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Tuesday, July 26, 2011

Unanswered questions on the debt ceiling debate

For much of the last month, the media and the nation have been focused on the negotiations about raising the debt ceiling. President Obama has given speeches, held press conferences and given interviews during which he has spoken repeatedly about the subject. The Republican and Democrat Congressional leaders have also been seen again and again discussing the issue. Countless articles and analyses have been written. But in all this palaver, serious questions remain, and there do not seem to be clear answers. Here are just a few of the questions:

1) In all of the projections regarding future revenues, what is assumed with regard to the current tax rates? In other words, the Bush tax rates were extended for two years last December, but they are scheduled to rise to prior levels as of 2013. Were this rise in the tax rates to be stopped, the estimate is that tax revenues would be about 3.2 trillion dollars lower over the next decade. If only the so-called middle class rates were extended and the rates for those who Obama calls millionaires and billionaires rise to prior levels, there would be about 2.6 trillion dollars less revenue over the next decade. These amounts are so large that extending the rates in either case would enlarge the deficit by more than all the cuts being contemplated in every plan out there. Someone had better tell us what is being assumed here.

2) The Alternative Minimum Tax is another tax that is scheduled to kick in at mich higher levels in another year and a half. If it does, there will be substantial tax increases for the middle class. What are the negotiators assuming with regard to this tax? If the AMT is kept at current levels and not allowed to kick in fully, the cost over ten years is close to a trillion dollars.

3) In connection with Medicare, there is the issue of the Doctors' Fix. Years ago, Congress passed a proposal into law that required the amount of reimbursement to doctors for seeing Medicare patients to be reduced below current levels. Every year since that time, Congress has extended the old rates and prevented the new rates from kicking in. If Congress does nothing, the new rates will go into effect and will save a quarter of a trillion dollars per year for a ten year total of 2.5 trillion bucks. What does Congress and the president assume will be happening to this issue over the next decade?

4) There are other taxes that are supposed to change, and no one is telling us what will happen to them. The Estate Tax is scheduled to go from 35% on estates over $5 million to 55% on estates over $1 million starting in 2013. The payroll tax is supposed to rise by 2% in January for all Americans. There are other smaller changes scheduled as well. The aggregate here is about 400 billion dollars over a decade. What is the assumption that the negotiators are using?

5) The Wars in Iraq has ended for the most part, and all troops will come out by the end of the year. The plan put forth by Harry Reid supposedly includes over a trillion dollars of "cuts" for the end of the wars in Iraq and Afghanistan. How much of the total future expenditures from which cuts will be made consists of costs for these wars?

6) Obamacare was financed by a supposed savings reducing waste and fraud in Medicare. This savings was to total half a trillion dollars over ten years. One and a half years later, there have yet to be any savings achieved towards that goal of $500 billion. What are the negotiators assuming with regard to any future savings from waste and fraud?

These are just a few of the larger items that make the discussions about cuts hard to follow. Depending on the answers to these issues, the swing in the size of the federal defict over the next decade is in the area of $8 trillion. That swing is almost four times larger than the total amount of the cuts being debated. In other words, without knowing the answers to these baseline questions, it is impossible to evaluate the effectiveness of any of the plans for deficit reduction. The media has to start asking these questions and insisting on answers from Obama and Congress.

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