Content Tagged: policies

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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Ben Bernanke Talks Deficit Reduction

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February 8, 2012

Ben Bernanke, the Federal Reserve Chairman, expressed concern to legislators over the spending cuts and tax increases scheduled for 2013, reports Suzy Khimm for the Washington Post.  In his testimony on Tuesday, Bernanke discussed the current economic climate and gave his projections for the coming year.  He noted that, while the country’s economy has recovered more slowly than everyone had hoped, he remained optimistic for the coming year.

Forecasts given for 2012’s unemployment rate predicted a number far higher than what has proven to be true thus far.  According to the most recent jobs report, the United States added 243,000 jobs in January.  These additions brought down the unemployment rate to 8.3%.  Bernanke attributed this decrease, at least in part, to the recent revival of manufacturing in this country: “US manufacturers have become increasingly competitive on a global stage.”

Despite his lauding American manufacturers, Bernanke’s overall message was grim: he believed that the 2013 drastic fiscal changes (the expiration of the Bush tax cuts and the spending reductions triggered by the Budget Control Act) would slow economic recovery further.  Senator Pete Sessions (R-Ala.), questioned Bernanke and his claim that it was less important to reduce the deficit than to continue to encourage recovery and growth.  Bernanke’s response was simple: “What we want to do is have a credible, strong plan so that the economy doesn’t hit a huge pothole.”  Bernanke thus encouraged a deficit reduction plan that could phase in over a longer period of time than the automatic one set for January 2013.

In the Classroom

This article may be used in a variety of ways.  It may be introduced simply as a way to keep students apprised of the opinions being heard by Congress about the budget deficit.  It may also be used to introduce Ben Bernanke and the Federal Reserve, if you have not done so previously.

The article also may be used in a debate on the merits of the current plan for deficit reduction.  Bernanke provides an argument against the plan – he says that it occurs in too short a time and will slow overall economic recovery. What do your students think? Which topic is more important: economic recovery or deficit reduction? Is it possible to have one without the other?

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The 99% and Representative Mike Honda’s People’s Budget Plan

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December 16, 2011

The Huffington Post recently posted an article by Rep. Mike Honda (California’s 15th Dist.) discussing his fight for the 99 percent. In this article, Honda talks about his engagement to keep government programs funded because the majority of the 99 percent are beneficiaries. He believes that Republicans are willing to cut these programs to ensure tax cuts remain for the wealthy.

Honda states the number of Americans that live in poverty has increased drastically. He references the November 2011 U.S. Census Bureau that reports, “the number of people living in poverty in America rose by nearly 4 million to 43.6 million in 2009 — the largest figure in the 51 years for which poverty estimates have been available.” In addition to these figures, the number of children living in poverty rose by 1 million. Minorities also face extreme poverty at a much higher rate than the national average.

Honda discusses how his People’s Budget plan will address the issues of unemployment, national debt, Medicare – common demands of the 99 percent. His plan focuses on raising taxes for the wealthy (individuals, companies) and investing heavily in government services like transportation and public education. In addition to this, the People’s Budget aims to help the middle class in and counter the Republican budget proposal. From the article:

Where the Republican budget forsakes our solemn oath to protect seniors, the People’s Budget guarantees their safety and security. Where the Republican budget forgets the steel in the spine of the American economy was laid by the middle class, the People’s Budget guarantees full access to the American dream for all. Where the Republican budget explodes our national debt, the People’s Budget creates a budget surplus.

Teachers could use this article and Honda’s website to discuss the many budgetary policies proposed by Democrats and Republicans. Some questions to consider: How does Honda’s People’s Budget relate to Obama’s budget plan? How does it differ from GOP presidential candidates’ plans? Does it address the national debt? If so, what might some challenges be to its implementation? Do you support his budget plan? Why or why not? What information would you need to make this decision? Where could you go to find it?

Students can also use this article to analyze political rhetoric. How does he present the Democrats? The Republicans? The People’s Budget? These discussions should help students comprehend how politicians view the current financial state of America, their solution(s) to solving challenges, and their opinion about the opposing party’s plan. One might also address the issue of disharmony found within party lines and Congress so that students can understand the challenges recent budgetary proposals are facing.

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Senator Demint Writes about U.S. Role in Global Economy

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December 9, 2011

Jim Demint, writing for The Wall Street Journal, recently posted an opinion article discussing the current debt crisis in Europe and America’s involvement in helping them solve the problem. According to Demint, America has spent billions of taxpayers’ dollars in order to pull countries out of their debt. For example, nearly $40 billion was sent by America to the International Monetary Fund (IMF) to prevent Greece from fiscally collapsing. This move, however, “only delayed” the economic fallout from occurring. In Demint’s opinion, the United States must not focus on bailing out European countries from their outstanding debts, but look to solve the problems at home: “The most dangerous threat to the U.S. economy is not across the pond. It’s in the swampland of Washington, D.C.”

Demint states that the United States is near its fiscal tipping point. Other countries like Ireland and Portugal were bailed out when their debt-to-GDP ratios were much lower than what the United States is currently experiencing (74% and 94% respectively). With the raising of the debt ceiling in August, the United States now faces the predicament of having a 100% debt-to-GDP ratio. According to Demint, President Obama has built his political policies around European foundations, but if “the U.S. continues to mimic our European allies we’ll fall to pieces, too.”

As more European countries are reaching their fiscal tipping point, certain countries in the European Union (EU) are demanding stricter laws in order for bailouts to occur. However, the United States contributes the largest percentage to the IMF, yet has no voice in the EU. The United States has sent nearly $67 billion to the IMF this year according to Demint. In Demint’s opinion, America must end its era of sending billions of taxpayer’s money to the IMF and must focus on the economy at home. According to the article:

 

Members of the Obama administration must focus all of their efforts on strengthening the U.S. economy and balancing our budget, rather than on continuing to borrow from China to pay for Europe’s out-of-control debts.

Teachers can use this article to discuss the current financial crisis European countries are facing and how they are impacting the United States’ economy. Should the United States get involved in providing funds to help the debts of other countries? How does Europe influence the United States federal deficit? Do you agree with Demint’s opinion? Why or why not?

Teachers could also use this article to discuss perspective/bias within the piece. In what was does Demint express his political views? What are his goals and how does he present them? What might be some counterpoints to his arguments? How do his arguments address the issue of the deficit? These discussions could help students better understand the fiscal issues in Europe, how those issues influence the United States and the deficit, and the perspectives/biases found within media outlets.

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Income Tax and the $250,000 Threshold

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May 17, 2011

In a recent article in the New York Times, Andrew Ross Sorkin examines the “magic number” of $250,000 that serves as a threshold between middle and upper class in fiscal policy debates.  Those earning $250,000, he writes, are by no means middle income, as they represent only 2% of households in the nation.  Yet, Sorkin notes, “some economists and tax reform advocates are questioning whether those households are rich enough to be worthy of the same tax bracket as millionaires.”  From the article:

The dividing line appears to have its genesis in 1993, when President Bill Clinton created a new tax bracket at $250,000 and raised the rate to 39.6 percent. Prior to Mr. Clinton’s new bracket, the highest earners were those defined by making more than $86,500; they paid 31 percent under the first President George Bush…

Aides that worked with Mr. Obama during his campaign said he latched onto $250,000 because it helped invoke President Clinton’s era of economic prosperity in the 1990s — a demonstration, the argument goes, that higher taxes did not hinder growth.

Sorkin points out that $250,000 in 1993 is equivalent to just over $386,000 today, when adjusted for inflation.  He cites an article by Karen Hube of The Fiscal Times that concluded that families earning $250,000 a year in the present often “end up in the red — after taxes, saving for retirement and their children’s education, and a middle-of-the-road cost of living,” especially in high tax areas on the east and west coast.

Sorkin contends that millionaires and billionaires often earn most of their income from investments and therefore pay taxes at the long-term capital gains rate of 15 percent.  He cites a report from the IRS that found the wealthiest 400 Americans in 2007 paid an average of 16.6% in income tax.  Sorkin concludes by noting that tax rates were as high as 70 percent in the 1950s-1970s, but concedes “we are unlikely to see those rates anytime soon.”

Teachers could use this article in a class discussion about income tax rates.  At what income threshold should households be expected to pay more in taxes?  Who qualifies as wealthy and how are those decisions made?  What are the pros and cons of increasing the taxes on the wealthy?  How might tax increases affect the federal budget deficit and national debt?

Students should be encouraged to observe how politicians discuss wealth and the ways in which these ideas are reflected in their fiscal policies.  How does each party use categories like upper class and middle class in an effort to sway voters’ opinions?  As students follow the debate about the federal budget, they should develop their own opinions about the tax structure and support those opinions with logic and evidence.

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S&P Downgrades Outlook on US Treasury Securities

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April 22, 2011

A recent article in the Wall Street Journal discusses Standard and Poor’s decision to downgrade its outlook on United States Treasury securities from “stable” to “negative.”  Though S&P did not lower the United States’ AAA-bond rating, the change to a negative outlook indicates the possibility it could do so in the near future.  From the article:

Since S&P began assigning outlooks to government debt in 1989, five AAA-rated countries have been assigned negative outlooks, including Britain in 2009. Three were subsequently downgraded, and Britain and one other were returned to a stable outlook. S&P acted after it determined that new British austerity measures to cut spending and raise revenue would reduce the government deficit to 3% of GDP by 2014 from 11.2% in 2009.

The article notes that a downgrade would increase interest rates on Treasurys, a benchmark for consumer and business borrowing rates, ultimately “raising the cost of credit throughout the economy.”  Many believe that this threat could force Democrats and Republicans to compromise on a deficit reduction plan.  The gridlock in Washington, however, was a “key determinant” in the outlook change, according to S&P chairman John Chambers.  Chambers went on to say that if the United States could reach a British-style resolution, S&P would restore the outlook to stable.

Teachers could use this article to discuss the importance of the United States’ bond rating.  Students should be encouraged to follow the fiscal debate in Washington, noting how politicians from both parties react and respond to this report.  Does the report spur compromise, as many believe it will, or will it be used in an attempt to gain leverage for one side or the other?  How will this report influence the debate about the federal debt ceiling?  These questions will help students begin to appreciate the complexity and far-reaching implications of fiscal policy decisions.

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Public Opinion and the Federal Budget

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March 26, 2011

Yuval Levin, editor of National Affairs magazine, recently wrote an article for Time in which he explored Republicans’ and Democrats’ “very different understandings of the public temper.”  Levin argued that the Democrats “believed that the economic crisis made the electorate yearn for security, thereby creating an openness to large public programs.”  The Republicans, he wrote, believed “that the crisis alarmed voters about runaway government and debt, thus leaving them open to paring back the state.”  From the article:

The 2010 elections suggested the Republicans were closer to the mark. But the Democrats continue to bet that voters were only venting and will reject actual cuts to popular programs. And so in the great budget battle raging in Washington, we still see two very different assessments of the public on display.

Levin points to entitlement spending as the biggest reason behind the growth in our long-term debt.  Both parties recognize this reality, but understand that entitlement reform is rarely popular with voters.  Levin reports that the Democratic strategy has been to offer only vague promises to address entitlement spending, whereas Republicans are planning a proposal outlining concrete reforms to Medicare (though they too are vague about Social Security).  Levin describes the potential Republican plan as follows:

They are likely to leave untouched the benefits of Americans now over age 55. But for those who are younger, Medicare would be transformed into a system of vouchers that recipients would use to buy approved insurance of their choice. The vouchers would provide about the same level of coverage as seniors currently get (with a little more for the poor and less for the wealthiest) but would grow more slowly than Medicare costs have and induce efficiency by making consumers more cost-conscious.

Exactly how voters will respond to such a plan remains a mystery.  Levin concludes that both parties’ strategies are risky, and that “the next presidential election may well hinge on whether they have read the mood of the country correctly.”

Teachers could use this article to help students understand the role of public opinion in shaping fiscal policy.  When the Republican budget proposal is released in early April, students should be encouraged to watch for efforts by both parties to shape public opinion.  Teachers could ask students to keep a log of political commercials and commentary that directly address entitlement spending.  How is each party reading (and attempting to influence) the mood of the country?  In your opinion, is one side more successful than the other?  Why or why not?  As the 2012 presidential election nears, students should be encouraged to note the ways in which the budget debate is framed by each party.

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Economic Theory in the Real World

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December 27, 2010

Robert Shiller, professor of economics and finance at Yale, recently wrote an article in the New York Times discussing the possibility of stimulating the economy without adding to the national debt.  Citing the “balanced-budget multiplier theorem,” Shiller argues that “national income is raised, dollar for dollar, with any increase in government expenditure on goods and services that is matched by a tax increase.”  From the article:

The reasoning is very simple: On average, people’s pretax incomes rise because of the business directly generated by the new government expenditures. If the income increase is equal to the tax increase, people have the same disposable income before and after. So there is no reason for people, taken as a group, to change their economic behavior. But the national income has increased by the amount of government expenditure, and job opportunities have increased in proportion.

Shiller notes, however, that the “balanced-budget theorem is only as good as its assumptions.”  In particular, he points out that if consumption is reduced because of citizens’ negative reactions to tax increases, the desired effect of economic stimulus may not occur.  Additionally, citizens may not be willing to accept the fact that while the benefits go to those who are unemployed, those who are working that pay the costs.  That said, Shiller contends that “it would be a mistake to consider the present atmosphere unchangeable” and that “voters are like to accept higher taxes eventually, as the they have done repeatedly in the past.”


Image: David G. Klein

Teachers could use this article to demonstrate that something ostensibly academic and theoretical like the “balanced-budget multiplier theorem” has visible implications in the real world.  Students could be encouraged to look for other examples of economic theory that underlies opinions about the federal budget deficit and national debt.  As students find these examples, they could create posters noting which politicians support different theories (even though the politicians may not specifically reference the theories by name).  This activity would help students better appreciate the link between economic theory and real-world application concerning the reduction of the deficit and debt.

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Social Programs and the National Debt

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December 17, 2010

In a recent article in the New York Times, Matt Bai writes that it will be quite some time until we can accurately judge the success or failure of President Obama’s health care legislation.  Comparing the bill to Social Security in the 1930s and Medicare in the 1960s, Bai believes that the “health care law is likely to become a campaign issue for the rest of Mr. Obama’s presidency, and probably beyond.”  Such legislation, Bai notes, does not immediately transform the political landscape, but gradually becomes “so absorbed into the culture that it can no longer be readily removed.”  From the article:

The pattern here is perhaps best illustrated by Social Security. Franklin D. Roosevelt signed the program into law in 1935, but it didn’t begin to pay out benefits until 1941. It was attacked both by conservatives, who tried repeatedly to repeal it, and by some on the far left, who thought the program insufficiently generous, and its survival remained in doubt for more than a decade.

Bai points out that there are “essential lessons that both parties can draw from the history of Social Security and other expansive programs”.  The same holds true for students studying the federal budget deficit and national debt.  The Understanding Fiscal Responsibility project has written several lessons designed to help students draw parallels between these programs and examine their effects on the federal budget and the national debt.

One such lesson, “Mandatory Programs and the National Debt“, asks if programs like Medicare, Medicaid, and Social Security should be modified to address the national debt.  Another lesson, “Medicare and LBJ’s ‘Great Society’“, asks students how Medicare became part of President Lyndon Johnson’s ‘Great Society’ initiative and why it was so controversial in 1965.  Yet another lesson, “Demographic Shifts, Social Security, and the Federal Budget“, explores whether or not the federal budget can survive the “graying” of America.

Through these lessons, teachers can help students understand the ways in which large-scale government programs like Medicare, Medicaid, Social Security, and the new health care legislation affect the federal budget.  By exploring similar historical issues, students will be better prepared to participate in the national discussion about the deficit and national debt.

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Debating a Federal Balanced Budget Amendment

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October 22, 2010

Troy Senik, former White House speech writer for George W. Bush and Senior Fellow at the Center for Individual Freedom, recently published an article on FoxNews.com arguing in favor of a constitutional amendment requiring a balanced budget.  Senik believes that the passage of a balanced budget could be America’s last chance “to keep the U.S. economy on a path that could support consistent growth and prosperity.”  From the article:

What’s needed is a Constitutional Amendment requiring 60 percent of the Senate and House of Representatives to vote in the affirmative for any piece of legislation that increases the debt ceiling, raises current taxes or imposes new taxes. The Constitutional Amendment should also require Congress to pass a balanced federal budget annually.

Senik believes “any serious approach to our economic travails” must address three areas: 1) the need for a balanced budget, 2) avoiding tax increases during recession, and 3) not accumulating additional debt.  Arguing that “every federal expenditure… is extracted from the productive private economy,” Senik believes that “the fundamental problem is the size of government.”

Many economists, including Nobel Prize winner Paul Krugman, believe the demand for fiscal austerity is misguided.  In a September 2009, blog for the New York Times, Krugman wrote:

Under the kind of conditions we’re now facing, the main determinant of business investment is the state of the economy, as evidenced by the plunge in investment… This, in turn, means that anything that improves the state of the economy, including fiscal stimulus, leads to more investment, and hence raises the economy’s future potential.

That is, under current conditions deficit spending doesn’t lead to crowding out — it leads to crowding in. In fact, you could argue that the worst thing we can do for future generations is NOT to run sufficiently large deficits right now.

While Krugman believes that “things won’t always work this way” and that “eventually we’ll emerge from the liquidity trap”, for now he argues that deficit spending will help the economy.  Senik’s plan, from Krugman’s perspective, would only serve to exacerbate the United States’ economic problems.

Teachers could use these conflicting points of view to frame a classroom debate about the passage of a constitutional amendment to balance the federal budget.  Students could examine the pros and cons of this issue, discuss the positive and negative results of balanced budget amendments in state constitutions, and predict the consequences of a federal amendment.  Students could also research candidates running in the 2010 Congressional elections to find out who, if anyone, supports a balanced budget amendment as part of their platform.

While legislating a balanced budget seems like a simple solution to deficit spending, there are many consequences (both good and bad) to such a decision.  This activity will help students explore these issues and reach their own conclusions about whether or not to support a federal balanced budget amendment.

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