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Snip here, snip there
Pay raises take a cut
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Bob Moon: First he tried the soft-sell, conciliatory approach. But that didn't seem to work, so this week,
President Obama has drawn a line in the sand when it comes to cutting the deficit. He's now declared that if the GOP won't raise taxes on the rich, any cuts to entitlements will be dead on arrival.
The super committee tasked with slashing the deficit is similarly polarized. Which brings us to this harsh reality: If Democrats and Republicans can't compromise -- and do it by Thanksgiving -- we're in for automatic, indiscriminate cuts. Marketplace's David Gura tells us what that might look and feel like.
David Gura: This is what happens if the super committee can't find a way to cut $1.5 trillion from the deficit.
Ryan McConaghy: A straight, across-the-board slash that'll be split evenly between defense and non-defense programs.
That's Ryan McConaghy. He's with a centrist think tank called Third Way.
McConaghy: You really take a buzz saw to the budget, and wasteful programs and worthwhile ones get cut just the same.
McConaghy says that if there's no deal, a lot is at risk: Salaries for border patrol agents and food inspectors; funding for schools and highways and for the military.
Todd Harrison is with the Center for Strategic and Budgetary Assessments.
Todd Harrison: We're looking at pretty steep and pretty abrupt cuts in things like acquisition funding for weapons systems.
The Pentagon could scale back on peacetime operations -- it could limit the flights pilots take and how long ships stay at sea. Right now, it's hard to say what would would take the biggest hit. But we do know some things are safe. Phill Swagel is with the American Enterprise Institute.
Phill Swagel: Many of the most important programs supporting people with low incomes, supporting those most in need, would be exempt from the cuts. So Medicaid, for example.
Medicare benefits would stay the same, but government payments to providers could change.
The automatic cuts wouldn't take effect until 2013. That leaves plenty of time for a new Congress to throw these rules out the window. That's because one Congress can't dictate spending rules to the next.
In Washington, I'm David Gura for Marketplace.
Republicans insist that only tax and spending cuts along with decreased regulation can save our economy. My question: even if they are right (doubtful) how could their approach work quickly enough to keep the country from going into a deeper recession? Will businesses immediately start hiring once the GOP budget plan is passed? Will people start spending their tax cuts before they get them? Can you explain exactly how their program is supposed to rescue our economy before we fall into a Great Depression?
The proposed tax increases on the wealthy are modest -- historically speaking, Clinton era marginal rates are reasonable given the economic downturn. OTOH, it's actually more efficient (from a revenue generation perspective) to simply tax capital gains at the same rate as ordinary income. Here are charts on long-term trends for both income & capital gains tax rates:
