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Subject: The Elephant in the Room on the Debt Ceiling Agreement rss

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Chad Ellis
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The current agreement involves cuts of less than $3 trillion over ten years, compared with the current CBO baseline.

That baseline assumes that the Bush Tax cuts (all of them) expire in 2013, adding $3.5 trillion in revenue during that same period.

Republicans presumably hope to achieve the targets by November (as scheduled), vote them in...and then also keep the Bush Tax cuts. This will mean that even if they succeed on both fronts the projected deficit will grow compared to current projections, rather than shrink.

Interesting times...as you can imagine, I'm writing a blog post about it now.
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Maybe they'd get more done if they didn't keep bringing elephants into these negotiations.
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Chad, would you agree with my assessment that Obama misjudged (or did not understand) his own BATNA in these negotiations? He made it clear that default was unacceptable while simultaneously believing that he had no unilateral options.

Given that, his BATNA is to ... agree with whatever the Republicans can manage to put forward?

 
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I think it is hard to figure out whether he misjudged or misestimated his BATNA because we don't know what he was trying to maximize.

If the goal was to serve the best needs of the country, then rejecting many of the GOP desires and acting unilaterally may have been the best thing to do --- so he clearly missed it.

However, if the goal was to make him more electable in 2012, the current outcome is much better than a unilateral action -- that would hvae been a nonstarter electorally while simultaneously may have led to impeachment proceedings; all a major distraction in an election year. So in this case, he may have maximized it.
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Drew1365 wrote:
Chad_Ellis wrote:
That baseline assumes that the Bush Obama Tax cuts (all of them) expire in 2013, adding $3.5 trillion in revenue during that same period.


FTFY.


This is hilarious. The tax cuts were implemented under Bush. The Republicans kicked up such a huge crybaby fuss when they were supposed to expire at the end of 2010 that the President agreed to extend them for two more years. So now they're his tax cuts?

If they had done what they were supposed to do - drive a powerhouse economy, encourage job creation, etc., etc. - then you'd be claiming that Obama supporters were trying to ride Bush's coattails if anybody called them "Obama Tax Cuts." Instead, they've done nothing positive for the economy at large (though they've done plenty for the personal economy of the wealthiest Americans - woo?), so now that their extension is problematic, they're suddenly "Obama Tax Cuts" and George W. Who?
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Golux13 wrote:
Drew1365 wrote:
Chad_Ellis wrote:
That baseline assumes that the Bush Obama Tax cuts (all of them) expire in 2013, adding $3.5 trillion in revenue during that same period.


FTFY.


This is hilarious. The tax cuts were implemented under Bush. The Republicans kicked up such a huge crybaby fuss when they were supposed to expire at the end of 2010 that the President agreed to extend them for two more years. So now they're his tax cuts?

If they had done what they were supposed to do - drive a powerhouse economy, encourage job creation, etc., etc. - then you'd be claiming that Obama supporters were trying to ride Bush's coattails if anybody called them "Obama Tax Cuts." Instead, they've done nothing positive for the economy at large (though they've done plenty for the personal economy of the wealthiest Americans - woo?), so now that their extension is problematic, they're suddenly "Obama Tax Cuts" and George W. Who?


I agree that it is a little ridiculous to call them "Obama Tax Cuts"; however, it does show how much the President capitulates to Republican demands, even when it isn't in the best interested of the country. It makes one really question what the strategy is? Or if there is a strategy?
 
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Chad Ellis
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Drew1365 wrote:
Chad_Ellis wrote:
That baseline assumes that the Bush Obama Tax cuts (all of them) expire in 2013, adding $3.5 trillion in revenue during that same period.


FTFY.


I'm not sure what your point is -- that the cuts should be credited/blamed to/on Obama since he signed a temporary extension or that the "increase" of allowing them to expire should be credited/blamed to/on him?
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Drew1365 wrote:
Since when has he ever cared about what the GOP wants?


How much time do you have?
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Chad Ellis
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mdp4828 wrote:
Chad, would you agree with my assessment that Obama misjudged (or did not understand) his own BATNA in these negotiations? He made it clear that default was unacceptable while simultaneously believing that he had no unilateral options.

Given that, his BATNA is to ... agree with whatever the Republicans can manage to put forward?


I talked about this at some length on the blog. In a game of chicken where both sides have a disastrous BATNA, almost anything is possible. There are big potential rewards to irreversible commitment if the other side caves (a popular analogy is throwing your steering wheel out the window in a car game of chicken) but major problems if they don't.

David DesJardins made the argument that Obama should have held firm and allowed Republicans to block a debt ceiling increase. His thought was that Obama could have continued to service our debt and that Republicans would come under massive pressure when people saw the impact of government programs coming to an end. I think that position is defensible but also extremely dangerous.

The Republicans had three significant advantages in the negotiation. First, some of them actually want to stop the debt ceiling from being increased. That gave their threat more credibility than anything the Democrats could muster. Second, they framed the negotiation very effectively -- arguing that increasing the debt ceiling was the problem (rather than the symptom) and thus cuts needed to be made now rather than as part of the normal appropriations process. Third, they had committed themselves very publicly to a "no new taxes" pledge which (especially with memory of what happened when Elder Bush broke his pledge) made it credible when they threatened to block any deal that had tax increases in it.

Obama clearly wanted to avoid a "no deal" and on the surface of it he handed the Republicans (particularly the Tea Party) a significant victory, but the story isn't anything like over yet. As I noted in the OP, the Bush Tax cuts are bigger than the total deficit reductions covered by this deal, and Republicans wanted badly to protect them. That makes it hard to call who "won" this round of negotiations.
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Drew1365 wrote:
Golux13 wrote:
Drew1365 wrote:
Chad_Ellis wrote:
That baseline assumes that the Bush Obama Tax cuts (all of them) expire in 2013, adding $3.5 trillion in revenue during that same period.


FTFY.


This is hilarious. The tax cuts were implemented under Bush. The Republicans kicked up such a huge crybaby fuss when they were supposed to expire at the end of 2010 that the President agreed to extend them for two more years. So now they're his tax cuts?


Yes, they are his. Do you really think he agreed because of a "crybaby fuss"? Since when has he ever cared about what the GOP wants? Did you sleep through the healthcare debates, or what?


According to this logic Social Security, Medicare, Medicaid, etc. are Obama's too since he extended funding those programs under his administration as well.

The tax cuts are Bush's that Obama extended.
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Chad Ellis
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Drew1365 wrote:
Calling them the "Bush Tax Cuts" is a way that, once again, Democrats try to blame everything on Bush. The fact is that Obama chose to keep them going. They're his.


They're called the Bush tax cuts because there's a long tradition of using shorthand to identify specific laws and Bush is the author of the cuts. Moreover, opinion is split on whether the cuts were good or bad, so it's not even about blame.

Obama wanted to keep the cuts for everyone making less than $200K so those can certainly be called the Obama cuts if you like. The extension of the cuts on those making more than $200K was agreed by Obama and Democrats due to Republican insistence.
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Chad Ellis
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Golux13 wrote:
If they had done what they were supposed to do - drive a powerhouse economy, encourage job creation, etc., etc. - then you'd be claiming that Obama supporters were trying to ride Bush's coattails if anybody called them "Obama Tax Cuts."


QFT.
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Chad Ellis
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Oh, and the blog post is up.
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Drew1365 wrote:
Chad_Ellis wrote:
That baseline assumes that the Bush Obama Tax cuts (all of them) expire in 2013, adding $3.5 trillion in revenue during that same period.


FTFY.


In all honesty, maybe if we call them Obama tax cuts, the Republicans will not want them anymore...
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Drew1365 wrote:
Yes, they are his. Do you really think he agreed because of a "crybaby fuss"? Since when has he ever cared about what the GOP wants? Did you sleep through the healthcare debates, or what?


This is creating a false equivalency.

Let us say that there is a completely useless political party. Let us call them the Whiny-Ass Titty Baby Party. Now, in situation A, let us assume that the Occasionally Sensible Party holds a majority in the House of Representatives and a filibuster-proof majority in the Senate. Having done so, let us then assume that the WATB Party constantly refuses to argue or debate in good faith and advocates for things that are stupid, self-contradictory or both. In this scenario, the Occasionally Sensibles are sensible if they avoid dealing with the WATB Party altogether. (Of course, in the real world, the Democratic party spent nearly a year negotiating healthcare with the Republicans, including the formation of several plans co-designed by Republicans, who then turned around and informed the Democrats that despite having helped to design the bills they would not vote for them.)

Now, let us assume the same two parties, but this time, instead of the Occasionally Sensibles holding both houses of Congress, assume that the WATB party holds a majority in the House and can filibuster in the Senate. In this scenario, despite the fact that it would be better for all concerned if the WATBs just went off fishing and never came back because they are balls-out useless at serious longterm governance, the Occasionally Sensibles have no choice but to negotiate with the WATBs in order to pass any legislation at all.
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Chad_Ellis wrote:
The current agreement involves cuts of less than $3 trillion over ten years, compared with the current CBO baseline.


A visual of the cuts.



 
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eknauer wrote:
Chad_Ellis wrote:
The current agreement involves cuts of less than $3 trillion over ten years, compared with the current CBO baseline.


A visual of the cuts.





As it stands, that graph doesn't actually show how much was cut. It shows how much is left after the cuts. It also doesn't show how much it impacts the deficit.

The graph would be more useful if it showed what the budget looked like before the cuts and also what projected revenues are for each year.

-MMM
 
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what is scary is I believe the GDP growth assumption is 3%, which is likely unrealistic since we are growing at 1.3% right now and the newest forecast put us at something like 0.4% in the fourth quarter.
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Not sure if the revenue info is available. Cato's take:

http://www.cato-at-liberty.org/budget-deal-doesnt-cut-spendi...


The “cuts” in the deal are only cuts from the CBO “baseline,” which is a Washington construct of ever-rising spending. And even these “cuts” from the baseline include $156 billion of interest savings, which are imaginary because the underlying cuts are imaginary.

No program or agency terminations are identified in the deal. None of the vast armada of federal subsidies are targeted for elimination. Old folks will continue to gorge themselves on inflated benefits paid for by young families and future generations. None of Senator Tom Coburn’s or Senator Rand Paul’s specific cuts were included.

The federal government will still run a deficit of $1 trillion next year. This deal will “cut” the 2012 budget of $3.6 trillion by just $22 billion, or less than 1 percent.

The legislation does create a “Joint Committee” to design a second round of at least $1.2 trillion in spending cuts by November. Presumably, interest savings will be included in those “cuts” as well, reducing the amount of actual program cuts needed to about $1 trillion.

Will these Joint Committee cuts be real? This deal’s immediate cuts aren’t real, nor were many of the cuts in the 2011 budget deal earlier this year. It won’t be hard by the Joint Committee to manufacture $1 trillion in pretend savings in coming months.
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It's fairly clear that the US federal government, as currently constituted, fully intends to continue to spend more money than the government collects in revenues. There is no hint that this government, including members of both parties, has any intention whatsoever of reversing the trend towards greater and greater debt. The USA appears destined to continue to spent $1.40 for every $1.00 it receives in revenues indefinitely. It's clear to any semi-intelligent person who has read the information made available so far that the current 'deal' is nothing but a sham, which will hardly dent the debt whatsoever.

So - I have to assume that the majority of those in government are convinced that there will never be a day of reckoning for the enormous debt we have amassed. Could they be right? Is it possible that the entire rest of the world will let the US get away with spending money it doesn't have by continuing to allow us to borrow, borrow, borrow, forever?

Perhaps we are all worried about nothing. Perhaps Congress and the President are right. Maybe the US should continue as it has for decades now. Who's going to tell us "no", right?
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Chad_Ellis wrote:

Republicans have long insisted that the Bush tax cuts should be made permanent and Obama and most Democrats have supported making them permanent for those making less than $200,000 per year.

Isn't that $250,000? Or am I mis-remembering?

The BBA is extremely dangerous, but if it's on a short enough ratify-by fuse, it should fizzle.
 
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Maybe the people in power learned a lesson from Wall Street and think that our country is "too big to fail" and that the rest of the world will be forced to bail us out.
 
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Chad_Ellis wrote:
[q="mdp4828"]
The Republicans had three significant advantages in the negotiation. First, some of them actually want to stop the debt ceiling from being increased. That gave their threat more credibility than anything the Democrats could muster. Second, they framed the negotiation very effectively -- arguing that increasing the debt ceiling was the problem (rather than the symptom) and thus cuts needed to be made now rather than as part of the normal appropriations process. Third, they had committed themselves very publicly to a "no new taxes" pledge which (especially with memory of what happened when Elder Bush broke his pledge) made it credible when they threatened to block any deal that had tax increases in it.

Obama clearly wanted to avoid a "no deal" and on the surface of it he handed the Republicans (particularly the Tea Party) a significant victory, but the story isn't anything like over yet. As I noted in the OP, the Bush Tax cuts are bigger than the total deficit reductions covered by this deal, and Republicans wanted badly to protect them. That makes it hard to call who "won" this round of negotiations.


It certainly did not help Obama's position when Reid came out and stated that Taxes were a non starter in the Senate - he could not garuntee the Democrate votes to even get it discussed.

Secondly, the Boener/Obama talks were poisoned when Obama had/choose to propose something larger than what the Gang of 6 proposed - causing him to add an additioanl 400B to already agreed 800B - and recognizing that Boener was going to have a hard enough time with the 800B

These more than anything ensure that the discussion was about spending reductions (well actually reducing the increase of spending) than about Revenue.

That all being said, it sets the table VERY clearly for 2012 where the discussion wont be about Bush, Iraq or 3 am phone calls - but about what direction the US Government will take.

There were vestiges of this in 2008 - more in 2010 - but 2012, Generally everyone knows the framework - do we want a larger taxation/larger safty net governmnet or a lower revenue/less services government. Polling is thust far.....muddled.
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