Economics

Surprise! Obama has a secret plan to deal with a catastrophic U.S. debt crisis. Here’s what might be in it

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?

73 thoughts on “Surprise! Obama has a secret plan to deal with a catastrophic U.S. debt crisis. Here’s what might be in it

  1. See, right in one you start misleading people. The Obama administration has already passed legislation that reduces spending on the Medicaid and Medicare fronts, but the GOP in Congress insists on trying to stop it by screaming, against the facts, rationing! and death panels!

    There were also hard details included in the deficit reduction plan he and Boehner had tacit agreement on last summer before the Tea Party GOPers in the House scotched that deal.

    You make a lot of good points, but you insist on couching them in misleading misstatements of fact, and it makes it hard to read your stuff. I like reading rational people who disagree with me, but not when they make stuff up.

    • See, right away you start by trusting the people. The Obama administration has refused to pass legislation that reduces spending on the Medicaid and Medicare fronts, but the Liberals in Congress encourage him by screaming, against the facts, and blaming the 1%.

      There were also hard details included in the deficit reduction plan that Obama refused to compromise with Boehner and had tacit agreement on last summer before the flaming liberals in the House scotched that deal.

      You make a lot of good points, and you clearly state the facts. and it makes it easy to read your stuff. I like reading rational people who disagree with me, but especially when they stick to the facts.

    • “There were also hard details included in the deficit reduction plan he and Boehner had tacit agreement on last summer before the Tea Party GOPers in the House scotched that deal.”

      Please for the love of god spell out those details for me. This point gets made a lot, but I have never heard to what Obama was going to agree? Since you seem convinced these details exist, I would love to hear what he supports for entitlement reform. If you cannot provide them, do you not think you are being more than a little misleading…

    • Oh yes, by all means, where are the details to the Grand Bargain that was undermined by Palin and the pitchfork-wielding crazies?

      IOW, they don’t exist, because you made it up out of whole cloth.

      The Democrats want higher taxes because of the notion mummering around Democratic circles that everything was peachy-keen when Ike had the top rate at 80%. Nobody who was really wealthy actually paid the top rate, of course, which was a constant complaint of working people and the middle classes in those days.

      You really don’t get how White Shoe Law Firms got that way, nor how the Ford Foundation or any other of those Foundations which now exist to give money to liberals came into existence, do you?

      They were tax shelters to avoid paying money to that Nasty Mr. Roosevelt.

      Jesus. And these people in the White House now want to drive more money and capital to Asia by introducing a VAT.

    • No, he has not – the best Obama has been able to do is propose to reduce the amount that spending will increase, year after year. A cut is when you spend LESS in one year than you did in a previous year. A cut is not a reduction of 10% spending growth to 7% spending growth.

      • A glaring fact the left love to spin into “savings”. Well this month I only had $800 (from my welfare checks) but I spent $1000 on pichuly oil. So even though I’m in debt for that $200 I’m still going to spend $1070 on pichuly oil next month. Maybe I’ll only spend $1068. Hell yeah, think of all the money I’ll be saving. I wonder what I should spend that $2 in savings on.

    • I’ll say up front that the GOP, just like the Democrats, are hiding their heads in the sand when it comes to the inevitable debt bomb we face. The idea that Obama’s plan will even begin to scratch the surface of how utterly fooked we are is laughable.

      We have $15 trillion in (known) national debt. Let’s also not forget unfunded obligations to Social Security and Medicare, with estimates ranging from $60 to over $100 TRILLION. You can neither grow nor tax your way out of such an immense amount of debt. Taxing the rich doesn’t work, never does. They can afford to hire armies of accountants to shelter their income. Plus there aren’t enough of them.

      We will not begin to solve our problems until we face the truth, that our politicians made promises they knew they couldn’t keep. Promising free health care and pensions to every living senior in this country is impossible, but it sure did buy Congress some votes, didn’t it? The only realistic way out of this mess is to phase out entitlements, which are unconstitutional from a federal standpoint anyway.

      We either do it in an orderly fashion or we do it the messy way, with Congress hitting the hyperdrive button on the printing press and destroying our currency (and our economy) in the process. We then start over with currency backed by precious metals such as gold or silver, which goes a long way to preventing the same thing from happening again.

    • I suggest that you read the OMB and CBO budget reports and see how the plans to reduce Medicaid and Medicare are failures. Rationing or more accurately limiting services is the order of the day.But as Mr. Sullivan noted accurately, government through the collective will of US citizens must learn to stop the madness of the current spending , borrowing taxing cycle. Regulations are killing jobs. Entitlement reform is a failure.

      Every incumbent should be voted out of office.

    • First off, an administration cannot “pass” legislation. Nitpicking, I know. As for budgets, Obama has yet to submit one that either house will pass, and Harry Reid has unequivocally stated that no budget is necessary anyway. ObamaCare was rife with “book-cooking” sleights-of-hand like double-counting savings on MediCare that included cost reduction, yet the Democrats scream that the Republicans are the ones destroying MediCare “as we know it”, which of course is to continue to “talk” about cutting waste but do nothing because it’s a “third rail” with the electorate. So, where is this magical legislation that the Administration “passed”?
      As for the “grand bargain”, as I recall, the bargain collapsed when Obama decided to tack on extra revenue at the last minute.

    • There never was an offer from Obama on Medicare … never … thats coming from Boehner and I’d believe him over Barack “If you like your Health Plan” Obama …

    • Talk about misleading. The Obama legislation (Congress, not a President’s administration, passes legislation) you’re so proud of theoretically saves about six days of total federal spending over the next 3,650 days. I’m sure if you paid $3,644 for a used car that was advertised at $3,650 you wouldn’t feel that impressed with your savings. And anything they do “save” they will simply spend on something else. If you’re dumb enough to believe the government will stay within its proposed budget then you’re dumb enough to vote for a Democrat.

  2. Obama never agreed to anything whatsoever with Boehner. You’re making things up. The Republicans submitted several plans including ones with additional revenue. Obama did not accept any of them and never put forward any alternative plan at all. His hope was for a government shutdown that he could blame on Republicans, like the confrontation that Clinton won with Gingrich. PERIOD.

  3. For Obama’s “secret” plan, just read the words of his advisors:
    Rev. “*&&*” Wright
    Bill “Bomb the bastards” Ayers
    Bernadette Dohrn
    Tony “slumlord” Rezko
    Saul “Target and kill” Alinsky
    Derek “America is inherently racist” Bell
    and the left-approved “legitimate to bring up” advisors:
    Peter “tax the SOB’s” Orzag
    Timothy “I don’t need to pay no stinkin’ tax” Geitner
    Jon “just steal everything from the rich” Corzine
    Allison “let them freeze” Davis
    Cecil “1800 code violations” Butler
    Valerie “I was a federal housing project slumlord” Jarrett

    Judge a man by his friends and acquaintances and we get a very different picture of Obama.

  4. Quasi-socialist government is a failure, and has created economic catastrophe in the US and in Europe. We must handcuff government spending, taxing, borrowing and regulation before they destroy our economy. Their appetite for vote-buying is unlimited.

  5. I think a wealth tax is more likely . It plays to the ‘fairness’ issue all those 1%ers who saved and earned and saved and comes out of conservative pockets . A VAT hits everyone , esp. the young in the process of household formaton,as well as being utterly regressive , have you seen the price of Air Jordans these days ? A wealth tax goes after Obama’s natural enemies the successful and conservative . Collection is fairly efficient , just another 1099 and if you want to play games and pick winners and losers you can exempt investments in connected enterprises ie Solyndra and GM . Just 3-5% of asset values so small , no fuss no muss . And if that’s not enough , it’s so easy to pop the rate a percent or two in times of national emergency , like every other year .What’s not to like ??

    • Wrong. A wealth tax will go after George Soros, Warren Buffett and host of Hollywood bazillionaires. There is absolutely zero chance Obama or any liberal Democrat will ever propose a wealth tax. In fact, what I’d like the GOP to do is make a campaign issue out of it by proposing a 1% tax on all wealth in excess of $10,000,000.00…you just watch that get spiked in Reid’s Senate!

      And, of course, a wealth tax wouldn’t bring in near enough money to remove (at least in Democrat minds) the need to reduce spending. As has been proven again and again, even if we confiscated all wealth over a certain amount, we wouldn’t be able to fund the government for even a year…and then that is just a one-time thing; once you’ve done it, you can’t do it, again. The only place to get vast amounts of money, year in and year out, is out of the middle class. That is why liberal plans to “make the rich pay their fair share” ALWAYS end up hitting the middle class…especially the upper end of it where you find doctors, dentists and small to mid-sized business owners. Think of it like this – you can confiscate Soros’ $40 billion – but that is chump change compared to taking 10% of 125 million people who make, say, $50,000.00 to $500,000.00 per year, year after year.

  6. If I remember correctly Peter Orzag was the one who was going to save all sorts of money in ObamaCare by recognizing that all of the highest health care costs came in the old people’s final years, all those expensive surgeries that didn’t give the old folks very many more years. Not cost effective, just give them pain pills. That’s what “comparative effectiveness research” was all about, and the Independent Payment Advisory Board as well. You pay for the cheap stuff for the healthy young people, and get rid of the old expensive problems. Come to think of it, all of Obama’s major advisers on health care were looking to deal with those who really ran up the bill that way.

  7. Hmmmm…. there is one very significant difference between America and the European and British populations, (those lifeless passive cattle who care only that they receive TV and a modest check from the socialist overseers). Americans own guns. 1 in 4 Americans own a firearm and most gun owners average 4 firearms. The Marxist want to destroy the American bourgoise, but the 2nd Amendment stands in the way. Why crawl over broken glass to support whatever GOP candidate on November 6th? Because The Marxists need only two conservatives seats on SCOTUS to overturn Heller.

    If Obama is re-elected there will be an “incident”, after the MSM perpares the public opinion “battlefield”, setting off an executive order to temporarily stop gun sales and ammo sales, close gun shops and shooting ranges, halt sales of powder, bullets and brass, and stop all private gun transactions, in this country. And that’s the optimistic rosy scenario…. you can only imagine how bad the worst case outcomes.

  8. they’ll do it like they did health care. They wait for (or cause) the catastrophe and then do what they wanted to do in the first place, because A CRISIS IS A TERRIBLE THING TO WASTE. And their response will be what it always: more taxes, more regulation, more spending, more government, less freedom.

  9. The plan is really quite simple: Turn the whole United States into the national equivalent of Detroit.

    It doesn’t matter that the infrastructure falls apart, the services fail, or the city is run by a state-appointed dictator runs the place because the last half dozen mayors are in orange jumpsuits. The Democrats OWN Detroit, and no amount of failure and scandal can change a thing.

    Further damaging the US economy, and the Obamessiah further swells the ranks of the dependent classes which now account for nearly half of the electorate.

    We have one chance this November to head this off.

  10. All of these plans start with the assumption that all existing spending programs must and will be continued at least at current levels forever with inflation adjustments. The only things that are forever are perfect and created by God not by a bunch of corrupt depraved politicians in Washington.

  11. No amount of revenue will solve the problem because the FedGov spends more than a dollar every time they take in a dollar. No matter how many dollars they take in, they will spend even more.

  12. Really. Based upon past performance, I had imagined Mr. Obama’s solution would have involved a contractual obligation executed with a cornute, dapper gent, red of hue and redolent of sulfur with a pronounced distaste for consecrated ground.

  13. In the economic memo from Summers that was leaked some weeks ago, it was revealed that the Obama economic team already before taking power were toying with the idea of a VAT to bring in the money. Unfortunately for them, there would be very little support in Congress for a VAT. The Democrats had their chance in 2009-2010 to push through a VAT along with the health reform, along with tax hikes on the rich and the Buffet Rule. Alas, they did not – because they probably wouldn’t have gotten enough support from their own anyway.

  14. This has been obvious from the start. Obama and his ilk want confiscatory taxes regardless of their effect, good or bad, on the economy and our citizens. He’s actually on record stating he’d approve of a tax hike even if revenue went down. He’s been working for four years to increase the debt and deficit, not to mention entitlement programs, to the point that no amount of economic growth can pay the bills. The only solution will be higher taxes.

  15. It would be my contention that this is all deliberate and calculated – to create a crisis and overwhelm the system (ala Cloward/Piven) in order to topple the system. Whatever their “plan” it is not to ” to send markets a signal that the United States is getting its fiscal house in order, ASAP.” The Left is playing a shell game.

  16. And what will Team O and the Democrats do when they VAT and their wealth tax *still* isn’t enough to balance the budget against the spending they have proposed plus the social insurance and other expenses that are baked in? Who will they demonize then? What source will they tax then?

    And what will they do when their consumption tax is undercut by the reduction in consumption that will occur when they tax it? And how will they explain to the average – not rich – consumer who ends up paying the brunt of his regressive VAT tax?

    What if they get EVERYTHING they want and it doesn’t change the bleak fiscal picture one bit….which is EXACTLY what has gone on in Europe for the last 40+ years? What then?

  17. The commission will put its proposals forward and . . . if (Congress) votes them down and the president then vetoes that bill, they will automatically take effect. Huge change.”
    – - – -

    Uh, yeah. In our switchover from a Constitutional Republic to an “I’ll keep pushing past the Constitution until y’all stop me” Kleptocracy, this defines a new in-your-face atitude on BHO’s part. Or, at least you’d think so, right? Well, it’s not as outrageously Idi Amin-like or Hugo Chavez-like as making recess appointments without worrying about recesses. That one, in fact, still comes out just a hair worse than ignoring his duty to go to Congress if he wants to fight a war somewhere.

    This admin can’t shock us anymore. They’ve stood there watching our faces and smirking as they’ve violated the Constitution’s rules about the President’s power versus Congress’s power, but, in their defense, we’ve let them. The only way we can stop them from claiming that we’ve waived objections and thus established the new presidential powers package will be to roll them back now, while he’s still in office.

  18. Economist Richard Rahn observed a relationship between government spending and GDP growth rate. He found a curve that peaks out at roughly 20% of GDP. Above that level, the economy does not grow as fast.

    At present, government takes more than 40% of GDP, way above the Rahn Curve indicates is best.

    Dan Mitchell of the Center for Freedom and Progress has an excellent video explaining the curve:

  19. Seizing 401K and other retirement savings and replacing them with bs gov’t. junk bonds is also a likelihood. Legislatively, making that argument seems more plausible, and with the lib media providing cover, the feds could even make it sound like a sweet deal.

  20. Obama’s first budget proposal (IIRC FY2010) included $600 billion of revenue from cape and trade fees. Unfortunately (for Obama), that could not get out of the then Democrat controlled house committees.

    I think you are absolutely correct that the Dems want European style taxation to fund a European style entitlement state. They just don’t have the guts say it.

    I think the idea that a financial catastrophe will enable them to do what they want is escapist fiction. They are much more likely to be spitted and roasted.

  21. The secret plan, code name operation kick-the-can-down-the-road, is for the next administration through massive tax increases on anything that moves to 1) balance the budget, 2) then run huge surpluses, 3) then pay off the deficit in one or two years most. So simple, it’s brilliant. Now, conservative who dismiss this are just slanted forehead cro-magnons that need to defer to Obama’s dizzying intellect. Such conservatives are worthy of Obama’s disdain like how he treated Paul Ryan during the healthcare summit sideshow.

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