Debt Ceiling Watch: No Stimulus, No Tax “Hike,” No Deal

Now that the “show” vote on raising the debt ceiling is over, the real negotiations are beginning.  But what is there really to negotiate about when everyone agrees that eventually the ceiling must be raised?


While the President is apparently advocating the need to continue spending in order to help the economy heal from the recession and begin growing, the Republicans are saying absolutely not.

Via the New York Times:

“The discussion really focused on the philosophical difference on whether Washington should continue to pump money into the economy or should we provide an incentive for entrepreneurs and small businesses to grow,” Mr. Cantor said. “The president talked about a need for us to continue to quote-unquote invest from Washington’s standpoint, and for a lot of us that’s code for more Washington spending, something that we can’t afford right now.”

The Times notes that included in this proposed stimulus is “tax incentives for small businesses that Republicans typically support.”  But, in order to take a hard stance against all things Obama proposes, this time they want to say no.

So, no spending or stimulus is allowed, the GOP has already said absolutely not to rescinding Bush tax cuts for the rich.  But cuts there will be, according to Speaker of the House Boehner.  After all, he has a letter with 150 economists demanding it.

I was more impressed by his “150 economists” before I started looking at the list and saw one former Republican candidate and former conservative talk show host, one conservative book club author,  and a Hoover Institute scholar just on the first page.

The next debt ceiling vote is scheduled for next week.




Robert Hamm
Robert Hamm5 years ago

LOEWR TAXES are not going to create more jobs. WE have THE lowest tax rate for the rich than we have had 40 80 years!!!!!!

If low taxes were going to help it would already be happening. OUTSourcing is why we are in trouble. Our own corporations dont care about America anymore. When our own companies are not invested in America low taxes wont improve a thing.

As long as they can keep victimizing 3rd world labor forces they aren't going to come back. Stop blaming taxes for this issue.

David C.
David Connally5 years ago

Sorry about typos in my last comment.

Grace, I strongly agree with you that we should look at long term cost benefit for both spending and spending cuts.

David C.
David Connally5 years ago

Laffer . Revenue depends on tax rates and the economy. Relationships are complex. I picked three years, two with high revenue, one low. All data are % of GDP (rounded). Numbers TR=top tax rate, TT= total tax revenueare foolowed by revenue compnents IT= income tax, CT= corporation tax, SS=soc sec etc, E= excise.

1952 TR 90%, TT 19.0; IT 8, CT 6.1, SS 1.8, E 2.5
2000 TR 40%, TT 20.6; IT 8, CT 2.1, SS 6.6, E 0.7
2010 TR 35%, TT14.9; IT 6, CT 1.3, SS 6.0, E 0.5

Revenue components have changed since 1950, corporate tax down 80%, social security up 250%. Exclude soc sec and highest total revenue was in 17% in 1952 - budget was close to balance. It is only 9% in 2010 – no surprise there’s a budget deficit. The economy was roaring in 1952 and 2000 - high total revenue. The reverse is true in 2010.

Consistent with Grace’s memory, highest income tax collections were around 1980 when marginal tax rate was 50 or 70%. The Laffer curve seems to have a shallow slope near the peak, a large change in tax rate has a small effect on revenue.

I believe the most important goal is to get the economy going, even if deficit increases. Spending cuts won’t help expansion. Between 1947 and 2007, the Reagan years had highest government spending and a growing economy. With more than 50% of workers either unemployed or not paying tax, I have a hard time seeing how tax cuts will help. The wealthy don’t spend all their income, the less well off do.

Grace Adams
Grace Adams5 years ago

Laffer curve? It seems to me back in the 1980s there was an estimation that the maximum revenue rate for the top marginal rate was 50% on earned income and 25% on investment income. If we could close some loopholes and actually collect those maximum revenue rates maybe we could have enough revenue to balance the budget. On the spending side especially, we need to look at ten-year budget projection cost/benefit analysis. Some spending items actually pay for themselves over a ten-year projection. There is some level of spending on anti-poverty programs that is actually cheaper over ten years than trying to ignore poverty. Neglected poor persons do tend to end up either in the ER because they can't get health care during normal business hours or in prison from trying to make an illegal living because they can't make a legal living.

Barry O'bama
.5 years ago

@ David C When I am wrong I admit it - the Kemp-Roth Bill passed in August of 1981. And of course, it was hotly debated - but then again most stuff like this is....

David C.
David Connally5 years ago

Barry O tells us the onset of Reagan tax cuts was delayed because the “Dems fought Reagan tooth and nail”. This is hogwash. The tax bill, passed about six months after Reagan’s inauguration, hardly an indication of tooth and nail opposition.

Congress gave Reagan almost everything he asked for. R’s often blame wild congressional spending for Reagan deficits. More hogwash. (a) the senate was R for Reagan’s first 6 years, (b) Congress appropriated slightly LESS than Reagan’s requests. 0.1% more in his first term, 0.7% LESS in the second.

Just for kicks, I’m going to apply a Barry O type argument to the Reagan years. All economic improvement in the Reagan years can be ascribed to Jimmy Carter who appointed Paul Volker as Fed chairman. Volker’s drastic interest rate increase wrung stagflation from the economy, stagflation that resulted from the high oil price in the Carter era. Reagan stepped into a recession caused quite deliberately by high interest rates. The Reagan economic expansion occurred because interest rates were cut, there was substantial Keynsian stimulus by deficit spending, and there was a huge pent up demand that increased consumer spending. Decreased oil price also improved the economy. The Reagan stimulus package increased the gross debt.

There are some elements of truth in that story.

David C.
David Connally5 years ago

Like most conservatives, Barry O is a one dimensional thinker. His argues “If event B follows event A, then B is a direct result of A”. Conservatives LOVE to ascribe all subsequent economic success to Reagan based on this logic. They find some excuse - may or may not be accurate - for any failures. How did we do before and after Reagan? Inflation adjusted compounded % GDP increase:

Truman 5.1%
Eisenhower 2.6
Kennedy 4.2
Johnson 5.1
Nixon 2.8
Carter 3.8
Reagan 3.3 (3.9% 2nd term)
Bush1 2.1
Clinton 3.9 (4.5% 2nd term)
Bush2 2.3%

The best are D’s, the worst R’s. Reagan and Clinton began terms with a slow economy, so I include second term numbers. In his second term, Reagan did slightly better than Carter.
The two R presidents after Reagan are way at the bottom of the league table.

Hmm, if Clinton’s good results are ascribable to Reagan, I wonder why the Bush boys did so badly. Barry O says Bush1 suffered from increased oil price. BUT Bush1 had the lowest oil prices in 20 years. (See what I mean about finding an excuse). Inflation adjusted price (2011 $$) ranged from $31 to $34 in his term. Carter managed 3.8% growth with oil at $71. Reagan was socked in his first term ($73) but had a nice bonus $37 for his second term. No wonder second term growth was good.

R’s usually blame Carter for the Iranian revolution – dumb, but what do you expect. Clinton had the lowest oil prices of all. Must have been because of h

Barry O'bama
.5 years ago

Liberals LOVE to tout the Clinton years as shining examples of fiscal responsibility especially the Clinton tax increase. They'll frequently speak of "the longest continuous economic expansion in American history". And in some ways, they're right. But this economic growth started wwwwaaayyy back in 1983 when Reagan got his first tax cut passed and only stopped briefly ( see historical GDP reference below, 2 negative quarters in 90/91) after Iraq invaded Kuwait and threatened the world's oil supply. As soon a Iraq was defeated and the world oil price one again stabilized, the growth continued. For those of you who didn't live through that time you might wonder why Reagan waited 13 months for his tax cut. Well unlike Clinton and Obama who had significant majorities in Congress when they took office, Democrats had a HUGE 78 seat majority in the House (where budgets start) and they fought Reagan tooth and nail. Clinton also benefited from Reagan ending the USSR - and cutting defense by~25%. But here's the dirty little secret that Slick Willy didn't want you working stiffs to find out about - while he did raise INCOME tax on the rich he didn't touch capital gains tax! Like many wealthy people in the days of "Irrational exuberance" I simply changed my compensation to stock - I was making $350-400K and paying less tax than two yuppies making a combined income of $200K !!!! Sweet!

Historical US GDP -

David C.
David Connally5 years ago

The first sentence in my post should read:
There were 1.87 million federal employees in January 2001, 2.21 MILLION in 2011, an increase of 18%.

David C.
David Connally5 years ago

@Eric Lees
There were 1.87 million federal employees in January 2001, 2.21 in 2011, an increase of 18%.

The government provides services. The army provides a service, as do police, NSA, accountants, hairdressers, bankers, teachers, nurses, . ..... The manufacturing sector of the US economy is small. Don't know why you made this point anyway. I said nothing about increasing government size. I want to pay down debt.

You do know debt has been paid down on the past?? Top marginal rate was 90% in the 50's? 70% in the 60's and 70's? and the US prospered. Clinton's '93 tax was followed by the longest continuous expansion ih history AND a budget surplus.

Do you understand the Laffer curve? Do a thought experiment. What would happen to revenue if taxes were reduced to zero? The Laffer curve says revenue/ tax rate relation will be parabolic, it will have a maximum. The location of the maximum, the tax rate that maximizes revenue, is unknown. Federal receipts averaged 18% of GDP in the Reagan years as he was racking up a $4 trillion deficit. Receipts averaged 20% in Clinton's second term as he was paying down debt. Receipts in 2010,11 are less than 15% of GDP? Do you think this may contribute to deficits?

Did the wealthy leave the US after the Clinton tax increase? The departure of the wealthy is the tax version of "death panels", a sound bite that has minimal basis in reality but is good for scaring people.