Blue Mass Group

Reality-based commentary on politics.

CBO says “Fiscal cliff” is coming, recession, 9%+ unemployment…

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The director of the Congressional Budget Office, Douglas Elmendorf, said Wednesday that currently planned sharp cuts in spending and increases in taxes at the end of the year would cause “a dramatic reduction in the federal deficit” and “a significant tightening of fiscal policy” which would “probably lead to a recession early next year.”

Analysts refer to this as the “fiscal cliff.”

President Barack Obama and Congress face the question of whether to step back from the fiscal cliff by not allowing the current tax rates to expire at year end and by postponing the spending curbs mandated by last summer’s Budget Control Act.

Before year end, Congress must also decide whether to allow a 27 percent cut in Medicare payments to doctors to take effect – as required by a 1997 budget law — or whether to put it off, as it has done for the past several years.

SO… unless these morons in Congress do something, we’ll have another recession, 9%+ unemployment and Americans may not be able to handle it well. How do you think Doctors will react to a 27% cut in Medicare payments? I can a lot of Doctors not taking Medicare patients any more.

What’s going to happen?

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  1. …on the theory it will give Dems more leverage to get the tax cut package they want. I’m not entirely sure I want to take that bet.

  2. Since they are the ones who created this manufactured crisis in the first place. If they would just be sensible, adopt comprehensive health care reform with a public option, or even better Medicare for All, and embrace stimulus spending, we’d have been out of this recession a long time ago, and well on our way to restoring fiscal health to the national economy overall. The GOP created this “economic crisis” under Bush, and they are the main reason it has been sustained.

      • The fundamental basis of the Paul Ryan budget is the proviso that pegs government spending to not exceed 15% of GDP by 2050. Leaving aside the absurdity of attempting to set a budget four decades into the future (did anyone offer, in 1970, a federal budget for 2010?), this target is thinly-veiled code for “dismantle government as we know it”.

        During the administration of Saint Reagan, the ratio was between 21.2% (1987) and 23.5% (1983). During the administration of Bush I, it was in a similar range (21.2-22.3%). During the Clinton administration, it fell monotonically to 18.2% in his final year. During Bush II, it again rose. George W. Bush gave us the “gift that keeps on giving”, a gravely (perhaps even mortally, the outcome is still unknown) wounded economy and a spending/GDP ratio that spiked from 20.8% to 25.2% in just one year!

        Leaving aside the question of whether reducing spending as a ratio of GDP is a good or bad thing (my read of history suggests its a TERRIBLE idea), two plain facts are striking:
        (1) By this measure, GOP presidents have been worse than Democrats since the Reagan era, and
        (2) Government as we know it will be dismantled.

        The last time federal spending was at or below 15% of GDP was in 1951. I get that some folks think that returning to the federal government we had in 1951 is a good thing.

        I do not.

        • My point is simply that “if only there were no Republicans” is not a useful line of thought.

          Political reality is that you do not command the political consensus to alter this trend, and have not since the 60s, and the economic reality is that political policy positions are severely constrained by this.

          • I agree with you.

            The economic reality is that the GOP has been awful — incompetent to the point of criminally negligent — in its handling of the economy. For whatever reasons, I agree that the political reality has not yet reflected this economic reality.

            In my view, the question is how many people have to suffer how much for how long in order to make the political reality again realign with economic reality.

    • Anyoen who starts their discussion with “it’s the other party’s fault” is full of shit.

      I blame Republicans for screwing up all the time but it’s rare to see Democrats denouce Dempcrats (please don’t reply to this pointing to a post from 2005 when some Dem State Rep was arrested for something as proof of you being able to criticize a Democrat).

      Sequestration is a serious problem which will require the House and Senate to sit down and compromise, no other way about it. Do you see any crack in the armor of Harry Reid and John Boehner talking? The partisanship, fostered by a terrible divisive election season is driving these two masses further apart than ever, and we’re part of the problem here. You never hear suggestion of bipartisanship on BMG anymore, it’s dog-eat-dog. Well you got it now, how do you like it?

      The Bush/Obama tax cuts will continue, it’s a done deal. You will NOT see House Republicans vote for higher taxes on the rich only and you will not see the Senate vote for cutting taxes on their base. So that’s good for the economy but hurts our long term debt.

      I also think you won’t see Congress allow the 27% decrease in Medicare payments, even though it’s the right thing to do. We have to start cutting medicare costs and this was a great start.

      It’s also a great lesson to all you nubies who are naive enough to believe in the words of politicians. They all either lie and just haven’t lied yet. Remember the gas tax to fix our roads… remember the tobacco tax to educate smokers… remember the 1997 budget law which said they had to cut payments to medicare… And when they give you ten year projections on savings/costs… DON’T BELIEVE THEM FOR A SECOND.

      • Yeah, sure John. Like it or not, the Republicans screwed up the economy. Not content to stop with that, the Republicans have done their best to screw up every attempt to fix the economy.

        Sequestration won’t happen. Whoever wins in November will pull the teeth out of sequestration and then do their best to advance their economic agenda. If the Democrats win, you can expect tax increases on high-income Americans, increases in the Capital Gains tax, increases in the gift/estate tax, and redoubled efforts to stimulate the economy. If the Republicans win, you can expect them to dismantle what’s left of the federal government. Medicare, Medicaid, Social Security, all the social service programs, investment in science, investment in transportation, investment in education — all of it — gone. They will further slash the same taxes the Democrats would raise.

        The GOP has a starkly different vision America than the Democratic Party. Americans will choose, in November, what direction they want this nation headed towards.

        Reduced partisanship? Not likely. Look for just the opposite, whomever wins. The GOP poisoned the “bipartisanship” well four years ago. I don’t see any turning back now, not until today’s GOP is politically dead and destroyed.

        • If the Republicans win, you can expect them to dismantle what’s left of the federal government. Medicare, Medicaid, Social Security, all the social service programs, investment in science, investment in transportation, investment in education — all of it — gone.

          You forgot killing grandma, death squads for all people over 65, infanticide, fire all teachers, shot illegal aliens… and any other hyperbolic demogogery you can come up with.

          We may end up finding out if “WE” win and it will be so joyous to save this thread as we would watch none of what you describe come true since we want all the things you mentioned, although we may manage them differently.

          Your foul lies about Romney/Ryan ending Social Security are just that… lies! Let’s have a separate diary about their Medicare plan and get the truth out about what they want.

        • or lied on their mortgage application
          or didn’t even make one mortgage payment
          or committed fraud
          or the real estate agents
          or the appraisers
          or the underwriters
          or the people who took on too much credit card debt
          or the people who decided to become flippers
          or bought the expensive car
          or the real estate developers
          or the media that never reported that we were in a real estate bubble

          • The largest economic failure in 70 years.

            Zero effort from any political party to actually try to fix the things that caused the problem.

            Democrats: Greedy rich people, fuck em. Republicans: Greedy poor people, fuck em. Four years later, and there is still no interest in fixing anything, only in securing partisan gain.

            “the media that never reported we were in a housing bubble” I am pretty sure I saw an article or TV report every DAY from 2004-2007 about how quickly home prices were increasing.

  3. Neither party is going to let sequestration, as currently defined, play out. Nothing is going to happen between now and November.

    If the GOP wins, the conflict will be resolved in their favor and government as we know it is gone. If the Democrats win, we will be able to get back on track towards a reasonable recovery.

    The choice really is up to the voters, and it is unusually important this year.

  4. is that we need to clean house. Let’s start with Scott Brown, let’s get someone new in there because congress is not working the way it is now. John, correct me if I’m wrong. : )

    • I’ve been saying for along time that we need to stop electing people who say X and do Y. The bad news for many of you guys (and me) and the Tea Party is a group of people who were elected to do X and are doing X, and now the rest of us are complaining.

      Start cleaning house with John Kerry, Chuck Schumer and so many of the rest of the gang who were here and did nothing. I keep saying you guys had the POTUS, Senate and the HOuse and did nothing to fix the problems, fix Big Banks, fix the economy… and don’t give me the BS line obout Blue Dogs…

      God I would love if Obama had been the President he said he was going to be, bringing people together, no more blue/red states, dogs and cats living together… nope!

      • But I do not necessarily disagree.

        Democrats should be criticized in my opinion because they controlled the entire government, and, when faced with an extraordinary financial and economic crisis, did little. An oversold but half-baked “stimulus.” Some half-assed “financial reform” that, though dizzyingly complex, addresses roughly none of the problems that actually caused the problem, along with other problems that may not have been problems at all– and mostly by saying, in effect–“Dunno what to do. Screw it, let the agency figure it out.”

        Having thus failed to address the serious problems that were actually right there in front of them, they decided to enact a cockamamie health care reform, that people didn’t really like, without even a token effort to actually build support. “Eh, we sold it in 1994, we don’t need to do it again. There was a survey that said people want “reform'”.

        For this they can be criticized, and were indeed trounced in 2010 for this.

        Not bringing people together? That was a silly pipe dream. The moment that Republicans decided they were opposed to prosperity because prosperity would help Obama.

        At least the Rosenbergs betrayed their country for a principle, crazy as it may have been. Mitch McConnell and his Republican colleagues in Washington have spent four years degrading themselves by betraying the country for a picture of an elephant and the hope of a gig on Fox.

  5. is that we need to make some careful long term spending cuts allow the Bush tax cuts to expire for high-income individuals (you know, raise taxes…. shhhhhh).

    He must have been reading this analysis from the Center for Budget & Policy Priorities: http://www.cbpp.org/cms/index.cfm?fa=view&id=3788

    CBO’s report is, in fact, about the trade-offs involved in adopting policies to avoid this worst-case short-term outcome, which policymakers almost surely will do — one way or another.

    CBO’s analysis indicates that a cost-effective way to continue using the tax cuts to shore up the weak economy would be to extend the middle-class tax cuts for a year or two, allow the upper-income tax cuts to expire, and extend the tax-credit expansions targeted on low- and moderate-income households. Such an approach would provide the most “bang-for-the-buck” in terms of supporting the economic recovery in 2013-14 without seriously compromising long-term fiscal sustainability.

    The best policy would be to replace sequestration with at least an equivalent amount of deficit reduction that occurs with much less force in the first few years and more in the later years, in order to minimize the restraint it imposes on the economy in 2013-14

    The greater danger is that misguided fears about the economy going over a “fiscal cliff” into another Great Recession will lead policymakers to believe they have to take some action, no matter how ill-conceived and damaging to long-term deficit reduction, before the end of the year, rather than craft a balanced plan that supports the economic recovery in the short term and promotes fiscal stabilization in the intermediate and longer run.

    John, correct me if I’m wrong. 😉

  6. The Democrats response could reasonably be to raise taxes to 70% on the upper quintile to balance the budget, then deficit spend $2 Trillion this year by borrowing from the future, and get the Fed to inflate the price of gold to $4000/oz and gas to $10/gallon. Tell me that’s not the Democrats’ dream scenario.

    I don’t think much of this report. If the government cuts spending then they will predict a recession because all that money won’t be flowing from the future into today.

    There is really nothing in this that argues against raising taxes massively across the board to balance the budget and somehow then not have the fiscal cliff recession, is there?

  7. What will happen with tax cuts:

    nothing until the beginning of next year when they all expire. Then the Democrats will push a bill extending the tax cuts for all but top income earners. That bill will be very hard to vote against for anyone, including Republicans.

    david @ Tue 7 Aug 8:38 PM

    I don’t think so.

    I think Americans like the idea of fair and when I hear MSNBC commercials about “fair” and “sharing the burden”, I think it means sharing as in we all have to give more, not just the rich.

    johnd @ Wed 8 Aug 8:57 AM

    Reply
    You apparently haven’t paid any attention

    to the polling on this issue, which consistently shows strong support for the Democratic position. But don’t bother letting facts get in the way of how you wish things were.

    david @ Wed 8 Aug 9:13 AM
    Reply

    I’ll buy you lunch if the House/Senate pass a bill regarding the Bush/Obama tax cuts where only the rich (over $250K) pay more and the low/middle keep their tax cuts.

    JohnD

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