Does Obama Have a Secret Plan to Deal with Runaway Debt? And Does it Involve Taxing Us Up The Ying-Yang?

Over at The American, Jim Pethokoukis picks up on a passage in the recent book on Obama's economic team by Noam Scheiber, The Escape Artists. Here's the passage from the book subtitled "How Obama's Team Fumbled the Recovery":

In May 2009, the president asked [White House budget director Peter Orszag] to draft a secret memo laying out the government’s options in the event of a fiscal crisis, in which a runaway deficit sent interest rates spiraling upward. No other member of the Obama economic team was even aware of the assignment.

Pethokoukis runs through various scenarios and reflects on Orszag's past and current statements about various policy matters to suggest that the "secret plan" is likely based first and foremost on letting all the Bush tax rates expire - not just the parts affecting top-income earners, the possible imposition of a VAT style tax on top of that, and really tight price controls on medical procedures under Obamacare.

I think it’s reasonable to assume that the secret Obama-Orszag memo contains some options on massively raising taxes to send markets a signal that the United States is getting its fiscal house in order, ASAP.

Orszag, when he worked for Obama, was also the guy behind the creation of Obamacare’s Independent Medicare Payment Advisory Board. Starting in 2015, IPAB will have the power to making binding recommendations to cut Medicare provider payments if Medicare costs rise too quickly. As Orszag has put it: “This could well turn out to be as consequential for health policy as Federal Reserve policy was for monetary policy. The commission will put its proposals forward and if Congress does not act on them, or if it votes them down and the president then vetoes that bill, they will automatically take effect. Huge change.”

So perhaps the plan recommends giving the powerful IPAB technocrats even more power, not to just limit Medicare spending, but all healthcare spending in the age of Obamacare, public and private. In effect, use IPAB to fully nationalize U.S. healthcare and then ration care, as they do in the U.K., to reduce spending.

But again, this is all just speculation. Mr. President, how are you going to deal with a debt crisis? What’s in the Orszag memo?

Read the whole thing here.

For a list of the various rate increases that would kick in if federal taxes reverted back to Clinton's last year in office, go here. Recall back in 2010 when renewing the Bush tax rates, the typical number bandied about was that it would mean an extra $3.9 trillion in revenue over the coming decade. About $700 billion would come from the top 2 percent of income earners, with the other $3.2 trillion coming from the bottom 98 percent. The plain fact is that Bush's tax cuts, love 'em or hate 'em, is the reason why nearly half of households don't pay income tax anymore. In 2001, for instance, the bottom 50 percent of tax filers paid 3.97 percent of all federal income tax. That figure in 2008 was 2.7 percent.

Pethokoukis emphasizes his guesswork and it is just that. The Obama team should definitely have a plan of what to do if international markets go haywire due to interest rates spiking. The government is clearly benefitting from historically low interest rates, which keeps the cost of our borrowing cheaper. Raise the feds' interest rate a couple of points and interest payments go through the roof. That means less money available for government services and the need for more and more revenue. Not good.

Because the US economy and government is by far the largest in the world, we've got a lot more leeway in all things related to international finance than, say, Greece, or even China. But planning for a rainy day when the heavens start showering flaming toads, hail, and brimstone down upon us shouldn't be done in secret and shouldn't wait until the creditors are at the door. You can always start trimming spending NOW and bringing it toward convergence with expected revenues. That's exactly the sort of long-term, responsible behavior that makes nervous creditors convinced you just might keep paying your bills.

Related: Obama's budget for 2013 envisions flat spending (for now) and higher taxes.

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  • ||

    The Obama team should definitely have a plan of what to do if international markets go haywire due to interest rates spiking.

    They do. Its called monetizing the debt. They just have the Fed clear the Treasury auctions at very low rats.

    And this isn't just a plan. They've been doing it for years.

  • Kwanzaa Cake||

    But it is only part of the plan, because Orszag et al want to implement the VAT and tax the living daylights out of every dime of income in any event. Never let a debt crisis go to waste, as the administration might say. Oh wait, they DID say that.

    I also think one of the comments on Pethokoukis' site is correct: a tax on 401(k) balances is coming if the left remains in power long enough. It would fit in perfectly with the current war on savers, and represents a huge source of revenue that the pols will ultimately find it impossible to keep their hands off.

  • SIV||

    a tax on 401(k) balances is coming if the left remains in power long enough.

    If the "fair tax" were ever implemented "fairness" would dictate all tax deferred accounts be subject to an immediate tax.

  • fish||

    That's a good guess. Something bad will happen fairly soon precipitating the "need for bold action". Everything will be subject to a "one time" tax just to get us through this one rough patch.

    Much political self congratulation will follow!

  • SIV||

    One would assume raiding 401ks and traditional IRAs would be the "fair" alternative to refunding taxes paid on Roth IRA principle,savings bonds, money market accounts and other non-tax deferred savings.

  • ||

    I wonder how they would keep everybody from abandoning the 401(k)s if they started taxing them. Even if most folks couldn't stand the hit that would come from withdrawing current funds, wouldn't they slash their contributions and redirect the funds elsewhere?

  • ||

    What Kwanza Cake said RC. They don't see a downside to the markets finally stopping purchase of US debt at low interest rates. When that happens, it will create a crisis of an even bigger magnitude than 2008. They can then get the media and all of the "wise men" Republicans to tell the country that a VAT and vastly increased taxes is the only way to save the country.

    They then agree to massive defense cuts ending the country's status as a super power. But they do nothing to touch the entitlements or the size of government outside of defense. This combined with the massive increase in taxes and the monetization you talk about makes the US into a richer Argentina, which was the goal all along.

  • Joe M||

    They just have the Fed clear the Treasury auctions at very low rats.

    Eponymous'z law strikes!

  • shrike||

    So Obama is criticized for cutting the Medicare beast here now? (through IPAB)

    And --

    The ACA permanently slows the growth in Medicare payment rates for almost every category of provider other than physicians and makes additional targeted cuts to home health agencies and some other providers. As a result, the CBO projects that over the next decade Medicare spending per enrollee will grow substantially more slowly than the overall economy, even if there is a permanent SGR “fix.”

    http://www.nejm.org/doi/full/1.....ured_home&

    This place has gone bizarro. Of course Romney wants to kill the Medicare cuts and Reason is now fully behind him.

  • NotSure||

    IT is fully behind him ? I guess all those article criticizing him don't really exist.

  • Team Red||

    To hell with Medicare cuts. We must elect Romney.

  • ||

    Plan A: Rape the Living!
    Plan B: Loot the Dead!
    Plan C: Flee the Revolution!

  • fish||

    Actually those are all aspects of Plan A in sequence. Why do you always have to complicate things?

  • ||

    I don't understand how that chart can be levelling out from 2012 through 2030. Doesn't that show balanced budgets, pretty much starting now?

    Aren't we pretty much locked into to trillion dollar deficits for the foreseeable Obama future? Even assuming that getting rid of the Bush tax cuts doesn't crater the economy (thus lowering tax receipts), that's only $400MM/year, and our deficits are well over a trillion now. Getting rid of the Bush tax cuts won't balance the budget. Not even close.

  • shrike||

    No. If we do nothing the entire deficit disappears by 2019.

    "Do nothing" means let the Bush tax cuts expire and the doc fix go away.

  • ||

    So, the Bush tax cuts net us $400BB a year, and the doc fix probably saves us around $40BB a year. Let's be nice, and say that brings us down to a $800BB/year deficit. Throw in PPACA (without the CLASS Act stuff, which has been ashcanned), and you get another $7BB/year.

    If we make no other changes, the only way that leads to a balanced budget is if the economy grows faster than the budget itself. But the federal budget has been growing faster than the economy for quite some time. Much of that growth is "locked in" entitlement spending, all of which hits the deficit now that payroll taxes don't cover it.

    Its fantasy.

  • shrike||

    Your numbers seem good. I didn't write the article.

  • ||

    No, but you said "If we do nothing [except getting rid of the doc fix and the Bush tax cuts] the entire deficit disappears by 2019."

    That's the fantasy.

  • shrike||

    When confronted with this I'll now exit stage left!

  • ||

    Forgot to mention: the interest that we pay on our debt will only go up as debt accumulates, and will really go up when the Fed's market manipulation finally fails.

    I see lots of components of the budget that will increase under the do-nothing plan. Why would I assume that these increases will add up to less than 3% a year (a safe-to-optimistic bet on average GDP growth)?

  • robc||

    That is "as percent of GDP". So, clearly they are expecting a booming GDP the next few years to flatten that out for them.

  • ||

    No.

    They're going to kick your teeth out and use the money from the tooth fairy to balance the budget.

  • T||

    I'm so stealing this.

  • shrike||

    http://www.slate.com/articles/....._plan.html

    The Do Nothing balanced budget plan.

  • NotSure||

    For a "great capitalist" you sure do have a strange preference of sites. Care to list all the others you like to read ?

  • shrike||

    Well there's Forbes, the Daily Kos, Blueboy, scatlover.com...I could go on and on!

  • NotSure||

    At least you don't deny your love of shit !

    One never knows if this guy is for real or a spoof. If you are a spoof, you do it well !

  • shrike||

    I get spoofed more that anyone here.

    Never rebutted, just spoofed.

  • NotSure||

    Nobody can tell what is a spoof or not, probably has to do with the fact that you are the village idiot who in his own mind thinks he is genius.

    If the christfag, pushpigs etc. are all the works of a spoofer, change your name, problem is that they are probably not the works of a spoofer.

  • fish||

    Hey Shrike....I see they let your dad out of his coffin!


    http://campaign2012.washington.....ser/424931

  • Brandon||

    You just don't respond to the rebuttals.

  • fish||

    Why let any criticism get in the way of Shrikes carefully scripted narrative?

  • Shreeky Sachssucker||

    In May 2009, the president asked [White House budget director Peter Orszag] to draft a secret memo laying out the government’s options in the event of a fiscal crisis, in which a runaway deficit sent interest rates spiraling upward.

    Hey, I'm not Pete Seeger over here, B. Can't just 180 the narrative on a dime.

  • Fist of Etiquette||

    No fair using people's wedding portraits against them.

  • Loki||

    Although if that's really his wife then holy shit, I picked the wrong career. Apparently if you want to snag a hot chick then "government asshat-stooge" is the career of choice.

  • Ryan||

    just being a regular asshat-stooge would work

  • PB and J||

    It must have taken a lot of will power for Orszags wife not to punch him in that oh so punchable face.

  • NeonCat||

    Indeed, he must have an incredibly winning personality.

    Is it just me, or does he look like a skinnier, sharper featured Egon from Ghostbusters?

  • Playa Manhattan||

    I had him as an Econ professor more than a decade ago. His previous wife used to sit in sometimes. She was NOT even remotely attractive.

  • fish||

    Oh I don't know, in that photo she doesn't have to look at him. That's a plus!

  • NotSure||

    Would be interesting to show some charts from 2006 and see how well they predicted the future. Any chart that tries to predict 2030 let alone 2084, is as useful as the daily Astrology guide.

  • Loki||

    But those charts were put together by TOP MEN I tell you. TOP. MEN.

  • ||

    Does Obama Have a Secret Plan to Deal with Runaway Debt?

    As one who remembers Nixon campaigning in 1968 on a "secret plan" to end the Vietnam War, the notion of such sends shivers up my spine.

  • Raston Bot||

    The only way to get rid of the Vorszag is to fly him into a star.

  • Realist||

    Obama has no plan for anything. He is just another stupid fuck, in a long line of stupid fucks elected by stupid fuck Americans.

  • NotSure||

    The only plan that matters is winning elections.

  • ||

    Weren't "liberals", now "progressives", complaining about our having a wartime economy for many decades?

    This looks like more of a wartime economy, on a grand scale, than anything during the 1970s and 1980s. Compare with the 1940s, when we really had a wartime economy.

  • ||

    Just wait until the war with Iran gets started.

    Enjoy your tour of Tehran!

  • sarcasmic||

    Those same standards do not apply when they are in charge.

  • ||

    Dean Obama: Well, as of this moment, America is on DOUBLE SECRET PROBATION!

  • ||

    Is that like when my brother used to steal money from my coin jar to buy candy, offer me a small piece, then say he couldn't tell me where he got the money?

  • ||

    Yes, but it's more like when the Germans bombed Pearl Harbor.

  • fish||

    .....Germans?

  • Jason Godesky ||

    Forget it, he's rolling.

  • ||

    fish|3.13.12 @ 11:54AM|#
    .....Germans?

    Earth 4.

    Shortly after the Germans captured the Kamchatka Peninsula, thus completing Barbarossa.

  • fish||

    I really should study more history.

  • Barack Obama||

    You can always start trimming spending NOW and bringing it toward convergence with expected revenues.

    Let me be clear.

    My plan is only for dealing with a crisis.

  • Paul||

    These charts would make more sense and be much simpler if on the left percentage scale, instead of putting in all those fancy numbers, they just replaced anything above 100% with "California" and anything above 120% with "Greece".

  • ||

    Obama 2012

    Let's finish what Nixon started!

  • ||

    The Obama team should definitely have a plan of what to do if international markets go haywire due to interest rates spiking.

    I'm pretty sure that "plan" primarily consists of continuing to rely on Bernanke to prop up the bond market.

  • Juice||

    Those Orszag kids' noses are going to be magnificent!

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