Content Tagged: deficit

New Plan to Reduce Deficit Continues

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March 28, 2012

A proposal closely resembling the Simpson-Bowles Plan from the 2010 deficit-reduction commission continues to move forward in Congress, reports Damian Paletta for the Wall Street Journal.  Though many expect the plan to fail any vote in Congress, it signifies the possibility of new bipartisan effort.

Reps. Steve LaTourette (R., Ohio) and Jim Cooper (D., Tenn.), have sponsored the new bill that plans “to reduce the federal budget deficit by more than $4 trillion over 10 years through a combination of spending cuts and tax increases,” Paletta explains.  This plan joins a number of budget proposals made in the past few weeks, though this one is the first with any bipartisan support.

This proposal cuts the deficit in a number of ways.  First, it would lower tax rates while simultaneously eliminating or limiting tax breaks.  These changes would account for almost $1 trillion in deficit reduction over 10 years.  With regards to social insurance, the plan would set a limit on the long-term growth of federal health care spending, as well as make large changes to Social Security and other entitlement programs.  The plan also would ask congressional panels to make cuts to federal programs that would amount to $300 billion.

Paletta reports that, thus far, at least three Republicans and four Democrats in the House support this plan.  This bipartisan support is one instance of a new effort from both parties to negotiate the budget ahead of the November elections.  Even so, both the White House and the Republican leadership have offered alternatives to this plan. The projections of the plans are given the graph below.

The Republican budget proposal, presented by Rep. Paul Ryan (R., Wis.) last week, restructures Medicare and Medicaid and does not include any tax increases.  Mr. Ryan, commenting on both plans, said: “I applaud my colleagues for working in a bipartisan manner in an effort to address Washington’s fiscal crisis.  Unfortunately, the proposal fails to confront the key driver of the debt: the explosive growth of government spending on health care.”

A White House official, in response to the Ryan Budget, said that it “protects massive tax cuts for millionaires and billionaires… [it was] understandable that some members of the Republican Party appear to want to take a more reasonable approach.”

Bringing the Article into Your Classroom

This article raises a number of interesting questions to discuss with your students: First, what do they think about the newest, bi-partisan budget proposal? Second, why do they think the Republican Party leadership will not support a plan proposed by House Republicans (with Democrats)? In the same vein, why has the White House given its own proposal, rather than supporting the Democrats who have helped create this plan?  As students, do they support one plan over another? Why?

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Campaigning and Cutting the Deficit

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February 23, 2012

In less than one year, this country will vote to elect a new President.  As the Republican candidates spar in frequent debates, campaign advertisements, and other modes of publicity (as well as through the formal primary elections), Obama’s campaign team also has entered the public eye.  Rather than differentiating Obama from the Republican candidates through his stance on social issues, the Obama campaign has decided to look at which candidate would cut the deficit the most, reported Devin Dwyer for ABC News.

The Obama campaign recently released a memo that analyzed the budget proposals of Mitt Romney and Rick Santorum, the two frontrunners in the Republican primaries.  Dwyer reports:

Obama aides, citing studies from the Tax Policy Center and Center on Budget and Policy Priorities, conclude Romney’s public budget proposals would add $175 billion a year to the deficit.  They claim his proposed tax cuts and increased defense spending would not be adequately offset by as yet unspecified spending cutes the size of which are deemed ‘simply not plausible.’  The memo also claims Santorum’s plan would add $990 billion to the deficit in 2015.

In contrast to this memo’s conclusions, both Romney and Santorum have stated that they planned to cut government spending as President.  In an email to ABC News, Dwyer reports, Romney campaign spokeswoman Andrea Saul “did not directly refute” this memo’s analysis.  Rather, she highlighted the fact that, during the Obama presidency, the deficit has grown by over $5 trillion.

Bringing This Article into the Classroom

Dwyer’s article points to the fact that Obama’s campaign has decided to attack both Romney and Santorum for their proposed budgets and their effect on the federal deficit.  In a class discussion, you may ask your students why they think the Obama campaign is choosing to focus on the federal deficit as a campaign strategy rather than simply focusing on social issues?

This article also lends itself to a discussion on the different approaches Republicans and Democrats take to taxing and spending.  By examining the general philosophical differences of small vs. big governments, students will have a greater appreciation for why the Obama campaign sees their memo as an effective attack on the Romney and Santorum campaigns.

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The Deepening Deficit

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February 17, 2012

The Republicans and Democrats reached an agreement this week, but, according to Stephen Dinan in The Washington Times, only Obama was “taking a victory lap.”  The two parties agreed and passed a payroll tax cut which will result in a $100 billion increase in the federal deficit.

The positive fact that the two parties agreed seemed to outweigh the negative result of the increasing deficit.  Dinan quotes both a Republican and a Democrat complaining about the result:

“’Why is it that the only time we can come together and reach an agreement, it’s in a manner that increases the deficit or explodes spending?’ Said Rep. Jeff Flake, Arizona Republican.  ‘That’s enough to make the country cry for more partisanship.’

“Senator Mark Warner, Virginia Democrat, said lawmakers reminded him of Wimpy, the character from Popeye who was always trying to mooch off of others, with his catch-phrase ‘I’ll gladly pay you Tuesday for a hamburger today.’ ‘Wimpy once again has won out,’ Mr. Warner said on the Senate floor Thursday…”

The exact terms of the deal are as follows: “A 2 percentage point payroll tax holiday would be extended through the end of this year, as would enhanced unemployment benefits and full reimbursement levels for doctors who treat Medicare patients.”  According to the Congressional Budget Office’s projections, this deal will add $101.1 billion to the 2012 deficit and $40.2 billion to the deficit for the following year.  Taking into account future spending cuts and higher fees, the 10-year net deficit is projected to be $89.3 billion.

Bringing the Article Into Your Classroom

This article focuses primarily on the consequences of compromise: when two opposing sides want to make an agreement, both need to make concessions.  When one party wants to cut taxes, and another party wants the government to spend more, the net result is a larger bill for the government to pay.

In order to discuss this idea in the classroom, it may be useful to set up a role-play in which the students must negotiate the school budget.  Split the class into two teams and give each time a list of priorities (one team wants better cafeteria food, one team wants new computers, etc.).  Have the students consider what aspects of the budget they would be willing to concede and which demands they will not back down from.  Create a structure in which they could debate the budget and then reflect upon the process of negotiation.

Alternatively, this article lends itself to considering what the two political parties in Congress considers its policy priorities.  You may ask students to consider what the seeming differences are between Republicans and Democrats based on this article, and the ways in which both parties seem to consider and not consider the near and distant future.

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2012 Budget Deficit to Exceed $1 Trillion

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February 3, 2012

Will the federal budget deficit shrink? This question remains a topic of discussion in Robert Pear’s article for The New York Times. According to Pears, the Congressional Budget Office reported that the budget of 2012 would be lower than the 2011 budget by $200 billion, yet it will still be over $1.1 trillion. Although this drop will help prevent the federal deficit from rising even more, the predicted unemployment numbers show signs of increasing from 8.5% to 8.9% at the end of 2012, and possibly 9.2% in the first quarter of 2013. Some politicians fear that the combination of high taxes and lack of government spending will hinder economic growth and thus job creation. However, Douglas Elmendorf, director of the Congressional Budget Office, said spending cuts “would markedly slow the economic recovery” but could improve the economy’s strength in the long run.

Both parties have expressed their viewpoints on this report. From the article:

The report provided grist for both parties. Republicans said it showed that President Obama’s policies were not working, as evidenced by the high deficit, the rapidly increasing debt and continued high unemployment.

However, Democrats said the report confirmed their argument that new revenue, as well as spending cuts, would be needed to solve the nation’s fiscal problems, and that a stronger economy was the best way to reduce the deficit.

As stated in previous blogs and presented in the report, the expiration of the Bush era tax cuts at the end of this year will automatically reduce the deficit by billions of dollars in the coming years. Pears also notes that extending the Bush tax cuts while reversing other budget-balancing policies could still cause the deficit to drop below $1 trillion and decline as a share of the economy.

Pears states that budget office believes this year’s debt will amount to 7% of U.S. economy, lower than last year’s percentage, but “still higher than any deficit between 1947 and 2008.” The government will need to borrow in order to fill the gap between revenues and spending, causing the total federal deficit to “rise to $21.6 trillion in 2022, from the current level of $15.2 trillion.”

Teachers could use this article to discuss the competing interests involved in making a federal budget. Although the federal government is working to reduce spending, it also must address the issue of unemployment and continue to provide services to citizens. Some questions to consider: Should the federal government spend more to keep programs running or focus solely on reducing the deficit? How do we balance the economic needs of the present with the long-term benefits of social programs and government services?  Whose responsibility is it to pay for these services? By addressing these questions, students should begin to see the challenges of balancing the federal budget.

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Is Government Debt Analogous to a Family Mortgage?

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February 1, 2012

Paul Krugman, a 2008 Nobel Prize winner in Economics, wants you to stop comparing the federal debt to the debt of an individual.  In a recent New York Times op-ed piece, Krugman reframes this issue to explain why he believes that the federal debt is not the most urgent issue this government faces.

Krugman begins by pointing out that, despite the fact that the unemployment rate has been “disastrously high” the past two years, Congress has focused its energy on reducing the budget deficit.  Krugman lambasts both Congress and the economists with whom Congress has been consulting:

When people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about – and the people who talk the most understand the least.  Perhaps most obviously, the economic ‘experts’ on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits.

Krugman goes on to point out what specifically these economists have gotten wrong: in the short term, they claimed that the budget deficit would lead to increasing interest rates, though interest rates actually have dropped over the course of Obama’s presidency.

In the long term, Krugman claims, governments do not have to pay back their debt in the way individuals must pay back personal debts.  He explains: “An over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.” As discussed in earlier posts, the federal government borrows money by issuing bonds.  Though foreigners own many of these bonds, for each dollar of American debt claimed by foreigners, Americans have 89 cents worth of claims on foreigners.  In addition, American investments in foreign assets are more risky than foreign investments in the U.S. – which means that Americans earn more from their assets than foreigners do.

Krugman eventually does concede that debt is a problem without modest increases in taxes – and that raising taxes does have a cost.  He concludes by saying that the government may only continue to maintain a high debt if it also raises taxes.  Since this government is so anti-tax, however, it is unlikely that taxes will be rising anytime soon.

In order to introduce this article into the classroom, you may first want to introduce Krugman with a brief biography to contextualize his claims.  You may then ask the following discussion questions: What economic principles does Krugman introduce in this article (for example, do collecting taxes lead to more or less productivity)?  What are alternative opinions to what Krugman claims? Because Krugman makes many bold statements in his article, what alternative opinions have been discussed in this class in the past? What opinion/idea about the value of having a budget deficit makes more sense to you?


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Will the Debt Ceiling Rise by $1.2 Trillion?

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January 23, 2011

Will the federal deficit increase even more in 2012? This question remains a topic of debate for many politicians in Washington this month as President Obama announced the need to raise the debt ceiling by another $1.2 trillion. According to a January 12, 2012, article by David Lawder for Reuters, President Obama sent a message to John Boehner (R-Ohio), the House of Representatives Speaker, stating that more money would be needed to “meet existing commitments.” If this proposal passes, then the total nation debt would surpass the $16 trillion mark.

As stated in the article, there is very little time for lawmakers to vote against Obama’s proposition, thus preventing a similar crisis that nearly brought Congress to default in the summer of 2011. However, many Republicans see this proposal as a chance to present Obama as an economic squanderer and hopefully dampen his chances of obtaining a second term in office. From the article:

“The President’s runaway borrowing threatens the foundation of our economy and the financial future of every hardworking American,” said Senator Jeff Sessions, the top Republican on the Senate Budget Committee.

 

The debt limit increase by President Obama was originally planned to occur in December, yet officials asked him to wait until Congress came back into session in 2012. To continue funding the “existing commitments,” the Treasury Department has had to pull money out of Exchange Stabilization Fund and might have to take other measures until the new debt ceiling is established. Lawder also states that the debt limit has “increased by $900 billion since last summer’s debt brawl to $15.194 trillion.”

Teachers could use this article to discuss with students the need to increase the federal deficit ceiling. Some questions to consider: What are the “existing commitments” President Obama speaks about? What federal programs might experience cuts for this debt increase? What programs might receive more funding? How does this increase impact the local and state levels of government? To what extent does this debt increase influence American foreign trade and humanitarian policies? Students should look at President Obama’s proposal from a variety of perspectives in order to better comprehend how the raising of the debt ceiling impacts local, state, national, and international spheres.

Students could also see how President Obama presents this topic during his State of the Union on January 24, 2012. How might he put forth this idea to the American people? What do political commentators say about it after the address? Listening to a range of viewpoints should allow students to see how complex the issue of increasing the national debt is to media and political outlets.

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Personally Fighting the National Debt

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December 8, 2011

Richard Simon, writer for the L.A. Times, recently wrote an article about everyday Americans working to reduce the $15 trillion dollar federal deficit. Simon’s article begins by focusing on Atanacio Garcia, a resident San Antonio, California, and his efforts to shrink the deficit. Mr. Garcia collects aluminum cans around his neighborhood and donates $50 of his pension to the Bureau of Public Debt, established during President Kennedy’s administration. According to the article, Mr. Garcia plans to keep donating “until the debt is paid off or until I die.”

Others like Mr. Garcia have given various amounts of money to the bureau for a variety of reasons. Simon states that one veteran sent $17,500 after having surgery at a VA hospital. President Reagan even contributed $1 million after his second inaugural. In the 1990s, the Eskimo Pie Corporation decided to donate one nickel for every box of ice cream bars it sold in one month. It raised enough nickels for a total of $17,894 and planned on giving it to the Treasury Department. The article states that the department “facing the prospect of counting all those nickels, told the company to send a check.”

Politicians have also proposed programs to help lower the debt. Rep. Steve Stivers (R-Ohio) created the Debt Contribution Act and donates five percent of his monthly salary.  Rep. Don Young (R-Alaska) submitted a bill to generate a website that will allow donors to be recognized for the contributions. Simon states that Young believes this bill will “needle” millionaires that support higher taxes for the wealthy.

Teachers could use this article and past blogs to discuss the reasons as to why individuals and large corporations try to lower the national deficit through donations. Do the contributions by individuals really make a difference in the overall debt? If so, should others be asked to give? If not, should they get their money back? Do large corporations donate more than what their tax breaks are? Where should one look to find this information? Students can research these questions and others to determine if these contributions are truly making an impact in the federal debt and if more serious policies should be implemented by the national government.

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Differentiating Instruction on the Deficit Panel: A Timeline and Graphics

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November 16, 2011

The New York Times has put together an interactive timeline of the significant events related to the federal budget talks preceding and succeeding the creation of the deficit panel.  This timeline gives a short summary of what happened on the day marked, a link to a complete article published on that day, and a chart or other visual representation of that particular day’s events or proposals.  This timeline lends itself to a number of lessons and in-class activities that will engage different types of learners.

Explaining the Timeline

The timeline begins at the bottom of the website on July 21 and then progresses to the deficit panel’s deadline: November 23.  Below is a short summary of the first and last point on the timeline. These summaries are provided in order to demonstrate how the timeline provides information:

On July 21, President Obama and Speaker John A. Boehner were working to complete a budget plan that would reduce the deficit by $3 trillion over ten years.  The graphic below the date details three alternative plans proposed to Congress: the McConnell-Reid Outline, the ‘Gang of 6’ Plan, and the Cut, Cap, and Balance Plan.  This chart provides a short summary and comparison of the three plans.

On November 23, the committee must present its plan to cut the deficit by at least $1.2 trillion over 10 years.  If the committee does not agree on a plan, automatic cuts will begin. Below the short explanation is a visual representation of the automatic cuts by area of the budget (defense, non-defense discretionary, nonexempt mandatory, Medicare, and exempt entitlements).  Each of these areas of the budget is explained further under its respective image.

Bringing the Timeline into Your Classroom

This timeline could be incorporated into your classroom in a number of ways.  One way would be to provide students with both the image presented on the day of the timeline and the complete article linked to that day.  While both provide similar information, each caters to a different type of learner.

As an activity, students can create a physical timeline on the ground of the classroom. On each point, there will be both a short summary and a visual/graphic summary.  Students may be split up into groups and asked to work on one date of the timeline using the information provided for that date.  Once the students have completed their own parts, they can put the timeline on the ground in order and take turns walking through it, engaging the students physically as well as intellectually.  As they walk through the timeline, they should read each summary and observe the image or chart connected to that day.

For homework, students may be asked to consider the part of the timeline they worked on relative to the entire chart: why did the New York Times believe that the day on which you worked was so important for understanding the progression of the government’s dealings on the deficit?  Would you have presented the information in the same way? Why or why not?

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Better off without Debt? Think Again…

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October 26, 2011

What would the United States economy look like if it were debt-free?  Members of the Clinton administration pondered this question in an unpublished report titled “Life after Debt” during Clinton’s last year in office, reports David Kestenbaum in Planet Money, NPR’s economic blog.

In 2000, the annual budget ran a surplus.  The deficit began to shrink.  Had the government continued to collect more than it spent, the government could have paid off its debt by 2012.  Kestenbaum’s blog post provides a graph depicting what the national debt would have looked like had the surplus continued, as well as its actual trend:

Clearly, Clinton’s economists had little to worry about – by 2005, the government debt had grown by over 1 trillion dollars.

But why worry in the first place?

Kestenbaum explains that an end to the national debt also would bring an end to U.S. Treasury bonds.  Though that possibility seems rather benign (particularly in comparison to the “hooray!” moment of the government getting out of debt), Treasury bonds actually play a huge role in the global and national economy.

What is the role of Treasury bonds, nationally and internationally?

The U.S. government sells Treasury bonds in order to borrow money.  Internationally, these bonds are believed to be so safe that “much of the world has come to depend on them.  The U.S. Treasury bond is a pillar of the global economy,” notes Kestenbaum.  The Federal Reserve buys and sells Treasury bonds to keep the U.S. economy stable.  Banks buy hundreds of billions of dollars worth of them.  Even the money collected from people’s paychecks for Social Security is invested in Treasury bonds.

Kestenbaum thus asks of the Social Security money: “If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?”

Though “Life After Debt” was meant to be included in Clinton’s official “Economic Report of the President,” it was deemed “too speculative, too politically sensitive” by high-ranking members of Clinton’s staff.  Kestenbaum’s questions, quoted above, certainly point to one way in which the report may have raised more questions than it answered.

Incorporating this article into the classroom

Kestenbaum quotes an economist, Jason Seligman, at the end of the article as saying that perhaps a little debt is a good thing.  After reading this article with students, find out what they think.  Do they agree with the economist? Why or why not?  Do they think that Seligman’s statement applies in all instances (does their answer change if he was discussing an individual’s debt)?

This article also introduces a number of major concepts and themes related to the national debt.  Teachers may want to introduce Treasury bonds and how they work before delving into the article itself.

Also, teachers may use this article to introduce how the national debt and annual budget are related.  As an activity, teachers may ask students to plot the national debt through time alongside the annual budget surplus or deficit.  They also should add a timeline with major national and world events (wars, natural disasters, stock market booms or crashes).  These graphs could lead to a class discussion or written assignment on any patterns (or lack thereof) that students noticed.

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Congress Struggling to Cut Deficit

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October 16, 2011

1.299 trillion. That number represents the 2011 fiscal year federal budget deficit.  In an earlier Understanding Fiscal Responsibility blog post, Scott Wylie wrote about ways teachers could help students conceptualize such large numbers. Members of Congress also must face that number as they determine how to reduce the country’s debt.

In a recent Wall Street Journal article, Janet Hook reported on Congress’ progress to make budget cuts to reduce the deficit.  Her article focuses on Congress’ most recent set of roadblocks and specifically on the committee tasked with creating this plan.

When was this committee formed, and what exactly is it meant to do?

As part of the agreement for raising the debt ceiling over the summer, this new committee, named the Joint Select Committee on Deficit Reduction, was created to draft a plan that will reduce the deficit by $1.2 trillion over the next ten years.

Why is this committee in the news?

This past Friday, the Joint Select Committee received proposals from various other Congressional committees.  The proposals, however, focused more on what not to cut rather than what to cut, according to Hook.  She explains:

House Democrats said the panel should leave Social Security unscathed, raise taxes and avoid touching social programs.  House Armed Service Committee members warned against Pentagon cuts.  Senate Finance Committee Republicans did suggest cuts in Medicare spending, but eschewed tax increases.

Rather than providing this committee with potential areas of the budget to cut, Hook notes that each committee rushed to protect its own programs.

The committee received these proposals on the same day that the Treasury Department released its report on the 2011 fiscal year. Though government revenue rose 6.5% due to higher income-tax receipts, spending rose simultaneously due to the interest being paid on loans, Medicare, and Social Security.

Hook focuses the second half of her article on yet another challenge this committee faces.  Both Democrat and Republican leaders believe that creating jobs will help reduce the deficit and thus have pushed the committee to include job creation in its proposals.  Since President Obama’s recent jobs bill failed to pass in the Senate (due to a largely party-line vote), Republicans and Democrats alike hope to see the committee find a jobs bill on which both parties will agree.

Teachers could use this article to introduce the concept of committees in Congress, and how committees influence the legislative process.  Students could participate in a class discussion guided by the following questions:  How are committees formed?  What is the primary role of a committee in Congress? Do committees need to have an equal number of Democrats and Republicans? How might this balance (or lack thereof) shape the bill a committee proposes?  Teachers could then connect this article to an earlier lesson on lobbying, which discusses the particular committee on which this article focuses.

Teachers also could use this article as an additional resource in a discussion on the federal deficit.  The article mentions a number of proposed cuts, as well as different ways to for the government increase its revenue.  Students may be asked to express their opinion based on the options given.  Alternatively, teachers could assign groups of students (or individuals) a single proposal and ask them to research why members of Congress believe that proposal is the best way to reduce the deficit.  This small research project could culminate in student presentations or a formal debate.

Finally, students could research the partisan nature of the proposals sent to this committee.  Hook reports that, though Congressional committees submitted these proposals, the proposals seemed to represent “one party or the other.” What does each party propose the government should do to cut the deficit?  Do those ideas clearly align with certain proposals made by committees? As students answer these questions, they should be encouraged to develop their own opinions on how best to address the federal budget deficit and national debt.

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