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Record Budget Deficits:
From CNN.com:
  The federal budget deficit soared to $454.8 billion in 2008 as a housing collapse and efforts to combat the economic slowdown pushed the tide of government red ink to the highest level in history. . . .
  Some analysts believe that next year's deficit could easily top $700 billion, giving the next president a formidable challenge.
mogden (mail):
Since Reagan proved deficits don't matter, it will hardly be much of a challenge.
10.15.2008 2:27am
Paul Milligan (mail):
Seeing as how it's a pretty fair bet that those numbers don't include the write-down value / loss of all the property the Feds ( for instance, the entire state of Nevada ) and States own ...
10.15.2008 2:48am
J. Aldridge:
Congress will probably re-interpret the commerce clause to new heights to leave the nation in smothering ruins.
10.15.2008 3:01am
Ricardo (mail):
Since Reagan proved deficits don't matter, it will hardly be much of a challenge.

Yeah, in fact the only challenge the next President faces is exactly how much to cut taxes in order to increase revenue by $700 billion to balance the budget.

This is sarcastic, by the way, as I assume the Reagan comment was.
10.15.2008 3:04am
JimmyB:
Obama freely admits that his tax increases will reduce government revenue, but he wants to do it anyway out of "fairness".
10.15.2008 3:27am
Mike& (mail):
Cool. Let's hope that it will distract whoever is elected President. I don't want McCain getting us into a nuclear war with Iran; or Obama creating his Cult of Personality. With other things to worry about, the first 100 days might not be so bad, after all.
10.15.2008 3:46am
OrinKerr:
Congress will probably re-interpret the commerce clause to new heights to leave the nation in smothering ruins.

May I ask what this means? I don't follow.
10.15.2008 3:50am
eyesay:
Obama freely admits that his tax increases will reduce government revenue, but he wants to do it anyway out of "fairness".


Please provide a credible source or issue a retraction.
10.15.2008 4:10am
J. Aldridge:
Orin, Congress' primary justification for its extravagant spending and borrowing generally falls under the regulation of commerce.


Commerce between independent powers or communities is universally regulated by duties and imposts. It was so regulated by the States before the adoption of this Constitution, equally in respect to each other and to foreign powers. The goods and vessels employed in the trade are the only subjects of regulation. It can act on none other.

--President Monroe
10.15.2008 4:37am
J. Aldridge:
And Madison said the regulation of commerce among the States was strictly "a negative and preventive provision against injustice among the States themselves, rather than as a power to be used for the positive purposes of the General Government."
10.15.2008 4:40am
just me (mail):
Eyesay-while this one doesn't indicate a desire for fairness, it does indicate a desire to "spread the wealth around."

I also he did say that his desire to raise the capital gains tax wasn't about raising revenue but making things fair.

See here.

Quote: OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.
10.15.2008 7:23am
A. Zarkov (mail):
According to USA today, the budget deficit in 2005 was actually $760 billion, not $318 billion, and if Medicare and Social Security are included, $3.5 trillion. The higher numbers come from accrual accounting, not cash accounting. In accrual accounting the, present value of future obligations is added. That was all before the current spending spree that bails out everything but the Good Humor Man.
The Bush administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.

Rep. Mike Conaway, R-Texas, a certified public accountant, says the numbers reported under accrual accounting give an accurate picture of the government's condition. "An old photographer's adage says, 'If you want a prettier picture, bring me a prettier face,' " he says.
The true deficit can never be closed even if the feds taxed 100% of your income (leaving nothing for the states) so something has to give. Either the federal government will have to default on its debt, cut spending or print money. Now which one do you think it will do? The current financial crisis has simply accelerated our march towards financial Armageddon. Of course few people really want to face this reality, hoping that somehow it will all work out. But it won't. I believe our money will become worthless within about10 years. But go ahead and argue about trivialities-- I guess that relieves the tension.

BTW one of the reasons defined benefit pensions are no longer offered by corporations, is the feds forced companies into using accrual accounting so that future pension benefits must appear on their balance sheets. They can longer pretend this obligations don't exist.
10.15.2008 7:27am
A. Zarkov (mail):
William Poole is the former head of St. Louis Federal Reserve and he appeared on the Oct. 14 Glenn Beck Show. Here's the transcript. How seriously does this man take the threat of hyper inflation? Look at his response to questions from co-guest Peter Schiff
POOLE: There is an inflation danger for the long run. It`s not a danger next year in the immediate future, and it is a worry. I don`t think there`s any possibility of hyperinflation. We`re not going the way of the Weimar Republic or Zimbabwe. That won`t happen.

BECK: Why wouldn`t that happen?

POOLE: Because the -- because the federal authorities and the Federal Reserve and the understanding of the economics profession is such that that won`t happen.

SCHIFF: So you`re saying we`re smarter, Bernanke and Paulson, these guys are smarter than the central bankers of other countries? They`re repeating all the same mistakes. They`re no smarter. They`re the ones that got us into this mess. And fundamentally, intrinsically, there`s no difference between the money the Fed prints and money the Zimbabwe government prints. It`s all paper. There`s nothing there.

POOLE: I don`t disagree with that but I believe this country is a far more responsible country than Zimbabwe. I don`t know about that.
Note this former head of the St. Louis Federal Reserve can't really tell us why we won't have hyper inflation-- he simply takes in on faith we won't. Now the Federal Reserve is responsible for maintaining the integrity of US currency, and it looks like they don't take inflation all that seriously, but they won't really tell us why.

Note that Obama is planning yet more spending a giant scale. Where will the money come from? From taxing the rich of course. Never mind the arithmetic won't add up. McCain might even be worse. He wants a big tax cut that will make the threat of inflation worse. Both candidates want to print money to fund their programs.

Question: If printing money is the answer then why isn't Zimbabwe rich?
10.15.2008 8:14am
Big E:
We all know what's required, lower spending and higher taxes, unfortunately no politician is willing to run on this platform. As a liberal I'm willing to accept lower government spending and conservatives should be willing to accept higher taxes, at least until we get the budget under control.
10.15.2008 8:51am
Mahan Atma (mail):
"Note that Obama is planning yet more spending a giant scale."


Just curious, did you support the invasion of Iraq?

Because I never understand why people who rail against "spending" don't seem to mind spending hundreds of billions (trillions in the long run) to invade other countries for no good reason.

Never mind the hundreds of billions we give to the military every year in addition to war spending.
10.15.2008 9:34am
Alexia:
@ A. Zarkov: Me too.

The government is using many of the exact same creative technniques that Enron used, with exactly the same result.

Look what happened when a small portion of SOX actually worked - they immediately demanded that the section that required property be valued at the market be rescinded.

And there was much rejoicing.
10.15.2008 9:34am
Sarcastro (www):
Big E except higher taxes mean less income for the government!

This is because of the Laffer Curve which is not only proven, but obvious in it's application to this situation! Plus the commerce clause I wrote in my Constitution of Awesome wants the deficit to be low.

Thus, until taxes are zero, the giant deficit we experience is cause taxes can sill be lowered!
10.15.2008 9:53am
Big E:
Sarcastro, they don't have sarcasm on my home planet lucky for you I was concentrating.
10.15.2008 10:21am
byomtov (mail):
What happened to all that extra revenue the tax cuts were supposed to raise?
10.15.2008 10:48am
Melancton Smith:
The problem is that Bush turned out to be a big government spending liberal. Obama is really the third Bush term. They even agree on faith-based initiatives...

I, for one, was against invading Iraq, but feel that since we did so we need to keep going and get it to a solvent state before we pull out. This, along with the War on Terror, is why we had huge spending.

Needless to say, Congress went along with all of this.

Regarding higher or lower taxes and fairness...what do I get for my (higher) tax dollars? When I buy a sack of tomatoes don't I pay the same as the other guy? I don't recall going to the supermarket and paying a percentage of my salary for the sack of tomatoes. More so, I don't recall paying 25% of my salary for the first tomato, 28% for the second, 32% for the third, etc.

Why is it fair for me to pay more in whole dollars for my government 'tomato' than the other guy?

Taxes was never an issue for me (I'm a gun nut) until I felt insulted by Obama and others claiming I'm not paying my 'fair share'.
10.15.2008 11:06am
Accountant Ed (mail):
Prof. Kerr sure seems like a very smart, reasonable, and extremely decent guy. I often wonder if these threads of his ever make him despair for the human race.
10.15.2008 11:46am
eyesay:
just me: Neither of your links support the assertion by JimmyB that "Obama freely admits that his tax increases will reduce government revenue."

I do not believe it is fair that for the majority of Americans who earn their living through actual work, they enter the 25% tax bracket at $32,550 if single ($65,100 married filing jointly), but those who earn their living selling appreciated securities pay no more than 15% on capital gains -- especially since hedge fund managers' salaries is counted as capital gains. Barack Obama is right. This is not fair. Capital gains tax rate should be equalized with earned income tax rates, or at least the two taxes should be brought closer together.
10.15.2008 11:48am
Dan Weber (www):
Capital gains tax rate should be equalized with earned income tax rates, or at least the two taxes should be brought closer together.

The US already taxes capital gains more heavily than most other countries. Many don't tax capital gains at all. Wikipedia
10.15.2008 12:06pm
Aultimer:

Paul Milligan
Seeing as how it's a pretty fair bet that those numbers don't include the write-down value / loss of all the property the Feds ( for instance, the entire state of Nevada ) and States own ...


The CBO rules will only require mark-to-market deficit calculations when generally advantageous to the incumbent majority.
10.15.2008 12:26pm
Guy:
The deficits are record in their dollar amount, but not in terms of the % of GDP, which is the more appropriate measure. The 08 deficit stands at c. 3-4% of the U.S. GDP, whereas some of the Reagan-era deficits were more like 6%. Still, the debt is ever growing -- that is much more scary.
10.15.2008 1:13pm
Angus:
The US already taxes capital gains more heavily than most other countries. Many don't tax capital gains at all.
It's also true that while many don't have a "capital gains tax" as such, they do tax any profit as if it was regular income.
10.15.2008 1:18pm
Cornellian (mail):
That was all before the current spending spree that bails out everything but the Good Humor Man.

Note that Obama is planning yet more spending a giant scale. Where will the money come from?

Amusing to put these two quotes next to each other. Obama can spend more lavishly than any president prior to the current one and still look downright frugal next to GW Bush.
10.15.2008 1:26pm
Dan Weber (www):
It's also true that while many don't have a "capital gains tax" as such, they do tax any profit as if it was regular income.

A very few tax capital gains like normal income, like Estonia, Russia, and Thailand. Most countries have an explicit capital gains rate and it is treated more favorably than other income, especially for long-term gains.

Again, the link: Wikipedia
10.15.2008 1:48pm
A. Zarkov (mail):
Cornellian:

"Amusing to put these two quotes next to each other. Obama can spend more lavishly than any president prior to the current one and still look downright frugal next to GW Bush."

Other than the Iraq war, which is off budget, I'm not aware of any of the Bush spending that Obama would oppose. He voted for the bailout didn't he? He's running under an expansion of government from Bush not a contraction.
10.15.2008 2:05pm
A. Zarkov (mail):
eyesay:

Taxing capital gains like ordinary income has economic consequences-- it will change the way capital is allocated. For one thing people will buy more tax-free municipal bonds and less corporate bonds. This will increase the cost of capital to companies and negatively affect the economy. People make investment decisions on a risk-adjusted return to capital basis. Change taxes and you change the risk tolerance. Who wants to take a big risk for a small after tax return.

The return on pretty much any risk-free investment is taxed as ordinary income. For example, zero-coupon Treasury bonds. Every year you pay tax on an "imputed income" even though you have collected a cent. Go check the IRS regs on "original discount issues."

Of course there are some giveaways in the tax code (like hedge fund managers). So go fix those problems. Some people are just uncomfortable with capitalism and really want some kind of command economy where income and wealth are alloted on a political basis. The feminist arguments for administered salaries on the basis of "comparable worth" is a good example.
10.15.2008 2:20pm
MR:
Total adjusted gross income (taxable) less deficit (2005; most recent reported year): $6,856,723,096,000
Hypothetical national debt: $700,000,000,000

See IRS, Individual Income Tax Returns Bulletin (2007), available at http://www.irs.gov/pub/irs-soi/05in01ar.xls.

So...
A one-time tax on individual income of about 10.2% should fix the national debt. Who's in?
10.15.2008 2:41pm
PLR:
The US already taxes capital gains more heavily than most other countries. Many don't tax capital gains at all. Wikipedia

And many of them impose other taxes that we do not impose.
10.15.2008 3:54pm
PLR:
So...
A one-time tax on individual income of about 10.2% should fix the national debt. Who's in?

The national debt is well in excess of $700b.
10.15.2008 3:56pm
RPT (mail):
"A Zarkov: Other than the Iraq war, which is off budget, I'm not aware of any of the Bush spending that Obama would oppose."

A trillion dollars off the books makes quite a difference. Does anyone believe that the same expenditures would have been approved if they were submitted as part of the regular budgetary process?
10.15.2008 4:24pm
byomtov (mail):
Other than the Iraq war, which is off budget,

Oh well, if it's off-budget then no problem.
10.15.2008 4:37pm
just me (mail):
Just curious, did you support the invasion of Iraq?

Whether you support Iraq or not, waging war is part of the constitutional job description given the federal government in the constitution.

Waging war is also not an entitlement program-at some point the budgetary allotment is expected to go away.

Obama wants to create some kind of healthcare plan-which will be a huge entitlement and once entered on the books will never go away.

Obama has also said at least once and his running mate at least once that they think military involvement in Sudan is warranted as is some kind of surge like policy for Afghanistan. Do you think war with Sudan or in Afghanistan won't cost anything?

I agree, there isn't anything Bush has spent money on that Obama wouldn't spend money on, and Obama wants to spend even more.

McCain isn't perfect either. But at least he considers some kind of control on spending to be warranted, Obama doesn't seem to een think that.
10.15.2008 6:18pm
just me (mail):
Just curious, did you support the invasion of Iraq?

Whether you support Iraq or not, waging war is part of the constitutional job description given the federal government in the constitution.

Waging war is also not an entitlement program-at some point the budgetary allotment is expected to go away.

Obama wants to create some kind of healthcare plan-which will be a huge entitlement and once entered on the books will never go away.

Obama has also said at least once and his running mate at least once that they think military involvement in Sudan is warranted as is some kind of surge like policy for Afghanistan. Do you think war with Sudan or in Afghanistan won't cost anything?

I agree, there isn't anything Bush has spent money on that Obama wouldn't spend money on, and Obama wants to spend even more.

McCain isn't perfect either. But at least he considers some kind of control on spending to be warranted, Obama doesn't seem to een think that.
10.15.2008 6:18pm
RPT (mail):
"Just me:

Waging war is also not an entitlement program-at some point the budgetary allotment is expected to go away."

That is not how the world works. The defense industry, and certain the Blackwater-Cheney-Halliburton wing of it, certainly look upon their war fighting no-bid cost-plus guaranteed-profit performance-or-not contractual budgetary allotments as entitlements.
10.15.2008 7:47pm
A. Zarkov (mail):
"Oh well, if it's off-budget then no problem."

You're missing the point. BHO has no problem with large government expenditures, and he had no way of knowing the cost of the war would escalate the way it did. He initially opposed the war on ideological, not fiscal grounds.

The "off budget" part pertains to the one-time nature of a war expense. It's not an on-going problem, although it seems that way sometimes.
10.15.2008 9:44pm
Roger_Z:
It is irrational to count the entire cost of the war in Iraq against the current administration without comparing the present value of the previous containment policy, as do these authors.

And, to the humanitarians among you, some consideration of the horrors of the sanctions regime may be of interest.

Not to say that the wars cost wouldn't have been much lower had we done it the right way - with the unmerciful lethality that our outstanding military forces can bring to bear on any problem, provided they are given the political leeway to use it. But those of you complaining about the cost - with the above context - probably wouldn't have supported _that_ either.
10.15.2008 10:09pm
tsotha:
Amusing to put these two quotes next to each other. Obama can spend more lavishly than any president prior to the current one and still look downright frugal next to GW Bush.

The problem is if Obama actually tries to implement all his promised programs he's gonna make Bush look frugal.
10.16.2008 6:26pm