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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:

Whether the Joint Select Committee on Deficit Reduction reaches a deal to reduce the federal deficit by at least $1.2 trillion or stalemates on Nov. 23, Democrats appear intent on handicapping the national economy with higher taxes and imperiling national security by cutting defense. Those are the wrong places to solve the nation’s budget woes.

In 2007, just prior to the financial crisis and when Democrats took control of Congress, the deficit was a manageable $161 billion. Wars in Iraq and Afghanistan were ongoing, and Bush tax cuts and prescription benefits for seniors were in place.

In 2011, two years after the recession ended, the deficit is $1.3 trillion. Spending is up $847 billion, and additional temporary tax cuts–such as the payroll tax holiday–account for the rest. Of the $847 billion, only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Repeatedly, Democrats President Barack Obama and Majority Leader Harry Reid have exhorted Social Security is not contributing to the deficit, but the program began paying out more than its receipts in 2009, and the Trust Fund will be entirely depleted by 2036. 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:

President Barack Obama faces three daunting challenges–jobs, deficits and re-election. His actions reveal he places a second term ahead of fixing the economy and federal finances.

If Obama runs on the economy, he loses. Too many voters are unemployed, underemployed, standing discouraged on the sidelines, or watching their paychecks dwindle for Obama to win. And most voters recognize, had President Obama’s economic policies permitted the economy to grow as it should, deficits in Washington and state capitals would be much more manageable.

If he runs on handling the financial crisis, he loses. He inherited a mess, but trillions in bailouts for Wall Street, Chrysler and GM rewarded the best-paid white collar and blue collar workers for lousy management and worse, while the other 98% watch their paychecks shrink in value. Now charges of fraud in his solar energy program and revelations about White House management dysfunction cast a president lacking judgment and leadership qualities.

On both jobs and the deficit, the president seeks to present a sharp contrast with his eventual GOP rival premised on “fairness”–presenting himself as guardian of the working family, and his prospective Republican opponents as champions of privilege.

An additional $447 million in stimulus and tax cuts, over two years, if spent smartly, could create about 2.5 million jobs for that period. However, he proposes paying for teachers by cutting aid to states for health-care workers and that won’t create many jobs. Extending the payroll tax holiday for the middle class by taxing those who earn over $200,000 only adds marginally to new spending and few jobs. 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:

When established in 1935, Social Security made its first payments to Americans age 65. These first recipients never contributed and were paid from contributions made by younger Americans. Those Americans and successive generations believed their contributions were investments, and that they would be paid at retirement by the earnings on those investments.

In fact, those younger Americans were paid by the contributions of successive generations of “investors,” as the federal government spent their money to help finance operating deficits. With the ratio of retirees to contributors rising, the Trust Fund will run out of money by 2036, if not sooner.

Such a scheme could only continue if the working age population grew more rapidly than the number of retirees, but it hasn’t because Americans live longer and the birth rate has declined.

President Barack Obama’s claims notwithstanding, Social Security is now a growing burden on federal finances, as the difference between the Trust Fund’s income and what it pays out grows each year. As we approach 2036, either payments will have to be dramatically curtailed, or the government will have to shut down, on a massive basis, other activities.

Either Social Security fails, or the U.S. fails. 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:

To raise the debt ceiling, moderate Democrats and Republicans in Congress may compel President Barack Obama to significantly cut spending. Done right, that would be a good thing!

Americans don’t need higher taxes–they need a government that spends within the nation’s means. That begins with acknowledging the facts and acting on them.

In 2007, the last year before the financial crisis, the deficit was a manageable $161 billion. The Bush tax cuts were in place, and wars in Iraq and Afghanistan were at full tilt. President Obama should stop blaming those for the fiscal mess.

Over the next four years, Congress, with plenty of White House participation, permanently increased spending by $1.1 trillion and added another $350 billion in tax breaks.

Viola! The deficit jumped to $1.6 trillion.

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…

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:

The economic consequences of a U.S. government shutdown can’t be calibrated on a spreadsheet with an economic model. It all depends on who wins public opinion–Congressional Republicans or the president and Democrats.

Federal spending is out of control. From 2007, the last full year before the financial crisis, to 2011, the second full year of economic recovery, spending has jumped $1.1 trillion, 40%, when a $200 billion increase would have satisfied inflation.

For any other country, a deficit exceeding 10% of gross domestic product would force austerity by sending interest rates on government bonds through the roof. Alas, the U.S. prints the world’s currency–the dollar–so it can inflate its way to solvency, and the bond market is starting to take that bet.

Enter the Tea party, that troublesome bunch of youngsters pushing elder Republicans to stand up for fiscal solvency, end the madness or halt funding for the government.

Closing federal offices for a few days will have not a great, lasting impact. On reopening the checks will go out. What counts, though, is whether the newly elected conservative majority in the House of Representatives keeps its mandate as measured by the polls.

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:

President Barack Obama’s State of the Union address and Rep. Paul Ryan’s Republican response offered few new ideas and weren’t forthright about what needs to be done to get America thriving again.

The November elections plainly established voters want less government and a focus on jobs, and they don’t believe Americans have to choose between the two.

President Obama proposed freezing domestic discretionary spending to reduce the deficit by $400 billion over 10 years, but he offered no substantive changes to Medicaid, Medicare, Social Security and other entitlements. That simply doesn’t cut it.

In 2007, the year before the recession, government spending was $2.7 trillion–less than 20% of gross domestic product–and the deficit was a manageable $161 billion. In 2011, with the economy recovered, spending will top $3.8 trillion–more than 25% of GDP–and the deficit will be about $1.4 trillion

Simply, the Democrats took control of the Congress in 2007 and used the recession as cover to permanently increase spending on the regulatory bureaucracy, entitlements and industrial policies by $1.1 trillion, and the leading edge of the Baby Boomers has begun to tax the Social Security and Medicare trust funds.

Now, the president proposes to address about 40% of the gap over the next decade. Essentially, he is laying a trap–daring Republicans to solve runaway health-care costs and Social Security, knowing how Americans react to the bearers of bad news.

Continue reading…