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?
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.