Can we get real? For starters, $642 billion is serious money, and despite the modest improvements of the latest CBO report, the basic trends in federal finances remain the same. From 2014 to 2023, the government will spend $6 trillion more than it collects in taxes. The budget never comes close to balancing. Expanding spending on the elderly and health care continues to strangle the rest of government. As a share of the economy (gross domestic product), military and domestic discretionary programs (examples: drug approval, environmental regulation, Head Start, federal courts) drop about 40 percent from 2010 to 2023.

Nothing of consequence has changed. A few numbers have shifted slightly. That’s all. They moved in a favorable direction. Next time, they might go the other way. What’s also constant is the unwillingness of leaders of both parties, beginning with the president, to discuss budget choices candidly. The budget passed by the Democratic Senate barely touches entitlements for the elderly, which constitute the largest chunk of federal spending. The budget passed by the Republican House avoids a large tax increase only by making draconian and unrealistic spending cuts that would never pass Congress or be signed by the president.

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At this time of year, when most Americans have just filed their returns, exasperation with the income tax system reaches a peak. Hardly anyone denies it's a complex mess. In 2010, calculating their taxes cost Americans $168 billion, estimates the Taxpayer Advocate Service of the Internal Revenue Service. That's about 15 percent of taxes collected — a heavy overhead. Almost 60 percent of taxpayers pay accountants or other tax preparers. Public esteem for the tax system is low; in a 2011 Pew poll, 55 percent judged it unfair. Disaffection was fairly even politically: 47 percent among Republicans, 58 percent among Democrats and 56 percent among independents.

So “tax reform” ought to be a cinch, right? Well, no.

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There is a great graphic here and some comment there.

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MarketWatch: Since Nixon’s “abomination” as you call it, we have had some periods where government spending to GDP actually went down, like during the Clinton era. Doesn’t that show it’s just the choices made by Congress rather than the Fed to blame [for the problem of rising national debt as a % of GDP]?

Stockman: There is the issue that Congress ultimately is the fiscal authority. But my argument is, when the Fed becomes a massive buyer of bonds and debt and artificially suppresses interest rate below market-clearing levels, it’s a terrible signal to the Congress that debt is cheap, that running deficits is a viable strategy. So therefore they are induced to kick the can, to let it drift and avoid hard choices. Who wants to tell the public you are going to take your broccoli of higher taxes and lower benefits and spending if you can issue debt on a three-year basis for 40 basis points. That’s free. I was in Congress, they don’t do decimal math, OK? And they think the money is free, it’s a bad problem philosophically, we shouldn’t be doing this for the great long run, but it’s no harm today.

Then they have professors like Krugman who give them the disingenuous advice that the bond vigilantes don’t care. The market is saying, “fine with us, we don’t care, keep piling the debt on, we love it.” That is so much baloney. The reason the interest rate on the 10-year bond 10_YEAR -0.33% today is 1.8% or whatever it happened to settle today, is the market knows the Fed is buying half of the debt and is front running the Fed. And it is renting the bond on repo, 98 cents on the dollar, based on overnight money that’s free thanks to Bubbles Ben as well.

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The CBO forecast finds a persistent mismatch between tax revenue and spending over the coming decade. As the economy improves, tax revenue should rise to 19 percent of GDP for the period from 2015 through 2023, up from 15.8 percent in 2012, the report said. But federal spending, after an early-decade dip, will start rising persistently faster than revenues.

"After 2017, if current laws remain in place, outlays will start growing again as a percentage of GDP," the CBO said. "The aging of the population, increasing health care costs, and a significant expansion of eligibility for federal subsidies for health insurance will substantially boost spending for Social Security and for major health care programs relative to the size of the economy."

The CBO's current-law "baseline" calls for spending to reach about 23 percent of GDP in 2023 and, more worrisome, to be "on an upward trajectory."

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Update: An IBD article is also available on this, entitled "CBO Report Shows We're Still Headed Toward A Fiscal Cliff" and it may be found there.

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We agree with Obama that it will take a combination of tax increases and spending cuts to put the government's fiscal house in order. Republicans swallowed hard and accepted an increase in tax rates for the highest incomes to start the year. It's the Democrats' turn to recognize that federal benefit programs, and particularly healthcare entitlements such as Medicare and Medicaid, are on an unsustainable path despite the savings from the 2010 healthcare law.

Obama should lead a Democratic push for reforms that preserve these programs for those who need them, while also reducing the deficit and stopping the federal debt from growing faster than the economy. He's in the best position to lead on this issue, able to provide political cover for Democrats concerned that their constituents won't put up with changes to the status quo, while showing Republicans that there are ways to save money without abandoning the government's commitment to the elderly and poor. To create an opening for the rest of his agenda, he needs to step up to that role.

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In the House, the majority Republican party says it won't raise the debt limit without spending cuts of equivalent amounts. Mr. Obama has said he won't negotiate over the matter, saying it is the responsibility of Congress to enable the government to pay bills it has incurred.

The government spends 40% more than it takes in and borrows money to cover the difference. Without an increase in the debt ceiling, the Treasury won't be able to borrow the additional money needed to pay all its bills.

Failure to make payment on even some of its obligations could wreak havoc in the economy and financial markets and possibly trigger another financial crisis and recession, analysts have warned.

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The Congressional Budget Office projects that over the next decade Social Security's annual cash deficit will rise by nearly $100 billion, reaching $155 billion a year. The cost of servicing the extra public debt tied to cashing in $1 trillion worth of Social Security's intragovernmental IOUs over the 10 years would add $40 billion to the deficit in 2022 alone, an IBD analysis finds.

Overall, Social Security would account for nearly $200 billion in annual deficits or nearly 20% of the $1 trillion-plus deficit that would occur under current policies, including fiscal-cliff tax hikes.

Then, over the following decade, the retirement program's impact on deficits would really balloon.

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While many in Washington are breathing a sigh of relief and some are trying to spin the outcome as a win for the president, those who characterize this bill as a genuine victory for anyone at all have clearly lost perspective. The deal brokered by Vice President Joe Biden and Senate Minority Leader Mitch McConnell does make good on President Obama's promise to bring a little more equity to the tax code by raising rates on wealthier Americans, and it temporarily averts the most draconian "sequestration" cuts. But the list of what it does not do, and what it does wrong, is long.

By midday Tuesday, the Congressional Budget Office had concluded that the Biden-McConnell package would add nearly $4 trillion to federal deficits over the next 10 years. This was largely because it actually extends and makes permanent more than 80% of the Bush tax cuts. So much for the idea that this whole struggle was supposed to help America get its financial house in order.

Just as bad, or perhaps worse in terms of the day-to-day lives of average people, the bill only postpones the forced cuts of sequestration by two months, to precisely the moment the country will be engaged in another ruinous debate about lifting our national debt ceiling to ensure the country can pay its bills. It thus creates a new, even more dangerous fiscal cliff....

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Update: George Will has also written on this I see--Perils Of The Entitlement State And Our Decadent Democracy.

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Congress' hectic resolution of the "fiscal cliff" crisis is the latest in a long series of decisions by lawmakers and the White House to do less than promised — and to ask Americans for little sacrifice — in confronting the nation's burgeoning debt.

The deal will generate $600 billion in new revenue over 10 years, less than half the amount President Barack Obama first called for. It will raise income tax rates only on the very rich, despite Obama's campaign for broader increases.

It puts off the toughest decisions about spending cuts for military and domestic programs, including Medicare and Social Security. And it does nothing to mitigate the looming partisan showdown on the debt ceiling, which must rise soon to avoid default on U.S. loans.

In short, the deal reached between Obama and congressional Republicans continues to let Americans enjoy relatively high levels of government service at low levels of taxation. The only way that's possible, of course, is through heavy borrowing, which future generations will inherit.

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The budget deal passed by the U.S. Senate [and House]... would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington.

More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of [December 31]

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Congress approved a plan to end Washington’s long drama over the “fiscal cliff” late Tuesday after House Republicans surrendered to President Obama’s demand to let taxes rise on the nation’s richest households.

The House voted 257 to 167 to send the measure to Obama for his signature; the vote came less than 24 hours after the Senate overwhelmingly approved the legislation.

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Update: Here are the new numbers for 2013 in Congress--Democrats control of the Senate by 55 to 45 (change of 2) and Republicans control of the House of Representatives by 234-201 (change of 8)

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Senate leaders are racing against the clock to reach a "fiscal cliff" deal the House and Senate can approve on New Year's Eve.

Leaders in the upper chamber narrowed their differences Sunday as Republicans agreed to drop a demand to curb cost-of-living increases to entitlement benefits, while Democrats showed flexibility on taxes.

Yet after months of talks on ways to avoid the fiscal cliff of tax hikes and spending cuts at the end of 2012, House and Senate lawmakers find themselves approaching the new year without a bill to present to their members.
Significant differences remain over two key parts of a deal — the automatic spending cuts known as the sequester and the estate tax.

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Update: a BBC article is there.

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When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.

Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans. This could involve higher tax rates or an elimination of popular deductions. Or it could mean an entirely new tax, such as a value-added tax or a carbon tax.

To be sure, the path ahead is not easy. No politician who wants to be re-elected is eager to entertain the possibility of higher taxes on the middle class. But fiscal negotiations might become a bit easier if everyone started by agreeing that the policies we choose must be constrained by the laws of arithmetic.

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Whether or not there is a deal, the weeks since the election have produced a stark display of political gridlock. "The government is not working," said Steve Bell, senior director of the Bipartisan Policy Center, who was a senior budget adviser to Senate Republicans for many years. "There is no doubt that the policy-making apparatus in this town has collapsed."

Following the tea-party wave in the 2010 election, the 112th Congress looks set to be the least productive in recent history. By the end of November, the House had passed 146 bills over the previous two years, by far the smallest number for any Congress since 1948. The Senate passed fewer bills in 2012 than in any year since at least 1992.

Rather than smoothing over differences, the November election appears to have hardened them. "We came out of the election with both sides thinking they won and had an equal mandate," said Ross Baker, a professor at Rutgers University who is now interviewing lawmakers on Capitol Hill for a book on bipartisanship. "One problem is we don't have a common narrative to guide us."

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The shape of a deal to avert the US fiscal cliff is at last emerging, with at least $1tn in new taxes, up to $1tn in fresh spending cuts and an increase in America’s debt ceiling, as negotiators scramble to reach an agreement before the end-of-the-year deadline.

Barack Obama, US president, and John Boehner, Republican speaker of the House of Representatives, held their third face-to-face meeting in eight days at the White House amid signs of growing momentum in the talks. If they strike a deal in the coming days, and are able to pass it through Congress, it would remove a huge cloud of uncertainty hanging over the global economy.

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Budget negotiations between the White House and Republican House Speaker John Boehner have progressed steadily in recent days, people close to the process said, breathing life into talks that appeared to have stalled.

Both sides still face sizable differences before any agreement might be reached by the end of the year, and talks could well falter again over such controversial issues as taxes and Medicare before any deal is ultimately reached.

The people familiar with the matter say talks have taken a marked shift in recent days as staff and leaders have consulted, becoming more "serious." Both sides have agreed to keep details private, according to the people, who declined to detail where new ground was being broken.

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From there:

[Here is a list of]...the most expensive tax breaks in the current tax code, based on what those breaks would cost the U.S. Treasury in lost revenue from 2013 to 2017:

1) Exclusion of employer contributions for medical insurance premiums & medical: $1 trillion

2) Mortgage interest deduction: $606 billion

3) Deduction for 401(k) plans: $429 billion

4) Accelerated depreciation of machinery & equipment: $375 billion

5) Exclusion of net imputed rental income: $337 billion

6) Capital gains: $321 billion

7) Charitable contributions: $293 billion

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....seasoned Washington hands say that once this rather gloomy back and forth has played out - and it might take another week or more - the work towards reaching a solution that both sides can sell to their parties and their lawmakers will begin in earnest.

A deal by Christmas, a week before the fiscal cliff deadline, remains uncertain but not out of the question. The so-called fiscal cliff is a combination of U.S. government spending cuts and tax increases due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.

The pattern of little happening until very close to a holiday is well-established on Capitol Hill. The past three pre-Christmas seasons brought important eleventh-hour developments on health care in 2009, tax cut extensions in 2010 and the payroll tax holiday in 2011.

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....President Obama's call for a return to Clinton-era tax rates is misleading: If the Bush upper-income tax cuts go away, tax rates will exceed those in place at the end of the 1990s.

The top effective federal marginal tax rate on work income would rise to roughly 44.6% from 37.9% in 2012.

That's higher than under President Clinton because of a 0.9-percentage-point Medicare payroll tax hike for upper-income households, which passed with Obama-Care and takes effect in January.

Tax rates on long-term capital gains also will be higher than when Clinton left office if Bush tax cuts expire as ObamaCare's new 3.8% Medicare tax on investment gains takes effect. Up to now, only wage and salary income has been subject to Medicare taxes.

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At first blush, it seems to make policy sense, too. The rich fabric of America’s civic life, from Boy Scouts to community orchestras to soup kitchens, is the envy of the world. Its diversity reflects in part how much it depends on private givers with diverse interests and motives, and not just on the government. Their giving is encouraged by the charitable deduction, enacted in 1917, just four years after the income tax itself. The deduction lets people feel they are beating the system even as they practice virtue.

But there’s a question of fairness that complicates the issue. Overwhelmingly, the deduction benefits the wealthy — and the rest of the country has to make up the gap.

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I listened to NPR yesterday for over an hour back and forth from a doctors appointment.

The entire time they talked about President Obama's proposal to implement the middle class tax cut now.
Everywhere I turn its middle class tax cut, middle class tax cut...

Except it isn't but no one thinks about these things.

What is being proposed is not letting the current tax code STAY THE SAME.
So 98% of Americans WON"T HAVE A TAX INCREASE.

Since when is not having an increase a cut?

Anyone you know say I am getting the same number of days vacation this year as last year I am angry I get a benefits cut!

Filed under: * By Kendall • * Economics, Politics • Economy • Personal Finance • Taxes • The U.S. Government • Budget • Medicare • Social Security • The National Deficit • Politics in General • House of Representatives • Office of the President • Senate

President Obama’s re-election and Democratic gains in Congress were supposed to make it easier for the party to strike a deal with Republicans to resolve the year-end fiscal crisis by providing new leverage. But they could also make it harder as empowered Democrats, including some elected on liberal platforms, resist significant changes in entitlement programs like Social Security and Medicare.

As Congress returned Monday, the debate over those programs, which many Democrats see as the core of the party’s identity, was shaping up as the Democratic version of the higher-profile struggle among Republicans over taxes.

In failed deficit reduction talks last year, Mr. Obama signaled a willingness to consider substantial changes in the social safety net, including a gradual increase in the eligibility age for Medicare and limits in the growth rate of future Social Security benefits. An urgent question hanging over the new round of deficit talks is which of those changes Mr. Obama and Congressional Democrats would accept today....

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For the first time in decades, a bipartisan consensus has emerged in Washington to raise taxes. But negotiators working to avert the year-end “fiscal cliff” remain far apart on crucial details, including how taxes should go up and who should pay more.

Neither side gave ground in an opening round of staff-level talks last week at the Capitol. As President Obama and congressional leaders prepare for a second face-to-face meeting as soon as this week, the divide over taxes presents the biggest obstacle to replacing the heap of abrupt tax hikes and spending cuts, set to hit in January, with a less-traumatic debt-reduction plan.

People in both parties are exploring ideas for bridging the gap. Without a deal on taxes, there is not much hope for agreement on a broader strategy for restraining the national debt that also tackles the skyrocketing cost of federal retirement programs such as Social Security and Medicare.

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Congressional negotiators, trying to avert a fiscal crisis in January, are examining ideas that would allow effective tax rates to rise for the wealthy without technically raising the top tax rate of 35 percent. They hope the proposals will advance negotiations by allowing both parties to claim they stood their ground.

One possible change would tax the entire salary earned by those making more than a certain level — $400,000 or so — at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula. That plan would allow Republicans to say they did not back down in their opposition to raising marginal tax rates and Democrats to say they prevailed by increasing effective tax rates on the rich. At the same time, it would provide an initial effort to reduce the deficit, which the negotiators call a down payment, as Congressional tax-writing committees hash out a broad overhaul of the tax code.

That idea could be combined with the reinstatement of tax code provisions that once prevented the rich from taking personal exemptions or itemizing deductions. Those rules were eliminated by the tax cut of 2001. Reinstating them would tack an additional one to two percentage points onto the effective tax rates of high-income households without raising the 35 percent rate, but which households would be affected has not been decided. In all, tax experts say, families in the top tax bracket would find their effective tax rate jump to 41 percent, even though the top statutory rate would remain 35 percent.

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Most of the increases would result from the expiration of Bush-era tax cuts, which would cause marginal rates to rise. Simultaneously, several temporary tax breaks pushed by President Barack Obamaafter the financial crisis also would end.

And most households—121 million in all—would be hit by an increase in the payroll tax that employees pay to 6.2% from 4.2%.

Also expiring at year-end is a provision to reduce the so-called marriage penalty, a set of tax provisions that require many couples to pay higher taxes when they file jointly. And millions more families' earnings this year would be subject to the alternative minimum tax. The AMT was originally intended to prevent the very wealthy from avoiding taxes but would apply to middle-class households if policy makers don't renew a provision that expired last year.

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...the biggest loopholes in the U.S. Tax Code — generally referred to as tax expenditures — aren’t just the tricks of the trade for millionaires with offshore bank accounts. For the vast majority of Americans, they’re just how things work: You don’t pay taxes on your health insurance or Medicare benefits; you contribute tax-free to your 401(k); and your mortgage interest pushes down your tax bill each year.

And even if you dump the biggest of the set, these tax perks don’t even come close to closing the deficit. At best, the top 10 would pull in an extra $834 billion a year, according to Joint Committee on Taxation figures. Considering the hole lawmakers are trying to fill is several trillion dollars large, it’s clear they wouldn’t even come close.

Here are the 10 biggest tax loopholes — and the reasons why most of them will survive the fiscal cliff....

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U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.

Half of the nation's 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.

Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.

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Of the two programs, Social Security is by far the easier to fix. In 1983, a bipartisan agreement shored up the program for decades. It can be rescued again, much as it was then, by gradually raising the retirement age for able-bodied workers and bumping up the payroll tax. Other options include slowly reducing the rate of benefit growth, raising the wage cap and tightening eligibility requirements for disability

The more urgent and difficult issue is the surge in spending on Medicare, Medicaid and related programs. The numbers tell the story. In 1990, Washington spent $180 billion on health care, accounting for 14% of federal spending. In 2017, the expected tab is $1.4 trillion, or 30% of federal spending. As President Obama said at his news conference Wednesday, "Health care costs continue to be the biggest driver of our deficits."

One obvious place to start is bringing the Medicare eligibility age in line with that of Social Security. In their failed budget negotiations in 2011, Obama and House Speaker John Boehner tentatively agreed to raise it from 65 to 67. Such a rise would cut the government's bill while increasing the share of the population in market-based health care.

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The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the agency's finances, a development that could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.

Such a report would likely set off a political fight over the government's role in housing, as it raises the prospect of billions of dollars being added to the U.S. government's effort to stabilize the hard-hit sector in the aftermath of the 2008 financial crisis, which already includes $137 billion spent to bail out Fannie Mae and Freddie Mac. Together with Fannie and Freddie, federal agencies are backing nearly nine in 10 new mortgages.

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As the high-stakes wrangling over the fiscal cliff gets underway, we though it might be the proper moment to remind everybody just how the United States managed to become the world's biggest debtor.

So, here's how....

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Should lawmakers not reach agreement prior to the end of the year, the US budget deficit for 2013 would be cut almost in half, to $560 billion.

Which doesn't sound like a bad thing. After all, the US is staggering under a monumental pile of debt and could potentially begin to face the kinds of difficulties that have plunged several euro-zone countries into crisis. It is a viewpoint shared by the ratings agencies -- a year ago, Standard & Poor's withdrew America's top rating, justifying the measure by pointing to the unending battle over the debt ceiling. The agency noted that "the political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed."

From afar, it is difficult to argue; the ongoing battle between Democrats and Republicans in the face of a horrendously imbalanced budget looks catastrophically absurd. As their country heads toward the edge of the abyss, lawmakers preferred to debate whether or not French fries and pizza should be considered vegetables.

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Filed under: * Economics, Politics • Economy • Taxes • The U.S. Government • Budget • Medicare • Social Security • The National Deficit • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate • US Presidential Election 2012

Finance chiefs of the world's 20 leading economies are ringing alarm bells over the U.S. fiscal cliff and Europe's debt woes at a meeting in Mexico this weekend as they look to push back deficit reduction targets to help boost growth.

Unless a fractious U.S. Congress can reach a deal, about $600 billion in government spending cuts and higher taxes are set to kick in on January 1, threatening to push the American economy back into recession and hit world growth.

"The Americans themselves acknowledge that this is a problem," a G20 official said on condition of anonymity. "The U.S. administration says it doesn't want to fall off the fiscal cliff, but right now it can't tell us how exactly it will address it because that issue is on ice ahead of the election."

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Deficit-reduction principles backed by more than 80 U.S. chief executive officers are so broad that anti-tax advocate Grover Norquist and an ally of President Barack Obama both claim their plans could satisfy the standards.

The Campaign to Fix the Debt, with more than $30 million in backing, announced an expanded list of supporters yesterday, including the leaders of Verizon Communications Inc. (VZ), Cisco Systems Inc. (CSCO) and Microsoft Corp. (MSFT) On the most vexing issue -- whether tax increases should be part of a deal -- the principles refer to lower tax rates and higher revenue, not higher taxes.

Read it all. You can also find the CEO Debt Concerns Press Release here.

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Indeed, the impact of this latest round of unconventional monetary policy is already fading. Analysts at Morgan Stanley this week decided that returns in the high-yield market were no longer attractive in the face of deteriorating fundamentals. The stock market is struggling to make further headway, while yields on mortgage-backed securities have started to turn up after an initial drop. A drop in third-quarter capital expenditure suggests the Fed policy hasn’t been a catalyst for corporate investment at all.

One major reason for the lack of effectiveness of this latest round of quantitative easing may well be a growing concern with the “fiscal cliff”, automatic US tax rises and spending cuts due to kick in on January 1. Uncertainty over “cliff risk” – and the prospects of a deal in Congress on deficit reduction – seems to be offsetting any positive impact of Fed policies.

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An Episcopal priest who, with her husband, brings in about $65,000 a year tells Marketplace that they are lower middle class. A woman posting at dcurbanmom.com identifies her family as middle class, and their income is $100,000 a year. CNN talks to a man struggling to save for his son’s education who defines “middle class” as families with too much to qualify for federal Pell Grants—which is at most about $48,000 for a family of three. I was eligible for Pell Grants, and before that for subsidized school lunches, but I’ve always understood my family of origin to be middle class.

A majority of Americans consider themselves middle class, a recent Pew survey found, despite a wide variance in their earnings. So what does “middle class” mean if it applies to most of the country? And if we are all middle class now, what are the political and cultural implications?

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From an interview with the authors of the Simpson-Bowles reform plan and Goldman Sachs CEO Lloyd Blankfein:

"...We just met with -- a dozen of the largest high-tech company CEOs in the country. Not only are they hoarding cash. All their customers, all their suppliers are. They're scared to death we're going to go over this cliff and it could be a catastrophe...."

You can find a summary article to read there, it has briefer video links, but the best use of your time is to watch the full interview over here or read the transcript (about 42 1/2 minutes). Also, David Brook's piece on the debt indulgence is worth a careful revisit.

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According to the non-partisan Tax Policy Center, the U.S. is on the threshold of one of the largest tax increases in history, a tax hike that could average $3,500 for every American household.

Without actions from Congress, the report says taxes will go up next year by 20 percent, or $536 billion overall. It will hit Americans at every income level including those living below the poverty line. For a middle income family making $40,000 per year, the tax increase is $2,000.

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Herewith the blurb about it:

The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock (updated September 2012) shows the global figure for almost all government debts in dollar terms.

Does it matter? After all, world governments owe the money to their own citizens, not to the Martians. But the rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as various euro-zone governments have done, and the country (and its neighbours) can be plunged into crisis.

Now, before you click the link, note that for each country when you click on it you get the following: Public Debt, Public Debt/Person, Population, Public Debt as a % of GDP, and Total Annual Debt Change. Please guess these numbers for your own country and then go and check it out (the country to country comparisons are fascinating).

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It's game on. But to understand the contest — and the associated scare tactics — it's best to first understand a few unpleasant facts that are not in dispute:

•The popular old-age health insurance plan is on a financially unsustainable course. Medicare's payroll tax and premiums that beneficiaries pay cover barely half the program's costs, and as Baby Boomers retire, things will get worse. The tab is projected to rise rapidly: 7.6% a year for the doctor-care part of Medicare and 8.8% for the program's prescription drug benefit, for example. The economy, a rough proxy for the nation's ability to afford this, is growing less than 2% a year, leaving a huge gap.
•There is no painless fix. Both presidential candidates have committed to detailed plans for curbing costs, and no matter who wins, beneficiaries will pay more or get less, likely both. People who say otherwise are deluding themselves. As economist Herb Stein famously said: Anything that can't go on forever won't.

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Most economists surveyed by USA TODAY have little faith a divided Congress will adequately address looming tax increases and spending cuts, significantly hampering economic growth well into 2013.

The standoff in Washington, along with the global economic slowdown, threatens a U.S. economy that otherwise would be gaining steam on a strengthening U.S. housing market and improving private-sector balance sheets, economists say. The survey of 50 leading economists was conducted Aug. 3-8.

Fifty-three percent of those surveyed don't think Congress will be able to lessen the impact of $560 billion in tax increases and spending cuts, slated to take effect at year's end, in a way that avoids significant damage to the economy. The Congressional Budget Office says the so-called fiscal cliff would slice up to 4 percentage points off growth next year -- causing the economy to contract in the first half -- if all the deficit-slicing measures occur at once.

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Over at Capital Economics they’re spotlighting Aug. 9, 2007 as the “the unofficial onset of the global credit crunch” making tomorrow the fifth anniversary of, well, the beginning of the end of the uber-loose financial conditions that begat the U.S. housing boom, bust, financial crisis, bailout-a-palooza, deep recession and — if you believe Reinhart and Rogoff — the economic sluggishness we’re still contending with.

Of course, it’s a little bit squishy declaring any one moment the “start” of something. Some would argue that the birth of the securitization market way back in the 1980s might have been the true start of what eventually became the U.S. housing morass. Still, it’s instructive to remember what was going on in early August 2007, which was when the cracks in the foundation of global finance really started to get noticeable and the themes that have come to define the market for the last half-decade started to emerge.

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The greatest economic catastrophe of the postwar world began five years ago today. Its consequences are still with us.

On this day in 2007 BNP Paribas, the French bank, halted withdrawals from three investment funds linked to the US subprime mortgage market. Risky financial products had spread a contagion of bad debts through the banking system. The interbank lending market froze because banks feared that they would not get their money back. The consequences included the first run on a British bank in more than a century (Northern Rock), the biggest corporate failure in American history (Lehman Brothers), and a huge recession.

With hindsight, this was not merely a crisis but a catastrophe that still overshadows the global economy. The crash was a far-reaching problem of solvency. It was not simply a banking crisis, but a debt crisis. It has not simply sunk financial institutions, but submerged governments too. Five years on, there are three questions. How did it happen? When will it end? What, if anything, can we do about it?

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Quick Stats[:]

As of 2012-06 the civilian labor force was 155,163,000
As of 2012-06 there were 111,145,000 in the private workforce
As of 2012-06 there were 56,174,538 collecting some form of SS or disability benefit
Ratio of SS beneficiaries to private employment just passed the 50% mark (50.54%)

....As of May 2012, the outlays are $756.9 billion annualized. Fewer worker relatively speaking, support more and more recipients with exponentially growing payments. This is supposed to work?

Read it all from Mish's economics blog (another from the long queue of should-have-already-been-posted material).

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Every generation has an incentive to borrow money from the future to spend on itself. But, until ours, no generation of Americans has done it to the same extent. Why?

A huge reason is that earlier generations were insecure. They lived without modern medicine, without modern technology and without modern welfare states. They lived one illness, one drought and one recession away from catastrophe. They developed a moral abhorrence about things like excessive debt, which would further magnify their vulnerability.

Recently, life has become better and more secure. But the aversion to debt has diminished amid the progress. Credit card companies seduced people into borrowing more. Politicians found that they could buy votes with borrowed money. People became more comfortable with red ink....

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“I voted for [Walker] in 2010 because I realized we have to do something about the deficit. I voted for him in the recall because I don’t believe recall elections are meant for what they’re doing with it,” said Katy Tomlanovich, who teaches at Northeast Wisconsin Technical College. She said recall elections should be reserved for politicians who commit gross malfeasance, not for those who make unpopular decisions.

Tomlanovich said she plans to vote for Obama in November but cast a ballot for the Republican on Tuesday. “Scott Walker is actually doing something about [spending], and I think he should be allowed to serve the rest of his term.”

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The nonpartisan Congressional Budget Office (CBO) said Tuesday that unless lawmakers act to prevent scheduled tax increases and spending cuts at the end of the year, a recession will likely result in early 2013.

Early next year income taxes are set to go up when the Bush-era tax rates expire. Automatic spending cuts totaling roughly $109 billion triggered by last August’s debt-ceiling deal are set to hit. Meanwhile, payments to physicians under Medicare will be slashed.

CBO projects that these and other elements of the so-called “fiscal cliff” will cause the economy to contract as demand dries up.

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Filed under: * Economics, Politics • Economy • Taxes • The U.S. Government • Budget • Medicare • Social Security • The National Deficit • Politics in General • House of Representatives • Office of the President • Senate

Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs.

Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending.

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Government accounting for Social Security has devolved over time from deceptive to dishonest to desperate.

The latest Social Security Trustees report says that benefit promises are fully financed until 2033 and three-fourths financed after that. In short: no crisis.

Here's the truth, embedded between the lines: At the current payroll tax rate, Social Security would only bring in enough revenue to pay for 72% of all benefits through 2036.

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Here’s a breakdown of the numbers. The report, citing White House budget office figures, estimated $46 billion of costs under the Troubled Asset Relief Program to support struggling homeowners. It showed $2 billion of overall gains on the Treasury’s investments in various bailed-out companies, such as American International Group Inc. (AIG), some of which are held outside of TARP. Other Treasury programs to buy mortgage-backed securities and to guarantee money-market funds would produce $26 billion of gains, the report said.

Add up those categories, and the projected net cost so far is $18 billion. On top of that, there’s the current net cost of the government-sponsored housing financiers Fannie Mae and Freddie Mac, which the Treasury pegged at $151 billion. So how did Treasury project a potential gain overall?

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The current economic recovery is more of an uphill slog than any other since World War II for a simple reason: lots more debt.

Record-high debt levels are giving this recovery no chance to exhale. As soon as the economy climbs one hill, another ascent begins.

Combined U.S. household debt and government debt added up to more than $30 trillion, or 200% of GDP, at the end of 2011.

That's $155,000 per working-age (18-64) adult. By that measure, debt was 50% higher in real terms at the start of this recovery than in 2001. Compared to the 1991 and 1982 recoveries, debt was, respectively, 88% and 230% higher.

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President Obama's signature health reform law will add as much as $527 billion to federal deficits over the next decade, not cut them as advertised, according to a report released Tuesday.

The Affordable Care Act will add as much as $1.2 trillion to federal spending between 2012 and 2021, the report also finds. Charles Blahous, who serves as one of Medicare's trustees, wrote the report, published by George Mason University's Mercatus Center.

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Filed under: * Culture-Watch • Health & Medicine • --The 2009 American Health Care Reform Debate • * Economics, Politics • Economy • The U.S. Government • Budget • Medicare • The National Deficit • Politics in General • House of Representatives • Office of the President • Senate

(The full title is: "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You")--KSH

What was the main difference between Great Britain and France? It -wasn’t the size of their national debts: at the time of the French Revolution, Great Britain’s debt per person was much larger than France’s. The difference was politics. In Great Britain, the political system was dominated by elected representatives who supported an activist government and were willing to endorse the taxes necessary to pay for its resulting debts. In France, the government did not have the legitimacy necessary to raise the money to service its smaller debts. And although its tax rates were lower than Britain’s, the problem of taxation without representation was an important cause of the Revolution.

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The centerpiece of the case against Obamacare is the requirement that everyone buy some kind of health insurance or face stiff penalties--the so-called individual mandate. It is a way of moving toward universal coverage without a government-run or single-payer system. It might surprise Americans to learn that another advanced industrial country, one with a totally private health care system, made precisely the same choice nearly 20 years ago: Switzerland. The lessons from Switzerland and other countries can't resolve the constitutional issues, but they suggest the inevitability of some version of Obamacare....

Twenty years ago, Switzerland had a system very similar to America's--private insurers, private providers--with very similar problems. People didn't buy insurance but ended up in emergency rooms, insurers screened out people with pre-existing conditions, and costs were rising fast. The country came to the conclusion that to make health care work, everyone had to buy insurance.

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At some point, the spectacle America is now calling a presidential campaign will turn away from comedy and start focusing on things that really matter—such as the "fiscal cliff" our federal government is rapidly approaching.

The what? A cliff is something from which you don't want to fall. But as I'll explain shortly, a number of decisions to kick the budgetary can down the road have conspired to place a remarkably large fiscal contraction on the calendar for January 2013—unless Congress takes action to avoid it.

Well, that gives Congress plenty of time, right? Yes. But if you're like me, the phrase "unless Congress takes action" sends a chill down your spine—especially since the cliff came about because of Congress's past inability to agree.

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President Obama’s 2013 budget would add $3.5 trillion to annual deficits through 2022, according to a new estimate from the Congressional Budget Office (CBO).

It also would raise the deficit next year by $365 billion, according to the nonpartisan office.

The CBO estimate is in sharp contrast to White House claims last month that the Obama budget would reduce deficits by $3.2 trillion over the next decade.


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The CBO forecasts it will now cost $1.76 trillion over a decade, whereas before they forecast it would cost 940 billion.

Read it carefully and follow all the links. Also, you can read more over there.

Filed under: * Culture-Watch • Health & Medicine • --The 2009 American Health Care Reform Debate • * Economics, Politics • Economy • The U.S. Government • Budget • The National Deficit • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

The agency's 2011 long-term budget outlook showed that federal debt would begin to hurt the economy once it reaches about 77% of GDP. CBO's January budget and economic outlook estimated that it will hit that level in 2013 under its high-debt scenario that is based largely on current policy.

"CBO expects that the large government deficits during the recession and afterward will raise the cost of capital in the future . . . constraining investment," the nonpartisan scorekeeper wrote in its January budget and economic outlook.

Initially, the impact would be minimal, but it would grow over time as debt levels increase.

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Seeking to avoid a politically toxic vote, Congress has failed to pass a federal budget for three years. This year's new twist? Congress might not even try.

On Monday, President Obama presented his proposed budget for fiscal year 2013. It's going nowhere on Capitol Hill, legislators and political analysts agree. What's more, Senate Democratic leaders show no intention of presenting their own budget proposals – or taking up any lobbed over from House Republicans.

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In place of those cuts, the president offered a mixture of real steps to reduce the deficit — including nearly $2 trillion in additional taxes over the coming decade, mainly at the expense of high-income Americans — and bogus ones, such as almost $850 billion in "savings" from the previously planned end of foreign combat operations, a chunk of which would be spent on infrastructure and jobs programs. The one bright spot: Obama didn't ignore the rapid and unsustainable growth in healthcare entitlements, as he did in last year's budget. Instead, he called for saving about $360 billion over 10 years on those programs, in part by paying drug companies less for medicines prescribed to low-income Medicare patients.

There's little chance this Congress will agree to many, or even any, of those suggestions. Tax increases seem particularly unlikely. But even if lawmakers were to adopt all of Obama's deficit-cutting measures, they wouldn't go far enough to set the budget on a path toward balance.

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Taking a pass on reining in government growth, President Obama unveiled a record $3.8 trillion election-year budget plan Monday, calling for stimulus-style spending on roads and schools and tax hikes on the wealthy to help pay the costs. The ideas landed with a thud on Capitol Hill.

Though the Pentagon and a number of Cabinet agencies would get squeezed, Obama would leave the spiraling growth of health care programs for the elderly and the poor largely unchecked. The plan claims $4 trillion in deficit savings over the coming decade, but most of it would be through tax increases Republicans oppose, lower war costs already in motion and budget cuts enacted last year in a debt pact with GOP lawmakers.

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Social Security’s disability program is a political quagmire — and a metaphor for why federal spending and budget deficits are so difficult to control. The numbers are too big; the details, too complicated; and the choices, when faced, too wrenching. President Obama’s new budget, estimated at $3.5 trillion or more, will raise all these problems. Experience suggests that little will be done to rein in long-term spending and deficits.

Social Security’s disability program opens a window on this larger paralysis. Created in 1956, more than two decades after Congress authorized Social Security, the program was initially seen as a natural complement to coverage for retirees. Through sickness or accident, some workers had to retire early. They, too, deserved protection. For many years, the costs were modest. But in recent decades, they have exploded....

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US economic growth will slow dramatically if tax rises and spending cuts come into effect as planned in 2013, according to new figures from the Congressional Budget Office.

The expiry of tax cuts originally passed by president George W. Bush, the end of a 2 per cent payroll tax holiday and automatic spending cuts agreed last August will reduce growth to just 1.1 per cent in 2013 unless changes are made.

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Conceived in the heady post-Cold War 1990s, the futuristic fifth-generation [F-35] jet fighter was to be a technological marvel built in a rush and paid for with "peace dividend" dollars.

But now with the economic crash, the fighter is billions over budget and years behind schedule.

Here's part of the problem: axing the F-35 would eliminate tens of thousands of jobs in 47 states. Few members of Congress are willing to go along.

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The Pentagon budget will actually shrink next year, for the first time since 1998, under a proposal released by the Obama administration that will cut the size of the Army and Marine Corps, trim the number of fighter aircraft and ships, and seek congressional approval for another round of military base closures.

The cuts are part of a broader effort by the Pentagon to decrease its projected spending by $487 billion over the next 10 years, in accordance with a deficit-reduction deal President Obama reached with Congress in August.

The budget is also an attempt to realign the Pentagon’s accounts with Obama’s new military strategy, which he unveiled this month and which seeks to “rebalance” the armed forces toward Asia while maintaining their presence in the Middle East, principally to deter Iran.

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Britain has sunk deeper into debt. Three years after bubble burst, the UK has barely begun to tackle the crushing burden left by Gordon Brown. The contrast with the United States is frankly shocking.

The latest report on "Debt and Deleveraging" by the McKinsey Global Institute shows that total public and private debt in the UK is still hovering at an all-time high. It has risen from 487pc to 507pc of GDP since the crisis began....

It is a very different picture in the US where light is emerging at the end of the tunnel. American banks, firms, and households have been chipping away at their debts, more than offsetting Washington’s double-digit deficits.

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Filed under: * Economics, Politics • Economy • Personal Finance • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government • The National Deficit • * International News & Commentary • America/U.S.A. • England / UK

Against these downward [price] pressures stand three powerful counter-forces: a reviving economy that eases people’s anxieties about elective spending; an aging society that raises the need for health care; and the start of Obamacare’s insurance mandates in 2014 that expand coverage by 30 million people or more. Those with insurance routinely use more health care than do the uncovered.

Health care poses a dilemma. On the one hand, we all want — for our families and ourselves — the best care available without artificial limits imposed by government regulations or private insurers. On the other, we don’t want soaring health spending to crowd out other government programs or depress take-home pay. The latest spending figures delude if they suggest we’ve overcome that dilemma. The Neanderthal Cure is an ugly stop-gap, nothing more...

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Filed under: * Culture-Watch • Health & Medicine • --The 2009 American Health Care Reform Debate • * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • The U.S. Government • Budget • Medicare • The National Deficit • Politics in General • State Government

Just 1% of Americans accounted for 22% of health care costs in 2009, according to a federal report released Wednesday.

That's about $90,000 per person, according to the Agency for Healthcare Research and Quality. U.S. residents spent $1.26 trillion that year on health care.

Five percent accounted for 50% of health care costs, about $36,000 each, the report said.

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Congressional leaders reached an agreement Thursday to temporarily extend a payroll-tax cut by two months and begin negotiations on a yearlong extension, aides said.

he agreement could end a political stalemate over the payroll-tax cut, which lowered Social Security taxes for 160 million Americans in 2011. Under the tentative agreement, the House will vote again on a two-month extension and the Senate will prepare to negotiate for an extension that will run through 2012.

Aides said House Speaker John Boehner (R, Ohio) has agreed to hold a new vote Friday on extending the tax cut, bowing to increasing pressure to end an impasse that threatened to leave workers with a tax increase next year.

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...unlike the debt-ceiling drama and the destructive impasse over a grand bargain to rein in the spiraling national debt, a stalemate on the payroll tax could be good for Social Security, good for the deficit, and good for disproving the conviction that "temporary" tax cuts must never be allowed to expire.

Let us explain.

As we've pointed out previously, the 2-percentage-point cut in the payroll tax (from 6.2% to 4.2%) might give a short-term boost to the economy, but it contributes to Social Security's long-term insolvency at a time when the retirement program is already paying out more in benefits than it is collecting in taxes. A one-year extension would drive up next year's federal deficit by more than $100 billion.

The payroll tax issue also raises the question of whether there's any such thing as a temporary tax cut. At the end of next year, the unaffordable Bush tax cuts are set to expire. Extending the payroll tax cut would set a precedent and give ammunition to those who want another extension of the Bush cuts, adding as much as $5 trillion to deficits over the coming decade.

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A Republican payroll tax cut bill that sailed through the House despite a White House veto threat is dead on arrival in the Senate, and it will soon be time for talks on a final package, the Senate's top Democrat says....

Reid says he will schedule a vote shortly on the House-passed bill to underscore its irrelevance — a vote that should start the clock ticking on what stands as the year's final, high-stakes partisan faceoff.

"It was dead before it got to the Senate," Reid said of the House legislation. "The Senate will not pass it. The sooner we demonstrate that, the sooner we can begin serious discussions on how to keep taxes from going up on middle-class Americans."

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The Obama White House, in its own version of the New Year’s Eve countdown in Times Square, has added a banner to its website – a clock ticking down the seconds to when taxes on the middle class will rise “if Congress doesn’t act.”

That tax hit is the 2 percent payroll tax cut now set to expire at midnight, Dec. 31. If Congress fails to at least extend that tax cut, the Social Security tax rate for employees jumps back to 6.2 percent, up from 4.2 percent. If that happens, the average American taxpayer stands to lose about $1,000 in 2012.

Leaders on both sides of the political aisle in Congress offer assurances that by year’s end the tax break will be extended. As lawmakers head into an election year, the stakes are simply too high to kick that can down the road. But GOP leaders, especially, are running up against strong opposition from the rank-and-file on anything that looks like caving on pledges to reduce deficits, dramatically cut spending, and reject all tax increases (which are an issue in this case because Democrats propose to pay for extending the payroll tax by a tax hike on millionaires.

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We Americans fool ourselves if we ignore the parallels between Europe's problems and our own. It's reassuring to think them separate, and the fixation on the euro -- Europe's common currency -- buttresses that mindset. But Europe's turmoil is more than a currency crisis and was inevitable, in some form, even if the euro had never been created. It's ultimately a crisis of the welfare state, which has grown too large to be easily supported economically. People can't live with it -- and can't live without it. The American predicament is little different.

Government expansion was one of the 20th century's great transformations. Wealthy nations adopted programs for education, health care, unemployment insurance, old-age assistance, public housing and income redistribution. "Public spending for these activities had been almost nonexistent at the beginning of the 20th century," writes economist Vito Tanzi in his book "Government versus Markets."

The numbers -- to those who don't know them -- are astonishing. In 1870, all government spending was 7.3 percent of national income in the United States, 9.4 percent in Britain, 10 percent in Germany and 12.6 percent in France. By 2007, the figures were 36.6 percent for the United States, 44.6 percent for Britain, 43.9 percent for Germany and 52.6 percent for France. Military costs once dominated budgets; now, social spending does.

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This was largely expected, and they did reaffirm their AAA overall rating. They felt "declining confidence" that Congress will agree on timely measures to bring about fiscal policies aimed at reducing indebtedness--KSH.

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The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy.

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We haven't had the robust democratic debate about the role of government that lies at the heart of America's budget stalemate. The truth is that most Democrats and Republicans want to avoid such a debate because it would force them into positions that, regardless of ideology, would be highly unpopular. This does not mean that the congressional supercommittee, charged with making modest cuts in deficits, need fail. There is a basis for honorable compromise; squandering it would confirm politicians' preference for fighting over governing.

Contrary to much press coverage, the committee's Republicans opened the door to compromise by abandoning -- as they should have -- opposition to tax increases. Sen. Pat Toomey of Pennsylvania proposed a tax "reform" that would raise income taxes by $250 billion over a decade. First, he would impose across-the-board reductions of most itemized deductions and use the resulting revenue gains to cut all tax rates. Next, he would adjust the rates for the top two brackets so that they'd be high enough to produce the $250 billion. All the tax increase would fall on people in the top brackets....

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Committee members continued to meet on Capitol Hill to present legislation that could be voted on by the Congress to cut $1,200bn from the budget over 10 years.

But both sides had already begun to blame each other, with Republicans resisting tax rises in any form and Democrats demanding extra revenues be balanced against spending cuts on the grounds of fairness.

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Conceding that talks on a grand budget deal are near failure, Congressional leaders on Sunday pointed fingers at each other as they tried to deflect blame for their inability to figure out a way to lower the federal deficit without having to rely on automated cuts.

The testy exchanges — which dominated the Sunday talk shows — made clear that leaders in both parties now see the so-called sequester — a term meaning an automatic spending cut — as the most likely solution to reduce the federal deficit by $1.2 trillion over 10 years, instead of a negotiated package of spending reductions and tax increases, something they have been unable to achieve over the last 10 weeks.

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One objection that I often hear from evangelicals is that while aid is good, it is not the government's job. Yes, individuals and churches play a vital role in aid and development. But governments play a unique and vital role that private organizations cannot. The poverty-focused programs in the foreign-aid budget are facing cuts of between $1.2 billion and $3.2 billion from 2010 levels. In comparison, the largest American Protestant denomination, the Southern Baptist Convention, has a budget of $308 million for its missionary and aid organization.

We cannot let others suffer simply because times are tough in the U.S. All Americans must understand the urgency of the human need and the effectiveness of our government's aid programs.

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A special U.S. committee charged with reducing the federal deficit is entering a critical week for reaching a deal but has not considered extending its Nov. 23 deadline, a panel member said Monday.

"Every member understands that time is running out," House Democrat Chris Van Hollen, a member of the "super committee," said in an interview with MSNBC's "Morning Joe" program. "This is the moment to get it (a deal) done if we're going to get it done.

"The clock's ticking. We've got just a little over two weeks and that includes the time that it will take to put the final touches on any agreement that we might be able to reach," he said.

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The sharp rise in federal borrowing is offsetting efforts of consumers to reduce debt, leaving the economy deeper in debt than when the recession began in December 2007, a USA TODAY analysis finds.

The substitution of government debt for consumer debt helped end the recession and start a recovery, economists say, but it leaves the nation's long-term economic health in peril.

Households have reduced debt by $549billion since 2007, mostly by cutting mortgages through defaults and paying down credit cards. During that time, the federal government has added more than $4trillion in debt, pushing the country's total borrowing to a record $36.5trillion, excluding the financial industry, according to the Federal Reserve.

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For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.

Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.

But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.

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The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.

The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday.

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The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labour gap with China in a clutch of key industries. The current account might even be in surplus.

Assumptions that the Great Republic must inevitably spiral into economic and strategic decline - so like the chatter of the late 1980s, when Japan was in vogue - will seem wildly off the mark by then.
Telegraph readers already know about the "shale gas revolution" that has turned America into the world’s number one producer of natural gas, ahead of Russia....

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Plenty of lawmakers are against tax breaks and so-called loopholes. Unless, of course, they personally helped create them.

The Senate Republican leader, Mitch McConnell, for instance, says he is open to ending tax breaks for special interests. But when it comes to a tax break he secured in 2008 for the owners of thoroughbred racehorses, he argues that the measure is essential for the protection of jobs in his home state of Kentucky.

Senator John Kerry, Democrat of Massachusetts, says he too wants to eliminate such breaks, except when it comes to beer. He is one of the main supporters of a proposal that would cut taxes for small beer makers like the Samuel Adams Brewery in Boston.

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We're just stuck?

If we don't deal with it – if we don't proactively say we're going to get our deficit under control –let me put it this way: My personal belief is that if we do proactively get our long-term budget issues under control, the bond market will say, "Okay, you're credible and we will buy your bonds, because you have put yourself on a credible path – whether it's through cuts, whether it's through tax increases, however you want to do it – but you have to do it. But you have shown us a credible way to get to the place where the growth rate of your deficit is below the growth rate of nominal GDP."

But if we don't do that, my wine bottle of pain becomes a jeroboam and we end up downing it all at once.

That sounds ugly.

It is. It will force budget cuts; it will force tax increases of the magnitude that no one is ready to contemplate. We're talking cuts in Medicare, cuts in education, in defense, in spending of all kinds. That would create a depression, a true depression that would last 4-5 years, push unemployment to 20%-25%....

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Cutting its global forecasts sharply, the world's economic watchdog said the global economy had entered a "dangerous new phase" and urged policymakers to tread a careful line between aggressive deficit reduction and growth. Central banks should stand ready to restart the printing presses to aid the recovery, it added in its twice-yearly World Economic Outlook.

"The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks," Olivier Blanchard, the IMF's chief economist, said. "Markets have clearly become more sceptical about the ability of many countries to stabilise their public debt. Fear of the unknown is high."

Europe's leaders came under scathing criticism over the escalating debt crisis.

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The Joint Select Committee on Deficit Reduction, aka super Congress or super committee, is Congress's answer to its own inability to break the hold of partisan gridlock that took America to the brink of default on Aug. 2, prompting the first-ever downgrade of the nation's credit rating.

The panel, which on Thursday holds an organizational meeting open to the public, has a sweeping mandate to propose cuts to spending and entitlements and recommend tax reform by Nov. 23. Congress must vote the package up or down – no amendments or filibuster – by Dec. 23, or trigger a $1.2 trillion package of automatic spending cuts, equally divided between defense and domestic spending.

"Never has Washington had an all-or-nothing panel that is empowered and backed by a firm timeline like this one is," says John Ullyot, a public-affairs consultant in Washington and former GOP Senate staffer. "The starter pistol will fire right after Labor Day."

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"The crisis is not over. Not just in Europe is it not over, it is also not over in other regions of the world," he said, adding the United States had an "enormous" debt problem and lacked the structures to get the problem under control.

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In absolute numbers, the total public debt as of Aug. 11 was $9.924 trillion, and the intra-government debt was $4.666 trillion, for a total of $14.587 trillion. That's well over 300 million times the country's median household income....

The GDP of the United States was $15.003 trillion at the end of the first quarter in 2011. That makes the public debt equal to 66.1% of GDP and the intra-governmental debt 31.1%. Total debt is now 97.2% of GDP and climbing rapidly.

And it's the climbing rapidly part that is worrisome, not the debt's current size relative to GDP. Indeed, the debt has been substantially higher by that measure in earlier times. In 1946, in the immediate aftermath of World War II, it was 129.98% of GDP. But while the debt had increased enormously during the war (it had been 50% of a much smaller GDP in 1940), it did not increase substantially over the next 15 years....

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... let me say that in English: the European Union is cracking up. The Arab world is cracking up. China’s growth model is under pressure and America’s credit-driven capitalist model has suffered a warning heart attack and needs a total rethink. Recasting any one of these alone would be huge. Doing all four at once — when the world has never been more interconnected — is mind-boggling. We are again “present at the creation” — but of what?....

As for America, we’ve thrived in recent decades with a credit-consumption-led economy, whereby we maintained a middle class by using more steroids (easy credit, subprime mortgages and construction work) and less muscle-building (education, skill-building and innovation). It’s put us in a deep hole, and the only way to dig out now is a new, hybrid politics that mixes spending cuts, tax increases, tax reform and investments in infrastructure, education, research and production. But that mix is not the agenda of either party. Either our two parties find a way to collaborate in the center around this new hybrid politics, or a third party is going to emerge — or we’re stuck and the pain will just get worse.

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The economy will grow by less than 3% through 2012, and unemployment will remain above 8% until 2014, the non-partisan Congressional Budget Office projects.

In its semiannual update of budget and economic data, the agency — which serves as the official scorekeeper for President Obama and Congress — projects painfully slow progress on the economic front through next year's election and beyond.

Economic growth will remain slow but steady, it says, increasing by 2.3% this year and 2.7% next year. In a blog post on the agency's website, director Douglas Elmendorf notes those projections were made in early July — before financial market gyrations and some lackluster economic indicators.

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I have spoken to this many times in public. Those with the capacity to hire American workers―small businesses as well as large, publicly traded or private―are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy. In an environment where they are already uncertain of potential growth in demand for their goods and services and have yet to see a significant pickup in top-line revenue, there is palpable angst surrounding the cost of doing business. According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decisionmakers frozen in their tracks....

...put yourself in the shoes of a business operator. On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base. Your most likely reaction is to cross your arms, plant your feet and say: “Show me. I am not going to hire new workers or build a new plant until I have been shown what will come out of this agreement.” Moreover, you might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”

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Lin Hersh, a 61-year-old small-business owner in Bearsville, N.Y., about two hours north of New York City, called up her stock broker two weeks ago and gave the order to sell everything.

She dumped nearly all of her individual equities and her stock mutual funds, moving almost completely into cash. Ms. Hersh is haunted by the market plunge of 2008, when her $432,000 in savings dwindled to $150,000.

“What I’ve got left after the last downturn is about a third of what I started out with and I’m not in the mood to play anymore,” she said. Pointing to the weak American economy and concerns about Europe, Ms. Hersh said she would most likely steer clear of stocks through the end of this year.

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From here:

Popular personal finance personality Dave Ramsey summed it up eloquently and simply: “If the US Government ​was a family, they would be making $58,000 a year, they spend $75,000 a year and are $327,000 in credit card debt. They are currently proposing big spending cuts to reduce their spending to $72,000 a year.”

Alan Haley has a further discussion of this here.

Filed under: * Economics, Politics • Economy • The U.S. Government • Budget • The National Deficit

Standard and Poor's, the agency responsible for Friday's downgrade, merely confirmed what anyone with their eyes open for the past decade or two already knew: The U.S. has a huge and growing debt problem that it is resolutely unwilling to solve.

Not unable. Just unwilling.

Not just politicians, but anyone who buys into their divisive, fanciful rhetoric.

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Whatever one thinks of the credit-rating agencies—and we aren't admirers—it serves no good purpose to shoot the fiscal messengers. Friday's downgrade by Standard & Poor's of U.S. long-term debt to AA+ from AAA will be the first of many such humiliations if Washington doesn't change its economic and fiscal policies.

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The downgrade of the United States long-term debt to AA+ from AAA has global implications, said Alessandro Giansanti, a credit market strategist at ING in Amsterdam.

“We can see that this may force the U.S. to move more aggressively to cut spending,” he said, something that could drive the already weak economy into recession and weigh on the economies of all of its trading partners. “That’s the main driver” of the stock market declines, he said.

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Local government officials are struggling to gauge the impact of the Standard & Poor’s unprecedented downgrade of federal credit even as Washington watches global reaction to its latest financial setback.

Will the ratings agency downgrade counties and states? Will the federal government’s predicament cost local taxpayers? And can local governments have better credit than the federal government?

“We are in uncharted territory,” Prince William County Board Chairman Corey A. Stewart (R) said. “No one knows what the ultimate long-term ramifications are. . . . But we know they’re going to be significant.”

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