Wednesday, February 18, 2009

the 1993 budget act

A little bit of economic history:

On August 10, 1993, President Clinton signed into law the Omnibus Budget Reconciliation Act of 1993 (the 1993 Budget Act). Four days earlier, it had passed the Senate by a vote of 51 to 50 – with Vice President Gore breaking a tie and casting the deciding 51st vote for passage. (Note: You didn’t have to get 60 votes to pass anything in the Senate in those days. The filibuster was reserved for extraordinary occasions, like denying civil rights to black people.) The day before that it had passed the House by a vote of 218 to 216. In both Houses of Congress, the vote literally could not have been closer. And in both cases, not a single Republican voted in support of the Act.

The 1993 Budget Act was President Clinton’s response to mounting federal deficits and debt. Under President Carter, the federal deficit had been modest – averaging $55 billion a year. But under Reagan, it exploded to an average of $186 billion a year. Federal spending as a percentage of GDP went from less than 21% under Carter to an average of around 23% under Reagan. During the eight years Reagan was president the national debt nearly tripled, from roughly $900 billion to $2.6 trillion. It rose from 34% of GDP to 55% of GDP. By the last full year of George H.W. Bush’s presidency, the federal budget deficit had reached a record $290 billion (after having also set a record the previous year). Reaganomics had resulted in a bloodbath of red ink. (As an aside, contrary to popular myth, economic growth averaged slightly higher under Carter than it did under Reagan.)

All that debt was creating a political backlash. During the 1992 presidential campaign, independent candidate Ross Perot managed to garner 19% of the vote, with opposition to continuing federal budget deficits one of the cornerstones of his campaign.

The 1993 Budget Act was President Clinton’s response to the economic and political consequences of mounting federal debt. Among other things,
  • It created 36 percent and 39.6 income tax rates for individuals.
  • It created a 35 percent income tax rate for corporations.
  • The cap on Medicare taxes was repealed.
  • Transportation fuels taxes were raised by 4.3 cents per gallon.
  • The taxable portion of Social Security benefits was raised.
  • The phase-out of the personal exemption and limit on itemized deductions were permanently extended.
As you might expect, Republicans went nuts. Here are a few of their statements at the time (thanks to David Waldman):

Rep. Robert Michel (R-IL), Los Angeles Times, 5/28/93:
They will remember who let loose this deadly virus into our economic bloodstream.

Rep. Newt Gingrich (R-GA), GOP Press Conference, House TV Gallery, 8/5/93:

I believe this will lead to a recession next year. This is the Democrat machine's recession, and each one of them will be held personally accountable.

Rep. John Kasich (R-OH), 5/27/93:

...your economic program is a job killer.

Rep. John Kasich (R-OH), CNN, 7/28/93:

This plan will not work. If it was to work, then I'd have to become a Democrat...

Rep. John Kasich (R-OH), CNN, 7/28/93:

...We have a stagnant economy and there is nothing down the road that makes it look like we're going to have the kind of economic growth that puts people to work.

Rep. John Kasich (R-OH), 8/5/93:

Do you know what? This is your package. We will come back here next year and try to help you when this puts the economy in the gutter...
Rep. John Kasich (R-OH), GOP News Conference, Senate Gallery, 8/3/93:

Come next year... we're going to find out whether we have higher deficits, we're going to find out whether we have a slower economy, we're going to find out what's going to happen to interest rates, and it's our bet that this is a job killer.

Rep. Robert Dornan (R-CA), 8/5/93:

The problem with our economy is that there is too little employment and too little growth. This plan will do nothing to improve that condition and will actually make it worse.

Rep. Christopher Cox (R-CA), 5/27/93:

This is really the Dr. Kevorkian plan for our economy.

Rep. Thomas Ewing (R-IL), 8/5/93:

...This bill is a disaster waiting to happen.

Rep. Jim Ramstad (R-MN), 3/17/93:

...will stifle economic growth, destroy jobs, reduce revenues, and increase the deficit.

Rep. Phil Crane (R-IL), 3/18/93:

...a recipe for economic and fiscal disaster.

Rep. Dick Armey, CNN, 2/18/93:

I will tell you, this program will not give you deficit reduction. It will be a disaster for the performance of the economy.
Rep. Dick Armey (R-TX), CNN, 8/2/93:

The impact on job creation is going to be devastating, and the American young people in particular will suffer a fairly substantial deferment of their lives because there simply won't be jobs for the next two to three years to go around to our young graduates across the country.

Rep. Dick Armey (R-TX), CNN, 8/2/93:

Clearly this is a job killer in the short run. The revenues forecast for this budget will not materialize; the costs of this budget will be greater than what is forecast. The deficit will be worse, and it is not a good omen for the American economy.

Rep. Dick Armey (R-TX), 8/5/93:

The economy will sputter along. Dreams will be put off and all this for the hollow promise of deficit reduction and magical theories of lower interest rates. Like so many of the President's past promises, deficit reduction will be another cruel hoax.
Rep. Wally Herger (R-CA), 8/4/93:

The simple fact is that the Clinton plan will not lower interest rates. It will not lower inflation. It will not create jobs. And it will not lower the deficit. The Clinton tax plan will spur inflation, lose jobs, increase the deficit, and hurt our economic growth.
Rep. Deborah Pryce (R-OH), 5/27/93:

The votes we will take today will not be soon forgotten by the American voter. [They] will lead to more taxes, higher inflation, and slower economic growth.

Rep. Jim Bunning (R-KY), 8/5/93:

It will not cut the deficit. It will not create jobs. And it will not cut spending.

Rep. Clifford Stearns (R-FL), 3/17/93:

...It will be the kind of impact that this country can't absorb. It will slow economic growth, contribute to the massive federal deficit....

Rep. Joel Hefley (R-CO), 8/4/93:

...It will raise your taxes, increase the deficit, and kill over one million jobs.

This is just a sample of the Republican OUTRAGE at the time.

Of course, the rest is history. What followed was the longest economic expansion in US history and the fastest economic growth in a generation. Over 23 million jobs were created (compared with a total of 5 million during the 12 years of BOTH Bushes combined – much less than the increase in the labor force during those years). The stock market surged during the Clinton presidency with the S&P 500 increasing by 300%. Clinton bequeathed a federal budget that ran four consecutive years of surpluses totaling $560 billion. The projected 10-year surplus when he left office was $5.6 trillion (causing Fed chairman Alan Greenspan to express concern that the entire US debt may get paid off too rapidly and surpluses would have to be invested in private securities – which was considered a bad thing until Bush proposed privatizing Social Security). Those surpluses were a result not only of painful tax increases but also of a decrease in the relative size of the federal government. Federal spending as a percentage of GDP fell from 22.1% in 1992 to 18.4% in 2000.

And all this began without the support of a SINGLE Republican in Congress, as they predicted economic calamity would follow from the 1993 Budget Act.

UPDATE: George W. Bush and the Republican Congress proceeded to enact a series of tax cuts and spending increases that had the effect of nearly doubling the national debt, increasing it by over $5 trillion in eight years. Vice President Cheney declared, “Reagan proved deficits don't matter”. For the fiscal year ended September 30, 2008 (fiscal 2008), the US government for the first time in history
added over a trillion dollars to the federal debt (including various special appropriations that are excluded from the budget deficit calculations that you generally see reported). Bush ran the six highest annual federal budget deficits in US history if you include the $485 billion deficit he ran in just the first three months of fiscal 2009 – leaving the country on course for another $2 trillion annual deficit. At the same time, federal spending as a percentage of GDP rose from 18.4% to almost 21%.

UPDATE 2: President Obama, faced with the worst economic crisis since the Great Depression, proposed an economic recovery plan consisting of a package of tax cuts and spending proposals. As the “American Recovery and Reinvestment Act of 2009” was eventually passed by Congress, it consisted of 35% tax cuts and the remainder spending and benefits for those hurt by the economic downturn. According to a Congressional Budget Office
analysis, 74 percent of the total cost of the stimulus bill will go out in the first 20 months – in the remainder of FY 2009 (which began October 1) and FY 2010. Just like the 1993 Budget Act, the Obama recovery program passed the House without a single Republican vote and passed the Senate with only three Republican votes – receiving exactly the 60 votes it needed, without a single vote to spare.

Congressional Republicans claimed the recovery program constituted “generational theft”. The comments of Rep. Mike Pence (R-Ind) were typical: “It won't create jobs. It won't stimulate this economy. And it may do more harm than good." This is part of the Republican, “strategy of emphasizing its so-called bedrock principles — restrained spending, limited government and deep tax cuts.” (“GOP tries to restore image of fiscal discipline”)

And we all tried our best not to laugh.

Monday, February 16, 2009

snl on congressional republicans

Saturday Night Live had a great take on the Congressional Republican leadership with Dan Ackroyd as John Boehner and Darrell Hammond as Mitch McConnell. Must viewing.

Letterman: How about President Barack Obama’s first primetime press conference last night? He was cogent, eloquent, and in complete command of the issues. I’m thinking to myself, what the hell am I supposed to do with that?

Friday, February 13, 2009


Earlier this week, speaking of the nomination of Republican Senator Judd Gregg to be Commerce Secretary, I said to Gemma, “This isn’t going to end well.” I had no idea I would be proven right within days. Fortunately. I’m glad this happened sooner rather than later.

I have learned over the last year or so to trust President Obama’s political judgment over my own. But I was completely mystified by his nomination of Gregg. I found it mind boggling. I still do.

“Post-partisanship” or “non-partisanship” is one thing. I’m all for bringing good people into government who transcend party affiliation. But “bi-partisanship” is a trickier concept given the ideological polarization of the major political parties in this country. You might, for example, specify that a certain agency, commission or committee be composed of a certain number of nominees from each party. That’s what we do with the FCC and the SEC, for example. Members are chosen as representatives of their party and they generally adhere to the policy preferences of their party. But a president’s cabinet is not such a body. Cabinet officers report to the president and are expected to execute the policies of the president. Obama has been seeking “non-partisanship.” Arguably, Robert Gates meets that standard. As a practical matter he is a Republican, but he generally shuns party affiliation and his foreign policy views are reasonably close to those of Obama.

But Judd Gregg is another matter altogether. He is a strident partisan. He is a right-wing Reagan-revolution Republican. His world view could not be more different than Obama’s. A few years ago he voted to abolish the Department of Commerce. You don’t hire someone who hates ice cream to run Ben & Jerry’s. Recent Republican administrations, particularly the Bush administration, have put people into agencies who ideologically oppose the mission of those agencies in order to frustrate their efforts. Gregg would be a logical choice to lead the Department of Commerce if that was your objective. But why in the world would a Democratic president want to put him in charge of that agency? If Obama wanted to nominate a Republican who transcends partisanship and generally shares his policy views, that’s fine. Had he nominated, for example, former Republican Senator Lincoln Chafee to head the EPA or the Department of Interior, that would have made sense. When Chafee was in the Senate he was better on environmental issues than many Democrats. But you wouldn’t nominate Oklahoma Senator Inhofe for an environmental post.

It was clear right from the outset of the Gregg nomination that the 2010 Census would be a problem with him in charge of Commerce. Generally, Democrats support counting everyone and want to put more money and effort behind the most thorough count possible. Republicans, on the other hand, prefer to limit to count to more conventional efforts even if that means a lot of people fall through the cracks. These positions are not surprising. Those who are the most difficult to find and count tend to be poor and transient and part of groups that vote more heavily Democratic. It is a perfectly valid policy difference. For the same reason, Republicans generally like to erect barriers to voting and Democrats want to make it as easy as possible to vote. The more transient elements of the population are the ones that tend to be disenfranchised by, for example, strict registration processes that cut-off registration far in advance of an election. Gregg has voted against efforts to expand the reach of the Census. Latino and African-American groups were deeply troubled by that. Gregg’s views are diametrically opposed to Obama’s on this subject. So would Gregg be able to support Obama’s policies in that regard? As we found out yesterday, by Gregg’s own admission, the answer was, “no.” So he shouldn’t serve in that position as part of an Obama administration.

It was apparent right from the start that Gregg was not “post-partisan” when he insisted as a condition of taking the job that the Democratic governor of New Hampshire agree to appoint a Republican to fill his Senate seat. That made it clear he was still playing for the “other team.” Amazingly, Obama agreed to that condition. The only logic to a Gregg appointment that I could figure out was that it was an attempt to secure a 60th Democratic Senate seat. It would be a heavy price to pay for that seat – Commerce is an important agency and Gregg probably would have lost his re-election bid in 2010. But I could understand view that moving the president’s legislative agenda could merit surrendering the Commerce Department to a Republican partisan. But when Obama agreed to Gregg’s demand for a Republican successor to his Senate seat, the whole logic of his nomination was undercut. He is not “non-partisan” and his nomination would not gain Democrats another Senate seat.

Things got worse when Gregg
announced that we would “recuse” himself from voting on Obama’s legislative agenda while he remained in the Senate. What’s the logic of that one? He is about to join the Obama administration and he can’t bring himself to vote for that administration’s #1 legislative priority, the stimulus bill? It’s not like there is a conflict between supporting the Obama stimulus plan and serving his constituents. New Hampshire voters just retired their other Republican Senator in the last election and the state went for Obama by a larger margin (almost 10%) than the national average (over 7%). The state has a Democratic governor. And polls show the public favors the stimulus bill. So what is the “conflict”? Obviously, the conflict is with the obstructionist stance of “his” party, the Republican party. At a minimum, Gregg could agree to vote for cloture (i.e., ending a filibuster). You might not know it these days, but there is nothing in the Constitution that requires 60 votes in the Senate to get anything passed. The mainstream media has gotten into the habit of saying that 60 votes are required for passage of a measure in the Senate, as if that is the norm. But, actually, only 51 votes are required to pass a bill in the Senate. Sixty votes are required to cut off a filibuster. A filibuster used to be an extraordinary measure (saved for special things like preventing Black people from voting or gaining their civil rights). The Democrats did not filibuster any of Bush’s major legislative initiatives, for example.

So, at a minimum, Gregg could have voted to end obstruction of Obama’s stimulus bill and then abstained from the actual vote on the measure if there was some principled reason for doing so that I can’t figure out. But “abstaining” on a filibuster vote has the same practical result as voting FOR the filibuster. So here we have a cabinet nominee supporting a filibuster of the top legislative initiative of an administration he was about to join at a time of national crisis.

That’s when I said, “This isn’t going to end well.”

When Gregg announced yesterday that he was withdrawing his nomination, he did not coordinate that announcement with the Obama administration. He did it just before Obama was about to take the stage for an event in Peoria. In doing so,
he said, “it has become apparent during this process that this will not work for me as I have found that on issues such as the stimulus package and the Census there are irresolvable conflicts for me.” Oh, really? When his nomination was announced last week, he said, “We need a robust [stimulus bill]. I think the one that's pending is in the range we need. I do believe it's a good idea to do it at two levels, which this bill basically does, which is immediate stimulus and long-term initiatives which actually improve our competitiveness and our productivity.” So what “irresolvable conflict” arose in the last week? The stimulus bill, as it evolved over the last week through negotiations with Republicans in the Senate, became more in line with Republican policy preferences. What changed, of course, was Republican intransigence solidified and Gregg was taking flack from his own party for joining the Obama administration.

What makes this whole episode even more fascinating is that the Obama team is saying that it was Gregg who approached Senate Majority leader Reid in the first place and asked Reid to propose his nomination to Obama. As White House spokesman, Robert Gibbs,
said yesterday:

"Senator Gregg reached out to the President and offered his name for Secretary of Commerce. He was very clear throughout the interviewing process that despite past disagreements about policies, he would support, embrace, and move forward with the President’s agenda. Once it became clear after his nomination that Senator Gregg was not going to be supporting some of President Obama’s key economic priorities, it became necessary for Senator Gregg and the Obama administration to part ways. We regret that he has had a change of heart".

Senate Minority Leader Mitch McConnell
told the Washington Post he expects Gregg to receive a "standing ovation" when he walks into the next gathering of the Senate Republican Conference.

So much for “post-partisanship.”

The stimulus bill finally passed in the Congress today. The House vote was 246-183, with no Republicans voting for the bill. In the Senate, the vote was 60 to 38, with only three Republicans voting for the bill.

In voting against the Obama stimulus bill, all House Republicans, and all but three Senate Republicans, voted against $281 billion in tax cuts, including $70 billion to shelter upper-income taxpayers from the alternative minimum tax. When have you EVER seen 176 House Republicans vote and 38 Senate Republicans vote against tax cuts of that magnitude? Of course, the bill also included $506 billion in spending (including $198 billion in benefits for those hurt by the economic crisis). And Republicans claim that spending, during the worst economic crisis since the Great Depression, is fiscally irresponsible. But according to the Congressional Budget Office (which tends to be conservative in these kinds of things), over the next three years the US economy will fall $2.9 trillion short of the potential output of the economy. So a $787 billion stimulus package certainly falls on the low end of what is needed to boost aggregate demand. The measure should probably have been twice as large. Also, according to a Congressional Budget Office analysis released today, 74 percent of the total cost of the stimulus bill, including tax cuts and spending, will go out in the remainder of FY 2009 (which began October 1) and FY 2010, which means that Congress has essentially hit President Obama’s goal of spending out 75 percent of stimulus funds in the first eighteen months.

But now the new Republican talking point is that the $500 billion in spending in the stimulus plan represents “generational theft.” To put this claim in context, remember that this is the party that was in control of the White House for the past eight years and both Houses of Congress for most of that time as the national debt nearly doubled, increasing by over $5 trillion. The Bush years saw the six largest annual deficits in US history (if you include the $485 billion deficit for the first three months of fiscal 2009 – putting us on pace for a $2 trillion deficit this year). Republicans all supported Bush’s two trillion dollars in tax cuts and the trillion dollar war in Iraq. But if you think they are born-again fiscal hawks, think again.

A week ago, 36 Republican Senators (all but four, excluding Gregg) voted for an amendment to the stimulus bill offered by Sen. DeMint, that (
according to his Web site) would:

o Permanently repeal the alternative minimum tax;
o Permanently keep the capital gains and dividends taxes at 15 percent;
o Permanently kill the estate tax for estates under $5 million, and cut the tax rate to 15 percent for those above;
o Permanently extend the $1,000-per-child tax credit;
o Permanently repeal the marriage tax penalty;
o Permanently simplify itemized deductions to include only home mortgage interest and charitable contributions.
o Lower top marginal income rates from 35 percent to 25 percent.
o Simplify the tax code to include only two other brackets, 15 and 10 percent.
o Lower corporate tax rate as well, from 35 percent to 25 percent.

That means that thirty-six Republican Senators (37 if you include Gregg) are either completely crazy or completely irresponsible (or both).

That is a total of
$3 trillion in tax cuts over the next 10 years. And most of that would have little or no stimulative impact in the next couple of years when it is needed most. So it would completely blow apart the federal budget over the long term, while having almost no short-term impact. Exactly the opposite of the stated criteria for a stimulus bill – that it be timely, targeted and temporary. Talk about “generational theft.”

The urgency of the financial crisis really should cause Republicans to rise above these antics. This past Fall, Congressional Democrats sucked it up and made decisions that were politically unpopular – supporting a financial bailout proposed by the most unpopular president in the history of polling – right before an election. Now we need fiscal stimulus – as much as we can muster IMMEDIATELY. Ideally, this stimulus would have been out the door in November, but the election and transition froze the system for a couple of months. Congressional Republicans have completely abdicated responsibility. Their only “solution” – in times of inflation or deflation, in the face of budget surpluses or budget deficits, in bubble or bust, good times or crisis – is tax cuts for business and the rich. That just doesn’t cut it right now. It is NOT the solution – and no serious economist that isn’t just an ideological hack would say it is. The package on the table now has been months in the works – primarily by the Obama administration’s new economic team. It is a credible economic team – not infallible, but credible. Certainly much more credible than Congressional Republicans, with their one-size-fits-all ideology. It is a balanced mix of provisions that takes into account both economic and political realities. It contains more in the way of tax cuts than most economists would recommend, but that appears to have been a political gesture by Obama to bring at least some Republicans on board to help reassure the markets and the American people that their government was pulling together to address this crisis in a united fashion.

I think Obama has overestimated the patriotism of Congressional Republicans at a time of crisis. They appear to be interested only in their ideological shibboleths and positioning themselves for further opposition to the Obama administration.

How do you come up with a “bi-partisan compromise” with a party that believes, as the new Republican National Committee chairman Michael Steele said last week, that "
Not in the history of mankind has the government ever created a job." This is so dumb it makes my head hurt. (I commented on this talking point earlier.) And since it has become a regular Republican talking point, I guess it isn’t a “gaffe” or some random, off-hand comment. These guys seem to actually believe this stuff.

Tell the more than one million active duty members of the US armed services that they don’t have “real” jobs. Or the policemen, firemen, teachers, librarians, judges, parks employees, foreign service personnel, etc., that their jobs aren’t real. Or the scientists and engineers that put men on the moon. Or the people that built the interstate highway system and the Internet backbone. I guess “real” jobs are the Masters of the Universe in the financial industry (which, until the recent crash, claimed almost 40% of the profits of the US economy). Real jobs like creating Collateralized Debt Obligations and Credit Default Swaps for which they got
$18 billion in bonuses in 2008. It’s not like Steele is some random crank. He is the new leader of the Republican party. How do you come up with a compromise stimulus plan with people who think that no government has ever created a job in the history of mankind?

Republicans have even taken lately to arguing that the New Deal did not help the recovery from the Great Depression. (The Washington Post has an excellent article on that topic.) This approaches disputing evolution and global warming (also credible views within the Republican mainstream). As President Obama said in his press conference on Monday, “Now, you have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace. And in fact there are several who've suggested that FDR was wrong to intervene back in the New Deal. They're fighting battles that I thought were resolved a pretty long time ago.” Republicans are arguing that it was actually World War II that lifted us out of the Great Depression once and for all. And in that respect they are correct – when government spending soared sixfold and federal government debt more than doubled. Certainly the cure was not war per se. Sounds like an argument for strong fiscal stimulus to me.

As John Cole

I really don’t understand how bipartisanship is ever going to work when one of the parties is insane. Imagine trying to negotiate an agreement on dinner plans with your date, and you suggest Italian and she states her preference would be a meal of tire rims and anthrax. If you can figure out a way to split the difference there and find a meal you will both enjoy, you can probably figure out how bipartisanship is going to work the next few years.

Think I’m being too hard on Congressional Republicans? They are actually getting strategic advice from “Joe (not his real name) the (not a real) Plumber”:

When GOP congressional aides gather Tuesday morning for a meeting of the Conservative Working Group, Samuel Joseph Wurzelbacher – more commonly known as Joe the Plumber — will be their featured guest. This group is an organization of conservative Capitol Hill staffers who meet regularly to chart GOP strategy for the week.

Lest you think the stimulus bill is not “bi-partisan,” it was endorsed by the US Chamber of Commerce, the National Association of Manufacturers and the AFL-CIO. Can you remember any other time the Chamber and NAM broke ranks with a unified Republican party and joined on the same side of a major issue with the Democrats and the AFL-CIO? Now THAT is bi-partisanship. And some Republican governors (most notably California Governor Schwarzenegger and Florida Governor Crist, who appeared with Obama this week in Ft. Myers) also joined the in support of the stimulus bill.

Even if President Obama was unable to break the ranks of Republican obstructionists this time around, he is right to expect bi-partisanship if the face of a major national crisis. [By contrast, Democrats gave Bush strong support in the immediate aftermath of 9-11. The
Authorization for Use of Military Force in Afghanistan passed the House by 420 to 1 and in the Senate by 98 to 0. The Patriot Act passed (unfortunately) by 357 to 66 in the House by 98 to 1 in the Senate (only Russ Feingold voting against it).] The fact that Obama didn’t get bipartisan support on a bill that should have been a no-brainer does not bode well for more difficult challenges like reform of health care, energy policy and entitlements.

It appears the Republican party is taking its cues from Rush Limbaugh who is saying, “
I hope Obama fails.” But if Obama fails, the country fails. And if Republicans think that is their path back to power, they are going to be spending a long time in exile.