United Liberty

Back in May, the Congressional Budget Office (CBO) issued a stark warning to Congress that tax hikes scheduled to happen at the beginning of the year could trigger another recession. Since that time President Barack Obama and Senate Democrats have refused to act on extension of all current tax rates, which is the position of House Republicans. Instead, they’ve only pushed for one-year extension for individuals making $200,000 and families bringing in $250,000.

But yesterday, the CBO once again stressed that the looming tax hikes could hurt the economy if the stalemate doesn’t end:

In a fresh warning about the so-called “fiscal cliff,” the nonpartisan CBO reiterated that the U.S. economy will go into a recession next year if the Bush-era tax cuts expire and automatic spending cuts take effect. Read the CBO report.

In its latest report, the CBO predicts that the U.S. economy will grow at a 2.1% clip in 2012, but fall by 0.5% between the fourth quarter of 2012 and the fourth quarter of 2013 under the fiscal cliff scenario.

Previously, the CBO said growth would be 0.5% in 2013 under the fiscal cliff. In its new report it said the “underlying strength” of the economy is weaker.
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The CBO said unemployment would jump to around 9% in the second half of 2013 from its current 8.3% if the tax increases and spending cuts play out.

President Barack Obama and Democrat have time and time again repeated the talking point that the $831 billion American Recovery and Reinvestment Act, passed in early 2009, helped save the economy, which was suffering the effects of a severe recession, and helped create jobs.

However, a new report from the Congressional Budget Office (CBO) via James Pethokoukis shows that the stimulus bill was largely wasteful considering its affects on unemployment, with a high cost for what jobs were created:

When [the American Recovery and Reinvestment Act] was being considered, the Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation estimated that it would increase budget deficits by $787 billion between fiscal years 2009 and 2019. CBO now estimates that the total impact over the 2009–2019 period will amount to about $831 billion.

By CBO’s estimate, close to half of that impact occurred in fiscal year 2010, and more than 90 percent of ARRA’s budgetary impact was realized by the end of March 2012. CBO has estimated the law’s impact on employment and economic output using evidence about the effects of previous similar policies and drawing on various mathematical models that represent the workings of the economy. …

On that basis CBO estimates that ARRA’s policies had the following effects in the first quarter of calendar year 2012 compared with what would have occurred otherwise:

– They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.1 percent and 1.0 percent,

– They lowered the unemployment rate by between 0.1 percentage points and 0.8 percentage points,

On the campaign trail and during the third presidential debate with Sen. John McCain (R-AZ) in 2008, then-candidate Barack Obama promised that Americans would see a “net-spending cut” during his presidency.

The claim was met with a boatload of skepticism given that Obama was proposing massive expansions in healthcare and non-defense discretionary spending; however, we all crossed our fingers that he would follow through, but we didn’t hold our breath.

The skepticism proved to be justified. Just a couple of months after coming into office, President Barack Obama told Americans that under his budget that there would be trillion dollar deficits as far as the eye can see.

He wasn’t kidding. The Congressional Budget Office released its budget report for this current fiscal year yesterday, predicting yet another trillion dollar budget deficit and unemployment hovering around 9%:

The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.

The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.

These are much dimmer forecasts than in CBO’s last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.
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If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term.

The Budget Control Act of 2011 created the Joint Select Committee on Deficit Reduction (a.k.a. The Supercommittee) on August 2nd, 2011. The panel of 12 members, 6 Democrats and 6 Republicans is tasked with closing the deficit between revenues and spending by $1.2 Trillion over 10 years, the standard CBO measuring stick. This could be achieved in several ways: Cut spending by $120 Billion in year one – leading to more than $120 Billion in deficit reductions. A combination of revenue increases and cuts to equal the total of $1.2 Trillion over 10 years, or by completely covering the deficit with new revenues. Keep in mind however, that reductions could include a reduction in CBO projected expense year over year. Meaning that instead of increasing the spending budget for a given arm of expenditure by say 5%, they only increase it by 3%.

Currently, some Presidential candidates have put some bold ideas on the table: Ron Paul has promised to cut $1 Trillion from the 2013 budget, and Gary Johnson has promised to submit a balanced budget for 2013. Making this deficit reduction solution seemingly small, a “five minute job” if you will. However, the liberty minded among us have searched deep to try to find some sort of sign that a panel of 12 would do anything other than promise fake cuts and increase taxes. Frankly, the Supercommittee seems more like a way to deny culpability than anything else. It seems designed to fail. It seems designed to keep the status quo rather than effect real change. A term familiar to those who elected Barack Obama.

In a Newsmax.com article, Newt Gingrich agrees:

The Congressional Budget Office (CBO) released the 2011 Long-Term Budget Outlook yesterday. As you might expect, both sides are talking up the aspects of the report that play to their talking points. For example, if you listen to our progressive/liberal friends, they’re quick to point to charts in the report showing that budget deficits wouldn’t be as large if the 2001/2003 tax cuts hadn’t been extended. Of course, most, if any at all, don’t acknowledge that the CBO also says this in the report:

Changes in marginal tax rates (the rates that apply to an additional dollar of a taxpayer’s income) also affect output. For example, a lower marginal tax rate on capital income (income derived from wealth, such as stock dividends, realized capital gains, or the owner’s profits from a business) increases the after-tax rate of return on saving, strengthening the incentive to save; more saving implies more investment, a larger capital stock, and greater output. However, if that lower marginal tax rate increases people’s after-tax returns on savings, they do not need to save as much to have the same future standard of living, which reduces the supply of saving. CBO concludes, as do most analysts, that the former effect outweighs the latter, such that a lower marginal tax rate on capital income increases saving. A higher marginal tax rate on capital income has the opposite effect.

…and in breaking news, the sky is blue!  President Obama, speaking to the US Chamber of Commerce, tried to put forth the idea that regulations are a good thing.

From the Fox News report:

Speaking on matters that concern the business community with which the president has had a rocky relationship, Obama said, “The perils of too much regulation are matched by the dangers of too little.”

But, he said, regulations also serve a purpose.

“Already we’re dramatically cutting down on the paperwork that saddles businesses with huge administrative costs,” he said. “But ultimately, winning the future is not just about what the government can do to help you succeed. It’s about what you can do to help America succeed.”

He added, “We cannot go back to the kind of economy — and culture — we saw in the years leading up to the recession, where growth and gains in productivity just didn’t translate into rising incomes and opportunity for the middle class.”

The president took the opportunity to defend two of his primary legislative achievements — a Wall Street banking bill and health insurance reform.

“I know you have concerns about this law,” he said of the health law. “But the nonpartisan congressional watchdogs at the CBO estimate that health care tax credits will be worth nearly $40 billion for small businesses over the next decade.”

Of course, he neglects to point out that the “nonpartisan congressional watchdogs at the CBO” are hamstrung in how they can figure up their numbers, so you can trust what they say about as much as you can trust Paris Hilton to score perfect on the SAT.

This week, Brett was joined by UL contributor, Doug Mataconis, and Brooklyn Roberts, Executive Director of the Alabama Eagle Forum.  Unfortunately, due to circumstances beyond his control, Jason was unable to participate, so we had a blast without him.

This week’s topics include:

The Washington Post, of all places, explains today why the CBO numbers released yesterday should not be trusted:

The latest estimate of what health-care reform would mean for the government’s finances was such a hot document Thursday that at times the Congressional Budget Office’s Web site couldn’t handle the traffic.

But as much as the 25-page “score” of the legislation was treated as holy writ in Washington — Democrats eagerly flagged its conclusion that the package they aim to pass this weekend would cut the deficit by $138 billion over the coming decade — the reality is considerably messier.

Budget experts generally have high praise for the work of CBO analysts, the non-ideological technocrats who crunch the numbers to estimate the fiscal impact of legislation. But their work is often more art than science, and although the forecasts that accompany legislation are always filled with uncertainty, this one contains more than most.

One major reason is the sheer complexity of the legislation. If Congress were considering, say, a 20-cent increase in the gasoline tax, the CBO could easily analyze how that would affect gas consumption and do some simple math to calculate how much money it would raise. The same goes for figuring out the cost of legislation that offers a new benefit, such as an expansion of food stamps.