The FY2010 Budget and Tea Party Tax Revolt: The Good, The Bad and The Ugly

The following is taken from both press releases and video of the GOP Reaction to Peter Orszag's briefing on the White House FY2010 Budget by Paul Ryan (R-WI), House Budget Committee Ranking Republican, and Judd Gregg (R-NH), Senate Budget Committee Ranking Republican.

Paul Ryan: "In his Tuesday address to Congress, President Obama gave an eloquent commitment to addressing today’s greatest challenges: the ongoing financial crisis, mounting job losses, unrelenting health care costs, and an unsustainable path of Federal spending and looming entitlement crisis.

"The President’s opportunity to fulfill his rhetoric came today – in his first budget submission to Congress. Regrettably, the reality of the President’s budget falls far short of his inspiring words; it is simply a continuation of the misguided notion that America can spend, tax, and borrow its way to prosperity.

"Despite his call for ‘fiscally responsibility,’ the President’s budget promotes an ever larger, more expensive Federal Government as the first , and seemingly only, answer to our nation’s problems.

"When you take a look at this budget, it's a spend, tax, and borrow our way into prosperity budget. It proposes bigger government with higher spending, higher taxes and higher debt as a means to produce more prosperity in America.

"My favorite movie of all time is a Clint Eastwood/Sergio Leone classic: The Good, The Bad and the Ugly. And I believe that it's important that if good things are being done, highlight those. So we broke this budget down into the Good, the Bad and the Ugly.

The Good:

• Acknowledgement of the entitlement crisis (no solution provided yet, but at least it's been acknowledged)
• Budgets for AMT fix
• Means-Test Medicare Part D Premiums

The Bad:

• Increases '09 spending to $3.9 Trillion
• Increases non-defense appropriations by 9.3% (raising total percentage of deficit to GDP to 27%, which is huge)
• War funding gimmick - disingenuously includes amount spent on Iraq War at its 2008 height during the surge and subtracts the difference between this amount and the amount spent when we draw down troops from Iraq, calling this difference a "savings".

The Ugly:

• $1.4 Trillion Tax Increase in a Recession
• $1 Trillion Entitlement expansion
• 2009 Deficit of $1.9 Trillion
• Doubles the national debt

"If there's anything that economists on the Left and the Right agree on, that supply siders, Keynesians and classic economists can agree on, you don't raise taxes in a recession. This budget is raising taxes in a recession. This budget is going to have a $1.4 Trillion tax increase. Tax increases on small businesses, on investment that creates jobs, tax increases that are going to hurt states that are cold states where we have to pay for heating our homes, and states that have a lot of manufacturing. It will put us at a huge disadvantage against our foreign competitors.

"The deficit this year goes to $1.8 Trillion alone. This doubles the debt within 8 years. And so if you take a look at all of these numbers and you include the taxes that are going to hit families and all the new spending on health care, let's recognize one thing and Senator Gregg said it very well. We already spend 2.5 times per person on health care spending versus all other industrialized countries. Can't we spend what we're spending now more effectively, why do we have to spend all this additional money? Let me put it a different way. We're already projected to spend $4.5 Trillion on health care spending for people under the ages of 65.

"I would argue that if we reformed our health care system to put patients and doctors in control of their health care, bring the market back into health care, we could have universal accessibility to health care coverage. Instead, we're going down the path of having the government run health care, of having us raise taxes, borrow more money and spend even more money on top of this to do this. We could work together on Social Security and get that fixed. We could take that as a trust-building, confidence-building exercise and move into the health care areas, but we've got to check ideology at the door. If it's a plan to nationalize the health system then we're not going to want to participate in that. We had a nice talk on Monday, but it's got to follow with action and there's not much action on that in this budget.

"I want to work with the President in a bipartisan way to move this country forward. We want to have bipartisanship, but that requires collaboration. But in good conscience, we can't work with the other side if they insist on dramatically growing government, on dramatically increasing taxes, and dramatically borrowing more money because that will give our kids in the next generation a dramatically more expensive government, much higher taxes and an inferior standard of living. And that, I fear, is the trajectory which we are on. This puts on the path to much bigger government permanently and that's not the right direction." Judd Gregg: "He's Clint Eastwood, I'm Eli Wallach."

[Asked by a reporter about creating another financial rescue package for the financial system] "I'm willing to give them the benefit of the doubt on that one. We're in such a difficult fiscal situation that if they come to us and make a legitimate case that in order to stabilize this economy and specifically the financial sector, and they need more TARP dollars or whatever they want to put the new title on it as, I'm certainly going to be listening. And that's a reflection of my willingness to be bipartisan and recognize that we're in a pretty rough sea and we all need to be in the boat rowing towards shore and the initiatives to stabilize the financial industry have to be done in a bipartisan way.

"On the issue of financial stability, until they've probably completed the stress test exercise of going through the major banking system and deciding where the capital needs are, and what sort of reconstruction has resulted from the initial efforts here, and as the TALF [Term Asset-Backed Securities Loan Facility, an effort to expand lending to US consumers] money kicks in which will relieve, significantly I believe, some of the pressure on the financial industry, they're not going to know [how much the total health care spending will entail aside from the $636 Billion down payment].

"On the issue of health care, it looks to me like they're talking over $1 Trillion, the $636 Billion is really what they could figure out to answer how they're going to cover it, they're really talking over $1 Trillion or more. "There are procedurally some good decisions here from a standpoint of technical budgeting actions. They've taken steps which were appropriate such as not including AMT revenues when we know we're not going to get them, and then we end up spending them; such as the doctor's fix, accounting for that; such as scoring the war. So those are good things to do and I think that reflects the fact that Peter Orszag is down there and and he's an honest and fair broker of what the baseline should be relative to numbers.

"On the other side, though, when we get to substance I have some very severe reservations about where this budget is taking us and the issue really comes down to this: where is the restraint in spending? You know this budget doubles the debt of the Federal Government in five year, triples the debt of the Federal Government in ten years, runs up obviously massive deficits over this period and never really gets us back to a point where we're on a glide path toward getting control over the costs that we're passing on to the next generation - the costs that our children and our grandchildren are going to have to pay to operate the government.

"The problem with this is that it's done in the context of not addressing the true fiscal problems that have as a country which is the looming fiscal tsunami of the Baby Boom generation retiring and the entitlement costs that they're going to incur and the fact that we're going to end up passing on to our children a government that they can't afford and a nation that won't be as strong as we were given by our parents. There are massive tax increases in this bill, in this proposal, $1.4 Trillion by our calculation, that's a BIG number. Massive new spending in this bill, just in the health care area $1.4 Trillion.

"The representation that the deficit is being cut in half in four years is a nice representation but it's really not the heavy lifting that's needed here. In fact, if you go to the current. In fact if you go to the current law baseline, the deficit would go to $140-150 Billion in the fifth year. So actually just under current law, the deficit would end up being dramatically less than where they're going, which is to a $500 Billion + deficit in the fifth year. That number is very, very large, obviously, but more disturbing is the fact that it goes on forever. "

Itemized Deductions Raise Small Business Taxes by 5-6% and Will Affect More Layoffs.

In response to a question about a panel under President Bush which looked at reducing itemized deductions, and which were roundly rejected by Congress under Bush, Judd Gregg had this to say: "I hope they will be rejected, but you've got to remember that the President's panel, which was co-chaired by Senator Mack, was doing a comprehensive reform and they basically suggested that a lot of deductions be eliminated in exchange for a significant rate cut. Rate cut! This has the practical effective of being a major rate increase. Not only are they taking the top rate from 35% to 39%, then with this language relative to the deductibility of itemized deductions, you're essentially kicking it up well over 40%, probably 41$, we haven't scored it yet. But you're basically taking the top rate up in the 40% range. Now who does that affect? Most people say somebody else is paying that, I don't really care. It's basically small business people in this country who pay that type of rate because they are sole proprietorships or they're Subchapter S corporations so if you have a restaurant or a small software company that's growing, or you have a garage, or you're got an automobile dealership, or you're a realtor, you're a sole proprietor and you're getting hit now with a tax rate that's going to jump from 35% to 41%. Where do you pay for that? You lay people off, you don't hire people or you don't expand. I think it's extremely dampening on the economy to have that kind of tax increase, especially in a recession.

Paul Ryan added, "70% of the jobs in this country on average come from small business. The majority of people who file at that top rate are those small businesses. And we're saying that in this recession we're going to raise taxes on the engine of economic growth and job creation in America? That's what's so galling about this budget: the notion that you raise taxes on the people most likely to create jobs in a recession. It just boggles our mind that they would actually try and pursue this type of an economic agenda at this particular time. We understand that they want higher taxes but we know one thing always works the wrong way. Raising taxes in a recession causes job loss and prolongs recessions."

Carbon Taxes Will Not Be Paid By Corporate America

Judd Gregg: "Remember there's another tax increase in here. This will affect average Americans because it will mean less economic activity as Congressman Ryan has pointed out. You've got a tax on people's electric bills in here. This carbon tax isn't going to be paid by Corporate America, it's going to be passed to the consumer. And so everybody to gets an electric bill in this country who happens to be in a region which has coal-fired plants or other plants which are subject to the carbon limitation tax, are going to be paying a big tax on their energy bills. If you're going to do that for the sake of addressing global climate change because you want to reduce emissions, that should be immediately returned to the taxpayers, dollar for dollar. That carbon tax should go directly back to help support the people who are paying their electric bills. It shouldn't be used to expand government willy-nilly on somebody's special project, and that's the way it's structured here. They're taking the tax and expanding government. That's wrong."

Paul Ryan: "On the whole cap and trade thing, we are not giving 95% of the people a tax cut when we're raising their energy prices. We're going to say it's going to cost you more because of government to heat your home, to put gas in your car, to take your kids to school, to manufacture things. And so when you take a look at the Make Work Pay Credit, that's about $13 a week. We're going to be raising, dramatically, energy prices for consumers - for families, for manufacturers, for small businesses, for the elderly - and I think it's going to cost more than $13 a week that they're going to get in a rebate. "

Who Cares About Taxes That Won't Take Place Until 2011?

Paul Ryan: "We're telling small businesses around America 'if you're thinking of investing, if you're thinking of hiring, if you want to get out of this recession just know this: your taxes are going to go up.' Businesses don't turn around on a dime, they plan for the future. They think about what's the after-tax rate of return on capital, what's my investment horizon look like? So we're saying to businesses, your money's going to cost more, we're going to have higher taxes on pensions, higher taxes on 401K's, because we're going to tax the equities that go into those things. And we're going to say that every new small business, every small business out there that is hoping to hang on in this recession, if we get out of this recession we're going to hit you with higher taxes. That's going to hurt investment, that's going to hurt job creation.

Where Will We Be at the End of Obama's First Term?

Judd Gregg: "Of course it depends on the economy, obviously, and a recovery occurring. I happen to believe personally, myself, that if we were to step forward jointly as a Congress in a bipartisan way and take on some of the big issues - let's start with Social Security because we know how to solve it, and put in place a plan that solves Social Security and makes it fiscally solvent for the next 50 years, and follow that with something substantive in the area of Medicare. That if we did those two things, and did them jointly, in a bipartisan way, we would create a massive amount of confidence in the American people in in the world community which is buying our debt and stabilizing our currency in our economy, and we would see a much faster economic recovery. But neither of those issues are taken on in this proposal and it's regrettable because the opportunity is there. And until we address this looming fiscal tsunami, and I'm sorry to keep using the term but that's what it is, it's just going to wipe out our children's chances of having a successful future. We aren't going to be able to say that we're going to be able to stabilize the Federal Government. It's just going to grow dramatically to the point where it can't be afforded any more. "

Paul Ryan: "I completely agree with that. The most frustrating thing about this budget is the fact that it's a missed opportunity to work in a bipartisan way to fix the entitlement crisis. If we all got together and fixed the fiscal crisis, the entitlement crisis, imagine the confidence that would bring to the markets, imagine the confidence that would bring to our currency, and to the future projection of our economy. I think you could probably come up with a good argument that the inflation assumptions and the economic growth assumptions in this are a little more rosy than the blue chip consensus forecast. We're going to look more into that but I think you ought to look at the inflation numbers here, you ought to look at the GDP forecast, they're off from the blue chips. If the blue chips are right and if this forecast is wrong, then the budget's going to look much worse than they're projecting."

Can the President Pay for His Policies By Raising Taxes?

Paul Ryan: "Pay for what? We still have a huge deficit at the end of the window. The Congressional Budget Office January Baseline shows that the baseline deficit on its own goes down by three-quarters. So claiming credit for cutting the deficit in half over four years is kind of the equivalent of standing outside at 5:30 in the morning and claiming credit for the sun that's about to rise."

Judd Gregg: "No, it's worse than that. We're taking four steps back in the deficit fight and then taking only two steps forward. Whereas if we were to stay on the basic course we're on we would take three steps forward. If you're quadrupling the budget deficit and then you cut it in half, you're not getting very far. In fairness, a lot of this deficit that they're getting this year is a function of an economy that's in a difficult, difficult situation so I've not said that the deficit that they're getting this year is an outrageous event. The issue is, five years out why aren't we doing something more constructive about this, why aren't we getting our hands around this? Instead, five years out we're exploding tax burden, we're exploding costs. "

Paul Ryan: "If we did nothing the deficit would drop faster than it is in this budget. They're simply presiding over the baseline. They're inflating the baseline with this war cost gimmick and a baseline that has higher taxes and higher spending. Saying that you're cutting the deficit in half over four years sounds fiscally conservative but when you actually look at the math it's fiscally irresponsible." Judd Gregg: "One of the areas I think we could do something on but it's clearly not going to occur under the budget as proposed is budget enforcement mechanisms. Interestingly enough if we went back to the statutory PayGo that they're talking about that has sequester, this budget would be subject to $5.4 Trillion of sequester. " Paul Ryan: "But what's interesting is they're shoving all this money into the baseline and then turning on PayGo. It's like commit all these fiscal crimes, and then after these crimes have been committed, then outlaw the crimes afterwards - and that's exactly what's happening here with respect to PayGo."

How Would Republicans Address Energy Policy, Education and Health Care?

Judd Gregg: "There are a lot of ways to do that, and I guess that's where our philosophical differences lie. On the issue of energy, we drill more in the United States, create more incentives for production. At the price of oil today there's tremendous incentive for production and I think it could be quite profitable as long as you allow people to pursue it. The problem is that we're not allowed to drill in the places where there's energy in this country. It's sort of unfortunate. Build nuclear plants. They're quite cost-effective and they're clean, but there's a disincentive to build a nuclear plant in this country. "In the area of health care, there are a lot of different things you can do that don't necessarily involve increase in the cost. When you're spending 17.5% of GDP on health care, which is about 6% more than the closest industrialized country, you've got a lot of money in the system and that money should be allocated in a more efficient way which is why I hope they're successful on this initiative which would try to do that. "We funded education in a pretty robust way from a Federal level, and I think you're going to find it's going to be difficult for the Education Department to spend all the money they've got right now."

Paul Ryan: "We will bring a full budget alternative to the floor when it's scheduled for the floor time. So just stay tuned and we will tell you what we believe in and how we would do things differently."

The Seeds of Economic Unrest are Planted... er... Astroturfed?

We can see that fiscal conservatives have valid reasons for concern, anger, even outrage - as explained articulately by Senator Gregg and Congressman Ryan (watch the C-SPAN video here). We're witnessing classic tensions between the haves and want-to-haves such as labor and management, Main Street middle class and Wall Street fat cats, water carriers such as credit borrowers who "played by the rules" and water drinkers who "borrowed more than knew they could afford". The lines are being drawn in the sand of Main Street little people vs. Wall Street fat cats, company owners and managers vs. workers, big government rescue vs. self-determination. I'm reminded of this quote from former GE management innovator Lemuel R. Boulware:

Companies don’t provide job security - customers do. 

In a market-driven society, no matter how much government intervenes to force recovery through economic engineering such as taxation, regulation, wage and price controls, and social engineering such as persuasion and intimidation to comply with their new world order, it won't succeed unless people sincerely want to buy what government is selling. Lately it appears that some newly skeptical "customers" are experiencing Buyer's Remorse for their pro-Obama votes.

American citizens have a right to expect that our investment in government should be managed competently, diligently and wisely. We are rightly suspicious, skeptical and potentially outraged by endless high deficits and taxes in spite of Peter Orszag's best efforts to be an "honest and fair broker".

This month in a Playboy.com article titled Is Rick Santelli High on Koch, authors Mark Ames and Yasha Levin of the website Exiled Online, a sort of nihilist Ace of Spades HQ (with apologies to Ace of course), express their sincere belief that they have exposed the tentacles of a libertarian oligarchy (which seems oxymoronic, but it's their term not mine) ostensibly engaged in duping a tiny handful of ignorant real people (mixed with well-compensated Hollywood extras and/or student interns at the Ayn Rand Institute?) posing as tax revolt protestors into astroturfed faux grassroots Tea Party events launched by Rick Santelli's rant sponsored by evil Koch corporate overlords.

Levine writes in his related article titled Astroturf Revolution Dispatch: Koch Activists Teabag Media:

...if you read the Santelli article [at Playboy.com], you know these tea party protests were never about attracting real supporters. They were about creating the perception that these supporters exist.

Apparently Levine and Ames haven't completed their exhaustive research yet to indict Michelle Malkin for her fake tea party photo album, or World Net Daily's false list of national tea parties, or all the trumped-up YouTube videos such as this one of the poseur libertarian Republican community organizers of the Seattle Tea Party (probably filmed in the same back lot as the Moon Landing...

. 

Let's just say for a moment that the Koch family, Cato Institute and the Sam Adams Alliance are helping to sponsor these protests by contributing funding, training, networking and technology resources. In that case, I concur with Mister Mxyzptlk's pithy comment on the Astroturf Revolution Dispatch's monument to Yasha Levine's stealth infiltration of the Santa Monica Tea Party:

...do you not get the idea of “what’s good for the goose is good for the gander”? For eight years the PR machine funded by big money Democrats has created well timed and carefully planned events to protest the actions of the Bush Regime. Now the right is using those techniques against the Obama Regime and it’s your side that’s whining about it. That’s how the game is played. Get over it.

Another Boulware quote that seems appropriate:

We have simply got to learn, and preach, and practice what’s the good alternative to socialism. And we have to interpret this to a majority of adults in a way that is understandable and credible and attractive.

Tea, anyone?