Category: Keith Hennessey
Hennessey: Reactions to the President’s press conference
| November 16, 2012 | 10:59 am | Keith Hennessey | No comments

Published for www.keithhennessey.com, November 14, 2012

1.  The President upped his demands today.  He had been previously been demanding that income tax rates increase on “the rich.” Treasury says that doing so would raise $442 B of revenues over the next decade. Today the President said that “extending further a tax cut for folks who don’t need it, … would cost close to a trillion dollars.” That means his opening bid is assuming much more than just increasing the top two rates.

Using Treasury numbers, one could get to just shy of a trillion dollars by including the following Presidential proposals to “sunset tax cuts” that would affect “the rich” (in all cases, incomes > $200K for single filers, and > $250K for married filers):

  • Increase the top two income tax rates;
  • Phase out the personal exemption for upper-income taxpayers (aka “PEP”);
  • Limit itemized deductions for the rich (aka “Pease”);
  • Tax capital gains at 20% (the pre-2001 rates);
  • Tax dividends as ordinary income (the pre-2003 policy); and
  • Raise estate and gift taxes to 2009 levels.

We may not, however, be able to stop at $1 trillion.  I am told that in other contexts the President’s team (including Acting OMB Director Jeff Zients in public remarks today), are saying the President’s opening bid is not $1 trillion, but $1.5 trillion of new revenues, raised entirely on the individual side.  I am trying to confirm this, and I wish someone would ask Jay Carney what the President’s revenue number is for lame duck / fiscal cliff negotiations. In his press conference, the President used $1 trillion to describe one possible policy outcome, rather than as a description of his negotiating position. That is at least consistent with a higher $1.5 trillion number.

Full post here

 

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Hennessey: The President sends mixed signals on the fiscal cliff
| November 13, 2012 | 5:07 pm | Keith Hennessey | No comments

Published for www.keithhennessey.com, November 12, 2012

President Obama is sending mixed signals on the fiscal cliff.  Here is how I interpreted the President’s statement last Friday (emphasis added today).

I think the most positive thing that can be said about the President’s statement today is that he didn’t say anything that clearly made a deal more difficult.  With one important exception, he didn’t budge on substance …

… The one important exception is that today the president did not insist on raising tax rates on the rich, only that they “pay more in taxes.”  I assume this was intentional.  It allows for at least a portion of the deal like that suggested by the Speaker’s comments:  scale back tax preferences for the rich without raising their marginal rates.  Of course, that’s only part of what the Speaker said was necessary, but it’s a critical part.

My interpretation was far from unique.  Several other observers drew similar conclusions from the President’s apparent constructive ambiguity. It appeared the President was, in reaction to Speaker Boehner, leaving the door open to a deal that raised taxes on the rich but did not raise their tax rates.

But later that same day the President’s press secretary Jay Carney reiterated the President’s prior veto threat:

MR. CARNEY:  The President would veto, as he has said and I and others have said for quite some time, any bill that extends the Bush-era tax cuts for the top 2 percent of wage earners in this country, of earners in this country.

I think that means the President would veto a bill unless the top rates go up.  He is not requiring that they increase to pre-Bush levels (i.e., not requiring that the top rate increase from 35% to 39.6%), but he is requiring that the 35% number increase, since otherwise the bill would be “extend[ing] the Bush-era tax cuts.”

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Hennessey: Fiscal cliff diving
| November 12, 2012 | 4:52 pm | Keith Hennessey | No comments

Published for www.keithhennessey.com, November 9, 2012

It has been more than a month since I last posted.  With statements Wednesday by Speaker Boehner and today by President Obama about the upcoming “fiscal cliff,” this seems as good a time as any to dive back in.  This initial post will assume a fairly high amount of baseline knowledge.  I may return to the basics in later posts (as I said I would do a while back).

I will describe and interpret both leaders’ statements, then offer a little analysis of the two positions together. I need to emphasize that at this early stage, anyone’s interpretations and predictions are highly speculative. I am doing little more than making educated guesses; then again, so is everyone else.

Both leaders deserve credit for making serious and fairly detailed policy speeches. Both are contributing significantly to the public debate by laying out their views and arguments for all to see. Public policy would be sufficiently improved if we had more serious public discussion like this.

Speaker Boehner’s statement

Speaker Boehner opened that public discussion on Wednesday.

  • He frames the election result, in which President Obama and a House Republican majority were both reelected, as “a mandate for us to find a way to work together,” not “to compromise on our principles,” but instead “to creating an atmosphere where we can see common ground when it exists, and seize it.”  His general tone is cooperative.

Full post here

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Hennessey: For tonight’s debate
| October 5, 2012 | 1:31 pm | Keith Hennessey, Uncategorized | No comments

Published for www.keithhennessey.com, October 3, 2012

Here’s the question I’d like to see Jim Lehrer ask President Obama:

President Obama, you and Speaker Boehner were unable to reach a big picture budget agreement last year.  If you are re-elected and Mr. Boehner continues as Speaker, why should voters expect a different result over the next four years? Why shouldn’t Americans expect the budget stalemate just continue?

Separate but related, at some point I assume President Obama will say he inherited our current deficit problems. This is a little long, but it would be great to see Governor Romney respond like this:

Mr. President, for almost four years you have been telling us that you inheritedhuge fiscal problems, and you have told us that the past four years of trillion dollar deficits aren’t your fault. Why have you spent so much time complaining about who is to blame for our Nation’s deficit and spending problems and so little time solvingthem?

The budget you propose would accumulate another $6 trillion of debt over the next decade. The long-term budget problems are even more severe, and you still haven’t proposed a solution to them. Presidents are supposed to lead, and you have not.

 Yes, we know that you want to raise taxes on the rich. You think the problem is that government doesn’t have enough money, so you propose tax increases. But if we did what you propose we’d eliminate only one-twelfth of next year’s deficit, and only one-sixth of our deficit ten years from now. I think the problem is that government is spending too much, and the obvious solution is to reduce the size of government.
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Hennessey: The Washington Post’s hatchet job on Paul Ryan
| October 1, 2012 | 9:56 am | Keith Hennessey | No comments

Published for www.keithhennessey.com, September 30, 2012

Today’s Washington Post contains an election-season hatchet job on Paul Ryan by reporter Lori Montgomery, “Amid debt crisis, Paul Ryan sat on the sidelines.” I would expect a story like this on the Newsweek or Huffington Post sites, but the Post purports to be nonpartisan and balanced.

Ms. Montgomery’s story offers two premises:

  1. Mr. Ryan “sat on the sidelines” rather than act, and in doing so he failed to behave as a responsible legislator;
  2. He would rather espouse conservative principles than engage in the messy business of bipartisan compromise.

Here is Ms. Montgomery’s core assertion:

But knowledge is not action. Over the past two years, as others labored to bring Democrats and Republicans together to tackle the nation’s $16 trillion debt, Ryan sat on the sidelines, glumly predicting their efforts were doomed to fail because they strayed too far from his own low-tax, small-government vision.

Here is her evidence:

  • Ryan voted against the Bowles-Simpson recommendations;
  • Through much of 2011, he insisted publicly that a “grand bargain” on the budget was impossible; and
  • He “asked Boehner not to name him to the congressional ‘supercommittee’ that took a final stab at bipartisan compromise last fall.”
  • He voted against a measure to dial back unemployment benefits and extend a temporary payroll tax holiday.

Full post here

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Hennessey: Tax levels cheat sheet
| August 29, 2012 | 2:56 pm | Keith Hennessey | No comments

Published for www.keithhennessey.com, August 28, 2012

Here is your tax levels cheat sheet.

  • Over the past 50 years federal taxes have averaged 18% of GDP.
  • Governor Romney proposes taxes “between 18 and 19 percent” of GDP.
  • The House-passed (“Ryan”) budget proposes long-term taxes of 19% of GDP.
  • President Obama’s budget proposes long-term taxes at 20% of GDP.*
  • The Bowles-Simpson plan proposes long-term taxes at 21% of GDP.

See how nicely that works? 18-19-20-21

There is a danger that measuring tax levels as shares of GDP will lead to casually concluding that “only one or two percentage points difference” is not a big deal. This would be a huge mistake.

  • GDP this year will be about $15.5 T. That means each 1% of GDP in higher taxes is about $155 B more taken by the government from those who earn it.
  • Going from 19% of GDP to 20% of GDP means a total increase of all federal taxes of just more than 5% (20-19 / 19 = 5.26%)
  • For comparison, the ongoing partisan fight over whether to extend today’s tax rates for “the rich” is a fight about half a percent of GDP. The difference between the Ryan and Obama long-term tax levels is twice as big, and the difference between the Ryan and Bowles-Simpson plans is four times as big. Also, the legislative difficulty of closing these gaps is not linear, meaning it is more than twice as hard to close a gap that is twice as large, because policymakers make the easiest changes first.

Full post here

 

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Hennessey: The “insufficient detail” critique of the Ryan budget
| August 28, 2012 | 10:07 am | Keith Hennessey | No comments

Published for www.keithhennessey.com, August 27, 2012

President Obama’s former budget director, Dr. Peter Orszag, attacked the Ryan budget in the Washington Post. I’ll respond here to his primary critique.

Dr. Orszag argues that the Ryan budget is not a serious fiscal proposal.

In part because of his winning personality, Ryan … has convinced many in Washington that his budget blueprint is a serious proposal for solving our long-term fiscal problems. Unfortunately, it’s not. Let’s dig into the asterisks of Ryan’s plan and unearth the fine print.

Dr. Orszag’s principal critique is that the Ryan budget is short on details. He argues that the Ryan Medicaid block grant, tax reform, and nondefense discretionary spending cuts, are “capping and punting—limiting spending to a certain level but providing no specifics on how to achieve that number.” Later he argues that the lack of legislative detail creates business uncertainty.

The irony is that while in office neither Dr. Orszag nor his boss, President Obama, proposed any long-term fiscal reforms. Even after enacting the Affordable Care Act, which was purported to significantly address our long-term fiscal problems, the Obama Administration’s own numbers show that we’re still headed toward fiscal collapse.

Full post here

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Hennessey: What if it’s a status quo election?
| August 27, 2012 | 12:15 pm | Keith Hennessey | No comments

Published for www.keithhennessey.com, August 26, 2012.

I agree with President Obama that this election is shaping up to be a choice between two conflicting economic visions. What happens, though, if the election results in a stalemate between those visions? What happens to economic policy if President Obama is reelected and Republicans retain their House majority?

The Associated Press’ Ben Feller asked President Obama this question yesterday (highlights by me).

AP: Let’s say you win—okay, that’s a hypothetical that you would probably buy into. But say you win, but the House Republicans win again also, a likely possibility. How is that any different from what we have now? Why wouldn’t a voter look at that and say that’s a recipe for stalemate. How would you do anything differently?

THE PRESIDENT: Well, there are a couple things that I think change. No. 1, the American people will have voted. They will have cast a decisive view on how we should move the country forward, and I would hope that the Republican Party, after a fulsome debate, would say to itself, we need to listen to the American people.

Full post here

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Hennessey: Responding to Some of President Obama’s Medicare Claims
| August 27, 2012 | 12:09 pm | Keith Hennessey | No comments

Published for www.keithhennessey.com, August 25, 2012. 

Let’s examine a few quotes from President Obama’s weekly address, which this week is about Medicare.

THE PRESIDENT: I saw how important things like Medicare and Social Security were in [my grandparents’] lives. … That’s why, as President, my goal has been to strengthen these programs now, and preserve them for future generations. Because today’s seniors deserve that same peace of mind. And the millions of Americans who are working hard right now deserve to know that the care they need will be available when they need it.

Medicare, Social Security, and Medicaid are growing at unsustainable rates. The “millions of Americans who are working hard right now” are paying taxes into a system that will be unable to afford to pay the benefits it is promising them today. President Obama says these workers “deserve to know that the care they need will be available when they need it,” but he has not proposed policy changes to produce that outcome.

THE PRESIDENT: We’ve extended the life of Medicare by almost a decade.

No you haven’t. The Affordable Care Act (ACA, also known as “ObamaCare”) slowed Medicare spending growth. The Medicare Hospital Insurance Trust Fund includes less than half of Medicare spending. You can argue that you have extended the life of this trust fund by “almost a decade,” but trust fund accounting ignores a more immediate cash flow problem. Since the HI trust fund contains only IOUs from the government to itself, this accounting ignores the question of where to find the $296 B in cash this year to pay for Medicare spending above that covered by Medicare payroll taxes and premiums. Medicare has never been a fully self-funded program, and even with the savings enacted in the Affordable Care Act, it is still an enormous pressure on the rest of the budget.

Full post here

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Hennessey: The campaign politics of the Ryan budget
| August 13, 2012 | 10:55 am | Keith Hennessey | No comments

Published for KeithHennessey.com, August 11, 2012

Congratulations to Governor Romney for his superb choice of Rep. Paul Ryan as his VP candidate. I propose increasing the number of vice presidential debates from the one currently planned for October 11th.

The selection of Paul Ryan is about much more than just fiscal policy. Nevertheless much of the campaign politics over the next three months will be about the budget he proposed and then passed through the House. Here are a few thoughts as campaign attacks on the Ryan budget accelerate.

The fiscal politics are the inverse of the macroeconomic politics. So far the Romney campaign has framed the election as a referendum on President Obama’s economic record, while President Obama has been framing a contrast between his vision and his straw-man characterizations of the Romney/Republican vision. I expect the Obama campaign will now seek to highlight the pain in the Ryan budget while minimizing discussion of the President’s alternative budget proposal. The Romney-Ryan campaign needs to highlight the contrast with President Obama’s unsustainable proposed fiscal path.

Micro vs. macro framing – The Obama campaign and its allies will focus on micro-issues, telling horror stories of cuts to specific popular government programs. This dovetails with their constituency-based messaging so far. The Romney-Ryan campaign should try to zoom out and highlight (1) the macro effects of the unsustainable current/Obama spending path and (2) the irresponsibility of President Obama’s refusal to propose a long-term fiscal solution and his legislative party’s refusal to pass a budget. Team Obama will highlight the pain the Ryan budget would cause to targeted constituencies. Team Romney-Ryan needs to explain that the Obama budget and a failure to govern would lead to economic disaster for everyone.

Full post here

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