The Tea Party point of view of no compromise whatsoever is not a point of view that will eventually produce a presidential candidate who will win.

So, if there were to be a compromise between Democrats representing the progressive political movement and Republicans representing those of us in the tea party, small government movement what would it look like?

First consider the data in this chart: [continued below chart]

Spending increased continuously under both parties, for a decade.  Indeed, the GOP lost the 2006 and 2008 elections in part because conservative voters were disillusioned and stayed home.  President Obama and the Democrat majorities in the House and Senate dramatically increased spending in 2009, and have managed to maintain the elevated level.  A genuine compromise – for the sake of deficit reduction – would have to deal with spending, starting in 2012.

Tea party activists represent the voters who have been alarmed by continuous spending increases.  They aren’t a monolithic group with a single vision but most of them would, if given their way, cut spending back at least to 2008 levels.  Some would  cut back more than that.

The chart to the left illustrates a hypothetical compromise between tea party activists and progressive Democrats in Congress.  Under this compromise the Democrats would get to keep half of the huge increase they scored in 2009 and the tea party activists would get half way back to 2008.

The next chart illustrates a compromise that would, by any standard, be very generous to the Democrats.  They would get to keep almost all the increase they scored in 2009.  Spending would be cut below the 2011 level by only 5%.

It turns out that nothing even close to either of these hypothetical compromises was presented by Super Committee Republicans to the Democrats, who made very clear from the beginning that they would absolutely not discuss any spending reductions for 2012.

What did the GOP members of the Super Committee propose?  In spite of the tea party activists who helped elect their majority they were willing to allow 2012 spending to increase!  In fact, the Republicans were willing to allow Democrats to permanently bank the massive increase of 2009 AND allow spending to increase every year from now on, as far as the eye can see!

All the Super Committee Republicans asked was that from 2013 to 2022 spending would increase at an incrementally lower rate than the Democrats planned.

This last chart shows the “compromise” the Democrats in the Super Committee proposed and Obama still demands in his speeches out on the campaign trail.  Not only did they refuse to consider any decrease in 2012 spending, they demanded another massive increase, almost equal to the historic surge in spending they achieved in 2009!

They refused to consider any of the GOP’s proposed reductions in the rate of spending growth.  Instead they proposed to lie to voters, claiming that spending increases in 2012 would be offset by fictitious “cuts” supposedly achieved by not continuing the wars in Iraq and Afghanistan until 2022!  And, of course they demanded massive tax increases.  Yet, the establishment media are united in blaming tea party supported Republicans for refusing to “compromise.”

The compromise between the Conservative/GOP position of no more government power and the progressive/Democrat position of a lot more government power is always the same: more government power.

Today’s crisis is the consequence of hundreds of compromises, over 80 years leaving us with an economy that can not recover from recession and a massive, unmanageable government debt. When Democrats demanded a foot, Republicans compromised, granting them 8 – 10 inches.

The GOP Presidential candidates have all been challenged to compromise by reporters and debate moderators in an effort to portray them as obstinate and unreasonable.  Liberty Works humbly offers this advice:

Republicans scored historic gains in the 2010 election largely because they refused to compromise with Democrats on either the ruinous 2009 stimulus or the Unconstitutional ObamaCare legislation.  Both are now unpopular with voters.

Because of entrenched political resistance it’s probably not possible to shrink government as quickly as we would like.  Thus, Republicans can and should be open to a compromise, but only if it moves the needle in the smaller government direction.  They must maintain principled, non-negotiable opposition to compromises that result in more government power, higher taxes, larger deficits, or less economic liberty.

For 80 years compromises in Washington have been somewhere between the status quo and the Progressive/Democratic vision of larger government.  From now on compromises in Washington must be between the status quo and a smaller, less intrusive, less expensive government.

Put another way, all they had to do was change the currently scheduled $44+ trillion of spending over ten years to $43 Trillion.  Why did they fail?  Because Democrats demanded tax increases and Republicans declined to be bullied.  As expected Obama ran to the cameras to blame Republicans and the rich:

…there are still too many Republicans who have refused to listen to these voices of reason and compromise…They continue to insist on protecting $100 billion of tax cuts for the wealthiest 2% of Americans at any cost, even if it means deep cuts…They simply will not budge from that negotiating position.

Compared to Obama’s $44 trillion spending colossus his alleged $100 billion in coveted tax revenue is barely visible.  Thus, it appears that his priorities have little to do with deficits or debt.  His goal is election year appeasement of class warriors in his base, and he’s determined to enact higher tax bracket rates at any cost.   [commentary continues below the chart]

To put the income tax issue in perspective consider the data in the chart and the facts the establishment media never report:

• Income tax revenue declined three years in a row before the current (Bush) tax rates were enacted into law in 2003.
  
• Over the next four years income tax revenue increased an astounding 47% to a all time record high of $1.16 trillion in 2007.
• Income tax revenue fell in 2008 and 2009, primarily because high income business owners and investors – who provide most of the income tax revenue – were hammered by the recession.
• The Treasury Dept. just reported that income tax payers provided a $193 billion or 21% revenue increase in 2011 (fiscal year ended 9/30) over 2010, even though the same, Bush tax rates are still in effect.
  

Some Democrats call for a return to pre-Bush tax rates for all brackets.  Some call for retaining the lower Bush rates for low and middle income taxpayers and increasing the top bracket rates for “the rich,” mostly investors and small businesses whose income appears on the personal tax returns of their owners.

As always, Democrats ignore or deny the side-effects of an income tax increase, reduced investment in job creating enterprises by business owners and investors.  Those reductions result in lower taxable profits and fewer jobs, producing less in taxable wages.  Thus, tax rate increases can actually generate less tax revenue to the government than lower tax rates.

As the chart above shows, the higher, pre-Bush rates did indeed generate less revenue than the current rates generated in 2011, despite the grim, recessionary economy.

Democrats advocate tax increases on gasoline to further their goals of forcing us to drive less.  Yet they never seem to understand the negative results of tax increases on small business owners and investors.

Next: We’ll answer Democrats’ demand for tax hikes on high income Americans.

The Super Committee is supposed to find a path to $1.2 trillion in “deficit reduction.”   But committee Democrats seem to believe it best to achieve deficit reduction through increased spending.  One of their proposals is to log “savings” each year from 2013 through 2022 from ending military operations in Iraq this year and in Afghanistan in, as now planned, in 2014.

Consider this exchange between Fox News Sunday host Chris Wallace and Democratic Congressman James Clyburn, a member of the Super Committee:

WALLACE: “The Democratic plan would count hundreds of billions of dollars in savings from winding down the wars in Iraq and Afghanistan that would be applied to entitlements, things like that. Isn’t that a classic Washington budget gimmick, to count savings on money that wasn’t going to be spent anyway?

CLYBURN: We believe and the CBO believes that there is around $917 billion to be saved over the next 10 years from the overseas contingency account. And we ought to count that.  We ought to use that savings to plow it back in to fix Social Security, that will allow it to be solvent for another 75 years, to plow it into job creation programs that would get people back to work…

• The latest estimates from the Administration and the Congressional Budget Office are that the 2012 deficit will come in at just below $1 Trillion.
• Clyburn and the Democrats want to enact Obama’s “jobs bill” that would increase 2012 spending by about by $450 billion.
• To offset the extra spending Democrats propose no cuts in other programs.  They don’t even propose tax increases.  They would simply run a larger deficit – about $1.5 Trillion – in 2012.  This would be the largest  deficit in US history.
• Democrats want the Super Committee on Deficit Reduction to propose to Congress that it increase the 2012 deficit over the already bloated level, AND give the committee credit for “deficit reduction” by reporting “savings” in the years 2013 – 2022 from the end of operations in Iraq and Afghanistan.

In his Tonight Show monologue Jay Leno might respond: “My question is why not count 66 years of savings since the end of World War II?  Then we could just give every American a million dollars and still run a budget surplus!”

This week the august Senators and Congressmen head into their final, dramatic days of deliberations.  Their assignment is to propose $1.2 trillion of “deficit reduction” over ten years, beginning 2013.

In Washington the phrases “spending cuts” and “deficit reduction” are more political slogans to deceive the people than legitimate accounting terms.  Even if the committee reaches an agreement that Congress approves spending will increase every year and future deficits could be greater than the 2011 deficit.

Congress operates on a corrupt system called “baseline budgeting,” driven by the assumption that virtually every government program and function will receive a funding increase, every year.  The Congressional Budget Office (CBO) produces reports called “baselines” that project spending increases in each of the next ten years.  In this context a “cut” does not mean  that future spending will be less than current spending.  It means that – on paper – the “baseline” will be adjusted.

As has always happened in the past, even these illusory, baseline “cuts” won’t last.  The current Congress has authority only over the current budget and cannot force the elected members of 2013 or 15 or 18 Congress to comply with a baseline published by CBO bureaucrats in 2011.  But the tax increases Democrats demand in exchange for their phony “cuts” would be real.  They would be enacted into law immediately.  If the currently serving Republicans allow themselves to be suckered by this scam all the Conservative/Tea Party victories of 2010 will have been for nothing.

The charts below show what genuine deficit reduction could look like.  The first is a summary of the government’s tax revenue, spending and deficits from 2007 through the 2011 fiscal year that ended September 30. [continued below the chart]

Each of Obama’s three deficits about three times 2008, the largest of the Bush era.  The Obama deficits are in part the outcome of falling tax revenue due to the recession.  But mostly they result from massive increases in spending he and the Democrats initiated in 2009.

The next chart illustrates what could have been a budgeting alternative to achieve smaller deficits.  What if instead of huge spending increases for almost every department of government Congress had frozen spending at 2007 levels, allowing exceptions only for Social Security, Medicare, Defense and Veterans’ Benefits?  This chart shows that the Obama deficits deficits would have been $1.3 trillion less.  [continued below the chart]

A partial spending freeze could have resulted $1.3 trillion of real deficit reduction in three years vs the $1.2 trillion over ten years of illusory deficit reduction the Super Committee is tasked with proposing.  Congress cold have driven those deficits even lower by actually cutting some programs below 2007 levels and/or changing Social Security and Medicare eligibility rules very slightly.

Few Americans would remember 2007 as a year of national suffering because the federal government spent a third less than it does now.  Barack Obama’s campaign began in 2007 and he would have been booed off the stage if he had promised to increase federal spending by 32% from 2007 to 2011.

Since the government-caused recession began in 2008 most Americans have had to cut their household and business budgets and reduce their standard of living even as government spending exploded.  Many now wish they still lived as well as they did in 2007 when unemployment was at 4.7% (Vs 9% today) and the deficit was $161 Billion.  The Obama government borrows $161 billion every six weeks!

All the Super Committee and the current Congress have to do is ask future Congresses to spend an average of $120 billion per year less by voting to instruct the CBO to modify its “baseline” schedules.  $120 billion is about 1.5% of 2011 spending.  No tax increases would necessary.  Does this simple task really justify the Congressional and Presidential anguish and wrenching emotion on display in the media?

Much of the political media establishment has been suffering fits of anguish over alleged “austerity” and “deep cuts” being inflicted upon the defenseless government by Republicans, driven by those terrible Tea Party activists.  But based on the final figures for the government’s fiscal year 2011 (ended September 30) recently released by the Treasury Department, President Obama and the big spenders  have scored a decisive win over those who would shrink government.  As the chart shows after all the sound and fury they managed to increase spending in 2011 over and above the already bloated levels of 2009 and 2010.

In reality  government spending is at a much higher level than just a short time ago and dramatic reductions are easily achievable  [Continued below the chart]

The next chapter in the on-going deficit reduction melodrama is the Great Super Committee, created by legislation passed in July.  Typically, committee members have accomplished nothing in four months, and now the deadline for action is only two weeks away.  While Americans wait, powerlessly, twelve Senators and Congressmen sit in a locked room to negotiate our future, not with us but with each other.  Their goal is a “deal” for $1.9 Trillion in “deficit reduction.”  This may look impressive, but in context it’s trifling.

If they succeed in reaching a “deal” spending will still increase every year.  To meet their goal they do not have to spend less or tax more.  All they have to do is pare back already scheduled spending increases and/or contrive some tax code change that can plausibly be claimed to increase revenue above current projections over a ten year period, beginning in 2013.  That’s an average of $190 billion per year, or 5% of the amount spent in fiscal 2011 (ended September 30.)

If they don’t reach an agreement that passes both the House and Senate by Thanksgiving “draconian cuts” will kick in automatically, beginning in 2013.  Stay tuned for two weeks of contrived, high drama as the deadline approaches.

Next Post: Much more immediate and significant deficit reduction than contemplate by the Super Committee is easily achievable.

When I said, ‘Change we can believe in,’ I didn’t say, ‘Change we can believe in tomorrow.’  Not, ‘Change we can believe in next week.’ We knew this was going to take time, because we’ve got this big, messy, tough democracy.

But he did attract votes by planting the impression in the mind of gullible voters that he had a spiritual power to bring about immediate “change.”  Then, after he was elected, he sold Congress and the people with the promise that massive deficit spending would, in his words:

immediately jumpstart job creation and long term growth

Today, in the wake of the debt downgrade and the carnage wrought by his economic agenda, Obama is reduced to scolding the voters who were taken in by his campaign hype for… believing his campaign hype!

In the prologue to his second book Barack Obama wrote what would become the conceptual foundation of his Presidential campaign:

“…I am new enough on the national political scene that I serve as a blank screen on which people of vastly different political stripes project their own views.”

Candidate Obama went on to exploit this blank screen concept for maximum political gain.   He built a cult of personality around himself, with huge audience events where he delivered soaring but largely meaningless rhetoric about “hope and change.”  He encouraged supporters to project their own visions of desirable change onto his blank screen by telling the cheering throngs that the campaign was about them, not him, and by talking about “change from the bottom up.”

The key to Obama’s success was attracting  people whose vision of change was ambiguous or impossible to implement or Unconstitutional, and different from the vision of the people standing with them in the adoring crowds.   They voted for Obama because they believed he would bring their own visions to life through his Presidency.

But now, of course, most are disappointed.  It’s safe to assume that today not a single Obama voter has experienced the vision he or she projected on the blank screen.  Some expected a lot of free stuff, most expected a more streamlined, less acrimonious legislative process in Washington, leading quickly to full employment, higher wages, free healthcare and prosperity.  None of them foresaw Obama’s radical agenda awakening the tea party sleeping giant.  None anticipated a moment 33 months later when a defensive and failed President would be scolding them for believing his campaign promises that “change” would be immediate!

Since that phantasmagorical election night spectacle in Chicago’s Grant Park a an old fashioned, and ruthless, progressive, power-to-the-government agenda has played out across the blank screen.  Those who projected more secure financial future than they felt in the closing months of the Bush era are the most disappointed.  But it should be no surprise that a President with no experience in, or respect for private enterprise has not been able to fulfill his promise of millions of new jobs.

Have tea party voters turned a mundane function into an unnecessary crisis?

Why is there a debt ceiling?  It’s not in the Constitution or the Bible.

America has a debt ceiling because politicians find it too difficult to vote against specific borrowing and spending in the present but quite easy to vote for limits on borrowing and spending increases in the future.

Continuous increases in spending and debt have been the norm in Washington for a long time.  But this time is different for two reasons:

• As the chart shows, President Obama’s debt increase is unprecedented and alarming.
• Millions of voters reacted decisively in the 2010 election by replacing big spending incumbents with people who are determined to stop the tsunami of red ink.
  

President Obama, the Democrats and their media disciples are outraged at Republicans in the House who resist more borrowing.  In his prime time address Obama said,

In the past, raising the debt ceiling was routine. Since the 1950s, Congress has always passed it, and every President has signed it.

Quite true.  In the past half-century Congress has failed to discipline itself and has increased the debt ceiling 76 times.  By the way, in 2007 Senator Obama voted against a debt ceiling increase calling it “a sign of leadership failure.”

Over at the Huffington Post Geoffrey R. Stone snorted,

The debt ceiling has never before been used as a leverage point for partisan political demands…presidents from Eisenhower to Bush II have regularly raised the debt ceiling without controversy…But the Republicans are exploiting the need to increase the debt limit in order to hold the nation itself hostage to their demands.

What are those unreasonable “demands?”  That the government borrow less, that it establish a path to a balanced budget and eventually stop borrowing.  In other words, for the first time someone in Washington is striving for a real debt ceiling, not a sham.

The Washington Post’s E. J. Dionne freted that:

Pushed by the tea party, Republicans have created an unprecedented situation by tying an increase in the debt ceiling, once a routine matter, to sharp cuts in spending.

Mr. Dionne wants us to think the tea party and the Republicans did something wrong.  But we could have written the same words here in Liberty Works to congratulate the heroic tea party activists for succeeding where generations of pompous politicians failed!

The debt ceiling compromise was a disappointment in some ways and it won’t be the last increase.  But it will be the last routine spending and debt increase.  That’s a major progress step toward less government and more liberty and we can thank tea party activists launching a new era in Washington.

President Obama’s highest priority was an increase that extended past the 2012 election because has been forced to submit to the first major victory of the tea party.  However he too will be disappointed.  Spending and debt will be the overriding issue in the 2012 election campaign and Obama is on the wrong side.

What if we had been able to interact with the President, turning the speech into a conversation?

The President:

For the last decade, we have spent more money than we take in… kkkkkkkkkkkkkkkkkkkkkkk

Mr. President, Did you say “the last decade” hoping we’ll blame Bush instead of you? It’s certainly true that Bush ran unnecessary deficits.  But as the chart shows they averaged less than a quarter the size of Your deficits.

If we were still running Bush-sized deficits we would not hear the rating agencies threatening to downgrade US government debt.  We would not be at risk of the world’s investors abandoning Treasury debt out of fear that we’ll soon have no other option but to either default or inflate the currency.  The total debt would be several trillion less than it is today.

…In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt…

Yes, Mr. President, there was a surplus in 2000.  It was $236 billion, including $131 billion of surplus Social Security revenue over Social Security benefit payments, which we were told was to be “set aside” for the baby boomers retirement.  How could the remaining $105 billion have paid off the debt that was $2.2 Trillion in 2000?

…the money was spent on trillions of dollars in new tax cuts… kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk

So $131 billion was “spent” on trillions in tax cuts?   That sounds like a miracle, like when Jesus fed thousands of people with five loaves of barley bread and two fish.  If you could do something like that now you’d be reelected for sure!

But seriously, Mr. President, perhaps you haven’t seen the data in this chart. It shows that income tax revenue had declined before the current tax rates were enacted in 2003 and then went UP afterwards.  In fact, revenue reached an all time record high in 2007 before it was driven down by the recession.  But this year revenue is back up again and may equal that all time high of 2007.

…while two wars and an expensive prescription drug program were simply added to our nation’s credit card.

The government spends on thousands of programs, subsidies, entitlements, etc.  Yet the only two you mentioned were Bush initiatives, again hoping we’d blame him for this crisis.

You’re probably becoming impatient with our charts Mr. President, but here’s another one we have to show you.  It shows that the wars and the Medicare Prescription Drug program were tiny, compared to the massive increases in spending over the past decade, and especially during your first three years.  Yes, Bush deserves a share of the blame but aren’t your huge spending programs the biggest the problem?

Now, every family knows that a little credit card debt is manageable. But if we stay on the current path, our growing debt could cost us jobs and do serious damage to the economy.

Really sir? That’s not what you were saying in 2009 and 2010 when you and the Democratic Congress proudly launched your colossal new borrowing and spending initiatives.  You promised that those borrowed Trillions would “rescue” the economy from eight years of terrible Bush policies.  But after trillions in deficit spending there are 2.5 million fewer jobs than when you were sworn in and the unemployment rate has risen from 7.8% to 9.2%

I won’t bore you with the details of every plan or proposal… kkkkkkkkkkkkkkkkkkkkkkkkkkkkk

Oh please, let us see the details.  You’ve been making speeches and holding press conferences for weeks without releasing any details.  We’re ready now.  Why don’t you put your whole plan on line, like you promised during your campaign?

This balanced approach asks everyone to give a little without requiring anyone to sacrifice too much.

You’ve nearly worn out that clever phrase “balanced approach.”  You used it seven times in fifteen minutes.  Most of us now understand  it means tax increases.  we wonder why you don’t just say “tax increases?”

It would reduce the deficit by around $4 trillion and put us on a path to pay down our debt. kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk

Just so everyone understands what you’re saying here, let’s clarify.  In March you submitted a ten year budget plan with a breathtaking total of $45 trillion in spending.  That’s an average of $4.5 trillion per year, or a stunning 25% more than you’re spending this year, which is 40% more than the government spent in 2007!  You also projected $10 Trillion more in deficits.

Now you assure us your “balanced approach” will reduce the 10 year deficit by $4 trillion.  Even if you’re correct -  we can’t tell because you haven’t put your mysterious “plan” in writing -  we’d still run $6 trillion in deficits.  So how can your plan, whatever it is, “put us on a path to pay down our debt” if intend to keep borrowing every year?

Keep in mind that under a balanced approach the 98% of Americans who make under $250,000 would see no tax increases at all…What were talking about under a balanced approach is asking Americans whose incomes have gone up the most over the last decade – millionaires and billionaires – to share the sacrifice.

We’ve wondered about this for months.  When you say “millionaires and billionaires” do you mean everyone who earns over $250,000?

Now, what makes today’s stalemate so dangerous is that it has been tied to something known as the debt ceiling – a term that most people outside of Washington have probably never heard of before.

Senate majority Leader Harry Reid is now willing to make a debt ceiling deal without tax increases just to avoid another debt ceiling deadline before the election. 

The final week before the debt ceiling deadline begins with two new debt ceiling plans.  These plans are not yet available on line so all we know about them is what their authors say about them.

House Speaker John Boehner presented his latest debt ceiling proposal, a two step plan. 

• Step I would raise the debt ceiling by about $1 trillion and cut discretionary spending by $1.2 trillion over 10 years.  That would be enough to support current spending until March.
• Step II would set up a committee of 12 Senators and Congressmen, 3 members of each party from the house and from the Senate, to identify $1.8 trillion more in savings, again over ten years.  The debt ceiling would go up again, enough to support spending until the end of 2012, if Congress voted to adopt the additional savings savings.
• Both House and Senate would hold votes on a Constitutional Amendment requiring a balanced budget.
  
• No tax increases
  

Senate Majority Leader Harry Reid introduced his separate plan that would:

• Immediately raise the debt limit by $2.7 trillion, enough to fund the government beyond the 2012 Presidential election.
  
• Cut spending by $2.7 trillion over ten years
• Set up a committee to recommend more cuts

• No tax increases, a major concession from the Reid/Obama camp.
  

The most politically significant difference between the competing plans is that Boehner’s includes another debt ceiling deadline in March, requiring another public debate in the midst of the Presidential campaign.  President Obama does not want that to happen.  In fact he said in a news conference last week:

The only bottom line I have is that we have to extend this debt ceiling through the next election, into 2013.

In an earlier press conference he said:

…if the only thing we’re talking about over the next year, two years, five years, is debt and deficits, then it’s very hard to start talking about how do we make investments in community colleges…about making investments in our kids… investments in our infrastructure… investments in basic research…

Obama claims 80% of us are on his side, in favor of tax increases which he calls “balance.” But if he really believed that, he would welcome another episode of debt-ceiling theater.  It appears the Democrats’ internal polling predicts voter backlash against the President and their party if there is another stand-off, with principled Republicans resisting their demands for tax hikes.

Obama wants to be able to campaign on generous promises of “investments” in more government.  He knows we won’t appreciate his benevolence if the daily headlines are about the titanic debt he’s accumulating for us, our children, and our grandchildren to pay off.

On Friday Evening an angry President Obama held a press conference to announce that, once again, debt ceiling negotiations had broken down.  Of course he blamed Republicans. 

Here’s an excerpt:

So here’s what we’re going to do.  We have now run out of time.  I told Speaker Boehner, I’ve told Democratic Leader Nancy Pelosi, I’ve told Harry Reid, and I’ve told Mitch McConnell I want them here at 11:00 a.m. tomorrow.

Under the Constitution the President doesn’t have the authority to order Congressmen and Senators to show up at the White House.  But this President seems to think Congress works for him and is obliged to do his bidding. Obama continued:

We have run out of time. And they are going to have to explain to me how it is that we are going to avoid default.  And they can come up with any plans that they want and bring them up here and we will work on them.  The only bottom line I have is that we have to extend this debt ceiling through the next election, into 2013.

Really!   We’ll consider the possibility that with these words Obama revealed more than he meant to and made himself irrelevant to the process.

But first, his use of the word default – failure to pay interest on the debt – is out of line.

As the table shows there would be more than enough tax revenue to pay interest on the debt plus the other payments Obama has threatened to cut off because, in his words, “there may not be enough money in the coffers.”  He mentioned only the most popular programs for possible non-payment.  He didn’t threaten to shut down subsidies to “green” companies or agribusiness or Ethanol or high speed rail.  Few of us would be alarmed and many of us would cheer.

Obama’s threat to not pay Social Security benefits was spectacularly dishonest.  The Social Security Trust Fund holds Trillions in government bonds.  While these bonds represent a fictional debt government supposedly owes itself their face value is included in the total debt under the ceiling.  The government can convert Social Security bonds to cash without breaching the debt ceiling by selling bonds of equal value to investors.  Indeed the law requires the Social Security Administration to liquidate bonds in this manner and pay benefits.  The President does not have legal authority to stop those payments.

We cynics have suspected all along that Obama’s “only bottom line” was a debt ceiling increase big enough to extend past the election.   But it was startling to hear him blurt it out, openly admitting that his concern is not the debt or financial stability or the government’s credit rating.  His goal is to minimize the impact of the government’s exploding debt on his reelection campaign.  Thus he will sign anything that passes the House and Senate as long as he doesn’t have to defend his big government ideology again, in another protracted debt ceiling dispute that would still be fresh in voters’ minds on election day.  He wants to kick this can down the road so he can campaign on the promised benefits of new spending initiatives he and the Democrats have waiting in the wings.

Republican sources who have been present in the debt ceiling talks say Obama is inconsistent.  He will agree to something specific on Monday only to take it back on Tuesday, making honest negotiation impossible.  Their claim seems credible because Obama refuses to put any proposed spending cut or even tax increase in writing for the press and the people to see.

If there is to be a “deal” the terms will have to be worked out in Congress without Obama’s input.  But that won’t stop him from taking credit for “bringing both sides together” if the polls show public approval.

For the first three months of 2011 President Obama demanded that Congress raise the debt ceiling without any conditions, without any spending cuts whatsoever.

Then, when the polls turned against that idea he began to call for “shared sacrifice” in the form of more tax revenue tied to a debt ceiling increase. 

In an editorial in USA Today, President Obama repeated his demand:

...people in both parties have suggested that the best way to take on our deficit is with a more balanced approach. Yes, we should make serious spending cuts. But we should also ask the wealthiest individuals and biggest corporations to pay their fair share through fundamental tax reform.

As the first chart above shows, Individual Income Tax payers have already begun to participate in “balance.”  Under current law the income tax is steeply progressive.  Only three percent of taxpayers earn over $200,000. This is the group President Obama calls “the wealthiest,” whom he says we should “ask” for a “fair share.”

Under current tax rates the over-$200,000 group pays 52% of the income tax revenue the IRS collects.  So when revenue does go up, as it has this year, they are paying half the increase.  They’re already participating in “shared sacrifice.”

The second chart shows that corporate tax revenue has more than doubled since 2009.  It’s hard to deny that corporations have already begun to participate in “shared sacrifice.”

What about government spending?  Has government begun to be part of Obama’s shared sacrifice?

As the third chart shows, the relentless growth in government spending has not stopped.  Government and the millions of people who receive support from government have not yet begun sharing in the sacrifice.

The 2011 fiscal year began on October 1, 2010.  A review of spending over the first three quarters of fiscal 2011 shows several programs spending more but very few spending less than the previous year.

The last chart shows the result of government continuing to grow rather than become part of Obama’s “shared sacrifice.”  The 2011 deficit will be the biggest ever.  President Obama’s demand is for immediate hikes in income tax rates for which he is willing to offer an unenforceable promise that over the next ten years future Congresses will spend less than is now planned.

President Obama held yet another news conference on Thursday evening to, once again, castigate Republicans for not being willing to raise tax rates.  He claimed to have offered over a trillion in “cuts” in exchange for an increase in taxes.

What the President never makes clear is that any spending “cuts” are in reality reductions in the rate of spending growth already planned for future years.  He offers no spending cuts for the remainder of 2011 and sources close to the negotiations report that he has offered only $2 Billion in cuts, from almost $4 trillion in projected spending in 2012, only if Congress gives him major tax increases.

To put that offer in perspective imagine that a family earns $2,200 per month but the husband has been spending $4,000 per month by charging on credit cards.  His wife wants to avoid bankruptcy and has been pleading with him to cut spending.  So, he agrees to a cut: One day per month he will buy a $2 coffee instead of his usual, $4 latte, but only if the wife works a second job that brings in several hundred dollars.

In his third debt-ceiling press conference President Obama called for a “balanced approach” or “balanced package” seven times.  By this he meant immediate tax rate increases and spending cuts to be spread out over ten years.

Now, what [deficit reduction] would require would be some shared sacrifice and a balanced approach…that millionaires and billionaires can afford to do a little bit more…

Obama knows that there are too few “millionaires and billionaires” to make a dint in his yawning deficits.  Based on IRS statistics a whopping 50% increase in revenue from millionaires and billionaires would add up to about $125 billion per year, or about 7% of this year’s deficit.

Obama talks about millionaires and billionaires, but his real goal is to raise income tax bracket rates on all income over $200,000, a policy that would diminish the after-tax resources of small businesses with the potential to create the most jobs.

Government debt reached crisis level because of a breathtaking increase in spending that began with the bank bailouts of President Bush’s final year, and continued through Obama’s first three years.

Spending in 2011 will be a stunning 40% higher than it was in 2007.

President Obama and the Democrats made sure these higher levels of spending became the new “baseline” from which spending will increase every year unless Congress acts to correct it.  The trillions of dollars in “cuts” we’re hearing about would be reductions in the rate of increase already scheduled via baseline budgeting.  Unless Congress takes more dramatic action than is now contemplated by either party future spending will not be less than 2011 spending.

But even the cuts in the rate of increase might not happen.  The current Congress cannot force a future Congress to abide by its budget plan.  Ronald Reagan agreed to a package of excise tax increases because Congress promised spending cuts that never happened.  George HW Bush broke his no-new-taxes pledge in exchange for future spending cuts that weren’t enacted.

Obama’s offer is an unenforceable promise of  reductions in the rate of growth in spending – reductions that he would most likely attempt to undo – in exchange for real tax increases that would be enacted into law immediately.  Thus his public statements are about a “big package.”  If spending cuts won’t happen anyway, why not tell us that he’s on our side, trying to get drag those recalcitrant Republicans into “the biggest deal possible”?

Toward the end of his press conference, as he answered a reporter’s question, Obama cracked opened a window to what he really thinks:

…if you are a progressive, you should be concerned about debt and deficit just as much as if you’re a conservative.   And the reason is because if the only thing we’re talking about over the next year, two years, five years, is debt and deficits, then it’s very hard to start talking about how do we make investments in community colleges so that our kids are trained, how do we actually rebuild $2 trillion worth of crumbling infrastructure.

If you care about making investments in our kids and making investments in our infrastructure and making investments in basic research, then you should want our fiscal house in order, so that every time we propose a new initiative somebody doesn’t just throw up their hands and say, “Ah, more big spending, more government.” It would be very helpful for us to be able to say to the American people, our fiscal house is in order.

Barack Obama reminds us of the TV sitcom husband who pretends to care what his wife wants and tries to manipulate her perceptions and emotions in order to deceive her into cooperating with his priority of the moment.  To Obama, deficits and the soaring debt are other people’s concerns.  Those people annoy him by talking.  Their talk is a barrier to his priority, growing government and concentrating power in Washinton.  He will promise anything he thinks will stop others from talking about deficits so he can put his “investments” back on the national agenda.

We posted this graph two weeks ago but so far the media seem not to have caught on.  The current income tax rates generated more tax revenue than any previous year since the tax began in 1917 – after adjusting for inflation.  Tax revenue declined for two years due to the recession, but it has come back up in 2011.  Income tax revenue is on track to equal the all time record high of 2007 without the destructive rate increases Obama demands.

With the (2nd) debt ceiling deadline looming, and secret, high-level negotiations on-going, President Obama appears and reappears, playing the role of wise observer, dismayed by deficits and debt piled up by someone else, and urging those irresponsible miscreants to at long last do something about it.  Here’s a sample from his Weekend Address:

Republicans and Democrats don’t see eye to eye on a number of issues…We agree that after a decade of racking up deficits and debt, we finally need to get our fiscal house in order.

In his press conference Monday morning Obama said:

What I emphasized to congressional leaders yesterday is now is the time to deal with these issues. If not now, when?

One who had not paid attention for several years might get the impression that Barack Obama is the sober, sensible, frugal one who shares our disgust with the wild spending of others.  This is exactly the impression he wishes to plant in the minds of the uninformed.  His “decade of racking up deficits and debt” is a slightly more subtle version of it’s-Bush’s-fault.

Yes, there were deficits in seven of Bush’s eight years.   Perhaps they were justified as tax revenue declined in the wake of the the stock market crash and the 9-11 terrorist attacks.

But after falling for three years Tax revenue increased rapidly from 2004 through 2007 and with a modicum of discipline Congress could easily have produced a surpluses in 2006 and 2007.  Those deficits were a big part of the reason fiscally conservative voters sat out the 2006 election, allowing the Democrats to take over Congress in 2007.

But the spending increases and deficits during the Bush years, as irresponsible as they were, look like small change compared to the audacious spending torrent of the first three Obama years.

Obama took office in January, 2009 the fourth month of the 2009 fiscal year.  He claimed to have “inherited” the 2009 deficit but within his first thirty days in office he:

• Doubled the size of the bank bail out program begun by the Bush administration.
  
• Signed hundreds of billions of spending increases enacted by the new Democratic majority in Congress, and
  
• Jammed through his $800 billion stimulus with such urgency that the final version of the legislation had not even been printed the day Congress voted to pass it.

Four months ago President Obama submitted a proposed ten year budget so brimming with red ink the US Senate rejected it by a vote of 97 to zero.  Since then the President has failed to offer anything in writing – no spending cuts or tax increases.  Nothing.

As the chart below shows, Obama’s unprecedented deficits have driven up the total debt from levels that were manageable during the Bush years to alarming now.

Wall Street rating agencies have warned that they will have to downgrade their ratings for U.S. Treasury debt.  Predictably, progressives have called them fear mongers and agents of the rich, betraying “working” Americans, etc.  But their credibility would be in doubt if they didn’t react to what every investor on the planet knows, the US Government is accumulating debt at a rapid rate that cannot continue much longer.

Mr. Obama is right about one thing: now is the time to act.

By now virtually every American has heard President Obama, the Democrats and the media chorus chanting:

Revenues must be part of any deal to reduce the deficit!

They say “revenues” because they don’t want to say “tax increase,” a term their pollsters tell them a majority of us oppose. They want “revenues” from various tax hikes that mostly would target businesses and business owners, thus adding to the burden on job creators.

But revenues can increase without tax increases and we have fabulous news for the President and the political establishment: As the chart shows taxpayers have already delivered your revenues!

Fiscal 2011 revenue is running 10% ahead of 2010.  When the fiscal year ends in September total revenue will be up by about $233 Billion.

Obama and the Democrats have put a lot of energy into demands for tax increases on oil companies – that would result in higher gas prices – to generate, they claim, $5 billion in additional revenue over ten years. The President demands a change to the tax code’s depreciation schedule for corporate jets.  Democrats say that would generate $2 billion over ten years.

They should be thrilled with an additional $233 billion this year!

What about those Bush tax cuts that established the income tax bracket rates that are still in effect?

In 2007 the Bush tax rates generated more income tax revenue than ever before.   For the 2011 fiscal year Income tax revenue is running 28% above 2010 and is on track to break the 2007 record this year or next.

Corporate income tax revenue is up 5% from 2010.

Increases in individual income and corporate income tax revenues have more than offset a decrease from the Social Security payroll tax.  Last December when Democrats still had commanding majorities in both the House and Senate Congress enacted a one year, temporary, payroll tax discount, cutting the rate paid by employees from 6.2% to 4.2%.  The rate is scheduled to go back up in 2012 delivering even more revenues.

Considering the weak economy and high unemployment these revenue increases, already booked by the government, have been an unexpected windfall, and should have sparked joyous celebration among the ranks of big government progressives.  Yet the President and Democrats remain grim, and continue to act profoundly aggrieved.  One can only conclude that taxpayers could never produce enough revenue to satisfy them.

It’s a Washington tradition.  Release information the President doesn’t want anyone to notice on Friday evening, especially before  a three day weekend.

On Friday evening before the July 4 weekend the White House Council of economic Advisers published a report with the pompous and imperious title shown here.

We’ll comment on the report after a bit of background.

Part of the hype leading up to Congressional enactment of the stimulus in 2009 was a set of wildly optimistic predictions by the same Council of Economic Advisers [CEA] promising millions of new jobs and a maximum unemployment rate of 8% that would quickly fall back to a normal level.  Did they research each sector of the economy to determine how many jobs would be created by a given expenditure, such as a million dollars to widen a road or a billion dollars to retrofit government buildings with green stuff?  No.  That would have required real work and would have taken too long.

The political need was for an instant dose of perceived expertise to lull Congress and The People into acquiescence. Thus the CEA contrived a document based on economic assumptions and models, purporting to determine that $800 billion in extra borrowing and spending would raise GDP by a certain, predictable amount, and the increase in GDP would in turn cause employers to “create or save” a certain, predictable number of jobs.

The CEA bottom line promise was that by the end of 2010 there would be 3.7 million more jobs than there were at the beginning of 2009.

The grim reality of hindsight finds their predictions disastrously wrong.  As the chart above shows the actual number of jobs at the end of 2010, after two years of stimulus spending was even less than they had predicted without a stimulus.  As of May, 2011 we were still 6.6 million jobs short of the with-a-stimulus prediction for last December.

In its lastest report CEA claimed that with the stimulus the economy had lost between 2.4 and 3.6 million fewer jobs than would have been lost without it.  Did they reach this conclusion through meticulous research of each sector of the economy to discover how many jobs employers created as a result of each of the expenditures in the stimulus? No again.  CEA simply applied the same economic assumptions and models in reverse!  They concluded that by borrowing and spending the stimulus:

…raised the level of GDP as of the first quarter of 2011, relative to what it otherwise would have been, by between 2.3 and 3.2 percent.

Based on that theoretically higher GDP than “would have been” they concluded that:

…as of the first quarter of 2011, the [Stimulus] has raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million [jobs.]

The report says these theoretical gains in GDP and jobs came at a cost so far of $666 billion.  But CEA avoided the final calculation begged by this data, dividing the cost by the number of jobs.  We did the math and found that based on CEA’s data each of these theoretical jobs, if indeed they exist, cost the taxpayers between $185,000 (for 3.6 million jobs) and $277,500 (for 2.4 million jobs).

Let’s split the difference and call it $222,000 per job.  If these jobs paid the current average wage of about $50,000 per year this would seem to be less than an optimum return on what the President insists on calling “investments.”

The government could have simply reimbursed employers for the salaries of 3.6 million employees at $50,000 each, for two years and saved $306 billion!