This is a stunner. In the new book The Escape Artists: How Obama’s Team Fumbled the Recovery, journalist Noam Scheiber uncovers this tantalizing tidbit:
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.
OK, let’s take this step by step:
1. The Obama administration has already conceded it has no long-term plan to deal with rising U.S. debt, driven for the most part by social insurance spending. Testifying before the House Budget Committee recently, Treasury Secretary Tim Geithner told Chairman Paul Ryan the following: “We’re not coming before you to say we have a definitive solution to that long-term problem. What we do know is we don’t like yours.” Even Obama’s ten-year plan doesn’t keep the debt burden from increasing.
2. Yet, apparently, the White House does have a secret plan to deal with a sudden debt crisis. So instead of developing a long-term plan to avoid the worst-case scenario, it has chosen to plan for the worst-case scenario. (This will certainly be a shock to liberal economists like Paul Krugman and Brad DeLong who insist a debt crisis, as evidenced by the current low level of interest rates, is highly unlikely. In fact, they say, we should be borrowing more to boost the economy.)
3. Then there’s this possibility: Maybe the crisis plan is the long-term plan. Maybe it’s something like this: a) do nothing; b) keep implementing the Obama healthcare and environmental agenda; c) wait for markets to finally freak out over rising U.S. debt; d) break the glass and grab the 2009 Orszag plan.
4. And what exactly is in the Orszag memo? Well, as they say in Washington, personnel is policy. Here’s what we know about Orszag, who now works for Citigroup. He thinks America is undertaxed. Elsewhere in Escape Artists, Scheiber writes that “[Orszag] believed the only practical way to balance the budget was to repeal all the Bush tax cuts, not just the upper-income variety.” That is a $4.5 trillion tax hike right off the bat.
And here is Orszag just last month:
… to significantly reduce the deficit over the next decade, additional revenue will be needed. The administration’s budget proposal projects revenue to reach 20 percent of gross domestic product by 2022, about 1 percentage point of GDP more than what is projected with no policy change. The administration deserves credit for proposing even that, given the antipathy to any tax increases. But in the end more revenue will be needed. And since the administration’s budget probably shows the outer limit of what’s plausible in terms of taxing high-income households, the implication is that middle-income households will have to pay more, too.
And how to best tax the middle class? Like most left-of-center economists, Orszag loves the idea of a VAT:
Although hardly anyone wants to admit it, we’re not going to solve our budget problem over the next decade unless revenue is part of the equation. … One possibility would be to establish a new source of revenue, perhaps through revenue-increasing tax reform, and possibly including a modest value-added tax (that is, a V.A.T. of 5 percent to 6 percent). This approach has many potential benefits, including the opportunity to improve our tax code by cutting back on loopholes and shifting toward a consumption-based tax system.
So 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?
Nope, what they will try to do is put an annual tax on the balances of our IRAs, 401(k)s, 403(b)s, pensions, annuities, and taxable mutual fund/stock holdings.
It’s a super-gigantic pot of money and they will not be able to resist the attempt. “Just 1% a year; it’s nothing! Think of the children!”
I hope there are enough Republicans to stop it. On the other hand, I have always wanted to see what 20,000,000 hacked-off taxpayers marching through Washington DC with torches would look like.
Chester I hope you don’t get your wish to see 20 Million hacked off marching through Wash DC . But I fear it just may happen . Dark times are coming.
He doesn’t need Orzag to draft anything… Cloward & Piven already have given him his blue print for everything, from creating the crisis..to what to do once that objective is accomplished.
Only 2 options exists for America if this America Hater wins in 2012… either accept America’s collapse, or Areas of America will have to take control of their own destiny. Unfortunately, I foresee a very traumatic future for America…
never happen, AMERICA will fight to the end, what do we have to do GET OFF OUR BUTTS, ”
AMERICA WILL NEVER SURRENDER OUR LIBERTY…….
Are you for real? Look at the states were democrats have been in control for 30+ years. Americans HAVE ALREADY surrendered their liberties.
No, the only way out of this pickle is going to involve civil unrest and bullets.
The fallacy buried under every suggestion that “we can balance the budget” with tax increases is that for every additional dollar Congress is given to spend, it spends about $1.40. That’s been the road to ruin for this nation ever since World War II. It’s high time we got off it.
The new “hockey stick” graph. Congrats, I would like to see your computer model or did you fall asleep with the pencil in your hand.
The CBO’s computer model says its coming. 2027 is the predicted year, so 15 yrs and the crap hits the fan.
That graph is from the White House of all places. It does look like someone fell asleep though, the American electorate!
Look more like a check mark, to approve the creation of an autocratic regime and the termination of democracy and the free market.
No surprise, but I don’t see anyone of the saying CUT SPENDING!
I think President Obama needs to show the country what the plan is before the election. That way we can decide if we like his or the Ryan plan better. I’m pretty sure that won’t happen. And I predict the MSM will never even talk about it. They are complicit to everything he does. When “20,000,000 hacked off taxpayers” do march through Washington DC with torches lets not forget the media that failed us all.
You can think whatever you want. The media will never push, and thus it will never be seen.
“Mr President, we know Sarah Palin isn’t running for any office, but could you spend a moment to discuss how she would ban birth control and kill gay people?”
“What’s your favorite color?”
“Can you discuss how rich Mitt Romney is and how mean his policies will be?”
I have a secret plan to deal with Obama…defeat in the fall!
mark, you stole my line.
Our taxes fund this listing of Federal Entitlement Programs that are never mention by politicians with the subject being “cutting” and for good reason. We have over eleven thousand staff for Congress, shocking huh, and this list of agencies and departments who don’t market a thing that’s taxable. http://www.usa.gov/directory/federal/index.shtml
http://en.wikipedia.org/wiki/Congressional_staff
How on earth could this be s surprise? I wrote two months after Obama’s inauguration that crisis is the health of the state. This administration does not do crisis management, it does management by crisis. On purpose.
Ah the VAT, the Holy Grail of leftists, excuse me, progressives. You better believe they want it. Back in early 2009 they couldn’t stop babbling about it. Best part, if they raise taxes they will promptly raise spending, and the cycle will start all over again. “Baaaa, we need more revenue”.
The Underpants Gnome Economic Plan:
1) Raise taxes and print money
2) ???????
3) Prosperity!
Speaking of, has anyone seen Paul Krugman lately?
Raising taxes won’t work. It’ll stall the economy even worse and, in the case of a VAT, create a huge underground economy. Americans aren’t passive like Europeans. Those higher tax rates would be chasing after less and less income.
What would work would be a terrible period of sky-high inflation that’d reduce our multi-trillion dollar national debt to roughly the cost of a large home. It’s what Germany did to rid themselves of their WWI debts.
Of course, doing that would destroy the more frugal, money-saving members of the middle-class. But hasn’t that long be an objective of liberalism. And it would lead, as it did in 1930s Germany, to a more centralized, more authoritarian government. But that’s one of the central goals of liberalism.
Massive hyperinflation is key reason why liberals fret less about our exploding national debt than you or I.
–Michael W. Perry, author of Chesterton on War and Peace: Battling the Ideas that Led to Nazism and World War II
Google “Hauser’s Law”
They can raise taxes all they want. It won’t make a bit of difference. When tax rates go up, the money gets hidden, or goes unearned, people having better things to do with their time than earn 10 cents on the dollar. You get 18-20% of GDP. You make get a short lived spike in revenue, but peole learn quick.
VAT? Higher rates? Tax 401Ks? Have fun. You won’t get more than 20% of GDP, and you will have reduce the growth in GDP while you do it. Death. Spiral.
They are inflating the money you have in the 401K now. Its already being taxed out of there with printing. If this goes south, they may get more drastic. In Argentina’s crisis, they took the pensions and retirement accounts and just siezed them during the bank holiday. They have already heard testimony in congress suggesting our 401 and IRA be “reinvested” in treasuries – you know, just like how the Social Security surpluses were “invested”
And no, the SHTF event is not in 10 or 20 years. Its in the next 5. Do the math yourself. Learn about LTRO, dollar swaps and the CDS exposure in Europe. Learn about U.S. unfunded liabilities. We are already way beyond Greek levels of debt, but unlike Greece, we have a printing press. There is no political solution pssible at this point. The politicans know this, and are enriching themselves and buddies in the short time we hae left. Prepare accordingly.
its crystal clear they won’t cut spending.
It’s a feature, not a bug. When the health care act was passed my initial thought was that the main objective was not effective health care but political control. In the same vein, one consequence of rising budget deficits ad infinitum is greater federal spending hence more political control – more rent seekers, for starters.
Why should the Federal government have any debt at all (beyond a very low, short term one in emergencies)?
Pay for what you want and forego anything you can pay for with current revenues. That’s the only moral, practical plan. The rest is just disguised embezzlement.
Let’s not get carried away. You really do need some level of US government debt outstanding to enable the proper functioning of the financial system. Banks and corporations need someplace to stash short-term cash (maybe overnight) without worrying about liquidity, credit risk or basically anything else. It is very convenient to have a large volume of highly marketable, near cash equivalent paper out there for many purposes. What we have now is God’s plenty, however, so they can stop any time.
I respectfully disagree. If banks and other companies require a service they’re perfectly capable of creating and maintaining it without the involvement of the Federal government. Just as one response: there is no way to eliminate credit risk – risk is inherent in being alive and functioning, so is inherent in all business transactions.
Unless the geniuses out law cash no scam of theirs will work. Tax evasion is the national pastime in Greece and Italy. In the meantime why not cut federal civillian salaries, benefits and pensions 25%? Consider that a targeted tax hike.
EXACTLY. The recent scandal with the GSA abuse of lavish spending of tax-payer money is merely the tip of the proverbial iceberg. Wait until the rest of the fiscal skeletons in the closet of our “Representatives” in D.C. come tumbling out. It isn’t going to be pretty. Mass riots, anyone?
I really believe that “not having a plan” is the plan. It’s the Cloward-Piven strategy of intentional economic overload and collapse of a society to implement revolution (or should I say “fundamental transformation”).
“… only practical way to balance the budget was to repeal all the Bush tax cuts, not just the upper-income variety.” That is a $4.5 trillion tax hike right off the bat.”
As usual for the dingbats in DC there is no mention of CUTTING THE STINKING SPENDING.
Toll takers want toll booths everywhere, preferably hidden from public attention.
The REAL question… is the party of stupid stupid enough to support this?
How about it Mr. Speaker? How about it Mr. Romney?
Just how much of a sucker are you?
When I see a single fiscal year when actual, not projected, fed gov spending, falls to its traditional average of 18% of GDP, and if at that point we still have a deficit, then and only then might it be reasonable to consider mixing in some taxes, along with further spending cuts, to make up the difference, and close the remaining deficit. Considering that current spending is about 24% of GDP (4 % more than the maximum amount ever for fed taxes, 20%), that means to get to 18% we would have to cut 6% of GDP, or 25% of the current budget. But until actual spending falls to 18% of GDP, I see no reason at all to consider any tax hikes. Any tax hikes before spending falls to 18% of GDP is just giving another fix to the spendaholics.