.html?_r=1
    (3) http://www.economics.harvard.edu/faculty/alesina/unpublished_papers_alesina
    (4) http://blogs.wsj.com/economics/2009/01/15/stimulus-could-pay-for-40-of-itself/
    (5) http://www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm

  13. We must realize that Obama has not created this deficit himself, and that if he were to make decisions about cutting spending or raising taxes, that the American people should try to understand his decisions. But this shouldn’t “diminish his responsibility to propose policies to address our fiscal.” (1). He needs to do what needs to be done, and he best start soon. As the governor of New Jersey, Chris Christie has said, he is “taking withering fire” for his decision making about cutting money for schools, hospitals, and New Jersey Transit system, but at least he has made a decision. (2).

    I understand that since raising taxes probably won’t happen to reduce the deficit, during the recession, it most likely, will be cutting spending somewhere. Something needs to be done, and Obama created a bipartisan commission panel to help make the decisions. I don’t feel this is the best way to go about doing this. Yes, this panel will help even out the view on decisions and they won’t be from just one politic party. (3) But the last thing needed is a panel to vote on decisions, which may take a long time, knowing how well Congress makes decisions. Also, this panel is a way for Obama to escape the blunt responsibility. As Mr. Christie, states that he is not happy about making these cuts, but he also isn’t afraid, and he is doing what he was elected to do. (2) Obama knows it is wrong to borrow money today, and leave that debt to later generations, such as our children, but what exactly is he doing directly to help prevent this. (4) Obama needs to take control and start making the hard decisions, and not putting them on his panel.
    (1) http://www.cbpp.org/cms/index.cfm?fa=view&id=3036
    (2) http://www.washingtontimes.com/news/2010/feb/16/cutting-spending-in-new-jersey/?feat=home_headlines
    (3) http://online.wsj.com/article/SB125911304434363357.html
    (4) http://www.nytimes.com/2010/02/02/us/politics/02budget.html

  14. A recession, two wars and tax cuts represent the reason behind the majority of our budget deficit today, and they will only cause it to continue to rise if something is not changed within our system soon. Yes, the deficit is large, and continues to increase, but does that mean that we simply pull out of Afghanistan, raise taxes, and miraculously recover from our economic downturn? Obviously this is an impossible and illogical solution. So what do we do? President Obama’s 2011 budget proposes to reduce anticipated deficits over the next ten years, chiefly by letting the Bush tax cuts expire on schedule for high-income taxpayers, closing certain tax loopholes and reforming the international tax system, keeping estate taxes at their 2009 parameters, enacting health care reform along the lines of the Senate- and House-passed bills, and freezing (in aggregate) most appropriations for non-security domestic programs for the next three years (1). He also stands by his campaign promotion to not raise taxes against Americans making less than $250,000 per year (2). With this proposal, I personally do not see our budget decreasing by 50% in ten years as is planned. As most of us have said, we need to raise taxes in certain areas, and cut spending in others. This may hurt some, and we may have to make certain sacrifices, but success and perseverance in any situation is never an easy feat.
    I agree with the plan to spend money on education, civilian research, food and drug safety, and biomedical research. Unfortunately, I also see a compromise needed by cutting spending on NASA operations, and farm subsidies. We could save $18 billion alone by canceling the next trip to the moon. Everyone has their own personal opinions and priorities, but even President Obama says, “Few reductions will be easy or politically painless (2.) Crop prices are high and farmer’s incomes are above average. Is it justified that they are granted government subsidies simply because they are well represented by Congressmen? I think this deficit is an area of concern, where we should all work together to meet long-term goals, which may require short-term sacrifices. Everything will regulate in the long-run if we are smart about decisions today. “If subsidies were eliminated markets would adjust,” “Nobody would starve and farmers would stay in business. Obviously people aren’t going to stop buying food.” (3).

    1: http://www.cbpp.org/cms/index.cfm?fa=view&id=3036
    2: http://www.nytimes.com/2010/02/02/us/politics/02budget.html?pagewanted=2
    3: http://news.yahoo.com/s/ap/20100210/ap_on_bi_ge/us_farm_scene_subsidies_3

  15. The national budget has been a notorious drain on the United States economy, with progressive months each steadily growing and contributing to the bathtub of debt. In fact, this past January proved to have been a record high deficit, beating the record established this past December, which broke the record set in this past November, and so on and so on, for sixteen months straight (1). However, President Obama’s recent proposed spending cuts have taken this into consideration and are attempting to plug the flow.

    While spending cuts are generally favored by the Republican party, which is known for opposing raised taxes, one of the most significant cut has faced harsh opposition from Florida Republican Senator Richard Shelby. However, this proposed cut will eliminate a costly yet outdated lunar program, one that even former astronaut Sally Ride declared “not sustainable” (2). In addition to reducing the deficit, it won’t endanger the United States’ position as a leader in space technology. This has been countered by the X-Prize, a nonprofit organization that encouraged business to takeover the space program via large prizes that have accumulated to over $100 million. As stated by the CEO Peter Diamandis, “It’s about time that it [private industry takeover] has happened in space.” (3)

    On the opposite hand, the President’s decision to allow certain tax cuts to expire for “high-income individuals” is more of a leftist, Democratic principle. While again facing resistance from a number of Republican senators, this tax restoration is planned to raise approximately $700 billion across the next ten years (4). While budget spending cuts are capable of lowering the budget deficit, it is these tax cuts that manage to underscore the deficit even more.

    If only some members of Congress would shut up and accept it for the greater good; or is that too communist?

    [1] http://www.businessweek.com/news/2010-02-17/u-s-january-budget-deficit-was-record-16th-straight-update1-.html
    [2] http://www.reuters.com/article/idUSTRE6101XF20100201
    [3] http://www.huffingtonpost.com/peter-diamandis/nasa-embraces-american-ca_b_444673.html
    [4] http://money.cnn.com/2010/02/01/pf/taxes/obama_budget_tax_changes/

  16. It seems obvious that the only reasonable solution to this huge budget deficit is to raise or at least maintain current tax rates. We learned in class that a budget deficit is when government spending exceeds the taxes collected. In order have a more balanced budget; there must be a raise in taxes. Why not a cut in government spending, you might ask? Well, for one, tax expenditures are easy to start but very difficult to end. (1) And two, lower-class citizens need the help of the government and the wealthy. They are often limited by their financial situation. And for some, that limitation affects their health, their well-being, and their survival. Because of this risk, the government must intercede and ensure that every person is given equal opportunity. In this regard, it is important for the government to not just “spread the wealth,” as Barack Obama said, but to “spread opportunity.” If we were to cut taxes, then money used to subside their survival would be extinguished. Thus, in recovering this deficit, we should not cut government spending, but increase taxes on those who have more than enough to survive.

Leave a Reply

Your email address will not be published. Required fields are marked *