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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

To avert the fiscal cliff, President Barack Obama may get Republican cooperation in soaking the rich, but the deal that emerges could put the nation in dire straits by the end of the decade.

The Budget Act of 2011 requires the president and Congress to cut federal deficits by $1.2 trillion over nine years, or annual defense and nonentitlement outlays automatically will be reduced $107 billion annually in January. Also, the Bush tax cuts, payroll tax reductions and other assorted programs expire.

Overall, annual spending would be cut $136 billion, taxes raised $532 billion, and economists fear a staggering recession would result pushing the unemployment rate into the teens.

President Obama wants to raise tax rates on families and many small businesses earning more than $250,000, and Congressional Republicans would like to curb entitlements by increasing Medicare premiums paid by wealthier participants and slowing Social Security cost of living increases. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

America’s finances are headed for a train wreck.

By Nov. 23, the Supercommittee in Congress must come up with a package to cut the federal deficit by $1.2 trillion over ten years or draconian cuts in defense and discretionary spending follow.

Something still may be cobbled together but the federal deficit would remain too large, and could easily fly out of control. Genuine progress is not possible, because the principals won’t even accept the facts.

Democrats harp that Bush tax cuts, wars and the prescription-drug plan for seniors caused the deficit to swell to $1.3 trillion in 2011. Yet, with all those at play, the deficit was only $161 billion in 2007.

Spending is up $847 billion, and additional temporary tax cuts–such as the payroll tax holiday–account for the rest of the increased deficit. Only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Most economists agree GDP growth is likely to be in the range of 2% over the next several years, and such slow growth and high unemployment will accelerate spending on entitlements, while retarding the growth of tax revenues. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

If the U.S. government shuts down, the Republicans will likely get the blame but the American people will be the losers.

Federal finances are in a shambles and in need of radical overhaul. President Barack Obama’s budget ignores this; however, with a shutdown, he will be able to tar Republicans as ideologues, steal the initiative on spending and taxes, and leave his successor with a mess.

From 2007, the last full year before the financial crisis, to 2011, the second year of recovery, spending has jumped $1.1 trillion–40%. The president’s budget plan would trim the deficit to $774 billion by 2022, but his projections have been rejected as too optimistic by private economists and political analysts of all stripes–he assumes cost savings and new revenues from health-care reforms that are unlikely to materialize and a 4% economic growth through 2014, which few private economists endorse.

Most legitimate deficit reductions the president’s budget accomplishes are through higher taxes on the wealthy, and a new interest and dividend tax that will likely drive business investment and personal wealth offshore.

Higher taxes are not the answer. In 2011, spending is projected at $3.8 trillion and revenues at $2.2 trillion. A 50% increase in all taxes and fees–personal income, Social Security, Medicare, and corporate taxes, entry fees into national parks and the like–would leave the deficit at $560 billion. Even if phased in over several years, such a dramatic increase in taxes and fees would send the economy into a depression from which it would never recover.

Continue reading…