It’s a Case of Murder on the Budget Express
July 8, 2008

There’s a great scene from the 1974 movie version of Agatha Christie’s “Murder on the Orient Express” where her iconic ace detective, Hercule Poirot, wonderfully played by Albert Finney, talks about the number 12.

Deficit hawks are a band of brothers as Shakespeare put it.  We didn't shed any blood in 1415 at the Battle of Agincourt, but we have fought the good fight for deficit reduction on Capitol Hill and across the country.  No two men stand taller in this band of brothers than Pete Peterson and David Walker.  Both appeared before the House Budget Committee this morning to urge the adoption of Rep. Jim Cooper's (D-TN) and Rep. Frank Wolf's (R-VA) Securing America's Future Economy Commission Act, H.R.3654.

Washington commissions are notorious for producing legislative recommendations that go nowhere because they're the right thing to do, but you will lose your next election if you vote for them.  I hope this won't be the case with this one.

This morning, Fed Chair Ben Bernanke spoke on health care at the Senate Finance Committee Health Reform Summit.  His prepared remarks cited the extraordinary growth of health care spending as unsustainable, but he cautioned against harming innovation amidst the efforts to curtail health care costs.

Glenn Hubbard's and John Cogan's Wall Street Journal op-ed this morning seems persuasive until you consider that their premise is wrong, their math is misleading, and they fail to explain the real reason federal revenues have risen as a share of gross domestic product over the past 25 years.

First the wrong premise -- Hardly anyone is proposing to allow the 2001 and 2003 marginal tax rate cuts, marriage penalty relief, or child tax credit to expire in 2010. Senators Obama and Clinton have repeatedly promised to extend those tax cuts for all but the very wealthy. Senator Clinton defined wealthy as those making over $250,000 a year.

Second, Hubbard and Cogan examine only the past 25 years, starting in fiscal year 1983, when President Reagan's tax cuts first took full effect, driving federal revenues down to 17.5% of GDP from 19.6% when he took office in 1981.

Stan doesn't think his "Fiscal Fitness" column was choreographed to coincide with the Hubbard/Cogan op-ed in today's Wall Street Journal.  But a smart guy like Stan can always rely on a ready foil on the WSJ editorial page.

I object to many parts of the op-ed, but two in particular. 

The Washington Post has a story this morning about a new Bush administration plan to help homeowners who are "underwater," that is, whose home is worth less than their mortgage and can't sell or refinance it because they don't have the cash they would need at closing.  Contrary to the president's often-repeated assertions that he wouldn't do it, the plan apparently will require taxpayer dollars.

Anyone who has watched the mortgage situation deteriorate over the the past year could see this coming.  The early "over my dead body" statements by the administration were slowly, incrementally, and sometimes imperceptively replaced with positions that tilted increasingly toward "not yet."  In other words, it was only a matter of time.

At 2 p.m. today, Treasury Secretary Hank Paulson presented the annual Social Security and Medicare Trustees Report. The good news is that the solvency of the trust funds hasn't changed much over the past year. The Social Security Trust Fund will remain solvent until 2041, and the Medicare Trust Fund until 2019.

Most Americans believe Social Security won't pay equal-value benefits in the future. Most Social Security experts say Social Security can be kept solvent well beyond the retirement of the Baby Boomers over the next 20 years with relatively modest changes to the GROWTH of future benefits and to payroll tax rates. Even if nothing were done, after 2041, Social Security could still pay 75 cents per dollar of benefits due into the future.

Did anyone notice that the FY08 and 09 deficits will be a little higher than were projected JUST A WEEK AGO because of the fiscal stimulus bill that was finally enacted?

Probably not.  Last week, between the Super Bowl, Super Tuesday, and the Bush administration's very successful attempt to bury the budget as an issue once and for all, the fact that the final bill was $25 billion or so more than the one passed by the House was barely mentioned anywhere.

It was only a month ago that President Bush successfuly demanded that congressional Democrats back down from their attempt to increase domestic spending by $22 billion in fiscal 2008.

Foru weeks later, that same president not only agreed to a plan that would increase the deficit by between $100 billion and $150 billion in fiscal 2008, he played a major role in drafting it.

It looks like House Banking Committee Chairman Barney Frank (D-MA) and House Education and Labor Committee Chairman George Miller (D-CA) are going to be the designated leaders for a stimulus bill in the House.  Sen. Chris Dodd (D-CT) may play the same role in the Senate.

Note who has not been designated: House Budget Committee Chairman John Spratt (D-SC) and Senate Budget Committee Chairman Kent Conrad (D-ND).